Final Results

RNS Number : 4662H
Tribal Group PLC
16 March 2015
 



Tribal Group plc

16 March 2015

Preliminary results for the year ended 31 December 2014

 

Tribal, a leading provider of software and services for education management, is pleased to announce its preliminary results for the year ended 31 December 2014.

 

FINANCIAL PERFORMANCE

·     Revenue of £123.7m, 2% lower than FY2013

·     Adjusted operating profit1 of £14.5m, 8% below FY2013

·     Statutory operating loss of £4.3m (2013: profit of £15.5m) after goodwill and other intangible asset impairment charges of £15.4m

·     Strong cash generation, with cash conversion2 of 109%

·     Adjusted earnings per share of 11.3p, 10% below FY2013

·     Dividend up 13% to 1.80p per share

 

STRATEGIC PROGRESS

·     Internationalisation continues, with operations in Asia Pacific region, Canada, US, the Middle East and southern Africa; 30% of revenues outside the UK

·     Important new contracts won in our existing and new geographic markets

·     Successful integration of Australian software businesses

·     Three year forward strategy in place

·      New organisational structure introduced to support growth

 

Keith Evans, Chief Executive, commented:

 

"Tribal has come a long way over the last three years, achieving our ambition to transform the Group into a leading provider of software and services for education management.  Customer contracts are taking longer to complete, but our pipeline of new customer contracts is good and includes a number of contracts where we are preferred supplier.  Whilst we did not meet our financial targets for 2014, the Group is well positioned to make further progress this year and over the medium term, and our expectations for 2015 are unchanged."

Financial summary

Year ended 31 December

2014

2013

Change





Revenue

£123.7m

£125.5m

(2%)

Adjusted operating profit1

£14.5m

£15.8m

(8%)

Adjusted operating profit margin

11.7%

12.6%

(7%)

Adjusted profit before tax1

£13.4m

£14.6m

(8%)

Adjusted diluted earnings per share1

11.3p

12.5p

(10%)

 

Statutory operating (loss)/profit

(£4.3m)

£15.5m

 

(128%)

Statutory (loss)/profit for the year

(£7.9m)

£11.6m

(168%)





Dividend per share

1.80p

1.60p

13%

Net debt

£11.7m

£4.6m

(154%)

Cash conversion

109%

77%

42%




 

 

1.   Adjusted operating profit and adjusted EPS are in respect of continuing operations, excluding intangible asset amortisation of £1.7m (2013: £0.2m), net other costs of £17.1m (2013: £0.03m) and in the case of adjusted EPS unwinding of hedge accounting reserve in 2013 of £0.5m, unwinding of discount on deferred contingent consideration of £0.9m (2013: £0.4m) and the related tax credit of £1.3m (2013: £0.2m).

 

2.   Cash conversion is calculated as operating cash flow from underlying operations before other cash flows and after capital expenditure, divided by adjusted operating profit.

 

 

Further information

A presentation of these results will be made to analysts and investors at 9.30am today at the offices of Weber Shandwick, 2 Waterhouse Square, 140 Holborn, London, EC1N 2AE.  A copy of the presentation will be made available later this morning on the Tribal Group website: www.tribalgroup.com.

 

Tribal Group plc               

Keith Evans, Chief Executive

Steve Breach, Group Finance Director

Tel: 020 3402 3540

Weber Shandwick Financial                                                       

Nick Oborne

Stephanie Badjonat

Tom Jenkins

Tel: 020 7067 0000

Canaccord Genuity Limited

Simon Bridges                                                                                  

Cameron Duncan

Tel: 020 7523 8000

Nplus1 Singer Advisory LLP

Shaun Dobson                  

Tel: 0207 496 3000

 

Links: Tribal Group plc website: www.tribalgroup.com  

 

 

FORWARD LOOKING STATEMENTS:

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "anticipates", "believes", "estimates", "expects", "intends", "may", "plans", "projects", "should" or "will", or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this announcement and include, but are not limited to, statements regarding Tribal's intentions, beliefs or current expectations concerning, amongst other things, results of operations, prospects, growth, strategies and its expectations.

 

By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the actual results of Tribal and the development of the markets and the industry in which it operates or is likely to operate may differ materially from those described in, or suggested by, the forward-looking statements contained in this announcement. In addition, even if the results of operations and the development of the markets and the industry in which Tribal operates, are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. A number of factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, those risks in the Principle Risks and Uncertainties section of the Tribal Annual Report & Accounts, as well as general economic and business conditions, industry trends, competition, changes in regulation, currency fluctuations or advancements in research and development.

 

Forward-looking statements speak only as of the date of this announcement and may, and often do, differ materially from actual results. Any forward-looking statements in this announcement reflect Tribal's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to Tribal's operations, results of operations and growth strategy.

 

Tribal does not undertake any obligation to update the forward-looking statements to reflect actual results or any change in events, conditions or assumptions or other factors unless otherwise required by applicable law or regulation. 



 

CHIEF EXECUTIVE'S REVIEW

Successes and challenges in 2014

Tribal made significant operational and strategic progress during a busy 2014, although we were unable to meet our financial targets.  We are now focused on our targets for the coming years. It is nevertheless helpful briefly to look back at the key goals we set for ourselves in our 2012 - 2014 strategic plan, which helps to put our performance in 2014 in the context of our longer term plans.

Financially, we set ourselves an ambitious aspiration to double our earnings per share over the three year period to 31 December 2014.  Whilst we fell short of this aspirational target, our ambition to transform Tribal into a leading provider of technology-based solutions to the international education market has been achieved and we are now well placed to extend our share of our chosen markets. Our evolution, matched against our goals for 2014, is summarised below:

Goal (2012 - 2014)

Achievement

Focus on software and tools to support education management

Our business is now fundamentally based around software and services used by education managers.

 

Embed technology at the heart of all that we do

 

Our software and analytics-based revenues represented 63% of our revenue in 2014.

 

Deliver world-class solutions to education managers

 

We have market-leading positions in the UK, Australia and New Zealand, and have broken into new major markets such as Canada and southern Africa.

 

Establish ourselves as a truly international business

 

We are now present in 5 continents, and 30% of our 2014 revenues were generated outside the UK.

 

Advance our sales and business development capabilities to support our international growth aspirations

 

Our teams' credentials are demonstrated through the major projects we have won across the English-speaking world.

 

Create investment capacity through debt reduction

 

We have invested strongly in our software portfolio, through internal development programmes and through selected bolt-on acquisitions.  Our initial focus reduced debt levels significantly, and we have now deployed some of our facilities to make acquisitions.

 

 

Assets which differentiate us

Our future development will be underpinned by those key assets which mark us out from our competitors.  

Our software and services are critical to our customers' ability to deliver high quality education to their students. As our extensive customer base grows around the world, so too does our already deep understanding of our customers' needs.

Customers choose us because they are confident that we have the best software and tools, that our deployments will be successful, and that we will remain alongside them into the future with developments and innovations which fit their emerging needs.

As a result, Tribal's rich portfolio of software products and tools, each tailored to the needs of their respective segments of the education world, and our reputation for successful delivery of major international programmes, are the foundation of our growth plans.

Education management markets

Education remains key to nations' investment programmes around the world, with OECD nations typically spending around 6% of GDP on education.

Education is not immune to global economic pressures. Those who pay for education - whether governments, employers, parents or students - now expect more for their money. This has led to increasing scrutiny of education outcomes, the quality of the student experience, the employability of students after they leave education, and the overall value-for-money offered by education providers.

Institutions are responding by adopting an increasingly commercial mindset across their management teams. These teams need high quality management systems, information and tools to do their jobs. Our mission is to be their chosen partner through the provision of high value management systems and services.

Our strategic direction

We have constructed a strong and increasingly focused platform upon which we will develop and grow our business.  Our strategy is now oriented around three key elements:

·     Student management systems at the core of our proposition;

·     Performance improvement tools complementing, and increasingly integrated with, our student management systems; and

·     Establishment of a strong regional presence in each of our chosen international markets.


Student management systems at the core of our proposition

Our student management systems are core operational business systems in universities, colleges and schools. Replacement cycles are lengthy, and our customer relationships are long-lasting, generating good recurring support and maintenance revenues. Our systems have demonstrated their applicability in a range of international markets. These assets, and the customer relationships which spring from them, are at the heart of our business. 

We will continue to develop and extend our student management systems portfolio. Our programme includes:

·     A portfolio approach - we will continue to offer a range of alternative systems, in order that we can deliver best of breed functionality matching the needs of our customers across the education market.

·     Systems with global applicability - in the Higher Education market, our system has global resonance. We will therefore focus on deploying our system into those markets where we are best able to sell, implement and support our products.

·     Systems tailored for local requirements - typically in Vocational Learning and Schools, a greater level of local specification is required. We will deliver local applicability through segmentation of our product portfolio where appropriate.

·     Increasing functional richness - extension of the breadth and depth of functionality we offer, matching the needs of our customers.  Key areas of enhancement to our existing systems' functionality include CRM capabilities, and enhanced predictive analytic toolsets.

