Interim Results - Amendment

Tribal Group PLC 28 November 2006 28 November 2006 This announcement replaces that made at 7am today. There was an error on the gross profit figure in the accounts section due to a formatting error. Tribal Group plc Unaudited interim results for the six months ended 30 September 2006. Highlights • Adjusted profit before tax* at £3.1m • Interim dividend unchanged at 1.05p • Cash conversion 83 per cent • Solid performance from education and technology • Weaker demand in consulting services, revenues down 15% • Excellent progress from Mercury Health - preferred bidder on circa £160m NHS diagnostic contract • Demerger of Mercury Health announced Strone Macpherson, Chairman of Tribal Group plc commented: 'As anticipated, this has been a challenging period for the Group, with results impacted by softer demand in some of our public sector markets which has led to weaker demand in consultancy services. Performance has, however, been good in education and technology and in Mercury Health. Overall, we expect to see a stronger performance in the second half, with a more pronounced second half weighting than our traditional trading pattern. However, we anticipate that the full year results will be significantly impacted by a combination of our slow start to the year and the likely continuation of difficult trading in specific markets. In response to the 15 per cent fall in revenues in consulting services and as part of our continuing drive to improve margins, action has been taken to reduce our cost base through headcount reduction and by exiting poorly performing business areas. We are also improving the efficiency of our business by centralising supplier procurement and IT systems, rationalising our property portfolio and investing in a new financial reporting and job costing system. These should bring some benefits this year but more significant savings in 2007/8. Following the announcement on 18 October, your board has now decided, in principle, to proceed with the demerger of Mercury Health. This demerger should enable Mercury to maximise its potential as an independent listed company and allow the remainder of the Group to focus on developing its core consultancy and support services offering. The business is expected to be listed in the first half of 2007.' Financial highlights: Unaudited Unaudited six months ended six months ended 30 September 2006 30 September 2005 Turnover £124.8m £123.8m Revenue £104.5m £98.0m Operating profit £3.8m £9.0m Adjusted operating profit* £6.2m £9.4m Operating margins* 5.9% 9.6% Adjusted profit before taxation* £3.1m £7.3m Profit on ordinary activities before taxation £0.8m £6.4m Profit on ordinary activities after taxation £0.9m £4.4m Adjusted diluted earnings per share * 3.39p 6.30p Basic earnings per share 0.67p 5.68p Operating profit to cash conversion* 83% 13% Proposed interim dividend 1.05p 1.05p * The adjusted operating profit, operating margins, adjusted profit before tax and adjusted diluted earnings per share are stated before goodwill impairment of £2.0m (2005: £nil), intangible asset amortisation of £0.2m (2005: £0.2m), share option costs of £0.2m (2005: £0.2m) and in the case of adjusted profit before tax and adjusted diluted earnings per share, IAS 32/39 finance costs of £nil (2005: £0.5m). For further information contact: Henry Pitman, Chief Executive, Tribal Group plc Tel: 01285 886020 Simon Lawton, Group Finance Director, Tribal Group plc Tel: 01285 886020 A copy of the presentation on these results, to be made to analysts this morning at 9am, will be available on the Group's website: www.tribalgroup.co.uk shortly afterwards. Tribal Group plc Unaudited interim results for the six months ended 30 September 2006. Chief Executive's statement For the six months ended 30 September 2006, the Group's turnover increased to £124.8m (2005: £123.8m). Operating profit* was £6.2m (2005: £9.4m); operating margins* were 5.9 per cent (2005: 9.6 per cent); adjusted profit before taxation* was £3.1m (2005: £7.3m); and the adjusted diluted earnings per share* were 3.4p (2005: 6.3p). * The operating profit, operating margins, adjusted profit before tax and adjusted diluted earnings per share are stated before goodwill impairment of £2.0m (2005: £nil), intangible asset amortisation of £0.2m (2005: £0.2m), share option costs of £0.2m (2005: £0.2m) and in the case of adjusted profit before tax and adjusted diluted earnings per share, IAS 32/39 finance costs of £nil (2005: £0.5m). Cash and net debt Cash inflow from operating activities before tax for the six months to 30 September 2006 was £5.1m (2005: £1.3m) representing an operating profit to cash conversion of 83 per cent (2005: 13 per cent). Net debt at 30 September 2006 was £84.3m, representing gearing of 52 per cent, and interest cover was 2 times. Included within net debt is £26.5m drawn down under the non-recourse Mercury Health project finance facility. Dividend The interim dividend is unchanged