Interim Results

Tribal Group PLC 21 November 2001 Tribal Group plc Interim results for the six months ended 30 September 2001 Tribal Group, the provider of professional support services to the public and private sectors in the UK, today announces its interim results for the six months ended 30 September 2001. Highlights Unaudited Audited six six months months ended ended 30 30 September September 2001 2000 Increase Turnover £15.3m £4.1m 273% Profit before goodwill amortisation, employee benefit trust costs, interest and taxation £2.1m £0.6m 250% Adjusted earnings per share (see note) 3.95p - Note: The adjusted earnings per share is stated before goodwill amortisation and employee benefit trust costs. A meaningful earnings per share figure for the six months ended 30 September 2000 is not available as a result of the capital reorganisation undertaken immediately prior to the Group's flotation in February 2001. Chairman's statement I am delighted to report on the results for Tribal Group for the six months to 30 September 2001. During this period, the Group has achieved substantial growth and has further strengthened its position as a leading provider of professional support services, principally in the UK public sector. The Group is well placed to take advantage of the significant opportunities in its fast developing markets. Results For the six months to 30 September 2001, the Group has produced excellent results. Turnover was £15.3m (six months ended 30 September 2000: £4.1m), profit before interest, tax, amortisation of goodwill and the costs associated with employee benefit trusts was £2.1m (six months ended 30 September 2000: £0.6m) and adjusted earnings per share were 3.95p. During the period, the Group generated operating cashflow of £1.6m. Due to the seasonal nature of our markets and the current focus on education, the majority of the Group's revenues will be earned in the second half of the year, a period that includes two academic terms. The Group has experienced strong organic growth. Ignoring the impact of new acquisitions made in the first half of the year, the Group's continuing businesses saw turnover grow by more than 37% on a like for like basis. During the first half of the year, the Group made acquisitions for an aggregate initial consideration of £11.5m, of which £8.3m was satisfied through debt. At 30 September 2001, the Group's net debt was £8.1m. Net interest payable in the period was covered 32 times by operating profits. In September 2001, the Group negotiated new banking facilities of £20m with the Bank of Scotland, of which £11.9m remained unutilised at 30 September 2001. In line with the Group's policy, the Directors are not recommending the payment of an interim dividend. Fundraising and acquisition We have today announced a Placing and Open Offer to raise £20.9m (net of expenses). The net proceeds of the Placing and Open Offer will be used to continue the Group's expansion, support its acquisition strategy and to repay the company's existing bank indebtedness. The Group has today also announced the acquisition of APD Technical Limited (' APD Technical'), a company that provides property and asset management services to local authorities. The initial consideration for APD Technical is £4.05m and up to approximately £5.95m may be payable as deferred consideration over the next four years. Following the Placing and Open Offer, and after taking account of the acquisition of APD Technical, the Group will have a net cash position of £6.5m and will continue to have access to the £20m Bank of Scotland borrowing facility. Full details of the Placing and Open Offer and the acquisition of APD Technical are set out in the accompanying statement. Group strategy The Group continues to develop as a leading UK support services business delivering a range of services to the education sector and, increasingly, to the wider public sector. Over the last eighteen months, a number of quality businesses have been acquired by the Group bringing with them new skills, excellent customer relationships and established contracts. The management teams have all remained with the businesses and are all incentivised through earn-out structures, payable in Tribal Group shares, dependent on the future profitability of their companies. These businesses are delivering strong organic growth which has been accelerated by the increasing pace of cross selling between Group companies. The Group is now in a good position to actively pursue opportunities to tender for long-term public sector contracts. Looking forward, the Group will continue to make targeted acquisitions where they strengthen its position in existing markets or take the Group into complementary areas. Our markets The Group's primary market remains education where, over the last year, there has been further confirmation by the Government that its attitude is 'what matters is what works' and the political resistance in local government to private sector involvement has softened. Overall, the relationship between the public and private sector is now much more constructive, and we are increasingly seeing a spirit of true partnership being developed. In the education sector, our focus is on supporting the learning and education process. We do not aspire to