Interim Results 2005                                                                                09/09/2005

Press release:

Continued strong forward momentum
Profit before tax up 30%
Integration of US acquisition on track

Axon Group plc, a 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 2005 ("H1 2005").

Key points for the six months include:

Mark Hunter, Chairman and Chief Executive said:

"These results have been driven by the relentless execution of our strategy, namely to become a leader in the delivery of Business Transformation programmes for large organisations that use SAP as their strategic platform.

In the first six months of this year we have grown existing client relationships; we have won substantial new business; we have acquired and integrated a leading US consulting company; we have scaled our offshore development capability and we have grown headcount by nearly 70%.

This period of rapid growth also saw some margin depression that can be attributed to investment in business development activities, the impact of wage inflation and the build up of cost contingency for two client projects. This temporary depression of gross margin has been partially offset by the continued leverage of our indirect cost base and it is anticipated that gross margin should improve in the second half of 2005.

The short delay in our reporting was as a result of the transition from UK GAAP to IFRS that took longer than anticipated.

As ever, the quality, focus and determination of our people has made the critical difference in the business we win, and the quality of the solutions we deliver. I would like to thank them.

In summary, we have a strong orderbook and a pipeline of major deals that we are seeking to win, whilst ensuring we have the right operational controls to ensure continued profitable growth. I look forward to further success in 2005 and beyond."

* Excluding share based payments of £223k (H1 2004: £124k)
** Excluding amortisation of intangible assets on acquisition and share based payments of £155k and £293k respectively (H1 2004: £nil and £163k respectively) and related tax effect in relation to the adjusted profit after taxation as calculated in note 5.

For further Information please contact:

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

Peter Otero
Bell Pottinger
0207 861 3864

Chairman and Chief Executive statement

For the six-month period to 30 June 2005 (“H1 2005”), turnover has increased 51% to £40.4m (H1 2004: £26.7m), profit before tax has increased 30% to £3.5m (H1 2004: £2.7m), adjusted diluted earnings per share (see note 5) are up to 6.0p per share (H1 2004: 3.5p) and diluted earnings per share are up to 5.4p per share (H1 2004: 3.3p).

These results have been driven through the relentless execution of our strategy; namely, to become the leader in the delivery of Business Transformation programmes for large organisations that use SAP as their strategic platform.

The UK continues to be the growth engine of the business, and we have secured new business with organisations such as BP, Manchester City Council, Vodafone and are preferred at London Borough of Harrow with the Capita partnership.

Our international expansion has also continued at a pace. In April 2005 we acquired Feanix Corporation, a leading provider of SAP consulting services to the US Aerospace and Defence Industry. The integration of Feanix has been completed ahead of schedule and I am pleased to report that the business is winning contracts and has a significant pipeline of major opportunities. Our offshore centre in Malaysia also continues to go from strength to strength and it now provides offshore services for the majority of our key clients.

Even though consultant utilisation was over 70%, there was a fall in relative profitability due to the impacts of wage inflation, the build up of cost contingency for two major client projects and increased business development investment. It is anticipated that there will be an improvement in margins over the coming period.

During the year, we continued to increase headcount, and we finished the first half with a total headcount of 779, which is up 68% from the 465 employees that we had on 30 June 2004.

The Board continues to review and improve, where appropriate, aspects of our corporate governance. Accordingly, at our AGM in May 2005, it was announced that new grants of share options will not be subject to rolling retesting and that executive bonuses will be capped at three times salary which in turn means that there is an effective cap on the future grant of share options.

The results as at 30 June 2005 have been accounted for under International Financial Reporting Standards (IFRS), and details of the restatement have been included in notes 12 and 13. Consequently, in the results below, the comparative numbers have been restated to reflect this change. Overall the move from UK GAAP to IFRS has not had a material impact to the Group’s reported adjusted operating results.

We continue to have a healthy balance sheet, although the acquisition of Feanix, which was part-financed by £6.3m cash, and a temporary timing effect on working capital, resulted in the group’s net cash position falling from 20.5m at 31 December 2004 to £10.7m at the end of the period. It is proposed that the Company pay an interim dividend of 1.5p per share (H1 2004: 1.25p), to be paid on 18 November 2005 to shareholders on the register as at 21 October 2005. Axon has a progressive dividend policy, and it is intended that the dividend continues to increase in line with the growth in earnings.

As ever, the quality, focus and determination of our people has made the critical difference in the business we win, and the quality of the solutions we deliver. I would like to thank them.

In summary, we have a strong orderbook and a pipeline of major deals that we are seeking to win whilst ensuring we have the right operational controls to ensure continued profitable growth. I look forward to further success in 2005 and beyond.

Mark Hunter                                                                                   9 September 2005
Chairman and Chief Executive

Operational and financial review

We deliver Business Transformation
We deliver Business Transformation programmes for large organisations that use SAP as their strategic platform, 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 marketplace has improved, and we are outperforming it
Our integrated Business Transformation proposition and our focus on the needs of large organisations 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 enter into contracts in which we bear some delivery risk, with confidence. Our unique position allows us to win in this market and is evidenced by an increase in our revenues and profits.

We now have global reach
During the first half of 2005, we delivered customer solutions in 29 countries across the globe. The increasingly global nature of our proposition resulted in first half revenues from our international business revenues increasing by 36% to £9.8m (H1 2004: £7.2m) and we continue to pursue further opportunities within EMEA, Asia Pacific and the US. If the impact of inter-company sales, primarily to our offshore development centre in Malaysia, are taken into consideration then our international activities increased by 49% to £11.3m (H1 2004: £7.6m).

