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Xansa PLC (XAN)

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Thursday 24 June, 2004

Xansa PLC

Final Results

Xansa PLC
24 June 2004

Press Release



24 June 2004



                                   XANSA PLC

                              PRELIMINARY RESULTS

                        FOR THE YEAR ENDED 30 APRIL 2004



Xansa, the international process and IT services company, is pleased to announce
that its results for the full year ended 30 April 2004 are in line with
management expectations.  The results are on track and growth has been delivered
in the UK continuing business.  The second half of the year has provided
evidence that the benefits of management focus and actions are being felt.



                              Business Highlights



•         Stability is returning to the business after a period of challenging
          market conditions and organisational change

•         Xansa is on track with the development and implementation of its
          strategy

•         Major orders in the period:

          •             Royal Mail, up to £180 million over ten years

          •             Learning and Skills Council, up to £38 million over 
                        three years

          •             MyTravel, minimum of £33 million over seven years

          •             Lawson, multi-million dollar over three years

          •             Barclaycard, extension of partnership, additional 
                        £10 million over three years

•         Total orders taken, £350 million, with accelerated deal closure in
          second half of £212 million from first half of £138 million

•         Exited unprofitable overseas operations

•         India workforce increased by over 80% to 1,886 people, with current
          seat capacity of 2,625



                             Financial Performance



•         Turnover declined 7.6% to £419.5 million (2003: £453.9 million),
          principally due to the exit of overseas operations

•         UK continuing business (excluding FBS) increased revenue by 5.0% to
          £363.7 million (2003: £346.5 million)

•         Operating loss reduced from £156.0 million to £27.1 million

•         Loss before tax reduced from £157.0 million to £31.2 million

•         Loss per share reduced from 57.09p to 12.67p

•         Pre-tax profit* fell 11.9% to £24.4 million (2003: £27.7 million)

•         Operating margin* stabilised at 6.2% (2003: 6.3%)

•         Corporate costs* reduced by 29.5% to £6.2 million

•         Exceptional costs £21.6 million

•         Diluted earnings per share* up 9.7% to 4.53 pence (2003: 4.13 pence)

•         Net borrowings of £7.0 million (2003: funds £3.8 million)

•         Dividend per share has been maintained at 3.24 pence (2003: 3.24
          pence)







* These figures are quoted before distribution of shares from the trusts,
reorganisation costs, goodwill amortisation and impairment and loss on sale of
businesses.




Commenting on the results, Alistair Cox, Chief Executive said:



"Stability is returning to our business after a period of challenging market
conditions and organisational change.   Whilst the environment we operate in
remains highly competitive, we are witnessing early signs of cautious optimism
towards recovery. In particular, future growth rates in IT Outsourcing (ITO) and
Business Process Outsourcing (BPO) are expected to be strong.  We are building
our business and positioning ourselves to take advantage of these trends. I
believe the progress we have made in the last twelve months shows that we are on
track with the development and implementation of our strategy. The market is now
stabilising and progress to date puts Xansa on track to capture a leading
position in the provision of these services as the market begins its recovery."



Commenting on the results, Bill Alexander, Chairman said:



"Xansa has gone through a challenging time in the last two years. The Board has
been taking firm action to reposition the company to provide a sound platform
for further growth. It has acted decisively to address loss-making business,
exit markets where we will not be able to achieve scale in the medium term, to
make appropriate investment in new client propositions, especially in India, and
to structure itself to address the challenges of the market in which we 
operate."



                               ENDS




Contact:



Steve Stratton                                 James Melville-Ross
Investor Relations Director, Xansa             Financial Dynamics
Tel : + 44 (0)8702 416181                      Tel : + 44 (0)20 7831 3113
Email : steve.stratton@xansa.com





About Xansa

Xansa is an international business process and IT services company creating and
delivering process and technology solutions that significantly improve its 
clients' business performance. Through strong relationships, commercial 
innovation and its integrated Indian delivery capability, Xansa drives real
and long-term cost reductions, performance improvements and new ways of working
tailored to each client. Its services are Business and Technology Consulting, 
IT Implementation, IT Outsourcing and Business Process Outsourcing. Xansa is a 
FTSE 250 company (LSE:XAN) with over 6000 people in the UK and India.







Chief Executive's Statement

Stability is returning to our business after a period of challenging market
conditions and organisational change.   Whilst the environment we operate in
remains highly competitive, we are witnessing early signs of cautious optimism
towards recovery. In particular, future growth rates in IT Outsourcing (ITO) and
Business Process Outsourcing (BPO) are expected to be strong.  We are building
our business and positioning ourselves to take advantage of these trends. I
believe the progress we have made in the last twelve months shows that we are on
track with the development and implementation of our strategy.



We have made significant progress this year in focusing Xansa on opportunities
where we believe we can grow our business and deliver superior returns.
Unprofitable operations have been exited.  Investment has been channelled into
those areas where we believe we can achieve scale and a strong market presence.
We have a new organisational model built around our client teams.  All our
efforts are aligned to support these teams to ensure we deliver excellent
service to our clients, generate profitable growth for our shareholders and
develop our people as a potent workforce.



We are starting to see the benefits of this focus.  Our business performance is
stabilising and second half underlying performance has improved. Our client
teams are building new innovative propositions.  These increasingly combine our
skills in ITO and BPO as these two sectors converge.  We are generating a
healthy pipeline and accelerating our deal closure rate. We have almost doubled
the scale of our Indian operation this year to nearly 1,900 people.  More
significantly, we have more closely integrated our international teams comprised
of a mix of onshore and offshore talent that is unique in today's marketplace.