·     Cloud and SaaS offers - historically our customers have chosen to install our systems on their own IT infrastructure. Increasingly, the education management market is exploring cloud-based and Software-as-a-Service (SaaS) models. Our systems already support cloud-delivery, and we will continue to roll-out multi-tenanted capability to enable SaaS delivery across our portfolio.

 

Performance improvement tools integrated with our student management systems

Our customers work in an environment where expectations grow year-on-year. Education outcomes, student experience and efficient delivery are firmly in the spotlight. Our rich education management expertise, coupled with our extensive customer base and data sets, has enabled us to build a strong range of evidence-based performance improvement tools. 

We are now increasingly embedding our tools in our student management systems, and developing new services and technologies which support education managers to uplift the performance of their institutions. Closer integration is expected to enhance the value of our tools, support more rapid delivery and scaling of our services, and enable the more effective distribution and cross-selling of these tools through our installed student management system customer base.

A balanced regional presence

Outside the UK, our business has achieved critical mass in Australia and New Zealand, and we are operationally active in a number of English-speaking education markets including Canada, the US, the Middle East, southern Africa and the wider Asia Pacific region. Our focus will be to achieve a focused regional presence through organic development and, if appropriate opportunities can be identified to accelerate that development, through acquisition.

Our attention will now turn to ensuring that we have an increasingly balanced set of country-level operations, where we are able to demonstrate confidently that we are a leading provider, with critical mass, in our chosen markets.

In the nearer term, this means a clear emphasis on English-speaking education markets, although we will continue to evaluate and explore non-English speaking markets for future growth opportunities.

Supporting our momentum towards our strategic goals

Our product portfolio, allied to our highly referenceable installed customer base, are key elements which underpin our strategic ambitions. Operationally, our ability to achieve our goals will be particularly influenced by a number of key attributes:

·     Enhanced management focus through our new organizational structure, alongside increased strength in our senior management team;

·     Increasing efficiency through process improvement, better management information supporting better decision-making, and through economies of scale as our international operations achieve critical mass;

·     Continued investment in sales and business development capabilities; and

·     Financial capacity to acquire assets which accelerate achievement of our strategic goals.

Organisational structure and management team

Through 2014 we have invested in development and expansion of our management team to bring new skills and experiences, as well as additional capacity to support our growth. Our expanded team sits across a newly re-organised business structure, which aligns with the important functional axes of our business:

·     Software product development, and related customer support;

·     Implementation services for our software products;

·     Professional and business solutions, including our analytics and other performance improvement services; and

·     Quality assurance solutions.

We will also continue to develop further our management capacity in our international operations.

Increasing efficiency

We expect to streamline certain areas of our business, and continue to invest in new internal business systems, to support our efficiency improvement targets. As our business moves towards a more evenly balanced geographic distribution, local revenue growth will more appropriately match the local infrastructure which we have created to support our growth. Our profitability is expected to improve with increased scale of activities, and we are targeting overall operating margins in excess of 16% by 2017.

Financial capacity to acquire suitable assets

Good cash generation has enabled a strong investment programme.  We have successfully completed and integrated three bolt-on acquisitions in the past two years.  We will continue to explore compelling opportunities to grow our business through strategically aligned acquisitions. 

Measuring our strategic progress

As our strategy evolves, it is appropriate that we also evolve our targets and performance measures to ensure they align with our ambitions.  Going forward, alongside our existing financial measures which focus on profit margins, earnings per share growth and cash generation, our key performance indicators will include measures of the extent to which:

·     Software and analytics-related revenues have become increasingly pervasive in our business (we are targeting at least 80% by 2017);

·     We have a substantial and growing recurring software revenue base (we are targeting at least 30% of revenues to be recurring software revenues in nature by 2017);

·     Performance improvement tools have penetrated our software customer base (we are targeting at least 20% by 2017); and

·     We have a portfolio of international operations (we are targeting international revenues to be at least 50% of total revenues by 2017).

Earnings per share (EPS) will remain a core measure of our success in creating shareholder value.  Whilst we fell short of our aspiration to double EPS over the three year period to 31 December 2014, we have grown EPS by over 200% since 2010.  Our aspiration is to grow EPS by a further 50% over the next three years.

 

Progress during 2014

We experienced some challenges in 2014, particularly as customers' decision-making cycles extended. As a result we did not fully meet our financial targets. However, we made good strategic and operational progress during the period as we delivered on major software programmes, completed and integrated acquisitions, secured important new contracts in our existing and new geographic markets and continued to develop our business infrastructure. As a result, our capabilities have continued to grow, and our reputation in our markets has been enhanced.

Higher education

In Higher Education, our activities are oriented around our UK market-leading SITS vision student management system, complemented by a suite of performance improvement services and tools including i-graduate student satisfaction analytics, and our transformation services which seek to enhance our customers' use of our software.

Whilst the timing of certain university customer contract completions was later than we had planned for, we have nevertheless seen good overall growth in our Higher Education revenues.

During the period we continued to extend the geographic market presence of our SITS system, which has now been deployed in the UK, Republic of Ireland, Australia, New Zealand, Canada and South Africa, alongside smaller installations in a number of other countries.

In the first half of 2014, we entered the southern African market with a major £5m contract to deploy our software across the University of South Africa (UNISA), Africa's largest university with c360,000 students.

Our progress in Canada is also developing encouragingly. Our work with University of British Columbia in Vancouver, our first Canadian customer, is proceeding well, and we are now underway with our second project in Canada with the University of Alberta in Edmonton. We are also continuing to explore opportunities to enter the student management system market in the US, alongside our existing student analytics work in the region.

In Australia, we signed an important AUD 8.4m contract with Deakin University, based near Melbourne. Deakin University is the first of a group of universities which use the Callista SMS to move to our SITS product. Since securing the contract with Deakin university, in early 2015 we have subsequently acquired the Callista student management system business, which provides its SMS to around 25% of the Australian university market.

The completion of the Callista acquisition makes Tribal the leading provider of student management systems in Australian universities. Callista's revenues in the year ended 31 December 2014 were AUD15.9m, and its operating profits were AUD1.6m. We have committed to support the Callista software for a minimum period of seven years, and we will offer the Callista customers an opportunity to transition to our other Tribal systems in due course.

Alongside our larger new university customers, we were pleased to secure our first cloud-based, SaaS contract for our SITS product in the period. Our deployment for the BPP consortium of eight law schools in the UK is now live, and we expect this delivery model to become an increasing feature of our work with smaller higher education institutions.

Vocational learning

Our work in vocational learning is based around a portfolio of software products and services, and our capabilities in this sector have continued to develop rapidly in the period. Whilst we have now exited our non-core work in the careers advice and guidance market, our emphasis on software-based activities continues and we now have market-leading positions in the UK, Australia and New Zealand in vocational learning student management systems.

Our EBS4 student management software is the market leading system for Further Education colleges in the UK, and is the core of our solution for the major Student Administration and Learning Management (SALM) programme on which we have been engaged in New South Wales, Australia since 2012. Our system went live in October 2014 in all 138 Technical and Further Education (TAFE) campuses in New South Wales, and our work continues with the New South Wales Department of Education to further develop the platform.

In the UK, we have seen quiet conditions in the Further Education market for some time. However, we were pleased to secure three new college customers for EBS4 in the latter part of the year, and we are encouraged that activity levels are improving into 2015.

In the early part of the year we completed our acquisition of Sky Software, based in Geelong, Victoria in Australia. Whilst Sky Software was a small business at the time of its acquisition, we believed that it had the potential to develop rapidly. We have been very pleased with its progress since it became part of Tribal, and Sky Software has significantly exceeded our expectations in its first year with us. In particular, the £6m contract with the British Council was a powerful demonstration of the Sky system's capabilities, as it is now being deployed over the cloud on a multi-tenanted configuration to support over 100 training centres, in 60 countries, in 40 languages and administering the activities of c370,000 students.

Later in the year, through an offering which combined Tribal and Sky intellectual property, we were pleased to secure a second state-wide TAFE systems contract in Australia. Under an AUD 19m contract, we are providing our student management systems to TAFE Queensland, which operates all 48 TAFE campuses across Queensland, Australia.

Our success in the Australian TAFE market was further confirmed at the end of 2014, when we signed an AUD 2.5m contract to supply our student management system to the Tasmanian TAFE provider, TasTAFE. This contract, which now means we are delivering three state-wide student management systems in Australia, will involve the roll-out of our systems across Tasmania's 14 TAFE campuses.

Schools / K-12

Our work to support schools has historically been weighted strongly towards quality assurance solutions, particularly supporting Ofsted in the UK with its schools and nursery review programme. This work has continued during 2014, but will represent a reducing stream of activity for us over the coming years.

In May 2014, Ofsted announced that it would be bringing its schools review work in-house as from September. However, work to provide quality assurance in relation to nurseries will remain outsourced for the time being, and we have agreed with Ofsted that we will continue to provide these services until at least August 2016, and potentially until 2017. Whilst our other quality assurance activities in the US and Middle East are unaffected by these changes in the UK, the impact of Ofsted's policy changes on our business are consistent with our strategy to increase our focus on the delivery of student management systems to international markets.

Alongside our quality assurance work, we are now a leading provider of schools student management systems in Australia, complementing our leading position in education authority children's services management systems in the UK.

