RNS Number:5459I
Axon Group PLC
11 March 2003
For immediate release
11 March 2003
Revenues stable
Order book largest in Axon's History
Continued profitability and strong cash generation
Increased dividend
Axon Group plc, the SAP Business Transformation Company today announced
preliminary results for the year ended 31 December 2002.
Highlights for the year include:
2002 2001
Revenue up 1% #43.1m #42.8m
Pre-tax profit down 55% #2.5m #5.5m
Adjusted pre-tax profit down 34% #4.0m #6.1m
Diluted earnings per share down 60% 2.7p 6.7p
Net cash increase #3.2m #0.8m
Reorganisation costs #0.8m #0.5m
Goodwill amortisation costs #0.7m #0.1m
Won two new contracts worth #45m
Commenting on the results, Mark Hunter, Chief Executive, said:
"Axon has delivered a credible set of results in a difficult market. In the
first part of 2002, we built the foundation of our Business Transformation
capability, primarily through the completion of the integration of Bywater
Business Consulting into our Solutions Implementation and Applications
Management divisions. It is this integrated proposition that enabled us to
secure a number of major contracts, with organisations such as Transport for
London and Xerox, in the second half of the year.
"Going into 2003, we have a single integrated proposition, utilisation is high,
we are recruiting and our order book is the largest in our history.
"Whilst the overall market for IT services will remain flat for the foreseeable
future, I believe that we will continue to grow through gains in market share.
We will do this by building upon our recent track record in winning eight figure
deals to deliver business transformation to large corporations for whom SAP is
their enterprise platform."
For further information please call:
Axon Group plc
Mark Hunter 01784 480 800
Grandfield
Matthew Jervois/Gareth Penn 020 7417 4170
Chairman's statement
The downturn in demand for IT services has been well publicised, and in the
context of a challenging market, I am pleased to report that during 2002 Axon
won two contracts with a combined value in excess of #45m, it resumed revenue
growth, and was both profitable and strongly cash generative.
The tough market conditions, however, resulted in our gross margin falling from
35.5% to 29.8% and profit before tax, reorganisation costs and goodwill
amortisation falling by 34.4% to #4.0m (2001: #6.1m). Accordingly, adjusted
diluted earnings per share were down 32.0% to 5.1p (2001: 7.5p), which is still
one of the stronger performances in our sector. Unadjusted earnings per share
were 2.8p (2001: 7.1p). Operating profit fell to #2.1m (2001: #4.7m).
Having acquired Bywater Limited in October 2001 to broaden our offering to our
clients, we have successfully completed its integration and it now operates
under the Axon brand. Indeed, our Business Consulting proposition has been
integral to our winning several large SAP Transformation projects during the
year.
Since Axon floated on the LSE in March 1999, it has always paid a dividend. We
have decided to build upon this track record by implementing a progressive
dividend policy that aims to increase the absolute returns for our shareholders
on a year-by-year basis. Accordingly, the Board is recommending a final
dividend of 1.5p per share, which combined with the interim dividend of 0.5p
makes a total dividend for the year of 2.0p (2001: 1.5p). The final dividend
payment will be made on 27 June 2003 to shareholders on the register as at 30
May 2003.
On 31 December 2002, David Spruzen resigned as CFO in order to pursue other
corporate interests. David leaves behind a strong finance team and we are
seeking to appoint someone to take over both financial and broader operational
responsibilities for the business. We all enjoyed working with David, and I
would like to thank him for his hard work and dedication over the last two years
and wish him all the best for the future. I have also decided to step down as
non-executive Chairman of Axon at our AGM on 30 May 2003, but will remain a
member of the Board. During my tenure at Axon, we have floated the business,
completed two acquisitions, expanded internationally and successfully grown the
business by over 100%. Mark Hunter will take on the combined role of Chairman
and Chief Executive Officer and we will continue to seek to strengthen the team.
The last 12 months have been very demanding for our people, and I would also
like to thank everyone for their outstanding contribution to the business in a
tough market. We continue to attract and retain the best people in the business
and I am pleased to report that at the end of 2002, 22% of our workforce owned
shares in the Company which, including the directors, equated to 43% of the
Company's equity.
