SIR.L Regulatory News (SIR)

20 Apr 2006 07:02

Sirius Financial Solutions PLC20 April 2006 Sirius Financial Solutions PLC Operating profit* ahead of expectations and up 54% - final dividend up 25% -strong take up of flagship product, Sirius 21 Sirius Financial Solutions, the specialist supplier of software and services tothe insurance and financial services industry worldwide, today announced itspreliminary results for the year ended 31 December 2005. *Operating profit before deduction of goodwill amortisation and operating exceptional FINANCIAL HIGHLIGHTS • Group turnover of £21.8m (2004: £21.7m) • Recurring revenues remained strong and at £8.7m (2004: £7.6m) represent 39.8% (2004: 35.0%) of Group turnover • Operating profit pre goodwill amortisation and operating exceptional up 54% to £2.1m (2004: £1.4m). After charging goodwill and the operating exceptional, operating profit was £0.4m (2004: £0.5m) • Improvement in both gross profit and net profit margin (pre goodwill amortisation and exceptional item) at 45.6% and 9.7% (2004: 42.6% and 6.3%) respectively, this is the third successive year of improvement in this net profit measure • Adjusted earnings per share** of 10.3p (2004: 6.5p) and basic earnings per share of 0.5p (2004: 1.4p) • Proposed final dividend up 25% to 1.25p per share (2004: 1.0p) • One-off operating exceptional charge of £0.7m (2004: £nil) in respect of the Group's previous leasehold head office OPERATIONAL HIGHLIGHTS • Strong take up of Sirius 21 following launch in January 2005; 65 customers and 800 users live at December 2005 • Record year in 2005 for Sirius for Insurance with 11 new wins • Continued expansion of India development centre, currently at 46 employees ** Adjusted earnings per share is based on the profit for the financial year before deduction of goodwill amortisation and operating exceptional Stephen Verrall, Chairman and Group Chief Executive of Sirius FinancialSolutions, said: "I am very pleased to announce a further year of significant improvement inoperating profit*, up 54%, ahead of expectations, as a result of a combinationof cost control and strong growth in our Insurance Systems business unit. Wehave a strong order book and with increased forward visibility we are confidentabout the Group's prospects." 20 April 2006 Enquiries Sirius Financial Solutions 0121 779 8400Stephen Verrall/ Richard Bowser College Hill Adrian Duffield/Ben Way 020 7457 2020 CHAIRMAN'S STATEMENT Results REVIEW On a turnover of £21.8m (2004: £21.7m), operating profit before deduction ofgoodwill and operating exceptional was ahead of the Board's expectations at£2.1m (2004: £1.4m) with adjusted earnings per share (based on the profit forthe financial year before deduction of goodwill amortisation and operatingexceptional) at 10.3p (2004: 6.5p). After charging goodwill amortisation, theone-off operating exceptional, interest and tax the profit for the year was£0.1m (2004: £0.2m). The Group ended the year in a net cash position and the business continued togenerate operating cash inflows, which for the year amounted to £0.9m (2004:£2.6m). The Board propose a final dividend of 1.25p per share (2004: 1.0p) whichcombined with the interim dividend represents a full year dividend of 1.75p(2004: 1.5p). The Group's turnover for the year was supported by recurring revenues of £8.7 m(2004: £7.6m). Recurring revenues continue to increase as a proportion ofturnover, accounting for 39.8% of total Group turnover in 2005 (2004: 35.0%). As previously forecast, the move to term licencing has resulted in a suppressionof turnover levels. In addition, the move to Sirius 21 has reduced low marginthird-party hardware and software sales during the year by £0.4m. This lowmargin revenue has been more than compensated for by higher margin servicerevenues. The improvement to operating profit has been achieved by the successfulexecution of our declared strategy, which commenced at the end of 2003. At the beginning of 2005, we set ourselves a number of specific goals and arepleased to be able to report, as we did in 2004, positive progress against allof them. All of the main initiatives planned and introduced for 2005 have beensuccessful in both implementation and impact. They include: • A shift in emphasis from one-off licence sales to services, recurring revenues and renewable term licences. Nearly all of the new wins contracted