Registered Company Number: 34108659

XCHANGING B.V.

Annual report for the year ended 31 December 2006 XCHANGING B.V.

Annual report for the year ended 31 December 2006

Directors and advisers 1

Directors’ report 2 – 11

Independent auditors’ report 12 – 13

Income statements 14

Statements of recognised income and expense 15

Balance sheets 16

Cash flow statements 17

Notes to the financial statements 18 – 78

Other information 79

XCHANGING B.V. 1

Directors and advisers

Directors

D.W. Andrews S.R.M. Brenninkmeijer A.T. Browne D.C. Hodgson R.A.H. Houghton F.C. Janssen J.J. Maret D.H. Millard N.M.S. Rich CBE J.V.H. Robins T.C. Tinsley

Registered office

34 Leadenhall Street London EC3A 1AX

Independent auditors

PricewaterhouseCoopers Accountants N.V. Thomas R. Malthusstraat 5 1066 JR Amsterdam Netherlands

Solicitors

Clifford Chance Droogbak 1A 1013 GE Amsterdam PO Box 251 1000 AG Amsterdam Netherlands

Bankers

Lloyds TSB Bank Plc City Office Gillingham PO Box 72 Bailey Drive Gillingham Business Park Kent ME8 0LS

XCHANGING B.V. 2

Directors’ report for the year ended 31 December 2006

The directors present their report and the audited financial statements of the group for the year ended 31 December 2006.

Principal activity

The principal activity of the group is business processing services, focusing on increasing the efficiency of complex back-office functions to allow its customers to concentrate on their core operations. The group is engaged in business processing services in human resources, procurement, finance and accounting, insurance and securities processing. The group is also engaged in the development and sale of computer software, mainly for the insurance industry.

Xchanging B.V. is a private limited liability company incorporated in the Netherlands and domiciled in the UK. The principal place of business is 34 Leadenhall Street, London, EC3A 1AX.

Review of business

Business of the group

Xchanging is an international “pure-play” business process outsourcing (BPO) company which operates and enhances complex business processes on behalf of its customers. Xchanging employs around 3,700 people, primarily in the UK, Europe and Asia.

Xchanging uses a unique gain-share partnering model (enterprise partnerships) to tackle large scale complex back office administration, establishing partnerships with its customers in which both Xchanging and the partner share the benefit. Xchanging operates six enterprise partnerships, which are complemented by a number of 100% owned businesses.

Through these enterprise partnerships and 100% owned businesses, Xchanging offers a suite of BPO offerings ranging from fixed price outsourcing to business services, thereby providing a broad choice for its customers.

Xchanging provides its services using a balanced delivery model which encompasses on-site resources, onshore but off-site service centres, and two low cost offshore centres for a number of industries.

The business is structured into three sectors, two industry focused (Insurance and Financial Markets), and one which provides cross industry delivery, such as procurement, HR, and finance (Business Lines). The three operating sectors are supported by central sales and performance management functions, which provide resources and standardised approaches.

Each sector has a stand-alone management structure responsible for the performance of its businesses. However, there is shared service delivery in the areas of procurement, HR, finance and IT hosting to extract scale benefits and ensure consistency of approach.

Due to the long term nature of many of Xchanging’s contracts, much of the group’s revenue comes from contracts already in place at the start of the financial year.

Business environment

Xchanging operates in the global BPO market. According to market analysts, this market is projected to grow at a CAGR of c.14% over the next 4 years. The global opportunity extends to the non-core cost of businesses (the addressable spend). This market was estimated to be $US46.8 billion in 2005 and is forecast to grow. XCHANGING B.V. 3

Directors’ report for the year ended 31 December 2006 (continued)

Strategy

Xchanging has a clear growth strategy. Using its partnering approach, Xchanging seeks to enter new processes, new sectors, and new geographies. It also seeks to expand its existing businesses through new partnerships in adjacent areas, outsourcing contracts, product sales, supply of business services and selected infill acquisitions.

Principal risks and uncertainties

The group has an established risk management framework. Each business and sector maintains a risk register which identifies the significant risks faced and documents the key mitigating controls and procedures in place. Risks that are pervasive or material to the group are documented in the group risk register and are reported to the group audit committee. Among these are:

Off shore competition

Competitors could enter the market using an off shore business model thereby increasing competition. A number of competitors already exist, some operating in sectors in which Xchanging operates. Xchanging has developed its own off shore capability to ensure that arbitrage opportunities are exploited for existing and new business. Xchanging also uses third party off-shore suppliers as appropriate. It should also be noted that Xchanging undertakes processing which for its customers is highly complex and can only be delivered through a balanced on-shore/off-shore model.

Reliance on key customers

Currently the group is reliant on a small number of key customers for a significant portion of revenues and profitability. In 2006, Xchanging’s top ten customers accounted for c. 66% of revenues. Xchanging is therefore dependant on the continued success of its key customers as loss or a significant reduction in business from a key customer would have a material effect on the group. Reliance on a small number of customers could have an adverse impact on Xchanging’s negotiating position but this is mitigated through the win/win structure of the partnership. Xchanging’s continued growth through new partnerships and outsourcing deals, together with acquisitions is expected to reduce the risk to the group.

Delivery of new sales

The group is exposed to the risk of not sustaining the current level of growth through establishing further partnerships and additional major third party customers. This is mitigated by the significant level of resources that the company devotes to sales and the active involvement of senior management in the sales process. Xchanging also manages the business development cycle in a highly structured manner and invests in sales training.

Performance

The group continued to grow in 2006, both in terms of revenue and profitability (profit attributable to Xchanging pre exceptional items). Group revenue increased by 12% in the year to £393m (2005: £350m). This growth was primarily achieved organically with completion of the group’s sixth enterprise partnership and a number of large outsourcing contracts. Additionally, revenue growth was enhanced by the acquisition of two small business services companies during the year.

XCHANGING B.V. 4

Directors’ report for the year ended 31 December 2006 (continued)

Profit after tax attributable to equity holders of the company decreased by 9.5% to £10.7m (2005: £11.8m). This decrease resulted from a number of exceptional costs incurred during the year amounting to £6.9m. These costs related to management and legal restructuring of the group and costs incurred in migrating BPO customers off the Riskwrite underwriting software platform.

Profit after tax attributable to equity holders of the company (pre exceptional items) rose by 33.4% to £15.8m (2005: £11.8m). The tables below present the profit after tax pre exceptional items attributable to equity holders of the company:

2006 2005 £'000 £'000

Profit attributable to equity holders of the company (note 10,718 11,840 26) Exceptional items attributable to equity holders of the 5,074 - company after tax (see below) Profit attributable to equity holders of the company (pre 15,792 11,840 exceptional items)

Calculation of post tax exceptional costs: Exceptional items (note 6) 6,906 - Exceptional items attributable to minority interests (821) - Exceptional items attributable to equity holders of the 6,085 - company Tax on exceptional items (1,011) - Exceptional items attributable to equity holders of the 5,074 - company after tax

Profit after tax attributable to Xchanging (pre exceptional items) improved during the year due to a contracted licence fee from Xchanging Ins-sure Services commencing in April 2006, contribution from the 100% acquisitions, and renegotiation of the procurement contract with BAE increasing Xchanging’s share of Xchanging Procurement Services distributable profit.

The group incurred significant expenditure during 2006 in both the sales and commercial function, and its support infrastructure, strengthening its platform for future growth. As part of this effort a dedicated sales hub was established in the West End of London, providing a central facility for managing the groups sales resources and opportunities.

A business development office was established in Sydney, Australia, to pursue opportunities in the Asia Pacific region. The Australia office signed a five year procurement services contract with BAE Systems Australia, based in Adelaide.

The group invested in implementation of its new enterprise partnership with Aon, Xchanging Broking Services, part of which was capitalised as development assets.

Due to the increasing importance of being able to provide services to customers who report under Sarbanes Oxley requirements, Xchanging has also strengthened its IT Hosting business.

As part of strengthening the group’s global delivery capabilities, Xchanging continued to create a scaleable business processing and IT support capability in India. By the year-end, this operation provided complex processing to all of the sectors with bi-lingual capability in English and German.

XCHANGING B.V. 5

Directors’ report for the year ended 31 December 2006 (continued)

Cash and cash equivalents held by the company reduced by 16.5% to £58.7m (2005: £70.3m). Cash was utilised during the year on the acquisition of Landmark Business Consulting and Ferguson, Snell and Associates. Additionally, working capital was reduced through funding of a majority of the exceptional costs incurred in the year.

Xchanging had a successful sales year, securing its sixth enterprise partnership and contracting a number of large outsourcing deals.

During the year, Xchanging’s insurance business secured an enterprise partnership with Aon Limited (Aon) to strengthen Xchanging’s hold on processing in the London insurance market. This new 10 year enterprise partnership, Xchanging Broking Services, was formed on 1 September 2006 incorporating Aon’s Client Operations division. The new partnership creates a platform for providing administration and processing services to the insurance broking industry.

In addition to the creation of this enterprise partnership, a number of major new deals were completed during the year, which are summarised below:

• Xchanging won a seven year procurement partnership with National Australia Bank UK (NAB UK) to manage indirect spend and provide transactional procurement processing. The contract covers all of the indirect spend transacted by Clydesdale Bank and Yorkshire Bank, both wholly owned subsidiaries of NAB UK. The deal also includes provision of transactional procurement activity, such as order raising and invoice processing, thereby delivering a fully managed procure-to-pay service.

• Xchanging signed a partnering deal with University Hospital Birmingham NHS Foundation Trust (UHB) to provide managed HR and payroll services. This deal, Xchanging’s first in the public sector, combines Xchanging’s business processing services expertise and UHB’s HR and payroll capabilities.

• Xchanging secured a gain-share procurement outsourcing deal with Liberata over five years. The deal covers Liberata’s existing BPO contracts, for which Xchanging will take over procurement of various indirect spend categories. Xchanging will look to grow this contract with Liberata by extending the deal to future Liberata BPO deals.

• Xchanging signed a gain-share procurement outsourcing deal with BAE Systems Australia, in which it will manage A$300m of spend in a number of indirect spend categories over five years.

Xchanging acquired two business services companies during the year, expanding its professional services portfolio in both the Insurance and Business Lines sectors.

• Landmark Business Consulting, an insurance specialist business transformation consultancy, was acquired by Xchanging on 1 January 2006 for £3.4m. The acquisition of Landmark Business Consulting strengthens the Insurance sector’s business advisory and professional services offering to the London insurance market.

• Ferguson, Snell and Associates, an immigration services company, was acquired by Xchanging on 1 April for £6.0m. The acquisition of Ferguson, Snell and Associates strengthens the group’s international HR capabilities by expanding their immigration services to customers across all industry sectors.

XCHANGING B.V. 6

Directors’ report for the year ended 31 December 2006 (continued)

Future developments

The group will continue to grow organically through new partnerships, outsourcing and products and business support services. The group will also make selected infill acquisitions to build on its existing platforms. The group will continue to make implementation investments in current partnerships.

Results and dividends

The profit for the year attributable to equity shareholders was £10,718,000 (2005:11,840,000). The directors do not recommend the payment of a dividend (2005: £nil). The profit for the year has been transferred to reserves.

Research and development

The group incurs development costs in the design of processes and systems that substantially improve those already installed in the enterprise partnerships, which includes business process mapping, process reorganisation and software development.

The amount capitalised in the year in respect of development expenditure was £699,000 (2005: £2,256,000).

Charitable donations

Donations towards various international, national and local charities amounted to £36,722 during the year (2005: £43,096). No donations have been made to political parties.

Post balance sheet events

HR Enterprise Limited

With effect from 1 January 2007, the Xchanging group acquired the remaining 50% minority holding in the HR Enterprise Limited enterprise partnership from BAE Systems plc. This 50% interest was acquired by HR Holdco Limited, a subsidiary of Xchanging B.V.

Post 1 January 2007, BAE Systems plc have no representatives on the HR Enterprise board of directors and have no influence in the business decisions of the entity.

Details of this transaction are given in note 37.

XCHANGING B.V. 7

Directors’ report for the year ended 31 December 2006 (continued)

Directors and their interests

The directors who served during the year to the date of this report were:

D.W. Andrews T.J. Bramley Resigned 28 November 2006 S.R.M. Brenninkmeijer A.T. Browne D.C. Hodgson R.A.H. Houghton F.C. Janssen J.J. Maret D.H. Millard Appointed 26 April 2006 N.S.M. Rich Appointed 28 November 2006 J.V.H. Robins T.C. Tinsley

The beneficial interests of the directors in the share capital of the company at 31 December 2006 are shown below. The company’s register of directors’ interests, which is open to inspection, contains full details of directors’ shareholdings and options to subscribe.

XCHANGING B.V. 8

Directors’ report for the year ended 31 December 2006 (continued)

Shareholdings – ordinary shares

Convertible Common Scheme Class G preference Common class Common class shares of shares of shares of 2006 class D shares A shares of C shares of Euro 0.01 Euro 0.01 Euro 0.01 of Euro 0.01 Euro 0.01 each Euro 0.01 each each each each each D Andrews 1,785,714 1,785,715 3,000,000 - 44,444 - S Brenninkmeijer - - - 62,500 - - A Browne - - 175,000 125,000 3,333 - R Houghton - - 300,000 125,000 3,333 - J Maret - - - - 3,333 90,000 J Robins - - 37,500 62,500 - -

Common Scheme Class G Convertible Common class A Common class shares of shares of shares of preference class 2005 shares of Euro C shares of Euro Euro 0.01 Euro 0.01 Euro 0.01 D shares of Euro 0.01 each 0.01 each each each each 0.01 each D Andrews 1,785,714 1,785,715 3,000,000 - 44,444 - S Brenninkmeijer - - - 62,500 - - A Browne - - 125,500 125,000 3,333 - R Houghton - - 150,000 125,000 3,333 - J Maret - - - - 3,333 - J Robins - - 17,500 62,500 - -

Share options

An analysis of the number of outstanding directors' share options over common shares in the company of Euro 0.01 is set out below:

Under an approved scheme over common shares in the company of Euro 0.01:

Number of options at 1 January Date from During the year At 31 December Exercise 2006 or on which Expiry Director appointment Granted Exercised 2006 price exercisable date

A Browne 21,295 - - 21,295 136.0p 24/11/06 24/11/13 R Houghton 500 - (500) - 207.0p 19/12/04 19/12/11 R Houghton 21,295 - - 21,295 136.0p 24/11/06 24/11/13

XCHANGING B.V. 9

Directors’ report for the year ended 31 December 2006 (continued)

Share options (continued)

Under an unapproved scheme over common shares in the company of Euro 0.01:

Number of options at 1 January At 31 Date from 2006 or on During the year December Exercise which Expiry Director appointment Granted Exercised 2006 price exercisable date

S Brenninkmeijer 12,500 - - 12,500 136.0p 24/11/06 24/11/13 12,500 - -12,500 383.0p 24/11/06 24/11/13 A Browne 49,500 - (49,500) - 207.0p 19/12/04 19/12/11 78,705 - -78,705 136.0p 24/11/06 24/11/13 100,000 - -100,000 383.0p 24/11/06 24/11/13 R Houghton 149,500 - (149,500) - 207.0p 19/12/04 19/12/11 103,705 - -103,705 136.0p 24/11/06 24/11/13 125,000 - -125,000 383.0p 24/11/06 24/11/13 J Maret 62,500 - - 62,500 383.0p 17/08/07 17/08/14 5,000 - -5,000 383.0p 13/12/07 13/12/14 50,000 - -50,000 383.0p 27/04/08 27/04/15 D Millard * 50,000 - - 50,000 550.0p 11/04/09 11/04/16 N Rich * 50,000 - - 50,000 530.0p 19/10/09 19/10/17 J Robins 45,000 - (20,000) 25,000 61.0p 25/07/03 25/07/10 12,500 - -12,500 136.0p 24/11/06 24/11/13 12,500 - -12,500 383.0p 24/11/06 24/11/13

* At date of appointment

None of the other directors held share options during the year.

