Final Results

Tribal Group PLC 26 June 2003 26 June 2003 PRESS INFORMATION Tribal Group plc Preliminary results for the year ended 31 March 2003 Strong results; recommended offer for Hacas Group plc and £20.5m fundraising Highlights: - Strong growth during the period, with profit before tax* up 90 per cent to £15.4m - Adjusted diluted earnings per share up 31 per cent to 18.6p - Underlying organic sales growth of 19 per cent - Operating profit* to cash conversion rate of 122 per cent - Committed income for 2004 over 54 per cent of budgeted turnover - Recommended offer for Hacas Group plc - £20.5m fundraising conditional on the offer for Hacas being declared unconditional in all respects - Important contract wins - Good start to the current year's trading David Telling, Chairman of Tribal Group plc, commented: 'I am delighted to be able to announce another set of strong results today. Tribal has continued to make excellent progress, further consolidating its position as a leading professional support services and consultancy business, predominantly delivering services to the UK public sector. The Group has developed a significant position in its key markets of education, local government and health and social care, delivering a broad and increasing range of value added services. The recommended offer for Hacas is a major step in the development of our public sector consultancy business and will provide us with market leadership in the social housing sector. We have also announced today a £20.5m equity fundraising through a conditional placing of new stock which will strengthen our balance sheet and, along with our new £103m bank facilities, gives us considerable financial flexibility to continue our growth. We have, during the period, made a number of excellent acquisitions, continued to deliver significant organic growth and won several important contracts. The Group is very well placed to take advantage of the rapidly increasing opportunities in our buoyant markets. We expect this to be another successful year and believe that our future growth will remain strong.' Financial highlights: Year ended 31 March 2003 2002 Turnover £105.7m £45.7m up 131% Gross revenue £98.4m £45.7m up 115% Operating profit* £16.7m £8.4m up 99% Operating margins on gross revenue* 17.0% 18.3% Profit before tax* £15.4m £8.1m up 90% Profit on ordinary activities before taxation £7.9m £4.7m up 68% Adjusted diluted earnings per share* 18.6p 14.2p up 31% Operating cash flow £20.4m £9.5m up 115% Operating profit to cash conversion* 122% 114% Note: *Profits and earnings per share are stated before goodwill amortisation, employee benefit trust costs and in respect of 2003, exceptional costs associated with the move to the Official List For further information contact: Henry Pitman, Chief Executive, Tribal Group plc Tel 01285 886020 Tribal Group plc Preliminary results for the year ended 31 March 2003, recommended offer for Hacas and announcement of a £20.5m fundraising. Chairman's and Chief Executive's joint statement We are pleased to report on the results of Tribal Group plc for the year ended 31 March 2003. During this period, the Group has further consolidated its position as a leading professional support services and consultancy business, predominantly operating in the UK public sector. We have extended our market position in education and local government, established a significant presence in the health and social care market and entered the central government market. Results In the year ended 31 March 2003, the Group has produced another set of excellent results. Turnover was £105.7m (2002: £45.7m) and excluding amortisation of goodwill, exceptional items and the costs associated with employee benefit trusts, operating profit was £16.7m (2002: £8.4m). Operating margins were 17.0 per cent (2002: 18.3 per cent), a strong performance given the level of growth during the year. Profit before taxation was £15.4m (2002: £8.1m) and adjusted diluted earnings per share was 18.6p (2002: 14.2p). During the period, the Group generated operating cash flow of £20.4m (2002: £9.5m), representing an operating profit to cash conversion rate of 122 per cent. Net debt at the year end was £22.1m, representing gearing of 19 per cent, and interest cover was 7.2 times. Our gross return on capital employed was 21.2 per cent (2002: 21.8 per cent). Dividend In line with our previous policy, the board is not recommending the payment of a dividend for the year ended 31 March 2003. However, the board has agreed to recommend to shareholders that the payment of dividends should commence in respect of the current year. Recommended offer for Hacas Group plc We today announced a recommended offer for Hacas Group plc valued at £45.1m. Irrevocable undertakings to accept the offer have been received from the directors and other shareholders of Hacas representing 67.0 per cent of the issued share capital. Hacas is the leading consultancy business in the social housing sector, working with 120 Local Authorities and over 500 Registered Social Landlords, as well as a number of central government departments and agencies. The company has grown operating profits by 45 per cent compound since it joined AIM in 1998. The acquisition will considerably strengthen our consultancy capability and is a major step in creating one of the leading consultancy practices in the public sector. In addition to its housing activities, Hacas has a strong HR business