6th Dec 2005 07:01
Alternative Networks plc06 December 2005 Alternative Networks plcPreliminary results for the year to 30 September 2005 Alternative Networks plc, a leading independent business-to-business telecomsreseller, today reports maiden preliminary results for the year to 30 September2005 extracted from the audited accounts. Underlying performance * 2005 2004 Change £000 £000 % Turnover 46,404 40,708 14%Operating profit 4,174 3,178 31%EBITDA ** 4,551 3,517 29%Profit before taxation 4,300 3,387 27%Net cash inflow from operating activities 3,691 908 306% Earnings per share - basic 7.1p 4.7p 51% - diluted 6.7p 4.7p 43% Dividend per share*** 1.5p 0.9p 67% Statutory performanceTurnover 46,404 41,027 13%Operating profit 3,808 3,197 19%EBITDA ** 4,305 3,589 20%Profit before taxation 3,934 3,452 14%Net cash inflow from operating activities 3,570 934 282% Earnings per share - basic 6.5p 4.8p 35% - diluted 6.1p 4.8p 27% *Results before intangible fixed asset amortisation, discontinued operations andother exceptional items. Please refer to Note 8 for more details on itemsadjusted. ** Earnings before interest, taxation, depreciation and amortisation. *** Dividend per share is the total dividend divided by the estimated number ofshares at the record date and the 2004 number of shares has been updated to reflect the share splits and bonusissue during the year as per note 4. Highlights • Strong organic growth with underlying turnover up 14% to £46.4 million (2004: £40.7 million). • Underlying operating profits up 31% to £4.2 million (2004: £3.2 million). • Mobile revenues up 42% to £18.1 million (2004: £12.8 million). • Gross profit increases in all three product groupings: Network Services, Mobile and Advanced Solutions. • ICB acquisition in October 2005 increases the Group's mobile base of subscribers by 71% to approximately 34,280, and increases the Group's Network Services customer base by more than a third. James Murray, Chief Executive Officer commented: "We are delighted that the Group has delivered on both key strategic objectiveshaving achieved 14% growth in underlying revenue, 31% growth in underlyingoperating profit and having completed two strategic acquisitions. Our Octoberacquisition has considerably advanced our market share and brings substantialcommercial opportunities. "We continue to grow strongly, both organically and through acquisition, andlook forward to integrating the newly acquired business to drive growth andprofitability." 6 December 2005 Enquiries: Alternative Networks plc James Murray, Chief Executive Officer 0870 190 7444 Edward Spurrier, Chief Financial Officer College Hill Adrian Duffield/Corinna Dorward 020 7457 2815/2803 Chairman's statement The Board is pleased to present the Group's first annual results as a publiccompany. These confirm yet another year of growth and profitability for theperiod ended 30 September 2005. At the time of listing in February 2005, the Group's strategy included growththrough strategic and bolt-on acquisitions as well as continued organic growth,through the expansion of the salesforce, and investment in customer relationshipmanagement systems. The Board is delighted to report that the Group has delivered on both keystrategic objectives having achieved good sales and profit growth in the corebusinesses, and having completed two strategic acquisitions. The second of these acquisitions, the acquisition of Integrated Communicationsfor Business (UK) Limited ("ICB"), was substantial and brings a step change tothe size and opportunities for the Group. Results overview Despite heightened competition and falling market prices, particularly followingthe introduction of rate cuts on mobile termination by OFCOM, the Group'sunderlying performance has been strong with turnover up 14% to £46.4 million. Gross margins showed a slight improvement to 39.2% (2004: 39.0%) with grossprofits increasing in each of the three product groupings; and underlyingoperating profits increased 31% to £4.2 million. Overall, net profits beforetax were £3.9 million. Exceptional items during the year included costs relating to the share schemesestablished in the year. These have been separately set out to show theirimpact as well as the effect of discontinued operations and amortisation ofintangible fixed assets. The Group benefited from strong cash performance with cash inflow from operatingactivities of £3.6 million. Operating cash conversion, being the operating cashinflow as a % of EBITDA, was 83% (2004: 