6th Jun 2007 07:00
Alternative Networks plc06 June 2007 6 June 2007 Alternative Networks plc Interim Results for the six months to 31 March 2007 Investment in business and organic growth leads to strong Interim Results Alternative Networks plc, a leading independent business-to-business telecomsreseller, today reports its Interim Results for the six months ended 31 March2007. Unaudited six months to 31 March 2007 2006 (restated) £000 £000 ChangeUnderlying performance*Turnover 34,979 32,097 9% EBITDA 4,135 3,350 23%Operating profit 3,948 3,143 26% Profit before taxation 4,102 3,163 30% Earnings per share - basic 6.3p 5.1p 24%- diluted 6.1p 4.8p 27% Statutory performanceTurnover 34,979 32,097 9%EBITDA 3,997 3,170 26%Operating profit 3,532 2,698 31%Profit before taxation 3,806 2,718 40% Dividend per share ** 1.0p 0.77p 30% Earnings per share - basic 6.5p 4.4p 48%- diluted 6.3p 4.1p 54% * "Underlying" means that operating exceptional costs, share based payments,amortisation of intangible fixed assets in respect of prior acquisitions, andthe gain on the part disposal of the subsidiary have been omitted, giving in theBoard's view a better understanding of the business performance. For EPScalculations, it also normalises the tax charge, ignoring the exceptional lowtax rate, due to the share options exercised in the period. ** Calculated by taking the interim dividend paid or proposed in each period anddividing by the shares currently ranking for dividend 2006 results are restated for the adoption of FRS20 "Share based payments". Operational highlights • Sales up 9%, with Mobile sales growing 18% • Underlying organic operating profits growth of 26% • Operational gearing improving with underlying operating margins up from 9.8% to 11.3%, reflecting ongoing benefits from ICB acquisition • Fixed line operations (Network Services) continued its growth, with Wholesale Line Rental ('WLR') revenues up over 50% to £2.9m (2006: £1.9m) • Mobile service provider licences with Vodafone and O2 extended to 2009 • Strong underlying free cash flow of £2.4m (H1 2006: £1.96m) James Murray, Chief Executive Officer, commented: "I'm delighted to report a strong performance in the first half of the year,with turnover up 9%, profit before tax up 30%, increased operating margins andhealthy cash generation. During these six months we have extended our mobileservice provider licences with Vodafone and O2 until 2009, invested in ourportfolio of data products and launched a number of Blackberry converged mobileand data products whilst keeping control of churn. We believe that followingthe recent investment in the business and the period's organic growth, the Groupis now a stronger business and we are well positioned to meet full yearexpectations". "We are evaluating a number of acquisition opportunities and continue toconsider acquisitive growth as an important part of our strategy. Despite thechallenges and competitive environment in which we operate, we believe we have asound platform from which to grow the business." Enquiries:Alternative Networks plcJames Murray, Chief Executive Officer 0870 190 7444Edward Spurrier, Chief Financial Officer Financial Dynamics 020 7831 3113Juliet Clarke/Hannah Sloane Chairman's Statement I am delighted to announce the 5th consecutive strong set of results for thegroup since flotation. Today we are reporting both revenue and profit growth,demonstrating the success of the focused strategy, as well as the value of thecontinuing investment in, and improvement of, the Group's infrastructure. The Board is happy with the growth seen across all the divisions. NetworkServices saw ARPU improve and an increase in larger customers and longercontracts. In Mobile, new connections continued to grow steadily, while grossmargins and ARPU remained buoyant. Despite the impact of the continuing cleanup of the ICB customer base, Advanced Solutions saw an improvement in grossprofit margin across all the core product areas and a successful drive forlarger customers. Under the broader tenets of Intelligence, Investment and Improvement, the statedstrategy of moving towards larger customers in the SME space, cross sellingproducts, reducing churn and following a clear product strategy aimed atoffering bespoke, client driven services continues to validate itself. Furtherstrengthened by the investment in the core business, this period's growth leadsthe Board to conclude that the Group has never been