at 1.05p per share which will be paid on 2 February 2007 to shareholders on the register on 5 January 2007. Markets Overall, Tribal Group continues to operate in expanding public sector markets, with more opportunities opening up for private sector involvement in providing consultancy and support services. Increasingly, our 2,500 public sector customers are looking for larger and more substantial private sector partners that are able to provide a range of services within a single contract, as a bundled solution. Whilst there is considerable opportunity for Tribal, market conditions are reasonably challenging, with political uncertainty delaying decision making and reducing the number of new initiatives. In the run up to the end of the current spending commitments in 2008, we expect our public sector clients to become more selective in their spending priorities and for procurement processes to be tightened, adding cost and extending timescales. The education sector remains buoyant and Tribal is well placed in this market, having developed scale and a very extensive range of services, which are well focused on the areas of current funding and demand. In healthcare, the market conditions are broadly encouraging. However, as reported previously, we remain affected by prolonged uncertainty over PFI with procurement timetables lengthening, and a continued downturn in NHS recruitment. Looking forward, there are considerable new opportunities emerging, in particular the new Commissioning Framework - working with primary care trusts to improve their commissioning of clinical services - which should become a major new business activity for the Group. We are also continuing to see, through Mercury Health, significant opportunities for providing diagnostic, elective surgery and primary care services, both through the national independent sector treatment centre initiative and through local and regional procurement. In the local government market we have seen a slowdown in activity. However, now that 'Strong and prosperous communities', the Government's white paper for local councils, has been published, a clear policy direction has been established and we expect to see an increase in opportunities in the next financial year. The housing market for our services is growing and Tribal is well positioned to increase both capacity and the range of services in this sector. The central government market for consulting is very strong, albeit highly competitive. We expect to see significant growth in this area as we continue to increase the number of our consultants and extend our portfolio of services. Strategy for consultancy and support services Tribal continues to focus its activities on providing consultancy and support services to the UK public sector. Increasingly, our operations are aligned by market sector, with the primary focus being on our main market areas of education; health; local and regional government; housing; and central government. Operationally, the business is managed through two business streams: education and technology, and consulting services. The Group's focus is on delivering a clear and coherent proposition to our customers, with each of our core activities being number 1, 2 or 3 in their respective markets. We continue to differentiate ourselves from our competition by packaging our services as an integrated offering. The business is focused on delivering sustained organic revenue growth, which will be achieved by increasing headcount in areas that are performing well; actively developing new market propositions and increasing our investment in our bid teams. A major focus of senior management is to improve operating margins, in particular through the continual improvement in the quality of our services that will allow us to increase day rates. We continue to tighten job costing and project management and continuously improve performance management. We will be more selective in choosing our customers and the contracts we bid for, increasing over time, the size of the average contract. Whilst our core activity will remain consulting and support services, we will actively seek new opportunities to develop new delivery businesses. Operating review All divisional operating profit and operating profit margins are stated before amortisation of IFRS 3 intangibles, goodwill impairment and share option costs. Education & technology services 6 months ended 6 months ended 12 months ended 30 September 2006 30 September 2005 31 March 2006 £000 £000 £000 Revenue 35,748 35,382 79,184 Operating profit 4,327 4,725 13,735 Operating profit margin 12.1% 13.4% 17.3% Tribal is now well positioned as one of the largest education businesses in the UK, with a strong and diverse service offering across the main education markets of schools, Post-16 and higher education. The merger of our education and technology divisions has been very successful, creating a strong fully integrated business, with a number of clearly