Minority interests

The minority interests in the group’s subsidiaries at 31 December 2006 are set out as follows:

Minority interest Interest in Xchanging group companies The Corporation of Lloyd’s 25% interest in Ins-sure Holdings Limited 50% interest in Xchanging Claims Services Limited International Underwriting 25% interest in Ins-sure Holdings Limited Association BAE Systems plc 50% interest in Xchanging Procurement Services (Holdco) Limited 50% interest in HR Enterprise Limited Aon Limited 50% interest in Xchanging Broking Services Limited Deutsche Bank AG 44% interest in Xchanging etb GmbH Sal Oppenheim jr. & Cie. KGaA 5% interest in Xchanging etb GmbH

The profits of the Xchanging group companies in which the minorities have an interest are not necessarily shared in proportion to the shareholding interest in that company as each of the above individual enterprise partnerships have a distinct contractual method of profit share.

XCHANGING B.V. 10

Directors’ report for the year ended 31 December 2006 (continued)

Disabled persons

It is the policy of the group to offer appropriate training and career development to disabled persons as far as possible that are identical to other employees, in line with best practice. In the event of a member of staff becoming disabled every effort is made by the group to continue employment and arrange appropriate retraining and offer opportunities for promotion.

Employment policies

The group is committed to employment policies which follow best practice based on equal opportunities for all employees, irrespective of sex, race, colour, disability, marital status, age or religion. The group is also committed to providing employees with information on matters of concern to them on a regular basis, so that the views of employees can be taken into account when making decisions that are likely to affect their interests.

Equal opportunities

The group is committed to the principle of equal opportunities. All decisions relating to employment practices are objective, free from bias and based upon work criteria and individual merit.

Policy on payment of creditors

The company aims to pay suppliers in accordance with the suppliers’ contract terms. The company had an average of 47 day’s purchases (2005: 51 days) outstanding in trade payables.

Policy on financial instruments

The policy with respect to financial instruments is covered in the accounting policy note 2(p).

Financial support of Xchanging UK Limited

The infrastructure and resources of the group are provided by the company’s 100% subsidiary, Xchanging UK Limited. This includes the investment in improved processes and systems for the enterprise partnerships and the business infrastructure to sustain the existing business and its future growth. The obligations of Xchanging UK Limited are wholly supported by Xchanging B.V.

Funding

In January 2004, a convertible loan note of £5 million (2003: £5 million) was issued to Xchanging B.V.’s majority shareholder, General Atlantic Partners LLP, resulting in total convertible loan notes of £10 million. This loan was exchanged for equity in May 2006.

Statement as to disclosure of information to auditors

So far as each of the directors is aware, there is no relevant audit information of which the company’s auditors are unaware; and

Each of the directors has taken all the steps they ought to have taken individually as a director in order to make themselves aware of any relevant audit information and to establish that the company’s auditors are aware of that information.

XCHANGING B.V. 14

Income statements – by function of expense for the year ended 31 December 2006

Group Company Notes 2006 2005 2006 2005 £’000 £’000 £’000 £‘000

Revenue 5 393,495 349,968 - - Cost of sales (348,739) (302,560) - -

Gross profit 44,756 47,408 - - Administrative expenses – other (13,693) (13,221) (337) (431) Administrative expenses – exceptional 6 (6,906) - (3,029) - items Administrative expenses (20,599) (13,221) (3,366) (431)

Operating profit/(loss) 7 24,157 34,187 (3,366) (431)

Income from shares in group undertakings 14 - - 11,524 8,107 Finance costs 9 (8,351) (8,434) (1,109) (1,557) Finance income 9 9,114 8,145 230 313

Profit before taxation 24,920 33,898 7,279 6,432

Taxation 10 (7,476) (11,287) 1,260 273

Profit for the year 17,444 22,611 8,539 6,705

Profit attributable to minority interests 30 6,726 10,771 - - Profit attributable to equity holders of the company 26 10,718 11,840 8,539 6,705 17,444 22,611 8,539 6,705

The notes on pages 18 to 78 form an integral part of these financial statements. XCHANGING B.V. 15

Statements of recognised income and expense for the year ended 31 December 2006

Group Company

Notes 2006 2005 2006 2005

£’000 £’000 £’000 £’000

Profit for the year 17,444 22,611 8,539 6,705

Actuarial (losses)/gains arising from 34 8,017 (180) - - defined benefit pension schemes Movement on deferred tax relating to 10 (2,280) 88 - - pension asset Revaluation of available-for-sale financial 15 (1,470) 179 - - assets Deferred tax on revaluation of available- 10 316 (211) - - for-sale financial assets Deferred tax on share options 10 2,150 - - - Exchange differences 29 (360) 7 - - Net gains/(losses) not recognised in income statement 6,373 (117) - - Total recognised income for the year - attributable to minority interests 7,369 11,320 - - - attributable to equity shareholders 16,448 11,174 8,539 6,705 Total 23,817 22,494 8,539 6,705

The notes on pages 18 to 78 form an integral part of these financial statements.

XCHANGING B.V. 16

Balance sheets as at 31 December 2006

Group Company Notes 2006 2005 2006 2005 £’000 £’000 £’000 £’000 Assets Non-current assets Goodwill 11 29,362 21,132 - - Intangible assets 12 28,471 28,332 - - Property, plant and equipment 13 15,096 11,536 - - Investments in subsidiary undertakings 14 - - 31,284 30,417 Available-for-sale financial assets 15 20,441 22,249 - - Trade and other receivables 16 6,115 4,131 - - Deferred income tax assets 24 16,317 13,508 1,895 - 115,802 100,888 33,179 30,417 Current assets Trade and other receivables 16 74,976 64,455 94,724 84,802 Cash and cash equivalents 17 58,684 70,328 1,269 961 133,660 134,783 95,993 85,763 Liabilities Current liabilities Trade and other payables 18 (80,902) (74,534) (1,320) (204) Current income tax liabilities 19 (7,129) (6,220) (348) (348) Borrowings 20 (3,270) (10,644) - (10,363) Provisions 23 (8,720) (8,395) - -

Net current assets 33,639 34,990 94,325 74,848

Total assets less current liabilities 149,441 135,878 127,504 105,265 Non-current liabilities Trade and other payables 21 (9,764) (8,094) - - Financial liabilities - Borrowings 20 (13,042) (12,303) (13,042) (12,195) - Other liabilities 22 (7,140) - - - Deferred income tax liabilities 21, 24 (2,517) (2,281) (106) (841) Retirement benefit obligations 34 (21,901) (28,512) - - Provisions 23 (9,447) (15,770) - - (63,811) (66,960) (13,148) (13,036)

Net assets 85,630 68,918 114,356 92,229

Shareholders’ equity Ordinary shares 25 221 199 221 199 Share premium 27 82,589 68,163 82,589 68,163 Other reserves 28 1,251 (974) 249 1,604 Retained earnings 26 (10,209) (15,696) 31,297 22,263 Total shareholders’ equity 73,852 51,692 114,356 92,229 Minority interest in equity 30 11,778 17,226 - - Total equity 29 85,630 68,918 114,356 92,229

The notes on pages 18 to 78 form an integral part of these financial statements. XCHANGING B.V. 17

Cash flow statements for the year ended 31 December 2006

Group Company Notes 2006 2005 2006 2005 £’000 £’000 £’000 £’000

Cash flows from operating activities Cash generated from operations 32 29,433 34,510 (9,667) (18,200) Income tax paid (9,404) (6,354) - - Net cash from operating activities 20,029 28,156 (9,667) (18,200)

Cash flows from investing activities Acquisition expenses (115) - - - Acquisition cost of subsidiaries (6,275) - (3,000) - Cash and cash equivalents acquired with 402 - - - subsidiaries Cash invested by minority interests 50 - - - Purchase of property, plant and (8,707) (5,706) - - equipment Purchase of intangible assets (7,027) (15,509) - - Pre-contract expenditure 16 (3,223) (1,007) - - Proceeds from sale of property, plant and 375 1,123 - - equipment Purchase of available-for-sale financial 15 - (21,799) - - assets Interest received 2,846 2,443 165 313 Net cash (used)/generated in investing (21,674) (40,455) (2,835) 313 activities

Cash flows from financing activities Proceeds from issue of shares 1,611 9,996 1,611 9,996 Proceeds from shares not yet issued - 794 - 794 Purchase of own shares - (500) - (500) Transaction costs of shares issued (325) - (325) - Interest paid (43) (258) - - Repayment of borrowings - (27) - - Dividends received from subsidiary - - 11,524 8,107 undertakings Dividend paid to minority interests (11,591) (6,099) - - Net cash from financing activities (10,348) 3,906 12,810 18,397 Effects of exchange rate changes 349 (151) - - Net (decrease)/increase in cash and (11,644) (8,544) 308 510 cash equivalents Cash and cash equivalents at 1 January 70,328 78,872 961 451 Cash and cash equivalents at 31 17 December 58,684 70,328 1,269 961

The notes on pages 18 to 78 form an integral part of these financial statements. XCHANGING B.V. 18

Notes to the financial statements for the year ended 31 December 2006

1 General information

Xchanging B.V. and its subsidiaries engage in business processing services, specialising in increasing the efficiency of complex back-office functions to allow their customers to concentrate on their core operations. The group is engaged in business processing services in human resources, procurement, customer administration, finance and accounting and securities processing, and also in the development and sale of computer software packages, mainly for the insurance industry.

The company is a private limited liability company incorporated in the Netherlands and domiciled in the UK. The principal place of business is 34 Leadenhall Street, London, EC3A 1AX. Details of the ultimate controlling parties are contained in note 35.

These company and consolidated financial statements were authorised for issue by the Board of Directors on 26 February 2007.

2 Principal accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to both years presented, unless otherwise stated.

(a) Basis of preparation of the financial statements

These financial statements have been prepared in accordance with EU endorsed International Financial Reporting Standards, IFRIC interpretations and with those parts of the Companies Act 1985 and Book 2 Title 9 of the Dutch Civil Code applicable to companies reporting under IFRS.

Both the functional currency and the presentation currency of the financial statements is sterling due to the company and group being managed in the UK and the majority of transactions being denominated in sterling.

The financial statements have been prepared under the historical cost convention as modified by the revaluation of available for sale investments, financial assets and liabilities held for trading. A summary of the more important group accounting policies is set out below, together with an explanation of where changes have been made to previous policies on the adoption of new accounting standards in the year.

The preparation of financial statements in conformity with EU endorsed IFRS requires the use of judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. The accounting policy descriptions set out the areas where significant judgements, estimates and assumptions have been made.

(i) Amendments to published standards effective in 2006

IAS 19 (Amendment), 'Employee benefits', is mandatory for accounting periods beginning on or after 1 January 2006. As the group early adopted this amendment in the prior year, the impact of the amendment on the current year is minimal. XCHANGING B.V. 19

Notes to the financial statements for the year ended 31 December 2006 (continued)

(ii) Standards, amendments and interpretations effective in 2006 but not relevant

The following standards, amendments and interpretations are mandatory for accounting periods beginning on or after 1 January 2006 but are not relevant to the group’s operations:

• IAS 39 (Amendment), Cash flow hedge accounting of forecast intragroup transactions; • IAS 39 (Amendment), The fair value option; • IAS 39 and IFRS 4 (Amendment), Financial guarantee contracts; • IFRS 6, Exploration for and evaluation of mineral resources; • IFRIC 5, Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds; and • IFRIC 6, Liabilities arising from participating in a specific market – Waste electrical and electronic equipment.

(iii) Interpretations to existing standards that are not yet effective and have not been early adopted by the group

The following interpretations to existing standards have been published that are mandatory for the group’s future accounting but which the group has not early adopted:

• IFRIC 10, Interim Financial Reporting and Impairment (effective for accounting periods beginning on or after 1 May 2006); and • IFRS 7 Financial Instruments: Disclosure (effective for accounting periods beginning on or after 1 January 2007).

(iv) Interpretations to existing standards that are not yet effective and not relevant for the group’s operations

The following interpretations to existing standards have been published that are mandatory for the group’s accounting periods beginning on or after 1 May 2006 or later periods but are not relevant for the group’s operations:

• IFRS 8, Operating segments; • IFRIC 7, Applying the restatement approach under IAS 29, Financial reporting in hyperinflationary economies; • IFRIC 8 Scope of IFRS 2; • IFRIC 9, Reassessment of embedded derivatives; • IFRIC 11, IFRS 2 – Group and treasury share transactions; and • IFRIC 12, Service concession arrangements.

(b) Basis of consolidation

The group financial statements consolidate those of the company and all of its subsidiary undertakings. Subsidiary undertakings include those companies in which the company has a 50% equity stake, commonly referred to by the directors as “enterprise partnerships”, but over which the company has overall operational and financial control.

Interests acquired in subsidiary undertakings are consolidated from the date control passes to the acquirer. Transactions and balances between group companies are eliminated. The interest of minority shareholders in the balance sheet is stated at the minority’s proportion of the book value of the assets and liabilities recognised.

(c) Business combinations

Business combinations are accounted for under IFRS 3. A business combination is deemed to have occurred where the group acquires a third party business, either in whole or in part so that it obtains control of that business. The assets and liabilities acquired with the business are fair valued on the date of acquisition and any difference between the fair value of purchase consideration (and direct expenses of acquisition) and the fair value of the net assets, including intangibles, is recognised as goodwill. XCHANGING B.V. 20

Notes to the financial statements for the year ended 31 December 2006 (continued)

(d) Revenue recognition

Group revenue, which excludes value added tax, rebates and discounts, comprises the value of services provided for customer administration, human resources, procurement services, securities processing and software sales.

The group provides administration services to the insurance market, from which there are three principal sources of revenue. These, together with the bases of revenue recognition are set out below:

(i) Revenue in respect of the provision of administration services comprises amounts receivable for subscription fees, a transaction charge for the provision of administration services and other ad hoc services. Subscription fees are recognised in the income statement on a straight- line basis according to the period to which they relate. Transactional revenue for these services is recognised in the period in which the transaction takes place. Ad-hoc revenue is recognised in the period in which the service is provided.