stronger. The Board is also pleased to note that the market is converging as expected andAlternative Networks is ideally placed to deal with the demand for convergingmobile and fixed line voice and data applications. While organic growthcontinues to be fundamental to the group, acquisitions remain a key part of theBoard's strategy to achieve critical mass. In summary, the Board is very pleased with the progress in the period. Thepositive results of the strategy, with the continual striving for improvement,the commitment to an intelligent strategy and the investment in the company'sinfrastructure and CRM systems, gives the Board confidence for the full year. Kenneth McGeorge Chief Executive's Review We are delighted to report another period of strong profits and sales growth.The period to 31 March 2007 has been one in which we have invested in ourbusiness and have emerged fitter. We are particularly pleased to be maintaininga healthy level of organic growth even after the step change to our business atthe beginning of last year with the acquisition of ICB. The acquisition of ICBtook place on 10 October 2005, therefore the profits and sales reported for thisperiod essentially represent organic and like for like growth. Results Overview Our excellent track record continues with sales and profits growth and healthycash generation. The highlights are: Sales were up 9% to £35.0m. Mobile sales growth was very encouraging at 18%, asthis was advancing on the record revenue levels set last year after theacquisition of ICB. Gross profit margins were buoyant and have performed comfortably in line withexpectations, nudging down from 36.1% to 35.3% across the Group. NetworkServices margins fell only due to the change in sales mix, and Mobile andAdvanced Solutions gross margins have both increased by more than 1% year onyear. Underlying operating profit margins for the group expanded to 11.3% from 9.8%,reflecting the ongoing benefits of scale and efficiency gains made in theperiod. Statutory profits before tax grew by 40% to £3.8m after accounting for FRS20costs of granting share options for the first time. Underlying profits beforetax increased by 30%. Profits include an exceptional gain of £120,000 realisedon the sale of a 10% stake in the subsidiary company, Alternative Networks TSLimited, to a key employee. This event was foreshadowed in the company'sprospectus on admission to AIM in February 2005. Cash conversion (conversion of cash from EBITDA) remained strong. At the end ofMarch 2007, the group had paid £1.5m to its trade creditors which ordinarilywould have been paid after the period end. This will reverse later in the year,and if the period end cash position were adjusted for this, free cash flow inthe period would have been £2.4m and the cash conversion of EBITDA would havebeen 83% (H1 2006: 85%). Basic earnings per share have increased by 48%, benefiting from the taxdeductions in respect of options exercised in the period, which when spread overthe year have brought the estimated effective tax rate down to 23%. The Group proposes to pay an interim dividend of 1 pence per share (2006: 0.77pence) on 7 July, representing an increase of 30%. Mobile Group Group 6 months to 6 months to 31/3/2007 31/3/2006Sales £18.8m £16.0mGross Profit Margin 31% 30%ARPU £63 £63 • Sales have increased 18% to £18.8m. Overall growth in new connections remained strong and in line with the previous two half year periods, with more than 6,000 new connections gained. This was in spite of the market moving towards one device per customer. In Q1 there was a higher level of churn in the acquired ICB base, as expected, mostly in the smaller customers where the average customer lost had fewer than 10 connections. Excluding this as an exceptional spike, the growth of the core AN base revenues was 23%. • Business subscribers have increased to 41,077 from 37,589 a year ago, and up from 40,244 at 30 September 2006. The gain of 7,267 new connections has been offset by marginally increased churn levels, as well as increased levels of customers moving to one device, and a net reduction of 1,700 in the ICB subscriber base. • Data connections now represent nearly 25% of the total base (2006 H1: 18%). The launch of converged voice and data devices in the period has proved very successful, with, for example, over 750 of the new Blackberry " Pearl" being shipped between launch in December 2006 and March 2007. • Gross margins have