Final Results
Tribal Group PLC
04 July 2007
4 July 2007
Tribal Group plc ('Tribal Group' or the 'group')
Preliminary results for the year ended 31 March 2007
Operational highlights
• Revenue increased by 8 per cent
• Profits and earnings fell due to under-performance in consultancy services
• Excellent operating cash conversion of 156 per cent; operating cash flow of
£18.2m
• Successful sale of Mercury Health in April 2007, realising net cash proceeds
of £52m and a profit of £27m
• The sale of Mercury Health reduced pro forma net debt at the year end to £4.3m
• Cost base and under-performing areas addressed, providing a platform for
future growth
• Full year dividend up 5 per cent to 3.47p
• Encouraging start to the new financial period with several new contract wins
'The year proved challenging for certain parts of the core business, but we are
now in a much better position. In April 2007, we successfully sold Mercury
Health, strengthening the Group's balance sheet. We have taken action to reduce
the level of operating costs and we have commenced a review of the Group's
future opportunities. These steps and the encouraging start to the new financial
period give the Board confidence about the future prospects of the Group.' -
Strone Macpherson, Chairman.
Financial highlights
Year ended 31 March
2007 2006
Turnover £272.3m £259.9m +4.8%
Revenue £231.9m £214.8m +8.0%
Operating profit £0.2m £23.3m
Adjusted operating profit* £18.3m £24.1m -24.1%
Operating margin* 7.9% 11.2%
Adjusted profit before tax* £11.7m £19.0m -38.4%
(Loss)/profit on ordinary activities before £(6.1)m £17.5m
taxation
(Loss)/profit on ordinary activities after £(8.6)m £12.8m
taxation
Adjusted diluted earnings per share* 10.3p 17.2p -40.1%
Basic (loss)/earnings per share (11.5)p 16.2p
Operating cash flow £18.2m £19.1m
Operating profit to cash conversion* 156% 123%
Note: *The adjusted operating profit, operating margin, adjusted profit before
tax and adjusted diluted earnings per share are stated before goodwill
impairment of £14.4m (2006: £nil), intangible asset amortisation of £0.3m (2006:
£0.3m), share option costs of £nil (2006: £0.4m), Mercury Health disposal costs
of £3.3m (2006: £nil) and, in the case of adjusted profit before tax and
adjusted earnings per share, financial instrument credit of £0.2m (2006: charge
£0.8m) (see page 11 and page 18).
For further information contact:
Tribal Group plc Tel: 020 7323 7110
Peter Martin, Chief Executive
Simon Lawton, Group Finance Director
Maitland Tel: 020 7379 5151
Neil Bennett
Colin Browne
Editors' note: Tribal Group provides a range of consultancy, support and
delivery services to the UK public sector. The Group's core markets are in
education; communities (local government, housing and regeneration); health and
central government. The Group employs approximately 2,000 staff in the UK.
Tribal Group is quoted on the London Stock Exchange (TRB.L).
Links: Tribal Group website: www.tribalgroup.co.uk
Chairman's statement
Overview
The year ended 31 March 2007 was a challenging trading period for the Group,
during which we saw modest revenue growth and a fall in operating margins.
However, we have continued to strengthen our position as a leading provider of
consultancy, support and delivery services, predominantly to the UK public
sector. We have a major presence in our chosen markets of education, health,
central government and communities.
Revenue for the year was up 8 per cent at £231.9m (2006: £214.8m). Operating
profit* was £18.3m (2006: £24.1m) and the operating margin* was 7.9 per cent
(2006: 11.2 per cent). Profit before tax* was down 38 per cent at £11.7m (2006:
£19.0m) and the loss after tax was £8.6m (2006: profit of £12.8m). The adjusted
diluted earnings per share* were 10.3p (2006: 17.2p), aided by a low tax rate of
21% following agreement of prior year tax claims.
During the year, the Group generated operating cash flow of £18.2m (2006:
£19.1m), representing an operating profit* to cash conversion rate of 156 per
cent (2006: 123 per cent). Net debt at the year end was £73.8m, including the
non-recourse Mercury Health project debt of £31.5m. The Group's gearing was 47
per cent and the interest cover was 2.8 times. At 31 March 2007, the Group's
committed revenue, excluding Mercury Health, was £131m (2006: £119m).
The Group's Education Services business delivered growth in profits during the
year and is well placed to respond to future opportunities. However, our
Consultancy Services businesses had a disappointing year, impacted by
under-performance in specific areas. Significant action has been taken with a
reduction in the cost base and the re-structuring or closing down of peripheral
business units. Good progress has been made in rationalising our support
infrastructure and achieving benefits from our procurement strategy.
Following the actions taken during the year, a detailed review of the carrying
value of goodwill was undertaken, resulting in an impairment charge of £14.4m.
Note: *The operating profit, operating margin, adjusted profit before tax and
adjusted diluted earnings per share are stated before goodwill impairment of
£14.4m (2006: £nil), intangible asset amortisation of £0.3m (2006: £0.3m), share
option costs of £nil (2006: £0.4m), Mercury Health disposal costs of £3.3m
(2006: £nil) and, in the case of adjusted profit before tax and adjusted
earnings per share, financial instrument credit of £0.2m (2006: charge £0.8m)
see page 11 (consolidated income statement) and page 18 (earnings per share
note).
Sale of Mercury Health
On 20 April 2007, we announced the completion of the sale of Mercury Health to
Care UK. This disposal was a successful outcome for the Group, enabling us to
crystallise the value we had created in the business and, as a result,
substantially reduce our borrowings. The gross sale proceeds were £77m which,
after deduction of debt and costs, provided net cash proceeds of £52m. The
profit on disposal was £27m.
Balance sheet
Following the sale of Mercury Health, the Group's balance sheet has been
substantially strengthened with pro forma net debt at 31 March 2007 reducing to
£4.3m. On 14 June 2007, the Group signed a new five year bank facility of £40m
with HBoS and HSBC, together with a working capital facility of £3m. The reduced
net debt and bank facilities will result in substantial savings in interest
costs and bank fees.
