Proposed Sale of Xchanging Transaction Bank

15 May 2013

Xchanging plc proposed sale of shareholding in

Xchanging Transaction Bank to joint Enterprise Partner Deutsche Bank

Xchanging plc ("Xchanging"), the business process, procurement and technology services provider, announces today that it has signed an agreement (conditional upon Xchanging shareholder and certain other approvals) to sell its 51% shareholding in Xchanging Transaction Bank GmbH and its holding company Xchanging etb GmbH (together "XTB") to its joint Enterprise Partner, Deutsche Bank AG ("Deutsche Bank"). Xchanging will receive total cash amounting to €40.5 million, including estimated cash payable to Xchanging in respect of trading up to the closing of the transaction.

Background to the transaction

Xchanging has been delivering securities processing services to Deutsche Bank through XTB, a strategic partnership established in 2004. Over the period Xchanging has delivered significant cost savings against the starting cost base, invested to achieve transformation of the operations, delivered regulatory changes and transitioned customers onto the securities processing platform, improved service levels and reduced losses from operational errors.

In line with current strategic priorities, Deutsche Bank has now decided that the securities processing services provided by XTB are a core process over which it prefers to have operational control and that this is best achieved by Deutsche Bank acquiring Xchanging's ownership interest in XTB. The transaction will form a part of the overall Deutsche Bank strategy to harmonise the new IT and process platform, to facilitate front-to-back process integration and to reduce complexity.

Effect of the transaction

XTB has a number of service contract arrangements, the largest of which is the service contract for the provision of securities processing to Deutsche Bank. This service contract expires in May 2016 and, in line with Deutsche Bank's current strategic priorities, would not have been renewed.

The transaction announced today effectively provides Xchanging with the cash equivalent of the after tax present value of the remaining cash flows of the service contracts of XTB. As such, it is considered to be value enhancing for Xchanging shareholders, notwithstanding that the transaction will bring forward the earnings dilution that would otherwise have arisen in the future when such contracts were terminated.

During the year ended 31 December 2012, XTB had revenue of £97.4 million and adjusted operating profit of £9.6 million. The gross assets of XTB as at 31 December 2012, excluding its investment in FdB, were £56.8 million.

Continuing relationship

Xchanging will continue to provide services from India to XTB following the transfer of ownership. Deutsche Bank has also agreed to continue to consider Xchanging as a provider of business processing services, procurement services and technology services in the future as such needs arise and where an appropriate commercial arrangement can be agreed. Deutsche Bank and Xchanging are currently considering a number of such opportunities.

Extraction of FondsdepotBank shareholding from XTB prior to sale

XTB has a 51% shareholding in another Enterprise Partnership, FondsdepotBank ("FdB") with Allianz Global Investors GmbH ("AGI"). Immediately prior to the sale of XTB to Deutsche Bank, Xchanging will extract the shareholding in FdB and hold it directly. The XTB transaction is conditional upon the FdB extraction taking place. There are no changes to the AGI 49% shareholding in FdB.

Use of proceeds

The cash proceeds from the sale of the shareholding in XTB will be used partially to pay down the balance remaining on the Group's bank term loan. The rest of the proceeds will be invested to continue to grow Xchanging's businesses.

Strategy

As the market for the provision of business processing and technology services has matured there is a growing trend towards the provision of value added technology-enabled business processing services. Typically contracts are of shorter duration and lower total value. This will have the effect over time of increasing the number of customer relationships in our chosen market sectors and reduce the risks associated with high customer concentration.

As a result of the agreement today, Xchanging's business processing activities in the Financial Services sector will be focussed on our FdB business in Germany, Xchanging Italy and our offshore business in India. We are currently refining and developing the strategies of these businesses and will continue to look for opportunities to grow, either organically or through the acquisition of technology-enabled suppliers of business processes. For example most recently, in November 2012, we acquired AR Enterprise S.r.l. in Italy. This business has now been merged with our existing Italian financial services business Kedrios to form Xchanging Italy.

The sale of the shareholding in XTB (and prior transfer of FdB shares) is subject to Xchanging shareholder and German banking regulatory approval.

Shareholder approval

Deutsche Bank is classified as a related party by the UK Listing Authority as a result of their 49% shareholding in XTB immediately prior to the disposal. The proposed disposal, along with an indemnity that will be given to Deutsche Bank in relation to the extraction of FdB are therefore classified as related party transactions, and in the case of the FdB indemnity a class one transaction by the UK Listing Authority and are therefore conditional on the approval of Xchanging shareholders at a general meeting of Xchanging.

A circular setting out further details of the proposed disposal and indemnity, together with the notice to convene a general meeting and the form of proxy for use at the general meeting, will be posted to Xchanging shareholders as soon as practicable.

Ken Lever, Chief Executive, commented:

"The transaction announced today completes the last substantial strategic element of the Four Part Action Plan launched in 2011. I believe the outcome is positive for both parties as it addresses the strategic preference of Deutsche Bank and provides value to our shareholders. At the same time the transaction provides further financial strength to Xchanging to grow and develop the other areas of our business."

Christian Ricken, Member of the Group Executive Committee, Deutsche Bank

commented: "Xchanging has been a valuable partner since 2004, during which time we have built a strong relationship. We look forward to continuing to work with Xchanging in the future."

David Bauernfeind and Alexandra Hockenhull will host a conference call for analysts and investors to discuss both of today's announcements at 08:00 BST on Wednesday 15 May 2013. The conference call telephone number is +44 (0)1452 555 566 and conference ID is 70790436.

For individuals unable to participate in the conference call, a replay will be available on the following page of the corporate website, http://www.xchanging.com/investors/reports.

Enquiries

Xchanging plc Tel: +44 (0) 207 780 6999

David Bauernfeind, - Chief Financial Officer

Alexandra Hockenhull - Director of Corporate Communications

and Investor Relations

Maitland Tel: +44 (0) 207 379 5151

Brian Hudspith

Emma Burdett

Dan Yea

Xchanging

What we are

Xchanging provides business processing, technology and procurement services internationally for customers across multiple industries.

What we do

Xchanging brings innovation, thought leadership and passion to its customers' businesses so as to enhance performance and value. Our values are embedded into everything we do.

What we want to be

Xchanging wants to be regarded as the best provider in its chosen markets by delivering services that are recognised for outstanding quality, reliability and innovation.

www.xchanging.com

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.