Interim Results 2006                                                                                12/09/2006

Press release:
Revenue up 57%
Adjusted profit before tax* up 117%
The US is now a significant business part 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 2006 (“H1 2006”).

Key points for the six months include:

• Turnover up 57% to £63.4m (H1 2005: £40.4m)
• The US is 23% of the business, based on revenue
• Gross profit up 74% to £17.2m (H1 2005: £9.9m)
• Headcount as at 30 June 2006 up 23% to 959 (H1 2005: 779)
• Adjusted profit before tax up 117% to £8.7m (H1 2005: £4.0m)*
• Adjusted diluted earnings per share up 102% to 9.7p (H1 2005: 4.8p)*
• Dividend per share increased to 1.75p (H1 2005: 1.5p)

Mark Hunter, Chairman and Chief Executive said:

“These results reflect the successful execution of our strategy which 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 57%, the creation of a substantial US business and a 117% increase in adjusted profit before tax. Even more pleasingly, the effective exit of our Middle East operations, excellent chargeability and high levels of client satisfaction enabled us to grow adjusted gross margins by 3 points to 28%.

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

We have a strong order book, a good pipeline and excellent operational controls. As a consequence, I believe that our absolute performance in the second half of 2006 could be as good as these first half results.”

For further Information please contact:

Mark Hunter
Axon Group plc
Chairman and Chief Executive
01784 480 800

Geoff Callow/Chris Hamilton
Bell Pottinger
020 7861 3232

* Excluding amortisation of intangible assets on acquisition, share-based payments and restructuring costs of £910,000, £936,000 and £1,228,000 respectively (H1 2005: £155,000, £293,000 and £nil respectively) and related tax effect in relation to the adjusted profit after taxation as calculated in note 5; and a restatement of the H1 2005 tax charge of £664,000 in relation to the accounting treatment of tax on share-based payments as described in note 12.

Chairman and Chief Executive 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 57%, the creation of a substantial US business and a 117% increase in adjusted profit before tax.

For the six-month period to 30 June 2006, turnover has increased to £63.4m (H1 2005: £40.4m), profit before tax has increased 58% to £5.6m (H1 2005: £3.5m), adjusted diluted earnings per share (see note 5) are up to 9.7p per share (H1 2005: 4.8p*) and diluted earnings per share are up to 6.3p per share (H1 2005: 4.3p*).

Our core UK business continues to maintain its positive momentum and we have secured new business with organisations such as Northgate, Birmingham City Council and Herefordshire Council.

Meanwhile, the expansion of our US operations continues at a pace, and we continued to win new contracts with organisations such as Aquarian Water, Lansing Board of Water, Goodrich Corporation and Mobile Gas. In January 2006, we acquired TUI Consulting, a leader in SAP consulting for the Utilities market and our success in leveraging niche acquisitions to drive organic growth is demonstrated by the fact we have now recruited more people in the US than we have gained via company acquisition.

We have also continued to build strength and depth in our offshore centre in Malaysia and we have recently won a 10,000 man day development project for an existing client. I am also pleased to report that we have effectively exited our troubled business in the Middle East with an operating loss before restructuring costs of £0.5m (H1 2005: £0.9m) and £1.2m of restructuring costs relating to the exit of client contracts, the closure of infrastructure and the reduction in headcount.

High levels of demand across the business drove consultant utilisation up to 75% (H 2005: 72%) which, coupled with a reduction in loss-making contracts in the Middle East and general high levels of client satisfaction, delivered an excellent adjusted gross margin increase to 28% (H1 2005: 25%). In response to this demand we continued our recruitment drive and we finished the first half with a total headcount of 959, which is up 23% from the 779 employees that we had on 30 June 2005.

We have continued to focus on cash, and combined WIP/Debt fell to 95 days (H1 2005: 111 days) which is a good performance considering the 57% increase in revenues during the same period. We also managed to maintain cash levels at £10.5m on 30 June 2006 (H1 2005: £10.7m) despite £5.5m of cash being used to fund the acquisition of TUI Consulting in January of this year.

Axon has a progressive dividend policy and it is proposed that the Company pay an interim dividend of 1.75p per share (H1 2005: 1.5p), to be paid on 17 November 2006 to shareholders on the register as at 20 October 2006.

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

Looking forward, we have a strong order book, a good pipeline and excellent operational controls. As a consequence, I believe that our absolute performance in the second half of 2006 could be as good as these first half results.”

Mark Hunter                                                                                 12 September 2006
Chairman and Chief Executive

* Restated due to a prior year adjustment to the H1 2005 tax charge of £664,000 in relation to the accounting treatment of tax on share-based payments as described in note 12.


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 take market share.

Our global aspiration has become a reality
During the first half of 2006, we delivered customer solutions in 30 countries across the globe. The increasingly global nature of our proposition drove a 148% increase in international revenues to £24.4m (H1 2005: £9.8m) and we continue to pursue further opportunities within EMEA, Asia Pacific and the US. If the impact of inter-company sales, primarily relating to our offshore development centre in Malaysia, are taken into consideration, then our international activities increased by 140% to £27.3m (H1 2005: £11.3m)

EMEA continues to deliver a strong performance
Our EMEA region grew by 29% to £48.3m (H1 2005: £37.5m) based on revenue 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 Northgate, Birmingham City Council and Herefordshire Council.

