Interim results 2007

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Interim Results 2007 04/09/2007

Revenue* up 56%
Adjusted operating profit ** up 83%
North America is over 35% of the business

Axon Group plc, a global leader in the delivery of Business Transformation programmes for large organisations that use SAP as their strategic platform, today announced interim results for the six months ended 30 June 2007 (“H1 2007”).

Key points for the six months include:

Revenue* up 56% to £96.7m (H1 2006: £61.8m)
North America is 35% of the business, based on revenue of £34.3m
Adjusted Gross profit* up 56% to £27.7m (H1 2006: £17.8m)
Headcount* as at 30 June 2007 up 36% to 1,277 (H1 2006: 937)
Adjusted operating profit** up 83% to £16.5m (H1 2006: £9.0m)
Operating profit* up 94% to £13.8m (H1 2006: £7.1m)
Adjusted diluted earnings per share*** up 83% to 17.0p (H1 2006: 9.3p)
Interim dividend per share increased to 2.00p (H1 2006: 1.75p)

Steve Cardell, Chief Executive Officer said:

“Our strategy is to become the global leader in the delivery of Business Transformation programmes for large organisations that use SAP as their strategic platform. Our continued successful execution of this strategy has delivered revenue growth of 56%, an 83% increase in adjusted operating profit and the creation of a substantial North American business. Even more pleasingly, excellent chargeability and high levels of client satisfaction have enabled us to maintain adjusted gross margins* at 29%.

We are now the largest consultancy in the world that focuses exclusively on the delivery of SAP-enabled solutions. This focus provides us with an opportunity to increase our current 1% to 2% share of the buoyant $24bn Global SAP Services market. We will continue to drive growth in our Anglo-American business and leverage our Asia-Pacific offshore capability. We also aim to build on our recent successes in new markets such as Financial Services, where we have recently won a deal with Barclays, and new geographies such as China where we just won a major deal with Boeing China.

The performance of the business has only been possible through the talent, focus and responsiveness of our people. As we move to the next phase of growth, I am confident that our current team will continue to excel and in doing so they will create an environment which will attract further talent into the business.

We have a strong order book, a good pipeline and excellent operational controls and we look forward to another good performance in the second half.”

For further Information please contact:

Steve Cardell, Chief Executive Officer
Iain McIntosh, Chief Financial Officer
Axon Group plc
01784 480 800

Chris Hamilton
Bell Pottinger
020 7861 3232

* From continuing operations; adjusted gross profit excludes share-based payments of £939k (H1 2006: £627k).

**From continuing operations; excluding amortisation of intangible assets on acquisition and share-based payments of £1,235k and £1,389k respectively (H1 2006: £910k and £936k respectively); and a restatement as described in note 13.

***From continuing operations; excluding amortisation of intangible assets on acquisition and share-based payments of £1,235k and £1,389k respectively (H1 2006: £910k and £936k respectively) and related tax effect in relation to the adjusted profit after taxation as calculated in note 7; and a restatement as described in note 13.

Executive Chairman’s statement

Our strategy is to become the global leader in the delivery of Business Transformation programmes for large organisations that use SAP as their strategic platform. This strategy has delivered revenue growth of 56%, the creation of a substantial North American business and an 83% increase in adjusted operating profit**.

For the six-month period to 30 June 2007, revenue* has increased to £96.7m (H1 2006: £61.8m), adjusted operating profit has increased 83% to £16.5m (H1 2006: £9.0m), adjusted diluted earnings per share *** (see note 7) are up to 17.0p per share (H1 2006: 9.3p) and diluted earnings per share* are up to 13.4p per share (H1 2006: 7.9p).

We have continued to focus on cash and combined WIP/Debt fell to 71 days (H1 2006: 88 days) which is a good performance considering the 56% increase in revenues during the same period. We managed to increase net cash levels to £14.5m at 30 June 2007 (31 December 2006: £6.2m), including repayment of £6.0m in short term borrowings.

Axon has a progressive dividend policy and it is proposed that the Company pays an interim dividend of 2.00p per share (H1 2006: 1.75p), to be paid on 23 November 2007 to shareholders on the register as at 26 October 2007.

As ever, the performance of our people continues to be outstanding, they should be proud of themselves and I would like to thank them.

Mark Hunter
Executive Chairman
4 September 2007

* From continuing operations; adjusted gross profit excludes share-based payments of £939k (H1 2006: £627k).

Business and financial review

Business Transformation Delivered
Our strategy is unchanged: work with large organisations to help them deliver major programmes that will transform a key aspect of their business using SAP as the enabling technology. This singular focus has increased our profile in the marketplace and enabled us to continue to grow our 1% to 2% share of the $24bn global SAP services market.

Our global aspiration has become a reality
The increasingly global nature of our proposition drove a 100% increase in non-UK revenues to £45.5m (H1 2006: £22.8m) and we continue to pursue further opportunities within EMEA, Asia-Pacific and North America.

