Interim Management Statement

13 May 2014

Xchanging plc

Interim Management Statement

Xchanging plc ('Xchanging'), the business process, procurement and technology services provider, today issues its Interim Management Statement covering the period from 1 January 2014 to date.

Current trading

At the time of our full year results announcement on 27 February 2014 we said our aim for this year is "to maintain our current level of operating profit despite the anticipated revenue reduction". To date this year we are making good progress and we are currently trading in line to meet our aim for the year.

We are advancing through our transformation and the incremental expansion of our customer base through selling existing as well as new offerings. We are in a year of transition in this process following the sale of our shareholding in Xchanging Transaction Bank and the close of the BAE Systems HR contract in 2013 together with the changes to the London Metal Exchange relationship at the end of April this year. Importantly, we continue to win new and renewed contracts across all our businesses, and whilst our lower margin legacy revenue is contracting faster than expected, the underlying trend is encouraging. We expect the second half weighting of profit to be greater this year than last year.

The business is in a healthy financial position with a strong balance sheet. We continue to invest for future growth.

Business Performance

In Business Processing Services, we have continued to invest in developing our insurance offerings and in February launched new Risk Data Capture and Binder 360 services. We have secured a three year contract with Lloyd's to provide an elective Claims service, supporting our position in this market.

In our financial services business, we have entered into exclusive discussions with our Enterprise Partner Allianz Global Investors Europe GmbH regarding the transfer to Xchanging of ownership of a final tranche of client accounts, and of overall ownership of the Enterprise Partnership Fondsdepot Bank GmbH. A successful conclusion to these discussions would draw another legacy Enterprise Partnership to a close delivering further simplification to Xchanging's business. Fondsdepot Bank and our Italian Fund Administration business are both seeing improved profitability and this is helping the sector partially offset the effect of exiting the Xchanging Transaction Bank business in 2014.

Our Technology business has made a promising start to the year. We have secured a healthy flow of new and renewed contracts, helping to mitigate the impact of the changes to the London Metal Exchange relationship. In particular, in Malaysia, we have now extended the cloud-based Learning Platform work that we do for the Ministry of Education. We are looking to build on this and take the offering to other geographies.

We continue to invest in further modules for our Xuber insurance software suite. The quality of our Xuber pipeline is developing well and we expect this to provide a sound basis for growth from 2015 onwards.

In March, we extended our interest in the Internet-of-Things ("IoT") market with a $1 million minority equity investment in our existing partner and middleware specialist, MachineShop. We are working with MachineShop to deliver IoT solutions for connected buildings, utilities, logistics and cars.

In Procurement, our online eSourcing business MarketMaker4 is performing in line with our expectations. Its acquisition in late 2013 accelerated our Procurement technology strategy implementation and we are investing this year to deliver the planned synergies. This is helping us to reposition our Procurement business overall and, in particular, to meet the challenge of building a broader customer base in the US market.

Investment for future growth

At the time of our full year results we talked about our plans to invest particularly heavily during 2014 for our future growth. This investment is being focused on a small number of offerings such as Xuber and MarketMaker4 that have the greatest potential and the ability to generate a resumption of growth for Xchanging from 2015 onwards.

We also continue to invest in our internal change programme aimed at developing business efficiencies. To date, we have not only rolled out our new single HR platform in the UK and US, with global completion scheduled during this year, but are also making good progress consolidating our finance function onto one platform. Our IT function has also been undergoing significant restructuring, and work to simplify and standardise our operations is well underway.

Cost reductions arising from our internal change programme will contribute to our aim of maintaining our current level of operating profitability this financial year.

London office move

At the beginning of April, we successfully moved our London office from Leadenhall Street into its new premises in The Walbrook Building, London EC4. The new environment is assisting our ongoing transformation into an innovative and technology-focussed company.

In return for the early surrender of the lease on our previous office in Leadenhall Street, the landlord paid Xchanging £10 million in 2013, and will pay a further £15 million in mid-2014, totalling £25 million before tax. The cash costs associated with the move including capex were approximately £8 million and the balance is being invested largely in our internal change programme referred to above.

Commenting on trading in the first part of the year, Ken Lever, Chief Executive, said: "We continue to build incremental new revenues, with our technology business performing particularly promisingly in the early part of the year. 2014 is an important year for investment in our future and our plans are being actively implemented in each of our business sectors. We have made good progress towards our twin objectives of maintaining profitability in a challenging year and positioning the company for renewed growth in 2015."

The company's Annual General Meeting will take place at 9:30am today at Xchanging's new head office at The Walbrook Building, 25 Walbrook, London EC4N 8AQ.

The next scheduled trading update will be the group's interim results, due to be announced on 31 July 2014.

Enquiries

David Bauernfeind, Chief Financial Officer

Alexandra Hockenhull, Director of Corporate Communications

and Investor Relations

Brian Hudspith

Emma Burdett

Dan Yea

www.xchanging.com

@XchangingGroup

Linkedin/company/xchanging

Cautionary Statement: 

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Xchanging's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.

There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are; increased competition, the loss of or damage to one or more key customer relationships, changes to customer ordering patterns, delays in obtaining customer approval or price level changes, the failure of one or more key suppliers, the outcome of business or industry restructuring, the outcome of any litigation, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in raw material or energy market prices, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, the failure to retain key management, or the key timing and success of future acquisition opportunities or major investment projects.