Dividend
The board is pleased to announce that it is recommending a final dividend of
2.42p per share, making a total of 3.47p per share for the year (2006: 3.3p), an
overall increase of five per cent. Subject to approval at Tribal's 2007 annual
general meeting, this dividend will be paid on 15 October 2007 to Tribal's
shareholders on the register at 21 September 2007.
Management changes
As announced on 25 April 2007, Henry Pitman, Tribal Group's founder, stood down
as Chief Executive on 4 June 2007. He remains on the Board as a non executive
director. Peter Martin is the new Chief Executive. Peter was previously an
executive director of the Group, having been involved with Tribal since 2000. He
initially led the Group's acquisition strategy until his appointment, in early
2004, as Chief Executive of Mercury Health, a position he retained until the
recent sale of the business.
On behalf of the Board and shareholders, I would like to thank Henry for his
considerable vision and drive in creating what is today one of the UK's leading
support services groups working with the public sector.
People
Tribal's continued success is a result of the broad base of talented employees
across the Group. The Group has a distinctive culture and a strong set of values
which attracts high quality people from both the public and the private sector.
We would like to record our thanks to our 2,000 staff. Through their efforts,
Tribal is now regarded as one of the most respected businesses in its markets.
Year end change
Since the Group's formation, trading has become increasingly weighted to the
second half of the financial year. In 2007, over 40 per cent of operating profit
was earned in the final quarter to March. This has made it difficult to predict
reliably the Group's year end outturn and to provide investors with timely
trading information. The Board has therefore taken the decision to change the
year end to 31 December. The company will be reporting the six month performance
to 30 September 2007, the nine month results to 31 December 2007 and the pro
forma 12 month performance to 31 December 2007.
We have published today unaudited financial information for both the nine and
twelve months to 31 December 2006. This information can be found on the
company's website www.tribalgroup.co.uk.
Prospects
In recent weeks, the Group has commenced a number of initiatives. As well as the
change of year end, the Group has moved its head office to its main premises in
central London in order to be closer to many of its major clients and the
investor community. The central group executive has been strengthened with a
number of key appointments. In addition, Tribal has created a working group of
its 30 most senior managers to conduct a review over the summer months, led by
Peter Martin. This review will examine the Group's core competencies, its
competitive strengths and its growth opportunities.
The intention is to provide better clarity and definition to the structure of
the business and to identify priority areas for growth. Tribal has leading
positions in its key markets of health, education, central government and
communities and it is anticipated that this review will determine how we best
capitalise on the franchise we have built in recent years. The Group intends to
report back on the findings of the review in the Autumn.
The successful sale of Mercury Health has strengthened the balance sheet
considerably and provides for a renewed focus on the Group's core business of
providing consultancy, support and delivery services, predominantly to the
public sector. Our clients are under constant pressure to improve the range and
quality of their services, whilst operating to stringent financial and
performance targets. We therefore continue to see a strong flow of opportunities
to support these clients as they look to transform services and bring about
organisational change.
The Board is confident about the Group's future prospects.
Strone Macpherson
Chairman
4 July 2007
Chief Executive's statement
Markets
As the pressure on public sector organisations to reform and improve service
quality increases, we expect to see continued expansion of the role of the
private sector in advising and supporting our public sector partners and, where
appropriate, delivering services on their behalf.
Over the last few years, the private sector has become increasingly involved in
the delivery of public services. In most parts of government, there are now many
examples of successful public private partnerships and of services outsourced
for the first time.
There are several policy drivers that are fundamentally changing the shape of
public sector markets - the continued pressures on budgets; the increasing move
towards personalisation of services; the localisation of services; the role of
the state as a commissioner, but not necessarily the deliverer, of services.
There are therefore considerable opportunities for the private sector to develop
new services in response to these complex changes.
In the year ended 31 March 2007, 95 per cent of our revenue was from the public
sector and we expect to retain this focus in the future. Our revenue (excluding
Mercury Health) was split as follows: education 49 per cent, health 19 per cent,
communities (housing, local government and regeneration) 18 per cent and central
government 14 per cent.
Operating review
All segmental operating profit and operating profit margin figures are stated in
accordance with the business segment information in note 2 on page 15.
Consulting Services
Year ended Year ended
31 March 2007 31 March 2006
£000 £000
Revenue 117,325 122,743
Operating profit 6,797 15,464
Operating profit margin 5.8% 12.6%
This was a disappointing period for the consultancy services businesses with a 4
per cent decline in revenues and a significant fall in margins. We had a very
slow start to the year, particularly in property (impacted by PFI delays),
resourcing (continuing softness in the recruitment advertising market) and
certain parts of our consultancy business (where utilisation rates were low).
Revenue in the first half was 13.9 per cent lower than in the previous year.
Significant action was taken, resulting in a reduction in staff numbers of 7 per
cent and the closing down or disposal of several underperforming business units.
In the second half of the year, we saw a small increase in revenue against the
previous year and improved profitability. We expect the full impact of the
changes we have made and the focus on improved margins to be seen in the current
financial period and we have been encouraged by the operational performance in
the first two months.
Despite the under-performance last year in certain areas of the business, we
have seen many successes and we now believe that we have a much stronger
platform from which to generate profitable growth.
In health, our information and IT strategy consultancy team had a good year,
continuing to build on its strong position as an adviser to the £12.4bn NHS
Connecting for Health programme. For example, we secured an extension to our
Secondary Uses Service (SUS) contract. SUS has been described as the largest
epidemiological database in the world, and draws together data on NHS-funded
healthcare across the whole of England. We also won several other important
information and IT consultancy contracts.
The decision we took last year to grow our health service improvement
consultancy has been successful. We have won several major service improvement
contracts with acute hospital trusts; we have established a partnership with
Boxwood, a change consultancy working in the private sector, which enables us to
provide a more comprehensive skillset to the NHS; and we won high profile
contracts with the NHS Institute for Innovation and Improvement in partnership
with A.T. Kearney, a leading strategy consultancy.