We remain focused on delivering business solutions to multinational
organisations that have turnover in excess of $1bn and have chosen SAP as their
strategic platform. The Board believes that this strategy, together with our
current order book and sales pipeline, will enable the Group to deliver a strong
performance for 2003.
Barbara S. Thomas
Chairman
11 March 2003
Operational and financial review
Axon overcame the challenges of 2002
In a difficult marketplace, Axon grew its revenues to #43.1m (2001: #42.8m), won
86 new clients and secured two contracts with a combined value of over #45m.
We continue to be profitable and strongly cash generative. Profit before tax,
reorganisation costs and goodwill amortisation fell by 34.4% to #4.0m (2001:
#6.1m). On the same basis our operating margin fell to 8.3% (2001: 12.3%). A
summary of the adjustments to profit is detailed below.
2002 2001
#'000s #'000s
Operating Profit 2,062 4,656
Reorganisation costs 799 536
Goodwill amortisation 732 78
Adjusted operating profit 3,593 5,270
Net interest 418 808
Adjusted profit on ordinary activities before tax 4,011 6,078
The Company entered 2003 with a strong balance sheet and both the largest order
book and sales pipeline in our history.
We are emerging as a dominant partner for $1bn+ organisations that use SAP
Axon is now the largest services organisation in the UK that focuses exclusively
on the needs of $1bn+ organisations using SAP as their strategic platform. We
provide these organisations 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 were voted number one for customer service, by SAP's customers, in the
annual independent SAP Partner Excellence award.
Our position in the SAP marketplace was also assured by our #25m Business
Transformation contract win with Transport for London that was awarded in
September 2002. This was one of the most highly contested deals of its type, in
which we competed against most of the major software and services companies in
the country.
We service the needs of large UK-headquartered organisations
We continue to provide large-scale Business Transformation Solutions for $1bn+
corporations and our capacity to win and service large contracts for these
organisations was clearly demonstrated during the course of 2002. As a
consequence of this focus, our revenues tend to be concentrated within a select
number of large corporations, although we did win a total of 86 new clients and
serviced the needs of over 70 other organisations.
Revenue growth will accelerate
Revenues grew slightly from #42.8m in 2001 to #43.1m in 2002 and I anticipate
that growth will accelerate during 2003.
We deliver Business Transformation
Over the last three years, Axon has evolved from an implementation consultancy
into a full service provider that meets all the Business Consulting, Solutions
Implementation and Applications Management needs of large corporate clients to
enable them to successfully deliver major business transformation programs.
Our Business Transformation expertise is reflected in the changing mix of our
business, with the emergence of a typical 1:3:2 ratio of Business Consulting,
Solutions Implementation and Applications Management. This is further
demonstrated by the fact that of our top 10 clients, 7 use all three service
lines (2001: 2).
Business Consulting
Our Business Consulting Division helps our clients to deliver more effective
strategies by facilitating improvements in strategy, process, technology and
people. In particular we have seen unparalleled demand for cost-reduction
initiatives through the implementation of shared service centres; tighter
integration between strategy and operational delivery through strategic
enterprise management; and increased effectiveness of IT through improved
integration with the rest of the business.
For many consultancies, the market for business consulting in 2002 was difficult
as clients cut back on their discretionary spend. However, the fundamental
nature of business consulting to our overall Business Transformation proposition
has meant that Business Consulting has thrived in 2002.
Business Consulting revenues grew from #1.5m in 2001 to #6.8m in 2002, 15.7% of
turnover (2001: 3.5%), and although this was partially as a consequence of the
Bywater acquisition, it was also the result of real organic growth. In 2003
Business Consulting is expected to contribute over 20% of Group revenues.
Solutions Implementation
We specialise in the implementation of SAP and complementary business
applications for $1bn+ organisations. Our solutions provide the backbone to
their operations and the foundation for future business growth. We have earned a
reputation for rapid, innovative implementation of complex business systems.
Clearly, there has been a reduction in the number of green-field implementations
in the market place and this is reflected in the decline of Solutions
Implementation revenues for the Group during the last three years.
