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Xansa PLC (XAN)

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Thursday 01 December, 2005

Xansa PLC

Interim Results

Xansa PLC
01 December 2005



1 December 2005



                                     XANSA



            Interim results for the six months ended 31 October 2005



Xansa, the outsourcing and technology company, is pleased to announce its
results for the six months ended 31 October 2005.



                              Business Highlights



•         Group margins* increased from 5.6% to 7.2%

•         31% growth in UK public sector work:

          o        New client wins: Ofcom, The Metropolitan Police, Jobcentre 
                   and Foreign and Commonwealth Office, Peterborough City 
                   Council and Cornwall County Council

          o        NHS Joint Venture progressing ahead of expectations, serving
                   100 trusts and now providing payroll services

•         New wins and extensions in the private sector: National Grid, Lloyds
          TSB, Boots, British Gas and Renault Formula 1

•         India workforce increased by over 20% since 30 April 2005

•         Order bank steady at £450m (H1 2005: £451m)

* before share based payments



                             Financial Performance



•         Turnover declined to £175.9 million (H1 2005: £189.5 million), as
          increasing volumes of work are delivered from India.

•         Operating profit increased to £11.1 million (H1 2005: £9.2 million)

•         Operating profit before share based payments and share of Joint
          Venture results increased to £14.3m (H1 2005: £10.7m)

•         Profit before tax increased to £7.8 million (H1 2005: £6.7 million)

•         Diluted earnings per share increased to 1.90 pence (H1 2005: 1.81
          pence)

•         Adjusted diluted earnings per share increased to 2.31 pence (H1 2005:
          2.21 pence)

•         Dividend per share maintained at 1.08 pence (H1 2005: 1.08 pence)



Bill Alexander, Chairman commented:



"The company has delivered a solid performance in line with the objectives set
out at the start of the year.  This has been achieved against a backdrop of
planned transition as our India business becomes increasingly important to our
existing and potential clients.  We have continued to drive growth in the public
sector and our joint venture with the Department of Health is showing good
progress."



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



"We are part-way through the shift in our business model.  Progress is very
encouraging and margins have continued to improve.  Additionally, our earlier
investments are beginning to yield benefits and we expect to see revenue growth
in the second half.  Our objective of creating a high margin and growing
business is on track."

                                      ENDS


Contact:



Gordon Stuart                               Giles Sanderson, James Melville-Ross
Finance Director, Xansa                     Financial Dynamics
Tel : + 44 (0)8702 416181                   Tel : + 44 (0)20 7831 3113
Email : gordon.stuart@xansa.com







About Xansa



Xansa is an outsourcing and technology company. Committed to delivering
guaranteed business outcomes through a combination of technology and process
expertise, Xansa gives its clients the freedom to do more with their business.
Strong relationships, commercial innovation and an integrated Indian delivery
capability ensure that Xansa drives real and long-term cost reductions,
performance improvements and new ways of working tailored to each client. The
services Xansa provides are Business and Technology Consulting, IT
Implementation, IT Outsourcing and Business Process Outsourcing. Head-quartered
in Reading, Berkshire, Xansa is listed on the London Stock Exchange (LSE: XAN)
and has over 6900 people in the UK and India.



Chief Executive's Statement



In our Preliminary results report in June I laid out the priorities around which
we would focus.  Specifically these were:



•         Growing our business with a particular emphasis on investment in the
          UK public sector.

•         Raising our margins, principally via greater leverage of our offshore
          operations.

•         Expanding our client base, deepening our existing client relationships
          and delivering in our joint venture with the Department of Health.



Over the last six months we have made steady progress against each priority.



Our first objective is to grow our business.  Initially this growth in activity
will be masked by the transition of predominantly private sector work to India.
To drive growth we have prioritised our investment into areas where we see
immediate opportunities.  We are under-represented in the UK public sector
market and hence a significant effort has been made in this area.



Group operating profits* (excluding the results of the joint venture, NHS Shared
Business Services) increased over the first half last year by 34% to £14.3
million.  Total operating profit increased over the same period from £9.2
million to £11.1 million.  Workload increased in line with headcount and we grew
our total staff numbers over the first half by 6.1% to close the half-year at
6,945.  Group revenues decreased by 7.2% year on year to £175.9 million. The
reduction in overall revenues was the consequence of the continuing transition
of work for our private sector clients from the traditional UK delivery base to
our Indian delivery centres. Against this, growth was achieved in the Government
Sector with revenues increasing by 31% year on year to £26.7 million.