defined services, which we are able to package together to respond to our clients' requirements. The business is now operated through three business streams: Learning and publishing. We have established a market leading position in the provision of learning products (both distance learning and e-learning) and in managed learning delivery. During the period, we have extended our penetration in the important 16-19 age group, through the development of our Sportsvine brand and have won several new contracts, including a £1.6m contract with the DfES and Quality Improvement Agency for the national 'Move On' programme. IT services. Our position as the leading provider in the student administration software market has strengthened during the period with strong performances across FE, HE and work based learning. We have won over £3m of new software installations in HE, including the prestigious University of Edinburgh and University of the West of England, two of our largest contract wins to date. We have also won several new contracts in the Children's Services and FE markets. Services. The market for education consultancy was difficult in the early part of the year, however, performance has improved in recent months. Our Ofsted schools inspection contracts continue to perform well and we are expecting opportunities to emerge to support the development of Ofsted's inspection work as their remit expands. Other contracts won in the period include the project management of three new Academies and DfES school improvement contracts. We are currently Preferred Bidder on a further £7m of contracts expected to be signed over the next three months. The pipeline of other contract opportunities is very encouraging. In 2007/8 we are expecting to expand our shared service capability (particularly for the FE market) and see an opportunity to support our customers in managing the new commissioning agenda. We will also be expanding our learning delivery capability, principally building on some successful contracts we have already established with major employers, such as McDonalds and Compass. Consulting services 6 months ended 6 months ended 12 months ended 30 September 2006 30 September 2005 31 March 2006 £000 £000 £000 Revenue 51,942 59,958 122,743 Operating profit 3,233 7,655 15,464 Operating profit margin 6.2% 12.8% 12.6% The first half performance across consulting services has been disappointing. Inresponse to the 15 per cent fall in revenues and as part of our continuing efforts to improve margins, we have taken action to reduce our cost base, through both headcount reductions, exiting poorly performing business areas and tight control of other operating costs. Our management consulting business had a slow start to the year, particularly affected by planned management changes in parts of the business and by a more significant seasonal slowdown in market activity than usual in the Spring and Summer months. In healthcare, despite a slow start to the year, we have performed well and are beginning to see considerable growth potential for the future. During the period, we have won several new assignments including working with the King's Fund on PCT Board Development and the National Integrated Service Improvement Programme. We have also continued to win a number of framework contracts, which will be important to our medium term development. Local government has been a more difficult market, with a general slowdown in the number of new opportunities. We have also been particularly impacted by significant bid costs incurred in the development of a new business area, transformation solutions, (EBITA impact £0.6m in the period), which will continue in the second half. Our housing and economic development consultancies had a poor first quarter, but since then, have performed to plan. Our central government business has generally performed well with new contract wins with Defra, the Foreign and Commonwealth Offices and the Immigration and Nationality Directorate, but part of the business has been impacted by the uncertainty over the transition between the S-CAT Framework and the start of the Catalist Framework in November (EBITA impact £0.3m in the period). This has reduced revenue in the period and we do not expect this to improve materially in the second half. The recruitment market has remained difficult, with a continuing downturn in recruitment advertising in the NHS (EBITA impact £0.7m in the period). We have partially contained this reduction in revenue by winning new contracts, including Oxfordshire Consortium of Local Authorities (£2m pa), Wakefield Council (£0.75m pa), six FE colleges (£1.5m pa) and the NHS PASA framework. We have also made good progress with the development of our interim management capability, which is growing strongly, and our executive search business (Preferred Supplier wins at: Hackney, Lambeth and Luton Councils), and we are now starting to win work in central government. We have a strong