(ii) Revenue in respect of business process services contracts is divided into an implementation phase and a service provision phase. Revenue in respect of the implementation phase is accounted for on a long-term contract basis. Revenue and attributable profit is recognised on a percentage completion basis representing the stage of completion of contractual obligations. Revenue in respect of the provision of post-implementation administration services to business process services customers is recognised in the period to which the service relates.

(iii) Revenue in respect of the rental or maintenance of computer software programs is recognised as earned. Billings are included in trade debtors in accordance with the terms of the relevant rental or maintenance contract. To the extent that billings are recorded in advance of the relevant revenue, such advance billings are included in deferred income. The income arising from the sale of an initial licence is recognised over the period of implementation of the software.

Revenue from the provision of securities processing services is recognised on a straight-line basis according to the period to which the service relates, net of guaranteed rebates to customers.

Revenue from the provision of human resources services is recognised on a straight-line basis according to the period to which the service relates, net of guaranteed rebates to customers. Revenue from other HR services is recognised only when all obligations are fulfilled.

Revenue from the provision of procurement services is recognised on a gross basis where the group is responsible for the whole supply chain process and associated business process from end-to-end. Where the group acts as an agent, revenue is recognised on a net basis. Revenue is recognised on a straight- line basis, net of guaranteed rebates to customers, according to the period to which the service relates and only when all obligations are fulfilled.

(e) Finance costs

Finance costs are charged to the income statement using the effective interest rate method.

(f) Finance income

Interest income is reported in the income statement as it arises through the application of the effective interest rate method.

(g) Income from shares in group undertakings

Dividend income is recognised when the right to receive payment is established after the dividend has been approved and is no longer at the subsidiary’s discretion. This policy relates only to the company and not the group. XCHANGING B.V. 21

Notes to the financial statements for the year ended 31 December 2006 (continued)

(h) Dividend distribution

Dividend distribution to the company’s shareholders is recognised as a liability in the group’s financial statements in the period in which the dividends are approved by the company’s shareholders.

(i) Foreign currency transactions

(i) Functional and presentation currency

Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in pounds sterling which is the company’s functional and presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Translation differences on non-monetary financial assets such as equities classified as available for sale are included in the fair value reserve in equity.

(iii) Group companies

The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and • all resulting exchange differences are recognised as a separate component of equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(j) Goodwill

Goodwill, arising from the purchase of subsidiary undertakings, represents the excess of the fair value of the consideration paid over the fair value of the identifiable net assets (including intangible assets) acquired. Goodwill is capitalised as an intangible asset. Impairment reviews are performed annually to ensure the present value of estimated future net income streams from the associated contracts, being the cash generating units to which the goodwill is allocated, and discounted using discount rates specific to each sector, exceeds the goodwill capitalised. XCHANGING B.V. 22

Notes to the financial statements for the year ended 31 December 2006 (continued)

(k) Intangible assets

Development costs are stated at cost less a provision for amortisation and any provision for impairment. Research costs are expensed as incurred.

Costs incurred during the development period of new contracts, including the costs of process and system designs that substantially improve those processes and systems already installed in the enterprise partnerships, are treated as development costs. These costs are capitalised. Costs that are capitalised comprise directly attributable incremental costs incurred during the development period, including wages and salaries of staff employed solely for the purpose of improving the processes and systems, and third party costs.

Development costs do not include restructuring costs, (including redundancy, early termination penalties and such like), which are expensed to the income statement as they are incurred.

Amortisation of development costs occurs on a straight line basis over the life of the contract to which they relate (between 6 and 12 years). This period represents the useful life of the intangible asset.

Software costs are capitalised where they meet the criteria for recognition under IAS 38. Where the criteria for capitalisation are not met, software development expenditure is expensed as incurred.

Software development costs are amortised on a straight line basis at an annual rate of 20% or over the life of the related contract, if longer, so as to write off the asset cost on a straight-line basis over the expected useful economic life.

Subsequent expenditure undertaken to ensure that an asset maintains its previously assessed standard of performance, for example routine repairs and maintenance expenditure, is recognised in the income statement as it is incurred. Where subsequent expenditure significantly enhances an asset, this is capitalised.

Contractual customer relationships are capitalised on acquisition where they meet the criteria for recognition under IFRS 3 and IAS 38. Amortisation of customer contractual relationships occurs in line with when future value is expected to be earned, which is between one and seven years.

(l) Negative goodwill

Where the fair value of the separable net assets exceeds the fair value of the consideration for an acquired undertaking the difference is treated as negative goodwill and is taken to the income statement in the year of acquisition.

(m) Property, plant and equipment

The cost of tangible fixed assets is their purchase cost, together with any incidental costs of acquisition.

Assets in the course of development are not depreciated until completion at which point they are transferred to the relevant fixed asset category.

Depreciation is calculated so as to write off the cost of tangible fixed assets, less their estimated residual values, on a straight-line basis over the expected useful economic lives of the assets concerned. The principal annual rates used for this purpose are:

Computer equipment 20 - 33% Fixtures and fittings 10 - 25% Leasehold improvements over the period of the lease Motor vehicles 25% XCHANGING B.V. 23

Notes to the financial statements for the year ended 31 December 2006 (continued)

(n) Impairment of tangible and intangible assets

At each balance sheet date, management reviews its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. Intangible assets are reviewed if a trigger event is deemed to have happened. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.

(o) Fixed asset investments - company

Fixed asset investments are stated at cost less any provision for impairment.

(p) Financial instruments

(i) Financial assets

The group classifies its financial assets in the following categories: loans and receivables and available for sale. The classification depends on the purpose for which the financial assets were acquired. The group determines the classification of its financial assets at initial recognition.

• Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non- current assets. Loans and receivables are classified as ‘trade and other receivables’ in the balance sheet (note 2 (r)).

• Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Available-for- sale financial assets are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. XCHANGING B.V. 24

Notes to the financial statements for the year ended 31 December 2006 (continued)

(p) Financial instruments (continued)

Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognised in equity.

When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as ‘gains and losses from investment securities’.

Dividends on available-for-sale equity instruments are recognised in the income statement as part of finance income when the group’s right to receive payments is established.

The fair values of quoted investments are based on current bid prices.

The group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. Impairment testing of trade receivables is described in note (r).

(ii) Convertible debt

Short term and long term convertible loans are classified as loans and are separated into debt and equity elements upon initial recognition. The liability is measured at amortised cost using the effective interest rate method. The effective interest rate is the market rate in effect at the date of inception of the instrument.

The initial carrying amount is then accreted over the expected life of the instrument to the face amount payable on maturity.

The equity element is recognised directly in the equity reserves and not subsequently re-measured during the life of the instrument.

On conversion of the convertible debt, the fair value of the liability together with the portion recognised in equity is transferred to share capital and share premium.

(q) Put options granted to minority shareholders

In accordance with IAS 32, when minority interests hold put options that enable them to sell their investments to the group, the net present value of the future payment is reflected as a financial liability in the consolidated balance sheet. At the end of each period, the valuation of the liability is reassessed with any changes recognised in the income statement for the period. XCHANGING B.V. 25

Notes to the financial statements for the year ended 31 December 2006 (continued)

(r) Trade and other receivables

Trade and other receivables are recognised at fair value and subsequently measured at amortised cost less provision for impairment.

Pre-contract costs comprise legal and other professional expenses and other directly attributable staff costs incurred in order to obtain specific customer contracts. Costs that are directly attributable to a contract are capitalised when it is virtually certain that the contract will be awarded and the contract will result in future net cash inflows with a present value at least equal to all amounts recognised as an asset.

Pre-contract costs are included within trade and other receivables and are amortised over the life of the contract, starting from the date when the contract commences.

(s) Cash and cash equivalents

Cash and cash equivalents include cash in hand, demand deposits and short term highly liquid investments which are readily convertible to cash and are subject to minimal risk of changes in value.

(t) Trade and other payables

Trade and other payables are recognised at fair value and subsequently measured at amortised cost.

(u) Operating and finance leases

Rental costs under operating leases are charged to the income statement on a straight-line basis over the lease term. Lease incentives provided by lessors to the group are amortised over the lease term together with any related costs of acquiring the lease.

Assets held under finance leases are initially reported at the lower of the fair value of the assets and the present value of minimum lease payments with an equivalent liability categorised as appropriate under liabilities due within or after one year. The asset is depreciated over the shorter of the lease term and its useful economic life. Finance charges are allocated to accounting periods over the period of the lease to produce a constant rate of return on the outstanding balance.

(v) Taxation including deferred taxation

Current tax is recognised at the amount expected to be paid (or recovered from) the taxation authorities using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date.

Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more, or a right to pay less, tax in the future have occurred at the balance sheet date. Deferred tax assets are regarded as recoverable and therefore recognised, only when, on the basis of all available evidence, the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be deducted.

(w) Employee benefit costs

(i) Pension obligations

The group operates, or participates in, both defined contribution and defined benefit pension schemes. All the pension schemes are accounted for in accordance with IAS 19.

Professional independent actuaries value the defined benefit schemes triennially and the valuations were updated at the year-end. The directors believe that this is sufficiently regular so that the amounts do not differ materially from expectations at the year end. XCHANGING B.V. 26

Notes to the financial statements for the year ended 31 December 2006 (continued)

(w) Employee benefit costs (continued)

Scheme assets are measured using closing market values at the balance sheet date. Pension scheme liabilities are measured using the projected unit method and discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. Variations between the scheme assets and liabilities identified as a result of these actuarial valuations (actuarial gains and loses) are recognised in full through the statement of recognised income and expense (SORIE) in that year. Current service costs, expected returns on plan assets and interest costs are charged to the income statement. Past-service costs are recognised immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period.

The group participates in a number of defined benefit schemes which are multi employer schemes and where insufficient information exists to be able to account for the schemes as defined benefit plans as there is no consistent and reliable basis for allocating the obligations, plan assets and costs to individual entities participating in these schemes. In accordance with IAS 19 such schemes are accounted for as defined contribution schemes and contributions are charged to the income statement as incurred.

Contributions to the defined contribution schemes are charged to the income statement as incurred.

(ii) Share based compensation

The group operates a number of equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

(x) Provisions

Provisions are recognised when a present obligation exists as the result of a past event and it is probable that this will result in an outflow of economic benefit, the size of which can be reliably estimated. Where the provision is long term, such as onerous contract provisions where the unavoidable costs of meeting obligations exceed any economic benefits expected to be received, the net cash flows are discounted using the group’s appropriate pre-tax discount rate.

Restructuring provisions are only recognised if an obligation exists at the balance sheet date i.e. a formal plan exists and those affected by that plan have a valid expectation that the restructuring will be carried out.

(y) Share capital

Share capital comprises the nominal value of all issued shares. On subscribing for shares any excess consideration over the nominal value of the shares issued less any issue costs is credited to the share premium account.

(z) Fair value estimation

The fair values of short-term loans and overdrafts with a maturity of less than one year are assumed to approximate to their book values. For loans due in more than one year the fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the market interest rate available to the group for similar financial instruments. The fair value for available for sale investments is based on their quoted market price. XCHANGING B.V. 27

Notes to the financial statements for the year ended 31 December 2006 (continued)

(aa) Exceptional items

Exceptional items are events or transactions that fall within the activities of the group, and, which by virtue of their size or incidence, have been disclosed in order to improve a reader’s understanding of the financial statements.

3 Financial risk management

The company’s operations expose it to a variety of financial risks. The group manages these risks under financial risk management policies, which the Board reviews and agrees. These policies are regularly reviewed. The group’s financial instruments comprise borrowings, cash and liquid resources and various items, such as trade receivables and trade payables that arise directly from its operations. The group also enters into derivative transactions (principally forward foreign currency contract options). The purpose of such transactions is to hedge certain currency risks arising from the group’s operations.

It is the group’s policy that no trading in financial instruments or speculative transactions be undertaken.

Interest rate risk

The group reviews its interest rate profile against acceptable risk profiles.

Currently the group has a number of letters of credit, with interest rates on a fixed basis. The group considers debt financing on a case by case basis, assessing variable rate versus fixed rate proposals based on value and term of the facility and projected economic conditions.

Working capital is generally held in variable rate operational accounts, with surplus cash placed on fixed rate short term deposits.

Foreign exchange risk

The group’s international operations expose the group to foreign exchange risk. The group currently operates in a number of foreign currencies (Euro, US Dollar, Indian Rupee, Australian Dollar, Malaysian Ringgit and Thai Baht), of which the only significant transactional foreign currency cash flow exposure is Euros. These cash flows may be hedged using forward foreign contracts or currency options/swaps. The group’s policy is to hedge a proportion of the exchange rate risk on these transactions to leave an acceptable level of risk. The hedging policy adopted does not currently meet the criteria for hedge accounting under IAS 39.

Liquidity risk

The group actively manages its liquidity risk through cash management, including detailed weekly short term and monthly long term cash flow forecasting, which support regular reviews of funding strategies. The group’s policy is to ensure that all projected borrowing needs are covered by committed facilities.

Market risk

The group holds listed investments (CAD IT). These investments are reviewed on a regular basis as to their suitability according to the group’s risk profile.

Credit risk

The group has a concentration of credit risk with respect to trade receivables due to the nature and structure of the enterprise partnerships. Credit risk assessments are performed when signing up to a new enterprise partnership and for new customers.

Commodity Risk

Commodity risk is not considered to be applicable to the group as the group does not perform material transactions of commodities. XCHANGING B.V. 28

Notes to the financial statements for the year ended 31 December 2006 (continued)

4 Critical accounting judgments

The group’s principal accounting policies are set out in note 2 to these financial statements. Management is required to exercise significant judgement and make use of estimates and assumptions in the application of these policies.

Areas which management believes require the most critical accounting judgements are:

(i) Retirement benefit obligations The group operates a number of defined benefit plans. The retirement benefit obligations recorded are based on actuarial assumptions, including discount rates, expected long-term rate of return on plan assets, inflation and mortality rates. The assumptions are based on current market conditions, historical information and consultation with and input from actuaries. Management reviews these assumptions annually. If they change, or if actual experience is different from the assumptions, the funding status of the plan will change and the retirement benefit obligation will be adjusted accordingly. The assumptions used are detailed in note 34.

Xchanging participates in various BAE Systems pension schemes and in the Lloyd’s Pension Scheme. The terms on which Xchanging participates in these schemes give Xchanging protection against being required to fund future deficits that arise in the schemes, and against future exit debts that may fall on withdrawal from these schemes. However, in the event of BAE or Lloyd’s becoming insolvent, there is a risk that Xchanging could become liable to fund the wider pension schemes of these companies, which would result in a significant exposure should these events occur. The directors consider that the risk of either of these events is extremely remote and consequently the schemes are accounted for as defined contribution schemes as per note 34.

(ii) Estimated impairment of goodwill The group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in 2(j). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates (see note 11).