EMEA has delivered a strong performance
Our EMEA business had a very strong first half with revenues growing by 42% to £37.5m (H1 2004: £26.4m). This growth was driven primarily by 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 marketplaces.

Axon specialises in the delivery of complex pan-European programmes that tend to be run and resourced from the UK. During the period demand for pan-European initiatives was broadly flat and therefore Europe accounted for revenues of £5.4m (H1 2004: £5.5m).

Axon has operated in the Middle East for the last 10 years, and it continues to win mid-sized business consulting and systems implementation business. The region delivered satisfactory revenues of £1.6m for H1 2005 (H1 2004: £1.4m).

The EMEA region delivered a reasonable operating result of £2.9m (H1 2004: £2.5m), which equates to 7.7% of EMEA revenues (H1 2004: 9.4%). The fall in relative profitability can be attributed to the impact of wage inflation, the build up of cost contingency for two major client projects and increased business development investment. It is anticipated that there will be an improvement in margins over the coming period.

The US is now a strategic market for Axon
In April 2005, we acquired Feanix Corporation, a leading provider of SAP consulting services to the US Aerospace and Defence Industry. The initial consideration was a multiple of 9.4 times trailing 12 months EBITDA and equated to US$23.5m (£12.4m) that consisted of US$12m (£6.3m) cash plus 2.8m newly issued Axon Group plc shares worth US$11.5m (£6.1m).

Feanix was formed in February 2004 from an MBO of Xansa’s SAP practice in the US, and it experienced rapid growth in its first 12 months of trading through acquiring clients such as Sikorsky Aircraft Corporation, Pratt & Whitney and the Goodrich Corporation.

The integration of Feanix has been completed, and the business has continued to perform strongly. In the 84 days of trading since 8 April 2005, the US business delivered revenues of £2.6m (H1 2004: £0.2m), of which the historic Axon business contributed 18%. The US operation delivered credible operating profits of £0.2m (H1 2004: -£0.1m) despite continuing investment in business development for the region.

Our Malaysian offshore centre is an integral component of our proposition
The provision of offshore development services is now a standard component of our Business Transformation proposition and as a consequence, the Asia Pacific region contributed activity of £1.5m (H1 2004: £0.3m) to the group before elimination. The external revenues showed a small increase to £0.2m (H1 2004: £0.1m). The small loss in H1 2004 of £0.1m was generated by the costs of integrating our new Malaysian operations into the group. As planned, this loss has now been reversed and the region made a £0.1m profit in H1 2005.

Our reliance on a small number of clients has continued to reduce
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 69% in H1 2004 to 52% in H1 2005.

Growth in all three service lines was driven by Business Transformation deals
Business Transformation programmes need a mix of consulting, implementation and applications management services to deliver the required benefits to our clients. As a consequence, the revenue growth in our service lines has been driven by our success in winning large Business Transformation programmes. Business Consulting revenues grew by 53% to £6.6m (H1 2004: £4.3m); Solutions Implementation revenues grew by 50% to £21.9m (H1 2004: £14.6m) and Applications Management revenues grew by 53% to £11.9m (H1 2004: £7.8m).

Clients in the Service Sector continue to drive our growth
We have continued to see the greatest demand for our services within the Utilities, Transport and Public Sectors. In H1 2004 there was a gradual ramp-down in the Transport for London programme that drove a temporary fall in revenues from Service Sector clients. As predicted, this business has now been replaced and revenues from Service Sector clients grew to £22.2m in H1 2005 (H1 2004: £12.6m).

Gross margin has been temporarily depressed in H1
Even though consultant utilisation was over 70%, gross margin fell from 28% in H1 2004 (£7.6m) to 25% (£9.9m) in H1 2005. This fall in relative profitability can be attributed to investment in business development activities, the impact of wage inflation and the build up of cost contingency for two major client projects. This temporary depression of gross margin has been partially offset by the continued leverage of our indirect cost base and it is anticipated that gross margin should improve in the second half of 2005.

We continue to leverage our indirect cost base despite high recruitment costs
We now have an efficient, and scaleable, back office operation. Despite the high levels of recruitment costs associated with growing headcount by 68%, indirect expense only grew by 24% to £6.7m (H1 2004: £5.4m).

We have successfully implemented IFRS
These results have been accounted for under IFRS. The major differences between UK GAAP and IFRS are accounting for share based payments, intangibles on acquisition, employee benefits, deferred taxation and timing of dividends. Further analysis has been included in notes 12 and 13 to the interim statements. Overall the move from UK GAAP to IFRS has not had a material impact to the Group’s reported adjusted operating results.

Our balance sheet is more efficient
The combination of the acquisition of Feanix in April of this year, which was partially funded by £6.3m cash, and a temporary timing effect on working capital, had a consequence of net funds reducing from £20.5m at 31 December 2004 to £10.7m at the end of the period. The working capital is expected to unwind in H2. The reduction in debtor days from 61 in H1 2004 to 52 in H1 2005 is particularly pleasing in the light of the 51% growth in revenues.

The exercise of share options had a positive impact on EPS
In the first six months of 2005, 2.3m share options were exercised which, coupled with a rising share price in the period, has resulted in an effective tax rate of 10.3%. This improvement in the Group’s effective tax rate has increased our EPS by approximately 1.3p.

Our people have, yet again, delivered an outstanding performance
The outstanding 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                                                                                 9 September 2005
Chief Operating Officer

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

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