* before share-based payments



Our second objective is to continue the transformation of our business to
deliver around double-digit margins.  Given the current competitive market
conditions, little scope exists to achieve this step change via pricing.  Our
emphasis therefore is on shifting the mix of our resource base, in particular to
rapidly increase our leverage of the lower cost base that our Indian operations
enjoy when compared to similar roles performed onshore in the UK.  Over the last
year, we migrated a significant volume of existing activity to India and
utilised our Indian centres extensively to deliver against new work orders from
our clients.  The short-term consequence of this accelerated shift towards
offshore delivery is a reduction in average day rates and hence overall
revenues.  However, the benefits are threefold:



•         The significantly lower cost base increases overall profits despite
          short-term revenue dilution.

•         Increased scale in India provides further economies and critical mass
          in areas of core expertise.

•         The lower group cost base allows us to compete more effectively to win
          more work.



The momentum in this transition has been maintained.  Headcount in India grew
over the last six months by over 20% to close the half-year at 3,383. To cope
with increasing demand for offshore services, we expanded capacity during the
year with the opening of the second phase of our facility at Chennai.  Total
installed single shift seat capacity is now 3,400 seats.  In late October, we
started construction of our second phase at Pune and expect to bring an
additional 620 seats on stream in 2006.  This investment has allowed us to
maintain our position as the leading UK-based supplier of offshore services into
the UK market.  The pace of our transition is reflected in strong growth in
revenues serviced by our Indian operations, increasing by 16.1% to £36.1 million
over the last 6 months.  Our transition is on track and delivering increased
margins as predicted. Operating margins* increased to 7.2% in the first half,
including our share of the results of NHS Shared Business Services.  This
continues our track record of steadily improving margins.  As we continue the
transition over the next 12 to 24 months we expect further margin improvement.



* before share-based payments



We have continued to build differentiated service offerings and capabilities
that allow our clients to do more with their own business.  By working with
Xansa, our clients are able to realise real business benefits as we increase the
effectiveness of their technology investment and business processes.  This focus
on expert solutions delivered in a highly cost-efficient manner from our blend
of onshore and offshore resources has enabled us both to extend our existing
relationships and to win new clients.  For example in September, we were pleased
to announce the £26 million extension of our contract with Boots to manage core
applications and expand our services to manage their Advantage card loyalty
scheme. In the Utilities sector we have started working with National Grid and
expanded our services at Centrica into British Gas Business. Just after the
close of the half-year, we announced a major step forward with Lloyds TSB to
deliver insurance processing.  In October, we formalised a partnership with
Renault Formula 1 to build and operate software systems to capture and analyse
data from their race-cars.



Progress has been very encouraging in the Government Sector and in the first
half we have started work at a number of new clients.  In central government,
this list of new clients includes Ofcom, The Metropolitan Police, Jobcentre and
the Foreign & Commonwealth Office. We have also continued our push into local
government.  Building on our success at Solihull Metropolitan Borough Council,
we have now been awarded contracts at Peterborough City Council and Cornwall
County Council and are actively exploring possibilities with a number of other
local authorities.



Our final objective is to ensure we deliver in our joint venture with the
Department of Health, NHS Shared Business Services.  This joint venture is the
first shared service centre of its kind in the Government sector and is an
excellent model for future Government initiatives.  When first established in
April 2005, the objective of NHS SBS was to provide finance and accounting
services to NHS Trusts.  When Xansa was selected as the preferred partner in
November 2004, 36 out of a total of 663 Trusts utilised these services. Since
then, progress has been encouraging.  At the end of October, 100 Trusts were
using our services or were about to migrate onto the service. Furthermore, the
pipeline of trusts due to migrate is extremely strong and visible for at least
the next 12 months.



In addition, we have increased investment in the joint venture to broaden the
services we provide.  For example, in September we announced our entry into
Payroll Services via a contract with Hampshire and Isle of Wight Trust.  With
this contract, we welcomed 161 staff who transferred under TUPE to the joint
venture.  The investment provided us with a payroll capability currently
delivering 700,000 payslips per annum.  Given that over 1.3 million people are
employed by the NHS, many of whom are weekly paid, the market that we can now
address is very significant.



