Interim Results
Tribal Group PLC
26 November 2002
26 November 2002
Tribal Group plc
Interim results for the six months ended 30 September 2002
Strong results and new contract wins
Tribal Group, the provider of professional support and consultancy services
predominantly to the public sector in the UK, today announces its interim
results for the six months ended 30 September 2002.
Financial highlights:
Unaudited Unaudited
six months six months
ended ended
30 September 30 September Percentage
2002 2001 Change
Turnover £38.3m £15.3m +150%
Operating profit* £4.7m £2.1m +124%
Profit before tax * £4.2m £2.1m +100%
Diluted earnings per share * 5.6p 3.8p +47%
Operating cash flow £5.0m £1.6m +213%
Operating profit*to cash conversion 106% 76%
* The operating profit, profit before tax and diluted earnings per share are
stated before goodwill amortisation, employee benefit trust costs and
exceptional items.
Operating highlights:
• Strong performance across all divisions of the Group
• Excellent organic growth
• Contract wins increasing in size and number
• Acquisitions strengthen the Group's presence in the health and
social care sector
• Increased visibility of forward revenues - committed income for
the year now over 80 per cent of forecast turnover of £90m.
• Market continues to demonstrate strong growth - addressable
market now estimated to be £10bn pa
• New £60m banking facility
Henry Pitman, Chief Executive of Tribal Group plc, commented:
' We are very pleased to announce excellent interim results today. The
development of the Group is very encouraging and our markets in education, local
government and health are particularly buoyant. We now offer an extensive range
of consultancy and professional support services and are seeing the benefits of
cross-selling and an increasing number of contract wins. We are very confident
about the Group's prospects for the year and believe that future growth will be
strong.'
For further information:
Tribal Group plc
Henry Pitman, Chief Executive Tel: 01285 886020
Chairman's statement:
I am delighted to report another set of strong results which demonstrate the
excellent progress being made by the Group. During this period, the Group has
further consolidated its position as a leading provider of consultancy and
support services to the UK public sector, with particular focus on the
education, local government and health and social care sectors.
Results In the six month period ended 30 September 2002, the Group produced
strong results. Turnover increased by 150 per cent to £38.3m (2001: £15.3m) and
profit before taxation (excluding amortisation of goodwill, exceptional costs
associated with the Group's move to the Official List and the costs associated
with employee benefit trusts) increased by 100% to £4.2m (2001: £2.1m).
Operating margins were 12.2 per cent (2001: 13.9 per cent), a satisfactory
performance given the level of growth during the period. Adjusted fully diluted
earnings per share were 5.6p (2001: 3.8p). Due to the seasonal nature of our
markets, the Group's revenues are weighted towards the second half of our
financial year. Operating margins are expected to be significantly higher in
the second half.
During the period, the Group generated operating cash flow of £5.0m (2001:
£1.6m), representing an operating profit to cash conversion rate of 106 per
cent.
The Group has experienced strong organic growth. Ignoring the impact of
acquisitions made since 31 March 2001, the Group's continuing businesses saw
turnover grow by 25 per cent on a like for like basis.
During the first half of the year, the Group made acquisitions for an aggregate
initial consideration of £19.4m, of which £15.6m was satisfied through debt. As
at 30 September 2002, the Group's net debt was £18.1m. Net interest payable in
the period was covered 10.5 times by operating profits. The Group has signed
new revolver banking facilities of £60m to April 2005 with the Bank of Scotland
and the Royal Bank of Scotland. The new banking facilities will provide the
Group with considerable flexibility in financing its future development,
including acquisitions.
In line with our current policy, the directors are not recommending the payment
of an interim dividend.
Accounting The Group has consistently applied robust and transparent accounting
policies since its formation in 1999. In the light of recent comment on
accounting policies in the support services sector, the Board has reviewed the
Group's accounting policies and has confirmed that these policies, in particular
in relation to SSAP9, FRS13 and UITF 34, are conservative. For example, all
bid costs and software development expenditure is written off immediately to the
profit and loss account. The Group has no special purpose financing vehicles.
