Interim Results

Tribal Group PLC 23 November 2004 23 November 2004 PRESS INFORMATION Tribal Group plc Interim results for the six months ended 30 September 2004 Tribal Group today announces its interim results for the six months ended 30 September 2004. Financial highlights: Unaudited Unaudited six months six months ended ended 30 September 30 September Percentage 2004 2003 change Turnover £107.7m £78.7m 36.8% Gross revenue £81.8m £64.4m 27.0% Operating profit* £8.9m £8.2m 8.5% Profit before tax * £6.9m £7.0m (1.4)% (Loss)/profit on ordinary activities before taxation £(4.4)m £2.0m Adjusted diluted earnings per share * 6.5p 7.8p (16.7%) Loss for period £(6.5)m £(0.1)m Operating cash flow £0.2m £7.2m * Operating profit, profit before tax and diluted earnings per share are stated before goodwill amortisation and impairment of £8.8m (2003: £4.6m), employee benefit trust costs of £0.5m (2003: £0.3m) and exceptional items of £2.0m (2003: nil) (see page 15 of the interim statement). • Trading impacted by organisational change • Good progress being made towards an integrated divisional structure • Underlying organic revenue growth of 11 per cent • Secured income for 2005 over 79 per cent of forecast turnover • Key £190m NHS contract is making good progress towards contract signature • Interim dividend of 1p per share payable on 14 January 2005 Strone Macpherson, Chairman of Tribal Group plc, commented: 'This has been, and remains, a demanding period for Tribal Group with significant organisational restructuring and investment. As we foreshadowed at the time of the preliminary results and in our AGM statement, the actions we have taken along with a number of management changes have impacted profitability but are necessary to deliver a strong platform for the future. Over this first half year we have seen a decline in our operating margin from 12.8 per cent to 10.9 per cent. This has been due principally to softness in Tribal Asset Management and the teacher training businesses which have now been addressed, and the changes made to our organisation which have necessitated additional costs. We have, however, made good progress with the integration of businesses into our divisional management structure and there is increasing evidence of improved joint working across the Group. Overall, we continue to be well placed to exploit our strong position in our key markets of education; local government, housing and regeneration; health and social care; and central government. Our subsidiary Mercury Health is making good progress towards financial close on a pivotal NHS contract to design, set up and manage a regional network of five diagnostic and treatment centres across the south east of England. This contract was, at preferred bidder, valued at £190m over a five year period and represents a major and challenging opportunity in the development of the Group. We are hopeful that this contract will lead to further opportunities in the UK healthcare delivery market. The Group will continue to focus its efforts on contract signature and then the development of Mercury and the completion of the organisational restructuring. While we expect that profitability will improve in the second half, positively helped by the seasonal weighting to trading and improved margins, adjusted profit before tax (excluding Mercury Health) for the full year will, however, be below market consensus but not less than £17.5m.' 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 Neil Bennett/Colin Browne, Maitland Tel: 020 7379 5151 Tribal Group plc Unaudited interim results for the six months ended 30 September 2004. Chief Executive's statement We hereby report on the interim results of Tribal Group plc for the six months ended 30 September 2004. Trading has been broadly in line with market expectations, with profit impacted as anticipated by the seasonality of our business and the very significant changes we have made to our organisational structures and management arrangements. These changes, as well as the continuing investment in our infrastructure, are necessary to create a robust structure for future growth. Results For the six months ended 30 September 2004, the Group's turnover increased by 37 per cent to £107.7m (2003: £78.7m). Underlying organic revenue growth was 11 per cent. Excluding amortisation and impairment of goodwill, exceptional items and the costs associated with employee benefit trusts, operating profit* was £8.9m (2003: £8.2m); operating margins* were 10.9 per cent (2003: 12.8 per cent); profit before taxation* was £6.9m (2003: £7.0m); and adjusted diluted