Overall we are very pleased with progress in NHS SBS.  In our first six months
of operations we have grown the business significantly and are ahead of our
initial expectations.  This venture now represents an opportunity to build an
extremely successful business for both ourselves and the Government.  Hence our
immediate priority is to invest further to continue to build momentum via
increased market share and extended service offerings.  Looking ahead, we have
built the first successful public-private shared service centre in the UK.  As
both central and local governments increase their focus on the use of such
facilities to drive government efficiency, we are well placed to assume a
position as leaders in the field and will invest accordingly.



Business Performance



This is the first reporting period in which we have presented our results under
IFRS.  The impact of the transition on previously reported results was published
in October and the details can be found on www.xansa.com.



Turnover for the six months ended 31 October 2005 was £175.9 million.  Operating
profit (before share based payments, pension settlements and curtailments and
share of results of joint venture) in the first half was £14.3 million compared
with £10.7 million in the first half of last year.  This improvement in
profitability was achieved through the transition to a greater offshore resource
mix partly offset by a strengthening of the Indian Rupee against Sterling during
the period.



The results of our joint venture with the Department of Health, NHS SBS, are
incorporated for the first time.  This year, in the six months to 31 October, we
include in our reported results a loss of £1.7 million being our share of the
loss of NHS SBS.  This is higher than initially anticipated owing to the
additional investment in new opportunities, such as payroll.  Consistent with
our earlier position, we are focused on driving the momentum of this venture to
maximise profitability over the longer term.  It is our belief that expanding
our footprint in the NHS in terms of both number of trusts signed and services
delivered is the key to long-term success in this venture.



The accounting treatment for the joint venture relationship results in the
inclusion in revenue of £7.3 million of sales to the joint venture and £2.3
million in reported profit due to the utilisation of the resource invested by
Xansa.  Excluding the total impact of the joint venture, Xansa's revenue was
£168.6 million and operating profit was £12.0 million - a margin of 7.1%.



Net finance expenses increased from £2.5 million to £3.3 million reflecting the
higher charge related to our increased pension deficit, new finance leases and
the unwinding of the discount on certain provisions.  Net debt at 31 October was
£19.7 million, £4.0 million lower than this time last year.  We continue to
focus on operating cash management and our period end outstanding debtor days of
34 reflects this fact.



Our tax rate for the period is 14.5% compared to 17.8% for the year ended 30
April 2005.  This continuing low tax rate results from a large proportion of our
profits being earned in India which currently enjoys a tax holiday.



Reported adjusted diluted earnings per share of 2.31 pence were 4.5% higher than
the 2.21 pence for the first half last year.



Our order bank at the end of October 2005 was £450 million which is in line with
this time last year.  Key additions to our order bank this period included the
significant growth in the number of NHS trusts now signed up for our joint
venture Finance and Accounting services and the extension and expansion of our
IT outsourcing contract with Boots out to 2011. A number of new clients have
been added, and we continue to take orders over and above minimum commitments
for major projects within key clients such as Barclays and the Royal Mail.





Dividend



The Board proposes to maintain the interim dividend payment at 1.08 pence per
share.  The dividend is covered 1.8 times by interim diluted earnings per share
of 1.90 pence.





Outlook



Our outlook remains unchanged since that given at our Preliminary results
announcement in June 2005.  The growth in the private sector is expected to
remain modest.  Stronger and more consistent growth is anticipated in the public
sector as the Government moves closer to defining and implementing its
efficiency initiatives.



We will continue to invest to grow the business and will channel funds into new
service development across all sectors in order to maintain our competitive
advantage and reputation for innovation.  The Government sector will remain a
particular focus and we intend to capitalise on our leadership position in
shared service centres to central Government departments and local authorities.



Simultaneously, we will continue to transition towards offshore delivery where
the economic case for ourselves and our clients is clear.  We are part-way
through this shift in our business model and progress is very encouraging.  In
the short term, we expect to see continued improvement in the operating margin.
We also believe that the reduction in group revenues as a result of transition
has now halted and revenues in the second half will begin to increase as earlier
investments deliver benefits.



In summary, I am confident that the strategy we embarked upon a year ago is the
right one and is delivering against our targets.  Our objective of creating a
high margin and growing business is on track.