in 2005 have been sold as term licences - typically over a four year term thus providing the opportunity for renewal at the end of the term • Improved productivity in the professional services and support areas of the business through further growth in the Sirius owned and managed development centre in India. We now have 46 staff employed in India • Achievement of a record year for the Sirius for Insurance product with 11 new win sales in the year • The launch of Sirius for Broking as an Managed Service Provision (MSP) - newly branded as Sirius 21- currently more than 100 Sirius 21 sales have been achieved Our wholly owned Sirius development centre in Delhi has now been operating fornearly two years and currently has 46 staff. We have been very impressed withboth the quality and productivity of our Indian operation. In line with ouroriginal plans we expect to have 55 staff by the end of 2006. The success ofthis off shoring strategy represents a key component in our drive to improvemargins across all of our sales lines. BUSINESS REVIEW From the outset of 2005 the Group has operated under the simplified structure oftwo business units: Intermediary Systems and Insurance Systems which nowincorporates Sirius Web Services. Intermediary Systems Intermediary Systems is the oldest of the Group's business units, and isaccountable for all revenue derived from the sale and support of the Sirius forBroking application to insurance intermediaries of all sizes. It is alsoresponsible for the insurance distribution operation, which develops andsupports product distribution between insurers and broking customers. Turnover for this unit was 48.2% of total revenue at £10.5m (2004: £11.8m). Themove to the four year term Sirius 21 MSP model has meant a lower sales value,largely from the reduced requirement for hardware. Hardware and third partysales fell by £0.4m during the year - this lower margin revenue has in part beenreplaced by higher margin managed service fees. Sirius 21 sales were alsosupported by the renewal of £0.5m of Sirius for Broking contracts completingtheir four year term. This is a trend we can confidently expect to continue in2006 and beyond. The broking product is predominantly sold into the UK. Sirius for Broking Sirius for Broking continues to win customers from all of its competitors andthe Sirius for Broking application has now been deployed to over 6,000 users. At the beginning of 2005 we undertook a re-launch of our Sirius for Brokingproduct under the Sirius 21 brand. Sirius 21 adopts the MSP hosted deploymentmethod. It was our aim to sell Sirius 21 to both new customers and convertexisting users to this model. This launch has been highly successful in both ofthese objectives and we have to date secured orders from 115 customers with 71sites live. Our early hopes of reduced costs of maintenance and improved servicelevels have also proved correct along with the anticipated growth in servicerevenues and reduction in low margin third party software and hardware. The launch of Sirius 21 allows us to build on our success to date and maintain acompetitive advantage in the marketplace; we are now achieving run rate salesfrom both our existing base and our competitors. In 2005 we sold Sirius 21 to23 new customers displacing competitor systems. All Sirius 21 customers supportour financial model of term licencing. The UK broker market continues to experience significant consolidation andSirius 21 is well placed to ease the IT burden and make savings for all in thebroker market regardless of size. These benefits resulted in the decision ofmajor consolidator, The Oval Group, to implement Sirius 21 into 60% of itscurrent business, representing some 250 users. A significant new business winfor the second half of 2005 was the Bollington Group; one of the largest andgrowing provincial brokers in the North West, which, is transitioning it'sentire operation consisting of 125 users across 8 offices onto Sirius 21 after22 years of running Misys. Much focus has been placed on account managing all of our customers. This hashelped to increase levels of satisfaction and accelerate the migration to Sirius21. Sirius continues to win customers from all its competitors and with recentdisruption and change of ownership within two of our top four UK competitors, weconfidently expect further opportunities and wins through 2006. Sirius