(iii) Exceptional items The directors consider that items of income or expense which are material and non-recurring by virtue of their nature and amount should be disclosed separately if the financial statements are to fairly present the financial position and financial performance of the group. The directors label these items collectively as “exceptional items”.

(iv) Calculation of cost and appropriate amortisation period The original cost of developed assets includes project development costs (including appropriate direct internal costs) which are capitalised from the point that it is virtually certain that the project will proceed to completion. The directors consider that this point of virtual certainty is reached when the memorandum of understanding related to the contract is signed by all parties involved.

Depreciation of these developed assets is charged so as to write down the value of the asset to its residual value over its estimated useful life.

XCHANGING B.V. 29

Notes to the financial statements for the year ended 31 December 2006 (continued)

4 Critical accounting judgments (continued)

(v) Taxation The level of tax provisioning is dependent on subjective judgement as to the outcome of decisions to be made by the relevant tax authorities.

It is necessary to consider the extent to which deferred tax assets should be recognised based on an assessment of the extent to which they are regarded as recoverable.

(vi) Assumptions on put options Two put options are accounted for as financial liabilities under paragraph 23 of IAS 32. These liabilities are measured at the fair value of the future cash flows associated with them. The levels of these cash flows and the relevant discount rates used in the fair value calculations are based on future projections and incorporate a certain element of management judgement.

XCHANGING B.V. 30

Notes to the financial statements for the year ended 31 December 2006 (continued)

5 Analysis of revenue by category and geographical destination

Revenue by category 2006 2005 £’000 £’000

Revenue from services 389,620 346,386 Sale of goods 3,875 3,582 393,495 349,968

Revenue by geographical destination 2006 2005 £’000 £’000

United Kingdom 288,395 224,482 Continental Europe 99,835 118,276 Rest of the world 5,265 7,210 393,495 349,968

6 Expenses by nature

Group Note 2006 2005 £’000 £’000

Cost of goods and services directly related to sales 105,000 84,003 Direct staff costs 8 142,839 135,018 Other staff related costs 24,582 19,999 Technology and communications 47,393 46,251 Property costs 20,911 17,197 Depreciation, amortisation and impairment charges 13,156 9,741 Other costs 8,551 3,572 Exceptional items 6,906 - Total cost of sales and administrative expenses 369,338 315,781

Exceptional costs comprise the following:

Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000

Legal and professional fees in relation to group restructuring 3,398 - 3,029 - Staff costs relating to group restructuring 1,866 - - - Costs incurred migrating customers onto new software package 1,642 - - - Total exceptional items 6,906 - 3,029 -

XCHANGING B.V. 31

Notes to the financial statements for the year ended 31 December 2006 (continued)

7 Operating profit

Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000 Operating profit/(loss) is stated after charging/(crediting): Staff costs (note 8) 142,839 135,018 - - Exceptional items (note 6) 6,906 - 3,029 - Depreciation of property, plant and equipment - owned assets (note 13) 4,554 3,814 - - - assets held under finance leases (note 13) 180 111 - - Net amortisation of intangible assets (note 12) 7,541 5,132 - - Amortisation of pre-contract costs (note 16) 881 684 - - Release of unutilised restructuring provision (1,022) - - - Impairment of trade receivables 209 514 - - Operating leases - land and buildings 10,493 9,187 - - - plant and machinery 667 787 - - Foreign exchange loss 438 155 96 72 Loss on disposal of fixed assets 45 126 - - Auditors’ remuneration - audit services 838 659 88 98 - non-audit services 1,862 763 77 242

Fees payable to the group’s auditors in the year were as follows:

2006 2005 £’000 £’000 Audit services Fees payable to the company’s auditors for the audit of the parent and consolidated accounts 193 98

Fees payable to the company’s auditors for other services The audit of the company’s subsidiaries 645 561 Other services pursuant to legislation 704 686 Tax services 254 77 Valuation and actuarial services 272 - Transaction related services 632 - 2,700 1,422

Fees payable to the company’s auditors for non-audit services to the company itself are not disclosed in these accounts, as the company’s consolidated accounts are required to disclose such fees on a consolidated basis.

XCHANGING B.V. 32

Notes to the financial statements for the year ended 31 December 2006 (continued)

8 Employees and directors

Notes 2006 2005 £’000 £’000 Staff costs for the group during the year Wages and salaries 120,440 112,384 Social security costs 14,653 13,401 Other pension costs – defined contribution schemes 4,270 5,824 Other pension costs – defined benefit schemes 3,478 3,958 Share based payments 25a 495 368 143,336 135,935

Staff costs included within exceptional costs Staff costs relating to group restructuring 6 1,866 -

Included within: Operating expenses 7 142,839 135,018 Finance costs 497 917 143,336 135,935

2006 2005 Number Number Average number of persons (including executive directors) employed by business group Business lines 666 579 Insurance 986 746 Financial services 796 862 Other 1,001 929 3,449 3,116

All employees work outside the Netherlands.

The company does not have any employees.

2006 2005 £’000 £’000 Key management compensation Salaries and short term employee benefits 3,791 5,070 Post-employment benefits 22 6 Termination benefits 410 - Share based payments 284 156 4,507 5,232

The key management figures given above include the Xchanging B.V. directors and all members of the Xchanging Executive Committee, which comprises the key members of executive management.

XCHANGING B.V. 33

Notes to the financial statements for the year ended 31 December 2006 (continued)

8 Employees and directors (continued)

Directors 2006 2005 £’000 £’000

Aggregate emoluments 1,409 1,652

Highest paid director

Aggregate emoluments 501 902

No directors accrued any pension benefits under defined contribution or defined benefit schemes.

Three directors exercised share options during the year (2005: nil).

The directors emoluments’ disclosed above include those of directors who resigned during the year.

9 Finance costs and income

Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000 Finance costs: Interest payable on shareholder loan and convertible loan note (note 20) (1,109) (1,557) (1,109) (1,557) Interest payable on bank loans and overdrafts (6) (45) - - Interest cost on defined benefit pension schemes (6,765) (6,619) - - Imputed interest on deferred consideration re acquisitions (256) - - - Imputed interest on put option to acquire minority interest (174) - - - Interest payable on finance leases (8) (35) - - Other interest payable (33) (178) - - Finance costs (8,351) (8,434) (1,109) (1,557) Finance income: Bank interest 2,700 2,443 165 296 Expected return on plan assets - defined benefit pension schemes 6,268 5,702 - - Intercompany interest - - 65 Dividends received on available for sale assets 107 - - - Other interest 39 - - 17 Finance income 9,114 8,145 230 313

Finance income/(costs) - net 763 (289) (879) (1,244)

10 Taxation

Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000 Analysis of charge/(credit) in period Current tax 9,927 9,948 33 (35) Deferred tax (2,451) 1,339 (1,293) (238)

7,476 11,287 (1,260) (273) XCHANGING B.V. 34

Notes to the financial statements for the year ended 31 December 2006 (continued)

10 Taxation (continued)

Tax on items charged to equity

Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000

Deferred tax on available for sale assets (316) 211 - - Deferred tax on pension 2,280 (88) - - Deferred tax on put options 910 - - - Deferred tax on share options (2,150) - - - Deferred tax on convertible debt (1,178) - (1,178) - Tax (credited)/charged to equity (454) 123 (1,178) -

Factors affecting the current tax charge for the year

The tax for the period is the same as (2005: higher than) the standard rate of corporation tax in the UK (30%). A reconciliation is explained below:

Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’00

Profit on ordinary activities before tax 24,920 33,898 7,279 6,432 Profit on ordinary activities multiplied by rate of corporation tax in the UK of 30% (2005: 30%) 7,476 10,169 2,184 1,930 Non-taxable dividend income - - (3,457) (2,432) Taxable overseas dividend income 1,110 605 - - Overseas losses not available for group relief 827 143 - - Utilisation of tax losses (2,069) (1,131) - - Depreciation for the year in excess of capital allowances 181 (36) - - Expenses not deductible for tax purposes 2,055 1,419 761 232 Short term temporary differences (688) (355) - - Tax in respect of prior years (390) 95 (430) (3) Transfer pricing adjustments - - (318) - Difference on foreign tax rates (447) 378 - - Share option deduction (579) - - - Tax charge/(credit) for the year 7,476 11,287 (1,260) (273)

Factors that may affect future tax charges

Tax losses arising in previous years and other timing differences total an estimated carried forward amount of £18,967,000 (2005: £26,533,000) which gives rise to an unrecognised deferred tax asset of £5,690,000 (2005: £7,996,000), assuming a tax rate of 30%. As the group undertaking in which these tax losses rest makes profits, future tax charges will be reduced as a result of the profits being offset by these tax losses. However no asset in relation to this has been recognised as there is insufficient certainty over the timing and availability of such future profits.

The German tax authorities have commenced a tax audit of XTB focusing on the transfer pricing position. No provision has been raised for any potential tax exposure that may arise from the investigation as it has not progressed sufficiently to make quantifying any potential exposures feasible at this stage. XCHANGING B.V. 35

Notes to the financial statements for the year ended 31 December 2006 (continued)

11 Goodwill

Group Total £’000 Cost At 1 January 2006 21,132 Additions (note 33) 8,230 At 31 December 2006 29,362

Aggregate impairment At 1 January 2006 and at 31 December 2006 -

Net book amount At 31 December 2006 29,362

Group Total £’000 Cost At 1 January 2005 and at 31 December 2005 21,132

Aggregate impairment At 1 January 2005 and at 31 December 2005 -

Net book amount At 31 December 2005 21,132

XCHANGING B.V. 36

Notes to the financial statements for the year ended 31 December 2006 (continued)

11 Goodwill (continued)

At each year end, the acquired goodwill in respect of all previous acquisitions is tested for impairment in accordance with IAS 36. Following the impairment test, it was not considered necessary to recognise an impairment charge for the year.

Goodwill is allocated to the group’s cash-generating units (CGUs) identified according to enterprise partnership and business sector. The carrying amounts of goodwill by division are as follows:

Insurance Financial Business Other Total Services Lines

Ins-sure Holdings Limited 3,942 - - - 3,942 RebusIS - - - 16,920 16,920 Xtb GmbH - 270 - - 270 Landmark Business Consulting Limited 3,263 - - - 3,263 Ferguson Snell and Associates Limited - - 4,938 - 4,938 Xchanging Broking Services Limited 29 - - - 29 7,234 270 4,938 16,920 29,362

The recoverable amount of a CGU is determined based on value in use calculations. These calculations use cash flow projections based on budgets approved by the directors covering a three year period. Cash flows beyond the three year period are extrapolated using the estimated growth rates stated below.

Key assumptions used for value in use calculations:

Insurance Financial Business Other Services Lines

Growth rate (post year 3) 0.0% 0.0% 0.0% 0.0% Discount rate 18.0% 24.0% 18.0% 23.0%

The budgeted turnover values used for the first three years of the value in use calculations incorporate growth rates specific to that CGU. A zero growth rate was assumed for all years post the third year.

The discount rates used are pre-tax and reflect specific risks relating to the relevant business sector. XCHANGING B.V. 37

Notes to the financial statements for the year ended 31 December 2006 (continued)

12 Intangible assets

Group Customer Assets in the Development contractual course of costs Software relationship development Total £’000 £’000 £’000 £’000 £’000 Cost At 1 January 2006 12,652 27,793 1,614 3,140 45,199 Acquisitions - - 864 - 864 Additions – internally generated 779 1,270 - - 2,049 Additions - external 307 3,853 - 818 4,978 Transfers from tangibles - 213 - - 213 Transfers to/(from) assets in the - 2,502 - (2,502) - course of development Disposals (501) (236) - - (737) Exchange adjustments - (233) - - (233) At 31 December 2006 13,237 35,162 2,478 1,456 52,333

Amortisation At 1 January 2006 3,581 12,662 624 - 16,867 Charge for the year 1,227 5,585 729 - 7,541 Transfers - 81 - - 81 Disposals (327) (235) - - (562) Exchange adjustments (1) (64) - - (65) At 31 December 2006 4,480 18,029 1,353 - 23,862

Net book amount At 31 December 2006 8,757 17,133 1,125 1,456 28,471

XCHANGING B.V. 38

Notes to the financial statements for the year ended 31 December 2006 (continued)

12 Intangible assets (continued)

Group Customer Assets in the Development contractual course of costs Software relationship development Total £’000 £’000 £’000 £’000 £’000 Cost At 1 January 2005 10,208 20,058 1,614 1,284 33,164 Additions – internally generated 2,444 10,629 - 2,436 15,509 Transfers - 580 - (580)- Disposals - (3,428)- - (3,428) Written off to income statement - (55) - - (55) Exchange adjustments - 9 - - 9 At 31 December 2005 12,652 27,793 1,614 3,140 45,199

Amortisation At 1 January 2005 2,418 11,521 306 - 14,245 Charge for the year 1,163 3,651 318 - 5,132 Disposals - (2,479)- - (2,479) Exchange adjustments - (31) - - (31) At 31 December 2005 3,581 12,662 624 - 16,867

Net book amount At 31 December 2005 9,071 15,131 990 3,140 28,332

Amortisation charges have been charged through cost of sales and administrative expenses in the income statement as follows:

Group 2006 2005 £’000 £’000

Cost of sales 4,243 2,001 Administrative expenses 3,298 3,131 7,541 5,132 XCHANGING B.V. 39

Notes to the financial statements for the year ended 31 December 2006 (continued)

13 Property, plant and equipment

Group Leasehold Computer Motor Fixtures and Total improvements equipment vehicles fittings £’000 £’000 £’000 £’000 £’000 Cost At 1 January 2006 6,298 19,814 349 4,787 31,248 Acquisitions 9 29 158 260 456 Transfers - (604)- 604 - Additions 2,202 3,382 - 3,123 8,707 Transfer to intangibles - (213) - - (213) Disposals (104) (2,691)(165) (199)(3,159) Exchange adjustments (48) (209) (5) (88) (350) At 31 December 2006 8,357 19,508 337 8,487 36,689

Depreciation At 1 January 2006 1,802 14,059 213 3,638 19,712 Acquisitions 1 14 52 249 316 Transfers - (306)- 306 - Charge for year 706 3,121 71 836 4,734 Transfers to intangibles - (81) - - (81) Disposals (104) (2,606)(60) (144)(2,914) Exchange adjustments 25 (158) (4) (37) (174) At 31 December 2006 2,430 14,043 272 4,848 21,593

Net book value At 31 December 2006 5,927 5,465 65 3,639 15,096

XCHANGING B.V. 40

Notes to the financial statements for the year ended 31 December 2006 (continued)

13 Property, plant and equipment (continued)

Group Leasehold Computer Motor Fixtures and Total improvements equipment vehicles fittings £’000 £’000 £’000 £’000 £’000 Cost At 1 January 2005 4,895 16,845 373 4,715 26,828 Additions 1,434 3,842 66 364 5,706 Disposals (9) (727)(93) (307)(1,136) Exchange adjustments (22) (146) 3 15 (150) At 31 December 2005 6,298 19,814 349 4,787 31,248

Depreciation At 1 January 2005 1,391 12,036 212 3,083 16,722 Charge for year 419 2,617 77 812 3,925 Disposals (5) (472)(79) (280)(836) Exchange adjustments (3) (122) 3 23 (99) At 31 December 2005 1,802 14,059 213 3,638 19,712

Net book value At 31 December 2005 4,496 5,755 136 1,149 11,536

Depreciation charges have been charged through cost of sales and administrative expenses in the income statement as follows:

Group 2006 2005 £’000 £’000

Cost of sales 3,951 3,549 Administrative expenses 783 376 4,734 3,925

Included in fixed assets are fixtures and fittings held under finance leases with a net book value of £271,000 (2005: £416,000).

