Preliminary Results
K3 Business Technology Group PLC
12 March 2007
KBT.L
K3 BUSINESS TECHNOLOGY GROUP PLC
('K3' or 'the group')
IT solutions supplier to the supply chain industry
Announces
Preliminary Results For the Year to 31 December 2006
Highlights
• Excellent progress - demonstrates benefits of balanced business model
• Period of consolidation and investment:
- significant investment in Retail Software Division - recruitment lifts
staff numbers to 134 from 95, a rise of 41%
- integration of two manufacturing software businesses, IEG and Walton - will
reduce cost base
• Sales increased by 24% to £27.35m (2005: £22.03m) reflecting:
- first full year contribution from IEG, manufacturing software business
acquired June 2005
- strong growth at the Retail Software Division, where sales rose by 30%
• Adjusted operating profit*1 rose by 27% to £3.05m (2005: £2.41m)
• Operating profit, after amortisation of goodwill and intangibles of £2.20m and
share option costs of £0.09m, was £0.76m (2005: £0.60m), a rise of 26%
• Adjusted eps*2 was 11.5p (2005: 11.2p). Loss per share improved to 1.7p (2005:
loss of 1.8p)
• Post year end disposal of smallest business unit, Elucid for £1.36m cash
• New business pipeline very encouraging - Board views outlook very positively
Tom Milne, Chairman, commented,
'The results for 2006 continue to demonstrate the strength of our balanced
business model. The Retail Software Division has shown strong sales growth
whilst the Manufacturing Software Division continues to demonstrate highly
sustainable profitability*3 and strong cash generation.
Having made three acquisitions during the 18 month period to June 2005, it was
important to ensure the businesses were effectively consolidated and that the
Retail Software Division, in particular, remains well positioned for growth over
the next few years. Over the course of the year, we invested heavily in the
Division, adding new staff and reorganising the operations to concentrate on
core sectors.
We continue to view the Group's prospects for 2007 very positively.'
----------
*1 Calculated before amortisation of goodwill and intangibles of £2.20m (2005:
£1.75m) and share option costs of £0.09m (2005: £0.05m).
*2 Calculated before amortisation of goodwill and intangibles of £2.20m (2005:
£1.75m), share option costs of £0.09m (2005: £0.05m) and loss on disposal of
operations including the related tax charge of £0.11m (2005: £0.14m)..
*3 Calculated before amortisation of goodwill and intangibles of £1.16m (2005:
£0.73m) and share option costs of £0.04m (2005: £0.03m).
Enquiries:
K3 Business Technology Andy Makeham, Chief Executive T: 020 7448 1000 (today)
Group plc David Bolton, Chief Finance Officer Thereafter: 01282 864111
Biddicks Katie Tzouliadis T: 020 7448 1000
Paul Shackleton Daniel Stewart (NOMAD) T: 020 7776 6550
CHAIRMAN'S STATEMENT
OVERVIEW
Results for the year to 31 December 2006 show that K3 continues to make
excellent progress. Group sales have increased by 24% to £27.35m and adjusted
operating profit*1 has risen by 27% to £3.05m.
Over the year, our focus was on integration and investment. Having made three
acquisitions during the 18 month period to June 2005, it was important to ensure
the businesses were effectively consolidated and that the Retail Software
Division, in particular, remains well positioned for growth over the next few
years. We see a significant growth opportunity for the Retail Software business
and therefore over the course of the year invested heavily in the division,
adding new staff and reorganising the operations to concentrate on core sectors.
Our investment in new people has continued into the first half of the new
financial year.
Multi-channel retail is also an important growth sector for K3, and to date this
has predominantly been serviced by sales of our Elucid multi-channel retail
solution. Elucid is not a Microsoft product, and is designed for the smaller
multi-channel retailer, and this restricts the sales opportunities for the
product. We have thus taken the decision to extend the functionality of our
core Microsoft Dynamics Retail solution to incorporate the facilities previously
offered by Elucid to provide an integrated and more scaleable solution with
broader appeal. This development will fall largely in the first half of 2007
and is expected to yield revenues in the second half. The Elucid business unit
has thus become non-core to the future of K3 and, in February 2007, we agreed
the sale of Elucid for a total of £1.36m in cash.