earnings per share was 6.5p (2003: 7.8p). The Group reports a loss before tax of £4.4m (2003: £2.0m profit). During the period, the amortisation of goodwill rose from £4.6m to £8.8m. Included in this charge was an impairment write down of £3.2m relating to a review of the carrying value of certain investments. * Operating profit, profit before tax and diluted earnings per share are stated before goodwill amortisation and impairment of £8.8m (2003: £4.6m), employee benefit trust costs of £0.5m (2003: £0.3m) and exceptional items of £2.0m (2003: nil) (see page 15 of the interim statement). In these results we are showing an analysis of trading by division for the first time. Dividend An interim dividend of 1p per share (2003: 1p) will be paid on 14 January 2005 to shareholders on the register on 17 December 2004. NHS contract - Mercury Health Following our announcement on 18 February 2004 that we had been selected as Preferred Bidder on an Independent Sector Treatment Centre (ISTC) contract, we have made good progress with the contract negotiations and are approaching financial close on a five year NHS contract to design, set up and manage a regional network of five treatment centres. Guaranteed revenues over the duration of the contract were, at preferred bidder, valued at £190m. This is a major opportunity for the Group that we have worked hard to secure. We are hopeful that it will lead to further opportunities in this area. The delays in the ISTC contract meant that Mercury Health has incurred higher bid costs than planned. Cumulative bid and implementation costs to date have been £5.0m. As previously announced, £3.0m was written off as an exceptional item in the year ended 31 March 2004 and £2.0m has been written off as an exceptional item in the six months ended 30 September 2004. In September the Board received sufficient comfort that the costs would be recovered to allow it to commence capitalising bid costs in accordance with UITF 34 'Pre-Contract costs'. We will however have to absorb Mercury Health operating costs in this year's full year figures of approximately £0.5m. Integration and investment The main focus over this period has continued to be the integration of businesses into the Group's divisional structure and the strengthening of management. We have also continued to invest in our support infrastructure and selectively in building capacity in our businesses. The integration process has accelerated over the period and we expect that by 1 April 2005 all our businesses will be operating through fully integrated divisions. This divisionalisation process has highlighted a number of issues relating to the ending of earn-out and succession planning arrangements. As a consequence, we have decided to accelerate this organisational change process and have strengthened senior operational and finance management in several business areas. These actions have caused some disruption to trading in certain parts of the business, and have added cost into the business. The benefits will, in most cases, not be seen until next financial year. We have also continued to invest in developing our support structure, in particular building capacity in our central Group management team, and extending our network of regional hub offices. These actions are necessary to provide the capacity to continue our growth. The investment in our bid team has continued, bringing into the Group new managers and individuals who have good experience of managing complex public sector bids. We expect to see a contribution from this investment in the second half of next financial year. We have continued to back a limited number of start-ups and investments in areas where we consider there are good growth prospects over the next few years. In particular, we have recently set up a new business focusing on opportunities in the regeneration market; an interim management business in local government and housing; and a consultancy offering in the chronic disease management market. We expect these start-ups to begin making a contribution to profitability in 2006. Furthermore, we have been investing in positioning ourselves to participate in some of the major new Government initiatives, such as Building Schools for the Future; the opportunities arising from the Children's Bill; and the City Academy Programme. The cost of these investments will be approximately £200,000 in this financial year. We have also started the development of our divisional shared service network, bringing together finance, HR and IT support functions. Over the next 12 months we expect to see significant cost