Alistair Cox   Chief Executive





Consolidated Income Statement

For the six months ended 31 October 2005


                                                                   6 months to      6 months to         Year to
                                                                    31 October       31 October        30 April
                                                                          2005             2004            2005

                                                           Note      £ million        £ million       £ million

Group revenue                                                            175.9            189.5           376.4

Operating profit:

Before share-based payments and pension

 settlements and curtailments                                             14.3             10.7            20.2
Share-based payments                                                     (1.5)            (1.5)           (2.7)
Pension settlements and curtailments                                         -                -             3.0
Share of joint venture's loss after tax                                  (1.7)                -               -

Operating profit                                                          11.1              9.2            20.5

Finance income                                              3              0.2              0.1             0.3
Finance expense                                             3            (3.5)            (2.6)           (5.3)

Profit on ordinary activities before taxation               2              7.8              6.7            15.5
Taxation                                                    4            (1.6)            (1.0)           (2.7)
Profit for the period                                                      6.2              5.7            12.8

Attributable to:
Equity shareholders of the parent                                          5.9              5.5            12.4
Minority interests                                                         0.3              0.2             0.4

                                                                           6.2              5.7            12.8






Earnings per share expressed in pence per share
- basic                                                     5            1.94p            1.84p           4.14p
- diluted                                                   5            1.90p            1.81p           4.05p

Earnings per share before share-based payments and

pension settlements and curtailments:
- basic                                                     5            2.37p            2.25p           3.87p
- diluted                                                   5            2.31p            2.21p           3.79p

Proposed dividend per share                                 6            1.08p            1.08p           3.24p
Proposed dividend £ million                                 6              3.4              3.4            10.1





Consolidated balance sheet

As at 31 October 2005


                                                                 31 October       31 October         30 April
                                                                       2005             2004             2005
                                                       Note       £ million        £ million        £ million

ASSETS
Non-current assets
Property, plant and equipment                                          22.4             20.7             20.9
Deferred income tax assets                                             17.0             13.7             15.9
Intangible assets                                                      85.1             81.5             81.9
Prepayments                                                             1.9              2.2              1.7
Investment in joint venture                                             8.9                -             10.0
                                                                      135.3            118.1            130.4
Current assets
Trade and other receivables                                            48.5             56.7             47.3
Amount due from joint ventures                                          2.0                -              0.8
Prepayments                                                             5.8              6.4              6.5
Cash and deposits                                        8             22.8             18.1             27.4
                                                                       79.1             81.2             82.0

TOTAL ASSETS                                                          214.4            199.3            212.4


EQUITY AND LIABILITIES
Issued capital                                                         17.2             17.1             17.1
Reserves                                                             (31.6)           (28.2)           (33.9)

Total equity attributable to equity holders of the      10           (14.4)           (11.1)           (16.8)
parent

Non-current liabilities
Trade and other payables                                                1.8                -              2.8
Interest bearing loan and borrowings                     8             32.7             36.1             37.6
Provisions                                                             98.9             81.3             98.0
                                                                      133.4            117.4            138.4

Current liabilities
Trade and other payables                                               71.8             78.1             73.7
Interest bearing loans and borrowings                    8              9.8              5.7              5.5
Income tax payable                                                      9.6              6.2              6.6
Provisions                                                              4.2              3.0              5.0
                                                                       95.4             93.0             90.8


TOTAL LIABILITIES                                                     228.8            210.4            229.2

TOTAL LIABILITIES AND EQUITY                                          214.4            199.3            212.4





Consolidated cash flow statement

For the six months ended 31 October 2005


                                                                       6 months to     6 months to         Year to
                                                                        31 October      31 October        30 April
                                                                              2005            2004            2005

                                                                Note     £ million       £ million       £ million
Cash generated from operations                                   7            13.1           (3.3)            11.9

Interest paid                                                                (2.2)           (2.4)           (4.2)
Tax received (paid)                                                            0.3           (0.3)           (0.7)
Net cash generated from operating activities                                  11.2           (6.0)             7.0

Cash flows from investing activities
Proceeds on disposal of property, plant and equipment                          0.1               -             0.3
Interest received                                                              0.2               -             0.3
Investment in joint venture                                                  (2.1)               -               -
Purchases of property, plant and equipment                                   (3.1)           (3.3)           (5.9)
Purchases of intangible assets                                               (3.8)           (2.0)           (3.1)
Net cash flows used in investing activities                                  (8.7)           (5.3)           (8.4)

Cash flows from financing activities
Proceeds from issuance of ordinary shares                                        -             0.1             0.1
Repayments of amounts borrowed                                               (5.6)           (9.2)           (8.4)
Cash paid to acquire own shares                                              (0.4)           (0.4)           (0.7)
Proceeds from sale of own shares                                               0.8             0.6             1.4
Payment of finance lease liabilities                                         (0.2)           (0.8)           (1.2)
Dividends paid to minority shareholders of subsidiaries                      (0.5)               -               -
Dividends paid to the Company's equity holders                               (5.7)           (5.6)           (7.6)
Net cash flows from financing activities                                    (11.6)          (15.3)          (16.4)