Group strategy and growth The Group continues to develop as a leading provider
of professional support and consultancy services in the UK. In the period, 96
per cent of our revenues were from the public sector. Whilst we plan to retain
this overall focus for the next few years, we expect the proportion of our work
in the private sector to gradually increase.
We operate across the public sector with a focus on delivering a range of
services to the education, local government and health and social care sectors.
In the six months to 30 September 2002, these three sectors represented 53 per
cent, 22 per cent and 21 per cent of our turnover respectively. As a result of
recent acquisitions, the percentage of our turnover in health and social care
will increase in the second half of the year. We intend to concentrate our
future efforts on developing our capacity and presence in these core markets.
An increasingly important element of our strategy is to extend our services,
which are currently applied to one sector, across all of our markets. This
strategy is working well and, in recent months, a number of our businesses
operating in education have started to address the health market.
We are also continuing to develop the benefits of cross-selling across the
Group. We are now selling more of our services to existing customers and,
increasingly, our businesses are working together to win larger contracts. We
are now in a position to actively pursue contract opportunities that leverage on
the skills and customer relationships across the Group. We remain selective,
bidding only for contracts which we are well placed to win and where we believe
we can add value to our customers. We are very cautious of contracts that have
unbalanced contractual risk or have the potential to be reputationally damaging.
While we provide a range of advisory services in relation to PFI projects, the
Group does not intend to take equity stakes in these contracts.
In order to facilitate cross-selling, we are developing eight regional centres
for the Group, in which several businesses will be co-located.
Most of the businesses within the Group are leaders in their niche markets. We
are building barriers to entry in these markets by strengthening management
teams; by adding capacity and skills through recruiting new employees and
bolt-on acquisitions; by investing in new products and services; and by
constantly improving the quality of our services.
Acquisitions During the period, we announced the following acquisitions:
Nightingale Associates, the largest specialist healthcare architectural practice
in the UK; Malcolm Judd and Partners, a planning and property consultancy
practice with a significant presence in the education and health markets; Yale
Consulting, a leading public sector IS and IT consultancy operating across the
public sector and a prime contractor under the Office of Government Commerce's
S-CAT procurement arrangements; and Atlas Media Group, the largest independent
supplier of public relations, media and design services to the National Health
Service.
To date, all of our acquisitions have been of high margin, cash generative
companies with strong track records and excellent growth prospects and we will
continue to seek acquisitions that meet our rigorous investment criteria. They
will either be bolt-on acquisitions, which extend the capability of our existing
businesses, or stand-alone acquisitions that strengthen the Group's proposition
in our core markets. We will continue to incentivise the management of acquired
businesses through earn-out structures. In addition to direct acquisition, we
will also be seeking to establish new businesses within the Group that broaden
our service offering and enable us to attract and retain talented and ambitious
individuals.
Our markets Our markets in education, local government and health and social
care remain buoyant, with the Group benefiting from the increasing expenditure
on public services announced in the Comprehensive Spending Review and, as
importantly, from the public sector's increasing use of the private sector to
deliver services. We estimate that the size of our addressable market,
currently estimated at £10bn, could grow to £20bn over the next five years. Our
major competitor remains the in-house solution; however, there is increasing
pressure on public sector organisations to consider different approaches to the
delivery of services.
Contract wins During the period, we have won a large number of contracts across
the Group and our total order book has now increased from £21m to £44m.
Increasingly, these contracts are involving a number of our companies working
together, and we are often able to differentiate ourselves from our competitors
by providing an integrated package of services. We plan to increase our
investment in our central bid team over the next year.
Services Our services are delivered in four areas: management consultancy; HR
and training; IT and information management; and property services. In the six
month period ended 30 September 2002, these areas accounted for 25 per cent, 27
per cent, 32 per cent and 16 per cent of the Group's turnover respectively.