We are one of the principal advisers on major capital programmes in the NHS,
working on a wide range of PFI and LIFT schemes in England, as well as capital
developments elsewhere in the UK and overseas. Our successful work in
procurement across the NHS includes providing strategic guidance to NHS PASA and
the Health Industries Task Force in defining the future for NHS procurement.
It was a difficult year for our property business, with delays on a number of
major PFI schemes impacting trading. We were particularly affected by the delay
in closing the contract on the Peterborough hospital PFI. Financial close on
this contract was announced yesterday. We were successful in winning a number of
new health contracts during the year, including design lead for the £130m
Caerphilly Local General Hospital. We also continued to win architectural
commissions in education, in particular in further education (FE), where the
market conditions remained strong. In schools, we have expanded into the
Building Schools for the Future (BSF) market. We are part of a consortium that
won a £20m contract for a design and build school in Liverpool in the first
phase of a £400m BSF framework. In higher education (HE), we won two further
projects for Oxford University.
In local and regional government, the market presented some challenges as a
result of delayed decision making following the local elections and a change of
control in many parts of the country. However, we were successful in winning a
number of advisory contracts with local councils in England. Our Comprehensive
Performance Assessment (CPA) team have extended their influence into many
councils across the West Midlands, Manchester and London.
Our economic development and regeneration businesses continue to expand strongly
with new teams established in Birmingham and London. We won several new
contracts from central and local government, development agencies, voluntary
sector organisations and private sector clients in England, Scotland and Wales.
Major appointments secured during the year included a strategic review of
government transport investment priorities for the Scottish
Executive, benchmarking of housing subsidies for English Partnerships and a
framework contract for evaluation studies for the Department of Education,
Lifelong Learning and Skills (Wales).
Our housing practice has continued to build on its strong position as the
leading UK housing consultancy working with the majority of Registered Social
Landlords (RSLs) across England and Wales. We won a significant number of
contracts during the year, including stock transfer schemes with Watford,
Bracknell Forest, Wansbeck, Manchester Southway and Rhondda Cynon Taf (RCT
Homes). We also consolidated our position as lead adviser for the large mergers
and partnerships that are taking place within the sector.
In our resourcing business, we made excellent progress in interim resourcing. In
executive search and selection, we retained our strong share of the local
government market and managed chief executive appointments for important clients
such as the LGA, Birmingham City Council, Bradford MBC and Nottingham City
Council. In recruitment advertising, we saw a significant reduction in
advertising spend on traditional media but this was mitigated by a high volume
of contract wins and retentions and by improved margins. During the year, we won
new recruitment advertising contracts with a number of councils, several city
and district council consortia and an increasing number of universities.
We are seeing significant new demand for Recruitment Process Outsourcing (RPO),
providing customers with a range of back office processing support services.
During the year, we won our largest RPO contract (worth an estimated £4m) with
the London Consortium Supplies Group. We continue to develop our digital
capability and we are seeing strong growth from our e-resourcing offering and
our internet job portals, including one in the West Midlands that will see 11
authorities bringing their recruitment portals together as part of a shared
services vision for local government in the region.
Our temporary staffing business to the medical profession has faced a
fundamental change in its business due to a move in the industry towards
national supply contracts which favour the larger chains. This significantly
impacted profitability and, in the light of this performance, we have concluded
that the operation should be closed and that the goodwill associated with the
business should be impaired in full.
In central government, we have continued to grow our management consultancy
businesses. From a standing start less than four years ago, we now employ close
to 80 consultants and use several hundred associates. Our ability to bring
together a range of skills into single bids allows us to present a powerful
proposition to a market which has traditionally been dominated by more
established consulting practices. During the year, we won contracts with several
major central government departments including the Home Office, HM Revenue &
Customs, Foreign & Commonwealth Office, DEFRA and the Cabinet Office.
We were successful in being awarded a place on the new Catalist frameworks (the
Office of Government Commerce's catalogue based procurement scheme) for
providing professional services to central government departments and we are now
seeing increased demand from this source. Separately from Catalist, more central
government departments are establishing their own individual framework
contracts. Whilst bidding for a place on these frameworks takes up management
time, we expect them to be a good source of larger opportunities for the Group.
In communications, we managed a number of PR campaigns for central government,
with new wins during the period with the DfES to promote their Academies school
programme and with the School Foods Trust to encourage healthy school meals. We
are in the second year of promoting London state secondary schools for London
Challenge.
Education Services
Year ended Year ended
31 March 2007 31 March 2006
£000 £000
Revenue 78,700 79,184
Operating profit 14,102 13,735
Operating profit margin 17.9% 17.3%
We saw continued profit growth of 3 per cent in our education business, with
strong performances across most areas being offset by difficult conditions in
schools and FE college training.
In April 2006, we merged our education and technology business streams to create
a fully integrated education business and we are now well positioned as one of
the leading providers of consultancy, support and delivery services across
education and learning in the UK. We have a strong profile in all the principal
education and learning markets - schools, post-16 and higher education.
In software, we continued to build on our strong market position - over 40 per
cent of the further education (FE) market, 55 per cent of the work-based
learning market and 65 per cent of the higher education (HE) market and more
than 50 per cent of local authorities are using our applications. In FE, we had
a good year with strong take up of our new ebs4 student administration
product by our existing clients and also through winning a number of new
clients. We had a very successful year in the fast expanding work-based
learning market, with many new contracts won. In HE, we had another good year,
including a significant new contract with Edinburgh University and, since the
year end, a major contract with Nottingham University. In Children's Services,
we continue to be successful with our market leading products as well as
developing new areas such as the eCAF (common assessment framework) and ICS
(Integrated Children's System). In asset management, we have won prestigious
new clients such as North Ayrshire, Liverpool Direct and London Fire Brigade.
Across our software business, we are building our capacity to deliver outsourced
managed services and are now delivering an increasing number of fully hosted
solutions.