WebServices is becoming a critical tool in supporting the way brokerstrade with their market and customers. As well as offering creative web design,development and deployment in the "business-to-business" and consumerenvironments, we are now leading the way with integration into the insuranceindustry owned portal (iMarket) enabling brokers to trade SME products withsingle key entry to iMarket owners; Norwich Union, Royal & Sun Alliance, Zurich,Allianz Cornhill, AXA and Groupama. In 2006, the growing Sirius 21 customer base will allow the emergence of atrading community. In particular, this will enable a significant number ofspecialist schemes which are traded by many Sirius customers to be easilydistributed to other Sirius 21 customers via the trading platform. This willalso permit insurers to make scheme products directly available to the Sirius 21community and significantly cut the cost of distribution for all in the cycle.Sirius will earn a percentage of Gross Written Premium for business placedthrough this new service. Sirius Datasure, the New Zealand acquisition, contributed £0.9m of revenues inits first full year of ownership, increasing both its profits and turnover onthe previous year. Insurance Systems Insurance Systems is responsible for the sale, deployment and support of: • The Sirius for Insurance application for insurers, underwriters and underwriting agencies • The Swift application for financial services organisations. • Sirius WebServices with its increasing focus on full web integration of our core products to provide on line servicing Product deployments from this business unit include the UK, North America,Australasia, the Caribbean, Africa, and the Far East. In 2005, this wassuccessfully extended into South Africa and India. During the year the businessunit generated £11.3m of revenues, a 13% increase on 2004 and represents 51.8%of revenues. Sirius for Insurance Sirius for Insurance (S4I) had another record year in 2005 with successes in allof its strategic markets. Most notable wins were QBE in their Asia/Pacificregion, Lion of Africa in South Africa, PlusOne in the UK and Reliance in India.Insurers that were taken live during 2005 include the UK specialist insurer,GJW, the Jamaican insurer, General Accident Jamaica and Australian insurerCalliden. With 11 new customer wins in 2005 alone and 36 in the last 5 years,S4I is the most successful software in its class. 2005 also proved thebenefit of the Sirius targeted partner programme with both Reliance and Lion ofAfrica won in partnership with Hewlett Packard. Sirius also sold its firstjointly developed business intelligence tool with Moore Stephens 'bintelligentfor Sirius' to Lion of Africa. Swift The Financial Adviser business around Swift has cemented its leadership in theupper echelons of this marketplace with the start of a roll-out to the entireSJP adviser community and success with the project at Openwork, the new venturearising from Zurich. The Openwork solution will service over 2,300 advisers andis by far the most significant implementation of its type in the UK for manyyears. With Swift 21, the Managed Service Platform now deployed at Buckles anda new release of Swift under construction containing substantial functionalitysupporting "Straight Through Processing" to insurers, this business is wellplaced for the coming year. Although no major new deals were signed in 2005, theprospect pipeline for Swift remains very encouraging. Sirius WebServices Sirius WebServices is an interactive communications service provider, offeringcreative web design, development and deployment in the business-to-business andconsumer environments. This business unit also provides internet and intranetdesign and build services, including the provision of full cycle e-commerce, formany of the Group's insurance customers, as well as for a range of significantcompanies in other industries. Sirius WebServices (internet and digital media specialists) returned to form in2005 by contributing a healthy profit to the division capitalising on increasingdemand for internet solutions and, in particular, the opportunity for theintegration of web services with the core Sirius insurance applications. After a period of relatively low activity, increasing consumer demand forinternet facilities has seen many companies revitalise their web strategies andgrowth in the B2C