In the second half, we took the decision to merge both our manufacturing
software operations. This process should be completed by the end of the first
half of the current financial year.
Our two core businesses, the Retail Software Division and the Manufacturing
Software Division, form a solid base from which to move forward. Our strategy
remains that of the balanced model. The Manufacturing Software Division offers
steady, recurring income and predictable profits*3 and cash flow generation
while the Retail Software Division offers strong growth prospects.
There are good opportunities for K3 looking ahead. We are the largest supplier
of manufacturing software in the UK and there is scope to consolidate further in
this marketplace. We are also well placed to develop as the largest Microsoft
Dynamics reseller. We continue to seek appropriate acquisitions that fulfil our
strict criteria. In December 2006, we acquired a stake in SiRViS IT plc, the IT
infrastructure business, with a view to extending K3's product and service
offerings. Unfortunately we were not able to agree terms which we considered to
be reasonable with the board of that company. We have therefore disposed of the
majority of that stake, at the same price at which it was acquired. We will
continue to consider other acquisition opportunities but only where K3's
shareholder value can be enhanced.
This year, because of the investment we are making in the business in first half
of the new financial year, results for the year as a whole will be more
significantly weighted towards the second half. The Board continues to remain
very positive about the outlook for 2007.
----------
*1 Calculated before amortisation of goodwill and intangibles of £2.20m (2005:
£1.75m) and share option costs of £0.09m (2005: £0.05m).
*3 Calculated before amortisation of goodwill and intangibles of £1.16m (2005:
£0.73m) and share option costs of £0.04m (2005: £0.03m).
Financial Results
Group turnover for the year to 31 December 2006 increased by 24% to £27.35m from
£22.03m last year. The increase partly reflected the first full year's
contribution from Information Engineering, the manufacturing software business
we acquired in June 2005. A comparison of second half results shows progress on
a like-for-like basis and sales in the second half increased by 15% from £12.69m
to £14.61m. This reflected the particularly strong growth in the Retail Software
Division, where sales in the second half rose by 36%.
Adjusted operating profit*1 for the year rose by 27% to £3.05m (2005: £2.41m).
After amortisation of goodwill of £2.20m (2005: £1.75m) and share option costs
in line with FRS20, Share-based payments, of £0.09m (2005: £0.05m), the
operating profit was £0.76m (2005: £0.60m), an increase of 26% on last year.
Adjusted profit before tax*1 rose by 37% to £2.78m (2005: £2.03m) and adjusted
earnings per share*2 were 11.5p (2005: 11.2p). Earnings per share growth was
impacted by a fund raising in the second half. After taking into account
amortisation of goodwill and intangibles of £2.20m (2005: £1.75m) and share
option costs of £0.09m (2005: £0.05m), profit before taxation more than doubled
to £0.50m (2005: £0.23m) and the loss per share was 1.7p (2005: loss of 1.8p).
At 31 December 2006, the Group held a cash balance of £2.27m (2005: £0.87m). At
that date, the balance of the bank loan of £1m drawn down in December 2005 was
£0.69m.
----------
*1 Calculated before amortisation of goodwill and intangibles of £2.20m (2005:
£1.75m) and share option costs of £0.09m (2005: £0.05m).
*2 Calculated before amortisation of goodwill and intangibles of £2.20m (2005:
£1.75m), share option costs of £0.09m (2005: £0.05m) and loss on disposal of
operations including the related tax charge of £0.11m (2005: £0.14m).
Dividend
The Directors do not propose to pay a dividend (2005: £nil). However, as stated
in the interim results, following the Company's successful application to the
High Court for the requisite confirmation of the cancellation of the share
premium account in July 2006, the Directors plan to make a dividend payment in
respect of the 2007 results if appropriate.
International Financial Reporting Standards
As reported in our interim results, the Group is required to adopt International
Financial Reporting Standards (IFRS) for the year ended 31 December 2007. A
project is currently in progress to identify the likely impact of IFRS upon the
Group's results. It is envisaged that this project, including the financial
restatement of previously reported results, will be completed during the first
half of 2007. One notable impact will be the removal of the requirement to
systematically amortise goodwill held within the balance sheet which will
instead be subject to an annual impairment review.