Net increase (decrease) in cash and cash equivalents             9           (9.1)          (26.6)          (17.8)

Cash and cash equivalents:
At beginning of period                                                        21.9            39.7            39.7
Effect of changes in foreign exchange rates                                    0.2               -               -

At end of period                                                              13.0            13.1            21.9





Consolidated statement of recognised income and expense

For the six months ended 31 October 2005


                                                               6 months to      6 months to          Year to
                                                                31 October       31 October         30 April
                                                                      2005             2004             2005

                                                                 £ million        £ million        £ million


Employee defined benefit obligations:
- actuarial losses on defined benefit obligations                    (0.5)                -           (15.9)
- deferred taxation recognised directly in equity                        -            (0.4)              2.8
Employee share option scheme - deferred taxation

recognised in equity                                                     -                -            (0.1)
Net exchange adjustments                                               0.9            (1.0)            (0.6)

Net expense recognised directly in equity                              0.4            (1.4)           (13.8)

Profit for the period                                                  6.2              5.7             12.8


Total recognised income (expense) for the period                       6.6              4.3            (1.0)

Attributable to:
Equity shareholders of the company                                     6.3              4.1            (1.4)
Minority interests                                                     0.3              0.2              0.4

                                                                       6.6              4.3            (1.0)





Notes to the Accounts





1.        Basis of preparation

The next annual financial statements of the group will be prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted for use in
the EU, whereas the Group has previously reported under UK Generally Accepted
Accounting Practice (UK GAAP).  Accordingly, the interim financial report has
been prepared using accounting policies which comply with IFRS.  IFRS is subject
to amendment and interpretation by the International Accounting Standards Board
(IASB) and there is an on-going process of review and endorsement by the
European Commission.  The financial information contained in these interim
accounts has been prepared on the basis of IFRS that the Directors expect to be
applicable as at 30 April 2006.  In particular the Directors have assumed that
the European Commission will endorse the amendment to IAS 19 'Employee Benefits
- Actuarial Gain and Losses, Group Plans and Disclosures' issued by the IASB in
December 2004.



Details of the changes in accounting policies arising from the adoption of IFRS,
together with restated financial information for the six months to 31 October
2004 and the year to 30 April 2005, has previously been published on the Group's
website, www.xansa.com.  The accounting policies set out in that document have
been consistently applied to all periods presented in these condensed
consolidated statements, with the exception of financial instruments as detailed
below.



The group has utilised the exemption available within IFRS1 'First time adoption
of IFRS' and elected not to restate comparative information for the impact of
IAS 32 and 39 financial instruments.  The opening balance sheet at 1  May 2005
has been adjusted to reflect the adoption of these standards from that date and
details of these adjustments are set out in note 11.



The half year results are unaudited and were approved by the board of Directors
on 30 November 2005.  The figures in this report for the year to 30 April 2005
do not constitute statutory accounts for the purposes of Section 240 of the
Companies Act 1985. A copy of the statutory accounts for that year under UK GAAP
has been delivered to the Registar of Companies on which an unqualified report
has been made by the auditors under Section 235 of the Companies Act 1985.



2.        Underlying profit measure



                                                      6 months to       6 months to           Year to
                                                       31 October        31 October          30 April
                                                             2005              2004              2005

                                                        £ million         £ million         £ million
Profit (loss) on ordinary activities before
taxation analysed between:

Profit before share based payments, pension

settlements and curtailments                                  9.3               8.2              15.2
Share based payments                                        (1.5)             (1.5)             (2.7)
Pension settlements and curtailments                            -                 -               3.0
                                                              7.8               6.7              15.5





3.        Finance income and expense



                                                      6 months to       6 months to           Year to
                                                       31 October        31 October          30 April
                                                             2005              2004              2005
                                                        £ million         £ million         £ million

Finance income                                                0.2               0.1               0.3

Finance expense, excluding items relating to

pension scheme                                              (2.3)             (1.7)             (3.6)
Expected return on pension fund assets                        5.9               5.9              11.9
Interest on pension fund liabilities                        (7.1)             (6.8)            (13.6)
Finance expense                                             (3.5)             (2.6)             (5.3)





4.        Taxation



                                                      6 months to       6 months to           Year to
                                                       31 October        31 October          30 April
                                                             2005              2004              2005
                                                        £ million         £ million         £ million

