2003 Preliminary Results                                                                         02/03/2004

Axon Group plc, the Business Transformation consultancy, today announces its preliminary results for the year ended 31 December 2003.

• Turnover up 16.5% to £50.2m (2002: £43.1m)
• Profit before tax up 62.1% to £4.0m (2002: £2.5m)
• Adjusted profit before tax up 27.7% to £5.1m (2002: £4.0m)*
• Work has commenced on the two major transformation projects won in Q4 2003
• Strong pipleline of work in both the UK and the Middle East
• Heads-of-terms signed for the £1.0m purchase of an Asian operation to complement our Middle East offshore support centre
• Strong balance sheet with cash and bank deposits of £18.7m (2002: £15.3m)
• Adjusted diluted earnings per share up 25.5% to 6.4p (2002: 5.1p) *
• Diluted earnings per share up 70.4% to 4.6p (2002: 2.7p)
• Dividend per share increased to 2.5p (2002: 2.0p)

Mark Hunter, Chairman and Chief Executive, said:

“I am pleased to report a strong set of results for 2003, on this, Axon’s 10-year anniversary. During 2003, we have continued to build upon existing customer relationships, win new contracts and expand our market share.”

“We demonstrated that we are the dominant player in the UK Business Transformation market for $1bn+ corporations that use SAP as their strategic platform. We have delivered growth in what is an otherwise flat market, and we are confident that we can consolidate the progress made in 2003 and deliver a good performance for 2004”.

For further information, please contact:

Mark Hunter
Chairman and Chief Executive
Axon Group plc
01784 480800

Matthew Jervois / Corinna Turtle
Grandfield
020 7417 4170

* Excluding goodwill amortisation and reorganization costs of £0.7m and £0.4m respectively (2002: £0.7m and £0.8m respectively) and related tax effect for reorganization costs in relation to the adjusted profit after taxation

Chairman and Chief Executive’s statement

I am pleased to report a strong set of results for 2003, on this, Axon’s 10-year anniversary. During 2003, we have continued to build upon existing customer relationships, win new contracts and expand our market share and as a consequence revenues have increased by 16.5% to £50.2m (2002: £43.1m), operating profits have increased by 69.4% to £3.5m (2002: £2.1m) and net funds have increased by 20.9% to £18.7m (2002: £15.3m).

Whilst competitive pricing pressures drove down our gross margin from 29.8% to 27.5%, revenue growth coupled with strong operational controls resulted in adjusted profit before tax (profit before tax, reorganization costs and goodwill amortisation) rising by 27.7% to £5.1m (2002: £4.0m). Accordingly, adjusted diluted earnings per share are up 25.5% to 6.4p (2002: 5.1p), which is one of the stronger performances in our sector. Unadjusted diluted earnings per share are up 70.4% to 4.6p (2002: 2.7p).

We continue to pursue a progressive dividend policy, and the Board is recommending a final dividend of 1.5p per share, which combined with the interim dividend of 1.0p makes a total dividend for the year of 2.5p (2002: 2.0p). The final dividend payment will be made on 25 June 2004 to shareholders on the register as at 28 May 2004.

In December 2003, Stephen Cardell joined the Board as Chief Operating Officer. Stephen has been Axon’s Commercial Director for the last two years, and prior to that he was the Managing Director of Bywater, the Business Consultancy that we acquired in 2001. Stephen is a welcome addition to the Board, and we are confident that we will continue to strengthen the Plc Board in the course of 2004.

The significant progress that we have made in 2003 has been driven by improvements in both our commercial function and the financial and operational controls within the business. Underpinning these two achievements, as ever, has been the quality, skill and professionalism of our consultants. During 2004, we will continue to put significant effort into ensuring that we attract and develop the most talented people in the market.

We remain focused on delivering business solutions to multinational organizations that have turnover in excess of $1bn and have chosen SAP as their strategic platform. As we enter 2004, the Board believes that our strategy, together with our current order book and sales pipeline, will enable us to deliver a strong performance for our customers, employees and shareholders.