26%). The Group continues to benefitfrom low capital investment requirements; capital expenditure continues to beless than 1% of sales. The flotation, which raised a total of £3.2 million (net of expenses) through aninstitutional placing, contributed to robust cash reserves at year end of £6.2million. In anticipation of the ICB acquisition in October, the Groupnegotiated an increase in its banking facilities to £6 million in order toprovide additional working capital and to be able to take advantage of expansionopportunities. Dividend Whilst continuing our strategy of investment for growth, the Board is committedto a progressive dividend policy and is recommending a final dividend of 1.1pence per share for the year. If approved at the Annual General Meeting, thedividend will be paid on 30 January 2006 to shareholders on the register at 16December 2005. The ex-dividend date will be 14 December 2006. Acquisitions The Group has made two acquisitions, having reviewed a number of consolidationopportunities. In January 2005, the Group acquired the customer contracts of aMidlands-based reseller with 1,300 customers for a cash consideration of £0.72million. The acquisition contributed sales of £0.3 million to Group revenues. In October 2005, the Group acquired ICB for an initial consideration of £6million on completion and an earnout of up to an additional £5 million. ICBstrengthens the Group's position in the overall marketplace as one of thelargest independent business to business telecoms resellers in the UK. Based in Reading, ICB uses the same suppliers and targets similar customers tothe Group's sales teams in Bracknell and Bristol. The acquisition has added14,180 new mobile customers and 518 fixed line customers to the Group's existingoperations which comprised 20,100 mobile, and 1,416 fixed line customers at 30September 2005. ICB has already been rebranded Alternative Networks and theintegration is in progress. Staff and management During the year the Group has prioritised the training and development ofpersonnel, re-organising management structures to improve service delivery andintroducing new employee incentivisation and retention schemes. The Group'sEnterprise Management Incentive 2004 scheme (EMI) adopted on the 22 December2004 where over 80 staff were granted options in Alternative Networks Ltd. I would like, on behalf of the Board, to welcome all the new staff from thenewly acquired businesses; and thank all of Alternative Network's employees fortheir contribution to making this year successful. Strategy and outlook The Group remains committed to enhancing the quality of its customer offeringsand over the year it has significantly committed to strengthening its customercare and relationship management systems in order to grow its core businesses.This commitment has resulted in extended average contract lengths with many ofthe Group's clients. Going forward it should also help reduce churn rates. Ithas also contributed to an improvement in levels of cross selling, with 6.4% ofthe customer base taking more than two products (2004: 5%). Over the next few months the focus will be on integrating the ICB acquisition.Although the acquisition is expected to be earnings enhancing in the first year,management will be actively developing the synergies between the two businesses. As the Group has expanded both organically and by acquisition, relationshipswith our key suppliers are being prioritised, developed and reinforced. Theproduct portfolio continues to be extended and new technologies reviewed. Whilst there is scope in the longer term to benefit from additional synergiesfrom ICB, the Board remains confident that the core business will continue todeliver a steady improvement in performance next year. Furthermore, the Groupis in a strong position to continue to build scale and where there is the rightfit, also to take advantage of potential strategic consolidation opportunitiesthat may arise in the marketplace. Kenneth McGeorgeNon-executive Chairman6 December 2005 Operating and Financial Review Overview Alternative Networks is one of the UK's leading independent business to business telecommunications resellers with a broad range of products including mobile,fixed line and data services for UK SMEs and corporate customers. In the period under review, the Group has performed well with increases inmarket share and sustained profit margins; and with two acquisitions in the past10 months has shown itself well placed to participate