In Australia, under the previously mentioned SALM programme, we are deploying our systems into all c2,200 state-run schools in New South Wales. Our system is live in an initial implementation of c200 schools, and we are now working towards a wider roll-out.

Alongside our work on the SALM programme, through our Melbourne-based Human Edge business which we acquired in June 2014, we provide student management systems to around 1,900 schools and education management organisations in a number of states in Australia. Human Edge is trading in line with expectations set at the time of the acquisition, and its systems are expected to become the platform for our development of a schools student management system which we plan to offer in a number of international markets in due course.

Outlook

Our expectations for 2015 are unchanged.  Whilst customer procurement timelines have extended, our pipeline of new customer contracts is good, including a number of expected contracts where we are preferred supplier.  We also remain alert for opportunities to accelerate our progress.  As a result, Tribal has good potential to make further progress this year and over the medium term.

DIVISIONAL PERFORMANCE

New organisational structure

Our organisational structure has evolved during 2014 to reflect our focus on software-related activities, and related performance improvement tools and services.  Our divisional structure now comprises four components:

·     Product development and customer services - representing the sale of software and subsequent maintenance and support services;

·     Implementation services - representing activities through which we deploy and configure our software for our customers;

·     Professional and business solutions - representing a portfolio of performance improvement tools and services, including analytics, benchmarking and transformation services; and

·     Quality assurance solutions - representing inspection and review services which support the assessment of educational delivery.

Our student management software activities are represented primarily by our product development and customer services division, and the related implementation services division.  Other software and analytics-related activities are reported as part of other segments.  Software and analytics-related revenues represented 63% of total adjusted revenues (2013: 55%). 

Our performance improvement services comprise our Professional and Business Solutions and our Quality Assurance Solutions divisions.

Financial results - student management systems

Product Development & Customer Services

Our Product Development and Customer Services revenue grew by 18% to £49.7m (2013: £42.2m).  Divisional adjusted operating profit was £11.2m (2013: £12.0m), and the adjusted operating margin was 23% (2013: 28%).

 

Year ended 31 December

2014

£'000

2013

£'000

Revenue



   Licence and development fees

21,820

21,669

   Maintenance

24,542

18,802

   Other

3,313

1,690


49,675

42,162

Of which:



   UK

60%

67%

   International

40%

33%


100%

100%




Adjusted segment operating profit

11,192

11,984

Adjusted operating profit margin

23%

28%




Systems product development investment

4.8m

6.9m




Licence and development fee revenues remained broadly flat at £21.8m (2013: £21.7m). Key elements of this income included the SALM programme, albeit reduced compared to 2013, and significant new customers including the British Council, the University of South Africa, TAFE Queensland, Deakin University, the University of Alberta and Tasmania TAFE.

Our recurring maintenance income also increased by 31%, with the benefit of the now installed and live SALM system and the inclusion of maintenance revenues within Human Edge, allied to the incremental contribution of new customer wins as identified above.

Our growth in 2013 was in part driven by our delivery of the SALM programme.  Whilst revenues related to the SALM programme remained important in 2014 (and we expect that they will remain so in 2015), our progress in delivering the core software functionality to the programme during 2013 generated licence and maintenance revenues of c£9.5m, compared to £8.0m in 2014.  Growth in other areas of activity offset the reduced contribution from SALM-related activity.

We are now engaged in the delivery of a number of major international software programmes.  Our progress in delivering these projects, and the phasing of revenue and profit recognition related to these projects and the associated contract accounting, will continue to be influenced by a number of factors, including the quality and timeliness of our delivery against key customer milestones, our delivery of new functionality to meet our customers' requirements, and our customers' own programme management and timelines.  These projects are subject to customer challenge which may result in developments to ongoing commercial arrangements that could materially impact the basis of financial judgements made at the period end.  

 

Revenues generated by Sky Software and Human Edge, which were acquired in 2014, were £7.7m.  These revenues include £1.1m of implementation revenues which are included in this segment.  As previously identified, these businesses have been integrated rapidly into the wider Tribal business in Australia, and therefore a significant portion of the revenue generated in these entities relates to the combined activities of Tribal and Sky Software / Human Edge staff, collaborating on new business opportunities. 

Divisional operating margins reduced from 28% to 23%.  Operating margins have been influenced by a number of key trends.  As our software has been deployed in a number of geographies, on a range of major customer programmes, we have increased our support resources temporarily; we expect the support resource levels to begin to fall in the near term, but this has held back margin during 2014.  In relation to the SALM programme, the timing of software licence draw downs by the Department of Education in New South Wales led to an enhancement to short term profit in 2013 compared to 2014.  Finally, amortisation charges relating to capitalised software development costs relating to our recent focus on development investment increased by 43% to £3.3m excluding impairment charges.

Our investment in product development eased during 2014, with expenditure of £4.8m (2013: £6.9m), representing 7.0% of student management system-related revenues (2013: 10.9%).  Internal product development effort was complemented by the introduction of significant new software through the acquisitions of Sky Software and Human Edge. 

During the year we reviewed and expanded the useful economic lives of our Synergy and SITS products from 3-5 years to 7 years to better reflect their positions in their respective markets. This change was effective from 1 July 2014 and had the effect of reducing amortization in 2014 by £0.3m. The equivalent figure for 2015 will be £0.5m.

Implementation Services

Our Implementation Services revenue reduced by 9% to £19.5m (2013: £21.3m).  Divisional adjusted operating profit was £2.9m (2013: £3.1m), and the adjusted operating margin was 15% (2013: 15%).

 

Year ended 31 December

2014

£'000

2013

£'000

Revenue

19,495

21,336

Of which:



   UK

45%

40%

   International

55%

60%


100%

100%




Adjusted segment operating profit

2,871

3,111

Adjusted operating profit margin

15%

15%




Implementation services relating to the SALM programme in 2014 were £5.7m (2013: £9.2m), with implementation activities with other customers growing to offset the lower level of SALM work.  Implementation revenues generated by Sky Software and Human Edge represented £1.1m.

Whilst operating margins remained constant at 15% year-on-year, margin improvement has been held back during 2014 as a result of new customer contract slippage; our programme to develop increased capacity to support new customer wins led to the recruitment and retention of a higher level of implementation resource in certain locations where, as a result of subsequent slippage of new deal completions, utilisation levels were reduced for the early part of 2014.

Financial results: performance improvement tools and services

Professional and Business Solutions

Our Professional and Business Solutions revenues reduced by 18% to £20.4m (2013: £24.8m).  Divisional adjusted operating profit was £0.5m (2013: £2.0m), and the adjusted operating margin was 3% (2013: 8%).

 

Year ended 31 December

2014

£'000

2013

£'000

Revenue

20,377

24,754

Of which:



   UK

96%

92%

   International

4%

8%


100%

100%




Adjusted segment operating profit

515

2,047

Adjusted operating profit margin

3%

8%




Our Professional and Business Solutions activities are increasingly focussing on core skills and tools such as analytics, benchmarking, best practice and transformation and changes services closely related to our student management systems. These activities, which we expect to become increasingly integrated with our software offerings, are developing positively.

We are reducing our other activities in areas which do not offer the potential to complement and enhance our student management systems business.  Legacy activities which have low levels of underpinning technology, and which offer low growth and low margin potential are being exited in a staged manner. 

We have now largely ended our work in careers advice and guidance as the Group's contracts in this area expire.  This has reduced future annualised revenues in this division by around £8m, of which £1.3m was reflected in 2014.  Our Specialist Learning Solutions activities, under which we support Further Education colleges' delivery of a range of courses in the UK has experienced weak market conditions, with revenues falling to £4.1m (2013: £5.3m), and we expect our activities in this area to reduce further over the coming year.

Quality assurance solutions

Our Quality Assurance Solutions revenues reduced by 8% to £34.6m (2013: £37.7m).  Divisional adjusted operating profit was £4.0m (2013: £3.6m), and the adjusted operating margin was 12% (2013: 10%).

Year ended 31 December

2014

£'000

2013

£'000

Revenue

34,621

37,684

Of which:



   UK

84%

89%

   International

16%

11%


100%

100%




Adjusted segment operating profit

4,039

3,750

Adjusted operating profit margin

12%

10%




 

Our focus on efficiency within our Quality Assurance activities has delivered continued good profit growth, whilst activity levels under our Ofsted contracts have reduced.   Our work for Ofsted represented £23.2m of revenues in 2014 (2013: £26.4m) (67% of Quality Assurance revenues, compared to 70% in 2013).  Our complementary work in the US and Middle East has continued in line with our expectations. 

Following confirmation that Ofsted will be taking its schools inspection work in-house from September 2015, our review of goodwill carrying values has required an impairment charge to goodwill in this respect of £9.2m.

We currently anticipate that the loss of the Ofsted schools inspections contract in 2015 will drive a further impairment in the region of £1.0m in that financial year.

The Ofsted schools inspections work contributed revenues of £13.6m in 2014, while the Ofsted Early Years inspections work gave rise to revenues of £9.6m and has recently been extended by up to 19 months to March 2017.

As this area of activity becomes less strategically important to our future, we will focus on efficient delivery of ongoing operations, but our appetite for investment will be reduced accordingly.