Mark Hunter
Chairman and Chief Executive
2 March 2004

Operational and financial review

Our Business Transformation proposition has delivered significant growth
Axon’s success in winning, and delivering, large business transformation programs has driven a 16.5% increase of revenues to £50.2m (2002: £43.1m).

We are increasingly profitable and strongly cash generative. Adjusted profit before tax grew by 27.7% to £5.1m (2002: £4.0m). On the same basis our adjusted operating margin rose to 9.2% (2002: 8.3%). A summary of adjusted profit is detailed below. This measure is consistent for all years since flotation. Further information can be found in note 4 as attached.

The Company entered 2004 with a strong balance sheet and both the largest order book and sales pipeline in our history.

We have become the dominant UK partner for $1bn+ organizations that use SAP
Axon is the largest services organization in the UK that focuses exclusively on the needs of $1bn+ organizations using SAP as their strategic platform. We provide these organizations with Business Transformation solutions that encompass all elements of Business Consulting, Solutions Implementation and ongoing Applications Management. Our excellence in this arena was confirmed when we won 3 out of the 4 SAP Partner Excellence awards in March 2003.

In 2003, we continued to win new contracts to drive significant business improvement within large corporations that include a large consumer goods organization, the Police Information Technology Organization, RWE Innogy and the M/S Taxi Company.

We help our clients achieve a step change in the effectivity of their business operations
We run a selected number of major business transformation programs and therefore our revenues are concentrated within a relatively small number of clients. However, we anticipate that this concentration of revenues will diminish into the future as we win more programs.

Business Transformation requires three service lines
Business Transformation requires Business Consulting, Solutions Implementation and Applications Management. The changing mix within our business is a reflection of the increasing number of Business Transformation programs that we are delivering rather than as a result of particular focus on any one of our service lines.

Business Consulting is an integral part of every programme
Our Business Consulting division helps our clients to deliver more effective strategies by facilitating improvements in process, technology and people. They determine whether individual business functions and systems meet the current objectives of the business; can change fast enough to meet the future needs of the business; and are communicating adequately with each other.

Not only has Business Consulting contributed to the success of some of our larger Business Transformation programs, but it has also continued to deliver pure-play management consultancy to organizations such as the National Crime Squad and the Department of Work & Pensions.

Business Consulting revenues grew from £6.8m in 2002 to £9.0m in 2003, 17.9% of turnover (2002: 15.7%). In 2004 Business Consulting is expected to contribute over 20% of Group revenues.

Solutions Implementation is core
We have earned a reputation for rapid, innovative implementation of complex business systems. Our Solutions Implementation team works closely with the client at all levels defining and delivering new working practices and systems, whilst ensuring that the people within the organization enthusiastically embrace the changes. Once the transition to a new platform has been made, we ensure that the new working environment is stable prior to focusing on the delivery of quantifiable business benefits.

As expected, Solutions Implementation revenues remained comparatively level at £27.2m (2002: £25.2m) which represents 54% of turnover (2002: 58%). Our order book and pipeline suggest that Solutions Implementation revenues will contribute over 50% of Group revenues this year.

Offshore support will be an integral part of Applications Management during 2004
It is vital to ensure that the momentum of a Business Transformation initiative is maintained and our Applications Management group provides ongoing support and evolution for the transformed organization. We run and support critical business applications for our clients 24 hours per day, 7 days a week, 365 days a year, across the UK, Europe, the USA and Asia Pacific. This support ensures that the working practices and software systems enable the business to respond to any further internal or external imperatives. During 2003, Applications Management grew by over 25% to £14.0m (2002: £11.2m) and is expected to contribute 30% of revenues in 2004.