pipeline of contract opportunities to provide outsourced HR services in local government. Trading in our property business has been disappointing. This has been a result of two specific issues: a delay in the financial close of a major PFI contract (EBITA impact £1.5m in the period) - this is now expected to take place in the last quarter - and management changes and significant investment in the development of our project management business. We have, however, made good progress over this period, winning a number of new contracts in the education market and in health (Royal Liverpool Hospital; Bury; Rochdale; Heywood and Middleton (BRAHM) LIFT; Prince Charles Hospital, Glamorgan; Bournemouth University and West Hertfordshire FE College). We expect to see considerable improvement in the second half and the prospects for this part of our business look encouraging for 2007/8. Communications and PR has had a slower than expected start to the year, with a fall off in demand for interim management and a shortage of new tender opportunities. The situation is now much improved, and several new contracts have been won (Schools Food Trust; Early Years; learndirect and the Strategic Investment Board in Northern Ireland). The pipeline of new opportunities has increased substantially in the last two months. Overall, whilst we are disappointed by the reduction in revenue and profit across consulting services in the first half, we expect that results in the second half will show improvement, reflecting not only the normal seasonal uplift in trading but stronger demand in several areas. Corporate efficiency initiatives In the continuing drive to improve the efficiency of our business and to reduce our operating cost base, we have taken the following steps. Strategic sourcing - where appropriate, supplier procurement activity across the Group is being centralised. This has allowed us to reduce the number of our suppliers, reduce our supplier costs and improve the quality of services to our businesses. We expect this initiative to deliver £0.25m of savings in 2006/7 and £1m plus of savings in 2007/8 and thereafter. Property rationalisation - we have reduced our property portfolio from 50 buildings in 2005/6 to 40 now. This has reduced the cost per head from £2,400 to £2,300 and has allowed us to make further savings on associated operating costs such as IT and support staff. Our plan is, over time, to reduce the number of offices to about 25. Centralisation of IT - the Group will have a single IT network and support team in place by 1 April 2007 for over 80 per cent of our businesses. This should reduce our IT cost, mitigate risk and improve the quality of our support to our fee earners. Financial reporting and job costing system - the procurement is now underway for a new financial reporting and job costing system. This will be rolled out to our education and technology businesses in early 2007/8 and to consulting services by early 2008/9. This should further tighten project costing and performance management across the Group, thereby assisting the Group to improve operating margins. Healthcare delivery 6 months ended 6 months ended 12 months ended September 2006 September 2005 31 March 2006 £000 £000 £000 Revenue 17,576 2,693 14,550 Operating profit/(loss) 1,795 (214) 1,476 Operating profit/(loss) margin 10.2% (7.9)% 10.1% Mercury Health, the Group's healthcare delivery subsidiary, has performed in line with our expectations. During the period, bid costs of £0.8m were expensed in bidding for Phase 2 diagnostic and elective surgery contracts and primary care contracts. Our first three Independent Sector Treatment Centres (ISTCs) in Wycombe, Medway and Portsmouth are now fully operational. During the period, we opened our largest facility, an elective orthopaedic centre in Sussex. Activity at this centre is now ramping up and we expect to be operating at full capacity from the early part of the New Year. Our fifth centre in Havant is expected to open, as planned, in January 2008. To-date, the centres have performed over 50,000 patient episodes. The response from patients has been very good, with the proportion of patients willing to recommend our centres consistently exceeding 99 per cent. We have developed a strong management team at Mercury Health, led by Peter Martin as CEO. Over the last period, we have further strengthened this team with new appointments of both operational and clinical staff. We are currently Preferred Bidder on the West Midlands diagnostic contract. Once fully operational, we expect to be delivering up to 190,000 procedures annually across diagnostic imaging, audiology and endoscopy. The contract will be delivered using mobile diagnostic centres with the primary reporting of scans being undertaken remotely by radiologists operating from dedicated centres in Central Europe. Subject to finalising complex contractual and funding discussions, we expect to reach financial close during the next few