benefits of more than £500,000 from this rationalisation. Divisional trading Consulting 6 months ended 6 months ended 12 months ended 30 September 2004 30 September 2003 31 March 2004 £000 £000 £000 Gross revenue 26,761 16,756 43,723 EBITA** 2,507 2,606 7,065 EBITA margin** 9.4% 15.6% 16.2% ** Before goodwill and employee benefit trust costs The Group's consulting division has consolidated its position as the largest consultancy delivering services into the public sector. Consultancy showed revenue growth of 60 per cent due in part to HACAS contributing for the full six months in 2004, compared with under three months in 2003. The underlying organic sales growth was 27 per cent. Operating profit** was down by 4 per cent and operating margins** were significantly lower compared to the prior period. The margin dilution is principally due to increased competition which has reduced win rates and higher associate costs. Utilisation rates in healthcare have fallen from 73 per cent to 66 per cent which accounts for 2.65 per cent of the divisional margin dilution. The associate costs were £1m higher that budget due to skill shortages and this accounts for the remaining 3.6 per cent of the divisional margin dilution. Overall, the consultancy markets remain buoyant, average fee rates remain firm and the divisional utilisation is at over 70 per cent. We have made good progress in the housing and local government markets with utilisation levels close to 80 per cent. Areas of underperformance have been addressed and we expect margins across the division to improve in the seasonally stronger second half. We are seeing good growth opportunities in central government, where we are gaining market share from major consultancies, and in regeneration and economic development where across the Group we have a very strong offering. These are new areas of development for the Group which have been loss making in the first half but should start to make a contribution to profitability in the second half. We continue to strengthen our position across our markets and to build barriers to entry by adding capacity, enhancing our product range, and by extending our service offering. Education 6 months ended 6 months ended 12 months ended 30 September 2004 30 September 2003 31 March 2004 £000 £000 £000 Gross revenue 16,071 13,528 36,475 EBITA** 1,764 1,919 6,634 EBITA margin** 11.0% 14.2% 18.2% ** Before goodwill and employee benefit trust costs We have now decided to separate our education activities from our consultancy division. The creation of an education division will provide a focus for our offering in this area. Overall growth in revenue of 19 per cent reflected underlying organic growth of 10 per cent. The two teacher training businesses suffered from a continuing decline in delegate day numbers - down from 9,339 to 7,980 resulting in a 32 per cent fall in revenue. The operating margin** for our education consultancy, e-learning and distance learning businesses was higher compared to 2003, with the overall lower performance reflecting the lower contribution from our teacher training businesses which we anticipate will improve following rationalisation and cost reductions. We expect to see the full benefits of this restructuring during 2006. Without the impact of the training businesses the divisional operating margin** would have been 17.1 per cent. We are seeing very positive opportunities in the education market, where Tribal is now established as a major operator and one of the few companies able to offer a comprehensive range of services across both the schools and post-16 market. We have now been selected as project managers for five City Academies. This experience should position us well for future waves as well as for the Building Schools for the Future initiative. Our e-learning and distance learning operations continue to grow well in buoyant markets. Technology 6 months ended 6 months ended 12 months ended 30 September 2004 30 September 2003 31 March 2004 £000 £000 £000 Gross revenue 15,365 15,012 30,486 EBITA** 1,836 2,617 4,308 EBITA margin** 11.9% 17.4% 14.1% ** Before goodwill and employee benefit trust costs Overall growth in revenue of 2 per cent reflected a fall in organic growth of 6 per cent. Much of this fall is down to our asset management software business which experienced ongoing trading difficulties, as previously announced, and where revenues were lower by 19 per cent. The operating margins** in the education software businesses were broadly comparable to 2003. The asset management business continued to be loss making and accounts for 