Our goal is to enable our clients to run their own businesses more effectively.
We are achieving this by leveraging our technology and business process skills
to better operate an increasing number of critical operations across the
client's business.  Not only does this drive real lasting savings, it frequently
delivers revenue growth for our clients as well as releasing their own resources
to focus on what they do best.  We differentiate ourselves by the way we work
with our clients.  Our client relationships are based on trust and operating in
true partnership with mutual dependencies.  We are frequently told this open and
flexible approach is an aspect unique to Xansa and helps explain our ability to
nurture strong and long-lasting relationships.



Business Performance

The significant changes to the business have been reflected in our performance
this year.  Turnover dipped by 7.6% to £419.5 million, operating profit* dropped
9.1% to £26.1 million, and operating margins declined slightly by 0.1% to 6.2%.
These movements are due to the planned exit from unprofitable operations and
termination of the First Banking System (FBS) joint business venture with HBOS.



Within the UK, revenues for the continuing business (excluding FBS) increased by
5% to £363.7 million compared with previous year.  This included a slight
improvement in the second half to £182.1 million from £181.7 million.  FBS, our
successful joint venture with HBOS, concluded in December. Consequently,
revenues for FBS this year were £35.2 million, with £28.3 million in the first
half, compared to £64.9 million in the previous full year.



* Before distribution of shares from the trusts, reorganisation costs, goodwill
amortisation and impairment and loss on sale of businesses.


The performance of Xansa Recruitment reflected the continuing difficult market
for contractor recruitment and placement in the UK, with revenues down by 17% to
£31.8 million.  Despite this, the business continues to be profitable.
Recruitment remains an integral part of our business as it provides us with
ready access to contractors and allows us to maintain flexibility in our cost
base.  At year-end, we had 351 contractors placed with external clients, which
reflects the reported revenue figures, and 690 employed directly on Xansa
accounts.



India continues to play an increasingly vital role in our operations and
propositions.  Twenty-two of our top 30 clients use our India delivery
capabilities, and the total revenue generated by the India workforce as part of
the end-user revenues has increased by 23% from the previous year to £38.7
million.



The provision of integrated onshore and offshore delivery is now a mandatory
component of a substantial majority of our private sector bids.  Clients often
specify the need for offshore service components that go beyond cost reductions.
Clients also value the quality and flexibility of these skills, tailored to
their needs at different points in time. This demand has allowed us to almost
double the scale of our India operations.  This increased scale is in turn now
allowing us to compete for larger opportunities.



To date we have invested nearly £17 million in our development and processing
centres in Noida, Chennai and Pune to bring our capacity today to 2,625 seats on
a single shift basis.   We have increased headcount by 80% from 1,046 to 1,886
at year-end and expect further significant increases in the next financial year.



Most important though is the integration of our India and UK teams.  Our
client-focused organisation allows us to operate single and sizeable teams
comprised of colleagues based both onshore and offshore.  This significantly
reduces risk for our clients and any distinction in geography is invisible to
them.



Outside of the UK, we exited unprofitable operations. In Asia Pacific, we sold
our operations in Malaysia. In Singapore, we have rationalised our business and
are currently completing remaining client obligations prior to a full exit.  In
Continental Europe, we sold our Belgian and Dutch operations.  In France, we
have now closed all local operations.  In North America, we exited our local
operations, leaving a small core to service existing client obligations. As a
consequence of these actions, the overseas operations generated £20.6 million
revenue this year, of which £15.7 million was in the first half, compared with
£42.6 million in the previous year. Losses for the full year were reduced to
£1.7 million from £4.8 million in the previous year.



Significantly, we have created a new route to service the US market directly
from India without the need for local infrastructure in the US.  To date through
this approach we have successfully won a multi-million dollar, three-year
contract with Lawson Software to provide offshore development support.  We will
continue to invest in this approach to further leverage our Indian operations.



We continue to keep tight control on our Corporate costs and the cash management
of the business.  Our corporate costs fell by over 29% to £6.2 million and now
represent 1.5% of revenue.  Cash control remains central to our operations.  Our
net debt position was £7.0 million compared with a net cash position of £3.8
million last year. Overall, our debtor days for the full year were 35, an
improvement of 3% from the previous year.


Further evidence of our progress is targeted growth in the Orderbank in the
second half, after a decline in the first six months.  At the full year, the
closing orderbank was £500 million, up by £18 million from the Interim position
in October 2003, although a decline compared to the previous full year of 12%.
The total orders taken in the year was £350 million, with a noticeable
improvement in the second half of £212 million compared with £138 million in the
first half.



To fuel this orderbank, we have taken some significant Orders throughout the
year.  The largest, announced in May 2003, was the £1.5 billion outsourcing of
Royal Mail's IT operations to the Prism Alliance, within which Xansa provides
application management and software development services and solutions to Royal
Mail.  Our services are valued at up to £180 million over ten years, with an
initial orderbank value of £66 million over five years.



We signed over £44 million of orders with Barclays extending over the next three
years, including a significant extension to the Xansa Barclaycard Partnership,
covering business process and IT services.



Our relationship with BT continues to go from strength to strength.  We signed
additional orders of £39 million covering the next four years.  The quality of
the BPO service we provide was recognised by our winning first place in the
first European annual awards for excellence in shared services, judged by peers
from leading shared service centres.



In Government, we secured several key contracts.  We agreed a revised contract
with the Learning and Skills Council to provide IT systems development, support
and associated services.  This contract has a potential value of £38 million
over three years and a minimum commitment of £12 million for the first year.
For the Department of Work and Pensions, we won a three year contract renewal on
behalf of Worktrain, to continue providing development support and a hosting
service to this internet service for national jobs, learning and careers.  Most
recently, we announced that the Office for National Statistics had selected us
as its strategic IT transformation partner to help deliver it's modernisation
programme.



A £33 million minimum seven-year contract to provide Accounting & Finance
Services (A&FS) to MyTravel was announced in March.  This outsource leverages
our existing A&FS Oracle platform and supports MyTravel's core UK business.  The
contract includes payroll, accounts payable and receivable, financial reporting
and application management support.