weeks. Our primary care contract in Hackney, to run a walk-in centre and a GP service, opened in August and is performing well. We have also established a business providing managed care services to identified NHS patients with chronic diseases such as asthma. Mercury Health has a strong pipeline of primary care opportunities. In July 2006, we terminated our strategic partnership with Chilvers McCrea and we now own 100 per cent of Mercury Health Primary Care. The continuing ramp up of activity at our Sussex centre and further investment in bid costs and business development, including primary care will, as expected, hold back profits in the second half. However, with our first four centres fully operational and the expected start of the West Midlands contract in the summer of 2007, the prospects for 2007/8 are very strong. Demerger of Mercury Health Following the announcement on 18 October, your board has now decided, in principle, to proceed with the demerger of Mercury Health. This process is now underway and Hoare Govett and N M Rothschild have been appointed as advisers. The business is pursuing the possibilities of a separate listing in the first half of 2007. The Board believes that this demerger will enable Mercury Health to develop a strong independent healthcare delivery business, able to grow organically, through ongoing contract wins and through acquisitions. People This has been a particularly demanding period for the Group and I would like to thank employees across the Group for all they have achieved. We are fortunate to employ many highly able and motivated people and they allow us to offer our customers a very high quality differentiated service. Prospects As anticipated, the first half of the year has been very challenging to the Group, with difficult conditions in specific market areas impacting our results. We expect to see an uplift in trading in the second half, with a more pronounced second half weighting than our traditional trading pattern. However, the full year results will be significantly impacted by the slow start to the year and continuing challenging market conditions in certain specific areas. We have a number of initiatives underway which we expect to reduce our cost base and improve performance thereby providing a more encouraging outlook for 2007/8. Henry Pitman Chief Executive 28 November 2006 Consolidated income statement For the six months to 30 September 2006 Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006 Note £000 £000 £000 Turnover 124,758 123,767 259,897 Direct agency costs (20,265) (25,759) (45,103) ------------------------- ------- ------- ------- Revenue 2 104,493 98,008 214,794 Cost of sales (64,992) (57,067) (122,008) ------------------------- ------- ------- ------- Gross profit 39,501 40,941 92,786 ------------------------- -------- ------- ------- ------- Administrative expenses before amortisation of IFRS 3 intangibles,goodwill impairement and share option charges (33,332) (31,525) (68,708) ----------------------- ------- ------- ------- Operating profit before amortisation of IFRS 3 intangibles, goodwill 2 6,169 9,416 24,078 impairment and share option charges Amortisation IFRS 3 intangibles (160) (216) (316) Goodwill impairment (2,000) - - Share option charges (177) (187) (449) ------------------------- -------- ------- ------- Total administrative expenses (35,669) (31,928) (69,473) ------- ------- ------- Operating profit 3,832 9,013 23,313 ------------------------- -------- ------- ------- ------- Finance credit 393 373 446 Financial instruments 153 - - ------------------------- -------- ------- ------- ------- Finance income 546 373 446 ------------------------- -------- ------- ------- ----- Finance charges (3,481) (2,503) (5,522) Financial instruments (134) (483) (765) ------------------------- ------- ------- ------- ------- Finance costs 3 (3,615) (2,986) (6,287) Net finance costs (3,069) (2,613) (5,841) ------------------------- ------- ------- ------- Profit before taxation 763 6,400 17,472 Taxation 4 118 (1,975) (4,654) ------------------------- ------- ------- ------- Profit for the period 881 4,425 12,818 ------- ------- ------- Attributable to:- Equity holders of the parent 544 4,303 12,544 Minority interest 337 122 274 ------------------------- ------- ------- ------- 881 4,425 12,818 ------------------------- ------- ------- ---- Earnings per share Basic 6 0.67p 5.68p 16.2p Diluted 6 0.65p 5.29p 15.4p Adjusted basic before amortisation of IFRS 3 intangibles,goodwil impairment 6 3.52p 6.77p 18.1p share option charges and and IAS 32/39charges Adjusted diluted before amortisation of IFRS 3 intangibles, goodwill impairment, share option 6 3.39p 6.30p 17.2p charges and IAS 32/39 charges Consolidated balance sheet For the six months to 30 September 2006 Unaudited Unaudited Audited 30 September 30 September 31 March Note 2006 2005 2006 £000 £000 £000 Non-current assets Goodwill 204,950 207,855 206,392 Other intangible assets 3,407 2,299 