market for web solutions which began at the end of 2004 andwas sustained during 2005. New customers have been added in all sectors,including sites for French industrial conglomerate Saint Gobain (UK), IFA SIPPadministrator Hornbuckle Mitchell and leading Media Insurance brokers AlanChapman and James. Integration of the core Sirius and Swift applications will continue to createmany new opportunities for the WebServices offering in the wider Sirius customerbase. We continue to provide a full range of services to Ace, Boots and Coors and arepleased to have been able to add Rolls Royce to our client list at the start of2006. FINANCE REVIEW Summary of Group performance A sizeable increase in the Groups recurring revenues of 14% has improved boththe predictability of future revenues and margins. On very similar levels of turnover the Group has considerably improved itsmargins at both gross profit and net operating profit levels. In summary thishas been achieved by: • Reducing the cost base in 2005 • A fall of £0.4m in low margin hardware and third party software sales following the adoption of the Sirius 21 MSP model • The introduction of new MSP revenues which have and will continue to enhance both margins and recurring revenues • Extension to our Indian off-shore development facility with a reduction in costs and improved productivity Operating profit margins (before goodwill amortisation, and operatingexceptional ) have now improved for 3 successive years to 9.7% (2004 6.3%). Operating Exceptional As previously announced the Board, following advice from its agents, are of theview that it is appropriate to recognise a provision against a proportion offuture rental payments and associated costs from its previous leasehold headoffice in Sutton Coldfield. As a result a charge of £742,604 has been treated asan operating exceptional in 2005. Taxation The Group continues to benefit from a low effective tax rate. During 2005 theGroup took advantage of the benefit from R & D tax credits and utilisation ofnon trading income losses in the Holding Company. Deferred Income Deferred income on the balance sheet represents amounts invoiced but not yetrecognised as revenue. Of the total deferred income balance of £2,272,669(2004: £2,031,563), £955,097 (2004: £918,931) relates to deferred maintenancefees that are generally invoiced annually in advance and recognised over thecontract period. A significant proportion of the Group's maintenance contractsrun from 1 January to 31 December and therefore the effect of invoicing annuallyin advance is to increase trade debtors at the balance sheet date. The remaining £1,317,572 (2004: £1,112,632) relates to amounts invoiced forproducts or services in line with contract terms that have not yet beenrecognised as revenues. International Financial Reporting Standards As a Group listed on the Alternative Investment Market (AIM), we are required toreport under International Financial Reporting Standards ('IFRSs') in preparingconsolidated accounts for accounting periods beginning on or after 1 January2007 with prior year comparatives on the same basis. The results for the yearending 31 December 2006 will therefore form the comparatives with the firstrequired set of IFRS published accounts being those for the year ended 31December 2007. The Group has initiated a project to review the requirements of IFRSs and assessthe likely financial impact on the Group's consolidated results from adoptingthese standards. The project remains ongoing and at this stage it is too earlyto comment on the potential financial adjustments required to the consolidatedaccounts. The impact of share-based payments has been reviewed as this will be required tobe adopted under the UK GAAP Financial Reporting Standard; FRS 20 "Share-basedPayment' effective from 1 January 2006. Accounting for share-based payments isconsidered by the Group to be one of the key IFRS adjustments. EPS Adjusted earnings per share ('EPS') for the year at 10.3p (2004: 6.5p)represents an increase of 58% on the prior year. Adjusted EPS is calculatedfrom the profit for the financial year before goodwill amortisation andoperating exceptional item of £1,800,168 (2004: £1,113,065) and on 17,410,126(2004: 17,027,606) ordinary shares of 1p each being the weighted average numberin issue during the year. The calculation of basic earnings per ordinary share is based