Trading Statement

Diagonal PLC
19 September 2002

                                  DIAGONAL PLC


            Satisfactory trading outlook for full year and Group review


Diagonal announces an update on trading at the end of the third quarter and in
the light of announcements from other IT companies and the recent weakness in
its share price.



Whilst trading conditions continue to be challenging, the outlook for the full
year to 30 November 2002 is within the range of current market expectations,
albeit at the lower end of these expectations, before the goodwill charges and
exceptional and non-recurring items referred to in this statement.   The outlook
for profit before tax and goodwill charges for the second half is therefore
expected to be comparable with that achieved in the first half.


Diagonal also announces that it has taken positive steps to improve margins
which will bring benefit in 2003. The Group expects to incur some non-recurring
costs in the second half and has undertaken a review of the carrying value of
goodwill, as outlined below.



The Group continues to improve profitability with gross margins over 30% and the
prospects are for operating profit margins (pre tax, goodwill charges and
exceptional and non-recurring items) to improve on the 9% recorded last year and
to reach 10% by the year end.  Diagonal also remains firmly cash generative, and
is on track to meet its year end cash targets.



The fourth quarter of the financial year is typically a strong one for Diagonal.
While the Board is confident of some upturn in business, Diagonal currently
anticipates that total revenues in the second half will be slightly lower than
those of the first half.



                               OPERATIONAL REVIEW



SAP Consulting



The SAP Consulting business enjoys a strong forward load and weighted sales
pipeline with existing and potential new clients.  Nonetheless, clients continue
to take an incremental approach to implementation.  Day rates remain firm
although utilisation levels are modestly down on the first half.  This business
continues to derive the majority of its revenues from existing clients,
benefiting from our excellent record of delivery.



EAI Consulting



As indicated in the interim results announcement, the envisaged restructuring
was primarily to enable the EAI Consulting business to compete more successfully
for larger projects and to improve overall utilisation.  It is pleasing to
report that both these objectives are already being achieved.



Secure Networks



The Secure Networks Division continues to improve operating margins through its
focus on higher margin support and maintenance work, the current levels of which
are in line with year end targets. We are actively looking for additional
consulting capacity in order to develop this proposition further.



                                  GROUP REVIEW

In the light of current trading conditions, the Group has taken the opportunity
to carry out an operational review of its activities, with a view to ensuring
that Diagonal's business is in good shape, both operationally and financially,
to meet the future needs of our markets:



(i)                  Restructuring



EAI Consulting



At the time of the interim announcement, we indicated that a restructuring of
the EAI business (part of the Consulting division) was underway.  This has been
completed and the business now has 30 consultants compared to 50 at the end of
2001.  The total cost of this exercise is some £300K, which will be reflected in
the results for the second half.



Other areas



As previously announced, the Group decided that the position of Group Managing
Director could no longer be justified in the current environment.  In addition
we have taken the opportunity to reduce the number of administrative staff
positions around the Group.  The costs associated with these decisions are some
£200K, which will also be reflected in the results for the second half.



(ii)                Fixed Assets



SAP Consulting



The Group has developed a comprehensive system to improve the management
information and controls in the SAP Consulting business.  The final and by far
the largest phase of this three year project goes live next month. The Board has
decided to take a prudent view not to capitalise £300K of expense associated
with this project.



(iii)               Goodwill



Secure Networks



The division has continued its shift to higher margin support and maintenance
work and consulting.  As highlighted at the time of the interim announcement,
the move away from network infrastructure business has continued to the point
where it now represents only 10% of divisional revenues.



The Board has considered the implications of this change in relation to the
current carried value of goodwill associated with the acquisition of Eurostar
Network Systems and has concluded that an additional £5m should be written off.
This will result in a Group goodwill charge of approximately £8m for the full
year.



Commenting on this announcement, Graham Creswick, CEO said:

'It is pleasing to be able to reinforce the message of the Group's resilience in
the face of current market uncertainties.  I am confident that Diagonal is now
well equipped to maintain and further improve margins in today's changed climate
for our industry.'



Enquiries:


Graham Creswick, Chief Executive                                                    Tel: [phone]
Steve Fleming, Finance Director
Ian Seaton, Bankside Consultants Limited                                            Tel: [phone]






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