own or run schools or colleges, we wish instead to provide a full range of support services to their senior management teams. Education outsourcing is still in its infancy with only £2.5bn of the £40bn annual budget currently outsourced; the indications are that this figure will increase to £5bn over the next three years. The recent White Paper has gone some way towards defining the role of the private sector and demonstrates some of the potential opportunities in this market. Tribal Group is now expanding services into the wider public sector and recent acquisitions have taken the Group into the local authority market. We intend that over time we will seek to replicate and support many of the internal services currently provided by local authorities, in particular in the professional support services area. Best Value reviews are now an established feature of local authorities and this process is providing increased opportunities for the private sector. Our businesses The Group's services now encompass the following areas: - Management consultancy - a range of consultancy, funding, inspection and benchmarking services to schools, local education authorities (LEAs), local authorities and further education (FE) colleges; - Information management - library, information management and IT services to FE colleges, local authorities and the private sector; - Property - architectural, project management, asset management and health and safety services to schools, FE colleges and local authorities; and - Human resources - professional development, employment consultancy, interim management, recruitment advertising and senior search and selection services to schools, FE colleges, LEAs and local authorities. The Group's markets are very buoyant with all companies performing well. The management consultancy businesses have been taking on many new consultants and are expanding their services, particularly in the area of interim management. We are now a very significant player in the FE market, working with over 350 FE colleges. The acquisition of Ben Johnson-Hill Associates, the leading benchmarking business in FE, has further strengthened our position in this market. We also recently acquired Cambridge Training and Development (CTAD), a specialist e-learning consultancy and developer of education content that has significantly increased our presence in the basic skills market which is currently valued at £1.3bn over four years. Tribal's property business continues to grow and the Group has made a significant investment in new staff in order to deliver the increased workload of the business. Committed revenue to date for this division represents approximately 85% of budgeted turnover for the year. The property business has recently relocated to new, larger premises in Dartford that have brought together the architectural, project management and health and safety businesses under one roof. The business has also established a new location near Leeds that will facilitate access to the Group's FE customers in the north of England. The acquisition of APD Technical will assist the Group in extending its property services into the local authority sector. The Group has been active in the provision of integrated library services to the private sector. These skills are now being applied to the public sector, where the Group has recently won several contracts, principally with London boroughs, to provide interim management and Best Value review consultancy. Tribal Group believes that it is well placed to take advantage of this new market and expects in time that opportunities will emerge to take over the full management, under contract, of public library provision in certain local authorities. This market is potentially worth £1.3bn per year. In May 2001, the Group won a two year contract (with a possible two year extension) to deliver document management, CAD and reprographic services to London Underground ('LUL'). The core contract is worth £7m with the expectation that this will be increased by project work. This is the largest contract the Group has won to date, is an excellent reference site and the Group's first experience of the transfer of staff under TUPE. The contribution from the contract is in line with expectations. The Group has consolidated its position on the LUL contract by acquiring its sub-contractor, EIS Limited, a company that provides specialist document management services. The Group believes that there is potential to develop further opportunities in LUL, the proposed infrastructure companies and in the wider Transport for London market. Our human resource activities have been extended with the acquisition of GWT Group which delivers recruitment advertising, HR consultancy and search and selection services to the local authority market. Our professional development training is going from strength to strength. We expect to deliver training to some 40,000 teachers, lecturers and support staff this year and, through our e-learning contract with the New Opportunities Fund (NOF), we have now signed up our 500th secondary school, representing a market share of 14%. This contract has now been extended to December 2003. People A major focus for the Group has been to strengthen and broaden the management teams in