Axon says H1 results beat expectations

Douglas Hayward, Senior Analyst and Service Manager

Axon Group, the SAP specialist systems integrator and IT consultancy, said on 31 July 2006 that its first-half results for the six months to 30 June 2006 will exceed current market expectations. Group revenues will be at least £60 million (versus £40.4 million in H1 2005) and adjusted profits before tax should be at least £8 million (versus £4 million in H1 2005), indicating a healthy increase in profitability as well as revenue growth. Adjusted profit before tax excludes amortisation, share-based payments, reorganisation costs and exceptional costs.

Chairman and CEO Mark Hunter also added in a statement that "based upon current trading, we anticipate that our full year results will be at least 10% ahead of current market expectations."

Axon will announce its interim results on 12 September 2006. In calendar year 2005, Axon grew revenues 52% to £91.8 million, and adjusted operating profits grew almost as fast, rising 49% to reach £9.2 million. Axon shares were up 7% to 360p at 8:45 am on 31 July 2006.

Axon looks like continuing an excellent run - it was the best performing UK S/ITS sector share of 2005 (excluding those with a market capitalisation under £100 million) and was one of only two stocks (the other was Autonomy) to more than double in value in the course of the year. It is doing well because it is managing to ride a continuing wave of strong end-user demand for ERP-based services, and particularly those based around SAP.

In our definitive Market Trends 2006 report, we noted the continuing strong market for SAP services. We don't think this is a simple repeat of the dotcom and business process re-engineering boom. The focus this time around is on understanding customers better in order to extract more revenues from the customer base, or (in the case of the public sector) to meet their needs better, rather than on cost-cutting and process standardisation.

The fact that the market for SAP services is strong shouldn't detract from Axon's achievement in taking market share from its rivals (it grew its project services revenues by almost 50% in 2005). Many of these rivals are much bigger than Axon and they have deeper pools of consultants and broader portfolios, not to mention larger offshore-based and nearshore-based delivery capabilities which allow them to bid unprecedented low "blended" (mixed offshore/onshore) rates. So Axon is fighting much bigger players in a very competitive market, which makes its current progress all the more impressive for a mid-sized player with modest (in absolute terms) offshore capacity. We'll therefore be interested to see its interim results on 12 September.

Douglas is a senior analyst in the Holway@Ovum service, which looks at the UK IT services industry. He covers the IT consulting and systems integration markets. He is also the service manager of Ovum EuroView, the groundbreaking information and advisory service that began operating in February 2004.

'Market trends 2006: UK software and IT services to 2010' out now! As well as market analysis and forecasts, Market trends 2006 updates our view on the ranking players in UK S/ITS. This year we've seen a change at the top, with IBM reclaiming the number one spot from EDS. Revenues at both firms underperformed the market in 2005, but IBM's 1% growth was enough to inch it ahead of its rivals. EDS remains the largest player in UK IT services (based on revenues excluding software business), and given the effect of DII this year, it should be in a position to challenge IBM for the top spot again in Market trends 2007!