Review of Operations
Retail Software Business
The division performed extremely well, with sales increasing by 30% over the
year to £16.44m from £12.66m last year and adjusted operating profit*4 rising by
34% to £1.63m (2005: £1.22m). Sales in the second half of the year were
particularly strong, increasing by 36% to £8.65m from £6.36m in same period in
2005. This excellent performance reflects both our additional investment in the
division and our strategy to focus on building our presence within key retail
sectors, our 'verticalisation strategy'. Over the course of 2006, we secured new
orders amounting to £8.60m (2005: £7.53m).
Our investment over the year in the division has been significant and
encompassed product development, business development and sales and marketing.
While the investment is already showing returns, as expected, it impacted on
margins in the second half. We are making further investment in the division in
the first half of the current financial year and are particularly encouraged by
the strength of the new business pipeline.
----------
*4 Calculated before amortisation of goodwill and intangibles of £0.95m (2005:
£0.95m) and share option costs of £0.03m (2005: £0.02m).
Distribution Software Business
The Distribution Software Division, based on our Elucid product, continued to
show good progress in 2006 with revenues growing by 14% to £2.06m (2005:
£1.80m). Last year's adjusted operating loss*5 of £0.08m was converted into an
adjusted operating profit*5 of £0.08m, reflecting continued improvement in
margins and productivity.
During the course of 2006, we took the strategic decision to dispose of the
Elucid business in order to concentrate on multi-channel and warehouse
management software sales opportunities for larger retail customers. This is
better serviced by our Microsoft Dynamics based retail solution rather than the
'stand-alone' Elucid product. We are therefore extending the functionality of
our Microsoft Dynamics offering to create an integrated solution for the mid
range retailer and, in February 2007, agreed the sale of Elucid to Sanderson
Group plc for £1.36m in cash.
----------
*5 Calculated before amortisation of goodwill and intangibles of £0.09m (2005:
£0.08m) and share option costs of £0.01m (2005: £0.01m).
Manufacturing Software Business
Revenues from our Manufacturing Software Division increased by 17% to £8.85m
(2005: £7.57m). This reflected the first full year contribution from Information
Engineering, which we acquired in June 2005. Sales in the second half of the
year declined slightly to £4.90m (2005: £5.33m), largely the result of some
reduction in the new business sales at the Walton-based business. Adjusted
operating profit*6 for the year increased by 6% to £1.34m (2005: £1.27m) In the
second half adjusted operating profit*7 rose by 39% to £1.03m (2005: £0.74m)
reflecting the impact of the annual licence fee billings.
Since the year end, we have taken the decision to channel all our new business
sales of SYSPRO through Information Engineering, and have also taken the
opportunity to bring our two manufacturing software businesses closer together
and reduce the cost base accordingly.
We are encouraged by the pipeline and view the prospects for 2007 with
confidence.
----------
*6 Calculated before amortisation of goodwill and intangibles of £1.16m
(2005: £0.73m) and share option costs of £0.04m (2005: £0.03m).
*7 Calculated before amortisation of goodwill and intangibles of £0.57m (2005:
£0.56m) and share option costs of £0.02m (2005: £0.02m).
Outlook
The results for 2006 continue to demonstrate the strength of our balanced
business model. The Retail Software Division has shown strong sales growth
whilst the Manufacturing Software Division continues to demonstrate highly
sustainable profitability and strong cash generation. Having spent the last year
successfully integrating and consolidating the acquired businesses, we are now
actively seeking further complementary acquisitions in our core markets to
continue to build critical mass.
We continue to view the Group's prospects for 2007 very positively.
Tom Milne
Chairman
OPERATING REVIEW
Introduction
2006 was a year of consolidation and investment following two key acquisitions
and a smaller acquisition made over the course of eighteen months from April
2004.
Results for the year are excellent, with revenues growing by 24% to £27.35m
(2005: £22.03m) and adjusted operating profits*8 increasing by 27% to £3.05m
(2005: £2.41m). While part of this was due to the full year benefit of
Information Engineering acquired in June 2005, it is encouraging to note that
the like-for-like revenues in the second half showed growth of 15% to £14.61m
(2005: £12.69m) while like-for-like adjusted operating profit*9 rose by 10% to
£1.71m (2005: £1.55m).