Just after the year-end, we announced further contract extensions with Boots
valued at over £11 million over five years and with BT for £10 million over
three years.



Workforce



Overall employee numbers have increased by 5.5% to 5,189 from a year ago.  In
the UK, numbers declined by 11% to 3,264.  This included 429 colleagues who left
the company as a part of the FBS to HBOS transition, whilst we welcomed 214 new
colleagues from Royal Mail, and 151 from MyTravel. In India, we ended the year
with 1,886 colleagues, up from 1,046 a year ago. As we complete our overseas
exits, we retain 39 people who are concluding the handover processes.



People are at the core of our business as it is our people that deliver value to
our clients.  To build our business, we have recruited heavily in India.
Simultaneously we are investing in training and development in both India and
the UK to ensure that we equip our teams with relevant skills in the most
appropriate locations to compete effectively in a changing market.



Strategy and Outlook

Our strategy is based around three themes.



•       Growing our business in the UK market in both the public and private
        sectors

•       Selling and delivering solutions that reflect convergence and growth of
        ITO & BPO

•       Leveraging our integrated onshore and offshore capabilities



We anticipate modest recovery in the UK private sector market and steady growth
in the public sector over the next twelve months.  The mix of services is
changing and clients are demanding new solutions that deliver end-to-end turnkey
services to their business.  The majority of these propositions derive
significant benefit from combining offshore skills with those available in the
UK.



By focusing our business on these themes, I expect to deliver profitable sales
growth, improving margins, and to further enhance our reputation for client
satisfaction.  Our investment in our sales and business development is showing
encouraging results and the underlying UK-based business is expected to continue
to grow, albeit in a challenging marketplace.  We are targeting growth in the
orderbank over the next twelve months as these teams concentrate on building our
pipeline.



Today we are the largest UK-based supplier of offshore IT services to the UK
market.  We pioneered investment in India and enjoy a long track record of
operating client-facing teams comprising both onshore and offshore workforces.
As demand for offshore services accelerates this track record is a key
differentiator as it allows us to significantly reduce risk to our clients. We
will continue to build scale in India and foresee a broad balance of workforce
numbers between UK and India by the year-end.  This growth, combined with our
ability to leverage our much reduced overhead structure will allow us to improve
our margins.



We are increasingly operating at the very heart of our clients' businesses,
working with them inside their operations to drive real value in terms of cost
efficiency, revenue growth and improved customer satisfaction.   Our skills in
technology-enabled business processes will enable us to build our business as
clients rely on us to operate an ever-broadening series of their processes and
services, freeing them up to concentrate on their own strategies and customers.



The market is now stabilising and progress to date puts Xansa on track to
capture a leading position in the provision of these services as the market
begins its recovery.





Alistair Cox Chief Executive


Finance Director's Review


                                                                 2004      2003
                                                            £ million £ million

Turnover                                                        419.5     453.9

Operating profit*                                                26.1      28.7

Distribution of shares from the trusts                          (7.1)     (4.8)
Goodwill amortisation                                           (5.7)    (10.3)
Exceptional costs:
Exceptional items                                              (21.6)    (25.2)
Goodwill impairment                                            (21.2)   (144.4)
Operating (loss)                                               (29.5)   (156.0)
Net interest payable                                            (1.7)     (1.0)
Loss before tax                                                (31.2)   (157.0)
Taxation                                                        (1.3)     (1.9)
Loss after tax                                                 (32.5)   (158.9)
Minority interests                                              (4.6)     (6.5)
Loss attributable to shareholders                              (37.1)   (165.4)





Turnover of £419.5 million reduced by 7.6% from 2003 and operating profit*
amounted to £26.1 million, a reduction of 9.1% over last year.  Trading
performance has been reviewed in detail in Alistair's Report.  Exceptional
reorganisation costs and goodwill impairment charges amounting to £42.8 million
are the principal factors contributing to an overall loss for the financial year
of £37.1 million.



Distribution of shares from the trusts



This charge represents the cost of shares awarded to employees as either free
shares or matching shares under the All Employee Share Ownership Plan ("AESOP").
The charge is recognised over the period from the date of the award to the
date the shares vest with employees.

Exceptional items


                                                          £ million  £ million

Contract settlement                                                     (13.5)
Exit from overseas operations                                           (12.3)
United Kingdom restructuring                                             (3.6)
                                                                        (29.4)
Termination of First Banking Systems                            8.8
venture
Less: pension transfer payment                                (1.0)
                                                                           7.8
Total reorganisation costs                                              (21.6)



* Before distribution of shares from the trusts, reorganisation costs, goodwill
amortisation and impairment and loss on sale of businesses.

We reached a negotiated settlement with a former client concerning the supply of
project services that completed in 2002.  The amount of the settlement, £12.5
million, is significantly less than the overall project value and was split,
half paid in November 2003 with the remainder settled in May 2004.  The balance
of the charge is associated professional fees.  We anticipate tax relief on the
amount and discussions continue about insurance recovery.

During the year we announced the exit from our overseas operations in
Continental Europe, Asia Pacific and North America and these are now
substantially complete.  The reduced scale of overseas operations resulted in a
review of the required level of corporate support and a further reorganisation
charge for redundancies of £2.0 million in the UK was made.  The provision for
vacant properties that resulted from the 2003 Streamline exercise was increased
by £1.6 million, bringing the total UK charge to £3.6 million.

Offsetting these costs was a settlement received from HBOS following the early
termination of the First Banking Systems contract in December 2003 of £8.8
million.  Against this we have made provision for a pension fund transfer to
HBOS of £1.0m for the accrued service of the ex-Xansa personnel who have
transferred back to HBOS.