XCHANGING B.V. 41

Notes to the financial statements for the year ended 31 December 2006 (continued)

14 Investments in subsidiaries

Fixed asset investments - company 2006 2005 £’000 £’000 Shares in group undertakings At 1 January 30,417 30,049 Increase in investments in subsidiaries - share based payments 495 368 (note 25a) Increase in investments in subsidiaries – intercompany loan notes to 372 - fund acquisition

At 31 December 31,284 30,417

The company has the following principal subsidiary undertakings: Effective interest Country of and proportion Name incorporation Principal activity of equity held

Xchanging UK Limited England and Wales Management services to group 100% (formerly Xchanging Limited)* companies Xchanging Claims Services Limited England and Wales Intermediate holding company 50% Ins-sure Holdings Limited England and Wales Intermediate holding company 50% Xchanging Procurement Services England and Wales Intermediate holding company 50% (Holdco) Limited HR Enterprise Limited England and Wales Intermediate holding company 50% Ins-sure Services Limited England and Wales Business Process Services 50% London Processing Centre Limited England and Wales Business Process Services 50% LPSO Limited England and Wales Business Process Services 50% LCO Non-Marine and Aviation Limited England and Wales Business Process Services 50% LCO Marine Limited England and Wales Business Process Services 50% Xchanging Procurement Services Limited England and Wales Business Process Services 50% Xchanging HR Services Limited England and Wales Business Process Services 50% (formerly Togethr HR Services Limited) Xchanging Transaction Bank GmbH Germany Business Process Services 51% (formerly etb GmbH) Xchanging Broking Services Limited England and Wales Business Process Services 50% Xchanging Global Insurance Solutions England and Wales Software development 100% Limited Xchanging Systems & Services Inc USA Software development 100% Xchanging Technology Services India India Software development 100% Private Limited Xchanging Insurance Professional England and Wales Consultancy services 100% Services Limited Landmark Business Consulting Limited England and Wales Consultancy services 100% Xchanging Resourcing Services Limited England and Wales Recruitment 100% Ferguson Snell and Associates Limited England and Wales Business Process Services 100% Xchanging GmbH Germany Management services 100% Xchanging SAS * France Management services 100% Xchanging Pty Limited Australia Management services 100%

* Held directly

Entities in which the company holds 50% of the equity share capital are treated as subsidiaries because the company has overall operational and financial control. All subsidiaries are included in the consolidated financial statements.

The income from shares in group undertakings represents dividend income received by the company from other companies within the group. XCHANGING B.V. 42

Notes to the financial statements for the year ended 31 December 2006 (continued)

15 Available-for-sale financial assets

2006 2005 £’000 £’000

At 1 January 22,249 - Additions - 21,799 Exchange differences (338) 271 Revaluation (deficit)/surplus (1,470) 179 At 31 December 20,441 22,249

Non current 20,441 22,249

There were no disposals or impairment provisions on available-for-sale financial assets during 2006 or 2005.

Available-for-sale financial assets include the following:

2006 2005 £’000 £’000

Listed equity securities - Eurozone 5,546 6,242 Listed debt security 14,895 16,007 20,441 22,249

The underlying currency of the above investments is Euros.

These investments are held at fair value. XCHANGING B.V. 43

Notes to the financial statements for the year ended 31 December 2006 (continued)

16 Trade and other receivables

Group Company 2006 2005 2006 2005 Due within one year: £’000 £’000 £’000 £’000

Trade receivables – non related parties 29,430 25,070 - - Trade receivables – related parties (note 36) 7,872 11,985 - - Trade receivables 37,302 37,055 - - Less: provision for impairment of receivables (1,003) (1,642) - - Net trade receivables 36,299 35,413 - -

Amounts owed by group undertakings - - 94,080 84,663 Amounts owed by related parties (note 36) - 39 - 39 Taxes receivable 536 393 594 100 Other receivables 10,788 8,759 10 - Prepayments and accrued income 26,145 19,050 40 - Pre-contract costs (see note below) 1,208 801 - - 74,976 64,455 94,724 84,802

2006 2005 2006 2005 Due after more than one year: £’000 £’000 £’000 £’000

Pre-contract costs (see note below) 5,826 3,901 - - Other receivables 289 230 - - 6,115 4,131 - -

Pre-contract costs - Group 2006 2005 £’000 £’000

Written down value at 1 January 4,702 4,379 Pre-contracts costs deferred in year 3,223 1,007 7,925 5,386 Amortisation charge for the year (881) (684) Write-offs in the year (10) - 7,034 4,702 Written down value at 31 December

All amounts owed to group undertakings included in the above balance are unsecured, interest free and have no fixed date of repayment. XCHANGING B.V. 44

Notes to the financial statements for the year ended 31 December 2006 (continued)

17 Cash and cash equivalents

Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000

Cash at bank and in hand 58,684 70,328 1,269 961

Within the balance shown above, there is £5,000,000 cash held in respect of the collaterisation for a letter of credit provided for the XTB acquisition (2005: £5,000,000). This letter of credit is provided by Lloyds TSB for 3 years from signing the contract and underwrites the savings guarantees that are being made by Xchanging to Deutsche Bank in respect of the acquisition of XTB. Upon failing to deliver the guaranteed savings by XTB, Deutsche Bank may call for an amount of up to Euros 15m. This letter of credit expires on 30 June 2007.

18 Trade and other payables - current

Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000

Trade payables – non related parties 18,094 17,189 788 - Trade payables – related parties (note 36) 2,360 6,027 - - Trade payables 20,454 23,216 788 - Other taxation and social security 7,481 5,129 - - Other payables – non related parties 9,256 4,378 - - Other payables – related parties (note 36) 6,880 1,165 - - Accruals and deferred income 31,451 40,646 532 204 Accruals and deferred income – related parties (note 36) 4,133 - - - Dividends payable to minority interests 1,247 - - -

80,902 74,534 1,320 204

XCHANGING B.V. 45

Notes to the financial statements for the year ended 31 December 2006 (continued)

19 Current income tax liabilities

Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000

Current income tax liabilities 7,129 6,220 348 348

20 Financial liabilities – borrowings

Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000 Current Shareholder loan - 10,363 - 10,363 Obligations under finance leases 17 281 - - Deferred consideration on acquisitions 3,253 - - -

3,270 10,644 - 10,363

Non current Convertible loan note (note 22) 13,042 12,195 13,042 12,195 Obligations under finance leases - 108 - -

13,042 12,303 13,042 12,195

In September 2003 the sterling shareholder loan of £5m was provided by General Atlantic Partners LLP to fund the international expansion plans of the group. It took the form of an interest bearing convertible loan note at 1.71%, with interest rolling up into the principal. In January 2004 this was rolled over into a note with the same properties and an additional £5m was advanced by General Atlantic Partners LLP at this time. The loan note was exchanged for 1,895,020 convertible preference class E shares in May 2006 at a price of £5.50 per share, which was considered to be the fair market value of the shares at the time. The equity elements of the shareholder loan were transferred to the share premium reserve on exchange.

In January 2004 a sterling convertible loan note was issued to Rebus Insurance Services Holdings Limited, and was subsequently transferred to General Atlantic Partners LLP, on the acquisition of the RebusIS group. The face value of the loan note is £15m on its maturity date of 28 January 2009 and is recorded in the balance sheet at its fair-value, having been discounted at the market rate on the date of issue. Before maturity the loan note can be converted into convertible preference class C shares at a price of £11 per share and is secured over such shares. The loan note is not interest bearing. The equity element of £355,000 recognised on inception was transferred to equity reserves in 2004.

The effective interest rates, being market rate at the time the loans were entered into, are as follows:

Shareholder loan 7.63% Convertible loan note 6.95%

All borrowings are denominated in sterling.

XCHANGING B.V. 46

Notes to the financial statements for the year ended 31 December 2006 (continued)

21 Other non-current liabilities

Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000

Trade and other payables 9,764 8,094 - - Deferred income tax liabilities (note 24) 2,517 2,281 106 841

12,281 10,375 106 841

22 Financial instruments

Fair values of non-derivative financial assets and financial liabilities

The carrying amounts of all current financial instruments approximate to their fair value.

The carrying amounts and fair value of the non-current financial liabilities are as follows:

Group Carrying amount Fair value 2006 2005 2006 2005 £’000 £’000 £’000 £’000

Convertible loan note (note 20) 13,042 12,195 12,915 12,195 Put option to acquire the minority interest 7,140 - 7,140 -

20,182 12,195 20,055 12,195

Company Carrying amount Fair value 2006 2005 2006 2005 £’000 £’000 £’000 £’000

Convertible loan note (note 20) 13,042 12,195 12,915 12,195

The group has minority shareholders in two enterprise partnerships that hold the right to sell their shares to the group at a future date. In accordance with IAS 32 the cash flows associated with these options are fair valued and discounted back to their present value. This notional liability is recognised in the balance sheet, the other side of the entry going to reserves (note 29).

XCHANGING B.V. 47

Notes to the financial statements for the year ended 31 December 2006 (continued)

22 Financial instruments (continued)

Maturity of non-current financial liabilities

The maturity profile of the carrying amount of the non-current liabilities, at 31 December was as follows:

Group 2006 2005 £’000 £’000

In more than one year but not more than two years - - In more than two years but not more than five years 20,182 12,195 In more than five years - - 20,182 12,195

Company 2006 2005 £’000 £’000

In more than one year but not more than two years - - In more than two years but not more than five years 13,042 12,195 In more than five years - - 13,042 12,195

Finance lease payments

The minimum lease payments under finance leases fall due as follows:

2006 2005 £’000 £’000

Not later than one year 17 281 Later than one year but not more than five - 108 More than five years - - 17 389 XCHANGING B.V. 48

Notes to the financial statements for the year ended 31 December 2006 (continued)

23 Provisions

Operational Group Restructuring Property risk Other Total £’000 £’000 £’000 £’000 £’000

At 1 January 2006 - 2,071 4,740 17,354 24,165 Released in the year - - (1,426) (1,336) (2,762) Provided in the year 1,866 833 1,238 1,859 5,796 Utilised in the year - (834) (2,022) (5,363) (8,219) Exchange adjustments - (7) (76) (312) (395) Other movements - 180 - (598) (418) At 31 December 2006 1,866 2,243 2,454 11,604 18,167

Provisions have been analysed between current and non-current as follows:

2006 2005 £’000 £’000

Current 8,720 8,395 Non-current 9,447 15,770 18,167 24,165

The restructuring provision relates to management redundancies as a result of the strategic realignment of various aspects of the business in order to increase productivity and give greater organisation clarity.

The property provision relates to dilapidations on the withdrawal from a number of operating leases and a provision to cover the shortfall in vacant properties between expected sub-letting rents and the cost of two onerous operating leases. The leases provided for have 5 and 9 years left to run.

The operational risk provision comprises an estimated liability in respect of identified operating errors which had occurred in the ordinary course of business in the financial services division up to 31 December 2006.

The other provision includes provisions for early retirement, severance and long service payments, other personnel related provisions, being provision for profit sharing, gratuities and leave encashment, and a VAT provision due to a change in regulations.

XCHANGING B.V. 49

Notes to the financial statements for the year ended 31 December 2006 (continued)

24 Deferred tax

Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 30% (2005: 30%) for differences arising in the UK and 40.86% (2005: 40.86%) for those arising in Germany.

The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12 during the period) are shown below:

Assets Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000

At 1 January 13,508 14,534 - - Recognised on business combination 25 - 159 - Profit and loss (charge)/credit 2,486 (1,015) 1,293 - Tax credited/(charged) to equity 416 88 443 - Exchange differences (118) (99) - - 16,317 13,508 1,895 - At 31 December

Liabilities Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000

At 1 January (2,281) (1,745) (841) (1,079) Recognised on business combination (259) - - - Profit and loss (charge)/credit (35) (324) - 238 Tax charged to equity 38 (211) 735 - Exchange differences 20 (1) - - (2,517) (2,281) (106) (841) At 31 December

The group has recognised all deferred tax assets in 2006, with the exception of deferred tax assets arising in one subsidiary company, which has been loss making in the past. The unrecognised deferred tax assets for this company amount to £4,874,000 in respect of tax losses carried forward (2005: £7,093,000) and £816,000 in respect of accelerated capital allowances (capital allowances in excess of depreciation) and other timing differences (2005: £903,000). These assets have not been recognised due to the uncertainty of future suitable taxable profits within this company.

Unrecognised deferred tax assets Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000

Tax losses carried forward 4,874 7,093 - - Other timing differences 5 6 - - Accelerated capital allowances 811 897 - - 5,690 7,996 - -

XCHANGING B.V. 50

Notes to the financial statements for the year ended 31 December 2006 (continued)

24 Deferred tax (continued)

Deferred tax assets and liabilities are only offset where there is a legal right of offset and there is intention to settle the balance net.