This is a particularly encouraging performance taking into account the level of
investment we have made in our Retail Software Division, with the creation of
new vertical market business units. It confirms the strength of our
well-balanced business model which delivers a mix of safe recurring licence
income in the Manufacturing Software Division and high growth opportunities in
Retail Software Division.
As part of our consolidation process, in February 2007, we agreed the sale of
our Distribution Software Business, Elucid, which we viewed as no longer core to
our future strategy. Going forward, we intend to focus on the mid-tier retail
sector and our Microsoft Dynamics solution will encompass a multi-channel and
warehouse management offering for this marketplace.
We continue to pursue our goal to become the UK's market leading supplier of
Microsoft-based supply chain management solutions to small and medium sized
companies. In 2007, we expect to expand our footprint within the Retail and
Manufacturing software sectors. We have also identified potential acquisition
targets in both the manufacturing and retail markets which would complement our
existing offerings for these sectors.
The Board considers the key performance indicators by which it measures
performance of its divisions to be turnover and operating profit adjusted for
goodwill amortisation and share option costs.
----------
*8 Calculated before amortisation of goodwill and intangibles of £2.20m (2005:
£1.75m) and share option costs of £0.09m (2005: £0.05m).
*9 Calculated before amortisation of goodwill and intangibles of £1.09m (2005:
£1.07m) and share option costs of £0.05m (2005: £0.04m).
Retail Software Business
2006 was another year of dramatic growth. In early 2006, we embarked on a
programme of 'verticalisation' whereby we refocused our activities to
concentrate on sectors where we can build a significant presence. We now have
sector specific business units in Breweries/Drinks, Food, Household Goods and
Fashion. This has required significant investment, predominantly in additional
high calibre resource, but also in marketing to underpin the exciting
opportunities we believe are available to us. I am pleased to say that the
initial results from this investment are encouraging.
Whilst revenues grew by 30%, year on year, sales in the second half increased by
36% over the same period last year. All new vertical units contributed and a
total of 18 new customers were signed with an average order value of £0.48m.
Notable new customers included Beales Department Store, US-based GameStop Corp.,
one of the world's largest video game retailers (with an implementation spanning
the UK, USA and Pacific Rim), and Musgrave Group, Ireland's largest food and
grocery distributor.
Adjusted operating profits*10 for the year grew by 34% to £1.63m (2005: £1.22m).
However our increased investment adversely impacted on the underlying margin at
the adjusted operating profit*11 level in the second half which was 7% compared
to 12% in the same period in 2005.
As a result of our investment, the number of people employed in our Retail
Software Division increased from 95 to 134 during 2006. We have been extremely
fortunate in being able to attract some very high calibre staff and this will
help to underpin our future growth plans. We are committing further investment
over the first half of the new financial year.
Our product development roadmap for 2007 includes the continued development of
mid-range multi-channel functionality, for which we already have customers
identified. Revenues from these projects should start to flow during the second
half of 2007.
----------
*10 Calculated before amortisation of goodwill and intangibles of £0.95m (2005:
£0.95m) and share option costs of £0.03m (2005: £0.02m).
*11 Calculated before amortisation of goodwill and intangibles of £0.47m (2005:
£0.48m) and share option costs of £0.02m (2005: £0.01m).
Distribution Software Business
Revenues grew by 14% to £2.06m (2005: £1.80m) and improved margins and
consultancy productivity helped the business deliver an adjusted operating
profit*12 for the year of £0.08m (2005: adjusted operating loss*12 of £0.08m).
The sale of the business in February 2007 allows us to focus on the larger
customer opportunities within the retail space whilst using the funds received
to invest in further acquisition opportunities.
----------
*12 Calculated before amortisation of goodwill and intangibles of £0.09m
(2005: £0.08m) and share option costs of £0.01m (2005: £0.01m).
Manufacturing Software Business
The acquisition of Information Engineering in 2005 brought with it distribution
rights for SYSPRO, one of the world's market leading manufacturing Enterprise
Resource Planning solutions. SYSPRO provides a compelling new business product
as well as offering a natural upgrade solution for our existing customers.