on profits of£90,326 (2004: £236,755) and on 17,410,126 (2004: 17,027,606) ordinary shares,being the weighted average number of ordinary shares in issue during the year. Dividends In addition to the interim dividend of 0.5p (2004: 0.5p) per ordinary sharepaid on 28 October 2005, the Directors recommend a final dividend of 1.25p(2004: 1.0p) per ordinary share to shareholders on the register on 28 April2006, payable on 31 May 2006, a 25% improvement on 2004. Outlook for 2006 We intend to continue the successful strategies deployed in 2004 and 2005 thusbuilding on two years of considerable improvement to profitability. Based onthese strategies together with the market opportunities for all our products Iam confident of delivering further growth in profitability for 2006. The outlook for Sirius is very encouraging in 2006 and we continue to receiveconsiderable interest in both our Sirius 21 and Sirius for Insurance products.Sales opportunities in these areas will be further enhanced from the ongoingintroduction of web servicing capability. In the area of professional services Iam particularly confident that our sales objectives will be achieved as they arealready strongly underpinned by the existing order book. These factors combinedwith the increases in recurring revenues provide good visibility of 2006revenues. Stephen J Verrall Chairman and Group Chief Executive 19 April 2006 GROUP PROFIT AND LOSS ACCOUNT for the year ended 31 December 2005 2005 2004 Notes £ £ Turnover 2 21,780,968 21,704,052 Cost of sales (11,843,307) (12,453,146) Gross profit 9,937,661 9,250,906 Distribution costs (2,408,798) (2,479,118) Administrative expenses:- goodwill amortisation (967,238) (876,310)- depreciation (492,798) (431,938)- operating exceptional 3 (742,604) -- other (4,924,033) (4,971,359)- total administrative expenses (7,126,673) (6,279,607) Operating profit pre goodwill amortisation and operating 2,112,032 1,368,491exceptional Goodwill amortisation (967,238) (876,310)Operating exceptional 3 (742,604) - Operating profit 402,190 492,181 Interest receivable 26,148 70,260Interest payable and similar charges (88,109) (176,997) Profit on ordinary activities before taxation 340,229 385,444 Tax on profit on ordinary activities (237,380) (145,331) Profit on ordinary activities after taxation 102,849 240,113 Minority interests (12,523) (3,358) Profit for the financial year 90,326 236,755 Earnings per share: 4- basic 0.5p 1.4p- diluted 0.5p 1.4p GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 31 December 2005 2005 2004 £ £ Profit for the financial year 90,326 236,755 Exchange difference on retranslation of net assets of subsidiaryundertaking 79,926 (28,272) Total recognised gains and losses relating to the year 170,252 208,483 GROUP RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the year ended 31 December 2005 As restated 2005 2004 £ £ Total recognised gains and losses 170,252 208,483Dividends (260,832) (170,076)Shares issued net of expenses and amounts accrued 94,610 229,704 Total movements during the year 4,030 268,111 Shareholders' funds at 1 January as previously stated 11,250,491 11,070,578 Prior year adjustment 173,219 85,021 Shareholders' funds at 1 January as restated 11,423,710 11,155,599 Shareholders' funds at 31 December 11,427,740 11,423,710 GROUP BALANCE SHEET at 31 December 2005 As restated 2005 2004 Notes £ £ Fixed assets Intangible assets 4,816,125 5,686,700 Tangible assets 1,839,747 1,599,121 6,655,872 7,285,821 Current assets Stocks 3,695 4,351 Debtors 10,451,144 8,643,198 Cash at bank and in hand 651,105 1,063,918 11,105,944 9,711,467 Creditors: amounts falling due within one year (3,615,609) (3,242,594) Net current assets 7,490,335 6,468,873 Total assets less current liabilities 14,146,207 13,754,694 Creditors: amounts falling due after more than one year (92,710) (329,128) Provisions for liabilities and charges (370,272) - Deferred income (2,272,669) (2,031,563) Net assets 11,410,556 11,394,003 Capital and reserves Called up share capital 176,767 175,334 Share premium account 4,485,937 4,392,760 Merger reserve 5,891,572 5,891,572 Profit and loss account 873,464 964,044 Shareholders' funds 11,427,740 11,423,710 Minority interests (17,184) (29,707) Total capital employed 11,410,556 11,394,003 Shareholders' funds may be analysed as: Ordinary shareholders' funds 11,408,441 11,391,888 Deferred shares 2,115 