remained buoyant, gaining 1% to 31%. Of this gain, 0.4% was due to the favourable settlement of a dispute with a peripheral supplier. • ARPU has remained at £63, which is an excellent performance in a competitive market, where prices on renewal of a 2 year contract can typically be 20-30% lower. Group ARPU remains high due to a focus on selling converged devices, where ARPU averages £110, reflecting growth in data usage in the new device ranges. This is offset by the low ARPUs of data only connections, e.g. data cards, and data-only Blackberry connections, where the Group has also had success in recent years with over 800 Laptop Data cards being shipped in this period. • Network churn levels have increased to 18% (31 March 2006: 16%) following the continuing attrition of the smaller ICB customers. The average newly signed, or re-signed, contract period was 20 months (FY2006: 19 months). At 31 March 2007, the base was 79% in contract (81% at 30 September 2006). The uncertainty over the EU roaming tariffs during this period has meant that some customers have delayed committing to a new longer term contract, and we anticipate a busy period of customer renewals between June and September 2007. Network Services Group Group 6 months to 6 months to 31/3/2007 31/3/2006Sales £11.5m £11.3mGross Profit Margin 36% 40%Wholesale Line Rental as a percentage of revenues 25% 17%Average Revenue Per User (per month) £1,085 £974 • Headline sales continued the growth seen in 2006, up 2% to £11.5m. Stripping out the impact of the ICB customers' net changes, the underlying growth of the Alternative Networks base was 5% (2006: 5%). • Average revenue per customer per month ('ARPU') continued to advance - increasing 11% to £1,085 (2006: £974), reflecting the successful bolting on of WLR revenues and increase in larger customers, offsetting the impact of the price erosion. • Average contract lengths for new customers have increased to 21 months from 14 months in H1 2006. This reflects the general trend towards 2 year contracts. • Gross margins on traffic revenues marginally increased through the period. However over the 6 month period overall margins declined from 38.0% reported at 30 September 2006 for the 4th quarter to 36.4% entirely due to the change in sales mix with the WLR product, which now accounts for 25% of sales. Advanced Solutions Group Group 6 months to 6 months to 31/3/2007 31/3/2006Sales £4.7m £4.9mGross Profit Margin 49% 47% • Sales have declined 4%; the decline of £0.2m was mostly in the Group's data connectivity revenues and is due to the ongoing clean up of the Group's base since the ICB acquisition. • Inbound telephony services ('NTS') remains the largest of these product areas and total sales have been maintained at £3m. The Group has enjoyed some good new contract wins - in the period there was a 5% increase in the number of customers spending over £1,000 - but these have been masked by reductions in revenues caused by the gradual migration from 0870 to other products with lower revenues per minute, following the OFCOM ruling. • Gross margins have increased in all 3 core product areas (inbound, data and hardware) and have risen overall from 47% to 49%. In Inbound, the margin advancement is due to some buying gains ahead of the rate of customer price reductions. In Hardware, the margins are improving due to a higher proportion of the higher margin Mitel IP systems being sold. In Data, the margins are increasing due to a considerably improved cost base, despite offering significant savings to customers on renewal. • Data revenues were reduced principally due to the £0.1m reduction in ICB revenues. This small base was transferred to ANTS in October 2006. A large proportion of the revenue reductions are due to technology advances as cheaper SDSL Broadband replaces legacy private circuits. In fact, even allowing for significant price reductions across the Group, there are the same number of customers spending over £1,000 per month at the period end as there were at 30 September 2006, illustrating there have been some modest underlying net gains in higher spending customers. • Hardware sales have been maintained at £1.0m (2006: £1.0m). Good progress has been made in the period in growing the recurring maintenance base ahead of management targets, and the performance since the period end is encouraging. Organic Growth We have continued to focus successfully on areas which we believe