which, together with Tribal's existing operations, will position the enlarged group as the second largest search and selection business in the public sector. Hacas' subsidiary, SDP, is a market leader in the regeneration sector and will substantially enhance Tribal's capacity in this area. Hacas' treasury business opens up a new market opportunity for Tribal. We are confident that we can help Hacas to accelerate its growth through extending its customer base, providing access to large scale outsourcing contracts, developing joint working initiatives with other Tribal companies and by making selective bolt-on acquisitions. Fundraising and banking We today announced the completion of a £20.5m fundraising through a placing of 6,507,937 shares at 315.0p per share conditional on the offer for Hacas being declared unconditional in all respects. The funds will be used to part finance the cash element of the offer for Hacas. As previously announced, new bank facilities of £103m were signed on 29 May 2003. The combination of the monies raised in the placing, along with the new bank facilities, will strengthen our balance sheet and provide the Group with the flexibility to invest in the development of our businesses and support our acquisition programme. Activities Tribal comprises both management consultancy and support services operations. Our consultancy businesses have recurring, high margin revenues; technically sophisticated staff; and high quality, long-term customer relationships which often lead to outsourcing opportunities. Our support services companies deliver an extensive range of 'white collar' services that support the core operations of an organisation. These companies provide the Group with long-term committed revenue; skills and services which can be supplied to customers as a packaged solution; and the reference sites which assist the Group to bid successfully for further contracts. Over time, we expect to become more involved in the direct delivery of services within our markets. Our services are now grouped into six areas: • management consultancy - an extensive range of sector specific services • IT and information management - products, systems development, managed services and document management • HR services - resourcing and recruitment advertising • training - training delivery and publishing • property services - project management, architectural and surveying/ asset management services • communications and PR services It is our intention to build each of these business streams so that they become market leaders and substantial businesses in their own right. We have already achieved these aims in a number of areas. Markets We continue to operate in buoyant markets and to benefit from increasing government expenditure, particularly in education and health. We are now operating in sectors that account for over £120bn of government spending. There is an increasing acceptance across government that the private sector has a role to play in reforming and delivering public services. We believe that this change in approach towards the private sector is the main driver in our markets. In the year ended 31 March 2003, 97 per cent (2002: 93 per cent) of our revenues were from the public sector and we expect to retain this focus in the immediate future. We now have a strong presence in education and health and social care; a growing presence in local government, housing and regeneration (which will be substantially enhanced by the acquisition of Hacas); and have entered the central government sector. Over time, we expect to increase our presence in the private sector as we transfer and apply the skills that we have developed in the public sector. Competition Many of our businesses are delivering services that were previously carried out within the public sector and the Group's major competitor remains the in-house team. We are constantly looking to add value to our customers by providing innovative products and services and by spreading best practice from our extensive customer experience. We compete with both management consultancies and business services companies across our markets. Growth There are now four strands to our growth strategy. First, we have increased capacity in our businesses and enhanced their organic growth potential. This is supported by our focus on delivering the benefits of cross-selling and capitalising on our national coverage. Secondly, we are now successfully using the skills and customer reference sites across the Group to secure major contracts that open up new business streams and increase the level of our long-term committed income. Thirdly, we have continued to make strategic acquisitions that add value for shareholders and strengthen the Group's position in existing markets or extend our services into new, complementary skill or market areas. Finally, we are developing start-up businesses that fill gaps in our service offering and enable us to recruit high quality and ambitious individuals and teams. Organic growth Over the year, on a like for like basis, the businesses within the Group have increased headcount by 18 per cent and demonstrated underlying organic revenue growth of 19 per cent. Without exception, all businesses have broadened and strengthened their management teams since acquisition, with an increasing number of high quality senior managers joining us from competitors. We have within the Group an extensive range of services which