Goodwill amortisation and impairment



Xansa amortises goodwill, which is a non-cash item, to the profit and loss
account over its estimated useful life of up to 20 years.  The lower goodwill
amortisation charge in 2004 reflects the goodwill impairment charges taken over
the last two years.



The impairment charge results from the closure of our North American operation.
A review of the carrying value of the remaining goodwill concluded that no
further impairment was required.



Net interest payable

Higher average borrowings, principally resulting from an increased working
capital requirement, payments in respect of re-organisation activities and the
settlement with a former client, are reflected in the higher interest charge in
2004.

Taxation



The Group recorded a total pre-tax loss of £31.2 million in 2004, but with a
related tax charge for the year of £1.3 million, since no tax relief is
available for the goodwill amortisation and impairment charged in the accounts.
The tax charge of £4.8 million on profit before tax* of £24.4 million results in
a tax rate of 19.7% (2003: 28.9%).  The tax charge has reduced because of
reduced overseas losses for which no tax credit was available and an increased
AESOP tax credit.  This tax charge for the year has been reduced by a tax credit
of £3.5 million (2003: £6.1 million) which arises on the exceptional items.

Minority interests

This charge principally represents HBOS plc's interest in the First Banking
Systems ("FBS") venture.



* Before distribution of shares from the trusts, reorganisation costs, goodwill
amortisation and impairment and loss on sale of businesses.

Earnings per share and dividends

Diluted earnings per share* of 4.53p (2003: 4.13p) is computed on profit before
tax* of £24.4 million (2003: £27.7 million).  The effective tax rate applied to
these profits is 25.8% (2003: 33.2%) which discounts a £1.5 million tax credit
arising on the distribution of shares from the trusts since the related charge
is not reflected in profit before tax*.  Minority interests of £4.6 million
(2002: £6.5 million) are deducted to arrive at earnings* of £13.5 million (2002:
£12.0 million).

The diluted loss per share after distribution of shares from the trusts,
reorganisation costs, goodwill amortisation and impairment and loss on disposal
of businesses was 12.67p (2003 loss per share 57.09p).



A final dividend of 2.16p has been proposed, which together with the interim
dividend of 1.08p would give a total payment of 3.24p for the year, unchanged on
last year.  Dividend cover, defined as basic earnings* per share divided by the
dividend per share, would be 1.4 times (2003 1.3 times).



Accounting standards



No new Financial Reporting Standards were issued during the year which impacted
Xansa.  The codification of the best practice rules for revenue recognition,
amending FRS 5 "Reporting the Substance of Transactions" issued in November
2003, had no impact on the Group's turnover.  In addition, we have again
included additional disclosure in accordance with the transitional arrangements
of FRS 17.  UITF 13 "Accounting for ESOP Trusts'" will become effective for the
interim accounts for October 2004.  This will result in a change in treatment of
the shares held by the Xansa Employee Trust, the Xansa 1995 Qualifying Employee
Share Ownership Trust and the Xansa AESOP Trust.  Rather than presenting these
shares as 'Investment in own shares' in the balance sheet, they will be shown as
a deduction from shareholders' funds.  The basis of calculating the cost of
share schemes will in future be based upon the fair value of the award at the
date of grant.  Currently the charge is based upon the historic cost of the
shares used to satisfy the award.



The Group has set up a steering committee and is well underway in assessing the
impact of reporting under International Financial Reporting Standards.  The
first annual report and accounts this will apply to is for the year ended 30
April 2006.

Pensions

The charge for pension costs, calculated under SSAP 24, was £23.5 million, of
which £18.7 million related to the Xansa Pension Plan, an increase of £2.5
million over the prior period.



The Xansa Pension Plan was valued at 31 December 2000, which showed an asset
valuation of £72.9 million, an unfunded actuarial liability of £11.4 million and
a Minimum Funding Requirement liability of £8.7 million.  Following this
valuation, the contribution rate was set at 18.65% of pensionable pay to recover
the deficit.



An interim funding review as at 1 April 2003, indicated a deficit of £54.2
million and recommended that the funding level should be raised.  The company
increased its contribution by 2% with effect from 1 May 2003 to 20.65%.





* Before distribution of shares from the trusts, reorganisation costs, goodwill
amortisation and impairment and loss on sale of businesses.

The triennial actuarial valuation at 31 December 2003 indicated a reduced
deficit, of £32.1 million, from £54.2 million; and that if funding is maintained
at the existing 20.65%, then the past service deficit will be eliminated.



The phased transitional disclosures required by FRS 17 are included in note 25
to the accounts.  As noted previously, the deficit in the fund has reduced by
£20.6 million over the nine months to 31 December 2003 when determined by
reference to actuarial valuations, whilst the FRS 17 deficit has increased by
£9.1 million over the year to April 2004, to a deficit of £76.7 million.  Both
bases of calculation reflect higher liabilities due to changes in actuarial
assumptions on longevity of members, and both bases have benefited from strong
investment returns, which have increased the value of assets in the fund.  A
narrowing in the differential rate between salary growth and discount rate
(which is based upon corporate bond rates) has caused the FRS 17 liabilities to
increase.  The actuarial valuations discount future liabilities at the expected
rate of return on equities and have not experienced an increase.



Had FRS17 been adopted in full this year, equity shareholders' funds in the
consolidated balance sheet would have been reduced by £53.7 million (2003: £47.3
million reduction) after taking account of deferred tax.  Operating profit*
would have reduced by £1.3 million and net interest payable would have increased
by £0.8 million.  The total charge to profit under FRS17 would have been £20.7
million compared with £18.6 million under SSAP24.