EMEA continues to deliver a strong performance
Revenues in the EMEA region grew by 33% to £61.9m (H1 2006: £46.7m) and this growth was driven primarily in the UK through the expansion of our offering to our existing clients, as well as buoyant demand in the Public Sector, Utilities and Oil and Gas markets. We have continued to win new business with organisations such as the National Policing Improvement Agency, Davis Langdon and Barclays Asset & Sales Finance.

We also have a great track record in the delivery of complex pan-European programmes that are run and resourced from central teams located in the UK. We are now seeing a slight increase in demand for pan-European programmes and as a consequence continental Europe accounted for revenues of £10.8m (H1 2006: £7.7m).

Overall, EMEA delivered a good adjusted operating profit of £12.9m (H1 2006: £6.7m), which equates to 21% of EMEA external revenues (H1 2006: 14%). This increase in profitability can be attributed to high consultant utilisation and good client satisfaction.

We now have a significant business in North America
Our strategy for the North American market has been to acquire small SAP consultancies that have leadership in vertical industry sectors, and then to drive rapid organic growth through the application of Axon’s scale and proposition. The success of this strategy was demonstrated when we bought TUI Consulting, who were a $5m turnover Utilities consultancy, and used their expertise to win a multi-million dollar contract with Texas Utilities (TXU).

This strategy of selective acquisition coupled with rapid organic growth has resulted in North America growing external revenues to £34.3m (H1 2006: £14.6m) and adjusted operating profit to £3.5m (H1 2006: £1.7m) despite continued investment in business development.

Our offshore capability continues to grow
All of our major programmes incorporate an element of offshore services which is serviced from the Asia-Pacific region. The region contributed revenue of £4.2m (H1 2006: £3.3m) to the group before intra group eliminations and adjusted operating profit fell to £0.1m (H1 2006: £0.6m), principally reflecting changes to our internal transfer pricing.

In March 2007, we announced our intention to purchase JSPC-i, a SAP consulting organisation with 150 consultants based in offices in China, Kuala Lumpur and Singapore. We have partnered with JSPC-i for many years, and believe that a combination of their skill-set, culture and location will greatly enhance our offshore and local capabilities. In April 2007, we paid an initial consideration of £0.4m for JSPC-i, and a final consideration of £8.7m was paid into escrow in July 2007.

Consulting and Solutions Implementation grew strongly
The majority of our Business Transformation programmes require a mix of consulting, implementation and applications management services to deliver the required benefits to our clients.

Business Consulting, which is predominantly UK-focused, grew revenues by 70% to £17.2m (H1 2006: £10.1m) driven by the need for business consultants in large programmes such as Birmingham City Council. Solutions Implementation delivered very strong growth and revenues grew by 70% to £68.0m (H1 2006: £39.9m) which was driven both by strong demand in the UK as well as acquisitions and organic growth in North America. Applications Management revenues fell by 3% to £11.5m (H1 2006: £11.8m) which was a good performance considering our decision to exit a low margin contract which ended in H1 2006.

We continue to focus on large programmes
Our focus on large programmes of work for our clients is reflected in relatively high levels of client concentration. In the first half of 2007, our top 5 clients accounted for 54% of revenues (H1 2006: 52%) and our top 10 clients accounted for 65% of revenues (H1 2006: 74%).

Demand was strong across all vertical markets
We experienced growth in all vertical markets as a consequence of demand for our “back office” transformation services. We also experienced accelerated growth in those sectors where we have a compelling “front office” proposition such as Aerospace & Defence, High-technology, Oil & Gas, Public Sector, Telco and Utilities. Furthermore, we have started to invest in the Financial Services market and we are making positive progress with contract wins with organisations such as EBRD, RSA and Barclays.

Adjusted gross margin remained solid
Adjusted gross margin* was strong at 28.7% (H1 2006: 28.8%) which was a result of high consultant chargeability* of 76% (H1 2006: 76%) and general high levels of client satisfaction.

We continue to leverage our administrative cost base despite high recruitment costs
Despite considerable investment to build our North American infrastructure and the high levels of recruitment costs sustained in the first half, adjusted administrative expenses*, excluding share-based payments and purchased intangible asset amortisation, only grew by 27% to £11.3m (H1 2006: £8.9m).

A good performance on cash despite acquisition costs and high rates of growth
Combined WIP/Debt fell from 88 days in H1 2006 to 71 days in H1 2007 which is a good result considering the 56% increase in revenues during the same period. We managed to increase net cash levels to £14.5m at 30 June 2007 (31 December 2006: £6.2m) including repayment of £6.0m in short term borrowings.

Our people have, yet again, delivered an outstanding performance
High levels of demand across the business drove consultant utilisation* up to 86% (H1 2006: 84%) which, coupled with general high levels of client satisfaction, delivered an excellent adjusted gross margin of 28.7% (H1 2006: 28.8%). In response to this demand we continued our recruitment drive and we finished the first half with a total headcount of 1,277 which is up 36% from the 937 employees that we had on 30 June 2006.

We have a strong order book, a good pipeline and excellent operational controls and we look forward to another good performance in the second half.

Steve Cardell
Chief Executive Officer
4 September 2007

* From continuing operations.

To see the full statement please click here (PDF file).

To see the presentation to analysts please click here (PDF file).