Interim Results

DIAGONAL PLC
28 July 1999


DIAGONAL - INTERIM RESULTS

FOR THE SIX MONTH PERIOD ENDED 30 MAY 1999

EARNINGS PER SHARE INCREASE BY 43 per cent.

DIAGONAL PLC, the IT service group specialising in the implementation
and support of SAP software announces further strong profit growth at
the half-year.

HIGHLIGHTS:

*     Turnover up 17 per cent. to £37.1 million
*     Profit before tax up 43 per cent. to £4.4 million
*     Earnings per share up 43 per cent. to 3.8p
*     Interim dividend up 43 per cent. to 0.5p.

Commenting on the results, MARK SAMUELS, Chairman said:

'All of our consulting divisions have made excellent progress in the
first half-year driving up Group profit margins to 11.9 per cent.

This planned change in the mix of our businesses is set to continue in
the second half.   We envisage 70 per cent. of Group turnover to come
from high fee rate consulting activities by the end of year 2000.'

Mark Samuels
Chairman


FOR FURTHER INFORMATION

MARK SAMUELS         CHAIRMAN              01252 733711
VIC TUFFIELD         FINANCE DIRECTOR      01252 733711
RICHARD POLLEN       POLLEN ASSOCIATES     01428 608860


CHAIRMAN'S STATEMENT
                                   
I have pleasure in reporting our results for the six months ended 30
May 1999.

Turnover in the period increased by 17 per cent. to £37.1 million
compared with the equivalent period last year and includes revenue of
£270,000 generated by MFT Computer Systems acquired on 29 April 1999.
Profit before tax (excluding the effects of goodwill amortisation) rose
by 43 per cent. to £4.4 million, with improved profit margins up from
9.7 per cent. to 11.9 per cent..

Adjusted earnings per share also increased by 43 per cent. to 3.8p and
an interim dividend of 0.5p, in line with the increase in earnings,
will be paid on 1 October 1999 to shareholders on the register as at 13
August 1999.

Our consulting businesses recorded combined turnover growth of 44 per
cent..   The Support Division of SAP produced first half revenue of
£6.2 million, which compares with turnover of £7.3 million for the
whole of last year.   The SAP Implementation Division continues to win
new clients together with additional work from existing clients.
Projects Division recorded a healthy first half achieving increased
profit margins.   We are particularly pleased with the performance and
positive attitude of our recent acquisition, MFT, which is on schedule
to relocate to our own offices in Leeds in early September.

Demand for contract staff has softened considerably ahead of the
millennium.   It is generally accepted that this marketplace is
expected to recover early next year.   In the meantime it is important
to protect profitability and the measures taken toward the end of last
year to reduce overheads have proved effective.   In addition we have
diverted some effort into permanent recruitment which remains
relatively buoyant, whilst imposing disciplines to avoid low margin
contract business.   The net effect in the first half-year is a 5 per
cent. reduction in combined agency turnover accompanied by an increase
in profitability.

We expect the second half-year to follow a similar pattern of growth
from the consulting businesses, with a resumption of growth in the
contract agency market not expected until the first quarter of next
year.   Our target is for 70 per cent. of Group turnover to come from
consulting activities within two years.

Board Changes

Vic Tuffield, Finance Director, has announced his intention to retire
at the end of August, but will remain on the Board as a Non-executive
Director.

Graham Creswick, currently Managing Director of CONOS Resource Ltd has
been appointed to the Board as an Executive Director with immediate
effect.   Graham is a qualified FCA and will assume the
responsibilities of Finance Director at the end of August.   In the
meantime Vic and Graham will work closely together to ensure a seamless
transition.

We are also pleased to announce the appointment of Christine Chittock,
Managing Director of our SAP Implementation Division, to the Board as
an Executive Director.


Mark Samuels
Chairman



YEAR 2000

The Group has recognised the potential issues arising from the Year
2000.  An internal audit of all software and hardware has been
completed, as has the testing of software and hardware.  We have
received confirmation from the suppliers of all major elements of our
internal business systems that they will remain viable.  Assurances of
compatibility have also been obtained from suppliers of non-IT
equipment, such as communications systems.   It is anticipated that the
Group will not incur exceptional costs above our normal replacement
expectations.