As expected, whilst Solutions Implementation revenues declined from #30.0m in
2001 to #25.2m in 2002, representing 58% of turnover, it is clear that this
decline has now stopped, largely as a result of our new contract wins in Q4
2002. Our order book and pipeline suggests that Solutions Implementation
revenues will increase in real terms during 2003 and we expect them to
contribute over 50% of Group revenues this year.
Applications Management
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. The services that we offer range from application monitoring to fully
outsourced application management and hosting throughout the world.
Revenues for Applications Management reduced from #11.3m in 2001 to #11.2m in
2002, representing 26% of turnover. We are experiencing an increased level of
activity in early 2003 following the signing of two large contracts in the
second half of 2002 and we expect that Applications Management revenues will
increase and contribute over 20% of Group revenues in 2003.
Our international capability continues to expand
We service the needs of $1bn+ multi-nationals that use SAP as their strategic
platform and as a result over 25% of our services are delivered outside the UK
(2001: 22%).
We provided SAP applications management for 86 organisations (2001: 41) in 61
countries (2001: 61). The continued delivery of pan-European initiatives for
our customers meant that we had strong performance in Continental Europe and
revenues grew to #9.0m (2001: #8.0m) or 21% of our revenues (2001: 19%).
Revenues for the rest-of-the-world grew to #2.0m (2001: #1.6m) and totalled 5%
of revenues (2001: 4%). For 2003, we expect continued growth in the Middle
East, whilst our US and Australian operations will remain stable.
We had a good performance in the Services and Industrial sectors
There has been little evidence of recovery in demand within the High-Technology
/ Telecommunications sector and revenues declined from #11.1m in 2001 to #5.9m
in 2002.
Whilst we have seen strong performance in the Industrial sector with revenues
growing from #16.3m in 2001 to #19.7m in 2002, it is clear that demand in this
arena is levelling, and strong growth is not anticipated for 2003.
The real engine for growth in the business in 2003 will be the Services sector,
primarily the Public sector. Our success with organisations such as Transport
for London, Volkswagen Financial Services and Lincolnshire County Council
continued to drive strong demand in the Services sectors with revenues growing
from #15.3m in 2001 to #17.5m in 2002. It is expected that this growth will
continue during 2003.
Gross margins were impacted
Chargeability for 2002 was 66% (2001: 62%), and we expect to maintain this level
of chargeability during 2003. Whilst significant progress has been made in the
stabilisation of gross margins they declined from 35.5% in 2001 to 29.8% in
2002. There are a number of factors that contributed to this decline; an
increase in contractors to service short-term client requirements, the
reallocation of certain managers to the front office, increased bid costs,
continued reduction in average day rates and the reduction in the amount of
licence revenue from Axon licence products.
Headcount is growing
Axon's headcount at 31 December 2002 was 356, an increase of 7.2% over the
course of the year. The average headcount for 2002 rose to 344 (2001: 325),
with consultants comprising 78.2% of the total (2001: 78.8%).
We continued to align the skill-sets in the business with the demands in the
marketplace. Reorganisation costs were #0.8m in 2002, compared to #0.5m in
2001, and we now believe that the organisation is better aligned to the demands
of the market, and therefore we do not anticipate substantive reorganisation
costs during 2003.
During 2002, we experienced higher than normal staff turnover, which was
primarily caused by the completion of reorganisation within our Business
Consulting and back office support operations. We expect lower levels of staff
turnover during 2003.
Due to the ramp-up of a number of key customer contracts, we experienced a
temporary increase in the use of contractors in the second half of 2002.
However, we are now recruiting consultants across all our service lines, and we
anticipate that our headcount will grow 10-20% during 2003.
Administrative expenses are under tight control
Administration costs, excluding reorganisation costs and goodwill amortisation,
fell to 21.9% of revenue compared to 23.8% in 2001. This reduction is mainly
due to a focused efficiency programme to reduce the ongoing run-rate of
administration, but it is also partially due to the reallocation of managers to
the front office, where their costs are now accounted for within cost of sales.