Our publishing and e-learning business continued to make excellent progress. We
are the leading publisher of distance learning materials in vocational subjects
aimed principally at FE colleges. We have a strong position in the Skills for
Life market, with expertise in literacy, numeracy and with students for whom
English is a second language. Our flagship interactive product suite, Target
Skills, continues to build its reputation and market position.
We had a successful year in winning and extending national delivery contracts.
The National Centre for Excellence in the Teaching of Mathematics, which we now
manage, has been given a new £1m contract to support maths teachers in the FE
sector. We also won a £1.2m contract with the Children's Workforce Development
Council to support the work of Early Years Practitioners; a £7m contract to
develop a portal, database and support infrastructure for Skills for Care (the
Sector Skills Council for the care sector), and a £2m contract from the European
Social Fund's EQUAL programme to prepare learners for employment.
Over the last few years, largely as a result of funding changes, demand for
one-off training courses for schools and FE colleges has been declining. In the
light of these changes, we have concluded that goodwill of £3.4m in respect of
this business stream should be written off in full. However, during the year, we
won several new large contracts to deliver training services to a wider range of
organisations. We are now working in 17 prisons in England; we manage training
delivery for a major regional police force and have recently won a £1.1m
contract to set up and manage training for housing association tenants for the
Housing Corporation. In parallel, we are also working with an increasing number
of major corporates, such as Compass and McDonalds, to support their staff
training through the development of online learning portals.
We support Ofsted in the inspection of one third of all state maintained,
primary, secondary and special schools, and our contracts to deliver these
services continue to perform well. We are expecting Ofsted to consider
outsourcing the inspection of nursery settings and work based learning in the
future and we should be well-placed to bid for this work.
We continue to offer a range of consultancy services across Children's Services
and the FE sector. Increasingly, this work is delivered through longer term
contracts. Examples include contracts with the Quality Improvement Agency (QIA)
to deliver the Improvement Adviser Service and with the Department for
Education, Lifelong Learning and Skills (DELLS) to deliver benchmarking across a
spectrum of post-16 providers.
The development of the Academies and the BSF initiatives continued to provide
opportunities for the Group. We have been involved with the Academy programme
since its inception and have now won contracts to programme manage 13 Academies.
We are increasingly developing our involvement in the BSF programme and won
advisory contracts with local authorities in Southwark and Durham.
Our education business is now very well placed to build on its strong market
position and win an increasing number of longer term contracts. We intend to
strengthen our bidding capability, enabling us to grow the value of our contract
pipeline. Over the next few years, we see new opportunities emerging to deliver
shared services in FE and to extend our position in the vocational learning
market.
Mercury Health
Year ended Year ended
31 March 2007 31 March 2006
£000 £000
Revenue 37,795 14,550
Operating profit 3,785 1,476
Operating profit margin 10.0% 10.1%
Mercury Health performed strongly during the period with revenue of £37.8m and
operating profit of £3.8m. This was a successful second year of trading for the
business, exceeding our financial and operational objectives. In June 2006,
Mercury opened its largest centre, an orthopaedic facility in Haywards Heath. In
December 2006, Mercury signed a new contract to deliver diagnostic services
throughout the West Midlands and it was also selected as preferred bidder on a
contract to deliver a range of surgical and other clinical services in Essex.
On 20 April 2007, the business was sold to Care UK for a gross consideration of
£77m which, after deduction of debt and costs, realised net cash proceeds of
£52m. The profit on disposal was £27m. The sale was an excellent outcome for
Tribal Group. It has enabled us to crystallise the substantial value created,
repay the majority of net debt and release the Group from significant and
onerous guarantees.
People
Tribal Group continues to attract some of the most talented people in its
markets. We have within the Group a strong mix of market and technical
specialists who are able to provide our customers with high quality advice,
innovative solutions and project and programme management capabilities. We have
a strong culture that encourages ambition and independence and our corporate
values appeal to our customers and staff and differentiate us from our
competitors.
The strength of our market position is a result of the efforts and dedication of
our 2,000 staff and 1,000 associates and the high quality work and services they
provide to our customers. I would like to thank all of them for the enormous
contribution they have made and I look forward to working with them as we enter
the next stage of Tribal Group's development.
Prospects
The successful sale of Mercury Health has strengthened the balance sheet
considerably and provides for a renewed focus on the Group's core business of
providing consultancy, support and delivery services, predominantly to the
public sector. Our clients that operate in our chosen markets of education,
health, central government and communities are under constant pressure to
improve the range and quality of services, whilst operating to stringent
financial and performance targets. We therefore continue to see a strong flow of
opportunities to support these clients as they look to transform services and
bring about organisational change.
The Group is now focused on its key priorities of delivering sustained organic
revenue growth, improving margins and raising the level of committed income. We
have made an encouraging start to the new financial period. As announced
yesterday, financial close has been reached on Peterborough. In addition, we
have secured a number of new contract wins including:
• Kent County Council - recruitment advertising - value c£3m over three years
• Cornwall County Council - recruitment advertising - value c£2.5m over three
years
• Foreign and Commonwealth Office - change management - value c£2m over two
years
• Housing Corporation training framework - value c£1.1m over three years
• DfES - Maths for Life - value c£1.1m over one year
• QIA - teacher improvement contract - value c£1.1m over one year
The pipeline of new contract opportunities is good.
The Board is confident about the Group's future prospects.