3 per cent of the divisional margin dilution. Without the asset management business, the divisional operating margin** would have been 16.1 per cent. The restructuring of the asset management business should result in annualised cost savings of £500,000. We expect it to return to profit in the second half of the year. The remaining 2 per cent dilution arises from a mix change and the up-front costs associated with the mobilisation of the Ufi hub contract which started trading in August 2004. The period did not yet benefit from our off-shoring partner arrangements for software programming in India. We expect to see the benefits in the second half and beyond, and this will be extended to include SITS. Our education software businesses have grown market share, with an increasing order book, and have been greatly strengthened by the acquisitions of Aldcliffe, which has traded in line with expectations, and more recently SITS, which have extended our reach into the work-based training and higher education markets respectively. Resourcing 6 months ended 6 months ended 12 months ended 30 September 2004 30 September 2003 31 March 2004 £000 £000 £000 Gross revenue 11,183 10,507 20,910 EBITA** 2,460 2,853 5,406 EBITA margin** 22.0% 27.2% 25.9% ** Before goodwill and employee benefit trust costs Overall growth in revenue was 6 per cent. Recruitment advertising has performed well with margins sustained. The slow down in NHS demand has been compensated by a buoyant local government market. Overall market conditions for recruitment advertising are challenging with strong competition, however, there are good prospects for growth. Margins in the executive search business have been disappointing, impacted by increased competition, some pressure on fee rates and succession management issues, which have now been resolved. Financial controls have been strengthened in this area with a new finance director appointed, and the cost base adjusted. The healthcare supply business continues to grow market share with margins improving. Communications 6 months ended 6 months ended 12 months ended 30 September 2004 30 September 2003 31 March 2004 £000 £000 £000 Gross revenue 4,662 2,309 6,926 EBITA** 1,094 566 1,741 EBITA margin** 23.5% 24.5% 25.1% ** Before goodwill and employee benefit trust costs Our communication division is performing well, with growth in revenue of 102 per cent. Geronimo and Tribal MPC contributed for the full six months in 2004, compared with just one and three months respectively in the prior period. We continue to build our capacity and geographic coverage. Property 6 months ended 6 months ended 12 months ended 30 September 2004 30 September 2003 31 March 2004 £000 £000 £000 Gross revenue 10,040 8,086 18,443 EBITA** 1,226 670 2,819 EBITA margin** 12.2% 8.3% 15.3% ** Before goodwill and employee benefit trust costs Property showed revenue growth of 24 per cent, all of which is organic. The property businesses are participating in, and benefiting from, increasing and large scale capital programmes in healthcare and education. The operating profit** showed an improvement of 83 per cent and a margin improvement. This is partly due to buoyant demand for our services, but also due to improved financial resources and controls which were implemented at the start of this financial year. Our capacity and technical capability have been enhanced by the recent acquisition of Derek Hicks and Thew, which has strengthened our position in the north west and in the schools market. Cash and net debt Cash inflow from operating activities for the six months to 30 September 2004 was £0.2m (2003: £7.2m) representing an operating profit to cash conversion of 2 per cent (2003: 88 per cent). The fall is mainly due to the unwinding of a very strong performance for the year to 31 March 2004, which is unlikely to be repeated (conversion: 135 per cent). In particular tighter control of creditors at March which have unwound, and the payment of £2m of exceptional costs which were higher than the comparative period. Cash management is a strong focus across the Group and debtor days outstanding improved to 46 days at 30 September 2004 (2003: 60 days). Creditor days reduced to 44 days (2003: 56 days) due in part to the unwinding of year end creditors in the period. Cash conversion of 102 per cent was achieved over the 12 months ended 30 September 2004, as demonstrated in the table below: 12 months ended 30 September 2004 £000 Operating cash flow 24,228 Net interest (4,111) Tax paid (7,533) Net capital expenditure (3,382) Free cash flow 9,202 Dividends (688) Acquisitions (7,568) Financing (1,768) Net cash outflow (822) EBITA for year to 30 September 2004 23,829 Operating cash flow conversion 102% However, we do not expect the cash conversion ratio for the full year to 31 March 2005 to be at previous high levels because of the one-off benefit of £2m, arising from improving the working capital post acquisition of HACAS in the second half of last year, and the high level of creditors at 31 March 2004. We expect the cash conversion ratio to return to normal levels in the next financial year. Net debt at 30 September 2004 was £48.0m, representing gearing of 32 per cent, and interest cover was 4.3 times. Growth The Group has taken the decision to reduce the pace of acquisitions since we have now secured substantial positions in each of our target growth markets. Moving forward, the focus will be on delivering organic growth and margin improvement from existing businesses, the vast majority of which are operating in rapidly expanding markets. We may, however, make a small number of further acquisitions where they add strength to our divisions. During the period to 22 November 2004 we acquired three companies: Aldcliffe Computer Systems Limited, Strategic Information Technology Services Group Limited and Derek Hicks & Thew Limited. These acquisitions cost an aggregate initial consideration of £16.0m (including payment of £4.9m, on a £ for £ basis, for cash acquired with the businesses), paid for by a combination of cash and shares. Deferred consideration of up to £6.3m is payable in respect of these acquisitions, principally in shares, based on increases in operating profit. The 2004 earn-out obligations will be settled shortly leaving an estimated earn-out liability of £19.5m, of which approximately £16.6m is expected to be satisfied by the issue of shares through to November 2008. Although these liabilities are primarily to be satisfied by the issue of new shares, the Group's policy is to retain sufficient headroom in its banking facilities to finance at its option the next two years earn-outs in cash (currently estimated to be approximately £15.6m). We have continued to build our bidding and business development capability and will increasingly bid for longer term public sector contracts that increase the levels of our contracted revenue. Management and board The Group's executive board has now been strengthened by the appointment of CEOs in five out of our seven divisions; Richard Collins as Company Secretary, Adam Hoyle as Group Business Development Director and by Julia Marsan, who joins us as Group HR Director. We have made a number of new senior manager appointments over the period in particular in the finance area, where three new divisional finance directors have joined us. People We are a business that relies on the quality and commitment of our people and progress in this challenging year is thanks to the hard work and professional integrity of our staff. We have exceptional individuals amongst our middle and senior management teams, many of whom are nationally leading figures in their specialist areas. Overall staff numbers across the Group have remained static during the year at 1,800. Within this number we have increased capacity in many areas and reduced numbers in others. In November of this year, we are running our second Tribal Management Development Programme, in association with Henley Management College. Twenty six of our senior managers will be participating. Prospects As expected, we have had a relatively slow start to the year, with profitability impacted both by the actions we have taken to integrate businesses into our divisional structure and the seasonality of our business. While we expect that margins and profitability in the second half will increase, we now expect adjusted profit before tax for the full financial year to be below current market consensus but not less than £17.5m, reflecting our continued investment in infrastructure and in building capacity and the disruption caused by the pace of organisational change in the business. The board is, however, confident that the good progress we have made and continue to make in the current year, in developing our organisational structure and management team, should provide a strong platform for future growth. Henry J Pitman Chief Executive Consolidated profit and loss account For the six months to 30 September 2004 Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 September 30 September 31 March 2004 2003 2004 Note £000 £000 £000 Turnover Continuing operations 106,134 78,680 185,744 Acquisitions 1,584 - - ---------- --------- --------- 