2004 Preliminary Results                                                                         03/03/2005

Axon Group plc, the Business Transformation consultancy, today announces its preliminary results for the year ended 31 December 2004.

Key Financial points for the year include:

• Turnover up 20% to £60.3m (2003: £50.2m)
• Profit before tax up 58% to £6.3m (2003: £4.0m)
• Adjusted profit before tax up 39% to £7.1m (2003: £5.1m) *
• Strong balance sheet with cash and bank deposits of £20.5m (2003: £18.7m)
• Diluted earnings per share up 70% to 7.8p (2003: 4.6p)
• Adjusted diluted earnings per share up 44% to 9.2p (2003: 6.4p) *
• Dividend per share increased to 3.0p (2003: 2.5p)

Key business highlights:

• Founder shareholders to put 4.9m shares into an Executive Reward Scheme **
• Share buy-back program has commenced to fund performance share scheme
• Work has commenced on a £16.5m contract with Manchester City Council ***

Mark Hunter, Chairman and Chief Executive, said:

“I am pleased to report a strong set of results for 2004. We are continuing to win new transformation deals in our core European market, as evidenced by the recent announcement of our £16.5m contract with Manchester City Council. I am also pleased to report continuing excellent progress in our Middle Eastern and SE Asian operations.”

Our business is about people. I am therefore delighted to announce that the Founder Shareholders of Axon are putting 4.9m shares into a trust that will be used to reward senior executives in the company for increasing shareholder value.

We have delivered growth in 2004, and we expect to do so in 2005. We are now poised to enter the next phase of our growth to become a truly global Business Transformation Organization”.

For further information please contact:

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

Marc Popiolek / Charmaine Elliott
Grandfield
020 7417 4170

* Excluding goodwill amortisation and reorganization costs of £0.8m and £0.0m respectively (2003: £0.7m and £0.4m respectively) and related tax effect for reorganization costs in relation to the adjusted profit after taxation

** Please refer to the accompanying press release for further details of the Executive Reward Scheme

*** Please refer to the press release dated 1st March for further details of the Manchester City Council contract

Chairman and Chief Executive’s statement

I am pleased to report a strong set of results for 2004. We have continued to win new Business Transformation contracts in our core European market whilst simultaneously growing our Middle East and SE Asian operations. As a consequence, revenues have increased by 20% to £60.3m (2003: £50.2), operating profits have increased by 59% to £5.5m (2003: £3.5m) and net funds have increased by 10% to £20.5m (2003: £18.7m).

Gross margins improved from 27.5% to 29.0% which was due in part to a stabilisation of day rates, and in part due to the leverage of resources in our offshore center in Malaysia. Revenue growth, coupled with strong operational controls, resulted in adjusted profit before tax (profit before tax, reorganization costs and goodwill amortisation) rising by 39% to £7.1m (2003: £5.1m). Accordingly, adjusted diluted earnings per share are up 44% to 9.2p (2003: 6.4p), which is an upper quartile performance for our sector. Unadjusted diluted earnings per share are up 70% to 7.8p (2003: 4.6p).

Axon continues to have a progressive dividend policy, and the Board is recommending a final dividend of 1.75p per share, which combined with the interim dividend of 1.25p makes a total dividend for the year of 3.0p (2003: 2.5p). The final dividend payment will be made on 24 June 2005 to shareholders on the register as at 27 May 2005.

We are continually seeking effective ways in which to attract, retain and motivate the top performing individuals in our sector. I am pleased to report that we have created two new equity based schemes with which to do this. Axon Founder shareholders have committed a total of 4.9m shares to an Executive Reward Scheme which will be used to motivate and reward key senior individuals for driving exceptional shareholder returns over the coming years. In addition, we have today announced plans to buy back up to 5% of Axon's issued shares for an Employee Benefit Trust which will be used to reward and motivate a larger group of high performance members of Axon staff.

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. We have already made significant progress in 2005, and the Board believes that our strategy, together with our current order book and sales pipeline, will enable us to continue to deliver a strong performance for our customers, employees and shareholders.

Mark Hunter
Chairman and Chief Executive
3 March 2005

Operational and financial review

Our Business Transformation proposition continues to deliver significant growth
Axon’s success in winning, and delivering, large Business Transformation programs has driven a 20% increase of revenues to £60.3m (2003: £50.2m).

The business continues to be both profitable and cash generative. Adjusted profit before tax grew by 39% to £7.1m (2003: £5.1m). On the same basis our adjusted operating margin rose to 10.5% (2003: 9.2%). A summary of adjusted profit is detailed below. This measure is consistent for all years since flotation.

The Company entered 2005 with a strong balance sheet and both the largest order book and sales pipeline in our history.

Axon is a leading European partner for $1bn+ organizations that use SAP
Axon is a major European player that focuses exclusively on the needs of $1bn+ organizations that have SAP as their enterprise platform. We provide these organizations with Business Transformation solutions that encompass all elements of Business Consulting, Solutions Implementation and ongoing Applications Management. In 2004, we continued to win new contracts that drive significant business improvement within large corporations that include a large drinks company, the London Borough of Southwark, a large carpet retailer and Saudi Telecom.

Our continued success in winning large Business Transformation contracts has resulted in a decrease in the proportion of revenue accounted for by our top five customers from 76% in 2003 to 68% in 2004. It is anticipated that this proportion will further reduce in 2005.

Our core UK business had a solid performance
The UK had a solid performance and it grew revenue by 11% to £43.7m (2003: £39.4m). This was primarily due to buoyant demand within the Industrial Sector.