FINANCIAL REVIEW

Group Profit and Loss

In the year ended 31 December 2014, the Group's revenue from continuing operations was £123.7m (2013: £125.5m). Adjusted operating profit was £14.5m (2013: £15.8m) and our adjusted operating profit margin was 11.7% (2013: 12.6%). Adjusted profit before tax was £13.4m (2013: £14.6m) and adjusted diluted earnings per share were 11.3p (2013: 12.5p).

The Group's statutory revenue from continuing operations was £123.7m (2013: £125.5m). The statutory operating loss was £4.3m (2013: profit of £15.5m), arising from a number of non-recurring charges, and in particular impairment charges relating to goodwill and other intangible assets.  The statutory operating margin was (3.5)% (2013: 12.4%). Statutory loss before tax was £6.3m (2013: profit of £13.5m) and statutory diluted loss per share from continuing operations was (8.4)p (2013: statutory earnings per share of 11.5p). The statutory loss for our continuing business after tax was £7.7m (2013: £10.8m).

Revenue

Adjusted revenue from continuing operations decreased by 2% to £123.7m.  Our student management systems activities continued to grow, increasing by 9% in 2014, underpinned by successful integration with our newly acquired software businesses in Australia.  However, as a result of weakness in certain UK markets, and our on-going reshaping of our performance improvement activities where we ran-off a number of contracted projects at their natural expiry, our performance improvement tools and services revenues reduced by 12%.

Revenues generated through businesses acquired during 2014 were £7.7m, of which £5.0m related to Sky Software and £2.7m related to Human Edge.  Sky Software has grown rapidly since acquisition (at which time its annualised revenues were c£0.8m), as we have worked to combine the benefits of its technologies with our wider delivery capabilities.

Our activities continue to exhibit an increasingly international dimension. 30% of revenues were generated from activities outside the UK, compared to 26% in the prior year.

Adjusted operating profit

Our adjusted operating profit decreased by 8% year-on-year to £14.5m. Within our student management systems activities, our product development and customer services business saw operating profits reduce to £11.2m from £12.0m, as the impact of the SALM programme reduced.  Implementation services activities also recorded a small reduction in operating profit as SALM activity levels reduced. Within our performance improvement tools and services activities, our Quality Assurance business grew its operating profit from £3.8m to £4.0m despite revenues falling by 8%. Operating profit in our other performance improvement activities reduced from £2.0m to £0.5m as a result of strategic withdrawal from certain areas of this business. 

Operating profits generated through businesses acquired during 2014 were £4.3m, of which £3.0m related to Sky Software and £1.3m related to Human Edge, reflecting the rapid integration of these businesses into our pre-existing Australian operations.

Changes in the foreign exchange environment presented a headwind during 2014, as the Australian dollar weakened against Sterling. 

We have revised the useful economic lives of certain IT hardware equipment included within "fixtures, fittings and other equipment" and have extended them from 3 to 5 years. The effect has been to reduce depreciation in 2014 by £0.2m. 

Our central costs were £4.1m (2013: £5.1m), or 3.3% of revenue (2013: 4.1% of revenue), well within our target range of less than 4% of revenue.

 

Continuing operations

 

 

2014

£'000

2013

 

Change

£'000

Revenue

123,703

125,485

(1.4%)

Adjusted operating profit from divisions before central costs

18,617

20,892


Central costs

(4,108)

(5,133)


Adjusted operating profit

14,509

15,759

(7.9%)

Adjusted net finance costs

(1,091)

(1,198)

8.9%

Adjusted profit before tax

13,418

14,561

(7.8%)

Adjusted effective tax rate

21.5%

19.8%


Adjusted diluted earnings per share

11.3p

12.5p

(9.6%)

 

Items excluded from adjusted profit figures


2014

£'000

2013

£'000




Adjusted profit before tax

13,418

14,561




Operating loss from closed businesses

(100)

(93)




Other costs excluded from adjusted profit:



 - Property relocation

(542)

117

 - Acquisition-related expenses

(397)

(54)

 - Movement in deferred consideration

288

-

 - Impairment of goodwill

(12,849)

-

 - Impairment of development costs and related provisions

(3,419)

-

 - Amortisation of IFRS3 intangibles

(1,729)

(231)


(18,808)

(261)

 

 - Interest rate hedge instrument

-

(453)

 - Unwind of discount on deferred consideration

(876)

(350)


(19,684)

(1,064)

Statutory (loss)/profit before tax

(6,266)

13,497

 

 

During the period, we relocated our Head Office to more suitable premises. We secured a significant incentive to enter into the lease of our new premises, the cash value of which offset the costs of exiting our previous premises.  The accounting charge relates to the onerous lease cost of the previous premises, and will be offset by credits related to the receipt of the incentive for our new premises over time.

As a result of Ofsted's decision to bring its schools inspection activities in house with effect from September 2015, we recorded a £9.2m impairment to the related goodwill carrying value at the half year.  As we now look towards the re-shaping of the Professional and Business Solutions division, as described above, and following the apportionment of our goodwill carrying values to the newly established divisional structure, a further goodwill impairment charge of £3.7m has been recorded, bringing the total impairment charge to £12.8m.

Our acquisitions of Sky Software and Human Edge brought significant new software and intellectual property into the Group.  We carefully assessed areas of overlap between our existing products and those owned by our acquired businesses, and we have determined that our future investment should focus on certain areas and cease in others.  As a result, we have retired a number of products from our portfolio, and the carrying value of these assets has been written down.  Where there are additional costs associated with the withdrawal of those products, provisions have been recorded as appropriate.

The amortisation charge in relation to IFRS 3 intangible assets arose from separately identifiable assets recognised as part of our acquisition programme, principally in relation to the software and customer relationships in the respective businesses at completion.

The adjustment to deferred consideration represents changes in expectations of total deferred contingent consideration payments in respect of the acquisition of i-graduate based on our most recent forecasts of expected performance over the earn out period.  There is also an income statement charge arising from the unwinding of the discount applied to the deferred contingent consideration on the acquisition of i-graduate and Sky Software, reflecting the fact that these payments are expected to be made over a number of years.

 

Discontinued activities


2014

£'000

2013

£'000

Profit attributable to Resourcing

115

413

Profit attributable to Health and Government

74

242

Profit attributable to Kindred

(9)

318

Loss attributable to Nightingale Associates

(361)

(131)

 

Attributable tax credit/(charge)

16

(54)

Net profit attributable to discontinued operations

(165)

788

 

Our major disposal programme was completed in 2011. Since completion of the disposals, certain deferred consideration payments have continued to be receivable. We have also undertaken a programme to mitigate any residual property lease obligations which remained with Tribal.   In these respects, we have continued to be successful in recovering significant portions of the receivable amounts, in disposing of the residual property and in securing deferred contingent consideration in excess of our previous expectations.  In one instance, residual litigation (for which Tribal has a remaining liability) within the disposed of business has necessitated an increased provision to cover potential costs to the extent that they are not fully addressed by insurance arrangements.

Finance costs


2014

£'000

2013

£'000

Investment income

(58)

(37)

Finance costs

2,025

1,585

Net finance costs

1,967

1,548

 

Net finance costs have increased due to higher other interest charges, including in particular the unwinding of the discount on the i-graduate and Sky Software deferred contingent consideration.  Underlying interest on our revolving credit facility has fallen to £0.8m (2013: £1.0m). 

Other finance costs include £0.3m relating to bank facility arrangement fees expensed on the refinancing in early 2014, the unwinding of the discounting of deferred contingent consideration on acquisitions of £0.9m (2013: £0.4m), and finance costs relating to pension scheme accounting of £0.1m (2013: £0.3m).

Tax

The corporation tax charge on continuing operations was £2.8m (2013: £2.9m).  Our adjusted effective tax rate was 21.5% (2013: 19.8%). As the Group continues to grow its activities in international jurisdictions which typically operate with a higher rate of corporation tax, it is anticipated that the tax charge on profits in the near to medium-term future is likely to be higher than the standard UK corporation tax rate.

The total tax charge of £1.5m includes a deferred tax credit of £1.0m which largely arises from the unwinding of deferred tax liabilities arising on acquisitions in respect of IFRS 3 intangible balances and share scheme credits.

The total current tax charge of £2.5m largely relates to overseas profit, reflecting the impairments in the UK in the year.

Earnings per share

The adjusted diluted earnings per share from continuing operations before other costs, the results of closed businesses and intangible asset impairment charges and amortisation, which reflects the underlying trading performance of the Group, reduced from 12.5p to 11.3p.

Basic losses per share from continuing and discontinued operations was (0.8)p (2013: earnings per share of 12.3p).

Shareholder returns and dividends

Whilst our adjusted operating profit for the year was £14.5m, and we generated strong operating cash flow, the statutory loss before tax for the year was £6.3m (2013: profit of £13.5m).

The Group's financial performance, and balance sheet strength, has significantly improved over the last five years. Our focus continues to be on growing the business, sustaining strong investment in our software products, entering selected new markets and, where appropriate, considering acquisitions.

The Directors consider that it is in the Group's best interest, for the foreseeable future, generally to retain cash generated from operations for reinvestment in the development of the business. In line with this strategy, the Directors continue to pursue a progressive dividend policy, although over time it is expected that dividend cover will reduce from its current levels.