Peter J Martin
Chief Executive
4 July 2007
Consolidated income statement
for the year ended 31 March 2007
Group Group
excluding excluding
Mercury Mercury 2007 Mercury Mercury 2006
Note Health Health Total Health Health Total
£'000 £'000 £'000 £'000 £'000 £'000
Continuing operations
Turnover 234,462 37,795 272,257 245,347 14,550 259,897
Direct agency costs (40,406) - (40,406) (45,103) - (45,103)
_______ _______ _______ _______ _______ _______
Revenue 194,056 37,795 231,851 200,244 14,550 214,794
Cost of sales (114,633) (19,975) (134,608) (115,358) (6,650) (122,008)
_______ _______ _______ _______ _______ _______
Gross profit 79,423 17,820 97,243 84,886 7,900 92,786
-------- -------- ------ ------- ------- -------
Administrative expenses
before amortisation
of IFRS 3 intangibles,
goodwill impairment,
share option costs and
Mercury Health disposal
costs (64,957) (14,035) (78,992) (62,284) (6,424) (68,708)
-------- ------- ------ ------- ------ -------
Operating profit before
amortisation of IFRS 3
intangibles, goodwill
impairment, share option
costs and Mercury
Health disposal
costs 14,466 3,785 18,251 22,602 1,476 24,078
Share option costs (4) (6) (10) (446) (3) (449)
Amortisation of IFRS
3 intangibles (320) - (320) (316) - (316)
Goodwill impairment 9 (14,429) - (14,429) - - -
Mercury Health
disposal costs 3 - (3,300) (3,300) - - -
_______ _______ _______ _______ _______ _______
(14,753) (3,306) (18,059) (762) (3) (765)
-------- ------- ------- -------- -------- -------
Total administrative
expenses (79,710) (17,341) (97,051) (63,046) (6,427) (69,473)
_______ _______ _______ _______ _______ _______
Operating
(loss)/profit (287) 479 192 21,840 1,473 23,313
Investment
revenues 4 1,225 285 1,510 394 52 446
Finance costs 5 (5,279) (2,561) (7,840) (5,197) (1,090) (6,287)
_______ _______ _______ _______ _______ _______
(Loss)/profit
before tax (4,341) (1,797) (6,138) 17,037 435 17,472
Tax 6 (2,846) 376 (2,470) (5,595) 941 (4,654)
_______ _______ _______ _______ _______ _______
(Loss)/profit
for the year
from continuing
operations (7,187) (1,421) (8,608) 11,442 1,376 12,818
_______ _______ _______ _______ _______ _______
======= ======= ======= ======= ======= =======
Attributable to:-
Equity holders
of the parent (7,958) (1,421) (9,379) 11,168 1,376 12,544
Minority interest 771 - 771 274 - 274
_______ _______ _______ _______ _______ _______
(7,187) (1,421) (8,608) 11,442 1,376 12,818
_______ _______ _______ _______ _______ _______
======= ======= ======= ======= ======= =======
Consolidated income statement (continued)
for the year ended 31 March 2007
Earnings per share from continuing operations
2007 2006
Group Group
excluding excluding
Mercury Mercury Mercury Mercury
Health Health Total Health Health Total
Basic 8 (9.8)p (1.7)p (11.5)p 14.4p 1.8p 16.2p
Diluted 8 (9.8)p (1.7)p (11.5)p 13.7p 1.7p 15.4p
Adjusted basic before
amortisation of IFRS 3
intangibles, goodwill
impairment, share option
costs, financial
instrument (credit)/charge
and Mercury Health
disposal costs 8 8.1p 2.3p 10.4p 16.3p 1.8p 18.1p
Adjusted diluted before
amortisation of IFRS 3
intangibles, goodwill
impairment, share option
costs, financial
instrument (credit)/charge
and Mercury Health
disposal costs 8 8.0p 2.3p 10.3p 15.5p 1.7p 17.2p
Consolidated statement of recognised income and expense
for the year ended 31 March 2007
2007 2006
£'000 £'000
Actuarial gain/(loss) on defined benefit plans 436 (594)
Transfer to cash flow hedge reserve 1,194 51
Deferred tax (489) 163
--------- --------
Net income/(expense) recognised
directly to equity 1,141 (380)
(Loss)/profit for the year (8,608) 12,818
--------- --------
Total recognised income and expense
for the year (7,467) 12,438
========= ========
Attributable to:
Equity holders of the parent (8,238) 12,164
Minority interest 771 274
========= ========
Consolidated balance sheet
at 31 March 2007
Note 2007 2006
£'000 £'000
Non-current assets
Goodwill 9 192,099 206,392
Other intangible assets 3,786 3,255
Property, plant and equipment 45,056 41,162
Investments 149 151
Amounts recoverable on contracts 10 11,833 8,082
Deferred tax assets 772 823
---------- -----------
253,695 259,865
---------- -----------
Current assets
Inventories 1,298 1,130
Trade and other receivables 11 63,205 59,126
Amounts recoverable on contracts 10 2,840 2,327
Cash and cash equivalents 33,483 22,615
Collateralised cash 949 1,392
---------- -----------
101,775 86,590
---------- -----------
Total assets 355,470 346,455
========== ===========
Current liabilities
Trade and other payables 12 (81,499) (69,788)
Tax liabilities (2,742) (5,399)
Obligations under finance leases (98) (78)
Bank loans and loan notes (5,530) (2,907)
Provisions (450) (150)
Shares to be issued (489) (6,102)
---------- -----------
(90,808) (84,424)
---------- -----------
Net current assets 10,967 2,166
---------- -----------
Non-current liabilities
Bank loans (102,307) (96,556)
Pension liabilities (1,436) (1,977)
Deferred tax liabilities (2,358) (939)
Obligations under finance leases (327) (351)
Shares to be issued - (135)
---------- -----------
(106,428) (99,958)
---------- -----------
Total liabilities (197,236) (184,382)
========== ===========
Net assets 158,234 162,073
========== ===========
Equity
Share capital 4,234 4,008
Share premium account 74,633 80,771
Other reserves 13 67,823 60,936
Retained earnings 13 9,941 15,173
---------- -----------
Equity attributable to equity
holders of the parent 156,631 160,888
Minority interest 1,603 1,185
---------- -----------
Total equity 158,234 162,073
========== ===========
Consolidated cash flow statement
for the year ended 31 March 2007
Note 2007 2006
£'000 £'000
Net cash from operating activities 14 24,280 26,194
======== =======
Investing activities
Interest received 1,873 446
Proceeds on disposal of investments 2 -
Proceeds on disposal of property, plant
and equipment 213 34
-------- -------
Purchases of property, plant and
equipment (excluding Mercury Health) (4,622) (4,039)
Purchases of property, plant and
equipment (Mercury Health) (7,573) (26,569)
-------- -------
Purchases of property, plant and equipment (12,195) (30,608)
Expenditure on product development (1,565) (1,048)
Acquisitions (deferred consideration
and minority interests) (556) (3,642)
_______ _______
Net cash outflow from investing activities (12,228) (34,818)
========= ========
Financing activities
Interest paid (7,905) (7,524)
Equity dividend paid (2,685) (2,362)
Dividends to minorities (95) -
Issue of shares 487 304
Repayment of borrowings (2,352) (15,400)
Repayments of obligations under
finance lease (83) (57)
New bank loans 10,576 31,538
Movements in collateralised cash 443 133
Purchase of own shares (105) (1,668)
Loan to third party 535 (535)
--------- --------
Net cash (used in)/from financing
activities (1,184) 4,429
========= =========
Net increase/(decrease) in cash and
cash equivalents 10,868 (4,195)
Cash and cash equivalents at
beginning of year 22,615 26,810
--------- ---------
Cash and cash equivalents at end of year 33,483 22,615
========= =========
Notes to the preliminary announcement
1. General information
The basis of preparation of this preliminary announcement is set out below.