Balance sheet


                                        2004        2003
                                   £ million   £ million


Intangible assets                       77.3       101.9
Tangible assets                         23.9        26.4
Investment in own shares                48.5        55.6
Fixed assets                           149.7       183.9

Net working capital                   (25.8)      (19.1)
Net funds / (borrowings)               (7.0)         3.8
Other items                           (16.5)      (25.0)

Net assets                             100.4       143.6





The reduction in intangible assets reflects the £21.2 million impairment of
goodwill on the closure of the North American operations and amortisation during
the year.  Overall, investment in working capital reduced by £6.7 million in the
year.  An £8.9 million increase in the accrual for exceptional costs was the
principal cause.  Other factors included reduced revenue in advance of £10.5
million, offset by a reduction in debtors of £11.0 million.



* Before distribution of shares from the trusts, reorganisation costs, goodwill
amortisation and impairment and loss on sale of businesses.




Cash flow

Operating cash inflow of £23.0 million, calculated after capital expenditure but
before cash flows relating to exceptional items, was in line with the outflows
in respect of interest, tax and dividends.  Overall the Group ended the year
with net borrowings of £7.0 million principally as a result of payments in
respect of exceptional items of £11.6 million.




                                                                  £ million  £ million

Opening net funds                                                                  3.8

Operating cash inflow                                                  23.0
Net outflows in respect of exceptional items                         (11.6)
Net interest, tax, dividends and other                               (22.2)
                                                                                (10.8)

Closing net borrowings                                                           (7.0)





Net borrowings of £7.0 million comprised of cash and deposits of £21.3 million
offset by borrowings of £28.3 million, these being bank loans and overdrafts and
loan capital of £28.0 million and finance leases of £0.3 million.



Treasury policy



The Group holds financial instruments for two principal purposes.  Firstly, to
finance its operations and secondly to manage interest rate and currency risks
arising from its operations and its sources of finance.  The Group finances its
operations by a mixture of cash flow from operations, short term borrowings and
longer term loans from banks.  Derivative financial instruments (principally
forward interest rate agreements and forward currency contracts) are entered
into in order to manage these interest rate and currency risks.



The Group's key financial risks encompass liquidity and refinancing risk,
interest rate movements and currency exchange rate movements.  These risks are
managed by the Finance Director under policies approved by the Board, which are
summarised below.  These policies have remain unchanged since April 2003.  A
treasury committee of the Board receives reports on the Group's treasury
activities, policies and procedures.  The treasury function is not a profit
centre and its activities are subject to internal audit.



Liquidity and refinancing risk



The Group's policy is to ensure that forecast funding requirements can be met
within available committed facilities at a reasonable cost.  To do this the
Group seeks to arrange committed funding at a variety of maturity dates from a
range of sources.



At the year end, the Group had £102.5 million of committed borrowing facilities
in place, of which £58.4 million were undrawn.  These facilities, scheduled to
expire in October 2004, have now been replaced by a committed £80 million
three-year revolving credit facility put in place in June 2004.  This is
sufficient to meet current operational needs.













Interest rate movements



Interest rate policy has the objective of minimising net interest expense and
the protection of the Group from material adverse movements in interest rates.
Throughout the year to April 2004, the Group borrowed at floating rates only.
This approach reflected both debt levels and the benign interest rate
environment.  However, the average level of borrowings for the Group has been
increasing through the year and as a consequence of this, and the hardening of
interest rates, a proportion of forecast borrowings are to be fixed.



Surplus cash from operations is invested in short-term bank deposits at market
interest rates.  Credit risks on bank deposits are minimised by restricting such
investment activity to banks which are rated A1 or P1, with a maximum investment
limit with any one bank of £20.0 million.  Credit risks on derivative financial
instruments are limited by the use of counterparty limits.



Currency exchange rate movements



During the year, the overseas operations were exited and although the Group's
client base is largely based in the UK, it has a significant remaining
investment in India.  On translation into sterling, movements can affect the
Group balance sheet and profit and loss account.  Group policy is to minimise
balance sheet translation exposures, where fiscally efficient, by financing
working capital in local currency.  The Group has transactional currency
exposures where sales or purchases by an operating unit are in currencies other
than in that unit's reporting currency.  Where billing arrangements are in
foreign currency Group policy is that committed transactional exposures are
hedged into the business's reporting currency.

Peter Gill Finance Director




Consolidated profit and loss account
For the year ended 30 April 2004
                                           2004         2004     2004         2003          2003    2003
                                         Before  Exceptional                Before   Exceptional
                                    exceptional        items           exceptional         items
                                          items (note 4)        Total        items      (note 3)   Total                
                               Note   £ million    £ million        £    £ million     £ million       £
                                                              million                            million

Group turnover                  2         419.5            -    419.5        453.9             -   453.9
Group operating profit (loss):
Before distribution of shares   2          26.1        (5.7)     20.4         28.7             -    28.7
from the trusts,
reorganisation costs and
goodwill amortisation and
impairment
Distribution of shares from               (7.1)            -    (7.1)        (4.8)             -   (4.8)
the trusts
Reorganisation costs                          -       (13.5)   (13.5)            -        (25.2)  (25.2)
Goodwill amortisation and                 (5.7)       (21.2)   (26.9)       (10.3)       (144.4) (154.7)
impairment
Group operating profit (loss):             13.3       (40.4)   (27.1)         13.6       (169.6) (156.0)
Loss on disposal of businesses                -        (2.4)    (2.4)            -             -       -
Profit (loss) on ordinary       2          13.3       (42.8)   (29.5)         13.6       (169.6) (156.0)
activities before interest
Net interest payable                      (1.7)            -    (1.7)        (1.0)             -   (1.0)
Profit (loss) on ordinary                  11.6       (42.8)   (31.2)         12.6       (169.6) (157.0)
activities before taxation
Profit (loss) on ordinary
activities before taxation
analysed between:
Before distribution of shares              24.4        (5.7)     18.7         27.7             -    27.7
from the trusts,
reorganisation costs and
goodwill amortisation and
impairment
Distribution of shares from               (7.1)            -    (7.1)        (4.8)             -   (4.8)
the trusts
Reorganisation costs                          -       (13.5)   (13.5)            -        (25.2)  (25.2)
Goodwill amortisation and                 (5.7)       (21.2)   (26.9)       (10.3)       (144.4) (154.7)
impairment
Loss on disposal of businesses                -        (2.4)    (2.4)            -             -       -
                                           11.6       (42.8)   (31.2)         12.6       (169.6) (157.0)
Taxation                        5         (4.8)          3.5    (1.3)        (8.0)           6.1   (1.9)
Profit (loss) on ordinary                   6.8       (39.3)   (32.5)          4.6       (163.5) (158.9)
activities after taxation
Equity minority interests                                       (4.6)                              (6.5)
Loss attributable to                                           (37.1)                            (165.4)
shareholders
Dividends                                                       (9.8)                              (9.1)
Transfer from reserves                                         (46.9)                            (174.5)