are key, asset out last year: Focus on larger customers in SME space During the period we have continued to target the mid-enterprise market, whichwe define as business customers with between 50 and 500 employees, and this isevidenced by the average spend for newly acquired customers in this periodincreasing to £1,400 per month. At the end of March 2007, we continued to lookafter over 4,000 business customers and the percentage of those spending over£1,000 has increased slightly to 28% from 27% at the end of September 2006. Cross-selling of products A key part of our organic growth strategy is to sell more products to new andexisting customers. During the period we have seen encouraging ongoing growth inproduct penetration to our clients. At 31 March 2007, 67% (31 March 2006: 65%)of large customers (those who spend more than £1,000 per month with us) tookmore than one product, and 41% (31 March 2006: 35%) took three products or more.We treat mobile services as one product, whether data, voice or ancillaryservices. Mobile churn management Following the very successful reduction in churn from 24% in 2005 to 16% in2006, the Board was pleased that mobile network churn of 18%, which was expectedto increase, nonetheless is within the 16-20% band the Board expected last year.This was achieved in spite of an increase in churn in the ICB client base in thefirst quarter of the period which was due to the smaller customers, who areoutside Alternative's target customer size. Customer attrition in mobile,calculated on a revenue basis, was 22% in the period, compared to 18% reportedlast year. Product development Since 1 October 2006, the Group has: • Successfully launched and supported the latest trio of Blackberry converged mobile and data products (Pearl, 8800 and the "Curve") and been accredited into O2's Data Centre of Excellence; • Extended our mobile service provider licences with both Vodafone and O2 until 2009; • Designed and commissioned a suite of upgrades to our "Clarity" on-line reporting tools, which will be delivered in July; and • Significantly expanded our data portfolio of products by introducing two new suppliers of broadband products and higher end data solutions for launch in July 2007. The Group remains closely interested in product opportunities in access (LLU)and mobile wi-fi converged product development as well as business-based mobileapplications. Growth by Acquisition Whilst no acquisition has been made since the acquisition of ICB in October2005, the Group has continued to evaluate and enter into negotiations with anumber of acquisition opportunities, mostly operating in the Advanced Solutionsproduct range, being data ISPs, Hardware Installers and maintainers, as well asmobile applications providers, and some converged service providers across theseranges of products. There are some interesting prospects which we continue topursue. Of key importance is that the business is now well prepared to makeappropriate acquisitions, while continuing to demonstrate good organic growth. Summary The period under review was heralded as one in which the Group had to knuckledown and make a number of improvements as well as investments in coreinfrastructure. Our employees have responded superbly and we have seen advancesin most areas of our business. We are confident we have a sound platform onwhich to continue to grow the business. As with other providers in this sector, we have a challenging environment inwhich to compete. Regulator intervention will necessarily impact headline salesover the next year in both Mobile and Advance Solutions as the EU Mobile RoamingRetail Caps and the Ofcom review of 0870 revenue share products will result inrevised tariffs and pricing structures for our clients. The conclusions of bothof these initiatives were not as harsh as some commentators expected and,looking forward, there are fewer uncertainties on the horizon. Currently we arenot anticipating a material impact to our operating profits, but we will provideclearer guidance later in the year. We remain very excited about the emerging reality of converged products in thebusiness communications market and we are confident that we have positioned thebusiness well in order to take full advantage as the product sets are releasedover the next three years. James Murray CONSOLIDATED PROFIT & LOSS ACCOUNTFOR THE PERIOD ENDED 31 MARCH 2007 Restated* Restated* Audited Unaudited Unaudited Year to Six