2,115 11,410,556 11,394,003 Richard J Bowser Director 19 April 2006 GROUP STATEMENT OF CASH FLOWS for the year ended 31 December 2005 2005 2004 Notes £ £ Net cash inflow from operating activities 6 903,386 2,613,448 Returns on investments and servicing of finance Interest received 26,148 70,260 Interest paid (69,287) (151,333) Interest element of finance lease rental payments (18,174) (18,869) (61,313) (99,942) Taxation Corporation tax paid (99,646) (247,997) Capital expenditure and financial investment Payments to acquire tangible fixed assets (731,809) (780,206) Receipts from sales of tangible fixed assets 4,818 713,314 (726,991) (66,892) Acquisitions Purchase of subsidiary undertaking (64,917) (766,922) Cash acquired with subsidiary undertaking - 219,731 (64,917) (547,191) Equity dividends paid (260,832) (170,076) Net cash (outflow)/ inflow before financing (310,313) 1,481,350 Financing Issue of ordinary share capital 94,610 134,084 Repayment of long-term loans (112,500) (452,500) Repayment of capital element of finance leases and hire purchase contracts (122,645) (153,306) (140,535) (471,722) (Decrease)/ increase in cash 6 (450,848) 1,009,628 NOTES TO THE ACCOUNTS at 31 December 2005 1. BASIS OF PREPARATION The financial information set out above does not constitute the full statutoryaccounts of Sirius Financial Solutions Plc for the years ended 31 December 2005and 31 December 2004 respectively, but is derived from those accounts.Statutory accounts for 2004 have been delivered to the Registrar of Companies,and those for 2005 will be delivered following Sirius Financial Solutions'Annual General Meeting on 31 May 2006. The auditors have reported on thoseaccounts; their reports were unqualified and did not contain statements undersection 237(2) or (3) of the Companies Act 1985. The accounts are prepared under the historical cost convention, in accordancewith applicable United Kingdom accounting standards, the Companies Act and theaccounting policies set out in the 2004 statutory accounts. During 2004, the Accounting Standards Board issued two Financial ReportingStandards; FRS 21 "Events after the Balance Sheet Date" and FRS 22 "Earnings PerShare" effective from 1 January 2005. The Group has adopted these FinancialReporting Standards in these financial statements. Adoption of FRS 21 hasresulted in removing dividends approved after the balance sheet date fromliabilities at the balance sheet date. FRS 22 has no prior year impact. 2. TURNOVER AND SEGMENTAL ANALYSIS The Group operates in one principal area of activity, that of the developmentand supply of insurance specific application software both as a package and as asolution. In 2004 turnover originated principally from two geographical markets: Europeand the United Kingdom; North America and the Caribbean. On 13 December 2004a 75.8% shareholding was acquired in Sirius Datasure Limited, a companydomiciled in New Zealand. The turnover originating from Sirius Datasure Limitedin the post acquisition period is considered significant enough to requireseparate disclosure of the New Zealand territory in the analysis below.Australia and New Zealand have therefore been included as an additional segment. Europe and North America and Australia and Rest of World Total2005 United Kingdom Caribbean New Zealand £ £ £ £ £ Group turnoverTurnover bydestination:Sales to third parties 17,797,000 1,326,674 1,472,463 1,184,831 21,780,968 Turnover by origin:Sales to third parties 19,567,959 1,326,674 886,335 - 21,780,968 ProfitSegment operatingprofit pre goodwillamortisation and operatingexceptional 1,915,984 210,226 70,298 60,529 2,257,037 Goodwill amortisation (732,417) (135,950) (98,871) - (967,238)Operating exceptional (742,604) - - - (742,604)Interest receivable 15,941 1,404 8,775 28 26,148Interest payable and similarcharges (86,963) (274) (547) (325) (88,109) Segment profit beforecentral group costs andtaxation 369,941 75,406 (20,345) 60,232 485,234 Central group costs (145,005) Profit on ordinaryactivities before taxation 340,229 Net assets/ liabilitiesNet assets/ (liabilities) bysegment 11,812,434 (444,226) (76,911) 119,259 11,410,556 Europe and North America and Australia and Rest of World Total2004 United Kingdom Caribbean New Zealand £ £ £ £ £ Group turnoverTurnover bydestination:Sales to third parties 18,629,743 1,804,841 8,687 1,260,781 21,704,052 Turnover by origin:Sales