                              Note                               2004                               2003
Earnings per share - before
distribution of shares from the
trusts, reorganisation costs,
goodwill amortisation and
impairment and loss on disposal of
businesses
- basic                         6                               4.61p                             4.14p
- diluted                       6                               4.53p                             4.13p
Loss per share
- basic- -  - basic             6                             (12.67p)                          (57.09p)
- diluted                       6                             (12.67p)                          (57.09p)

All the results above relate to continuing activities.




Statement of total recognised gains and losses
For the year ended 30 April 2004

                                                                                      2004       2003
                                                                                 £ million  £ million

Loss attributable to shareholders                                                   (37.1)    (165.4)
Exchange differences on retranslation of net assets of subsidiary                    (2.4)      (2.7)
undertakings
Tax charge on gift of shares from the QUEST                                              -      (0.2)
Total recognised gains and losses                                                   (39.5)    (168.3)





Consolidated balance sheet
As at 30 April 2004

                                                                           2004               2003
                                                        Note          £ million          £ million

Fixed assets
Intangible assets                                                          77.3              101.9
Tangible assets                                                            23.9               26.4
Investment in own                                                          48.5               55.6
shares
                                                                          149.7              183.9
Current assets
Debtors                                                  7                 60.3               71.6
Cash at bank and in hand                                                   21.3               20.9
                                                                           81.6               92.5
Creditors due within one year
Short term borrowings                                                    (28.3)              (5.6)
Other creditors                                          8               (94.9)            (106.9)
                                                                        (123.2)            (112.5)
Net current liabilities                                                  (41.6)             (20.0)
Total assets less current liabilities                                     108.1              163.9
Long term borrowings                                                          -             (11.5)
Provisions for liabilities and charges                                    (7.7)              (8.8)
Net assets                                               2                100.4              143.6

Capital and reserves
Called up share capital                                                    17.0               16.7
Shares to be issued                                                         0.5                1.0
Share premium account                                                      63.8               59.6
Merger reserve                                                            760.3              760.3
Other reserve                                                              31.2               36.3
Profit and loss account                                                 (772.4)            (731.3)
Total equity shareholders' funds                                          100.4              142.6
Minority interests
Equity interests in subsidiary undertakings                                   -                1.0
                                                                          100.4              143.6



Approved by the Board on 23 June 2004





A R Cox Chief Executive

P R Gill Finance Director














Consolidated cash flow statement
For the year ended 30 April 2004

                                                            2004        2004        2003         2003
                                           Note        £ million   £ million   £ million    £ million

Cash inflow from operating                  9                           19.1                     51.1
activities

Returns on investments and servicing of
finance
Dividends paid to minority                                 (9.0)                   (7.6)
interests
Interest received                                            0.4                     0.8
Interest paid                                              (1.9)                   (1.8)
Interest element of finance lease                              -                   (0.1)
rental payments
                                                                      (10.5)                    (8.7)

Taxation
Corporation tax paid                                                   (5.7)                    (5.6)

Capital expenditure and
financial investment
Payments to acquire tangible                               (6.7)                  (12.5)
fixed assets
Receipts from sale of tangible fixed                         0.4                     0.7
assets
Payments to acquire own                                        -                   (2.2)
shares
                                                                       (6.3)                   (14.0)
Net cash inflow before                                                 (3.4)                     22.8
financing

Acquisitions and disposals
Cash balances of subsidiaries sold                                     (1.4)                        -

Equity dividends paid                                                  (5.8)                    (8.1)
Cash inflow before management of liquid                               (10.6)                     14.7
resources

Management of liquid
resources
Withdrawal of short term                                       -                     3.0
deposits
Placement of short term                                        -                   (0.4)
deposits
                                                                           -                      2.6
Financing
Issue of ordinary share                                      0.2                       -
capital
New borrowings                              10              10.8                    30.5
Repayment of borrowings                     10                 -                  (48.0)
Capital element of finance lease rental     10             (0.3)                   (0.2)
payments
                                                                        10.7                   (17.7)
Increase (decrease) in cash at bank and     10                           0.1                    (0.4)
in hand




1 General

The results for the year ended 30 April 2004 and 2003 are extracted from the
audited accounts of Xansa plc on which the auditors have issued an unqualified
opinion which did not contain a statement under Section 237 (2) or (3) of the
Companies Act 1985. The preliminary announcement was approved by the Board on 23
June 2004 and has been prepared on a basis consistent with the 2004 Annual
Accounts.

The audited accounts for the year ended 30 April 2003 have been delivered to the
Registrar of Companies. The Annual Report and Accounts for the year ended 30
April 2004 will be posted to shareholders in early August and will be delivered
to the Registrar of Companies following the Annual General Meeting which will be
held at 1200 noon on Thursday 16 September 2004 at The Queen Elizabeth II
Conference Centre, London, SW1P 3EE. Copies may be obtained from the Group's
registered office: 420 Thames Valley Park Drive, Thames Valley Park, Reading,
RG6 1PU.