Consultancy - the Group now has one of the largest public sector consultancy
businesses, with over 200 full-time consultants. In the LEA market, we provide
an increasing range of consultancy services around school improvement and have
been providing strategic management under a three year contract to Swindon Local
Education Authority. This contract is a good reference for the Group and we
will be well placed for other similar contracts in education, health and social
care. In the post-16 market, we have increased our capacity and extended our
service offering. We have now won our first contracts to carry out Area Reviews
for Learning and Skills Councils (LSCs) and are developing an increasing range
of consultancy services around basic skills and benchmarking.
In health, we are by some margin the leading provider of consultancy services
and have increased our capacity by adding expertise in facilities management and
social care consultancy. We have also strengthened our capability in a number
of skill areas such as change management and research and training. We have
been contracted by the NHS University to develop induction and communications
skills training for all NHS staff and are engaged in a high profile assignment
to provide project management and strategic consultancy support for the National
IT Programme (NIP) for the NHS. The NIP is a critical component of the
Government's overall strategy for modernising the health service through
utilising modern information technologies to support the delivery of the NHS
Plan.
We have recently been appointed to provide strategic management, consultancy and
interim management to support the turnaround of Cardiff Social Services. This
is a ground breaking service and should lead to similar opportunities in other
authorities.
HR and training - The Group's HR businesses have performed well, taking on an
increasing number of consultancy assignments, including the successful
appointment of the new Chief Executive at Birmingham City Council. During the
period, the Group has won six new recruitment advertising contracts, valued
collectively at £4.4m per annum, including a £2.5m per year five-year contract
with Hertfordshire Council. Much of our work is with the local government
sector; however, over the next six months, we will extend our service offering
into other core markets.
The Group is continuing to expand its professional development businesses. We
are seeing strong organic growth, with candidate numbers increasing in the
schools and Further Education (FE) markets. We have recently launched courses
for the health sector and the initial response has been encouraging. Our
contract with the New Opportunities Fund to provide ICT training for teachers
continues to perform well, with training completions continuing at high levels.
This contract has led to other opportunities with the Department for Education
and Skills to provide on-line training delivery. We continue to win a range of
contracts in the £2bn basic skills market to develop multi-media learning
resources and our target skills product is selling well. Investment in our
portfolio of distance learning materials continues.
IT and information management - The Group's software application business in
the FE sector has won several new college clients. We are also now delivering a
full managed service covering Management Information Services (MIS) activities
to over 20 colleges. The relationship with UfI continues to develop, with the
Group being awarded, in September 2002, a contract valued at £2m to develop the
corporate learning environment for learndirect. We now have the skills and
capacity to bid for systems integration contracts across the public sector and
are currently exploring a number of significant opportunities.
The Group's information management business continues to win work in the local
government market, in health, and with the private sector. We are seeing
increasing opportunities in health, particularly for patient records scanning
and the provision of web-based electronic document management services.
Several new contracts have been secured during the period and it is expected
that further contracts will be announced in coming months.
Property services - In education, we are now working with over 60 FE colleges,
and the average capital cost of the projects with which we are involved is
increasing. For example, we have recently been selected as project manager and
architect by Merton College on a £27m redevelopment project. In health, we have
increased our architectural capacity, setting up a new office in Cardiff and are
Preferred Bidder on the New Coventry Hospital, a £300m 1,600 bed hospital where
we are appointed as architects. We are currently short-listed on a number of
other schemes. Our property consultancy and asset management business, working
with the Group's education consultancy, has recently won a £0.6m contract to
provide Staffordshire Council with a total asset management service.
People We are a business that relies on the quality and dedication of our
people and our success is thanks to the hard work and professional integrity of
our 1,200 staff in 45 offices across the country. Part of our continued success
is our commitment to creating a culture where individuals are given a high level
of autonomy within a supportive Group environment. We have a clear policy that
we will only integrate or re-brand businesses where there is a clear commercial
advantage from doing so. We strongly believe that the interests of shareholders
and employees are best served by fostering an entrepreneurial and profit focused
culture, alongside our strong values of customer service, integrity and social
responsibility.
We have a strong tier of middle and senior management across the Group. A
priority for the Group has been to strengthen and broaden these management teams
further by recruiting individuals and teams from both the public and private
sector. Very good progress has been made and, during the period, we have
attracted some outstanding individuals to the Group.