On this basis, and taking into account the financial performance of the Group in 2014, the Board has proposed a final dividend of 1.20p per share which, together with the interim dividend of 0.60p per share, gives a total dividend of 1.80p per share (2013: 1.60p). The full year dividend is covered 6.3 times by adjusted earnings per share, and the final dividend will be paid on 10 July 2015 to shareholders on the register on 12 June 2015.

Cash flow and net debt

 


2014

£'000

2013

£'000

Cash at bank and in hand

9,345

7,555

Syndicated bank facility

(net of bank arrangement fees)

(21,023)

(12,114)

Net debt

(11,678)

(4,559)

 

Group net debt increased from £4.6m at 31 December 2013 to £11.7m at 31 December 2014, primarily as a result of acquisition-related payments. As at 31 December 2014, cash at bank and in hand included advance cash receipts in relation to customer programmes of £6.6m (2013: £4.8m).

Cash flow and cash management

2014
£'000

2013
£'000

Continuing operations



Net cash from operating activities before tax and before other cashflows

22,254

20,743

Capital expenditure (net)

(1,345)

(1,552)

Capital expenditure on product development and business systems

(5,156)

(6,994)

Operating cash flow from continuing operations after capital expenditure before other cashflows

15,753

12,197

Other cashflows

(1)

(375)

Operating cash flow from underlying operations after capital expenditure

15,752

11,822







Operating cash flow from discontinued operations after capital expenditure

34

446

Net interest

(513)

(633)

Tax

(2,571)

(2,168)

Free cash flow

12,702

9,467

Acquisitions and deferred consideration

(15,100)

(2,521)

Disposal of discontinued operations

321

638


Dividends paid

(1,587)


(1,260)


Financing

5,619

(6,647)

Effect of foreign exchange rate changes

(165)

(546)

(Decrease) / increase in cash and cash equivalents in year

1,790

(869)

 

During 2014, the Group's underlying activities generated strong operating cash flows after capital expenditure, but before other cash costs, of £15.8m (2013: £12.2m), with cash conversion of 109% (2013: 77%).   Our strong cash collection profile included significant milestone receipts relating in part to work on the SALM programme during 2013, and which will not recur in 2015.

Capital expenditure

Capital expenditure totalled £6.5m (2013: £8.6m), comprising £4.8m (2013: £6.9m) on software product development, and £1.3m (2013: £1.6m) on enhancements to office premises and replacement of IT equipment. 

During the period from 2012 to 2013, we significantly increased our investment in software development as we refreshed and extended our product portfolio to support our growth plans.  We have continued to invest in our product portfolio in 2014, albeit at a lower level commensurate with the steps forward achieved in prior years.  Research and development costs charged directly against profits were £1.7m (2013: £1.7m).

Net other cash flows

Net other cash flows in the year were minimal.  Within this amount, other inflows of £0.7m related to our relocation of head office as previously explained.  Other outflows of £0.7m included costs associated with acquisition activity and withdrawal of products from the market following product portfolio rationalisations.

Renewal of bank facilities

During January 2014, we agreed a new facility with our existing banks (Lloyds Banking Group and HSBC), and additionally with Clydesdale Bank (part of National Australia Bank).  Our senior debt banking facility is now committed until June 2018, subject to compliance with covenants. Under the terms of the facility, £45m is available under a revolving credit facility and £5m is available as an overdraft facility.

Order book

The total forward order book of the Group as at 31 December 2014 was £102.7m (2013: £127m).  Our order book relates to business we expect to deliver in the next five years, but includes only two years of software maintenance income.  The reduction in the order book reflects primarily the increasing maturity of our Ofsted inspection contracts, and the run-off of our Careers Advice and Guidance contracts, as explained elsewhere. The extension of the Ofsted Early Years inspections contract subsequent to the year end for up to 19 months to March 2017 adds up to a further £18m to the order book figure.

Pension obligations

As a consequence of certain contract awards, a number of employees participate in defined benefit pension schemes, the largest of which relates to the Ofsted Early Years inspection contract which was entered into during the year ended 31 December 2010. Across these pension schemes, the combined surplus calculated under IAS 19 at the end of the year totalled £0.1m (with gross assets of £8.3m and gross liabilities of £8.2m), compared to a surplus of £0.8m last year.  Under the terms of our recently announced contract extension with Ofsted, we benefit from an arrangement under which Ofsted will protect Tribal from significant additional pension costs related to employees who are currently engaged in this activity in the event that Ofsted's approach to future inspections work requires changes in its workforce requirements.

Acquisitions

On 7 March 2015, the Group acquired the entire issued capital of Callista Software Services Pty Ltd (Callista), a company  incorporated in Victoria, Australia, which provides student management systems to the Australian university market.  Total consideration for the entire issued share capital is AUD 3.6m, payable in cash in equal installments over a three year period.  The unaudited revenue of Callista for the year ended 31 December 2014 was AUD 15.9m, and operating profit was AUD 1.6m.   The value of gross assets at 31 December 2014 was AUD 14.1m.

In March we amended the deferred contingent consideration agreement with the vendors of Sky Software Pty Limited to increase the maximum consideration from AUD17m to AUD18m and to amend the timing and calculation of these payments to better incentivise the creation of a long-term, sustainable business. This reduces the amount expected to be paid in respect of 2014 performance from AUD16m to AUD10.9m.

 

13 March 2015

 

Responsibility statement of the directors on the annual report

 

The annual report contains the following statements regarding responsibility for the financial statements and business review included in the annual report:

 

"The directors confirm that, to the best of their knowledge:

 

·      the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;

 

·      the strategic report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

 

·      the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy."

 

 

By order of the Board

 

 

 

 

Keith Evans                                          Steve Breach

Chief Executive                                      Group Finance Director

 

 

13 March 2015                                       13 March 2015

 

 

Consolidated income statement

For the year ended 31 December 2014


Note

Adjusted

£'000

Other items

£'000

Year ended 31 December 2014

Total

£'000

Adjusted

£'000

Other items

£'000

Year ended 31 December 2013

Total

£'000

Continuing operations








Revenue


123,703

-

123,703

125,485

-

125,485

Cost of sales


(74,028)

-

(74,028)

(75,466)

-

(75,466)

Gross profit


49,675

-

49,675

50,019

-

50,019

Other administrative expenses


(35,166)

(17,079)

(52,245)

(34,260)

(30)

(34,290)

Amortisation of IFRS 3 intangibles


-

(1,729)

(1,729)

-

(231)

(231)

Total administrative expenses


(35,166)

(18,808)

(53,974)

(34,260)

(261)

(34,521)

Operating profit/(loss)


14,509

(18,808)

(4,299)

15,759

(261)

15,498

Investment income

4

58

-

58

37

-

37

Other gains and losses

5

-

-

-

-

(453)

(453)

Finance costs

6

(1,149)

(876)

(2,025)

(1,235)

(350)

(1,585)

Profit/(loss) before tax

3

13,418

(19,684)

(6,266)

14,561

(1,064)

13,497

Tax


(2,830)

1,348

(1,482)

(2,889)

169

(2,720)

Profit/(loss) for the year from continuing operations

10,588

(18,336)

(7,748)

11,672

(895)

10,777

Discontinued operations








(Loss)/profit from discontinued operations


-

(196)

(196)

-

788

788

Profit for the year


10,588

(18,532)

(7,944)

11,672

(107)

11,565

Earnings per share








From continuing operations








Basic and diluted

8

11.3p

(19.7p)

(8.4p)

12.5p

(1.0)p

11.5p

From continuing and discontinued operations







Basic and diluted

8

11.3p

(19.7p)

(8.4p)

12.5p

(0.2)p

12.3p

 Consolidated statement of comprehensive income
for the year ended 31 December 2014



Year ended 31 December 2013

£'000

(Loss)/profit for the year

(7,944)

11,565

Items that will not be reclassified subsequently to profit or loss:

  Re-measurement of net defined benefit asset

(773)

1,412

Items that may be reclassified subsequently to profit or loss:

  Transfer from cash flow hedge reserve

-

453

  Deferred tax

(204)

(82)

  Exchange differences on translation of foreign operations

(674)

(581)

Total comprehensive (loss)/income for the year attributable to equity holders of the parent

 

(9,595)

12,767

 



 

Consolidated balance sheet at 31 December 2014


                  Note

2014

£'000

2013

£'000

2012

£'000

Non-current assets





Goodwill

9

77,810

78,652

72,616

Other intangible assets

10

23,249

16,732

10,195

Property, plant and equipment


2,982

3,085

3,146

Investments


1

1

1

Retirement benefit surplus


121

778

-

Deferred tax assets


2,469

2,209

2,033



106,632

101,457

87,991

Current assets





Inventories


611

714

1,931

Trade and other receivables

11

28,137

28,915

28,225

Cash and cash equivalents


9,345

7,555

8,424



38,093

37,184

38,580

Total assets


144,725

138,641

126,571






Current liabilities





Trade and other payables

13

(15,076)

(12,438)

(7,642)

Accruals


(12,228)

(12,871)

(11,298)

Deferred income


(23,684)

(24,575)

(28,516)

Tax liabilities


(3,368)

(3,197)

(2,797)

Provisions


(10,170)