3,255 Property, plant and equipment 45,800 31,462 40,962 Investment property 200 180 200 Available for sale investments 150 151 151 Deferred tax assets 823 1,416 823 ------------------------- --------- -------- ------- 255,330 243,363 251,783 --------- -------- ------- Current assets Inventories - work in progress and contract costs 13,513 13,561 11,495 Trade and other receivables 53,145 55,274 59,170 Cash and cash equivalents 16,264 9,125 22,615 Collateralised cash 1,131 2,097 1,392 ------------------------- --------- -------- ------- 84,053 80,057 94,672 --------- -------- ------- Total assets 339,383 323,420 346,455 ------------------------- --------- -------- ------- Current liabilities Trade and other payables (62,945) (63,692) (69,938) Tax liabilities (2,754) (7,278) (5,399) Obligations under finance leases (91) (11) (78) Bank overdrafts and loans (1,690) (4,092) (2,907) Shares to be issued (5,304) (8,441) (6,102) --------- -------- ------- (72,784) (83,514) (84,424) --------- -------- ------- Net current assets/(liabilities) 11,269 (3,457) 10,248 ------------------------- --------- -------- ------- Non-current liabilities Bank loans (99,500) (83,273) (96,556) Pension liabilities (1,977) (1,370) (1,977) Deferred tax liabilities (1,034) (775) (939) Obligations under finance leases (378) (436) (351) Shares to be issued (973) (4,737) (135) Other non current liabilities - (550) - ------------------------- --------- -------- ------- (103,862) (91,141) (99,958) ------------------------- --------- -------- ------- Total liabilities (176,646) (174,655) (184,382) ------------------------- --------- -------- ------- Net assets 162,737 148,765 162,073 ------------------------- --------- -------- ------- Equity Share capital 4,073 3,826 4,008 Share premium account 81,749 80,304 80,771 Capital reserve 9,545 9,545 9,545 Merger reserve 53,589 45,469 52,164 Own shares reserve (1,790) - (1,668) Share based payment reserve 626 710 889 Hedging reserve 478 (358) 6 Retained earnings 13,255 8,222 15,173 ------------------------- --------- -------- ------- Equity attributable to equity holder of the parent 9 161,525 147,718 160,888 Minority interest 1,212 1,047 1,185 ------------------------- --------- -------- ------- Total equity and reserves 162,737 148,765 162,073 ------------------------- --------- -------- ------- Consolidated statement of recognised income and expense At 30 September 2006 Unaudited Unaudited Audited Six months Six months Year Ended ended ended 30 September 30 September 31 March 2006 2005 2006 £000 £000 £000 Actuarial loss on defined benefit plans - - (594) Transfer to cash flow hedge reserve 472 (446) 51 Deferred tax (141) 134 163 ----------------------- ------- ------- ------- Net income/(expense) recognised directly 331 (312) (380) to equity Profit for the period 881 4,425 12,818 ----------------------- ------- ------- ------- Recognised income and expense for the period 1,212 4,113 12,438 ----------------------- ------- ------- ------- Attributable to: Equity holders of the parent 875 3,991 12,164 Minority interest 337 122 274 ----------------------- ------- ------- ------- 1,212 4,113 12,438 ----------------------- ------- ------- ------- Consolidated cash flow statement For the six months to 30 September 2006 Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 September 30 September 31 March Note 2006 2005 2006 £000 £000 £000 Net cash from operating activities 7 2,514 741 26,194 ------- ------- ------- Investing activities Interest paid (2,216) (2,946) (7,524) Interest received 197 567 446 Proceeds on disposal of investments 1 - - Proceeds on disposal of property 28 35 34 plant and equipment ------------------------ ------- ------- ------- Purchases of property plant and (1,751) (2,093) (4,039) equipment(excluding Mercury Health) ------------------------ ------- ------- ------- Purchases of property plant and equipment(Mercury Health) (7,114) (15,311) (26,569) ------------------------ ------- ------- ------- Purchases of property plant and 8,865) (17,404) (30,608) equipment Expenditure on product development (612) (76) (1,048) ------------------------ ------- ------- ------- Acquisitions (deferred consideration (275) (2,906) (3,642) and minority interests) ------------------------ ------- ------- ------- Net cash outflow from investing (11,742) (22,730) (42,342) activities ------- ------- ------- ------------------------ Financing activities Equity dividend paid - - (2,362) Issue of shares 515 104 304 Repayment of borrowings (1,217) (13,464) (15,400) Repayments of obligations under finance lease (39) (19) (57) New bank loans 2,944 18,255 31,538 Movements in collateralised cash 261 (572) 133 Purchase of own shares (122) - (1,668) Loan to third party 535 - (535) ------------------------ ------- ------- ------- Net cash from financing activities 2,877 4,304 11,953 ------------------------ ------- ------- ------- Net decrease in cash and cash (6,351) (17,685) (4,195) equivalents Cash and