months to Six months to 30 September 31 March 2007 31 March 2006 2006 Notes £000 £000 £000 Turnover: 34,979 32,097 65,964Cost of sales (22,631) (20,494) (42,475) Gross profit 12,348 11,603 23,489Operating costs (8,816) (8,905) (17,735) Operating profit: 3,532 2,698 5,754 Total operating profit - analysed:Operating profit before operatingexceptional items and amortisationof intangible fixed assets 3,948 3,143 6,700Operating items in respect ofshare schemes (62) (93) (187)FRS20 share option costs 1 (76) (54) (115)Operating exceptional item inrespect of redundancy costsof acquired operations - (33) (101)Amortisation of intangible fixed assets 5 (278) (265) (543) Total operating profit 3,532 2,698 5,754 Profit on part disposal ofsubsidiary operations 4 120 - -Interest receivable and similar income 183 54 162Interest payable and similar charges (29) (34) (64) Profit on ordinary activitiesbefore taxation 3,806 2,718 5,852Taxation on profit on ordinary activities 7 (892) (826) (1,812) Profit on ordinary activitiesafter taxation 2,914 1,892 4,040Minority interest (4) - - Profit for the financial period 2,910 1,892 4,040 Earnings per ordinary share: 3Basic 6.5p 4.4p 9.3pDiluted 6.3p 4.1p 8.8p * The comparative figures have been restated following the adoption of FRS20 asdescribed in note 1. The Group has no gains or losses other than the profit above and therefore noseparate statement of total recognised gains and loss has been presented. There is no difference between the profit on ordinary activities before taxationand the retained profit for the periods stated above and their historical costequivalents. CONSOLIDATED BALANCE SHEETAS AT 31 MARCH 2007 Restated* Restated* Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 Notes £000 £000 £000 Fixed assetsIntangible assets 5 5,829 6,335 6,107Tangible assets 2,512 2,326 2,353 Total fixed assets 8,341 8,661 8,460 Current assetsStock - finished goods 71 109 73Debtors 10,921 13,085 10,608Cash at bank and in hand 9,093 3,253 8,488 20,085 16,447 19,169Creditors: amounts falling duewithin one year (12,613) (13,852) (14,441) Net current assets 7,472 2,595 4,728 Total assets less current liabilities 15,813 11,256 13,188Creditors: amounts falling duein more than one year (995) (1,039) (1,015) Net assets 14,818 10,217 12,173 Capital and reservesCalled up share capital 6 59 57 57Share premium 6 4,559 4,116 4,116Merger reserve 6 901 968 934Profit and loss account 6 9,295 5,076 7,066 Total shareholders' funds 6 14,814 10,217 12,173Minority Interest 4 - - Capital employed 14,818 10,217 12,173 * The comparative figures have been restated following the adoption of FRS20 asdescribed in note 1. CONSOLIDATED CASH FLOW STATEMENTFOR THE PERIOD ENDED 31 MARCH 2007 Unaudited Unaudited Audited Six months to Six months to Year ended 31 March 31 March 30 September Notes 2007 2006 2006 Net cash inflow from operating activities 8 1,831 2,757 9,286 Returns on investments and servicing of financeInterest received 183 47 162Interest paid (29) (34) (64) Net cash inflow from returns oninvestments and servicing of finance 154 13 98 TaxationUK corporation tax paid (727) (656) (1,420) Capital expenditure and financial investmentPurchase of tangible fixed assets (347) (151) (380)Proceeds from sale of tangible fixed assets - 3 2 Net cash outflow for capitalexpenditure and financial investment (347) (148) (378) Free cash inflow 911 1,966 7,586 Acquisitions and disposalsPurchase of subsidiary undertaking - (5,247) (5,251)Cash acquired with subsidiary - 838 838Disposal of subsidiary undertakings 4 120 - - Net cash inflow/(outflow) from acquisitionsand disposals 120 (4,409) (4,413) Equity dividends paid 2 (852) (497) (844) Net cash inflow/(outflow) before financing 179 (2,940) 2,329 FinancingIssue of ordinary share capital 445 - -Capital element of loan repayments (19) (18) (52) Net cash inflow/(outflow) from financing 426 (18) (52) Increase/(decrease) in net cash 9 605 (2,958) 2,277 NOTES TO THE ACCOUNTS 1. Principal accounting policies The financial information contained in this interim statement does notconstitute accounts as defined by section 240 of the Companies Act 1985. Theinterim report has been neither audited nor reviewed by the Group's auditors.The financial information for the year ended 30 September 2006 is derived fromthe statutory accounts for that period that have been delivered to the Registrarand included an audit report, which was unqualified and did not contain