actively in marketconsolidation. In the year to 30 September 2005, the Group has increased underlying sales by14% despite the impact of the regulatory cuts and price deflation. Underlyingoperating profits have increased 31% (operating profit: 19%) on a comparativebasis. This is a tremendous achievement given the continued high competition inall product areas. The market has been one of consolidation both at the Network and ServiceProvider level as the benefits of scale become more obvious, and opportunitiesincrease. Review of operations During the period the Group operated as a single entity but reports on threemain product groupings. Network Services 2002 2003 2004 2005 Turnover (£000) 18,088 21,164 19,758 18,983* ARPU (£) 1,126 1,168 1,123 1,117Gross Profit (£000) 6,121 7,655 7,834 8, 381Gross Margin (%) 33.8% 36.2% 39.6% 44.2% * Average Revenue per customer per month This is the fixed-line outbound business, which enables customers to route theircall traffic in an efficient, resilient and cost effective manner. The main products are direct connections, carrier pre-select (CPS) and wholesaleline rental (WLR) and the key suppliers remain MCI, Cable & Wireless and BT. Highlights for Network Services during the period: • New WLR revenues grew to £2 million (2004: £0.04 million) and are now 15% of monthly revenues. • Net increase of 42 customers to 1,416 (2004: 1,374). • Average revenue per user has held steady, reflecting the fact that WLR is also an additional revenue stream from existing accounts. The impact of WLR offset the reduction in ARPU from the reductions in the price of fixed to mobile calls. • Gross profits have increased by 7%, even though headline sales were again affected by regulatory price cuts on calls to mobiles and a very competitive market. • Average contract length for new contracts has been measured over the year for the first time (CPS averaged 7 months and WLR averaged 14 months). • Although overall sales declined on last year, sales in the second half of the year grew by 4% over the first half. Mobile 2002 2003 2004 2005 Turnover (£000) 2,503 6,878 12,794 18,116* ARPU (£) 100 83 78 72Gross Profit (£000) 272 1,844 3,515 5,086Gross Margin (%) 10.9% 26.8% 27.5% 28.1% * Average revenue per user (connection) per month The Group acts as a service provider to businesses, offering O2 and Vodafonenetworks. These services include corporate voice, corporate data and a range ofvalue added ancillary services and accessories. These products are billed on the same bill as Network Services and managed bythe same account managers. Mobile Subscriber base information 2004 2005 Increase Subscribers at 30 September 14,313 20,100 5,787Data connections at 30 September 557 2,859 2,302% Data connections of total subscriber base 3.9% 14.2% 39.8% Highlights for Mobile during the period: • Significant growth in the subscriber base with both connections and sales increasing by over 40%, in spite of increased 'churn'. • Sales of blackberry data connections and 3G data cards exceeded expectations, with 2,302 new connections, representing over a third of total net additions, such that data connections are now nearly 15% of the subscriber base. • ARPUs have held up well at £72 (2004: £78) in spite of the new lower ARPU data only connections. • Churn (subscriber attrition) - the market has been extremely competitive with the Networks continuing to reward the acquisition of new customers over and above the retention of existing customers. Churn for the year was 24% (2004: 16%). Recent initiatives to reduce churn include the significant new investment in CRM and a new churn protection program with specific targets in terms of contracted customer base. • Contracted customer base - a focus this year has been to sign up customers to longer contracts and monitor the contracted base more closely. The average new contract length in 2005 is 17 months and the percentage of connections in contract at 30 September 2005 was 80%, up from 72% in the first quarter of the year. Advanced Solutions 2002 2003 2004 2005 Turnover (£000) 5,863 7,169 8,475 9,304Gross Profit (£000) 2,693 3,727 4,640 4,735Gross Margin (%) 45.9% 52.0% 54.7% 50.9% The business segment comprises more complex products and services, being splitinto three product categories: 1. Inbound call solutions. 2. IP, Internet and Data services. 