We continue to promote wider share ownership across the Group and in December we
will be inviting new employees to join our Save As You Earn Scheme.
I would like to take this opportunity to thank all the Group's employees and
associates for their contribution to our success.
Move to the Official List In July, we successfully moved from AIM to the
Official List and in September became a constituent of the FT All Share Index.
The Board believes the profile of being a main market company, together with our
increasing financial strength, will provide a strong platform for bidding for
larger government contracts and will help us to attract high calibre managers to
the Group. We are beginning to see the benefits from this move.
Prospects The Group has established itself as a leading provider of professional
support services and consultancy to the public sector.
The second half of the year has started well and over 80 per cent of our full
year forecast turnover is already committed. We have made a number of
acquisitions since the start of the year, all of which are trading well as part
of the Group. We remain confident that each of these, together with our recent
contract wins, will provide a beneficial full year effect. We are currently
short-listed for several exciting new contracts and have a strong pipeline of
high quality acquisition prospects.
The businesses across the Group are performing well and our markets are growing.
The Group has the right skills, services, management and customer
relationships to take advantage of the rapidly increasing opportunities in our
markets. The Board views the second half of the year with considerable
confidence and believes that future growth will remain strong.
David M Telling
Chairman
26 November 2002
Consolidated profit and loss account
For the six months to 30 September 2002
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2002 2001 2002
Note £000 £000 £000
Turnover
Continuing operations 32,733 15,344 45,651
Acquisitions 5,542 - -
38,275 15,344 45,651
Cost of sales (16,202) (7,310) (19,975)
Gross profit 22,073 8,034 25,676
Net operating expenses before
amortisation
of goodwill, employee benefit trust
costs and exceptional items (17,401) (5,902) (17,316)
Operating profit before amortisation of
goodwill, employee benefit trust costs
and exceptional items 4,672 2,132 8,360
Amortisation of goodwill (2,826) (1,110) (2,903)
Amortisation of shares held by
employee benefit trust (37) (37) (75)
Contribution to employee benefit (252) (200) (419)
trust
Exceptional items 2 (702) - -
Operating profit
Continuing operations 514 785 4,963
Acquisitions 341 - -
855 785 4,963
Net interest payable (443) (24) (283)
Profit on ordinary activities before 412 761 4,680
taxation
Taxation - current tax at 30% 3 (1,222) (656) (1,851)
(Loss)/profit on ordinary activities (810) 105 2,829
after taxation
Minority interest - (27) -
Retained (loss)/profit for the period (810) 78 2,829
(Loss)/earnings per share
Basic 4 (1.74)p 0.23p 7.6p
Diluted 4 (1.74)p 0.22p 6.6p
Adjusted basic before amortisation of
goodwill, employee benefit trust costs
and exceptional items 4 6.26p 3.95p 16.3p
Adjusted diluted before amortisation of
goodwill, employee benefit trust costs 4
and exceptional items 5.58p 3.78p 14.2p
The results for the period disclosed in the profit and loss account are on a
historical cost basis. There are no other recognised gains and losses in the
current or prior year and, accordingly, no separate statement of total
recognised gains and losses has been presented.