2 Segmental analysis

The Directors consider that the Group operates in one continuing class of
business namely that of computer software and related support services.

                             Turnover by   Turnover by     Operating Profit (loss)   Net assets
                                                       profit (loss)        before     employed
                             destination        source            by   interest by    by source
                                                             source*        source
                                    2004          2004          2004          2004         2004
                               £ million     £ million     £ million     £ million    £ million
Geographic analysis
United Kingdom                     399.2         398.9          34.0          12.6         99.9
North America                       15.9          16.2             -        (25.6)          0.6
Continental Europe                   3.3           3.3         (1.0)         (6.2)        (0.3)
Asia Pacific                         1.1           1.1         (0.7)         (3.9)          0.2
                                   419.5         419.5          32.3        (23.1)        100.4
Corporate overheads                    -             -         (6.2)         (6.4)            -
Minority interests                     -             -             -             -            -
                                   419.5         419.5          26.1        (29.5)        100.4

During the year the group sold its subsidiaries in Malaysia, Belgium and The
Netherlands and has closed or substantially reduced the level of operations in
North America, Singapore and France.
                                    2003          2003          2003          2003         2003
                               £ million     £ million     £ million     £ million    £ million
Geographic analysis
United Kingdom                     410.6         411.3          42.3       (139.3)        117.1
North America                       32.7          32.7         (1.0)         (3.8)         21.0
Continental Europe                   6.9           6.2         (1.2)         (1.2)          2.2
Asia Pacific                         3.7           3.7         (2.6)         (2.9)          2.3
                                   453.9         453.9          37.5       (147.2)        142.6
Corporate overheads                    -             -         (8.8)         (8.8)            -
Minority interests                     -             -             -             -          1.0
                                   453.9         453.9          28.7       (156.0)        143.6

* Before distribution of shares from the trusts, reorganisation costs and
goodwill amortisation and impairment




3 Dividends

The total dividend of 3.24 pence per share (2003:3.24 pence) comprises an
interim dividend of 1.08 pence per share which was paid on 1 April 2004 and a
final dividend of 2.16 pence per share which will be paid on 30 September 2004,
if approved, to shareholders on the register at 9 July 2004. The ex-dividend
date will be 7 July 2004.



4 Exceptional items
                                                            2004              2004             2004
2004 Exceptional items                               Exceptional            Tax on
                                                    items before       exceptional
                                                             tax             items            Total
                                                       £ million         £ million        £ million


Contract settlement                                         13.5             (4.1)              9.4

FBS termination settlement                                 (7.8)               2.7            (5.1)

Goodwill impairment                                         21.2                 -             21.2

Reorganisation costs                                        13.5             (2.1)             11.4
Exceptional items charged to operating profit               40.4             (3.5)             36.9

Loss on disposal of businesses                               2.4                 -              2.4
                                                            42.8             (3.5)             39.3


Xansa reached a negotiated contract settlement with a former client concerning
the supply of project services that completed in 2002.  The amount of the
settlement, £12.5 million, is significantly less than the overall project value
and was split, half paid in November 2003 with the remainder settled after the
year end in May 2004.  The balance of the charge is associated professional
fees. Discussions continue about insurance recovery.

A settlement of £8.8 million was received in December 2003 from HBOS following
the early termination of the First Banking Systems contract.  Against this an
accrual has been made for a pension fund transfer to HBOS of £1.0 million for
the accrued service of the ex-Xansa personnel who have transferred back to HBOS.

The reorganisation costs of £13.5 million comprise £7.0 million in respect of
redundancies, £2.2 million in respect of provisions for vacant properties, £0.7
million in respect of accelerated depreciation and £3.6 million other costs
associated with the closure of overseas operations.

On 17 December 2003 Xansa sold its Belgian and Dutch subsidiaries, Xansa nv and
Xansa bv respectively, for a nominal sum. On 31 December 2003 Xansa sold its
Malaysian subsidiary, Xansa (Malaysia) Sdn Bhd for a nominal sum. The results of
these businesses were not material to the results of Xansa as a whole.  There
was no goodwill attributable to these businesses.

                                                   In respect of     In respect of
                                                     exceptional       exceptional
                                                           items             items
                                                         charged           charged
Cash flows in the year to 30 April                 (credited) in     (credited) in
2004                                                        2004              2003            Total
                                                       £ million         £ million        £ million
Contract settlement                                          6.9                 -              6.9

FBS termination settlement                                 (8.8)                 -            (8.8)

Goodwill impairment                                            -                 -                -

Reorganisation costs                                         7.1               5.0             12.1
                                                             5.2               5.0             10.2

                                                            2003              2003             2003
2003 Exceptional items                               exceptional            tax on
                                                    items before       exceptional
                                                             tax             items            Total
                                                       £ million         £ million        £ million
Goodwill impairment                                        144.4                 -            144.4

Reorganisation costs                                        25.2             (6.1)             19.1
                                                           169.6             (6.1)            163.5

The reorganisation costs of £25.2 million comprise £14.7 million in respect of
redundancies, £9.6 million in respect of provisions for vacant properties and
£0.9 million in respect of accelerated depreciation.

Cash outflows in respect of reorganisation costs amounted to £18.2 million in
the year ended 30 April 2003, of which £5.1 million related to reorganisation
costs incurred in 2002 and £13.1 million related to reorganisation costs
incurred in 2003.