3. Hardware sales, being the sale, installation and maintenance of switchboard and Voice over IP technology, now being operated out of Alternative Networks TS Limited (ANTS). Highlights of Advanced Solutions during the period: • Sales in each of the three product categories have increased, with net sales growth of 10%. Inbound sales make up 60% of the revenues and grew by 11%. • Inbound sales include the results of the acquisition in January 2005 of the customer base of the Midlands-based reseller. Sales of the base were £0.3 million and operating profits of £0.2 million have been encouraging in line with the Board's expectations. Sales growth excluding the acquisition was 5%. • Data sales grew by 3% and headline sales growth continues to be difficult as price deflation and substitution with cheaper DSL products in the SME sector was again evident this year. • Hardware sales grew 13% with contractual maintenance revenues accounting for 26% of sales (2004: 27%). • Gross margins in the period have been impacted by a change in sales mix, with the lower margin hardware sales increasing, and by price reductions on the Group's two largest inbound customers who renewed contracts during the year. Product development In 2004 the main product launches were mobile data (Blackberry and 3G datacards) and WLR; and much of the sales growth in 2005 was generated by theseproducts. Looking ahead, there are clear opportunities to grow these revenuestreams further both within and outside our existing customer base; and thereare smaller add-on products coming on-stream this year in IP data and Inboundservices. The Products team are also reviewing many smaller opportunities in themobile data and voice over IP space. Strategy and prospects The Group is continuing with its strategy of organic growth and acquisitions asset out in the Chairman's statement with the aim to accelerate its growth to bethe UK's leading independent business communications service provider. The focusover the next year will be to: • Maintain growth of core business, with organic growth coming from increased sales teams, and increased product penetration of a wider customer base. • Maintain high rate of cash generation to help fund further acquisitions as well as the investment in CRM system. • Integrate the ICB acquisition. • Develop the Hardware and Voice over IP sales potential of ANTS, which has been relaunched as a separate entity. • Continue to reorganise the business so that key staff are more motivated and empowered and that the business has a flatter more efficient structure. The Group intends to monitor opportunities as they arise, and is in a positionto be a leading player in the consolidation of the sector. Acquisitions The acquisition of ICB on 10 October 2005 provides the Group with a significantchange in scale, growing the Group's mobile subscriber base by 71%. ICB has beenrun on similar lines to the Group and uses the same suppliers. On 1 December ICBwas rebranded to Alternative Networks and the integration is well underway. The acquisition was funded mostly by cash, £5 million, and some equity (871,538shares were issued in October 2005), with a significant element of additionalconsideration being deferred. The cash payment has depleted the reserves of cashwhich the group raised at IPO and had generated through operations, and theGroup has doubled its existing banking facilities to £6 million to providefinance for further opportunities. It is expected the deferred considerationpayments will be funded out of operational cash flow. As stated in the operating review, during the period under review, the Groupinvested £0.72 million in acquiring a customer base in the Midlands, whichgenerated £0.2 million operating profit in the period to 30 September 2005. Capital investment The Group invested £0.37 million (2004: £0.37 million) in tangible fixed assetsduring the period. The majority of this related to HR, Accounting and CRMsoftware. The Group has committed to the first phase of installing the PivotalCRM system, which is expected to improve, significantly, the sales cycle'smanagement as well as the customer's experience. The total expected costs including full integration with legacy systems is lessthan £1 million, and will be funded from operating cash flow. The Groupcontinues to have a very low requirement for capital investment and historicallyhas run at less than 1% of sales. Results overview Underlying Group turnover was up 14% to £46.4 million, principally driven byorganic growth. Underlying operating profit was up 31% to £4.2 million (2004:£3.2 million), and benefited from a combination of tight cost