to third parties 19,823,710 1,804,841 75,501 - 21,704,052 ProfitSegment operatingprofit beforegoodwill amortisation 1,057,967 382,530 13,320 33,071 1,486,888 Goodwill amortisation (732,416) (135,843) (8,051) - (876,310)Interest receivable 68,945 761 554 - 70,260Interest payable and similarcharges (176,434) (532) - (31) (176,997) Segment profit beforecentral group costs andtaxation 218,062 246,916 5,823 33,040 503,841 Central group costs (118,397) Profit on ordinaryactivities before taxation 385,444 Net assets/ liabilities (asrestated)Net assets/ (liabilities) bysegment (as restated) 12,193,669 (703,997) (123,083) 57,121 11,423,710 3. OPERATING EXCEPTIONAL At the start of 2004, the Group relocated its head office from Sutton Coldfieldto Solihull. The previous leasehold premises were not sublet during the year asexpected and as a result a one-off charge of £742,604 has been made to theprofit and loss account during the year. This operating exceptional item of £742,604 represents the costs incurred duringthe year in making leasehold improvements to the property together with thecurrent provision for estimated future rental and associated costs of theproperty. The cash outflow in respect of this item was £372,332 during the year. 4. EARNINGS PER SHARE The calculation of basic earnings per ordinary share is based on profits of£90,326 (2004: £236,755) and on 17,410,126 (2004: 17,027,606) ordinary shares,being the weighted average number of ordinary shares in issue during the year. The 2005 diluted earnings per share is based on the profit for the year of£90,326 (2004: £236,755) and on 17,632,540 ordinary shares (2004: 17,096,084),calculated as follows: 2005 2004 No. No. Basic weighted average number of shares 17,410,126 17,027,606Dilutive potential ordinary shares:Executive share options and employee SAYE scheme 222,414 68,478 17,632,540 17,096,084 Adjusted earnings per share 2005 2004 Adjusted earnings per share 10.3p 6.5pDiluted adjusted earnings per share 10.2p 6.5p The adjusted earnings per share is calculated from the profit for the financialyear before goodwill amortisation and operating exceptional item of £1,800,168(2004: £1,113,065) and on 17,410,126 (2004: 17,027,606) ordinary shares of 1peach being the weighted average number in issue during the year. The directors have chosen to present this adjusted earnings per share as theybelieve that it provides a more meaningful indicator of the performance of theGroup. 5. DIVIDENDS AND OTHER APPROPRIATIONS 2005 2004 £ £Equity dividends on ordinary shares:2003 final paid 0.5p per share - 85,0212004 final paid 1.0p per share 173,219 -Interim paid 0.5p per share (2004: 0.5p) 87,613 85,055 260,832 170,076 A 2005 final dividend of £218,314 is proposed (2004: £173,219) being 1.25p pershare (2004: 1.0p per share). 6. NOTES TO THE STATEMENT OF CASH FLOWS (i) Reconciliation of operating profit to net cash inflow from operating activities As restated 2005 2004 £ £ Operating profit 402,190 492,181Depreciation of tangible fixed assets 492,798 431,938Amortisation of goodwill 967,238 876,310Loss/ (profit) on sale of fixed assets 3,742 (6,501)Decrease in stocks 656 5,820(Increase)/ decrease in deferred payment debtor (57,877) 36,685(Increase) in other debtors (1,568,928) (247,517)Increase in creditors 293,325 1,024,532Increase in provisions 370,242 - Net cash inflow from operating activities 903,386 2,613,448 (ii) Analysis of net funds At 1 January Cash flow Other non-cash Exchange At 31 December 2005 changes movement 2005 £ £ £ £ £ Cash at bank and in hand 1,063,918 (412,813) - 38,035 651,105 1,063,918 (412,813) - 38,035 651,105 Bank loans (261,695) 112,500 (648) - (149,843) Finance leases (337,274) 122,645 - - (214,629) (598,969) 235,145 (648) - (364,472) 464,949 (177,668) (648) 38,035 286,633 (iii) Reconciliation of net cash flow to movement in net funds/ (debt) 2005 2004 £ £ (Decrease) /increase in cash in the year (450,848) 1,009,628Cash outflow from movement in debt and lease financing 235,145 605,806 Change in net debt arising from cash flows (215,703) 1,615,434Amortisation of loan issue costs (648) (6,795)Translation differences 38,035 - Movement in net debt in the year (178,316) 1,608,639Net funds/(debt) at 1 January 464,949 (1,143,690) Net funds at 31 December 286,633 464,949 This information is provided by RNS The company news service from the London Stock Exchange