The Group is not significantly involved in the correction of clients'
Year 2000 issues, and, consequently, the Board believes that the Group
has minimal exposure to financial risk.


CONSOLIDATED PROFIT AND LOSS ACCOUNT

                                Half- year     Half-year        Year
                                     ended         ended       ended
                               30 May 1999   31 May 1998 29 Nov 1998
                               (Unaudited)   (Unaudited)   (Audited)    
                                    £'000s        £'000s      £'000s
                        Note                                       
TURNOVER                                                           
Continuing operations               36,871        31,860     70,179
Acquisition                            270             -          -
                                    ------        ------     ------
                                    37,141        31,860     70,179
                                    ------        ------     ------
                                                                   
COST OF SALES                                                      
Continuing operations             (27,241)      (24,241)   (53,146)
Acquisition                           (99)             -          -
                                  --------      --------   --------
                                  (27,340)      (24,241)   (53,146)
                                  --------      --------   --------
                                                                   
GROSS PROFIT                                                       
Continuing operations                9,630         7,619     17,033
Acquisition                            171             -          -
                                     -----         -----     ------
                                     9,801         7,619     17,033
                                     -----         -----     ------
                                                                   
ADMINISTRATIVE EXPENSES                                            
Continuing operations              (5,389)       (4,529)    (9,719)
Acquisition                           (81)             -          -
                                   -------       -------    -------
                                   (5,470)       (4,529)    (9,719)
                                   -------       -------    -------
                                                                   
AMOUNTS WRITTEN OFF                                                
GOODWILL
Continuing operations                 (49)          (49)       (97)
Acquisition                           (20)             -          -
                                      ----          ----       ----
                                      (69)          (49)       (97)
                                      ----          ----       ----
                                                                   
OPERATING PROFIT                                                   
Continuing operations                4,192         3,041      7,217
Acquisition                             70             -          -
                                     -----         -----      -----
                                     4,262         3,041      7,217
                                                                   
Net interest                            96            12         97
                                     -----         -----      -----
                                                                   
PROFIT ON ORDINARY                                                 
ACTIVITIES
BEFORE TAXATION                      4,358         3,053      7,314
Tax on profit on                   (1,388)         (977)    (2,319)
ordinary activities
                                   -------         -----     ------
                                                                   
PROFIT ON ORDINARY                                                 
ACTIVITIES
AFTER TAXATION                       2,970         2,076      4,995
Dividends                            (404)         (281)      (965)
                                     -----         -----      -----
RETAINED PROFIT                      2,566         1,795      4,030
                                     =====         =====      ===== 
                                                                   
EARNINGS PER ORDINARY                                              
SHARE
Basic                      3         3.69p         2.58p      6.21p
Diluted                    3         3.66p         2.56p      6.16p
                                                                   
ADJUSTED EARNINGS PER                                              
ORDINARY SHARE
Basic                      3         3.78p         2.64p      6.33p
Diluted                    3         3.74p         2.62p      6.28p
                                                                   
DIVIDENDS PER ORDINARY     5          0.5p         0.35p       1.2p
SHARE
                                   
                                   

CONSOLIDATED BALANCE SHEET

                                     As at         As at         As at
                               30 May 1999   31 May 1998   29 Nov 1998
                               (Unaudited)   (Unaudited)     (Audited)
                                    £'000s        £'000s        £'000s
                                                                      
FIXED ASSETS                                                          
Intangible assets                    5,817         1,028           979
Tangible assets                      4,206         3,686         3,911
                                    ------         -----         -----
                                    10,023         4,714         4,890
                                    ------         -----         -----
CURRENT ASSETS                                                        
Debtors                             19,888        16,662        18,810
Cash at bank and in hand             3,476         1,527         5,467
                                    ------        ------        ------
                                    23,364        18,189        24,277
                                   