UK corporation tax                                            2.6               0.3               0.9
Foreign tax                                                   0.1                 -               0.2
Total current tax                                             2.7               0.3               1.1
Deferred tax                                                (1.1)               0.7               1.6
                                                              1.6               1.0               2.7





The tax charge of £1.6 million on profit before tax, share based payments and
share of joint venture's results of £11.0 million results in a tax rate of 14.5%
(year to 30 April 2005 17.8%).  The tax charge includes a credit in respect of
share based payments of £0.2 million (year to 30 April 2005 £0.5m) and a nil tax
charge in respect of pension settlements and curtailments (year to 30 April 2005
tax charge of nil).  The tax charge excluding these items is £1.8 million (year
to 30 April 2005 £3.2 million), which results in an effective tax rate of 16.4%
(year to 30 April 2005 21.1%).





5.        Earnings per share



                                                      6 months to       6 months to          Year to
                                                       31 October        31 October         30 April
                                                             2005              2004             2005
Basic and diluted earnings per share
Profit attributable to equity holders of the

company (£ million)                                           5.9               5.5             12.4

Weighted average number of ordinary shares in
issue,
                                                          303,560           298,149          299,637
excluding shares held by ESOP trusts (thousands)
Adjustments for dilutive effects of share options
and
                                                            7,642             5,011            6,424
free and matching shares (thousands)
Weighted average number of ordinary shares for

diluted earnings per share (thousands)                    311,202           303,160          306,061

Basic earnings per share (pence per share)                   1.94              1.84             4.14
Diluted earnings per share (pence per share)                 1.90              1.81             4.05

Adjusted basic and diluted earnings per share
Profit attributable to equity holders of the

company (£ million)                                           5.9               5.5             12.4
Adjustments for:
- share based payments                                        1.5               1.5              2.7
- pension settlements and curtailments                          -                 -            (3.0)
- tax effect of the above adjustments                       (0.2)             (0.3)            (0.5)
Adjusted profit (£ million)                                   7.2               6.7             11.6

Basic earnings per share (pence per share)                   2.37              2.25             3.87
Diluted earnings per share (pence per share)                 2.31              2.21             3.79





6.        Dividends



The directors have declared a dividend of £3.4 million out of the profits for
the six months to 31 October 2005 (31 October 2004: £3.4 million), representing
1.08 pence per share (31 October 2004 1.08 pence), payable on 6 April 2006 to
members registered at the close of business on 27 January 2006.  The final
dividend for the year to 30 April 2005 of £6.8 million, representing 2.16 pence
per share, was paid during the six months to 31 October 2005.





7.        Reconciliation of operating profit (loss) to net cash (outflow) inflow
from operating activities



                                                      6 months to       6 months to          Year to
                                                       31 October        31 October         30 April
                                                             2005              2004             2005
                                                        £ million         £ million        £ million
Profit before tax for the period                              7.8               6.7             15.5
Depreciation and amortisation                                 3.0               3.5              6.9
Loss on sale of property, plant & equipment                     -                 -              0.1
Cost of employee share schemes                                1.5               1.5              2.7
Finance income                                              (0.2)             (0.1)            (0.3)
Finance expense                                               3.5               2.6              5.3
IAS 19 Pension cost in excess of contributions                1.4               0.4            (2.1)
Share of joint venture's loss after tax                       1.7                 -                -
Exceptional costs spent (see note below)                    (2.2)             (9.7)           (12.6)
Working capital                                             (3.4)             (8.2)            (3.6)

Cash generated from operations                               13.1             (3.3)             11.9



In the year to 30 April 2004 Xansa incurred costs which were classified as
'exceptional' in the profit and loss account in that year.  Exceptional costs
spent in the above table represent the utilisation of the accruals and
provisions so created.