the individual businesses and to recruit high quality managers and consultants. Good progress has been made and we have been fortunate to have attracted a number of very capable and talented individuals to the Group. In order to promote wider share ownership within the Group, we have recently introduced a Save As You Earn Share Option Scheme. I would like to take this opportunity to thank all Tribal Group's employees for their continued hard work and dedication. Prospects The second half has started well and over 58% of our second half revenue target is already committed. We have made a number of acquisitions since the start of the financial year and the Directors are confident that these will all provide a beneficial full year effect. All of the Group's companies are performing well and our markets continue to grow. We now have the skills, management, customer relationships and momentum to take advantage of the many opportunities available. We have a strong focus on organic growth and continue to see many interesting acquisition opportunities. The Board views the second half of the year with confidence. David Telling Chairman 21 November 2001 Consolidated profit and loss account For the six months to 30 September 2001 Unaudited Audited Audited Six Six Year months months Ended Ended Ended 30 30 31 March September September Note 2001 2000 2001 £000 £000 £000 Turnover Continuing operations 13,498 4,086 17,465 Acquisitions 1,846 - - ______ ______ ______ 15,344 4,086 17,465 Cost of sales (7,310) (1,870) (8,477) ______ ______ ______ Gross profit 8,034 2,216 8,988 Administrative expenses excluding goodwill and employee benefit trust costs (5,902) (1,617) (5,840) ______ ______ ______ Profit before interest, goodwill and employee benefit trust costs Continuing operations 1,735 599 3,148 Acquisitions 397 - - ______ ______ ______ 2,132 599 3,148 Amortisation of goodwill (1,110) (272) (1,156) Amortisation of shares held by employee benefit trust (37) - (37) Contribution to employee benefit (200) - (30) trust ______ ______ ______ Profit before group interest 785 327 1,925 Interest payable and similar (373) (190) (1,620) charges Interest receivable and similar 349 40 394 income ______ ______ ______ Profit on ordinary activities before taxation 761 177 699 Taxation - current tax at 30% on income for the period 4 (656) (120) (648) Minority interest (27) - - ______ ______ ______ Retained profit for the period 78 57 51 ______ ______ ______ Earnings per share Basic 2 0.23p N/a 0.29p Diluted 2 0.22p N/a 0.28p Adjusted basic before amortisation of goodwill and employee benefit trust costs 2 3.95p N/a 7.15p Consolidated balance sheet At 30 September 2001 Unaudited Audited Audited 30 30 31 March September September Note 2001 2000 2001 £000 £000 £000 Fixed assets Intangible assets 5 52,937 29,218 36,235 Tangible assets 987 457 601 ______ ______ ______ 53,924 29,675 36,836 Current assets Stock - work in progress 182 46 130 Debtors 7,614 2,738 5,872 Cash at bank and in hand 13,221 12,140 12,649 ______ ______ ______ 21,017 14,924 18,651 Creditors: amounts falling due within one year (11,657) (4,202) (6,069) ______ ______ ______ Net current assets Due within one year 980 342 2,202 Cash collateralised beyond one 8,380 10,380 10,380 year ______ ______ ______ 9,360 10,722 12,582 ______ ______ ______ Total assets less current 63,284 40,397 49,418 liabilities Creditors: amounts falling due after more than one year Convertible - (19,679) - Non convertible (17,628) (19,517) (11,353) ______ ______ ______ (17,628) (39,196) (11,353) Provisions for liabilities and (51) (1) - charges ______ ______ ______ Net assets 45,605 1,200 38,065 ______ ______ ______ Capital and reserves Called up share capital 1,730 66 1,707 Share premium account 10,977 1,192 9,748 Capital reserve 9,545 - 9,545 Profit and loss account 244 (58) (34) Shares to be issued 22,983 - 17,099 Minority interest 126 - - ______ ______ ______ Shareholders' funds 45,605 1,200 38,065 ______ ______ ______ Consolidated cash flow statement For the six months to 30 September 2001 Unaudited Audited Audited Six Six months Year months ended ended ended 30 30 31 March September September Note 2001 2000 2001 £000 £000 £000 Cash inflow from operating 3 1,612 759 2,937 activities Returns on investments and servicing of finance Interest paid (297) (38) (1,349) Interest element of finance lease rental payments (2) (1) (2) Debt issue costs - (312) (139) Interest received 344 15 207 ______ ______ ______ Net cash inflow/(outflow) from returns on investments and servicing of finance 45 (336) (1,283) Taxation Corporation tax paid (102) - (210) Net cash (outflow) for capital expenditure and financial investment Payments to acquire (243) (132) (325) tangible fixed assets Acquisitions Purchase of subsidiary (1,991) (590) (4,951) undertakings Net increase/(decrease) in cash from acquisition of subsidiary undertakings 558 (1,559) 725 ______ ______ ______ Net cash (outflow) from (1,433) (2,149) (4,226) acquisitions ______ ______ ______ Cash (outflow) before financing (121) (1,858) (3,107) Financing Issue of ordinary share - - 11,500 capital Issue costs (48) - (1,403) Proceeds from loan conversions into ordinary share capital - - 5,362 Proceeds from exercise of share warrants into ordinary share capital - - 217 