Accelerated Tax tax Share Convertible Deferred tax assets - Group Pension losses depreciation options debt Other Total £’000 £’000 £’000 £’000 £’000 £’000 £’000

At 1 January 2006 12,441 108 856 - - 103 13,508 Recognised on business combinations - - - - - 25 25 (Charged)/credited to income statement 723 1,478 (154) 280 254 (95) 2,486 (Charged)/credited to equity (2,280) - - 2,150 443 103 416 Exchange rate adjustments (23) - - - - (95) (118) At 31 December 2006 10,861 1,586 702 2,430 697 41 16,317

Accelerated Convertible tax Deferred tax liabilities - Group debt depreciation Put option Other Total £’000 £’000 £’000 £’000 £’000

At 1 January 2006 841 1,227 - 213 2,281 Recognised on business combinations - 259 - - 259 Charged/(credited) to income statement - 34 (52) 53 35 Charged/(credited) to equity (735) - 910 (213) (38) Exchange rate adjustments - (20) - - (20) At 31 December 2006 106 1,500 858 53 2,517

Convertible Deferred tax assets - Company Tax losses debt Other Total £’000 £’000 £’000 £’000

At 1 January 2006 - - - - Recognised on business combination - - 159 159 Charged/(credited) to income statement 1,058 254 (19) 1,293 Charged to equity - 443 - 443 At 31 December 2006 1,058 697 140 1,895

Convertible Deferred tax liabilities - Company debt £’000

At 1 January 2006 841 Credited to equity (735) At 31 December 2006 106 XCHANGING B.V. 51

Notes to the financial statements for the year ended 31 December 2006 (continued)

24 Deferred tax (continued)

The deferred income tax charged/(credited) to equity during the year is as follows:

2006 2005 £’000 £’000 Group Fair value reserves in shareholders’ equity: – available-for-sale financial assets (316) 211 – put option 910 - – actuarial movements on retirement benefit obligations 2,280 (88) – share options (2,150) - – convertible debt (1,178) - (454) 123 Company Fair value reserves in shareholders’ equity: – convertible debt (1,178) - (1,178) - XCHANGING B.V. 52

Notes to the financial statements for the year ended 31 December 2006 (continued)

25 Called up share capital

Group and company 2006 2005 £’000 £’000 Authorised All shares nominal value 0.01 Euro 19,600,000 convertible preference class A shares (2005: 19,500,000) 110 109 4,826,255 convertible preference class B shares 28 28 20,000,000 convertible preference class C shares 128 128 1,818,181 convertible preference class D shares 13 13 2,000,000 convertible preference class E shares (2005: nil) 14 - 1,785,714 common class A shares 10 10 Nil common class B shares (2005: 1,785,714) - 10 1,785,715 common class C shares 10 10 53,581,245 common shares 307 307 2,937,500 scheme shares A 16 16 126,000 scheme shares B 1 1 100,000 class G shares 1 1 638 633

Share movements - 2006 Number Total Number of of shares nominal shares at 1 at 31 value Allotted, called up and fully paid January Issued Redeemed December £’000 All shares nominal value 0.01 Euro Convertible preference class A shares 19,031,250 568,750 - 19,600,000 110 Convertible preference class B shares 4,826,255 - - 4,826,255 28 Convertible preference class D shares 1,818,181 - - 1,818,181 13 Convertible preference class E shares - 1,895,020 - 1,895,020 13 Common class A shares 1,785,714 - - 1,785,714 10 Common class C shares 1,785,715 - - 1,785,715 10 Common shares 4,245,081 655,404 - 4,900,485 30 Scheme shares A 937,500 - - 937,500 5 Scheme shares B 126,000 - - 126,000 1 Class G shares 84,647 - (11,110) 73,537 1 221

Increase in allotted share capital During the year the allotted share capital for convertible preference class A shares was increased by 568,750 due to the exercise of a warrant held by McKinsey & Company (note 28).

In addition the convertible preference class E shares were increased by 1,895,020 due to the exchange of the General Atlantic Partners LLP convertible loan note (note 20).

XCHANGING B.V. 53

Notes to the financial statements for the year ended 31 December 2006 (continued)

25 Called up share capital (continued)

Increase in allotted share capital (continued) During the year the allotted share capital for common shares was increased by 655,404 (2005: 145,788) as share options were exercised for a consideration of £1,636,000 (2005: £191,293).

Share movements – 2005 Number Total Number of of shares nominal shares at 1 at 31 value Allotted, called up and fully paid January Issued Redeemed December £’000 All shares nominal value 0.01 Euro Convertible preference class A shares 19,031,250 - - 19,031,250 106 Convertible preference class B shares 4,826,255 - - 4,826,255 28 Convertible preference class D shares - 1,818,181 - 1,818,181 13 Common class A shares 1,785,714 - - 1,785,714 10 Common class B shares 1,785,714 - (1,785,714) - - Common class C shares 1,785,715 - - 1,785,715 10 Common shares 4,099,293 145,788 - 4,245,081 25 Scheme shares A 937,500 - - 937,500 5 Scheme shares B 126,000 - - 126,000 1 Class G shares 84,440 207 - 84,647 1 199

Voting rights All classes of shares carry equal voting rights.

Dividend rights Convertible preference class A, B, C, D and E shares, common shares and scheme shares A and B carry equal dividend rights. Common class A and C shares gain the same dividend rights on the achievement of milestones based on the market capitalisation of the company. Class G shares are treated for the purposes of the allocation of interim and final dividends as if they had identical rights to those attaching to such number of common shares to which they have equivalent rights (not to exceed 5.5 million common shares) at the time of the distribution as is calculated using the procedure set out in article 4b of the company’s articles of association.

Rights on liquidation or winding up Convertible preference class A, B, C, D and E shares have a preferential right over all classes of common share and class G shares on liquidation or winding up to the return of the nominal amount plus any premium paid, and then an equal right with common shares and scheme shares A and B (following completion of their three year probationary period) to the remaining assets.

XCHANGING B.V. 54

Notes to the financial statements for the year ended 31 December 2006 (continued)

25 Called up share capital (continued)

Rights on liquidation or winding up (continued) Class G shares are only entitled to participate in the remaining assets as if they had identical rights to those attaching to such number of common shares (not to exceed 5.5 million common shares) to which they have equivalent rights as at the date of dissolution of the company as is calculated using the procedure set out in article 4b of the company’s articles of association. Common class A and C shares are only entitled to participate in the remaining assets equally with common shares on achievement of the market capitalisation milestones referred to above.

Conversion rights Convertible preference class A, B, C, D and E shares are convertible to an equal number of common shares by resolution of the Board of the company.

Share options

At 31 December 2006, options over 4,382,387 common shares (2005: 5,154,743) and 19,323 G shares (2005: 19,856) were outstanding. Options on 655,404 common shares and nil G shares were exercised in 2006 (2005: 145,788 common shares and 207 G shares). The number of shares subject to options, the periods in which they were granted and the periods in which they may be exercised are given below:

Approved options Unapproved options G Share options WAEP* WAEP* WAEP* Number (pence) Number (pence) Number (pence)

At 1 January 2005 Options outstanding 1,201,978 243.33 3,587,515 280.12 20,656 3,426.07 Movements during 2005 Options granted - - 832,500 378.74 - - Options exercised (145,788) 124.01 - - (207) 7,401.60 Options forfeited (95,991) 274.61 (225,471) 275.26 (593) 2,134.89 At 31 December 2005 Options outstanding 960,199 290.86 4,194,544 299.95 19,856 3,423.18

Movements during 2006 Options granted 106,786 383.02 185,714 467.60 - - Options exercised (85,597) 269.44 (569,807) 215.78 - - Options forfeited (80,434) 349.48 (329,018) 279.93 (533) 7,401.60 At 31 December 2006 Options outstanding 900,954 298.58 3,481,433 325.59 19,323 3,313.45

Range of exercise prices: 27.16p 63.35p 2,134.81p 2006 - - - 386.56p 550p 7,401.60p

27.16p 63.35p 2,134.81p 2005 - - - 386.56p 386.56p 7,401.60p

Weighted average remaining contractual life:

2006 2,593 days 2,659 days 2,766 days 2005 2,788 days 2,825 days 3,135 days

Number of options exercisable at:

31 December 2006 344,597 1,851,290 - 31 December 2005 230,119 1,180,903 -

*Weighted average exercise price XCHANGING B.V. 55

Notes to the financial statements for the year ended 31 December 2006 (continued)

25a Share based payments

Options are granted with a fixed exercise price at the date of the grant. The contractual life of an option is 10 years. Awards are granted to directors and employees on a merit basis. The company has made several grants per year since January 2000. Options granted become exercisable on the third anniversary of the date of grant. Exercise of an option is subject to continued employment. The group has no legal or constructive obligation to repurchase or settle the options in cash. Options were valued using the Black-Scholes pricing model. The fair value per option granted and the assumptions used in the calculations are as follows:

General assumptions

Vesting period (years) 3 Option life (years) 10 Expected life (years) 3.25 Expected dividends expressed as a dividend yield (%) 0 Possibility of ceasing employment before vesting (%) 20 Risk fee interest rate 3.1% - 3.7%

Options over common shares 2006 2005

Share price at grant date (pence) 375 - 530 275 Weighted average exercise price (pence) - Approved options 383.02 - - Unapproved options 467.60 383.01 Weighted average fair value of options granted in the period (Euro) - Approved options 1.29 - - Unapproved options 1.25 0.80 Expected volatility (%) 26 – 30 34 - 41

There were no grants of options over G shares during 2006 and 2005.

The expected volatility is based on historical volatility over the last three years. The expected life is the average expected period to exercise. The risk free rate of return is the yield on zero-coupon Euro- zone government bonds of a term consistent with the assumed option life. A reconciliation of option movements over the year to 31 December 2006 is in note 25.

The weighted average share price during the year for options exercised over the year was £3.97 per share for ordinary shares. No G shares were exercised. The total charge for the year relating to employee share based payments was £495,000, all of which related to equity-settled share based payment transactions (2005: £368,000).

XCHANGING B.V. 56

Notes to the financial statements for the year ended 31 December 2006 (continued)

26 Retained earnings

Note Group Company £’000 £’000

At 1 January 2005 (27,904) 15,190 Retained profit for the financial year 11,840 6,705 Value of employee service - share options 25a 368 368

At 31 December 2005 (15,696) 22,263

Retained profit for the financial year 10,718 8,539 Value of employee service - share options 25a 495 495 Deferred tax on share options recognised in equity 10 2,150 - Recognition of put option to acquire minority interest 22 (6,966) - Deferred tax on the put option 10 (910) -

At 31 December 2006 (10,209) 31,297

27 Share premium account

Group and company 2006 2005 £’000 £’000

At 1 January 68,163 58,671 Premium on shares issued during the year under the share option schemes 1,606 195 Premium on shares issued during the year 1,480 9,787 Premium on exchange of convertible loan note into shares 11,665 - Premium on shares bought back by the company - (490) Transactional costs of shares issued (325) -

At 31 December 82,589 68,163

XCHANGING B.V. 57

Notes to the financial statements for the year ended 31 December 2006 (continued)

28 Other reserves

Group Shares to Warrant Revaluation Translation Other be issued reserve reserve reserve reserves Total £’000 £’000 £’000 £’000 £’000 £’000

At 1 January 2005 - 690 - 402 (2,788) (1,696) Shares to be issued 794 - - - - 794 Revaluation of investments - - (76) - - (76) Actuarial loss on pensions - - - - (863) (863) Deferred tax on pensions and revaluations - - (107) - 276 169 taken to reserves Convertible debt – equity element - - - - 594 594 Exchange adjustments - - - 104 - 104

At 31 December 2005 794 690 (183) 506 (2,781) (974)

Transfer to issued share capital (794) (690) - - - (1,484) Revaluation of investments - - (1,091) - - (1,091) Actuarial gain on pensions - - - - 6,661 6,661 Deferred tax on pensions and revaluations - - 160 - (1,934) (1,774) taken to reserves Convertible debt – equity element - - - - 206 206 Deferred tax on convertible debt - - - - 1,178 1,178 Exchange of convertible debt into shares - - - - (1,255) (1,255) Exchange adjustments - - - (216) - (216)

At 31 December 2006 - - (1,114) 290 2,075 1,251

XCHANGING B.V. 58

Notes to the financial statements for the year ended 31 December 2006 (continued)

28 Other reserves (continued)

Company Shares to Warrant Convertible be issued reserve debt Total £’000 £’000 £’000 £’000

At 1 January 2005 - 690 (474) 216 Shares to be issued 794 - - 794 Convertible debt – equity element - - 594 594 At 31 December 2005 794 690 120 1,604

Transfer to issued share capital (794) (690) - (1,484) Convertible debt – equity element - - 206 206 Deferred tax on convertible debt - - 1,178 1,178 Exchange of convertible debt into shares - - (1,255) (1,255) At 31 December 2006 - - 249 249

The shares to be issued reserve and warrant reserve related to share warrants over preference shares issued as consideration for £690,000 in consulting services provided to Xchanging UK Limited, a subsidiary of the company. The warrants were exercisable until 1 December 2003, or 180 days after any Public Offering, whichever was earlier, at a strike price of US$3.20. During 2004 and 2005 this exercise period was extended and the warrant was exercised on 15 February 2005. 568,750 shares were issued during 2006 and amounts included within the warrant reserve and shares to be issued have been transferred to the share capital and share premium reserves.

BAE Systems hold a warrant to subscribe for 664,754 shares in the common shares of the company at the price of US$3.20 per share. Contingent upon the occurrence of certain other events, the warrant includes a right for BAE Systems to subscribe for additional shares in common shares of the company so that its total holding would be 957,244 shares.

BAE Systems also has dilution protection in that if any shares in the common shares of the company are issued to a third party, subject to certain defined exceptions, BAE Systems has the right to subscribe for such additional number of shares (at the same price as paid by the respective third party) in the common stock of the company so that its percentage share post issue of shares to the third party would be the same as it was pre issue of shares to the third party. XCHANGING B.V. 59

Notes to the financial statements for the year ended 31 December 2006 (continued)

29 Movement in shareholders’ equity

Group Note Share Share Other Retained Minority Total equity capital premium reserves earnings interests £’000 £’000 £’000 £’000 £’000 £’000

At 1 January 2005 195 58,671 (1,696) (27,904) 12,005 41,271 Net profit - - - 11,840 10,771 22,611 Revaluation of investments 15 - - (76) - 255 179 Deferred tax on revaluation of - - (107) - (104) (211) investments Issue of share capital 13 9,987 - - - 10,000 Transaction costs on issue of share - (200) - - - (200) capital Share options - proceeds from shares issued 1 195 - - - 196 - value of employee services 25 - - - 368 - 368 Shares bought back by company (10) (490) - - - (500) Shares to be issued - - 794 - - 794 Actuarial gain/(loss) on pensions 34 - - (863) - 683 (180) Deferred tax on pensions and - - 276 - (188) 88 revaluations taken to reserves

Convertible debt – equity element - - 594 - - 594 Exchange adjustments - - 104 - (97) 7 Dividends paid - - - - (6,099) (6,099) At 31 December 2005 199 68,163 (974) (15,696) 17,226 68,918

Net profit - - - 10,718 6,726 17,444 Revaluation of investments 15 - - (1,091) - (379) (1,470) Deferred tax on revaluation of - - 160 - 156 316 investments Minority interests on business 30 - - - - 21 21 combination Share options - proceeds from shares issued 5 1,606 - - - 1,611 - value of employee services 25a - - - 495 - 495 Deferred tax on share options 10 - - - 2,150 - 2,150 Exercise of warrants 4 1,480 (1,484) - - - Actuarial gain/(loss) on pensions 34 - - 6,661 - 1,356 8,017 Deferred tax on pensions and - - (1,934) - (346) (2,280) revaluations taken to reserves Exchange of convertible debt into 13 11,665 (1,255) - - 10,423 shares Put option recognition 22 - - - (6,966) - (6,966) Deferred tax on the put option 10 - - - (910) - (910) Convertible debt – equity element - - 206 - - 206 Deferred tax on convertible debt - - 1,178 - - 1,178 Exchange adjustments - - (216) - (144) (360) Transactional costs of shares issued - (325) - - - (325) Dividends paid - - - - (12,838) (12,838) At 31 December 2006 221 82,589 1,251 (10,209) 11,778 85,630 XCHANGING B.V. 60

Notes to the financial statements for the year ended 31 December 2006 (continued)

29 Movement in shareholders’ equity (continued)

Company Note Share Share Other Retained capital premium reserves earnings Total £’000 £’000 £’000 £’000 £’000

At 1 January 2005 195 58,671 216 15,190 74,272 Net profit - - - 6,705 6,705 Shares issued during the year 13 9,787 - - 9,800 Shares to be issued - - 794 - 794 Share options - proceeds from shares issued 1 195 - - 196 - value of employee services 25a - - - 368 368 Buyback of shares during the year (10) (490) - - (500) Convertible debt – equity element - - 594 - 594 At 31 December 2005 199 68,163 1,604 22,263 92,229

Net profit - - - 8,539 8,539 Shares issued during the year 4 1,480 (1,484) - - Share options - proceeds from shares issued 5 1,606 - - 1,611 - value of employee services 25a - - - 495 495 Exchange of convertible debt into 13 11,665 (1,255) - 10,423 shares Transactional costs of shares issued - (325) - - (325) Convertible debt – equity element - - 206 - 206 Deferred tax on convertible debt - - 1,178 - 1,178 At 31 December 2006 221 82,589 249 31,297 114,356

XCHANGING B.V. 61

Notes to the financial statements for the year ended 31 December 2006 (continued)

30 Equity minority interests

2006 2005 £’000 £’000 Group At 1 January 17,226 12,005 Minority interests’ share of profit for year 6,726 10,771 Minority interests’ share of net gains not recognised in income statement 787 646 Exchange rate differences (144) (97) Minority interest on business combination 21 - Dividends payable to minority interests (12,838) (6,099) At 31 December 11,778 17,226

The profits of the Xchanging group companies in which the minorities have an interest are not necessarily shared in proportion to the shareholding interest in that company as each of the above individual enterprise partnerships have a distinct contractual method of profit share.