In the summer of 2003, we took advantage of the superb facilities available at our Middle East Head Quarters in Dubai Internet City to set up an offshore support and development centre. This has proven to be a great success, and we have further built upon our strategy by signing heads-of-terms on 1 March 2004 to purchase 51% of an Asian offshore services partner for an initial consideration of £0.5m. It is expected that the transaction will complete in April 2004 and that, subject to the achievement of mutually agreed targets, the remaining 49% of the business will be purchased in two tranches in 2006 and 2007.

During 2004, we expect that the absolute number of Application Management clients will decrease as we continue to focus on larger contracts, but that overall revenues will increase.

We are now winning major contracts in the Middle East
Historically, whilst we have serviced the needs of $1bn+ multinationals that are based in the UK, this has by necessity required us to deliver solutions across the globe. In 2003, we provided SAP Applications Management for 40 organizations (2002: 86) in 67 countries (2002: 61). The continued delivery of pan-European initiatives for our customers meant that we had strong performance in Continental Europe although revenues declined slightly to £8.8m (2002: £9.1m), or 18% of our revenues (2002: 21%).

Revenues for the rest-of-the-world remained flat at £2.0m (2002: £2.0m) and totalled 4% of revenues (2002: 5%). During 2003 we built upon this platform by winning two multi-million pound contracts in the Middle East and we anticipate this to be an area of future growth. However, we do not anticipate significant growth within our USA or Australian operations.

High-Technology/Telecommunications sector leads innovation
With the commoditisation of consumer markets, and the relentless pursuit of innovation, the High-Technology/Telecommunication sector is faced with the parallel demands of cost reduction and delivering innovative solutions to fuel further growth. Customer acquisition and the convergence of content with communication have been the main focus of this industry in recent years, yet fierce price competition and complex acquisitions are forcing firms to bring their cost bases under control. Our team of High-Technology/Telecommunication sector specialists continue to focus on delivering the latest solutions to clients in this ever-changing sector.

We have seen a pick up in demand within the High-technology/Telecommunications sector with revenues increasing from £5.9m in 2002 to £9.5m in 2003.

Signs of recovery emerge in the Industrial sector
Clients in the Industrial sector continue to face the demands of sweeping change throughout their supply chains. Delivering fundamental cost reduction programs and taking a firm control of the product portfolio management process are just two ways that the sector is responding. A constant cost focus is demanded in the areas of production, maintenance, distribution and procurement. Best practice process management remains at the centre of this sector’s long-term success. Our Industrial team continues to remain at the forefront of the application of technology to resolving complex supply chain problems.

As expected we did not experience growth within the Industrial sector, and revenues declined from £19.7m in 2002 to £12.4m in 2003. However, we have seen early signs of an increase in demand within our consumer goods clients and we expect some growth in this sector during 2004.

We have continued to experience strong demand in the Services sector
A major engine of growth during 2003 was the demand from the Services sector, specifically Public Sector and Utilities. Many different types of organizations, including central and local government, police and healthcare authorities are represented in the Public sector, yet the constant challenge of creating a performance climate within a policy-based governance model is the common thread through all. The de-regulated utilities industries face the increasing challenge of delivering more from less: higher customer expectations and greater cost efficiency, all within an environment of increasing legislative pressure and no let up in business risks. During 2003 the skills and ability to deliver demonstrated by our specialist public services consultants were recognised by OGCbuying.solutions, an Executive Agency of the Office of Government Commerce in the Treasury, with accreditation in the S-CAT catalogue.

Revenues from Service sector clients grew from £17.5m in 2002 to £28.3m in 2003, and we expect demand to be buoyant during 2004.

Gross Margins are under control
Chargeability for 2003 was 67% (2002: 66%), and we expect to maintain this level of chargeability during 2004. Over the last three years, we have experienced significant pricing pressure that has had a major impact on gross margins. We are therefore pleased with the relative stabilisation of our gross margins in 2003, although they showed a small decline from 29.8% in 2002 to 27.5% in 2003. Market trends suggest that gross margin will not erode further in 2004.