(3,296)

(1,159)



(64,526)

(56,377)

(51,412)

Net current liabilities


(26,433)

(19,193)

(12,832)

Non-current liabilities





Bank loans


(21,023)

(12,114)

(18,274)

Retirement benefit obligations


-

-

(419)

Deferred tax liabilities


(2,631)

(389)

-

Provisions


(1,898)

(1,531)

(523)



(25,552)

(14,034)

(19,216)

Total liabilities


(90,078)

(70,411)

(70,628)

Net assets


54,647

68,230

55,943

Equity





Share capital


4,743

4,685

4,685

Share premium


21

-

-

Other reserves


25,757

28,042

26,913

Retained earnings


24,126

35,503

24,345

Total equity attributable to equity holders of the parent


54,647

68,230

55,943

 



 

Consolidated statement of changes in equity

 

For the year ended 31 December 2014


Share

capital

£'000

Share

premium

£'000

Other

reserves

£'000

Retained

earnings

£'000

Total

equity

£'000

Balance at 1 January 2014

4,685

-

28,042

35,503

68,230

Total comprehensive income for the year

-

-

-

(9,595)

(9,595)

Acquisition of own shares

-

-

(2,792)

-

(2,792)

Use of own shares to settle share-based payment scheme vesting

-

-

825

-

825

Issue of share capital

58

21

-

-

79

Dividends

-

-

-

(1,587)

(1,587)

Charge to equity for share-based payments

-

-

(318)

(195)

(513)

Balance at 31 December 2014

4,743

21

25,757

24,126

54,647

 

For the year ended 31 December 2013


Share

capital

£'000

Other

reserves

£'000

Retained

earnings

£'000

Total

equity

£'000

Balance at 1 January 2013

4,685

26,913

24,345

55,943

Total comprehensive income for the year

-

349

12,418

12,767

Dividends

-

-

(1,260)

(1,260)

Credit to equity for share-based payments

-

780

-

780

Balance at 31 December 2013

4,685

28,042

35,503

68,230

 

For the year ended 31 December 2012


Share

capital

£'000

Other

reserves

£'000

Retained

earnings

£'000

Total

equity

£'000

Balance at 1 January 2012

4,685

26,245

14,957

45,887

Total comprehensive income for the year

-

302

10,322

10,624

Dividends

-

-

(934)

(934)

Credit to equity for share-based payments

-

366

-

366

Balance at 31 December 2012

4,685

26,913

24,345

55,943

 



Consolidated cash flow statement

for the year ended 31 December 2014


Note

Year ended

31 December

2014

£'000

Year ended

31 December

2013

£'000

Net cash from operating activities

14

19,717

18,646

Investing activities




Interest received


58

37

Proceeds on disposal of discontinued operations


321

638

Purchases of property, plant and equipment


(1,345)

(1,552)

Expenditure on product development and business systems


(5,156)

(6,994)

Acquisitions and deferred consideration


(15,100)

(2,521)

Net cash outflow from investing activities


(21,222)

(10,392)

Financing activities




Interest paid


(571)

(670)

Purchase of own shares


(2,735)

-

Proceeds on issue of shares


21

-

Equity dividend paid


(1,587)

(1,260)

Draw down/(repayment) of borrowings and loan arrangement fees


8,332

(6,647)

Net cash from/(used in) financing activities


3,460

(8,577)

Net increase/(decrease) in cash and cash equivalents


1,955

(323)

Cash and cash equivalents at beginning of year


7,555

8,424

Effect of foreign exchange rate changes


(165)

(546)

Cash and cash equivalents at end of year


9,345

7,555

 

Notes to the financial statements

 

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 13 March 2015, does not constitute the Company's statutory accounts for the years ended 31 December 2014 or 31 December 2013, but is derived from these accounts.

 

Statutory accounts for the year ended 31 December 2013 have been delivered to the Registrar of Companies and those for the year ended 31 December 2014 will be delivered following the Company's Annual General Meeting.  The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under S498 (2) or (3) of the Companies Act 2006.

 

Whilst the financial information included in this preliminary announcement has been completed in accordance with International Financial Reporting Standards (IFRSs), this announcement itself does not contain sufficient information to comply with IFRSs.

 

The financial information has been prepared on the historical cost basis, except for financial instruments.

 

Copies of the announcement can be obtained from the Company's registered office at King's Orchard, 1 Queen Street, Bristol BS2 0HQ.

 

It is intended that the full financial statements which comply with IFRSs will be posted to shareholders on or around 10 April 2015 and will be available to members of the public at the registered office of the Company from that date and available on the Company's website: www.tribalgroup.com.

 

Going concern

 

The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.  Thus they continue to adopt the going concern basis of accounting in preparing the financial statements.

2.         Business segments

 

Information reported to the Group's Chief Executive for the purposes of resource allocation and assessment of segment performance is focussed on the nature of each type of activity. The principal activities are product development and customer services, implementation services, professional and business solutions and quality assurance solutions. The Group's reportable segments under IFRS 8 are therefore as follows:

The principal activities of the Group are as follows:

Product Development and Customer Services ("PD & CS"), representing revenues from sale of software and subsequent maintenance revenues, and the costs of developing and maintaining that software;

Implementation Services ("IS"), representing the results of activities through which we deploy and configure our software for our customers;

Professional and Business Solutions ("PBS"), representing a portfolio of performance improvement tools and services, including analytics, benchmarking and transformation services; and

Quality Assurance Solutions ("QAS"), representing inspection and review services which support the assessment of educational delivery.

In accordance with IFRS 8 'Operating Segments', information on segment assets is not shown, as this is not provided to the Chief Operating decision-maker. Inter-segment sales are charged at prevailing market prices.

 

Year ended 31 December 2014


PD& CS

£'000

IS

£'000

PBS

£'000

Solutions

£'000

Eliminations

£'000

Consolidated

£'000

Revenue







External sales

49,491

19,402

20,218

34,592

-

123,703

Inter-segment sales

184

93

159

29

(465)

-

Total revenue

49,675

19,495

20,377

34,621

(465)

123,703

Adjusted segment operating profit

11,192

2,871

515

4,039

-

18,617

Unallocated corporate expenses






(4,108)

Adjusted operating profit






14,509

Amortisation of IFRS 3 intangibles






(1,729)

Other items






(17,079)

Operating loss






(4,299)

Investment income






58

Other gains and losses






-

Finance costs






(2,025)

Loss before tax






(6,266)

Tax






(1,482)

Loss for the year from discontinued operations






(196)

Loss after tax and discontinued operations






(7,944)

 



 

Inter-segment sales are charged at prevailing market prices.

Revenues of approximately 19% (2013: 21%) have arisen within our QAS segment from the Group's largest customer and revenues of approximately 10% (2013: 15%) have arisen within our PD & CS and IS segments from the Group's second largest customer.

Included within other items is goodwill impairment of £12.8m (of which £9.2m arises in respect of the QAS segment, and the remaining £3.6m arises in respect of the PBS segment) and £2.6m of impairment of development costs and related charges, all of which relates to the PD & CS segment.

Year ended 31 December 2013


PD& CS

£'000

IS

£'000

PBS

£'000

Solutions

£'000

Eliminations

£'000

Consolidated

£'000

Revenue







External sales

41,946

21,191

24,678

37,670

-

125,485

Inter-segment sales

216

145

76

14

(451)

-

Total adjusted revenue

42,162

21,336

24,754

37,684

(451)

125,485

Adjusted segment operating profit

11,984

3,111

2,047

3,750

-

20,892

Unallocated corporate expenses






(5,133)

Adjusted operating profit






15,759

Amortisation of IFRS 3 intangibles






(231)

Other items






(30)

Operating profit






15,498

Investment income






37

Other gains and losses






(453)

Finance costs






(1,585)

Profit before tax






13,497

Tax






(2,720)

Profit for the year from discontinued operations






788

Profit after tax and discontinued operations






11,565

 



 

Geographical information

Revenue from external customers


2014

£'000

2013

£'000

UK

86,599

92,709

Asia Pacific

25,972

25,584

North America and rest of the world

11,132

7,192

Total adjusted revenue

123,703

125,485

 

 

Non-current assets


2014

£'000

2013

£'000

UK

85,624

101,380

Asia Pacific

20,980

41

North America and rest of the world

28

36


106,632

101,457

 

The Group's revenues from its major products and services were as follows:

Continuing operations


2014

£'000

2013

£'000

Licence and development fees

21,820

21,669

Implementation revenues

19,495

21,336

Maintenance fees

24,542

18,802

Other Systems division revenues

3,313

1,691

Performance improvement solutions revenues

20,377

24,754

Quality improvement solutions revenues

34,621

37,684

Eliminations

(465)

(451)


123,703

125,485

3.   Other items


2014

£'000

2013

£'000

Operating loss from closed businesses

(100)

(93)

Other items:



- Acquisition costs

(397)

(54)

- Property related

(542)

117

- Impairment of goodwill

(12,849)

-

- Impairment of development costs and related charges

(2,630)

-

- Onerous contracts

(788)

-

- Movements in deferred consideration

228

-

- Amortisation of IFRS3 intangibles

(1,729)

(231)

- Unwinding of discount on deferred contingent consideration

(877)

(350)

- Unwinding of hedge accounting reserve

-

(453)


(19,684)

(1,064)

 

Other items have arisen throughout the year, which are not part of the Group's normal trading activities. This includes impairment of goodwill and other intangible assets as well as onerous contracts arising on withdrawal from those markets where we are committed to multi-year maintenance deals which necessitate a minimum level of staffing that will not be covered by revenue (see notes 9 and 10), direct costs arising on acquisition activity, adjustments to deferred consideration in respect of acquisitions, amortisation of IFRS3 intangibles.