Profitability maintained
Operating profit before goodwill amortisation and reorganisation costs in 2002
fell to #3.6m (2001: #5.3m), representing a reduction in adjusted operating
margins on the same basis to 8.3% (2001: 12.3%). Unadjusted operating profit
fell 55.7% to #2.1m, equivalent to an operating margin of 4.8% (2001: 10.9%).
Net interest income in 2002 fell to #0.4m compared to #0.8m in 2001. This
reduction was the result of lower interest rates of 3.75% in 2002 (2001: 4.45%)
as well as redemption of loan notes issued as part consideration for the Bywater
acquisition.
The loan notes had an interest offset and this resulted in no net interest
exposure to the Group. The loan notes were redeemed in April 2002.
We acquired Bywater Australia Pty Limited for a nominal sum
On 12 November 2002, through its newly formed subsidiary, Bywater Australia Pty
Limited, Axon acquired the trade and certain business assets of Bywater McLean
Pty Limited, a Sydney-based consultancy, for #119,000 plus transaction costs of
#46,000. The goodwill for Bywater Australia will be amortised over a ten year
period, which the directors believe is an appropriate period.
We are strongly cash generative
Our net funds position increased from #12.1m at 31 December 2001 to #15.3m as at
31 December 2002 and this increase is explained primarily by our continued focus
on working capital. In our full accounts, we have disclosed a contingent
liability of #3m for the performance bond for Transport for London.
Our debtor days, stated on a like-for-like basis, increased from 50 as at 31
December 2001 to 54 as at 31 December 2002. Due to the nature of the larger
Business Transformation contracts that we have signed, it is unlikely that we
will make reductions to debtor days during 2003.
Taxation
The tax charge for the year of #1.0m represents an effective tax rate of 42.3%
(2001: 32.5%). The principal difference between this and the full statutory
rate of 30% was the impact of expenses not deductible for tax purposes in 2002
and as a result of the write-downs and disposals of investments which are not
allowable against tax on trading profits in 2001.
Earnings per share fell
Profit after tax, excluding goodwill amortisation and reorganisation costs, was
#2.7m (2001: #4.1m) resulting in adjusted earnings per share of 5.2p (2001:
8.0p). Adjusted diluted earnings per share were 5.1p (2001: 7.5p), a reduction
of 32.0%.
We have implemented a progressive dividend policy
The directors propose a final dividend of 1.5p per share which, when added to
the interim dividend of 0.5p per share, equates to a total dividend of 2.0p per
share for 2002 (2001: 1.5p). It is now the Board's stated policy 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 2003
We have started 2003 with the largest order book in our history. We have
demonstrated that we can win and deliver large-scale Business Transformation
Solutions to large corporations that use SAP as their Enterprise system.
In 2003, we will continue to broaden our proposition, increase our geographical
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, that we will return Axon to profit growth for
2003.
Mark Hunter
Chief Executive Officer
11 March 2003
Consolidated profit and loss account
For the year ended 31 December 2002
Note 2002 2001
#'000s #'000s
Turnover 43,112 42,762
Cost of sales (30,247) (27,602)
Gross profit 12,865 15,160
Administration expenses (9,447) (10,163)
Reorganisation costs 2 (799) (536)
Goodwill amortisation (732) (78)
Total administrative expenses (10,978) (10,777)
Other operating income 175 273
Operating profit 2,062 4,656
Net interest receivable 418 808
Profit on ordinary activities 2,480 5,464
before taxation
Tax on profit on ordinary 3 (1,049) (1,776)
activities
Profit on ordinary activities 1,431 3,688
after taxation
Dividends paid and proposed (1,040) (780)
Retained profit for the year 391 2,908
Earnings per share (p) 4 2.8 7.1
Adjusted earnings per share (p) 4 5.2 8.0
Diluted earnings per share (p) 4 2.7 6.7
Adjusted diluted earnings per 4 5.1 7.5
share (p)
Dividend per share (p) 8 2.0 1.5
Consolidated statement of total recognised gains and losses
For the year ended 31 December 2002
2002 2001
#'000s #'000s
Profit for the financial year 1,431 3,688
Currency translation difference on foreign
currency net investments (3) -
Total recognised gains and losses
relating to the year 1,428 3,688
All gains and losses recognised above are based on historical cost and arise
from continuing operations.