8.        Analysis of changes in net funds (debt)



                                     At 1 May       Cashflow       Non-cash       Exchange     At 31 October
                                         2005                       changes       movement              2005
                                    £ million      £ million      £ million      £ million         £ million

Cash and cash equivalents:
Cash at bank and in hand                 27.3          (4.8)              -            0.2              22.7
Net debt items not qualifying
as

cash and cash equivalents:
Deposits with original
maturity
                                          0.1              -              -              -               0.1
of greater than three months
                                         27.4          (4.8)              -            0.2              22.8

Current interest bearing loans

and borrowings:
Overdrafts                              (5.4)          (4.3)              -              -             (9.7)
Debt due within one year                    -              -              -              -                 -
Finance Leases                          (0.1)            0.2          (0.2)              -             (0.1)
Derivative financial
instruments
                                        (0.1)              -              -            0.1                 -
(note 11)
                                        (5.6)          (4.1)          (0.2)            0.1             (9.8)

Non-current interest bearing

loans and borrowings:
Debt due after one year                (37.5)            5.6          (0.2)              -            (32.1)
Finance Leases                          (0.1)              -          (0.5)              -             (0.6)
                                       (37.6)            5.6          (0.7)              -            (32.7)

                                       (15.8)          (3.3)          (0.9)            0.3            (19.7)



The net debt at 1 May 2005 in the above table is stated after reflecting the IAS
39 transition adjustment described in note 11



9.        Reconciliation of net increase in cash and cash equivalents to
movement in net funds (debt)



                                                      6 months to       6 months to          Year to
                                                       31 October        31 October         30 April
                                                             2005              2004             2005
                                                        £ million         £ million        £ million
(Decrease) increase in cash and cash equivalents in         (9.1)            (26.6)           (17.8)
period
Cash outflow (inflow) from decrease (increase) in

debt and lease financing                                      5.8              10.4              9.2
Change in net funds (debt) resulting from cash              (3.3)            (16.2)            (8.6)
flows
New finance leases                                          (0.7)                 -                -
Amortisation of issue costs of debt                         (0.2)                 -                -
Translation difference                                        0.3               0.4              0.8
Movement in net funds (debt) in the period                  (3.9)            (15.8)            (7.8)

Net (debt) funds at start of period as previously

reported                                                   (15.7)             (7.9)            (7.9)
Impact of IAS 32 and IAS 39                                 (0.1)
Net (debt) funds at start of period restated for

impact of IAS 32 and IAS 39                                (15.8)

Net (debt) funds at period end                             (19.7)            (23.7)           (15.7)





10.     Changes in equity



                                                       6 months to       6 months to           Year to
                                                        31 October        31 October          30 April
                                                              2005              2004              2005
                                                         £ million         £ million         £ million
Opening equity                                              (16.8)            (11.3)            (11.3)
Impact of IAS 32 and IAS 39 adoption (note 11)               (0.1)                 -                 -
Opening equity, restated                                    (16.9)            (11.3)            (11.3)

Profit for the period attributable to equity
shareholders
                                                               5.9               5.5              12.4
of the company
Net actuarial losses on defined benefits
obligations, net
                                                             (0.5)             (0.4)            (13.1)
of tax
Net exchange adjustments                                       0.9             (1.0)             (0.6)
Employee share option scheme
- value of employee services                                   1.5               1.5               2.7
- deferred taxation recognised directly in equity                -                 -             (0.1)
Issue of ordinary shares - scrip dividends                     1.1               1.0               2.3
Issue of ordinary shares - share options exercised               -               0.1               0.1
Payments to acquire own shares                               (0.4)             (0.4)             (0.7)
Receipts from sale of own shares                               0.8               0.6               1.4
Dividends paid                                               (6.8)             (6.7)             (9.9)

Closing equity                                              (14.4)            (11.1)            (16.8)





11.     First time adoption IAS 32 and IAS 39



The adoption of IAS 32 'Financial Instruments: Disclosure and Presentation' and
IAS 39 'Financial Instruments: Recognition and Measurement' with effect from 1
May 2005 results in a change in the Group's accounting policy for financial
instruments. The impact of these standards on the Group's opening balance sheet
is shown below.



Under IAS 32 and IAS 39 financial instruments are recorded initially at fair
value.  Subsequent measurement depends on the designation of the instrument, as
follows:

(a) Deposits with banks are classified as loans and receivables and are held at
amortised cost.

(b) borrowings from banks and trade and other payables are held at amortised
cost.

(c) Derivative financial instruments are measured at fair value, with changes in
fair value recognised in the income statement, unless the instrument is
designated as a hedging item and meets the criteria to qualify for hedge
accounting set out in IAS 39.

(d) Derivative financial instruments meeting criteria to qualify for hedge
accounting set out in IAS 39 are measured at fair value, with changes in fair
value recognised directly in shareholders' equity to the extent that the hedge
is effective.