The programme to migrate existing long term manufacturing customers to SYSPRO
started well, with three major upgrades achieved in the year (MicroFiltex, GMI
and SMC), and we remain hopeful of this momentum continuing in 2007. Over the
course of the year, we secured a total of 14 new SYSPRO deals worth £1.34m.
These included Avio Import S.p.A,, the Italian distributor of aerospace
fasteners, and Radical Motorsport, the UK racing car manufacturer.
The success of our 13 site implementation for the Doncaster Group led to a
second order worth £0.5m for SYSPRO Business Analytics, a new 'business
intelligence' software module that is proving much in demand from both new and
existing customers.
2006 also saw the development of a new SYSPRO Mobile Technology solution,
written by Information Engineering, using the latest Visual Studio development
tools. This was successfully trialled in the UK and is now being distributed
throughout Syspro's worldwide distributor network. Early results are encouraging
with three sales in the UK, and 25 sales in Canada to date.
We have now decided to focus all new business sales of SYSPRO from Information
Engineering, and the cost base of our Walton business unit has been reduced as
duplicate sales and marketing has been eliminated.
With Microsoft's support, our Walton business unit developed a multi-currency
add-on module for Microsoft CRM, and distributors for this have now been
appointed in the USA, Australia, Poland, Belgium, Denmark, and Germany.
K3 remain the largest supplier of manufacturing solutions to the SME market in
the UK, and with our newly invigorated manufacturing division, market leading
products, substantial customer base and strong pipeline, we believe 2007 will
deliver another strong performance.
Andy Makeham
Chief Executive
Consolidated profit and loss account
for the year ended 31 December 2006
2006 2005
As restated
Continuing Continuing
Notes £000 £000
Turnover 27,346 22,029
Cost of sales (10,641) (8,136)
----------------------------- ------- -------- ---------
Gross profit 16,706 13,893
Selling and distribution costs (5,102) (4,122)
Administrative expenses (10,840) (9,167)
----------------------------- ------- -------- ---------
----------------------------- ------- -------- ---------
Operating profit before amortisation of
goodwill and intangibles and share option costs 3,046 2,408
Amortisation of goodwill and intangibles (2,198) (1,752)
Share option costs (85) (52)
----------------------------- ------- -------- ---------
Operating profit 763 604
Loss on disposal of operations 1 - (90)
-------- ---------
Profit on ordinary activities before finance
charges 763 514
Finance charges (net) (262) (287)
----------------------------- ------- -------- ---------
Profit on ordinary activities before taxation 501 227
Tax on profit on ordinary activities (810) (493)
----------------------------- ------- -------- ---------
Loss for financial year 5 (309) (266)
----------------------------- ------- -------- ---------
Loss per share Total Total
Basic 2 (1.7p) (1.8p)
Diluted 2 (1.7p) (1.8p)
All activities arise from continuing activities apart from the loss on disposal
of operations.
Consolidated balance sheet
as at 31 December 2006
2006 2005
As restated
Notes £000 £000
Fixed assets
Development costs and intellectual property 273 162
Goodwill 13,604 15,682
------------------------------ ------- -------- --------
Intangible fixed assets 13,877 15,844
Tangible assets 416 508
Investments 1,398 -
------------------------------ ------- -------- --------
15,691 16,352
------------------------------ ------- -------- --------
Current assets
Debtors 8,778 6,596
Cash at bank and in hand 2,267 874
------------------------------ ------- -------- --------
11,045 7,470
Creditors: amounts falling due within one year 3 (13,654) (10,583)
------------------------------ ------- -------- --------
Net current liabilities (2,609) (3,113)
------------------------------ ------- -------- --------
Total assets less current liabilities 13,082 13,239
Creditors: amounts falling due after more than
one year 4 (711) (2,439)
------------------------------ ------- -------- --------
Net assets 12,371 10,800
------------------------------ ------- -------- --------
Capital and reserves
Called up share capital 4,872 4,435
Share premium account 5 1,388 7,813
Other reserve 5 6,070 6,070
Profit and loss account 5 41 (7,518)
------------------------------ ------- -------- --------
Equity shareholders' funds 12,371 10,800
------------------------------ ------- -------- --------
Consolidated cash flow statement
for the year ended 31 December 2006
2006 2005
Notes £000 £000
Net cash inflow from operating activities 6 2,218 4,267
Returns on investments and servicing of finance (235) (279)
Taxation 26 (80)
Capital expenditure and financial investment (335) (106)
Acquisitions and disposals 7 (1,456) (5,153)
------------------------------ ------- -------- --------
Cash inflow (outflow) before financing 218 (1,351)
Financing 7 1,175 1,822
------------------------------ ------- -------- --------
Increase in cash in the year 8 1,393 471
------------------------------ ------- -------- --------
Notes
1. Loss on disposal of operations
The loss on disposal of operations in 2005 of £0.09m relates to further
unanticipated costs incurred regarding the disposal in 2004 of the manufacturing
software operation based at Crewe to Azur Group Limited. The profit on disposal
of this operation recognised in 2004 was £1.25m. During the year a further tax
charge of £0.11m has been made as a result of a reduction in the capital losses
available to be offset against the gain made on the disposal of this operation.