Headcount grew in the first six months of 2003, and growth will resume in 2004
Axon’s headcount grew rapidly in the first half of 2003, in order to service the demand of the major transformation programs won in Q4 2002.

Axon’s headcount at 31 December 2003 was 382 (2002: 356), which is a 7.3% increase over the course of the year. The average headcount for 2003 rose to 384 (2002: 344), with consultants comprising 76.3% of the total (2002: 78.2%).

Recruitment activity levelled off in the second half of 2003, but is expected to increase in the first half of 2004, particularly in order to staff our offshore support operation in the Middle East.

In making the transition to a Business Transformation consultancy, Axon incurred high levels of re-organization costs during 2001 and 2002. The transition is now complete, and reorganization costs in 2003 were reduced to £0.4m (2002: £0.8m) with the majority being incurred in the first half of the year.

Administrative expenses are under tight control
Administration costs, excluding reorganization costs and goodwill amortisation, fell to 18.7% of revenue compared to 21.9% in 2002. This reduction is primarily due to our ability to leverage the existing support function whilst continuing to grow revenues. The fall in administration costs of the business are particularly pleasing in light of increased exposure to foreign exchange losses of £0.3m (2002: £0.1m) and the creation of a £0.2m provision for a rent-free period associated with the sub-let of an old Axon office.

Profits increased significantly
Adjusted operating profit in 2003 grew to £4.6m (2002: £3.6m), representing an increase in adjusted operating margins on the same basis to 9.2% (2002: 8.3%). Unadjusted operating profit grew 69.4% to £3.5m, equivalent to an operating margin of 7.0% (2002: 4.8%).

Net interest income in 2003 grew to £0.5m compared to £0.4m in 2002, even though interest rates fell as far as 3.5% (2002: 4.0%), largely the result of the increase in cash balances.

We are strongly cash generative
Our net funds position increased from £15.3m at 31 December 2002 to £18.7m as at 31 December 2003 as a result of our continued focus on working capital and cash collection. We have disclosed a contingent liability of £3.0m for the performance bond for Transport for London and USD$1.4m for the performance bond for M/S Taxi Company.

Our debtor days, calculated as the average for the full year, increased from 54 as at 31 December 2002 to 61 as at 31 December 2003. This was due to a large receivable balance of £5.0m invoiced in December 2003.

Taxation
The tax charge for the year of £1.5m represents an effective tax rate of 37.2% (2002: 42.3%). The principal difference between this and the full statutory rate of 30% was the impact of expenses not deductible for tax purposes in 2003 mainly as a result of goodwill amortisation which is not allowable against tax on trading profits in 2003.

Earnings per share grew
Adjusted profit after tax was £3.5m (2002: £2.7m) resulting in adjusted earnings per share of 6.8p (2002: 5.2p). Adjusted diluted earnings per share were 6.4p (2002: 5.1p), an increase of 25.5%. Unadjusted profit after tax was £2.5m (2002: £1.4m) resulting in unadjusted earnings per share of 4.9p (2002: 2.8p). Unadjusted diluted earnings per share were 4.6p (2002: 2.7p), an increase of 70.4%.

We continue to have a progressive dividend policy
The directors propose a final dividend of 1.5p per share which, when added to the interim dividend of 1.0p per share, equates to a total dividend of 2.5p per share for 2003 (2002: 2.0p). The Board intends to continue to pursue a progressive dividend policy over the coming years.

Capital expenditure was maintained
Capital expenditure on computer equipment and the implementation of third party management information systems accounted for the majority of the investments in fixed assets.

Outlook for 2004
We have started 2004 with the largest order book in our history. We win and deliver large-scale Business Transformation programs to large corporations that use SAP as their strategic platform. In 2004, we will continue to broaden our proposition, increase our geographic capability and the size of contracts that we sign. I am confident that, on the basis of our current order book, sales pipeline and the excellence of our people, we will deliver a strong performance for 2004.

Stephen Cardell
Chief Operating Officer
2 March 2004

For the full preliminary results please click here.