Adjusted earnings per share and adjusted diluted earnings per share are stated
before goodwill amortisation and reorganisation costs (note 4).
Consolidated balance sheet
As at 31 December 2002
Note 2002 2001
#'000s #'000s
Fixed assets
Intangible assets 6,424 6,980
Tangible assets 1,718 2,034
Investments - -
8,142 9,014
Current assets
Debtors: amounts falling due within one year 12,418 14,253
Short term investments - bank deposits 7 14,522 12,808
Cash at bank and in hand 7 966 5,803
27,906 32,864
Creditors: amounts falling due within one year (8,555) (14,862)
Net current assets 19,351 18,002
Total assets less current liabilities 27,493 27,016
Creditors: amounts falling due after more than one year (270) (261)
27,223 26,755
Net assets
Share capital 520 519
Share premium account 15,550 15,471
Merger reserve 51 51
Profit and loss account 11,102 10,714
Equity Shareholders' funds 27,223 26,755
Consolidated cash flow statement
For the year ended 31 December 2002
Note 2002 2001
#'000s #'000s
Net cash inflow from operating activities 5 5,676 6,442
Returns on investments and servicing of finance
Interest received 534 893
Interest paid (116) (85)
Net cash inflow from returns on investments 418 808
and servicing of finance
Taxation
UK corporation tax paid (1,360) (2,911)
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (781) (716)
Proceeds on fixed asset disposal 23 -
Net cash outflow from capital expenditures and financial (758) (716)
investments
Acquisitions and disposals
Proceeds from sale of investments - 3,249
Acquisition of business/subsidiary (165) (1,000)
Net cash acquired with subsidiaries 47 500
(118) 2,749
Equity dividends paid 8 (780) (775)
Cash inflow before use of liquid resources and financing 3,078 5,597
Management of liquid resources
Payments into short term deposits (1,714) (6,035)
Financing
Issues of new shares 80 1,326
(Repayment)/Receipt of key employee deposits (unsecured) (299) 500
Redemption of loan notes (5,982) -
Net cash (outflow)/inflow from financing (6,201) 1,826
(Decrease)/Increase in cash 6 (4,837) 1,388
Notes to the financial statements
1. Basis of preparation
The financial statements have been prepared under the historical cost convention
and in accordance with applicable United Kingdom accounting standards. The
principal accounting policies of the Group are set out below. In accordance with
Financial Reporting Standard 18 the Group has reviewed its accounting policies
and estimation techniques and no changes to the existing policies were
considered necessary.
Certain comparative information has been amended for consistent presentation
with the current year.
2. Reorganisation costs
2002 2001
#'000s #'000s
Termination of lease and associated costs - 79
Severances and other employee related costs 799 293
Other cash costs - 164
799 536
Tax effect (239) (159)
Net 560 377
3. Taxation
Current tax, including UK corporation tax and foreign tax, is provided at
amounts expected to be paid (or recovered) using the tax rates and laws that
have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax in the future or a right to
pay less tax in the future have occurred at the balance sheet date. Timing
differences are differences between the Group's taxable profits and its results
as stated in the financial statements that arise from the inclusion of gains and
losses in tax assessments in periods different from those in which they are
recognised in the financial statements.
A net deferred tax asset is regarded as recoverable and therefore recognised
only when, on the basis of all available evidence, it can be regarded as more
likely than not that there will be suitable taxable profits from which the
future reversal of the underlying timing differences can be deducted.
Deferred tax is measured at the average tax rates that are expected to apply in
the periods in which the timing differences are expected to reverse based on tax
rates and laws that have been enacted or substantively enacted by the balance
sheet date. Deferred tax is measured on a non-discounted basis.
4. Earnings per share
Earnings per share has been calculated in accordance with Financial Reporting
Standard 14 by dividing the consolidated profit after tax attributable to
shareholders by the weighted average number of 1.0p ordinary shares outstanding
during the year.
Diluted earnings per share has also been calculated on the same basis as above
except that the weighted average number of 1.0p ordinary shares that would be
issued on the conversion of all the dilutive potential ordinary shares into
ordinary shares has been added to the denominator. There are no changes to the
profit (numerator) as a result of the dilutive calculation.