2. Loss (earnings) per share
The calculations of loss per share are based on the loss for the financial year
and the following numbers of shares.
2006 2005
Number of Number of
shares shares
Weighted average number of shares:
For basic earnings per share 18,075,153 14,999,027
Exercise of share options 87,053 154,501
----------- -----------
For diluted earnings per share 18,162,206 15,153,528
=========== ===========
The alternative earnings per share calculations have been computed because the
directors consider that they are useful to shareholders and investors. These
were based on the following profits (losses) and the above number of shares.
2006 2005
Earnings Per share Earnings Per share Per share
(losses) amount (losses) amount amount
Basic and As restated Basic Diluted
diluted
As restated As restated
£000 p £000 P p
Earnings
(loss) per
share (eps) (309) (1.7) (266) (1.8) (1.8)
Effect of
goodwill
amortisation
and
intangibles 2,198 12.1 1,752 11.7 11.6
Effect of
share option
costs 85 0.5 52 0.4 0.4
-------------------- -------- -------- -------- -------- --------
Eps before
amortisation
of goodwill
and
intangibles
and share
option costs 1,974 10.9 1,538 10.3 10.2
Exceptional
items (net of
tax) 106 0.6 *+140 0.9 0.9
-------------------- -------- -------- -------- -------- --------
Eps before
amortisation
of goodwill
and
intangibles,
share option
costs and
exceptional
items 2,080 11.5 1,678 11.2 11.1
-------------------- -------- -------- -------- -------- --------
*+ Relates to loss on disposal of manufacturing software operation based in
Crewe of £nil (2005: £0.09m) on which the tax charge was £0.11m (2005: £0.05m)
due to adjustments to the amounts of capital losses available for offset against
the gain.
3. Creditors: amounts falling due within one year
2006 2005
£000 £000
Bank loans and overdrafts 335 311
Obligations under finance leases and hire purchase contracts 129 249
Other loans due to related parties 397 229
Trade creditors 1,676 1,221
Corporation tax 1,003 223
Taxation and social security 1,626 1,536
Other creditors 80 262
Deferred consideration 960 70
Accruals 2,907 2,308
Deferred income 4,541 4,174
----------------------------------- -------- --------
13,654 10,583
----------------------------------- -------- --------
4. Creditors: amounts falling due after more than one year
2006 2005
£000 £000
Bank loan and overdrafts 356 689
Obligations under finance leases and hire purchase contracts 98 130
Other loans due to related parties 257 513
Deferred consideration - 1,107
----------------------------------- -------- --------
711 2,439
----------------------------------- -------- --------
5. Reserves
Share premium Other reserve Profit and loss
account account
£000 £000 £000
----------------------------- -------- -------- --------
At 1 January
2006 - as
restated 7,813 6,070 (7,518)
Cancellation
of share
premium
account (7,813) - 7,813
Retained loss
for the year - - (309)
Currency
translation
difference on
foreign
currency net
investments - - (15)
Credit to
equity for
equity-settled
share-based
payments - - 85
Treasury
shares
acquired - - (15)
Share capital
issued 1,419 - -
Expenses of
equity share
issue (31) - -
----------------------------- -------- -------- --------
At 31 December 2006 1,388 6,070 41
----------------------------- -------- -------- --------
Following the Company's successful application to the High Court for the
requisite confirmation of the cancellation of the share premium account in July
2006, the balance on the share premium account at that date was cancelled.