Consolidated balance sheet
At 30 September 2002
Unaudited Unaudited Audited
30 September 30 September 31 March
Note 2002 2001 2002
£000 £000 £000
Fixed assets
Intangible assets - Goodwill 5 126,307 52,937 92,697
- Development expenditure 185 - 244
Tangible assets 2,539 987 2,261
Investments 50 - 71
129,081 53,924 95,273
Current assets
Stock - work in progress 1,500 182 1,030
Debtors 20,875 7,614 18,063
Cash at bank and in hand 37,240 13,221 35,784
59,615 21,017 54,877
Creditors: amounts falling due within one (30,200) (11,657) (25,938)
year
Net current assets
Due within one year 1,144 980 4,481
Cash collateralised beyond one year 28,271 8,380 24,458
29,415 9,360 28,939
Total assets less current liabilities 158,496 63,284 124,212
Creditors: amounts falling due after more
than one year (54,193) (17,628) (39,414)
Provisions for liabilities and charges - (51) -
Net assets 104,303 45,605 84,798
Capital and reserves
Called up share capital 2,405 1,730 2,261
Share premium account 48,236 10,977 39,596
Capital reserve 9,545 9,545 9,545
Profit and loss account 1,985 244 2,795
Shares to be issued 42,132 22,983 30,601
Minority interest - 126 -
Equity shareholders' funds 104,303 45,605 84,798
Reconciliation of movements in consolidated shareholders' funds
At 30 September 2002
Unaudited Unaudited Audited
30 September 30 September 31 March
Note 2002 2001 2002
£000 £000 £000
(Loss)/profit for the period (810) 78 2,829
New share capital subscribed 8,784 1,578 30,402
Shares to be issued 11,279 5,684 13,083
Credit in relation to share related awards 252 200 419
Net addition to shareholders' funds 19,505 7,540 46,733
Opening shareholders' funds 84,798 38,065 38,065
Closing shareholders' funds 104,303 45,605 84,798
Consolidated cash flow statement
For the six months to 30 September 2002
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
Note 2002 2001 2002
£000 £000 £000
Net cash inflow from operating 6 4,975 1,612 9,502
activities
Returns on investments and servicing
of finance
Interest paid (1,422) (297) (863)
Interest element of finance
lease rental (16) (2) (3)
payments
Interest received 785 344 975
Net cash (outflow)/inflow from
returns on (653) 45 109
investments and servicing
of finance
Taxation
Corporation tax paid (1,476) (102) (1,994)
Capital expenditure and financial
investment
Payments to acquire tangible (635) (243) (1,088)
fixed assets
Payments to acquire intangible
fixed assets (75) (60)
Sale of tangible fixed assets 175 - 115
Net cash outflow for capital (535) (243) (1,033)
expenditure and financial investment
Acquisitions
Purchase of subsidiary (15,641) (1,991) (6,935)
undertakings
Net increase in cash from
acquisition of 1,205 558 3,599
subsidiary undertakings
Net cash outflow from (14,436) (1,433) (3,336)
acquisitions
Cash (outflow)/inflow before (12,125) (121) 3,248
financing
Financing
Issue of ordinary share capital (48) 20,881
less issue
costs
Repayment of borrowings (11,124) - (951)
New secured loans less issue 24,843 750 -
costs
Capital element of finance
lease rental (138) (9) (42)
payments
Collateralised cash (5,813) - (14,079)
Net cash inflow from financing 7,768 693 5,809
(Decrease)/increase in cash in the (4,357) 572 9,057
period
Reconciliation of net cash flow to movement
in net debt
(Decrease)/increase in cash in the period (4,357) 572 9,057
Cash outflow from movements in debt (10,671) (750) (13,094)
Change in net debt resulting from cash (15,028) (178) (4,037)
flows
Finance leases acquired with (12) - (235)
subsidiaries
New finance leases (23) - (38)
Other loans - (9,220) -
Movement in net debt in the period (15,063) (9,398) (4,310)
Net (debt)/cash at the start of the period (3,028) 1,282 1,282
Net debt at the end of the period (18,091) (8,116) (3,028)
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 2002. The comparatives for 30 September 2001 have not been restated to
reflect deferred tax under FRS 19 as any adjustment would not be material. The
unaudited interim accounts were approved by a duly appointed committee of the
Board of Directors on 25 November 2002. The auditors have carried out an interim
review and their report is set out on page16.
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 2002 is an extract from the statutory accounts to that date which have
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 Exceptional Items
The exceptional items of £702,000 relate to the costs of moving from the
Alternative Investment Market to the official list on the London Stock Exchange
in July 2002.
3 Taxation
The taxation charge is calculated by applying the forecast rate for the full
year (adjusted for goodwill amortisation) to the interim profits before goodwill
amortisation.