Increase in borrowings - 1,188 - Repayment of borrowings - - (11,700) New secured loans less 750 12,359 11,331 issue costs Capital element of finance lease rental payments (9) (2) (4) Creation of collateralised - (10,380) (10,380) cash ______ ______ ______ Net cash inflow from 693 3,165 4,923 financing ______ ______ ______ Increase in cash in the period 572 1,307 1,816 ______ ______ ______ Consolidated cash flow statement (continued) For the six months to 30 September 2001 Unaudited Audited Audited Six Six months Year months ended ended ended 30 30 31 March September September 2001 2000 2001 £000 £000 £000 Reconciliation of net cash flow to movement in net debt Increase in cash in the period 572 1,307 1,816 Cash (outflow)/inflow from movements (750) (13,445) 555 in debt ______ ______ ______ Change in net debt resulting from cash (178) (12,138) 2,371 flows Finance leases acquired with - - (28) subsidiaries Contingent consideration - (5,745) - Other loans (9,220) (13,046) - Loans converted into share capital in - - 300 period Reclassification of contingent consideration falling due after one year - - 6,337 ______ ______ ______ Movement in net debt in the period (9,398) (30,929) 8,980 Net cash/(debt) at the start of the period 1,282 (7,698) (7,698) ______ ______ ______ Net (debt)/cash at the end of the period (8,116) (38,627) 1,282 ______ ______ ______ Notes 1 Accounting policies The interim accounts have been prepared on a basis consistent with the accounting policies adopted in the Annual Report and Accounts for the year ended 31 March 2001. The unaudited interim accounts were approved by a duly appointed committee of the Board of Directors on 20 November 2001. The interim accounts do not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985. The information for the year ended 31 March 2001 is an extract from the statutory accounts to that date which has been delivered to the Registrar of Companies. Those accounts included an audit report which was unqualified and which did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. 2 Earnings per share Unaudited Audited Six months Year ended ended 30 September 31 March 2001 2001 Basic Earnings for period (£000) 78 51 Weighted average number of shares outstanding 34,286,414 17,702,995 Basic earnings per share 0.23p 0.29p Diluted Earnings for period (£000) 78 51 Weighted average number of shares in issue including dilutive shares: Basic weighted average number 34,286,414 17,702,995 Employee share options - - Shares to be issued in respect of deferred 1,539,609 638,838 consideration __________ __________ Adjusted number of shares outstanding 35,826,023 18,341,833 __________ __________ Diluted earnings per share 0.22p 0.28p Adjusted basic before goodwill amortisation and EBT costs Earnings for period (£000) 78 51 Goodwill amortisation 1,110 1,156 EBT costs net of tax 166 58 __________ __________ Adjusted earnings before goodwill 1,354 1,265 amortisation and EBT costs __________ __________ Weighted average number of shares in issue 34,286,414 17,702,995 Adjusted basic earnings per share 3.95p 7.15p The adjusted basic earnings per share figure is included as the directors believe that it provides a better understanding of the underlying trading performance of the Group. Comparative earnings per share information has not been provided for the six months ended 30 September 2000 as the ratio is meaningless due to the capital reorganisation in February 2001. 3 Note to the cash flow statement Reconciliation of operating profit to operating cash flows Unaudited Audited Audited Six months Six months Year ended ended ended 30 September 30 September 31 March 2001 2000 2001 £000 £000 £000 Operating profit 785 327 1,925 Depreciation 191 58 251 Amortisation of goodwill 1,110 272 1,156 Amortisation of employee benefit trust 237 - 37 (Increase) in debtors (275) (29) (2,388) (Decrease)/increase in creditors (424) 144 2,006 (Increase) in stocks (12) (14) (50) Increase in provisions - 1 - ______ ______ ______ Net cash inflow from operating activities 1,612 759 2,937 ______ ______ ______ 4 Taxation The taxation charge is calculated by applying estimated rates, based on the anticipated rate for the full year. The effective tax rate is higher than 30 per cent., primarily due to the amortisation of goodwill being disallowable for tax purposes. 5 Intangible assets: Goodwill The net movement in intangible assets: goodwill for the six months ended 30 September 2001 amounted to £16,702,000. This movement was made up of purchased goodwill arising from acquisitions of £16,781,000, fair value adjustments of £ 1,031,000 relating to acquisitions completed in the past year, and amortisation of £1,110,000. 6 Contingent Liabilities There are minority interests in three subsidiaries of Tribal Group, representing between 15% and 25% of the ownership interests, which are owned by certain former shareholders who remain employees of these subsidiaries. The minority shareholders have the right to sell their shares in these companies to Tribal Group for an amount that is based on the future performance of the relevant subsidiary. Tribal Group has the right to satisfy such amount through the issue of Tribal Group shares or through the payment of cash.

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