control andoperational gearing. Underlying pre-tax profit increased by 27% to £4.3 million(2004: £3.4 million). On a statutory basis operating profit increased by 19% andpre-tax profit increased by 14%. EPS and dividend per share Underlying basic earnings per share has increased by 51% to 7.1 pence (2004: 4.7pence). Basic earnings per share increased by 35% to 6.5 pence. The growth rateis above that of the Group's profits for the year and this is explained by thefact that during the year the Group bought back a significant number of sharesfrom Chris Wilson prior to the flotation on AIM. This resulted in a reduction inthe weighted average number of shares in 2005 compared with 2004. The Board has declared a final dividend of 1.1 pence per share making a totalequivalent dividend after the share splits disclosed in note 4 of 1.5 pence pershare for the full year (2004: equivalent 0.9 pence). The Group has aprogressive dividend policy. Tax The total tax charge is 30.7% pre tax profits (2004: 30.5%). The Group's cashflow will benefit by deferring some of its tax charge due to an accelerateddeduction for costs associated with the share award scheme for directors. In2005, there was also a credit in respect of prior year overcharge - this was inrespect of reinvestment relief now claimed on the disposal of business in 2004.Both of these are essentially timing differences and explain the provision fordeferred taxation in the period. Cashflow The Group generated £3.6 million of cash from operating activities (2004: £0.9million) with a conversion rate of 83%. The net cash raised by the IPO was £3.2 million. Adding to this, an operatingcashflow generation of £3.6 million, plus net interest receivable of £0.1million, gives a total of £6.9 million. Cash outflow was also £6.9 million whichresulted in cash balances remaining unchanged at £6.2 million at 30 September2004 and 2005. The £6.9 million cash inflow has been applied as follows: £million Share buy back (pre IPO) 4.4Taxation 1.2Acquisition 0.7Capex 0.4Dividends 0.2 6.9 Since the year end, £5 million of this cash has been used for the ICBacquisition. The Group has also negotiated an increase in its banking facilitiesto £6 million in October 2005, to provide future flexibility. Accounting policy review and IFRS During the year (and as part of the IPO process), the Board reviewed the Group'saccounting policies and these have not been amended. The Audit Committee has requested a formal review of the likely impact of IFRS.Currently it is estimated that the significant issues will be accounting forshare based payments and intangible fixed assets. These costs under current GAAPaccounting rules have been separately shown on the face of the profit and lossaccount. James Murray, Chief Executive OfficerEdward Spurrier, Chief Financial Officer6 December 2005 Profit and Loss AccountFor the year ended 30 September 2005 Notes 2005 2004 £'000 £'000 Turnover 46,404 41,027Continuing operations 46,110 40,708Acquired customer contracts 294 - Total continuing operations 46,404 40,708Discontinued operations - 319 Cost of sales (28,202) (25,038) Gross profit 18,202 15,989Other operating costs (14,394) (12,792) Operating profit 3,808 3,197 Continuing operations 3,613 3,171Acquired customer contracts 195 -Total continuing operations 3,808 3,171Discontinued operations - 26 Total operating profit - analysedOperating profit before national insurance, adjustment in respect of share 4,174 3,204schemes, intangible fixed assets amortisation and operating exceptionalitemsNational insurance on shares issued to employee benefit trust (48) -Adjustment in respect of employee share schemes (125) -Amortisation of intangible fixed assets (120) (7)Operating exceptional items in respect of share schemes (73) - 3,808 3,197 Profit on sale of business - 46Interest receivable and similar income 199 275Interest payable and similar charges (73) (66) Profit on ordinary activities before taxation 3,934 3,452Taxation on profit on ordinary activities (1,207) (1,052) Profit on ordinary activities after taxation 2,727 2,400Dividends 2 (700) (450) Retained profit for the financial year 4 2,027 1,950 Earnings per ordinary shareBasic 3 6.5p 4.8pDiluted 3 6.1p 4.8p Balance SheetAs at 30 September 2005 Notes 2005 2004 £'000 £'000Fixed assetsIntangible assets 632 29Tangible assets 2,317 2,330 2,949 2,359 Current assetsStock - finished goods 99 76Debtors 9,315 9,041Cash at bank and in hand 6,211 6,170 15,625 15,287 Creditors: amounts falling due