5  Taxation
                                                                              2004               2003
                                                                         £ million          £ million
Tax on loss on ordinary activities
The charge for the year comprises:

Current tax
UK corporation tax                                                             3.7                4.6
Adjustments in respect of prior years                                            -                0.1
                                                                               3.7                4.7
Foreign tax                                                                    0.2                0.1
Adjustments in respect of prior years                                            -                0.1
Total current tax                                                              3.9                4.9
Deferred tax
Origination and reversal of timing differences                               (2.6)              (3.0)
Total deferred tax                                                           (2.6)              (3.0)

Total tax on loss on ordinary activities                                       1.3                1.9

The difference between the total current tax shown above and the amount
calculated by applying the standard rate of UK corporation tax to the loss
before tax is as follows:
                                                                              2004               2003
                                                                         £ million          £ million
Loss on ordinary activities before tax                                      (31.2)            (157.0)

Tax on Group loss on ordinary activities at                                  (9.4)             (47.1)
standard UK corporation tax rate of 30% (2003:
30%)
Effects of:
Expenses not deductible for tax purposes,                                     12.3               50.2
primarily goodwill amortisation
Depreciation in excess of capital allowances                                   0.1                0.7
Tax relief on shares transferred to the AESOP                                (0.4)              (0.9)
Unutilised tax losses                                                          0.3                1.7
Differences on tax rates on overseas earnings                                  1.0                0.1
Adjustments to tax charge in respect of prior                                    -                0.2
years
Total current tax charge for the period                                        3.9                4.9




6 Earnings per share
                                                                                   2004           2003
                                                                              £ million      £ million
(Loss) earnings
Loss attributable to shareholders as used to calculate basic and                 (37.1)        (165.4)
diluted loss per share
Exceptional items net of tax (Note 3)                                              39.3          163.5
Distribution of shares from the trusts net of                                       5.6            3.6
tax
Goodwill amortisation                                                               5.7           10.3
Before distribution of shares from the trusts, reorganisation costs,               13.5           12.0
goodwill amortisation and impairment and loss on disposal of businesses

                                                                                 Number         Number
                                                                                   '000           '000
Number of shares
Average number of shares in issue                                               337,231        332,909
Shares held by the employee trusts                                             (44,517)       (43,209)
Shares used to calculate basic and diluted                                      292,714        289,700
loss per share
Effect of dilutive ordinary shares                                                5,349          1,160

                                                                       Per share amount      Per share
                                                                                                amount
                                                                                  pence          pence
Diluted (loss) earnings per share
Diluted loss per share                                                          (12.67)        (57.09)
Effect of potential shares                                                         0.22           0.23
Exceptional items net of tax                                                      13.19          56.21
Distribution of shares from the trusts net of                                      1.88           1.24
tax
Goodwill amortisation                                                              1.91           3.54
Before distribution of shares from the trusts, reorganisation costs,               4.53           4.13
goodwill amortisation and impairment and loss on disposal of businesses

Where there is a loss per share there are no dilutive effects of share options or
contingent share issues.





7 Debtors
                                                                                2004       2003
                                                                           £ million  £ million
Trade debtors                                                                   38.7       44.9
Amounts to be billed on contracts                                                6.2        6.2
Other debtors                                                                    1.2        1.3
Prepayments                                                                      9.8       11.3
Deferred tax asset                                                                          1.8
                                                                                60.3       71.6

Prepayments                                                                      2.8        3.7
                                                                                 3.7        3.7


8 Creditors due with one year
                                                                               2004       2003
                                                                          £ million  £ million
Short term borrowings
Overdrafts                                                                      0.8          -
Loans                                                                          27.2        5.3
Finance lease obligations                                                       0.3        0.3
                                                                               28.3        5.6
Other creditors
Revenue in advance                                                             19.8       30.3
Trade creditors                                                                 5.6        8.7
Corporation tax                                                                 6.1        7.8
Other taxes and social security                                                19.6       15.3
Other creditors and accruals                                                   36.7       34.6
Proposed dividend                                                               6.6        6.5
Proposed dividend due to minority interest                                      0.5        3.7
                                                                               94.9      106.9
                                                                              123.2      112.5





9  Reconciliation of operating profit (loss) to net cash inflow from
operating activities
                                           2004        2004    2004        2003        2003          2003
                                         Before Exceptional              Before Exceptional
                                    exceptional items               exceptional       items
                                          items                           items
                                      £ million   £ million       £   £ million   £ million     £ million
                                                            million
Group operating profit (loss)              13.3      (42.8)  (29.5)        13.6     (169.6)       (156.0)
Depreciation charge                         6.9         0.7     7.6         7.4         0.9           8.3
Loss on sale of tangible assets               -           -       -         1.5           -           1.5
Loss on sale of businesses                    -         2.4     2.4           -           -             -
Amortisation of goodwill                    5.7           -     5.7        10.3           -          10.3
Distribution of shares from the             7.1           -     7.1         4.8           -           4.8
trusts
Goodwill impairment                           -        21.2    21.2           -       144.4         144.4
Accrued reorganisation costs                  -        18.5    18.5           -        24.3          24.3
Reorganisation costs spent                    -      (10.2)  (10.2)           -      (18.2)        (18.2)
Release of accrual for shares to be       (0.5)           -   (0.5)       (1.2)           -         (1.2)
issued
Decrease in debtors                        11.0           -    11.0        19.0           -          19.0
(Decrease) increase in creditors         (14.2)           -  (14.2)        13.9           -          13.9
and provisions
Net cash inflow (outflow) from             29.3      (10.2)    19.1        69.3      (18.2)          51.1
operating activities


10 Analysis of changes in net debt
                                           At 1May             Other non-cash     Exchange At 30 April
                                              2003  Cash flow         changes     movement        2004
                                         £ million  £ million       £ million    £ million   £ million

Cash at bank and in hand                      20.9        0.9               -        (0.5)        21.3
Overdrafts                                       -      (0.8)               -                    (0.8)
                                                          0.1

Debt due within one year                     (5.3)     (10.8)          (11.2)          0.1      (27.2)
Debt due after one year                     (11.2)          -            11.2            -           -
Finance leases                               (0.6)        0.3               -            -       (0.3)
                                                       (10.5)
                                               3.8     (10.4)               -        (0.4)       (7.0)




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