31 Financial commitments

At 31 December future aggregate minimum lease payments under non-cancellable operating leases were as follows:

Group Group Company Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000 Operating leases: land and buildings Within one year 9,683 8,573 - - Later than one year and less than five years 34,230 31,665 - - Later than five years 34,489 42,319 - -

Group Group Company Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000 Operating leases: other Within one year 408 784 - - Later than one year and less than five years 204 497 - -

The group’s most significant leases are that of the premises at Leadenhall Street, London and in Frankfurt. The London lease expires in July 2021 and is subject to a rent review in July 2009. The German lease expires in May 2013.

XCHANGING B.V. 62

Notes to the financial statements for the year ended 31 December 2006 (continued)

31 Financial commitments (continued)

The group is contractually obligated to invest amounts, on behalf of the enterprise partnerships it has acquired or set-up, in technology development and maintenance and in the development of new processes and systems. The total commitment outstanding at 31 December is presented below as analysed by the period in which the commitment falls due:

Group 2006 2005 £’000 £’000 Financial investment commitments Within one year 2,319 4,030 One to two years 8,809 8,424 Two to five years 13,574 8,424 24,702 20,878

32 Cash flow from operating activities

Reconciliation of operating profit to cash generated from operating activities

Group Company 2006 2005 2006 2005 £’000 £’000 £’000 £’000

Operating profit/(loss) 24,157 34,187 (3,366) (431) Adjustment for non-cash items: Employee share-based payment charges 495 368 - - Depreciation 4,734 3,925 - - Loss on disposal of property, plant and equipment 45 126 - - Write-off of intangibles and pre contract costs 10 55 - - Amortisation of intangibles 7,541 5,132 - - Amortisation of pre-contract costs 881 684 - - 37,863 44,477 (3,366) (431) Changes in working capital (excluding effects of acquisitions) Increase in trade and other receivables (8,523) (15,590) (7,421) (17,420) Increase/(decrease) in payables 5,477 6,329 1,120 (349) Increase/(decrease) in pensions 909 (471) - - Decrease in provisions (6,293) (235) - -

Cash generated from/(used by) continuing operations 29,433 34,510 (9,667) (18,200)

XCHANGING B.V. 63

Notes to the financial statements for the year ended 31 December 2006 (continued)

33 Business combinations

(i) Landmark Business Consulting Limited

On 1 January 2006 the group acquired 100% of the equity of Landmark Business Consulting Limited, a specialist company in business transformation, concentrating on business advisory and contract labour within the professional services division of the UK insurance sector.

Details of net assets acquired and goodwill are as follows:

Fair value £’000

Purchase consideration: - Deferred consideration 2,898 - Contingent consideration 472 - Costs of acquisition 13 Total purchase consideration 3,383 Fair value of net assets acquired (120) Goodwill (note 11) 3,263

The goodwill is attributable to the workforce of the acquired business and the synergies expected to arise after the group’s acquisition of Landmark Business Consulting Limited.

The deferred and contingent consideration has been discounted using the effective interest rate at the time of acquisition, being market rate of 5.75%. The contingent consideration takes the form of bonds, contingent on the performance of the business over the period to 31 December 2008. The amount estimated as probable has been included in contingent consideration above.

The assets and liabilities as of 1 January 2006 arising from the acquisition are set out below:

Acquiree’s carrying amount Fair value £’000 £’000

Non-contractual customer relationship (included in intangibles) - 170 (note 12) Property, plant and equipment (note 13) 3 3 Trade and other receivables 934 934 Trade and other payables (651) (669) Borrowings (4) (4) Current tax liabilities (263) (263) Deferred tax liabilities - (51) Net assets acquired 19 120

The acquired business contributed revenues of £2,750,000 and net profit after tax of £660,000 to the group during 2006. XCHANGING B.V. 64

Notes to the financial statements for the year ended 31 December 2006 (continued)

33 Business combinations (continued)

(ii) Ferguson Snell and Associates Limited

On 1 April 2006 the group acquired 100% of the equity of Ferguson Snell and Associates Limited, a company providing immigration consultancy services in the UK.

Details of net assets acquired and goodwill are as follows:

Fair value £’000

Purchase consideration: - Initial cash consideration 3,275 - Contingent consideration 2,623 - Costs of acquisition 102 Total purchase consideration 6,000 Fair value of net assets acquired (1,062) Goodwill (note 11) 4,938

The goodwill is attributable to the workforce of the acquired business and the synergies expected to arise after the group’s acquisition of Ferguson Snell and Associates Limited.

The contingent consideration has been discounted using the effective interest rate at the time of acquisition, being market rate of 7.5%. The contingent consideration takes the form of cash, contingent on the performance of the business over the period to 31 March 2007. The amount estimated as probable has been included in contingent consideration above.

The assets and liabilities as of 1 April 2006 arising from the acquisition are set out below:

Acquiree’s carrying amount Fair value £’000 £’000

Non-contractual customer relationship (included in intangibles) - 694 (note 12) Property, plant and equipment (note 13) 196 137 Trade and other receivables 738 716 Cash 406 406 Trade and other payables (466) (466) Borrowings (22) (22) Current tax liabilities (195) (195) Deferred tax liabilities - (208) Net assets acquired 657 1,062

The acquired business contributed revenues of £2,337,000 and net profit after tax of £561,000 to the group during 2006.

XCHANGING B.V. 65

Notes to the financial statements for the year ended 31 December 2006 (continued)

33 Business combinations (continued)

(iii) Xchanging Broking Services Limited

With effect from 1 September 2006, the Xchanging Group entered into an enterprise partnership by subscribing for 50% of the equity in a new company, Xchanging Broking Services Limited. Employees were transferred into the new company, which is accounted for as a business combination under IFRS3.

Details of the fair value of the assets associated with the transfer of the employees, consideration paid and the resulting goodwill are set out below.

Fair value £’000

Deferred tax assets 25 Trade and other payables (83) Net liabilities acquired (58) Minority interests’ share of liabilities 29 Group interest in fair value of net liabilities acquired (29)

Costs of business combination - Net liabilities acquired 29 Goodwill (note 11) 29

The acquired business contributed revenues of £11,519,000 and net profit after tax of £1,000 to the group during 2006.

(iv) Impact on Xchanging group

If the above business combinations had been made at the beginning of 2006, total group revenue would have been £417,115,000 and net profit would have been £17,577,000. These amounts have been calculated using the group’s accounting policies and adjusting the results of the subsidiary to reflect the additional depreciation and amortisation that would have been charged assuming the fair value adjustments had applied from 1 January 2006, together with the consequential tax effects.

XCHANGING B.V. 66

Notes to the financial statements for the year ended 31 December 2006 (continued)

34 Retirement benefit obligations

The group participates in a number of pension schemes covering many of its employees. The principal funds are the LPC defined benefit scheme, the Xchanging Global Insurance Solutions defined benefit scheme, the XTB defined benefit scheme, the Corporation of Lloyd’s defined benefit scheme, the BAE Systems defined benefit schemes and the Xchanging defined contribution schemes.

The total retirement benefit obligation for the defined benefit schemes recognised in the balance sheet is: 2006 2005 £’000 £’000

LPC defined benefit scheme 1,548 5,326 Xchanging Global Insurance Solutions defined benefit scheme 17,839 22,528 XTB defined benefit scheme 2,514 658 Retirement benefit obligation recognised in the balance sheet 21,901 28,512

The total actuarial gains/(losses) for the defined benefit schemes recognised in the statement of recognised income and expense is: 2006 2005 £’000 £’000

LPC defined benefit scheme 3,845 1,513 Xchanging Global Insurance Solutions defined benefit scheme 5,328 (1,544) XTB defined benefit scheme (1,156) (149) Actuarial gains/(losses) recognised in the statement of recognised income & 8,017 (180) expense

(i) LPC defined benefit scheme

In the most recent actuarial valuation of the LPC pension plan, the principal assumptions made by the actuaries were:

2006 2005 % %

Rate of increase in pensionable salaries 3.80 3.75 Rate of increase in pensions in payment (RPI up to 5%) 2.75 2.75 Rate of increase in pensions in payment (RPI up to 2.5%) 1.95 1.90 Rate of increase in deferred pensions 2.80 2.75 Discount rate 5.10 4.80 Inflation assumption 2.80 2.75 Expected return on plan assets 6.76 5.68

To develop the expected long term rate of return on assets assumption, the group considered the current level of expected returns on risk free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long term rate of return assumption for the portfolio. The mortality tables used for the scheme are the PMA 92 and PFA 92 series. Under these assumptions, the life expectancy for a male current pensioner at age 65 is 19.4 years (2005: 16.9 years) and for a male future pensioner at age 65 is 20.5 years (2005: 19.4 years). XCHANGING B.V. 67

Notes to the financial statements for the year ended 31 December 2006 (continued)

34 Retirement benefit obligations (continued)

The weighted average asset allocations of the fair value of the total plan assets in the defined benefit section of the scheme were:

2006 2005 % %

Equities 67.41 66.37 Bonds 32.45 33.47 Other 0.14 0.16

Total 100.00 100.00

The retirement benefit obligation recognised in the balance sheet is:

2006 2005 £’000 £’000

Present value of funded obligations (35,292) (36,104) Fair value of plan assets 33,744 30,778 Net deficit recognised in the balance sheet (1,548) (5,326)

The amounts recognised in the income statement are as follows:

2006 2005 £’000 £’000

Current service cost (662) (611) Interest cost (1,748) (1,747) Expected return on plan assets 1,744 1,728 Total included within staff costs (note 8) (666) (630)

Included within: Administrative expenses (662) (611) Finance costs (4) (19) (666) (630)

The amounts recognised in the statement of recognised income and expense are:

2006 2005 £’000 £’000

Net actuarial gains/(losses) recognised during the year 3,845 (2,466) Past service income re removal of discretionary pension increase - 3,979 3,845 1,513

Cumulative gains recognised in the statement of recognised income 4,045 200 and expense

XCHANGING B.V. 68

Notes to the financial statements for the year ended 31 December 2006 (continued)

34 Retirement benefit obligations (continued)

Analysis of the movement in the present value of the defined benefit obligation

2006 2005 £’000 £’000

Present value of obligation in scheme as at 1 January (36,104) (34,110) Current service cost (662) (611) Interest cost (1,748) (1,747) Plan participants contributions paid (72) - Past service income re removal of discretionary pension increase - 3,979 Actuarial (losses)/gains 2,462 (4,357) Benefits paid 832 742 Present value of obligation in scheme as at 31 December (35,292) (36,104)

Analysis of the movement in the fair value of the plan assets 2006 2005 £’000 £’000

Fair value of scheme assets as at 1 January 30,778 27,337 Expected return on plan assets 1,744 1,728 Actuarial (losses)/gains 1,383 1,891 Employer contributions paid 599 564 Plan participants contributions paid 72 - Benefits paid (832) (742) Fair value of scheme assets as at 31 December 33,744 30,778

Actual return on plan assets 3,127 3,619

The group’s transition date to IFRS was 1 January 2003 and the following historical data has been presented from that date. The historical data will be built up to a rolling five-year record over the next year. 2006 2005 2004 2003 £’000 £’000 £’000 £’000 History of experience adjustments on plan assets and liabilities Fair value of scheme assets 33,744 30,778 27,337 24,601 Present value of defined benefit obligations (35,292) (36,104) (34,110) (29,879) Net liability recognised (1,548) (5,326) (6,773) (5,278)

Experience adjustments on plan assets Amount (£’000) 1,383 1,891 1,067 1,938 Percentage of scheme assets 4% 6% 4% 8% Experience adjustments on plan liabilities Amount (£’000) (461) (313) (371) (285) Percentage of scheme liabilities (1%) (1%) (1%) (1%)

The expected contributions to the defined benefit section of the pension scheme in 2007 are £622,000. XCHANGING B.V. 69

Notes to the financial statements for the year ended 31 December 2006 (continued)

34 Retirement benefit obligations (continued)

(ii) Xchanging Global Insurance Solutions defined benefit scheme

In the most recent actuarial valuation of the Xchanging Global Insurance Solutions pension plan, the principal assumptions made by the actuaries were:

2006 2005 % %

Rate of increase in pensionable salaries 3.80 3.80 Rate of increase in pensions in payment (RPI up to 5%) 2.75 2.50 Rate of increase in pensions in payment (fixed 5%) 5.00 5.00 Discount rate 5.10 4.90 Inflation assumption and rate of increase in deferred pensions 2.80 2.80 Expected return on plan assets 6.19 5.68

The expected return on plan assets is determined with reference to the expected long term level of dividends, interest and other returns derived from the plan assets. The expected returns are based on long term market expectations and analysed on a regular basis to ensure any sustained movements in underlying markets are reflected. The mortality tables used for the scheme are the PMA 92 and PFA 92 series. Under these assumptions, the life expectancy for a male current pensioner at age 65 is 19.4 years (2005: 17.9 years) and for a male future pensioner at age 65 is 20.5 years (2005: 19.0 years).