within one year (10,303) (10,351) Net current assets 5,322 4,936 Total assets less current liabilities 8,271 7,295Creditors: amounts falling due in more than one year (1,055) (1,083)Provision for liabilities and charges (41) - Net assets 7,175 6,212 Capital and reservesCalled up share capital 4 55 1Share premium 4 4,116 96Profit and loss account 4 3,004 6,115 Total equity shareholders' funds 4 7,175 6,212 Cash flow statementFor the year ended 30 September 2005 Notes 2005 2004 £'000 £'000 Net cash inflow from operating activities 5 3,570 934 Returns on investments and servicing of financeInterest received 199 275Interest paid (73) (66)Interest element of finance lease payments - (1) Net cash inflow from returns on investments and servicing of 126 208finance TaxationUK corporation tax paid (1,159) (1,470) Capital expenditure and financial investmentPurchase of tangible fixed assets (369) (371)Proceeds from sale of tangible fixed assets 9 - Net cash outflow for capital expenditure and financial (360) (371)investment Acquisitions and disposalsNet payments to acquire customer contracts (723) (30)Receipts from sale of business - 55 Net cash (outflow)/inflow from acquisitions and disposals (723) 25 Equity dividends paid 2 (200) (450) Net cash inflow/(outflow) before financing 1,254 (1,124) FinancingIssue of ordinary share capital 4 4,000 -Share issue costs 4 (757) -Purchase of own shares 4 (4,432) -Capital elements of finance lease payments - (18)Capital element of loan repayments (24) (75) Net cash outflow from financing (1,213) (93) Increase/(decrease) in net cash 6 41 (1,217) Alternative Networks plc Notes to the Preliminary Statement 1. Basis of preparation The financial information is abridged and does not contain the Group's fullfinancial statements for the years ended 30 September 2004 and 30 September2005. Full financial statements for the year ended 30 September 2004 (which receivedan unqualified audit report) have been filed with the Registrar of Companies.Financial statements for the year ended 30 September 2005 will be presented tothe Members at the forthcoming Annual General Meeting; the auditors haveindicated that their report on these Financial Statements will be unqualified. 2. Dividends On 19 January 2005 an interim dividend of £14.60 per £0.05p ordinary share,equivalent to 0.4 pence per £0.00125p share, was paid (2004: £125 per £0.25pordinary share equivalent to 0.9 pence per £0.00125p share) with a totaldividend payment of £200,000 (2004: £450,000). A final dividend of 1.1 pence per£0.00125p ordinary share giving a total dividend payment of £500,000 (2004:£nil), has been proposed for approval at the Group's Annual General Meeting.Details of the share split can be found in note 4. 3. Earnings per share The calculation of basic and fully diluted earning per ordinary share is basedon the profit after taxation for the period and the weighted average number ofordinary shares in issue during the year, adjusted for the share split on 17December 2004, the bonus issue on 2 February 2005 and the share split on 8February 2005. The profit and weighted average number of shares used in the calculations areset out below: Basic and fully diluted earnings per Profit attributable Weighted average of Per share amountshare to shareholders £0.00125p ordinary shares £'000 number pence 2004 Earnings per share - basic 2,400 50,400,000 4.8potentially dilutive shares - - - 2004 Earnings per share - diluted 2,400 50,400,000 4.8 2005 Earnings per share - basic 2,727 41,943,846 6.5potentially dilutive shares - 2,473,962 - 2005 Earnings per share - diluted 2,727 44,417,808 6.1 The underlying EPS is based on the underlying profit after tax as set out innote 8 and the weighted average number of shares as described above. 4. Reserves Profit Share capital Share premium and loss Total £'000 £'000 £'000 £'000 Balance at 1 October 2004 1 96 6,115 6,212Shares repurchased (including expenses) - - (4,432) (4,432)Issue of shares for the employee benefit trust - 831 - 831(EBT)Shares held by EBT (UITF 38 adjustment) - - (831) (831)Share capitalisation 49 (49) - -Proceeds of shares issued 5 3,995 - 4,000Share issue costs - (757) - (757)Adjustment in respect of employee share schemes - - 125 125Retained profit for financial year - - 2,027 2,027 Balance at 30 September 2005 55 4,116 3,004 7,175 On 31 October 2004 Chris Wilson, Marketing Director and co-founder, resigned andleft the business. On 2 November 2004, the Group purchased 855 shares for £4,405,000 cash