The financial information in this announcement, which was approved by the Board
of Directors on 4 July 2007, does not constitute the Company's statutory
accounts for the years ended 31 March 2007 or 2006, but is derived from these
accounts.
Statutory accounts to 31 March 2006 have been delivered to the Registrar of
Companies and those for 2007 will be delivered following the Company's annual
general meeting. The auditors have reported on these accounts; their reports
were unqualified and did not contain statements under S237(2) or (3) of the
Companies Act 1985.
The preliminary announcement has been prepared in accordance with International
Financial Reporting Standards (IFRS) adopted for use in the European Union.
The financial information has been prepared on the historical cost basis,
modified to include the revaluation of certain fixed assets and financial
instruments.
2. Business segments
The Group is currently organised into three business streams - Consulting
Services, Education Services and Mercury Health.
In order to simplify its reporting structure the Group has been further
reorganised and as a consequence, the four segments which were previously
disclosed separately under Consulting Services, have been amalgamated.
Accordingly the business segment information for the year ended 31 March 2006
has been restated to show the current business stream structure. As a result,
there has been an adjustment to inter-segment sales and eliminations.
Segment information about the businesses is presented below:-
Year ended 31 March 2007
Consulting Education Mercury Eliminations Consolidated
Services Services Health
2007 2007 2007 2007 2007
£'000 £'000 £'000 £'000 £'000
Revenue
External sales 115,863 78,193 37,795 - 231,851
Inter-segment sales 1,462 507 - (1,969) -
_______ _______ _______ _______ _______
Total revenue 117,325 78,700 37,795 (1,969) 231,851
======== ======== ======== ======== ========
Segment profit 6,797 14,102 3,785 - 24,684
======== ======== ======== ========
Unallocated corporate expenses (6,433)
Amortisation of IFRS 3 intangibles (320)
Share option costs (10)
Goodwill impairment (14,429)
Mercury Health disposal costs (3,300)
_______
Operating profit 192
Investment revenues 1,510
Finance costs (7,840)
_______
Loss before tax (6,138)
Tax (2,470)
_______
Loss for the period (8,608)
=======
Year ended 31 March 2006
Consulting Education Mercury Eliminations Consolidated
Services Services Health
2006 2006 2006 2006 2006
£'000 £'000 £'000 £'000 £'000
Revenue
External sales 121,444 78,800 14,550 - 214,794
Inter-segment sales 1,299 384 - (1,683) -
_______ _______ _______ _______ _______
Total revenue 122,743 79,184 14,550 (1,683) 214,794
======== ======== ======== ======== ========
Segment profit 15,464 13,735 1,476 - 30,675
======== ======== ======== ========
Unallocated corporate expenses (6,597)
Amortisation of IFRS 3 intangibles (316)
Share option costs (449)
_______
Operating profit 23,313
Investment revenues 446
Finance costs (6,287)
_______
Profit before tax 17,472
Tax (4,654)
_______
Profit for the period 12,818
=======
3. Mercury Health disposal costs
Mercury Health disposal costs of £3.3m (2006: £nil) represent the committed
costs incurred by 31 March 2007 in relation to the disposal of Mercury Health
Holdings Limited and its subsidiaries. The disposal received shareholder
approval at the Extraordinary General Meeting held on 19 April 2007 and was
completed on 20 April 2007. The Mercury Health division has not been classified
as discontinued or held for resale under IFRS 5 'Non current assets held for
sale and discontinued operations' as shareholder approval for the transaction
had not been received at the balance sheet date.
4. Investment revenues
2007 2006
£'000 £'000
Interest on bank deposits 1,041 446
Gain arising on derivatives 469 -
----------- -----------
1,510 446
=========== ===========
5. Finance costs
2007 2006
£'000 £'000
Finance charges
Interest on bank overdrafts and loans 7,785 6,500
Interest on loan notes 66 249
Interest on obligation under
finance leases 33 23
Net interest payable on retirement
benefit obligations 30 26
---------- ----------
Total borrowing costs 7,914 6,798
Less:- amounts included in the
cost of qualifying assets (365) (1,276)
---------- ----------
7,549 5,522
Financial instruments
Loss arising on derivatives 127 322
Discounting charge for deferred 164 443
consideration
----------- ----------
291 765
----------- ----------
7,840 6,287
=========== ==========
Borrowing costs included in the cost of qualifying assets during the year arose
on the Mercury Health ISTC contract for which the related borrowings are
separately identifiable and are capitalised at the average rate incurred of 6.9
per cent (2006: 6.9 per cent).