are, in most cases, applied to one market sector only. We are now placing increased emphasis on applying those skills to other parts of the public sector. We are seeing an acceleration of cross-selling across the Group, with many examples of companies winning business in conjunction with other Tribal businesses. In 2003, we formalised our approach to cross-selling by establishing four core industry groups (education; health and social care; local government and housing; and central government). The industry groups are responsible for developing sector strategy, and co-ordinating the presentation of a well structured offering to our customers. Cross selling initiatives have been supported by continuing improvements to the Group's website, intranet and marketing materials and the establishment of four regional offices. Contract wins During the year, a number of important contracts have been won and, increasingly, these are involving more than one part of the Group. In May 2002, we were awarded a three year contract to provide strategic management services to Swindon Local Education Authority; in November 2002, we were awarded a contract to provide strategic management to the social care department in Cardiff Council; we also announced a £8m architectural contract to design the £300m new Walsgrave hospital in Coventry; in December 2002, we were confirmed as one of eight UK and international companies approved to bid for the management of failing NHS hospitals as part of the NHS Franchising initiative; and, in April 2003, our schools inspection contract with Ofsted (now valued at £6m) was renewed and extended. We continue to win a number of recruitment advertising contracts. Since April 2002, we have won over 23 contracts in local government and health with an estimated annual value of £12.5m. Last month, we announced that, through a consortium led by RM plc, we had been awarded a £4.2m contract to provide e-learning services to the South Yorkshire e-learning partnership. In addition to these contract wins, the Group has also been selected as a framework provider by a number of Government departments and agencies. We are currently short-listed on several contracts, including the NHS diagnostic and treatment centre initiative. Acquisitions The acquisitions we have made have exceeded our expectations and the incentivisation of management through equity participation has proved very successful in creating a stable yet dynamic culture. Of the 103 subsidiary company directors who have joined the Group through acquisitions over the last three years, 101 remain with us. During the year, we have attracted more high quality companies into the Group, thereby extending our cross-selling potential and our capability to bid for larger scale contracts. The acquisitions made in the year cost an aggregate initial consideration of £33.6m, paid for by a combination of cash and shares. Deferred consideration of up to £30.2m is payable in respect of these acquisitions, principally in shares, based on increases in operating profits. At the year end, our total estimated earn-out liability in respect of the period to 31 March 2007 was £42.1m. Although these liabilities are primarily to be satisfied in shares, the Group always retains sufficient headroom in its banking facilities to finance the next two years earn-outs in cash. We continue to identify high margin, cash generative companies with strong track records and excellent growth potential, all of which have skills and services that can add to our overall proposition. Since the year end, we have completed four acquisitions for an initial consideration of £5.8m, satisfied in cash and shares, with deferred consideration of up to £5.8m to be satisfied primarily in shares. We believe that the consolidation of the education market is nearing completion. The health and social care and local government markets still offer opportunities and, in central government, there remains considerable potential for further consolidation. As Tribal grows and our reputation and track record increases, we believe that more successful companies will recognise that they will be able to accelerate their growth as part of the Group. Move to the Official List In July 2002, we successfully moved from AIM to the Official List and, in September we became a constituent of the FT All Share Index. The board believes the profile of 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 already seeing the benefits of moving to the Main Market. Management and board We are delighted that Dominic Collins has agreed to join our board from 1 July 2003 as non-executive Deputy Chairman. Dominic is a main board director of Jardine Lloyd Thompson Plc, the world's fifth largest insurance broker, and Executive Chairman of its largest subsidiary, JLT Risk Solutions Ltd. JLT is one of the most successful FTSE companies in terms of delivering shareholder value over the past five years. We are confident that Dominic will be a great asset to Tribal. On 1 September 2003, the Group's executive management group will be extended to include managing directors from certain of the Group's subsidiaries. This group will be responsible for the strategic and operational management of Tribal, assessing investment priorities and managing the Group's risk profile. People We are a business that relies on the quality and commitment of our people and our success is thanks to the hard work and professional integrity of our 