cash equivalents beginning of period 22,615 26,810 26,810 ------------------------ ------ ------- ------- Cash and cash equivalents at 8 16,264 9,125 22,615 end of period ------- ------- ------- ------------------------ Notes 1 Basis of preparation The Group's interim results for the six months ended 30 September 2006 are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. These interim financial statements do not constitute full statutory accounts within the meaning of Section 240 of the Companies Act 1985 and are unaudited. The Group has elected not to adopt full compliance with IAS 34 'Interim financial reporting'. The unaudited interim financial statements were approved by the Board of Directors on 27 November 2006. The consolidated financial statements are prepared under the historical cost convention modified to include the revaluation of certain assets. The accounting policies used in the interim financial statements are consistent with IFRS and those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 March 2006. The statutory accounts for this period, which were prepared under IFRS, have been filed with the Registrar of Companies. The auditors' opinion on these accounts was unqualified and did not contain a statement made under Section 237(2) or Section 237(3) of the Companies Act 1985. 2 Segmental analysis Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006 £000 £000 £000 Revenue Consulting services 51,942 59,958 122,743 Education and technology services 35,748 35,382 79,184 Healthcare delivery 17,576 2,693 14,550 Inter segment (773) (25) (1,683) -------------------- ------- ------- ------- 104,493 98,008 214,794 -------------------- ------- ------- ------- Operating profit before amortisation of IFRS 3 intangibles, goodwill impairment and share option charges Consulting services 3,233 7,655 15,464 Education and technology services 4,327 4,725 13,735 Healthcare delivery 1,795 (214) 1,476 Central & bid costs (3,186) (2,750) (6,597) -------------------- ------- ------- ------- 6,169 9,416 24,07 -------------------- ------- ------- ------- Notes (continued) 3 Finance costs Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006 £000 £000 £000 Finance charges Interest on bank overdrafts and loans 3,678 3,218 6,500 Interest on loan notes 31 124 249 Interest on obligations nder finance leases 16 7 23 Net finance cost of retirement benefit obligations 49 - 26 -------------------- ------- ------- ------- Total borrowing costs 3,774 3,349 6,798 Less: amounts included in the cost of qualifyingassets (293) (846) (1,276) -------------------- ------- ------- ------- 3,481 2,503 5,522 Financial instruments 134 483 765 -------------------- ------- ------- ------- 3,615 2,986 6,287 -------------------- ------- ------- ------- Borrowing costs included in the cost of qualifying assets arose on the Mercury Health ISTC contract for which the related borrowings are separately identifiable and are capitalised at the average rate incurred of 6.9%. 4 Taxation Unaudited Unaudited Audited Six months Six months year ended ended ended 30 September 30 September 31 March 2006 2005 2006 £000 £000 £000 Current tax UK corporation tax 1,025 2,332 5,495 Adjustments in respect of prior years (1,095) (292) (1,493) ------------------- -------- -------- ------- (70) 2,040 4002 Deferred tax Current year (48) (65) 652 -------------------- -------- -------- ------- Taxation (credit)/charge (118) 1,975 4,654 -------------------- -------- -------- ------- The prior year adjustment for the six months ended 30 September 2006 relates to the release of prior year tax provisions relating to tax relief for the costs of bidding for contracts following agreement with HMRC. 5 Dividends The Board has proposed an interim dividend of 1.05p per share, which will absorb £0.9m, will be paid on 2 February 2007 to ordinary shareholders on the register on 5 January 2007. The shares will be quoted ex-dividend on 3 January 2007. Notes (continued) 6 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: Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006 thousands thousands thousands Basic weighted average number of shares in issue 80,595 75,725 77,255 Employee share options 285 933 263 Shares to be issued in respect of deferred consideration 3,008 4,707 3,255 -------------------------- ------- -------- ------- Weighted average number of diluted shares outstanding 83,888 81,365 81,273 -------------------------- ------- -------- ------- 30 September 2006 30 September 2005 31 March 2006 Earnings Earnings Earnings Earnings Earnings Earnings £000 per £000 per £000 per share share share pence pence pence Basic and adjusted basic earnings per share:- Profit and basic earnings per share 544 0.67p 4,303 5.68p 12,544 16.2p Adjustments:- Goodwill impairment 2,000 2.48p - - - - Amortisation of IFRS 3 intangibles (net of tax) 102 0.13p 151 0.20p 316 0.4p Share option charges 177 0.22p 187 0.25p 449 0.6p Financial instruments charge (net of tax) 20 0.02p 483 