6. Taxation
The effective rate of tax on operating profit before share option costs,
amortisation of IFRS 3 intangibles, goodwill impairment, Mercury Health disposal
costs and financial instrument credit/charges has reduced from 25 per cent to 21
per cent due to HMRC agreement to tax relief for Mercury Health costs incurred
in 2004.
7. Dividends
2007 2006
£'000 £'000
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31 March 2006 of
2.25 pence 2005: 2.0 pence) per share 1,812 1,530
Interim dividend for the year ended 31 March 2007 of
1.05 pence (2006: 1.05 pence) per share 880 832
--------- ---------
2,692 2,362
========= =========
Proposed final dividend for the year ended 31 March
2007 of 2.42 pence (2006: 2.25 pence) per share 2,050 1,804
========= =========
The proposed final dividend is subject to approval by shareholders at the Annual
General Meeting and has not been included as a liability in these financial
statements.
8. Earnings per share
Earnings per share and diluted earnings per share are calculated by reference to
a weighted average number of ordinary shares calculated as follows:
2007 2006
thousands thousands
Weighted average number of shares outstanding:
Basic weighted average number of shares in issue 81,889 77,255
Employee share options 176 763
Shares to be issued in respect of deferred
consideration 410 3,255
-------- ---------
Weighted average number of shares
outstanding for dilution calculations 82,475 81,273
======== =========
The adjusted basic and adjusted diluted earnings per share figures shown on the
consolidation income statement on page 11 are included as the directors believe
that they provide a better understanding of the underlying trading performance of
the Group. A reconciliation of how these figures are calculated is set out below:
Year ended 31 March 2007
Group excluding Mercury Health Total
Mercury Health
Earnings Loss)/ Earnings (Loss)/ Earnings (Loss)/
(earnings earnings earnings
per share per share per share
£'000 pence £'000 pence £'000 pence
Basic and adjusted
basic (loss)/earnings
per share:
Loss and basic loss
per share (7,958) (9.8)p (1,421) (1.7)p (9,379) (11.5)p
Adjustments:
Share option costs 4 - 6 - 10 -
Amortisation of
IFRS 3 intangibles
(net of tax) 224 0.3p - - 224 0.3p
Goodwill impairment 14,429 17.6p - - 14,429 17.6p
Mercury Health
disposal costs - - 3,300 4.0p 3,300 4.0p
Financial
instruments net
credit (net of
tax) (40) - (51) - (91) -
------- ------- ------- ------- ------- -------
Adjusted earnings
and adjusted basic
earnings per share 6,659 8.1p 1,834 2.3p 8,493 10.4p
======= ======= ======== ======= ======= =======
Diluted and
adjusted diluted
(loss)/earnings per
share:
Loss and diluted
loss per share (7,958) (9.8)p (1,421) (1.7)p (9,379) (11.5)p
Adjustments:
Share option costs 4 - 6 - 10 -
Amortisation of
IFRS 3 intangibles
(net of tax) 224 0.3p - - 224 0.3p
Goodwill impairment 14,429 17.5p - - 14,429 17.5p
Mercury Health
disposal costs - - 3,300 4.0p 3,300 4.0p
Financial
instruments net
credit (net of tax) (40) - (51) - (91) -
------- ------- ------- ------- ------- -------
Adjusted earnings and
adjusted diluted
earnings per share 6,659 8.0p 1,834 2.3p 8,493 10.3p
======= ======= ======= ======= ======= =======
8. Earnings per share (continued)
Year ended 31 March 2006
Group excluding Mercury Health Total
Mercury Health
Earnings Earnings Earnings
Earnings per share Earnings per share Earnings per share
£'000 pence £'000 pence £'000 pence
Basic and adjusted
basic earnings per
share:
Profit and
basic earnings
per share 11,168 14.4p 1,376 1.8p 12,544 16.2p
Adjustments:
Share option costs 446 0.6p 3 - 449 0.6p
Amortisation of
IFRS 3 intangibles
(net of tax) 316 0.4p - - 316 0.4p
Financial
instruments
charge (net of tax) 659 0.9p 9 - 668 0.9p
------- ------ ------- ------- ------ -------
Adjusted
earnings and
adjusted basic
earnings per share 12,589 16.3p 1,388 1.8p 13,977 18.1p
======== ======= ======= ======= ====== =======
Diluted and
adjusted diluted
earnings per share:
Profit and diluted
earnings per share 11,168 13.7p 1,376 1.7p 12,544 15.4p
Adjustments:
Share option costs 446 0.6p 3 - 449 0.6p
Amortisation of
IFRS 3 intangibles
(net of tax) 316 0.4p - - 316 0.4p
Financial
instruments
charge (net of tax) 659 0.8p 9 - 668 0.8p
-------- ------- ------ ------- ------- -------
Adjusted
earnings and
adjusted diluted
earnings per share 12,589 15.5p 1,388 1.7p 13,977 17.2p
======== ======= ======= ======= ======= ========
9. Goodwill
2007 2006
£'000 £'000
Cost
At start of year 234,094 232,949
Additions - including minority interests 274 4,136
Revisions to prior years (138) (2,991)
----------- ----------
At end of year 234,230 234,094
=========== ==========
Accumulated impairment losses
At start of year 27,702 27,702
Impairment charge 14,429 -
----------- ----------
At end of year 42,131 27,702
=========== ==========
Net book value
At end of year 192,099 206,392
=========== ==========
At start of year 206,392 205,247
=========== ==========
9. Goodwill (continued)
Goodwill acquired in a business combination is allocated, at acquisition, to the
cash generating units that are expected to benefit from the business
combination. The carrying amount of goodwill has been allocated as follows:
2007 2006
£'000 £'000
Consulting Services -
Communications 17,677 17,677
Consulting 64,994 71,207
Property 21,272 21,245
Resourcing 21,614 26,927
---------------- ----------------
125,557 137,056
Education Services 66,374 69,336
Mercury Health 168 -
---------------- ----------------
192,099 206,392
================ ================
The Group tests goodwill annually for impairment or more frequently if there are
indications that goodwill might be impaired.