CREDITORS - AMOUNTS FALLING                                           
DUE WITHIN ONE YEAR               (15,105)      (10,032)      (14,264)
                                  --------      --------      --------
NET CURRENT ASSETS                   8,259         8,157        10,013
                                  --------      --------      --------
TOTAL ASSETS LESS CURRENT           18,282        12,871        14,903
LIABILITIES
                                                                      
CREDITORS - AMOUNTS FALLING                                           
DUE AFTER ONE YEAR                   (776)         (772)         (841)
                                                                      
PROVISIONS FOR LIABILITIES           (130)         (238)         (184)
AND CHARGES
                                    ------        ------        ------
                                    17,376        11,861        13,878
                                    ======        ======        ======
                                                                      
CAPITAL AND RESERVES                                                  
Called up share capital              8,079         2,011         2,011
Share premium                        2,666         7,802         7,802
Other reserves                         600       (1,252)           600
Profit and loss account              6,031         3,300         3,465
                                    ------        ------        ------
EQUITY SHAREHOLDERS' FUNDS          17,376        11,861        13,878
                                    ======        ======        ======
RECONCILIATION OF MOVEMENTS                                           
IN SHAREHOLDERS' FUNDS                                                
Profit after taxation                2,970         2,076         4,995
Dividends                            (404)         (281)         (965)
                                     -----         -----         -----
                                     2,566         1,795         4,030
Issue of shares                        979             -             -
Expenses of bonus issue               (47)             -             -
Goodwill on acquisitions                 -             -         (218)
                                     -----         -----         -----
                                                                      
Net additions to                     3,498         1,795         3,812
shareholders' funds
Opening shareholders' funds         13,878        10,066        10,066
                                    ------        ------        ------
Closing shareholders' funds         17,376        11,861        13,878
                                    ======        ======        ======


CONSOLIDATED CASH FLOW STATEMENT


                          Half-year ended  Half-year ended   Year ended
                              30 May 1999      31 May 1998  29 Nov 1998
                               (Unaudited)      (Unaudited)    (Audited)
                                   £'000s           £'000s      £'000s
                                                                 
NET CASH INFLOW FROM                                             
OPERATING ACTIVITIES               3,224             2,383       7,464
                                                                 
RETURNS ON INVESTMENTS                                           
AND SERVICING OF FINANCE              95              (12)          71
                                                                
TAXATION PAID                      (283)             (248)     (1,204)
                                                                 
CAPITAL EXPENDITURE AND                                          
FINANCIAL INVESTMENT               (418)             (642)       (926)
                                                                 
ACQUISITIONS AND DISPOSALS       (3,001)                 -         325
                                                                 
EQUITY DIVIDENDS PAID              (684)             (362)       (643)
                                 -------             -----     -------
CASH (OUTFLOW)/INFLOW BEFORE     (1,067)             1,119       5,087
FINANCING
                                 -------             -----     -------
                                                                 
FINANCING                                                        
Expenses of bonus issue             (47)                 -           -
Net repayment of borrowings        (483)             (347)       (769)
                                 -------             -----       -----
                                   (530)             (347)       (769)
                                 -------             -----       -----
                                                                 
(DECREASE)/INCREASE IN CASH      (1,597)               772       4,318
IN THE PERIOD
                                 =======             =====       =====
                                                                 
RECONCILIATION OF OPERATING                                      
PROFIT
TO OPERATING CASH FLOW                                           
Operating profit                   4,262             3,041       7,217
Amortisation of goodwill              69                49          97
Depreciation                         660               538       1,176
(Profit)/loss on sales of            (7)              (34)          18
tangible assets
Increase in debtors                (739)           (2,632)     (5,008)
(Decrease)/increase in             (967)             1,399       3,977
creditors
(Decrease)/increase in              (54)                22        (13)
provisions
NET CASH INFLOW                    -----             -----      ------
FROM OPERATING ACTIVITIES          3,224             2,383       7,464
                                   =====             =====      ======
                                                                 