4 Earnings per share
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2002 2001 2002
Basic
(Loss)/earnings for period (£000) (810) 78 2,829
Weighted average number of shares
outstanding (thousands) 46,660 34,286 37,342
Basic (loss)/earnings per share (1.74)p 0.23p 7.6p
Diluted
(Loss)/earnings for period (£000) (810) 78 2,829
Weighted average number of shares in issue
including dilutive shares:
Basic weighted average number 46,660 34,286 37,342
(thousands)
Employee share options (thousands) - - 1,416
Shares to be issued in respect of
deferred consideration (thousands) - 1,540 4,156
Adjusted number of shares
outstanding
(thousands) 46,660 35,826 42,914
Diluted (loss)/earnings per share (1.74)p 0.22p 6.6p
FRS 14 requires presentation of diluted earnings per share when a company could
be called upon to issue shares that would decrease net profit or increase net
loss per share. For a loss making company, net loss per share would only be
increased by the exercise of out-of-money options. Hence, no adjustment is made
to diluted earnings per share in the six months ended 30 September 2002.
4 Earnings per share (continued)
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2002 2001 2002
Adjusted basic before goodwill amortisation,
exceptional items and EBT costs
(Loss)/earnings for period (£000) (810) 78 2,829
Goodwill amortisation (£000) 2,826 1,110 2,903
EBT costs net of tax (£000) 202 166 346
Exceptional items (£000) 702 - -
Adjusted earnings before goodwill
amortisation, 2,920 1,354 6,078
exceptional items and EBT costs
(£000)
Weighted average number of shares in
issue 46,660 34,286 37,342
(thousands)
Adjusted basic earnings per share 6.26p 3.95p 16.3p
Adjusted diluted before goodwill
amortisation, exceptional items and EBT costs
Adjusted earnings before goodwill
amortisation, 2,920 1,354 6,078
exceptional items and EBT costs (£000)
Weighted average number of shares in
issue
including dilutive shares
(thousands):-
Basic weighted average number
(thousands) 46,660 34,286 37,342
Employee share options (thousands) 1,455 - 1,416
Shares to be issued in respect of
deferred consideration (thousands) 4,168 1,540 4,156
Adjusted number of shares outstanding
(thousands) 52,283 35,826 42,914
Adjusted diluted earnings per share 5.58p 3.78p 14.2p
The adjusted basic and adjusted diluted earnings per share figure shown on the
profit and loss account is included as the directors believe that it provides
a better understanding of the underlying trading performance of the Group.
5 Intangible assets: Goodwill
£000
Net book value at 31 March 2002 92,697
Goodwill arising on acquisitions 36,317
Fair value adjustments relating to prior year acquisitions 119
Amortisation (2,826)
Net book value at 30 September 2002 126,307
6 Note to the cash flow statement
Reconciliation of operating profit to operating cash flows
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2002 2001 2002
£000 £000 £000
Operating profit 855 785 4,963
Depreciation 744 191 563
Amortisation of goodwill 2,826 1,110 2,903
Amortisation of development expenditure 134 - 109
Loss/(profit) on disposal of fixed 18 - (32)
assets
Contribution to employee share awards 252 200 419
Amortisation of employee benefit trust 37 37 75
Decrease/(increase) in debtors 890 (275) (4,789)
(Decrease)/increase in creditors (611) (424) 5,494
Increase in stocks (170) (12) (203)
Net cash inflow from operating 4,975 1,612 9,502
activities
7 Cash Management
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2002 2001 2002
£000 £000 £000
Cash at bank 6,969 2,841 11,326
Cash collateralised deposits 30,271 10,380 24,458
37,240 13,221 35,784
Loan Notes - cash backed (29,465) (10,380) (22,659)
Loan Notes - bank guarantees - (9,410) (15,218)
Other loan notes (859) (350) (668)
Bank loans (24,843) (1,170) -
Finance leases (164) (27) (267)
Net debt (18,091) (8,116) (3,028)
8 Acquisitions
Since 31 March 2002 Tribal Group plc has acquired the following principal
Subsidiary undertakings:
Date Subsidiary
acquired
May 2002 Nightingale Architects Limited
May 2002 Malcolm Judd Limited
August 2002 Yale Data Management Consultants Limited
September 2002 Atlas Media Group Limited
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