anystatement under section 237 of the Companies Act 1985. The interim financial information has been prepared on the basis of theaccounting policies set out in the statutory accounts for the year ended 30September 2006, except for the adoption of FRS 20 "Share based payment". Thisstandard's requirement is to charge the profit and loss account with the fairvalue of share options granted to employees over the vesting period of theoptions. The financial effect of this change in accounting policy is set outwithin the 'Total operating profit - analysed:' section of the Profit and LossAccount, and in note 7 on Taxation. The interim financial information has alsobeen prepared on the basis of the accounting policies expected to apply in thenext annual statutory accounts. Fixed annual charges are apportioned to the interim period on the basis of timeelapsed provided that a contractual or constructive obligation exists at theinterim balance sheet date. Other expenses are accrued in accordance with thesame principles used in the preparation of the annual accounts, as modified bythe introduction of new accounting standards. The interim results were approved by the Board on 05 June 2007. 2. Dividends The reported dividend in these statements represents the 2006 proposed finaldividend of 1.83 pence per £0.00125p ordinary share, which was paid on 7February 2007 (2006: represents the 2005 proposed and paid final dividend of 1.1pence per £0.00125p ordinary share). The amount of dividend paid was £852,000(2006: £497,000). The directors propose a dividend for the 2007 interims of 1.0 pence per£0.00125p ordinary share (2006: 0.77 pence per share), with a total paymentvalue of £470,000. This was approved on 23 May 2007, and has not been accruedin the financial statements. This will be paid on 7 July 2007 to shareholders onthe register on 22 June 2007. The ex-dividend date is 20 June 2007. 3. Earnings per share Earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of shares in issue during asix month period. The weighted average number of shares in issue during the sixmonths to 31 March 2007 was 44,448,000 (six months to 31 March 2006: 43,258,000;year to 30 September 2006: 43,280,000). The potentially dilutive number of share options was 2,015,000 during the sixmonths to 31 March 2007 (restated* six months to 31 March 2006: 2,485,000;restated* year to 30 September 2006: 2,474,000). For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all potential dilutive ordinaryshares. Restated* Restated* Unaudited Unaudited Audited Six months to Six months to Year to 31 March 2007 31 March 2006 30 September 2006 Per share Per share Per share Earnings Amount Earnings amount Earnings amount £000 pence £000 pence £000 penceBasic EPSEarnings attributable to ordinaryshareholders 2,910 6.5 1,892 4.4 4,040 9.3Amortisation of intangible fixed assets 278 0.6 265 0.6 543 1.2Exceptional items (58) (0.1) 126 0.3 288 0.7FRS20 share based payments 76 0.1 54 0.1 115 0.3Tax adjustment of above based oneffective tax rates (69) (0.1) (135) (0.3) (291) (0.7) Tax deduction of EMI share optionsexercised in period - exceptional (330) (0.7) - - - - Adjusted earnings 2,807 6.3 2,202 5.1 4,695 10.8 Diluted EPSEarnings attributable to ordinaryshareholders 2,910 6.3 1,892 4.1 4,040 8.8Amortisation of intangible fixed assets 278 0.6 265 0.6 543 1.2Exceptional items (58) (0.1) 126 0.3 288 0.7FRS20 share based payments 76 0.1 54 0.1 115 0.3Tax adjustment of above based oneffective tax rates (69) (0.1) (135) (0.3) (291) (0.7) Tax deduction of EMI share optionsexercised in period - exceptional (330) (0.7) - - - - Adjusted earnings 2,807 6.1 2,202 4.8 4,695 10.3 * The comparative figures have been restated following the adoption of FRS20 asdescribed in note 1. Adjusted basic and diluted EPS have been calculated to exclude the after taxeffect of amortisation of intangible fixed assets and operating exceptionalitems in order that the effect of these items on reported earnings can be fullyappreciated. 4. Disposal of subsidiary undertakings On 25 January 2007 the Group sold 10% of the issued share capital of AlternativeNetworks TS Ltd to an employee for £120,000 cash consideration. 5. Intangible fixed assets Purchased customer contracts Goodwill Total £000 £000 £000CostAt 1 October 2006 759 6,018 6,777Additions - - - At 31 March 2007 759 6,018 6,777 AmortisationAt 1 October 2006 283 387 670Charge for period 77 201 278 At 31 March 2007 360 588 948 Net book amountAt 31 March 2007 399 5,430 5,829 At 30 September 2006 476 5,631 6,107 The goodwill on acquisition is being amortised on a straight-line basis over 15years which is the anticipated life of the asset. 