andincurred costs in respect of this purchase of £27,000. These shares weresubsequently cancelled and a capital redemption account created of £214. On 17 December 2004, the Group undertook a 5:1 share split in respect of the£0.25p shares. On 22 December 2004, the Alternative Networks EMI 2004 scheme was establishedand under this scheme qualifying options have been granted in accordance withthe Enterprise Management Incentive regime. The total outstanding is 2,044,000at an exercise price of the higher of £0.25p per share and the market value atthe date of grant. On 28 January 2005, the Directors allotted 684 shares of £0.05p each to thetrustees of the EBT for a consideration of £831,000. These shares were issuedat an undervalue and in accordance with UITF 17 this undervalue is being writtenoff to the Profit and Loss Account and credited to the Profit and Loss Reservesover 24 months. Costs of the share issue were £31,000 and have been offsetagainst the share premium account in accordance with GAAP. On 2 February 2005, in accordance with the recommendation of the Directors, thesum of £49,000, being part of the amount standing to the credit of the sharepremium account, was capitalised and the Directors were authorised and directedto distribute this sum to the members of the Group on a pro rata basis. On the 8 February 2005, each of the 1,008,630 issued ordinary shares of £0.05peach in the capital of the Group was subdivided into 40 ordinary shares of£0.00125p each so that the total issued ordinary shares at that date was £50,000divided into 40,345,000 ordinary shares of £0.00125p each. On 18 February 2005, the Group listed on the Alternative Investment Market andissued 4 million ordinary shares at £1 per share. Costs of the share issue were£726,000 and have been offset against the share premium account. 5. Reconciliation of operating profit to net cash inflow from operatingactivities 2005 2004 £'000 £'000 Operating profit 3,808 3,197Depreciation of tangible fixed assets 377 339Amortisation of intangible fixed assets 120 7(Profit)/loss on disposal of tangible fixed assets (4) 1(Increase)/decrease in stocks (23) 15(Increase)/decrease in trade debtors (53) 226(Increase) in prepayments, accrued income and other debtors (221) (924)Increase/(decrease) in trade creditors 92 (2,724)(Decrease)/increase in other taxation and social security (202) 9(Decrease)/increase in other creditors, accruals and deferred income (449) 788Adjustment in respect of employee share schemes 125 - Net cash inflow from operating activities 3,570 934 Net cash inflow from operating activities included £nil (2004: £26,000) relatingto discontinued operations. 6. Reconciliation of net cash flow to movement in net funds 2005 2004 £'000 £'000 Increase/(decrease) in cash in the year 41 (1,217)Decrease in loans 24 75Decrease in finance leases - 18Increase/(decrease) in net funds in the year 65 (1,124)Net funds at 1 October 5,061 6,185Net funds at 30 September 5,126 5,061 7. Analysis of net funds Non Cash 1 October 2004 Cash flow Movements 30 September 2005 £'000 £'000 £'000 £'000 Net cash: Cash at bank and in hand 6,170 41 - 6,211 Debt: Debt due within one year (26) 24 (28) (30) Debt due after one year (1,083) - 28 (1,055) (1,109) 24 - (1,085) 5,061 65 - 5,126 8. Reconciliation to underlying performance 2005 2004 £'000 £'000 Profit after tax 2,727 2,400Adjustments: 366 (65)National Insurance on shares issued to employee benefit trust 48 -Adjustment in respect of employee share schemes 125 -Amortisation of intangible fixed assets 120 7Operating exceptional items in respect of share schemes 73 -Net profit from discontinued operations - (26)Profit on sale discontinued operations - (46)Tax effect of the above adjustments (112) 20Underlying profit after tax 2,981 2,389Add taxation on ordinary activities 1,207 1,052Add back tax effect of above adjustments 112 (20)Underlying profit before tax 4,300 3,387Less net interest receivable (126) (209)Underlying operating profit 4,174 3,178Add back depreciation 377 339Underlying EBITDA * 4,551 3,517 Net cash inflow from operating activities 3,570 934Cash paid in respect of National Insurance on shares issued to employee 48 -benefit trustOperating exceptional items in respect of share schemes 73 -Operating cashflows from discontinued operations - (26)Net cash inflow from operating activities - Underlying 3,691 908 * Earnings before interest, taxation, depreciation and amortisation. 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