Interim Results 2004                                                                                07/09/2004

Press release:

Profit before tax up 43.6%
Integration of off-shore operation complete
Potential for a strong full year

Axon Group plc, the business transformation consultancy that services $1bn+ corporations that have SAP as their strategic platform, today announced interim results for the six months ended 30 June 2004.

Key points for the six months include:

Mark Hunter, Chairman and Chief Executive, said

“Whilst the market for business and technology consultancy has remained competitive, our first half performance shows that the execution of our strategy continues to deliver results. We have delivered against our existing contracts, we have secured additional work within existing clients, and we began working with several new clients primarily in the consumer goods, retail and oil sectors. We invested in the protection of margin and the delivery of customer service through the establishment of our offshore development centre in Malaysia following our acquisition of MyDruid in April 2004.

During the first half of 2004 we have put considerable effort into ensuring operational excellence from a personnel, financial and customer perspective, and we expect to see the rewards in the form of a strong result for the second half.

In the 10 years since our foundation the needs of our target clients have evolved and we have had to change constantly to remain competitive. In 2001, we set out a strategy to become a Business Transformation Consultancy that manages major programs of change for large corporations that have chosen SAP. During the intervening three years, this strategy has delivered steady top-line growth whilst returning a healthy increase in margins.

It is now time to move to a new phase of growth through delivering even more substantial programs for our customers. Therefore, in 2005, we will be focused on broadening our customer proposition in our current and new vertical markets, as well as aggressively pursuing our international growth plans. I look forward to exciting developments in 2005.”

*Excluding goodwill amortisation and reorganization cost of £0.4m and £nil respectively (H1 2003: £0.4m and £0.3m respectively) and related tax effect in relation to the adjusted profit after taxation as calculated in note 3.

Chairman and CEO statement
Interim Report for Six Month Period to 30 June 2004

For the six-month period to 30 June 2004, turnover has increased 8.4% to £26.7m (H1 2003: £24.6m), profit before tax has increased 43.6% to £2.9m (H1 2003: £2.0m),adjusted profit before tax (see note 3) has increased 23.9% to £3.3m (H1 2003: £2.7m) and adjusted diluted earnings per share (see note 3) are up to 4.1p per share (H1 2003: 3.4p).

Whilst the market for business and technology consultancy has remained competitive, our first half performance shows that the execution of our strategy continues to deliver results. We have delivered against our existing contracts, we have secured additional work within existing clients, and we began working with several new clients primarily in the consumer goods, retail and oil sectors. We invested in the protection of margin and the delivery of customer service through the establishment of our offshore development centre in Malaysia following our acquisition of MyDruid in April 2004.

During the period, consultant utilisation was over 70% and gross margin increased to £8.0m (H1 2003: £7.0m) which equates to 30.0% of revenues (H1 2003: 28.4%). This strong performance can be attributed to the better management of our fixed price contracts and a continuing stabilisation of day rates.

We finished the first half with a total headcount of 465, which is up 20.2% from the 387 employees that we had as at 30 June 2003. It is anticipated that we will continue to recruit during the second half of 2004.

Our balance sheet is strong and the group had a healthy net cash position at the end of the period of £17.3m (H1 2003: £14.5m).

I am pleased to announce the continuing development of the management team through the appointment of Matthew Davison as Finance Director of Axon Solutions Limited in April 2004.

It is proposed that the Company pay an interim dividend of 1.25p per share (H1 2003: 1.0p), to be paid on 19 November 2004 to shareholders on the register as at 22 October 2004. Axon has a progressive dividend policy, and it is intended that the dividend continues to increase in line with underlying growth in earnings.

During the first half of 2004 we have put considerable effort into ensuring operational excellence from a personnel, financial and customer perspective, and we expect to see the rewards in the form of a strong result for the second half.

In the 10 years since our foundation the needs of our target clients have evolved and we have had to change constantly to remain competitive. In 2001, we set out a strategy to become a Business Transformation Consultancy that manages major programs of change for large corporations that have chosen SAP. During the intervening three years, this strategy has delivered steady top-line growth whilst returning a healthy increase in margins.

It is now time to move to a new phase of growth through delivering even more substantial programs for our customers. Therefore, in 2005, we will be focused on broadening our customer proposition in our current and new vertical markets, as well as aggressively pursuing our international growth plans. I look forward to exciting developments in 2005.

Mark Hunter                                                                                    7 September 2004
Chairman and Chief Executive

Financial and Operational Review

We deliver Business Transformation
We deliver Business Transformation for large corporations that run SAP, and we believe that we are now the partner of choice in this marketplace. As a consequence, the first six months of this year have seen continued progress in the execution of this strategy and our revenues and profits are growing.