Adjusted earnings per share information has been provided to enable a comparison
on a like for like basis with that reported since the Company's flotation.
The calculations of earnings per ordinary share are based on profit on ordinary
activities after taxation of #1,431,000 (2001: #3,688,000).
The earnings per share information has been calculated as follows:
2002 2001
#'000s #'000s
Weighted average number of 1.0p ordinary shares in issue 51,991,241 51,606,569
Effect of dilutive potential ordinary shares (employee share options) 1,262,200 3,699,153
Weighted average number of 1.0p ordinary shares issued plus assumed 53,253,441 55,305,722
conversions
2002 2001
Earnings per share (p) 2.8 7.1
Adjusted earnings per share (p) 5.2 8.0
Diluted earnings per share (p) 2.7 6.7
Adjusted diluted earnings per share (p) 5.1 7.5
The adjustments to the results of the Group for the year ended 31 December 2002
can be summarised as follows:
2002 2001
#'000s #'000s
Operating profit 2,062 4,656
Reorganisation costs 799 536
Goodwill amortisation 732 78
Adjusted operating profit 3,593 5,270
Net interest 418 808
Adjusted profit on ordinary activities before tax 4,011 6,078
Tax on profit on ordinary activities (1,049) (1,776)
Tax effect of reorganisation costs (239) (159)
Adjusted profit on ordinary activities after tax 2,723 4,143
5. Net cash inflow from operating activities
2002 2001
#'000s #'000s
Operating profit 2,062 4,656
Depreciation charge 1,074 831
Amortisation charge 732 78
Profit on disposal of investment - (28)
Loss on disposal of investment - 600
Loss on disposal of fixed assets 2 20
Other non cash movement (53) -
Decrease in debtors 1,904 534
Decrease in creditors (45) (249)
Net cash inflow from operating activities 5,676 6,442
6. Reconciliation of net cash flow to movement in net funds
2002 2001
#'000s #'000s
(Decrease)/Increase in cash in the year (4,837) 1,388
Repayment/(receipt) of key employee deposits 299 (500)
Cash flow from liquid resources 1,714 6,035
Non cash items 53 (6,035)
Cash outflow from repayment of loan notes 5,982 -
3,211 888
Net funds at 1 January 12,076 11,188
Net funds at 31 December 15,287 12,076
7. Analysis of changes in net funds
At Cash flow Non cash Cash at Bank at
1 January 2002* changes 31 December 2002
#'000s #'000s
Short term investments 12,808 1,714 - 14,522
Cash at bank 5,803 (4,837) - 966
18,611 (3,123) - 15,488
Unsecured loan notes (6,035) 5,982 53 -
Key employee deposits (500) 299 - (201)
Net Cash 12,076 3,158 53 15,287
*The comparative balance sheet information has been amended to reclassify
certain bank deposits to short term investments so that the remaining cash at
bank represents highly liquid funds accessible within 24 hours.
8. Dividends paid and proposed
A final dividend in respect of 2002 of 1.5p per share is proposed (2001: 1.0p)
amounting to #780,000 (2001: #519,000). An interim dividend of 0.5p per share
was paid in respect of 2002 (2001: 0.5p) amounting to #260,000 (2001: #261,000).
9. Publication of non-statutory accounts
The financial information set out in this preliminary announcement does not
constitute statutory accounts within the meaning of Section 240 of the Companies
Act 1985, but is derived from those accounts. Statutory accounts for the year
ended 31 December 2001 have been delivered to the Registrar of Companies and
those for the year ended 31 December 2002 will be delivered following the
Company's annual general meeting. The statutory accounts for the year ended 31
December 2002 will be dispatched to shareholders by 7 April 2003 for approval at
the annual general meeting to be held on 30 May 2003. The auditors have
reported on those accounts, their reports were unqualified and did not contain
statements under Section 237 (2) or (3) of the Companies Act 1985.
The directors have approved this preliminary announcement on 11 March 2003.
This information is provided by RNS
The company news service from the London Stock Exchange
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