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 Europe accounted for revenues of £7.7m (H1 2005: £5.4m).

I am also pleased to report that we have effectively exited our troubled business in the Middle East with a operating loss of £0.5m (H1 2005: £0.9m) and £1.2m of restructuring costs relating to the exit of client contracts, the closure of infrastructure and a reduction in headcount.

Overall, EMEA delivered a good operating result before restructuring costs of £4.9m (H1 2005: £2.9m), which equates to 10.2% of EMEA revenues (H1 2005: 7.7%). This increase in profitability can be attributed to reduced operating losses in the Middle East, high consultant utilisation and good client satisfaction.

We now have a significant business in the US
Our strategy for the US market has been to acquire small SAP consultancies that have leadership in vertical industry sectors, and then to drive organic growth through the application of Axon’s scale and proposition. Therefore, in January 2006, we built on last year’s acquisition of Feanix with the acquisition TUI, a leading SAP consultancy in the Utilities industry. The initial consideration was a multiple of one-times 2006 order-book revenues and equated to US$9.5m (£5.4m) satisfied in cash.

As the demand for SAP solutions in the US continues to grow, we have continued to win new contracts with organisations such as Aquarian Water, Lansing Board of Water and Light, Goodrich Corporation and Mobile Gas. As a result, the US delivered revenues of £14.6m (H1 2005: £2.6m) and grew operating profits to £1.1m (H1 2005: £0.2m) despite continued investment in business development.

Our offshore capability continues to grow
All of our programmes incorporate an element of offshore services and the Asia Pacific region contributed activity of £3.3m (H1 2005: £1.5m) to the group before elimination. Local business in Malaysia also prospered and, as a consequence, external revenues also showed a small increase to £0.6m (H1 2005: £0.2m). In total, profits for the region grew to £0.6m (H1 2005: £0.1m) as the operation started to benefit from increasing economies of scale.

Consulting and Systems 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. However, the recent acquisition of two Systems Implementation consultancies in the US and the exit from a low margin Applications Management contract meant that, in relative terms, our Systems Implementation business had a relatively higher level of growth than the rest of the business.

Business Consulting, which is predominantly UK-focused, grew revenues by 61% to £10.6m (H1 2005: £6.6m) driven by the need for business consultants in large programmes such as Birmingham City Council. Systems Implementation delivered very strong growth and revenues grew by 84% to £40.4m (H1 2005: £21.9m) which was driven both by strong demand in the UK as well as acquisitions and organic growth in the US. Applications Management revenues grew by 4% to £12.4m (H1 2005: £11.9m) which was a good performance considering our decision to exit a low margin contract in the second half of 2005.

We continue to focus on large programmes
Our focus on large programme of work for our clients is reflected in relatively high levels of client concentration. In the first half of 2006, our top 5 clients accounted for 50% of revenues (H1 2005: 53%) and our top 10 clients accounted for 72% of revenues (H1 2005: 71%).

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. Furthermore, 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.

Adjusted gross margin improved by 3 points
Adjusted gross margin was very strong at 28% (H1 2005: 25%) which was a result of an increase in consultant utilisation to 75% (H1 2005: 72%), a reduction in loss-making contracts in the Middle East and general high levels of client satisfaction.

We continue to leverage our indirect cost base despite high recruitment costs
Despite considerable investment to build our US infrastructure and the high levels of recruitment costs sustained in the first half, adjusted indirects* only grew by 43% to £9.3m (H1 2005: £6.5m).

A good performance on cash despite acquisition costs and high rates of growth
Combined WIP/Debt fell from 111 days in H1 2005 to 95 days in H1 2006 which is a good result considering the 57% increase in revenues during the same period. We also managed to maintain cash levels at £10.5m on 30 June 2006 (H1 2005: £10.7m) despite £5.5m of cash being used to fund the acquisition of TUI Consulting in January of this year.

Share options will have a positive impact on tax paid
In the first six months of 2006, 1.6m (H1 2005: 2.3m) share options were exercised which, coupled with a rising share price in the period, has resulted in a significant reduction in tax payable. However, under IFRS, a significant amount of this benefit is taken directly to reserves. The estimated effective tax rate for the Group is 30%. Also, under IFRS, share options are now expensed to the Income Statement. These impacted Gross Margin by £627,000 (H1 2005: £223,000) and Indirects by £309,000 (H1 2006: £71,000) even though part of these charges relate to a private scheme (ERS) over shares placed in a Trust by the Founders of Axon.

Our people have, yet again, delivered an outstanding performance
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.

Steve Cardell                                                                                12 September 2006
Chief Operating Officer

* Excluding amortisation of intangible assets on acquisition, share-based payments and restructuring costs of £910,000, £309,000 and £1,228,000 respectively (H1 2005: £155,000, £70,000 and £nil respectively)

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

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