Property related costs in 2014 relate primarily to the relocation of the Group's Head Office. An onerous lease charge arises on the exit of our previous property. The new property benefits from a significant lease incentive with the effect that the overall relocation programme is cash neutral.

4.    Investment income


2014

£'000

2013

£'000

Interest on bank deposits

-

21

Net interest receivable on retirement benefit obligations

54

-

Other interest receivable

4

16


58

37

 



 

5.   Other gains and losses


2014

£'000

2013

£'000

Unwinding of hedge accounting reserve

-

453

 

No other gains or losses have been recognised in respect of loans and receivables, other than impairment losses reversed in respect of trade receivables.

6.   Finance costs


2014

£'000

2013

£'000

Interest on bank overdrafts and loans

749

979

Write off of loan arrangement fees

338

-

Unwinding of discount on deferred contingent consideration

877

350

Other interest payable

61

256


2,025

1,585

 

7.   Dividends


2013

£'000

2013

£'000

Amounts recognised as distributions to equity holders in the period:



Final dividend for the year ended 31 December 2013 of 1.10 pence
(year ended 31 December 2012: 0.85 pence) per share

1,031

794

Interim dividend for the year ended 31 December 2014 of 0.60 pence
(year ended 31 December 2013: 0.50 pence) per share

556

466


1,587

1,260

Proposed final dividend for the year ended 31 December 2014 of 1.20 pence
(year ended 31 December 2013: 1.10 pence) per share

1,138

1,031

 

The interim dividend for 2014 was approved by the Board on 12 August 2014 and was paid on 17 October 2014 to ordinary shareholders who were on the register on 19 September 2014. The Board is recommending a final dividend of 1.20 pence per share. This dividend will be paid on 10 July 2015 to shareholders on the register at 12 June 2015.

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has therefore 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:


2014

thousands

2013

thousands

Weighted average number of shares outstanding:



Basic weighted average number of shares in issue

94,061

93,696

Employee share options

-

-

Weighted average number of shares outstanding for dilution calculations

94,061

93,696

 

Diluted earnings per share only reflects the dilutive effect of share options for which performance criteria have been met. Current share incentive schemes vest based on cumulative EPS for a three year period with the earliest vesting based on the Group's results for the three years to 31 December 2014. 44% of the 2,333,542 share options that were issued in 2012 meet the performance criteria and are included as dilutive options this year. However, as the vesting criteria were only met at the end of 2014, the weighted average number of these shares measured across the whole year for dilution calculations is nil.

The maximum number of potentially dilutive shares excluding the 2012 grant, based on options that have been granted but have not yet met vesting criteria, is 1,712,593 (2013: 3,521,109).

The adjusted basic and diluted earnings per share figures shown on the consolidated income statement 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:

 


2014

£'000

2013

£'000

Earnings



From continuing operations



Net profit from continuing operations attributable to equity holders of the parent

(7,748)

10,777

Earnings per share



Basic and diluted

(8.4p)

11.5p

From continuing and discontinued operations



Net profit from continuing and discontinued operations attributable to equity holders of the parent

(7,944)

11,565

Earnings per share



Basic and diluted

(8.4p)

12.3p



 

 

 




2014

£'000

2013

£'000

From discontinued operations



Net profit from continuing and discontinued operations attributable to equity holders of the parent

(196)

788

Earnings per share



Basic and diluted

-

0.8p

 


2014

£'000

2013

£'000

Adjusted earnings



From continuing operations



Net (loss)/profit from continuing operations attributable to equity holders of the parent

(7,748)

10,777

Amortisation of IFRS 3 intangibles (net of tax)

1,233

177

Impairment of goodwill

12,849

-

Impairment of development costs (net of tax)

2,028

-

Unwinding of discount on deferred contingent consideration

877

350

Other items (net of tax)

1,577

20

Movement in deferred contingent consideration

(228)

-

Financial instruments charge (net of tax)

-

348

Adjusted earnings

10,588

11,672

Adjusted earnings per share



Basic and diluted

11.3p

12.5p




From continuing and discontinued operations



Net (loss)/profit from continuing and discontinued operations attributable to equity holders of the parent

(7,945)

11,565

Amortisation of IFRS 3 intangibles (net of tax)

1,233

177

Impairment of goodwill

12,849

-

Impairment of development costs (net of tax)

2,028

-

Unwinding of discount on deferred contingent consideration

877

350

Other items (net of tax)

1,584

(638)

Discontinued operations and associated tax adjustments

190

(130)

Movement in deferred contingent consideration

(228)

-

Financial instruments charge (net of tax)

-

348

Adjusted earnings

10,588

11,672

Adjusted earnings per share



Basic and diluted

11.3p

12.5p




From discontinued operations



Net profit from discontinued operations attributable to equity holders of the parent

(196)

788

Other items (net of tax)

6

(658)

Discontinued operations and associated tax adjustments

190

(130)

Adjusted earnings

-

-

Adjusted earnings per share



Basic and diluted

-

-

 

9.   Goodwill


2014

£'000

2013

£'000

2012

£'000

Cost




At beginning of year

108,232

102,196

102,196

Additions

12,513

6,036

-

Exchange differences

(506)

-

-

At end of year

120,239

108,232

102,196

Accumulated impairment losses




At beginning of year

29,580

29,580

29,580

Impairment

12,849

-

-

At end of year

42,429

29,580

29,580

Net book value




At end of year

77,810

78,652

72,616

At beginning of year

78,652

72,616

72,616

 



 

Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to benefit from the business combination. The carrying amount of goodwill has been allocated as follows, with the change during 2014 made to reflect an internal reorganisation:


2014

£'000

2013

£'000

2012

£'000

Product development and customer services

50,063

38,056

34,442

Implementation services

8,969

8,969

7,990

Professional and business solutions

9,073

12,690

11,247

Quality assurance solutions

9,705

18,937

18,937


77,810

78,652

72,616

 

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.

The Group is now organised into four business segments - Product development & customer services (PD & CS"), Implementation services ("IMP"), Professional and business solutions ("PBS") and Quality assurance solutions ("QAS") and these segments now represent CGU groups for the purposes of goodwill impairment testing. The analysis of the total goodwill figure in the table above has therefore been restated accordingly.

The recoverable amounts of the CGU groups are determined from value in use calculations.  The key assumptions for the value in use calculations are those regarding the discount rates, longer term growth rates and expected changes to selling prices, sales volumes and direct costs during the period. The assumptions made reflect a cautious view of the short-term. 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 CGU groups.  The growth rates are based on internal two-year budgets in the short-term and general market rates thereafter. Changes in selling prices, sales volumes 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 has extrapolated cash flows in perpetuity based on an estimated growth rate of 2% (other than PBS, where a 0% rate has been used to reflect the greater uncertainty in that business). These rates do not exceed the average long-term growth rate for the relevant market. The rates used to discount the forecast cash flows are 16% for PBS and 14% for the other CGU groups (2013: 14% for all CGU groups) and have been chosen to reflect the directors' assessment of the relative degree of risk associated with the CGU groups.

During the period, Ofsted announced its intention to in-source one of the two inspections contracts held by the Group's QAS business at the end of the current contract term in August 2015. Additionally, our PBS business ceased a number of contracts in non-core areas. As a result, our goodwill impairment assessment indicates that based on our current projections for those businesses, an impairment of £12.8m is required (£9.2m relating to QAS and £3.6m to PBS) to impair goodwill to its recoverable amount of £77.8m (reducing QAS to £9.7m and PBS to £9.1m). If the profitability over the forecast period were to fall below expectations there would be a requirement for a further impairment of goodwill. For example if profitability were 10% below expectations across the forecast period, a further impairment of £0.3m (QAS) or £1m (PBS) would be required. All else equal, the loss of the Ofsted schools Inspections contract in 2015 will drive a further impairment in the region of £1.0m in that financial year. We will continue to conduct regular reviews to monitor this.

The Group conducted a sensitivity analysis for those CGU group's which have not been subject to an impairment in the period. For the PD & CS CGU group, a reduction in the operating profit in each of the forecast years by 35% would result in the carrying value of goodwill being reduced to its recoverable amount. The equivalent figure for the Implementation services group is 61%.

The additions to goodwill in the period arise entirely in relation to the PD & CS segment (£7.5m in relation to the acquisition of Sky Software and £5.0m in relation to the acquisition of Human Edge).