0.64p 668 0.9p ------ ------ ------ ------ ------ ------ Adjusted earnings and adjusted basic earnings per share 2,843 3.52p 5,124 6.77p 13,977 18.1p ------------ ------ ------ ------ ------ ------ ------ Diluted and adjusted diluted earnings per share:- Profit and diluted earnings per share 544 0.65p 4,303 5.29p 12,54 15.4p Adjustments:- Goodwill impairment 2,000 2.39p - - - - Amortisation of IFRS 3 intangibles (net of tax) 102 0.12p 151 0.19p 316 0.4p Share option charges 177 0.21p 187 0.23p 449 0.6p Financial instruments charge (net of tax) 20 0.02p 483 0.59p 668 0.8p ------ ------ ------ ------ ------ ----- Adjusted earnings and adjusted diluted earnings per share 2,843 3.39p 5,124 6.30p 13,977 17.2p ------------- ------ ------ ------ ------ ------ ------ 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. Notes (continued) 7 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 2006 2005 2006 £000 £000 £000 Operating profit from continuing operations 3,832 9,013 23,313 Depreciation of property, plant and equipment 2,600 1,573 3,600 Amortisation of development expenditure 261 281 435 Amortisation of intangible assets 160 216 316 Impairment of goodwill 2,000 - - Net pension charge 7 - 13 Increase in fair value of investment property - - (20) Gain on disposal of property, plant and equipment (24) (5) (24) Share based payments charge 177 187 449 Increase in inventories and contract costs (2,018) (1,130) (2,355) Decrease/(increase) in receivables 5,833 1,406 (685) (Decrease)/increase in payables (7,735) (10,277) 4,517 Tax paid (2,579) (523) (3,365) -------------------------- ------- ------- ------ Net cash from operating activities 2,514 741 26,194 Tax paid 2,579 523 3,365 -------------------------- ------- ------- ------ Net cash from operating activities before tax 5,093 1,264 29,559 -------------------------- ------- ------- ------ 8 Analysis of net debt Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006 £000 £000 £000 Cash at bank and in hand 16,264 9,125 22,615 Cash collateralised 1,131 2,097 1,392 -------------------------- ------- ------- ------ Gross cash 17,395 11,222 24,007 -------------------------- ------- ------- ------ Short term loans (1,690) (4,092) (2,907) Syndicated bank facility (net of bank arrangement fees) (72,491) (72,323) (72,277) Non-recourse bank facility (net of bank arrangement fees) (25,284) (10,950) (22,554) Share option facility (1,725) - (1,725) Finance leases (469) (447) (429) -------------------------- ------- ------- ------ Gross debt (101,659) (87,812) (99,892) -------------------------- ------- ------- ------ Net debt (84,264) (76,590) (75,885) -------------------------- ------- ------- ------ Notes (continued) 9 Movements in equity Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006 £000 £000 £000 Recognised income and expense for the period 875 3,991 12,164 Dividends payable (1,812) (1,530) (2,362) -------------------------- ------- ------- ------ (937) 2,461 9,80 -------------------------- ------- ------- ------ Shares issued 2,468 2,317 9,652 Share option exercises (949) - (100) Own shares acquired (122) - (1,668) Credit in relation to share based payment 177 187 449 Opening equity 160,888 142,753 142,753 -------------------------- ------- ------- ------ 161,525 147,718 160,888 -------------------------- ------- ------- ----- 10 Contingent liabilities The Group has received notification of potential claims, as described below. Each claim has been investigated by our lawyers and each is being contested robustly as to both liability and quantum: - breach of contract arising out of the provision of services to a further education college - the return of funding received for the provision of learning assessment and delivery for job seekers. An accrual of £150,000 (31 March 2006: £150,000) is being carried in these financial statements relating to these claims. Any eventual settlement amount is difficult to determine. However the Board believes that adequate provision has been made based on all the information currently available. Independent review report to Tribal Group plc Introduction We have been instructed by the company to review the financial information for the six months ended 30 September 2006 which comprises the consolidated income statement, the consolidated balance sheet, the consolidated statement of recognised income and expense, the consolidated cash flow statement and related notes 1 to 10. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 September 2006. Deloitte & Touche LLP Chartered Accountants Bristol, UK 27 November 2006 Notes: A review does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular on whether any changes may have occurred to the financial information since first published. These matters are the responsibility of the directors but no control procedures can provide absolute assurance in this area. Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock Exchange

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