MOVEMENT IN NET CASH/(DEBT)                                      
Opening balances                                                 
   Cash                            5,467               755         755
   Overdraft                       (394)                 -           -
   Finance leases                (1,667)           (1,181)     (1,181)
                                 -------           -------     -------
                                   3,406             (426)       (426)
                                 =======           =======     =======
Movement in period                                               
   Cash                          (1,991)               772       4,712
   Overdraft                         394                 -       (394)
   Finance lease repayments          483               347         769
   New finance leases (non-        (466)             (623)     (1,255)
   cash)
                                  ------             -----     -------
                                 (1,580)               496       3,832
                                  ======             =====     =======
Closing balances                                                 
   Cash                            3,476             1,527       5,467
   Overdraft                           -                 -       (394)
   Finance leases                (1,650)           (1,457)     (1,667)
                                 -------           -------     -------
                                   1,826                70       3,406
                                 =======           =======     =======


NOTES

1.The interim results have been prepared in accordance with applicable
Accounting Standards, using the historical cost convention.   The
financial information for the two half-years has not been audited and
does not constitute statutory accounts as defined in Section 240 of
the Companies Act 1985.  The results for the year to 29 November 1998
have been extracted from the Annual Report and Accounts which received
an unqualified auditors' report and have been delivered to the
Registrar of Companies.

2.   Turnover and operating profit relate to continuing operations,
there being no discontinued operations in the periods.

3.   Earnings per share have been computed in accordance with Financial
Reporting Standard 14 'Earnings per Share' and have been adjusted to
reflect the effect of the bonus issue that took place on 6 May 1999.
Earnings per share in respect of prior periods have been appropriately
restated.

  Basic earnings per share are calculated by dividing the Profit on
Ordinary Activities after Tax by the weighted number of Ordinary
Shares in issue during the period.   Diluted earnings per share take
account of the dilutive potential Ordinary Shares, which arise under
the employee's Save-As-You-Earn Share Option Scheme, where the
exercise price is less than the average market price of the Company's
Ordinary Shares during the relevant period.

  A reconciliation of the earnings and weighted average number of shares
used in the calculation is set out below.

                                     Half-year   Half-year  Year ended
                                        30 May      31 May      29 Nov
                                          1999        1998        1998
                                    (Unaudited)  (Unaudited)   (Audited)
                                        £'000s       £'000s      £'000s
                                                                      
Profit on ordinary activities            2,970       2,076       4,995
after tax
Amounts written off goodwill                69          49          97
                                         -----       -----       -----
Adjusted profits                         3,039       2,125       5,092
                                         =====       =====       =====
                                                                      
                                        Number      Number      Number
                                                                      
Weighted average number of shares   80,486,434  80,431,600  80,431,600
in issue
Effect of options                      768,742     645,017     703,772
                                    ----------  ----------  ----------
Total shares                        81,255,176  81,076,617  81,135,372
                                    ==========  ==========  ==========
                                                                      
                                         Pence       Pence       Pence
BASIC EPS                                                             
Unadjusted                                3.69        2.58        6.21
Goodwill                                  0.09        0.06        0.12
                                         -----       -----       -----
Adjusted                                  3.78        2.64        6.33
                                         =====       =====       =====  
                                                                    
DILUTED EPS                                                           
Unadjusted                                3.66        2.56        6.16
Goodwill                                  0.08        0.06        0.12
                                          ----        ----        ----
Adjusted                                  3.74        2.62        6.28
                                          ====        ====        ====

4.   The interim dividend will be paid on 1 October 1999 to
shareholders on the register at the close of business on 13 August
1999.  The cost of the dividend payable to Ordinary Shareholders is
£404,000 (31 May 1998:  £281,000;  29 November 1998:  £684,000).

5.Dividends per Ordinary Share in respect of prior periods have been
restated to reflect the bonus issue which took place on 6 May 1999.

6.The interim report will be mailed to shareholders and copies will be
available at the Company's registered office:  DIAGONAL PLC, Wey
Court, Farnham, Surrey  GU9 7PT.


ADDITIONAL INFORMATION

There is no further information required by the Listing Rules to be
disclosed in connection with the appointment of Graham Creswick and
Christine Chittock as directors.