The recoverable amounts of the cash generating units are determined from value
in use calculations. The key assumptions for the value in use calculations are
those regarding the discount rates, growth rates and expected changes to selling
prices and direct costs during the period. Management estimates discount rates
using pre-tax rates that reflect current market assessments of the time value of
money and the risks specific to the cash generating units. The growth rates are
based on internal budgets in the short term and general market rates thereafter.
Changes in selling prices and direct costs are based on past practices and
expectations of future changes in the market.
The Group prepares cash flow forecasts derived from the most recent financial
budgets approved by management for the next two years and extrapolates cash
flows for two further years at 4% and into perpetuity based on an estimated
growth rate of 2.5%. This rate does not exceed the average long-term growth rate
for the relevant markets.
The rate used to discount the forecast cash flow is 8.7%.
As a result of the annual impairment test carried out during the current year,
the Group has made goodwill impairments totalling £14.4m allocated as follows:
£'000
Consulting Services -
Consulting - medical equipping 1,644
Consulting - other 4,000
Resourcing - Action Medical 5,431
Education Services - FE training 3,354
----------------
14,429
================
The cash generating units in question have all been identified on the basis that
they are separately identifiable business streams within the Group. In the case
of medical equipping and FE training, this impairment reflects management's
decision to terminate the related business streams and as a consequence of this
the goodwill in relation to these units has been fully impaired.
9. Goodwill (continued)
Action Medical, whose principal activity is the provision of temporary staff to
the medical profession has faced a fundamental change in its business during the
year due to a move in the industry towards national supply contracts which
favour the larger temporary recruitment providers ahead of the niche market
provider. This in turn has had a significant adverse effect on its
profitability. At the Interim, management assessed the impact as a £2m reduction
in goodwill, but in the light of continuing results have now concluded that the
goodwill of this business should be impaired in full.
Following the disappointing performance of the Consulting business stream in the
year, management has taken a prudent view when preparing its forecast. As a
result, the impairment review for the remainder of the Consulting business
stream produced a value in use which is £4m below the carrying value of the
related goodwill, hence the impairment charge. As the forecast recoverable
amount is now equal to the carrying value, it follows that if future results
were to fall below those assumed for the purposes of the value in use
calculations, a further impairment charge would arise. In this respect the Group
considers that the anticipated recovery in operating cash flows in the period to
December 2008 is the most sensitive assumption.
Management do not believe there to be any other cash generating units for which
there is a 'reasonably possible' change in the key assumptions that would result
in an impairment.
10. Amounts recoverable on contracts
2007 2006
£'000 £'000
Amounts recoverable on contracts
Non-current 11,833 8,082
Current 2,840 2,327
---------------- ----------------
14,673 10,409
================ ================
Included within amounts recoverable on contracts are directly attributable
contract costs of £14.4m (2006: £10.4m) incurred after the point when there is
virtual certainty that the Mercury Health ISTC contract and subsequent contracts
would be awarded and related mobilisation that costs represent implementation
costs incurred prior to the contract delivery phase. These are included within
amounts recoverable on contracts and amortised over the contract period which is
approximately five years.
11. Trade and other receivables
2007 2006
£'000 £'000
Trade receivables 48,363 45,431
Other receivables 725 1,675
Prepayments and accrued income 13,100 12,020
Fair value of interest rate swaps 1,017 -
---------------- ----------------
63,205 59,126
================ ================
Amounts recoverable under contracts previously within trade and other
receivables has now been reclassified separately, see note 10.
The directors consider that the carrying amount of trade and other receivables
approximates their fair value. An allowance has been made for estimated
irrecoverable amounts from the sales of goods and services of £0.7m (2006:
£0.4m). This allowance has been determined by reference to past default
experience.
12. Trade and other payables
2007 2006
£'000 £'000
Trade payables 24,046 24,147
Other taxation and social security 11,734 12,503
Other payables 4,251 1,892
Accruals and deferred income 41,468 30,473
Deferred cash consideration - 254
Fair value of interest rate swaps - 519
---------------- ----------------
81,499 69,788
================ ================
The directors consider that the carrying amount of trade and other payables
approximates to their fair value.
£150,000 of accruals in 2006 has now been reclassified as provisions.
13. Reserves
Other Retained
reserves earnings Total
£'000 £'000 £'000
As at 1 April 2006 60,936 15,173 76,109
Loss for the year - (9,379) (9,379)
Dividends paid - (2,692) (2,692)
Reallocation from share premium account 7,125 - 7,125
Premium on share issues 6,504 - 6,504
Net income recognised directly in equity 835 306 1,141
Goodwill impairment (7,007) 7,007 -
Own shares acquired (105) - (105)
Credit in relation to share based payments 10 - 10
Share option exercises - (949) (949)
Transfer from share based payment reserve (475) 475 -
_______ _______ _______
At 31 March 2007 67,823 9,941 77,764
======= ======= =======
The reallocation from the share premium account and premium on share issues
relates to the premium arising on shares issued subject to the provisions of
section 131 of the Companies Act 1985.
14. Notes to the cash flow statement
2007 2006
£'000 £'000
Operating profit from continuing operations 192 23,313
Depreciation of property, plant and equipment 5,356 3,600
Amortisation of development expenditure 869 435
Amortisation of intangible assets 320 316
Impairment of goodwill 14,429 -
Net pension charge (105) 13
Gain on disposal of property, plant and equipment (133) (24)
Increase in fair value of investment property - (20)
Share based payments 10 449
Increase in receivables (4,724) (685)
Increase in amounts recoverable on contracts (4,041) (2,791)
Increase in payables 16,118 4,367
(Increase)/decrease in inventories (168) 436
Increase in provisions 300 150
Tax paid (4,143) (3,365)
_______ _______
Net cash from operating activities 24,280 26,194
Net interest paid (6,032) (7,078)
_______ _______
Operating cash flow 18,248 19,116
======= =======
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