Pan-European activity is increasing
The market for pan-European transformation projects was stagnant from 2000-2003, but we experienced signs of recovery during 2004. Revenues for European projects grew by 27% to £11.2m (2003: £8.8m) driven by demand from clients such as Xerox and a Global Food business. It is anticipated that our European business will deliver solid performance in 2005, although this type of work tends to be concentrated within a relatively small client base, and as a consequence demand can be volatile.

We will continue to focus on pan-European Business Transformation programs in 2005, and these will be resourced from our existing operations.

The rest-of-the world has grown rapidly from a small base
Revenues for the rest-of-the-world grew by 165% to £5.3m (2003: £2.0m) with particularly strong performances from our Middle Eastern and US businesses, both of which have secured major transformation programs with organizations such as Black and Decker, a large Telecoms business and Saudi Telecom. It is anticipated that there will be continued organic growth in both the Middle East and US during 2005.

Business Consulting is poised for rapid growth
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.

Business Consulting revenues grew from £9.0m in 2003 to £9.8m in 2004, 16% of turnover (2003: 18%). It is anticipated that Business Consulting will resume an accelerated growth path in 2005.

Solutions Implementation had a strong performance in 2004
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 business processes 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 anticipated, Solutions Implementation performed strongly in 2004 and revenues grew by 24% to £33.6m (2003: £27.2m) which represents 56% of turnover (2003: 54%). Our order book and pipeline forecasts that Solutions Implementation revenues will contribute over 50% of Group revenues this year.

Offshore support is now an integral part of Applications Management
Our Applications Management group provides ongoing support and evolution for our clients that have undergone a Business Transformation program. 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 2004, Applications Management grew by 20% to £16.8m (2003: £14.0m) and is expected to contribute 30% of revenues in 2005.

On 1 April 2004, we acquired MyDruid Services which was formed from a management buyout of Xansa plc's South East Asian operations. The purpose of this acquisition was to supplement our existing offshore capability in Dubai, and it has been an unqualified success. We have grown our Malaysian headcount from 15 to 70 people, and they provide remote support and development for many of our Applications Management clients.

Gross margins are under control
Chargeability for 2004 was 72% (2003: 67%), and we expect to maintain this level of chargeability during 2005. After a three year period of considerable pricing pressures that had a major impact on gross margins, we are pleased with the improvement achieved. Gross margin in 2004 increased to 29.0% compared to 27.5% in 2003. Early signs of wage inflation, and flat day rates, suggest that gross margins will not experience a significant improvement in 2005.

Headcount grew throughout the year and growth will continue into 2005
Axon grew its headcount by 83 in the first half of 2004, and by 82 in the second half of 2004. This headcount growth was required primarily to service large contracts, and it is anticipated that high levels of recruitment activity will be sustained during 2005.

Axon's headcount at 31 December 2004 was 547 (2003: 382), a 43% increase over the course of the year. The average headcount for 2004 rose to 465 (2003: 384), with consultants comprising 80% of the total (2003: 76%).

Axon has completed its transition to a Business Transformation consultancy, and no reorganization costs were incurred during 2004 (2003: £0.4m).

Administrative expenses are level
Administration costs, excluding reorganization costs and goodwill amortisation, were level at 18.8% of revenue compared to 18.7% in 2003. This is a strong performance in the light of increases in the cost of recruitment and an increased exposure to foreign exchange losses of £0.4m (2003: £0.3m). It is anticipated that administration expenses will remain at approximately 18-19% of revenues in 2005.

Profits increased significantly
Adjusted operating profit in 2004 grew to £6.3m (2003: £4.6m), representing an increase in adjusted operating margins on the same basis to 10.5% (2003: 9.2%). Unadjusted operating profit grew 59% to £5.5m, equivalent to an operating margin of 9.2% (2003: 7.0%).

Net interest income in 2004 grew to £0.8m compared to £0.5m in 2003 due to an increase in cash balances and base rates.

We are cash generative
Our net funds position increased from £18.7m at 31 December 2003 to £20.5m as at 31 December 2004 as a result of our continued focus on working capital and cash collection. In line with this, our debtor days, calculated as the average for the full year, decreased from 61 as at 31 December 2003 to 47 as at 31 December 2004.

Taxation
The tax charge for the year of £2.0m represents an effective tax rate of 31.9% (2003: 37.2%). The principal difference between this and the full statutory rate of 30% was the impact of expenses not deductible for tax purposes in 2004 mainly as a result of goodwill amortisation which is not allowable against tax on trading profits in 2004.

Earnings per share grew
Adjusted profit after tax was £5.1m (2003: £3.5m) resulting in adjusted earnings per share of 9.8p (2003: 6.8p). Adjusted diluted earnings per share were 9.2p (2003: 6.4p), an increase of 44%. Unadjusted profit after tax was £4.3m (2003: £2.5m) resulting in unadjusted earnings per share of 8.3p (2003: 4.9p). Unadjusted diluted earnings per share were 7.8p (2003: 4.6p), an increase of 70%.

We continue to have a progressive dividend policy
The directors propose a final dividend of 1.75p per share which, when added to the interim dividend of 1.25p per share, equates to a total dividend of 3.0p per share for 2004 (2003: 2.5p). 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 2005
We have started 2005 with the largest order book in our history. We have also embarked upon several exciting initiatives such as our strategic expansion into the US and the creation of the Partner Model that is funded by the Executive Reward Scheme. Over the next three years we intend to become a global player in the provision of Business Transformation services to $1 billion corporations that use SAP as their enterprise platform. 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 2005.

Stephen Cardell
Chief Operating Officer
3 March 2005

For the full preliminary results please click here and for the presentation click here.