The market continues to be flat, but we are winning
Whilst there continues to be real demand for the services we offer, the market is still competitive and there is no evidence that day rates will increase in the short term. However, our integrated business transformation proposition and our focus on the needs of large organizations have enabled us to succeed in this market. The quality and track record of our people and our methodology have enabled us both to convince prospects of our ability, and to write contracts in which we bear some delivery risk with confidence. Our unique position to win in this market is evidenced by an increase in our revenues, margins and profits.

We are less reliant on a small number of clients
As we have continued to win large contracts, our reliance on a small set of clients has continued to reduce and, as a consequence, the revenue contribution of our top five clients has fallen from 75% in H1 2003 to 69% in H1 2004.

We now offer offshore development
The provision of offshore development services has become an increasingly standard component of a Business Transformation program. Therefore we supplemented our existing capability in Dubai with the acquisition of MyDruid in Malaysia in April 2004 for an initial consideration of £0.5m. Deferred consideration linked to performance is payable in 2007 and 2008 and capped at £3.8m.

Business Consulting growth has resumed
All of our top ten clients now use our Business Consulting practice to assist in the translation of business needs into programs of work that improve business performance. Whilst revenues from Business Consulting fell to £4.3m in H1 2004 (H1 2003: £5.1m), I am pleased to report that revenues have improved by 10.3% since H2 2003 (H2 2003: £3.9m).

Solutions Implementation has had a good performance
We continue to win market share for large business transformation programs that use SAP as the enabling technology. As a consequence, revenues from Solutions Implementation grew to £14.6m in H1 2004 (H1 2003: £12.7m).

Applications Management continues to grow in line with the business
All Business Transformation deals require a program of ongoing maintenance and evolution, and as a result, revenues from our Applications Management Division grew to £7.8m in H1 2004 (H1 2003: £6.8m). We further strengthened our existing 7*24 hour support capability in the UK and Dubai Internet City with the acquisition of MyDruid.

Increased demand from the Consumer Goods and Hi-Tech sectors
Despite the fall in contribution of clients from the Service sector to £12.6m (H1 2003: £14.2m), demand remains highest in this sector. The fall in revenues of the Service sector is a consequence of the gradual ramp-down of the Transport for London program, yet it is anticipated that revenues from Services clients will resume a growth pattern. Increased demand from the Consumer Goods and Hi-Tech sectors have contributed revenues of £8.5m (H1 2003: £5.7m) and £5.6m (H1 2003: £4.7m) respectively.

The UK is the core of our business
Axon has always worked with large international corporations who are headquartered in the UK. Over the last few years, our clients have favoured the delivery of lower-risk national projects over the higher-risk delivery of pan-European initiatives. However, during the first half of 2004 there was some evidence that this trend may be reversing as we won a number of pan-European programs with large multi-national organizations.

Our international business is growing
In H1 2004 our international revenues have increased to £7.2m (H1 2003: £6.4m) and we continue to pursue further opportunities within the Middle East, Asia Pacific and the US.

Gross margin has improved significantly
Gross margin grew to £8.0m (H1 2003: £7.0m) and improved from 28.4% in H1 2003 to 30.0% in H1 2004. This improvement in gross margin was driven largely by our increased capability in the delivery of fixed price projects, and we also anticipate that the increasing offshore component of our work will enable us to protect these margins.

Overheads are under control
Overheads grew broadly in line with revenues to £5.2m (H1 2003: £4.7m) and they continue to be under tight control. Reorganization costs fell to zero (H1 2003: £0.3m) and this reflects the fact that we have now aligned the structure of our business with the demands of the Business Transformation marketplace.

Our balance sheet is strong
Our success in winning large Business Transformation contracts has resulted in increased levels of work-in-progress as well as increasing the lumpiness of our cash flow. As a consequence, net debtors increased sharply to £16.8m (H1 2003: £14.5m), and debtor days increased from 57 as at 30 June 2003 to 61 as at 30 June 2004. Within this context we are pleased with the increase in net cash from £14.5m on 30 June 2003 to £17.3m on 30 June 2004.

Our people have, yet again, delivered an outstanding performance
The evolution of our business into a Business Transformation Consultancy has had its challenges, and this was only 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.

Our strategy has delivered the anticipated results
We have witnessed significant consolidation in the marketplace over the last three years, during which time Axon has become a Business Transformation Consultancy that delivers major programs of change for large corporations. This strategy will deliver a strong performance for 2004 and in 2005 we are seeking to build upon this success across a range of new geographies, vertical markets and customer propositions.

We look forward to exciting developments in 2005.

Steve Cardell                                                                                  7 September 2004
Chief Operating Officer

To read the entire results click here (PDF file).