The group has adopted FRS 20, Share based payments. In accordance with the
transitional provisions of FRS 20, the standard was applied retrospectively to
all grants of equity instruments after 7 November 2002 that were unvested as of
1 January 2005, and to liabilities for share-based transactions existing at 1
January 2005.
For 2005, the change in accounting policy has resulted in net decrease in profit
for the year of £83,000. For 2006 the impact of share base payments is a net
charge of £85,000, which is included in the administrative expenses line of the
consolidated profit and loss account.
6. Reconciliation of operating profit to operating cash flow
2006 2005
£000 £000
Operating profit 763 604
Depreciation charges and fixed asset impairment 329 341
(Profit) loss on sale of tangible fixed assets (27) 33
Amortisation of goodwill and intangibles 2,198 1,752
Share options 85 52
Write down of investments - 17
(Increase) decrease in debtors (2,276) 1,372
Increase in creditors 1,146 96
----------------------------------- -------- --------
Net cash inflow from operating activities 2,218 4,267
----------------------------------- -------- --------
7. Analysis of cash flows
Acquisitions and disposals
2006 2005
£000 £000
Acquisition of subsidiary undertakings - (1,663)
Costs of acquisition of subsidiary undertakings (18) (696)
Net bank overdrafts acquired with subsidiary undertakings - (1,016)
Deferred consideration (40) (1,688)
Sale of business (net of costs) - (90)
Acquisition of investment (1,398) -
----------------------------------- -------- --------
(1,456) (5,153)
----------------------------------- -------- --------
Financing
Issue of ordinary share capital 1,825 1,350
Treasury shares purchased (15) (20)
New bank loan - 1,000
New related party loan - 1,000
Repayment of bank loan (309) -
Repayment of related party loans (70) (1,040)
Capital element of finance lease rental payments (256) (468)
----------------------------------- -------- --------
1,175 1,822
----------------------------------- -------- --------
8. Analysis and reconciliation of net debt
1 Jan 2006 Cash flow Other non-cash 31 Dec 2006
changes
£000 £000 £000 £000
Cash in hand, at bank 874 1,393 - 2,267
Debt due after one year (1,202) - 589 (613)
Debt due within one year (540) 397 (589) (732)
Finance leases (379) 256 (104) (227)
---------------------- -------- -------- --------- --------
Cash resources (net debt) (1,247) 2,046 (104) 695
---------------------- -------- -------- --------- --------
2006 2005
£000 £000
Increase in cash in the year 1,393 471
Cash outflow (inflow) from increase/decrease in debt and
lease financing 653 (492)
----------------------------------- -------- --------
Change in net debt resulting from cash flows 2,046 (21)
Finance leases acquired with subsidiaries - (92)
Loan converted to equity - 521
New finance leases (104) (88)
----------------------------------- -------- --------
Movement in net debt in year 1,942 320
Net debt at 1 January 2006 (1,247) (1,567)
----------------------------------- -------- --------
Cash resources (net debt) at 31 December 2006 695 (1,247)
----------------------------------- -------- --------
9. The directors do not recommend the payment of a final dividend and the
dividend for the year is therefore £nil (2005: £nil).
10. The results have been prepared under the historical cost convention and in
accordance with applicable United Kingdom accounting standards. The accounting
policies have been applied consistently with those stated in the previous
accounts.
11. The financial information set out above does not comprise the Company's
statutory accounts. Statutory accounts for the previous financial year ended 31
December 2005 have been delivered to the Registrar of Companies. The auditors'
report on those accounts was unqualified and did not contain any statement under
section 237(2) or (3) of the Companies Act 1985. The auditors have given an
unqualified opinion on the accounts for the year ended 31 December 2006 and it
did not contain any statement under section 237(2) or (3) of the Companies Act
1985. These will be delivered to the Registrar of Companies following the annual
general meeting.
12. This preliminary announcement was approved by the Board of directors on 12
March 2007.
13. The full financial statements will be posted to shareholders on or around 27
April 2007. Further copies will also be available from the Company's registered
office at Linden Business Centre, Linden Road, Colne, Lancashire, BB8 9BA from
that date.
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