107,718 78,680 185,744 Direct agency costs (25,902) (14,273) (33,523) Gross revenue 81,816 64,407 152,221 Cost of sales (45,625) (34,136) (81,134) Gross profit 36,191 30,271 71,087 Net administrative expenses before amortisation of goodwill, employee benefit trust costs and exceptional items (27,266) (22,022) (47,934) Operating profit before amortisation of goodwill, employee benefit trust costs and exceptional items 8,925 8,249 23,153 Goodwill amortisation and impairment 6 (8,829) (4,640) (10,690) Employee benefit trust costs (500) (324) (1,025) Exceptional items 2 (1,991) - (3,040) Operating (loss)/profit Continuing operations (2,615) 3,285 8,398 Acquisitions 220 - - ---------- --------- --------- (2,395) 3,285 8,398 Net interest payable (2,050) (1,244) (3,076) ---------- --------- --------- (Loss)/profit on ordinary activities before taxation (4,445) 2,041 5,322 Taxation - current tax at 30% 3 (2,062) (2,108) (6,176) ---------- --------- --------- Loss on ordinary activities after taxation (6,507) (67) (854) Minority interest - (53) (108) ---------- --------- --------- Loss attributable to ordinary shareholders (6,507) (120) (962) Dividends 4 (750) (680) (2,090) Retained loss for the period (7,257) (800) (3,052) (Loss)/earnings per share Basic 5 (9.39)p (0.21)p (1.5)p Diluted 5 (9.39)p (0.21)p (1.5)p Adjusted basic before amortisation of goodwill, employee benefit trust costs and exceptional items 5 6.94p 8.48p 22.0p Adjusted diluted before amortisation of goodwill, employee benefit trust costs and exceptional items 5 6.49p 7.80p 20.5p 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 periods and, accordingly, no separate statement of total recognised gains and losses has been presented. Consolidated balance sheet At 30 September 2004 Unaudited Unaudited Audited 30 September 30 September 31 March Note 2004 2003 2004 £000 £000 £000 Fixed assets Intangible assets - Goodwill 6 192,771 208,259 200,798 - Development expenditure 623 235 557 Tangible assets 7,829 5,584 6,356 Investments 190 690 190 ------------ -------- -------- 201,413 214,768 207,901 ------------ -------- -------- Current assets Stock - work in progress 4,616 2,942 2,058 Debtors 41,023 38,527 45,245 Cash at bank and in hand 27,493 28,315 41,740 ------------ -------- -------- 73,132 69,784 89,043 Creditors: amounts falling due within one year (53,376) (54,943) (67,784) ------------ -------- -------- Net current assets 19,756 14,841 21,259 ------------ -------- -------- Total assets less current liabilities 221,169 229,609 229,160 Creditors: amounts falling due after more than one year (71,861) (67,251) (72,015) ------------ -------- -------- Net assets 149,308 162,358 157,145 ------------ -------- -------- Capital and reserves Called up share capital 3,468 3,305 3,448 Share premium account 113,737 102,753 112,992 Capital reserve 9,545 9,545 9,545 Profit and loss account (4,396) 5,113 2,861 Shares to be issued 25,605 40,723 27,172 ------------ -------- -------- Equity shareholders' funds 147,959 161,439 156,018 Equity minority interests 1,349 919 1,127 ------------ -------- -------- Total capital employed 149,308 162,358 157,145 ------------ -------- -------- Reconciliation of movements in consolidated shareholders' funds At 30 September 2004 Unaudited Unaudited Audited 30 September 30 September 31 March 2004 2003 2004 £000 £000 £000 Loss for the period (6,507) (120) (962) Dividends (750) (680) (2,090) New share capital subscribed 765 44,218 54,600 Shares to be issued (2,067) 4,070 (10,355) Credit in relation to share related awards 500 286 912 Share related awards acquired - - 248 ----------- -------- --------- Net (reduction)/addition to shareholders' funds (8,059) 47,774 42,353 Opening shareholders' funds 156,018 113,665 113,665 ----------- -------- --------- Closing shareholders' funds 147,959 161,439 156,018 ----------- -------- --------- Consolidated cash flow statement For the six months to 30 September 2004 Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 September 30 September 31 March Note 2004 2003 2004 £000 £000 £000 Net cash inflow from operating activities 7 175 7,240 31,293 ---------- --------- --------- Returns on investments and servicing of finance Interest paid (2,581) (1,902) (4,957) Interest element of finance lease rental payments (2) (7) (14) Interest received 688 501 1,347 Net cash outflow from returns on investments and servicing of finance (1,895) (1,408) (3,624) Taxation Corporation tax paid (3,104) (3,343) (7,772) Capital expenditure and financial investment Payments to acquire tangible fixed assets (5,306) (1,722) (3,399) Payments to acquire (261) (11) (502) intangible fixed assets Payments to acquire investments - - (10) Sale of tangible fixed assets 2,840 60 865 Sale of investments - - 718 ---------- --------- --------- Net cash outflow for capital expenditure and financial investment (2,727) (1,673) (2,328) Acquisitions Purchase of subsidiary undertakings (3,198) (50,352) (55,813) ---------- --------- --------- Net increase in cash from acquisition of subsidiary undertakings 660 6,919 7,350 ---------- --------- --------- Net cash outflow from acquisitions (2,538) (43,433) (48,463) Equity dividends paid - - (688) ---------- --------- --------- Cash outflow before financing (10,089) (42,617) (31,582) Financing Issue of ordinary share capital less issue costs 83 20,079 20,123 Repayment of borrowings (4,232) (9,809) (11,617) New secured loans less issue costs - 31,058 35,243 Capital element of finance (9) (67) (98) lease rental payments ---------- --------- --------- Net cash (outflow)/inflow from financing (4,158) 41,261 43,651 ---------- --------- --------- (Decrease)/increase in cash in the period (14,247) (1,356) 12,069 ---------- --------- --------- Consolidated cash flow statement (continued) For the six months to 30 September 2004 Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 September 30 September 31 March Note 2004 2003 2004 £000 £000 £000 Reconciliation of net cash flow to movement in net debt (Decrease)/increase in cash in the period (14,247) (1,356) 12,069 Cash inflow/(outflow) from movements in debt 4,242 (25,276) (27,615) ----------- --------- -------- Change in net debt resulting from cash flows (10,005) (26,632) (15,546) Finance leases acquired with subsidiaries (32) - (1) Debt acquired with subsidiaries - - (267) New finance leases (18) - - ----------- --------- -------- Movement in net debt in the period (10,055) (26,632) (15,814) ----------- --------- -------- Net debt at the start of the period (37,897) (22,083) (22,083) ----------- --------- -------- Net debt at the end of the period 8 (47,952) (48,715) (37,897) ----------- --------- -------- Notes 1 Accounting policies The unaudited interim accounts were approved by the Board of Directors on 22 November 2004. The auditors have carried out an interim review and their report is set out on page 19. The unaudited 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 2004 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. Turnover represents the amounts (excluding value added tax) derived from the provision of goods and services to third party customers and includes the gross amounts billed in respect of commission based income. The particular policies applied are: • Consultancy - on performance of the contracted services; • Courses and training - over the provision of the related services; • Product sales - on despatch of the related goods; and • Commission based income - on provision of the service to which the commission relates. Direct agency costs comprise media payments and production costs in respect of commission based income. Gross revenue comprises commission and fees earned in respect of turnover. Cost of sales includes the direct expenditure incurred in performing the goods and services described above including the cost of third party associates and the salary cost of employed fee earners. Administrative expenses include the salary cost of non fee earners. The comparative results for cost of sales and administrative expenses have been shown on a consistent basis and this has resulted in a net reclassification of £8.5m (30 September 2003: £6.4m, 31 March 2004: £15.3m) from administrative expenses to cost of sales. There is no impact on operating profit or net assets in any period. In all other respects the unaudited 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 2004. 2 Exceptional Items The exceptional items of £1,991,000 (30 September 2003: nil, 31 March 2004: £3,040,000) are in relation to further bid and implementation costs incurred on the NHS Independent Sector Treatment Centre Contract. In September the Board received sufficient assurance to believe that the contract would reach financial close and has capitalised subsequent bid costs in accordance with UITF 34. 3 Taxation The taxation charge is calculated by applying the forecast full year effective tax rate on operating profits adjusted for goodwill amortisation, employee benefit trust costs and exceptional items to the interim profit, similarly adjusted. 