Restatement of Consolidated Balance Sheet to include IAS 32 and IAS 39

Under UK GAAP movements in the fair value of forward foreign currency contracts
taken out by a subsidiary to hedge receipts in a currency other than that
subsidiary's functional currency were not recognised until the underlying
receipt occurred, at which time the cash flow of the forward foreign currency
contract would be matched against the cash flow of the hedged receipt.  Under
IFRS the fair value of the foreign exchange contract is recognised as an asset
or liability.  At 1 May 2005 the fair value of such contracts was a liability of
£0.1 million.



Xansa's 50%-owned joint venture, NHS Shared Business Services Ltd ('NHS SBS'),
is party to agreements with its shareholders which constitute financial assets
and liabilities under IAS 32.  Recognition of these assets and liabilities at 1
May 2005 reduces Xansa's share of NHS SBS' net assets by £8.0 million, with a
compensating increase in goodwill.


As at 1st May 2005
                                                                                         Restated IFRS
                                                                           IAS 39            including
                                                       Restated        transition               IAS 39
                                                           IFRS        adjustment          adjustments
                                                      £ million         £ million            £ million

ASSETS
Non-current assets
Property, plant and equipment                              20.9                 -                 20.9
Deferred income tax assets                                 15.9                 -                 15.9
Intangible assets                                          81.9                 -                 81.9
Prepayments                                                 1.7                 -                  1.7
Investment in joint venture                                10.0                 -                 10.0
                                                          130.4                 -                130.4
Current assets
Trade and other receivables                                47.3                 -                 47.3
Amount due from joint ventures                              0.8                 -                  0.8
Prepayments                                                 6.5                 -                  6.5
Cash and cash equivalents                                  27.4                 -                 27.4
                                                           82.0                 -                 82.0

TOTAL ASSETS                                              212.4                 -                212.4


EQUITY AND LIABILITIES
Total equity attributable to equity
holders of the parent                                    (16.8)             (0.1)               (16.9)

Non-current liabilities
Trade and other payables                                    2.8                 -                  2.8
Interest bearing loan and borrowings                       37.6                 -                 37.6
Provision for liabilities and charges                      98.0                 -                 98.0
                                                          138.4                 -                138.4

Current liabilities
Trade and other payables                                   73.7                 -                 73.7
Interest bearing loans and borrowings                       5.5                 -                  5.5
Derivative financial instruments                              -               0.1                  0.1
Income tax payable                                          6.6                 -                  6.6
Provisions                                                  5.0                 -                  5.0
                                                           90.8               0.1                 90.9


TOTAL LIABILITIES                                         229.2               0.1                229.3

TOTAL LIABILITIES AND EQUITY                              212.4                 -                212.4







Independent review report to Xansa plc





Introduction

We have been instructed by the Company to review the financial information for
the six months ended 31 October 2005 which comprises the Consolidated Income
Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,
Consolidated Statement of Recognised Income and Expense and the related notes 1
to 11.  We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.



This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board.  To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company, for our work,
for this report, or for the conclusions we have formed.



Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors.  The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority.



As disclosed in note 1, the next annual financial statements of the Group will
be prepared in accordance with those IFRSs adopted for use by the European
Union.



The accounting policies are consistent with those that the directors intend to
use in the next financial statements. There is, however, a possibility that the
directors may determine that some changes to these policies are necessary when
preparing the full annual financial statements for the first time in accordance
with those IFRSs adopted for use by the European Union.  This is because, as
disclosed in note 1, the Directors have anticipated that the amendment to IAS 19
'Employee Benefits - Actuarial Gain and Losses, Group Plans and Disclosures'
issued by the IASB in December 2004, which has yet to be formally adopted for
use in the EU will be so adopted in time to be applicable to the next annual
financial statements.



Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom.  A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and based thereon, assessing
whether the accounting policies and presentation have been applied.  A review
excludes audit procedures such as tests of controls and verification of assets,
liabilities and transactions.  It is substantially less in scope than an audit
performed in accordance with the International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.



Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 October 2005.









Ernst & Young LLP
London
30 November 2005



Financial calendar




Ex-dividend date for 2005/2006 interim dividend               25 January 2006

Record date for 2005/2006 interim dividend                    27 January 2006

2005/2006 interim dividend of 1.08p per share paid *          6 April 2006

Financial year end                                            30 April 2006

Announcement of annual results                                29 June 2006

Ex-dividend date for 2005/2006 final dividend                 5 July 2006

Record date for 2005/2006 final dividend                      7 July 2006

Annual General Meeting                                        14 September 2006

2005/2006 final dividend paid *                               28 September 2006



* A scrip dividend alternative will be available






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