 

10. Other intangible assets




Software

£'000

Customer contracts & relationships

£'000

Development costs

£'000

Business systems

£'000

Total

£'000

Cost






At 1 January 2013

-

2,446

16,873

4,349

23,668

Transfer from inventories

-

-

1,098

-

1,098

Additions

-

1,339

6,903

91

8,333

At 1 January 2014

-

3,785

24,874

4,440

33,099

Additions

7,035

2,948

4,837

319

15,139

Disposals

-

-

(78)

(24)

(102)

Exchange differences

(288)

(133)

-

-

(421)

At 31 December 2014

6,747

6,600

29,633

4,735

47,715

Amortisation






At 1 January 2013

-

2,387

7,913

3,173

13,473

Charge for the year

-

231

2,057

356

2,644

Impairment loss

-

-

250

-

250

At 1 January 2014

-

2,618

10,220

3,529

16,367

Charge for the year

312

1,417

3,303

514

5,546

Impairment loss

-

-

2,583

-

2,583

Disposals

-

-

(4)

(24)

(28)

Exchange differences

-

-

(2)

-

(2)

At 31 December 2014

312

4,035

16,100

4,019

24,466

Carrying amount






At 31 December 2014

6,435

2,565

13,533

716

23,249

At 31 December 2013

-

1,167

14,654

911

16,732

At 31 December 2012

-

59

8,960

1,176

10,195

 

Software and customer contracts and relationships have arisen from acquisitions, and are amortised over their estimated useful lives, which is over 5-6 years and 5-12 years respectively. The amortisation period for development costs incurred on the Group's software development and product development is three to seven years, based on the expected life-cycle of the product. The Group's corporate business systems software is amortised over an average of five years from the date it first comes into use. Certain historical development cost have been impaired following a review of the Group's product portfolio after the acquisitions of Sky Software and Human Edge.

We have reviewed the useful economic lives of our development costs during the year, and have extended the lives in relation to two of our products from three to five years, to seven years. The effect of this change has been to reduce amortisation in 2014 by £0.3m.

Additions to Business systems relate to ongoing projects that are therefore not yet being amortised as at the year end.

The amortisation for development costs is included within cost of sales. The amortisation for software, customer contracts and relationships, and business systems is included within administrative expenses.

During the previous year, £1.1m of software development cost, previously included in inventories in connection with the SALM programme, was reclassified to other intangible assets because the related functionality forms part of our core product development strategy and meets the relevant requirements under IAS 38 'Intangible Assets'.

 

11. Trade and other receivables


2014

£'000

2013

£'000

2012

£'000

Amounts receivable

13,217

18,492

16,823

Allowance for doubtful debts

(153)

(216)

(287)


13,064

18,276

16,536

Amounts recoverable on contracts

115

270

812

Other receivables

294

283

903

Prepayments

3,822

2,705

2,353

Accrued income

10,842

7,381

7,621


28,137

28,915

28,225

 

12. Long term contracts

At the end of 2014, trade and other receivables included amounts due from contract customers of £851,000 (2013: £6,576,000, 2012: £5,461,000) and trade and other payables included amounts due from contract customers of £131,000 (2013: £3,082,000, 2012: £4,890,000).

 

 

 

2014

£'000

2013

£'000

2012

£'000

Contract costs incurred plus recognised profits less recognised losses to date

6,280

10,622

5,779

Less: progress billings

(3,906)

(9,256)

(10,782)


2,374

1,366

(5,003)

 

At 31 December 2014, retentions held by customers for contract work amounted to £793,000 (2013: 194,000, 2012: £714,000).

There are no amounts included in trade and other receivables arising from long-term contracts due for settlement after more than 12 months.

 

13. Trade and other payables


2014

£'000

2013

£'000

2012

£'000

Trade payables

2,774

3,000

3,284

Other taxation and social security

4,834

4,558

3,349

Other payables

7,468

4,880

1,009


15,076

12,438

7,642

 

14. Notes to the cash flow statement


2014

£'000

2013

£'000

Operating (loss)/profit from continuing operations

(4,299)

15,591

Operating loss from closed businesses

-

(93)


(4,299)

15,498

Operating profit from discontinued operations

79

725

Depreciation of property, plant and equipment

1,446

1,707

Impairment of goodwill

12,849

-

Amortisation and impairment of other intangible assets

8,129

2,894

Net pension credit

(117)

(156)

Research & development tax charge/(credit)

58

(322)

Share-based payments

312

780

Movement in deferred contingent consideration

(228)

-

Operating cash flows before movements in working capital

18,229

21,126

Decrease in inventories

177

190

Decrease/(increase) in receivables

5,780

(1,326)

(Decrease)/increase in payables

(1,898)

824

Net cash from operating activities before tax

22,288

20,814

Tax paid

(2,571)

(2,168)

Net cash from operating activities

19,717

18,646

 

Net cash from operating activities before tax can be analysed as follows:


2014

£'000

2013

£'000

Continuing operations (excluding restricted cash)

20,401

16,413

Increase in restricted cash

1,853

3,955


22,254

20,368

Discontinued operations

34

446


22,288

20,814

 

Analysis of changes in net debt:


2014

£'000

2013

£'000

Opening net debt

(4,559)

(9,850)

Net (decrease)/increase in cash and cash equivalents

1,955

(323)

Effect of foreign exchange rate changes

(165)

(546)

Decrease in bank loans

(8,909)

6,160

Closing net debt

(11,678)

(4,559)

 

15. Acquisition of subsidiaries

On 6 March 2014, the Group acquired 100% of the issued share capital of Sky Software Pty Limited ("Sky Software"), a company incorporated in Australia that provides cloud-based student management systems to the vocational and higher education markets in Australia, the Asia Pacific region and else where in the world.

This transaction has been accounted for by the purchase method of accounting. The total expected cost of acquisition is £10.4m. This comprises an initial cash consideration of £1.1m and a deferred consideration of £9.2m (the discounted figure at acquisition being £8.4m) which is payable based on the future profits of the acquired business. At the year-end, the equivalent figure was £8.8m.

Deferred contingent consideration that becomes due shall be satisfied in the period from March 2015 to March 2017.

The maximum amount payable is £9.8m.

The carrying amount of each class of Sky Software Pty Limited's assets before combination is set out below:

 


 

Book value

£'000

Acquisition adjustments

£'000

 

Provisional fair value adjustments

£'000

 

Provisional fair value

£'000

Intangible assets

1,697

(1,697)

4,814

4,814

Tangible assets

2

-

-

2

Trade and other receivables

111

-

-

111

Cash and cash equivalents

60

-

-

60

Trade and other payables

(1,423)

-

-

(1,423)

Deferred tax liabilities

-

-

(1,445)

(1,445)

Net assets acquired

447

(1,697)

3,369

2,119

Goodwill arising on acquisition

7,453

Consideration

 

Satisfied by:


9,572

 

Initial cash consideration

1,142

Deferred contingent consideration

8,430

9,572

 

The cash consideration paid by Tribal to date of £1.1m was satisfied through the Group's existing revolving loan facility. The net cash outflow from the acquisition, after taking account of the cash acquired, was £1.1m.

The goodwill arising on the acquisition is attributable to synergies, the assembled workforce, and potential future relationships, contracts and software.

Intangible assets arising on acquisition are in respect of software (£4.0m) and customer relationships and contracts (£0.8m).

Sky Software Pty Limited contributed £5.0m revenue and operating profit of £3.0m to the Group for the period between the date of acquisition and the balance sheet date.

Acquisition related costs amounted to £0.1m.

Had the acquisition occurred on the 1 January 2014, the Group's revenue would have increased by £5.3m and its operating profit by £2.9m.

 

 

On 2 June 2014, the Group acquired 100% of the issued share capital of Human Edge Software Corporation Pty Limited ("Human Edge"), a company incorporated in Australia that provides student management systems primarily to the Australian schools market.

This transaction has been accounted for by the purchase method of accounting. The total cost of acquisition was £13.9m, all of which was paid upfront; there is no deferred element to the consideration.

The carrying amount of each class of Human Edge Software Corporation Limited's assets before combination is set out below:


 

Book value

£'000

 Acquisition adjustments

£'000

 

Provisional air value adjustments

£'000

 

Provisional fair value

£'000

Intangible assets

-

-

5,168

5,168

Tangible assets

1

-

-

1

Trade and other receivables

5,482

(10)

-

5,472

Cash and cash equivalents

2,753

-

-

2,753

Trade and other payables

(3,133)

10

-

(3,123)

Deferred tax assets

131

-

-

131

Deferred tax liabilities

-

-

(1,550)

(1,550)

Net assets acquired

5,234

-

3,618

8,852

Goodwill arising on acquisition

Consideration

 

Satisfied by:




5,061

 

Cash consideration

13,913

 

The cash consideration paid by Tribal to date of £13.9m was satisfied through the Group's existing revolving loan facility. The net cash outflow from the acquisition, after taking account of the cash acquired, was £11.3m.

The goodwill arising on the acquisition is attributable to synergies, the assembled workforce, and potential future relationships, contracts and software.

Intangible assets arising on acquisition are in respect of software (£3.0m) and customer relationships and contracts (£2.2m).

Human Edge Software Corporation Pty Limited contributed £2.7m revenue and operating profit of £1.3m to the Group for the period between the date of acquisition and the balance sheet date.

Acquisition related costs amounted to £0.2m.

Had the acquisition occurred on the 1 January 2014, the Group's revenue would have increased by £4.2m and its operating profit by £1.7m.

 

 


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