4 Dividends The interim dividend of 1.0p per share, which will absorb £750,000, will be paid on 14 January 2005 to ordinary shareholders on the register on 17 December 2004. The shares will be quoted ex-dividend on 15 December 2004. Notes (continued) 5 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 1 March 2004 2003 2004 thousands thousands thousands Basic weighted average number of shares in issue 69,293 57,139 62,622 Employee share options 1,128 2,121 1,926 Shares to be issued in respect of deferred consideration 3,748 2,871 2,695 ------- ------- ------- 74,169 62,131 67,243 ------- ------- ------- 30 September 30 September 31 March 2004 2004 2003 Earnings (Loss)/ Earnings (Loss)/ Earnings (Loss)/ £000 earnings £000 earnings £000 earnings per share per share per share pence pence pence Basic and adjusted basic earnings per share:- (6,507) (9.39)p (120) (0.21)p (962) (1.5)p Loss and basic loss per share Adjustments: Goodwill amortisation and impairment 8,829 12.74p 4,640 8.12p 10,690 17.1p EBT costs net of tax 500 0.72p 324 0.57p 1,025 1.6p Exceptional items 1,991 2.87p - - 3,040 4.8p ------ ------ ------ ------ ------ -------- Adjusted earnings and adjusted basic earnings per share 4,813 6.94p 4,844 8.48p 13,793 22.0p ------ ------ ------ ------ ------ -------- Diluted and adjusted diluted earnings per share:- (6,507) (9.39)p (120) (0.21)p (962) (1.5)p Loss and diluted earnings per share Adjustments: FRS 14 adjustment* - 0.63p - 0.02p - 0.1p Goodwill amortisation and impairment 8,829 11.90p 4,640 7.47p 10,690 15.9p EBT costs net of tax 500 0.67p 324 0.52p 1,025 1.5p Exceptional items 1,991 2.68p - - 3,040 4.5p ------ ------ ------ ------ ------ -------- Adjusted earnings and adjusted diluted earnings per share 4,813 6.49p 4,844 7.80p 13,793 20.5p ------ ------ ------ ------ ------ -------- 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. * 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 2004, the six months ended 30 September 2003, or the year ended 31 March 2004. Notes (continued) 6 Intangible assets: Goodwill £000 Net book value at 31 March 2004 200,798 Goodwill arising on acquisitions 4,444 Fair value adjustments relating to prior year acquisitions (3,642) Amortisation (5,629) Impairment (3,200) -------- Net book value at 30 September 2004 192,771 -------- 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 2004 2003 2004 £000 £000 £000 Operating (loss)/ profit (2,395) 3,285 8,398 Depreciation 1,332 957 2,134 Goodwill amortisation and impairment 8,829 4,640 10,690 Amortisation of development expenditure 195 85 255 Profit on sale of investments - - (203) Profit on disposal of fixed assets (63) (6) (25) Contribution to employee share awards 500 286 912 Amortisation of employee benefit trust - 38 113 Decrease/(increase) in debtors 4,661 1,293 (3,717) (Decrease)/increase in creditors (10,366) (2,872) 12,317 (Increase)/decrease in stocks (2,518) (466) 419 --------- --------- ------- Net cash inflow from operating activities 175 7,240 31,293 --------- --------- ------- 8 Cash management Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 September 30 September 31 March 2004 2003 2004 £000 £000 £000 Cash at bank 24,058 19,316 34,273 Cash collateralised deposits 3,435 8,999 7,467 --------- --------- ------- 27,493 28,315 41,740 Loan notes - cash backed (3,435) (8,999) (7,467) Other loan notes (501) (717) (701) Bank loans (71,423) (67,238) (71,423) Finance leases (86) (76) (46) --------- --------- ------- Net debt (47,952) (48,715) (37,897) --------- --------- ------- Notes (continued) 9 Acquisitions Since 31 March 2004 Tribal Group plc has acquired 100% of the following principal subsidiary undertakings: Date Subsidiary acquired April 2004 Aldcliffe Computer Systems Limited October 2004 Strategic Information Technology Services Group Limited November 2004 Derek Hicks & Thew Limited 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 2004 which comprises the consolidated profit and loss account, the consolidated balance sheet, the consolidated cash flow statement and related notes 1 to 9, together with the reconciliation of movements in consolidated shareholders' funds and the reconciliation of net cash flow to movement in net debt. 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 should be 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 test of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom auditing standards 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 2004. Deloitte & Touche LLP Chartered Accountants Bristol 22 November 2004 Notes: A review does not provide absolute 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 responsibilities 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 UUURRSWRAUUA

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