The weighted average asset allocations of the fair value of the total plan assets in the defined benefit section of the scheme were:

2006 2005 % %

Equities 41.18 40.49 Bonds 24.14 24.56 Gilts 23.16 24.28 Property 10.17 9.35 Cash 0.07 0.00 Insurance annuity contracts 1.28 1.32 Total 100.00 100.00

The retirement benefit obligation recognised in the balance sheet is: 2006 2005 £’000 £’000

Present value of funded obligations (56,310) (57,156) Fair value of plan assets 38,471 34,628 Net deficit recognised in the balance sheet (17,839) (22,528)

The amounts recognised in the income statements are as follows:

2006 2005 £’000 £’000

Current service cost (1,175) (1,079) Interest cost (2,869) (2,688) Expected return on plan assets 2,002 1,832 Total included within staff costs (note 8) (2,042) (1,935)

Included within: Administrative expenses (1,175) (1,079) Finance costs (867) (856) (2,042) (1,935) XCHANGING B.V. 70

Notes to the financial statements for the year ended 31 December 2006 (continued)

34 Retirement benefit obligations (continued)

The amounts recognised in the statement of recognised income and expense are:

2006 2005 £’000 £’000

Net actuarial gains/(losses) recognised during the year 5,328 (1,544)

Cumulative amounts recognised in the statement of recognised income and 565 (4,763) expense

Analysis of the movement in the present value of the defined benefit obligation

2006 2005 £’000 £’000

Present value of obligation in scheme as at 1 January (57,156) (49,350) Current service cost (1,175) (1,079) Interest cost (2,869) (2,688) Plan participants contributions paid (462) (375) Actuarial gains/(losses) 4,718 (4,596) Benefits paid 634 932 Present value of obligation in scheme as at 31 December (56,310) (57,156)

Analysis of the movement in the fair value of the plan assets 2006 2005 £’000 £’000

Fair value of scheme assets as at 1 January 34,628 28,665 Expected return on plan assets 2,002 1,832 Actuarial gains 610 3,052 Employer contributions paid 1,403 1,636 Plan participants contributions paid 462 375 Benefits paid (634) (932) Fair value of scheme assets as at 31 December 38,471 34,628

Actual return on plan assets 2,612 4,884

The group acquired Xchanging Global Insurance Solutions Limited on 1 January 2004 and the following historical data has been presented from that date. The historical data will be built up to a rolling five-year record over the next two years.

2006 2005 2004 £’000 £’000 £’000 History of experience adjustments on plan assets and liabilities Fair value of scheme assets 38,471 34,628 28,665 Present value of defined benefit obligations (56,310) (57,156) (49,350)

Net liability recognised (17,839) (22,528) (20,685)

Experience adjustments on plan assets Amount (£’000) 610 3,052 784 Percentage of scheme assets 2% 9% 3%

Experience adjustments on plan liabilities Amount (£’000) 695 1,435 134 Percentage of scheme liabilities 1% 3% 0%

XCHANGING B.V. 71

Notes to the financial statements for the year ended 31 December 2006 (continued)

34 Retirement benefit obligations (continued)

The expected contributions to the defined benefit section of the pension scheme in 2007 are £2,402,000. This includes a special contribution of £250,000 due in January 2007.

(iii) XTB defined benefit scheme

In the most recent actuarial valuation of the XTB pension plan, the principal assumptions made by the actuaries were:

2006 2005 % %

Rate of increase in pensionable salaries 2.50 2.50 Rate of increase in pensions in payment and deferred pensions 2.00 2.00 Discount rate 4.60 4.25 Expected return on plan assets 5.00 5.00

The expected return on plan assets reflects the average rate of earnings expected on the funds invested or to be invested to provide benefits. The expected long term rate of return on plan assets is used (with the market related value of assets) to compute the expected return on assets. The mortality tables used for the scheme are Richtaffeln 2005 G, Heubeck-Richtaffeln GmbH, Koln 2005. Under these assumptions, the life expectancy for a male current pensioner at age 65 is 82.2 years (2005: 82.2 years) and for a male future pensioner at age 65 is 88.6 years (2005: 88.6 years).

The weighted average asset allocations of the fair value of the total plan assets in the defined benefit section of the scheme were:

2006 2005 % %

Equities 8.08 17.00 Bonds and gilts 67.92 71.56 Cash 22.34 8.78 Other 1.66 2.66

Total 100.00 100.00

The retirement benefit obligation recognised in the balance sheet is:

2006 2005 £’000 £’000

Present value of funded obligations (50,250) (51,586) Fair value of plan assets 47,736 50,928 Net deficit recognised in the balance sheet (2,514) (658)

XCHANGING B.V. 72

Notes to the financial statements for the year ended 31 December 2006 (continued)

34 Retirement benefit obligations (continued)

The amounts recognised in the income statements are as follows:

2006 2005 £’000 £’000

Current service cost (1,144) (1,352) Interest cost (2,148) (2,184) Expected return on plan assets 2,522 2,142 Total included within staff costs (note 8) (770) (1,394)

Included within: Administrative costs (1,144) (1,352) Finance costs 374 (42) (770) (1,394)

The amounts recognised in the statement of recognised income and expense are as follows:

2006 2005 £’000 £’000

Net actuarial losses recognised during the year (1,156) (149) Foreign exchange differences 22 10 (1,134) (139)

Cumulative amounts recognised in the statement of total recognised income (74) 1,058 and expense

Analysis of the movement in the present value of the defined benefit obligation

2006 2005 £’000 £’000

Present value of obligation in scheme as at 1 January (51,586) (45,713) Acquired in business combination - - Current service cost (1,144) (1,352) Interest cost (2,148) (2,184) Actuarial gains/(losses) 2,206 (4,866) Contributions paid 48 226 Benefits paid 1,232 1,075 Foreign exchange differences 1,142 1,228 Present value of obligation in scheme as at 31 December (50,250) (51,586)

Analysis of the movement in the fair value of the plan assets

2006 2005 £’000 £’000

Fair value of scheme assets as at 1 January 50,928 45,286 Expected return on plan assets 2,522 2,142 Actuarial (losses)/gains (3,362) 4,717 Benefits paid (1,232) - Foreign exchange differences (1,120) (1,217) Fair value of scheme assets as at 31 December 47,736 50,928

Actual return on plan assets (840) 6,859

XCHANGING B.V. 73

Notes to the financial statements for the year ended 31 December 2006 (continued)

34 Retirement benefit obligations (continued)

The group acquired XTB on 1 June 2004 and the following historical data has been presented from that date. The historical data will be built up to a rolling five-year record over the next two years.

2006 2005 2004 £’000 £’000 £’000 History of experience adjustments on plan assets and liabilities Fair value of scheme assets 47,736 50,928 45,286 Present value of defined benefit obligations (50,250) (51,586) (45,713)

Net liability recognised (2,514) (658) (427)

Seven months Year to 31 Year to 31 to 31 December December December 2006 2005 2004 £’000 £’000 £’000

Experience adjustments on plan assets Amount (£’000) (3,362) 4,717 2,894 Percentage of scheme assets 7% 9% 6%

Experience adjustments on plan liabilities Amount (£’000) 200 Percentage of scheme liabilities 0.4%

The expected contributions to the defined benefit section of the pension scheme in 2007 are £nil.

(iv) The Lloyd’s Pension Scheme

The group participates in a defined benefit scheme operated by Lloyd’s. The terms on which the group participates in the scheme were set in commercial agreements reached with Lloyd’s during 2001. An actuarial valuation by external professional actuaries is carried out triennially to determine the funding position and the payments to be made to the scheme.

The group’s contribution rate is set in relation to the cost of accrual of future service benefits only. No past service costs are suffered by the group as these are borne by the Corporation of Lloyd’s. The group’s contributions are not affected by any surplus or deficit in the scheme relating to the past service of its own employees or other members of the scheme.

Also, it is not possible to identify the group’s share of the underlying assets and liabilities of the scheme on a consistent and reasonable basis. Accordingly, the group accounts for contributions to the scheme as if it were a defined contribution scheme under IAS 19.

It has been proposed that the group’s participation in the Lloyd’s scheme cease from 30 June 2007. Consultation with the affected employees has commenced over this proposed exit and replacement arrangements will be set up by the group. No final payment to the Lloyd’s scheme will be required by the group on exit. The group is indemnified against such payments under the agreements setting out the terms of its participation in the scheme. If the proposals go ahead, it is anticipated that the group will implement a replacement scheme at similar cost.

The pension cost that was charged in the income statement for the year relating to current year contributions was £1,439,000 (2005: £1,885,000).

Pension contributions outstanding at the year end amount to £nil (2005: £290,000). XCHANGING B.V. 74

Notes to the financial statements for the year ended 31 December 2006 (continued)

34 Retirement benefit obligations (continued)

(v) BAE Systems defined benefit schemes

The group also participates in a number of multi-employer defined benefit schemes run for the employees of BAE Systems.

The terms on which the group participated in these schemes up to the end of 2006 were set in commercial agreements reached with BAE Systems during 2001. The terms of participation were renegotiated in 2006 and revised contribution rates were implemented during 2006.

Under the terms of the new agreements, the contributions payable by the group represent the cost of accrual of future service benefits and the group’s share of the deficit contributions made by BAE to the schemes only (not including any one off contributions made by BAE during 2006). The contributions are expressed as fixed percentages of pensionable payroll. The group’s contribution rates to the schemes are contractually fixed and will only be affected by changes to the cost of accrual of future service benefits, as determined at the triennial valuations of the schemes. The group’s contribution rates will not be affected by any future changes in the past service position of the schemes, relating to past service of its own employees or other members of the scheme.

It is not possible to identify the group’s share of the underlying assets and liabilities of the schemes on a consistent and reasonable basis. Accordingly, the group accounts for contributions to the schemes as if they were defined contribution schemes under IAS 19.

The pension cost that was charged in the income statement relating to current year contributions was £1,279,000 (2005: £851,000).

The group’s estimated contributions to the BAE pension schemes for 2007 are £1,160,000.

(vi) Xchanging Group defined contribution schemes

The group also participates in a number of defined contribution schemes run for the employees of various subsidiary companies of Xchanging B.V. Pension costs for the group that were charged to the income statement for the year relating to current year contributions were £1,552,000 (2005: £840,000).

35 Ultimate controlling party

Xchanging B.V. is controlled jointly by General Atlantic Partners LLP and the Chief Executive Officer, David Andrews, the founding partners. General Atlantic Partners LLP is the majority shareholder through a number of its group companies’ shareholdings in Xchanging B.V., which act in concert within the context of a group. David Andrews is able to appoint the majority of the Board of Xchanging B.V. XCHANGING B.V. 75

Notes to the financial statements for the year ended 31 December 2006 (continued)

36 Related party transactions

The following companies are considered to be related parties of the group as they hold minority shareholdings in a number of the subsidiaries of Xchanging B.V.

The Corporation of Lloyds held a 25% interest in Ins-sure Holdings Limited and a 50% interest in Xchanging Claims Services Limited for the full year ended 31 December 2006. Some of the directors of Xchanging Claims Services Limited are employees of the Corporation of Lloyds. The emoluments of these directors were borne by the Corporation of Lloyds.

The International Underwriting Association held a 25% interest in Ins-sure Holdings Limited for the full year ended 31 December 2006.

BAE Systems plc held a 50% interest in Xchanging Procurement Services (Holdco) Limited and a 50% interest in HR Enterprise Limited for the full year ended 31 December 2006. Some of the directors of Xchanging Procurement Services (Holdco) Limited and HR Enterprise Limited are employees of BAE Systems plc. The emoluments of these directors were borne by BAE Systems plc.

Deutsche Bank AG held a 44% interest in Xchanging etb GmbH for the full year ended 31 December 2006. Some of the directors of Xchanging etb GmbH are employees of Deutsche Bank AG. The emoluments of these directors were borne by Deutsche Bank AG.

Aon Limited held a 50% interest in Xchanging Broking Services Limited with effect from 9 August 2006 and at 31 December 2006. Some of the directors of Xchanging Broking Services Limited are employees of Aon Limited. The emoluments of these directors were borne by Aon Limited.

XCHANGING B.V. 76

Notes to the financial statements for the year ended 31 December 2006 (continued)

36 Related party transactions (continued)

A description of the nature of the services provided from these companies by/(to) the group and the amount receivable/(payable) in respect of each at 31 December 2006, are set out in the table below:

Year end Services provided by/to the group Sales/(purchases) receivables/(payables) 2006 2005 2006 2005 £’000 £’000 £'000 £’000

HR and procurement services 129,001 113,527 6,181 5,937 Securities processing services 66,330 89,482 1,141 6,015 Processing, expert and data services 13,160 757 363 22 Property charges 1,316 673 187 10 6,181 5,937 HR and procurement services 129,001 113,527 (6,880) (1,165)

IT costs, premises, divisional corporate charges and (29,507) (32,846) (3,818) (5,309) other services in support of operating activities Operating systems, development, premises and other (1,117) (2,385) (319) (395) services in support of operating activities Desktop, hosting, telecommunications, accommodation (2,802) - (2,202) - and processing services Accommodation, IT services and directors’ secondment (1,259) (947) (154) (324) charges Property charges - (108) - - Current accounts - - 1,804 29,543

Related party transactions between Xchanging B.V. and its subsidiaries are as follows:

Year end Services provided by/(to) the company Transactions during year receivables/(payables) 2006 2005 2006 2005 £’000 £’000 £'000 £’000

Loan to fund acquisition and intercompany interest 65 - 3,065 - thereon Recharge of consulting and professional fees incurred by (29) - (29) - subsidiary Loans to fund subsidiaries -Xchanging UK Ltd - - 83,080 76,168 -Xpanse Ltd - - 8,000 8,000 -Xchanging Inc (USA) - - 135 135

As per note 16, an amount of £nil (2005: £39,226) was due from John Attenborough, an officer of the company in respect of the exercise of options during the year ended 31 December 2003. This loan bore interest at the rate of 5% per annum and was repaid.

XCHANGING B.V. 77

Notes to the financial statements for the year ended 31 December 2006 (continued)

37 Events after the balance sheet date

HR Enterprise Limited

With effect from 1 January 2007, the Xchanging group acquired the remaining 50% minority holding in the HR Enterprise Limited enterprise partnership from BAE Systems plc. This 50% interest was acquired by HR Holdco Limited, a subsidiary of Xchanging B.V.

Details of the minority interests’ share of the book and fair value of the assets of HR Enterprise Limited acquired, consideration paid and the resulting goodwill are set out below:

Book and fair value £’000

Costs of acquisition – consideration 10,082 Minority interests’ share of net assets acquired (372)

Goodwill 9,710

Post 1 January 2007, BAE Systems plc have no representatives on the HR Enterprise board of directors and have no influence in the business decisions of the entity.

XCHANGING B.V. 79

Other information for the year ended 31 December 2006

Appropriation of the net result for the year

According to Article 24 of the company’s Articles of Association, the appropriation of profits is determined by the shareholders at the Annual General Meeting. No dividend was proposed for the year.

The retained profit for the year of £10,718,000 (2005: £11,840,000 profit) for the group was transferred to reserves.

Share rights to financial statements

Details of share rights are given in note 25 to the financial statements.

Subsequent events

Post balance sheet events are detailed in note 37 of the financial statements.

Auditors’ report

The auditors’ report is included on pages 12 to 13 to the financial statements.