6. Movements in share capital and reserves Profit Share Share Merger And capital premium reserve loss Total £000 £000 £000 £000 £000 Balance at 1 October 2006 57 4,116 934 7,066 12,173Shares issued 2 443 - - 445Realisation of merger reserve - - (33) 33 -Adjustment in respect of employee share schemes - - - 62 62FRS20 share based payments 76 76Retained profit for financial period - - - 2,910 2,910Dividends paid - - - (852) (852) Balance at 31 March 2006 59 4,559 901 9,295 14,814 Between January and March 2007 the company issued 1,755,700 ordinary shares forcash to employees following the exercise of share options granted in 2004. On 17 January 2007 qualifying options have been granted under the AlternativeNetworks EMI scheme in accordance with the Enterprise Management Incentiveregime. The total outstanding are 1,147,407 at an exercise price of the higherof £1.52p per share and the market value at the date of grant. 7. Taxation Deferred tax has been restated for the impact of FRS20 (Share based payments).This has increased the deferred tax asset by £39,000 (31 March 2006: £35,000; 30September 2006: 54,000), and correspondingly reduced the corporation tax chargein the profit and loss statement. During the period a tax deduction for the 2004 EMI share option scheme is due of£2,200,000 following the exercise of options by employees. This has reduced theeffective tax rate from 32.0% to 23.5%. It improves basic and diluted EPSnumbers by 0.7p, except where adjusted. 8. Reconciliation of operating profit to net cash inflow from operating activities Restated* Restated* Unaudited Unaudited Audited Six months to Six months to Year to 31 March 2007 31 March 2006 30 September 2006 £000 £000 £000 Operating profit 3,532 2,698 5,754Depreciation on tangible fixed assets 187 210 411Amortisation of intangible fixed assets 278 265 543Profit on disposal of tangible fixed assets - (3) -Decrease in stocks 2 12 48Decrease in trade debtors 433 248 1,986Increase in prepayments, accruedincome and other debtors (746) (1,498) (747)(Decrease)/increase in trade creditors (2,490) 623 1,343Increase/(decrease) in other taxationand social security 268 (197) (176)Increase/(decrease) in other creditors,accruals and deferred income 229 252 (178)Adjustment in respect of employeeshare schemes 62 93 187FRS20 share option costs 76 54 115 Net cash inflow from operating activities 1,831 2,757 9,286 * The comparative figures have been restated following the adoption of FRS20 asdescribed in note 1. 9. Reconciliation of net cash flow to movement in net funds Unaudited Unaudited Audited Six months to Six months to Year to 31 March 31 March 30 September 2007 2006 2006 £000 £000 £000 Increase/(decrease) in cash in the period 605 (2,958) 2,277Decrease in loans 19 18 52Borrowings acquired with subsidiaries - - (19) Increase/(decrease) in net funds in the period 624 (2,940) 2,310Net funds at beginning of the period 7,436 5,126 5,126 Net funds at end of the period 8,060 2,186 7,436 10. Analysis of movement of net funds Audited Unaudited As at As at 1 October 31 March 2006 Cash flow 2007 £000 £000 £000Net Cash:Cash at bank and in hand 8,488 605 9,093 DebtDebt due within one year (37) (1) (38)Debt due after one year (1,015) 20 (995) Total debt (1,052) 19 (1,033) 7,436 624 8,060 11. Reconciliation to underlying performance Six months Six months to 31 March to 31 March 2007 2006 £000 £000 Operating profit 3,532 2,698Operating exceptional item in respect of share schemes 62 93FRS20 share based payments 76 54Operating exceptional item in respect of redundancycosts of acquired operations - 33Amortisation of intangible fixed assets 278 265 Underlying operating profit 3,948 3,143 Add back Depreciation 187 207 Underlying EBITDA * 4,135 3,350 Net interest received 154 20 Underlying profit before taxation 4,102 3,163 "Underlying" means that operating exceptional costs, share based payments,amortisation of intangible fixed assets (in respect of prior acquisitions), andthe gain on the part disposal of the subsidiary have all been stripped out,giving in the Board's view a better understanding of the business performance. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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