1,400 staff. We have created an environment in which individuals at all levels are given a high degree of autonomy within a supportive Group framework. We have established a clear set of values which encourage entrepreneurialism, profit focus and a dynamic culture within a strong ethos of customer service, integrity and social awareness. We have exceptional individuals amongst our middle and senior management teams, many of whom are nationally leading figures in their specialist areas. A key ingredient of our strategy is to incentivise these individuals through an equity interest in the Group. In September of this year, we will be launching the Tribal Management Development Programme, in association with a leading business school. We expect up to twenty of our senior managers to participate annually. Our Save As You Earn scheme is offered to employees annually. Currently half of our employees have chosen to participate in this scheme, a high proportion for schemes of this kind. We would like to put on record the thanks of the board to our employees at all levels. Their efforts have ensured that Tribal is one of the most dynamic and successful young companies in the UK today. Prospects Tribal Group is firmly established as a major supplier of professional support services and consultancy to the public sector. The Group has the right business model, as well as the skills, services, management and customer relationships required to take advantage of the rapidly increasing opportunities in our expanding markets. We have had a good start to the year's trading and committed income already exceeds 54 per cent of budgeted turnover. We are currently short-listed for several new important contracts and have a pipeline of high quality acquisition prospects. Our intention is to maintain the momentum we have achieved throughout the coming year for the benefit of all employees and shareholders. The board expects this to be another successful year and believes that future growth will remain strong. David M Telling Henry J Pitman Chairman Chief Executive 26 June 2003 Consolidated profit and loss account For the year ended 31 March 2003 Year ended Year ended 31 March 31 March 2003 2002 Note £000 £000 Turnover (gross earnings) Continuing operations 75,484 45,651 Acquisitions 30,175 - 105,659 45,651 Direct agency costs (7,295) - Gross revenue 98,364 45,651 Cost of sales (42,249) (19,975) Gross profit 56,115 25,676 Operating profit before amortisation of goodwill, employee benefit trust costs and exceptional items 16,685 8,360 Amortisation of goodwill (6,288) (2,903) Amortisation of shares held by employee benefit trust (75) (75) Contribution to employee benefit trust (505) (419) Exceptional items 2 (702) - Net operation expenses (47,000) (20,713) Operating profit Continuing operations 6,730 4,963 Acquisitions 2,385 - 9,115 4,963 Net interest payable (1,260) (283) Profit on ordinary activities before taxation 7,855 4,680 Taxation (4,737) (1,851) Profit for the financial year 3,118 2,829 Earnings per share Basic 3 6.4p 7.6p Diluted 3 5.5p 6.6p Adjusted basic before amortisation of goodwill, employee 3 21.4p 16.3p benefit trust costs and exceptional items Adjusted diluted before amortisation of goodwill, employee 3 18.6p 14.2p benefit trust costs and exceptional items The results for the period disclosed in the profit and loss account are on a historical cost basis. There are no other recognised gains or 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 31 March 2003 31 March 31 March 2003 2002 Note £000 £000 Fixed assets Intangible assets - goodwill 4 142,315 92,697 - development expenditure 308 244 Tangible assets 3,549 2,261 Investments 86 71 146,258 95,273 Current assets Stock - work in progress 1,618 1,030 Debtors 33,856 18,063 Cast at bank and in hand 6 29,671 35,784 65,145 54,877 Creditors: amounts falling due within one year (60,737) (55,964) Net current assets/(liabilities) 4,408 (1,087) Total assets less current liabilities 150,666 94,186 Creditors: amounts falling due after more than one year (36,225) (9,388) Net assets 114,441 84,798 Capital and reserves Called up share capital 2,624 2,261 Share premium account 59,216 39,596 Shares to be issued 36,367 30,601 Capital reserve 9,545 9,545 Profit and loss account 5,913 2,795 Equity minority interest 776 - Equity shareholders' funds 114,441 84,798 Reconciliation of movements in consolidated shareholders' funds At 31 March 2003 31 March 31 March 2003 2002 £000 £000 Profit for the year 3,118 2,829 New share capital subscribed 19,983 30,402 Shares to be issued 5,261 13,083 Credit in relation to share related awards 505 419 Minority interests 776 - Net addition to shareholders' funds 29,643 46,733 Opening shareholders' funds 84,798 38,065 Closing shareholders' funds 114,441 84,798 Consolidated cash flow statement For the year ended 31 March 2003 Year ended Year ended 31 March 31 March 2003 2002 Note £000 £000 Net cash inflow from operating activities 5 20,411 9,502 Returns on investments and servicing of finance Interest paid (3,173) (863) Interest element of finance lease rental payments (30) (3) Interest received 1,343 975 Net cash (outflow)/inflow from returns on investments and servicing of finance (1,860) 109 Taxation Corporation tax paid (3,722) (1,994) Capital expenditure and financial investment Payments to acquire tangible fixed assets (2,150) (1,088) Payments to acquire intangible fixed (329) assets (60) Payments to acquire investments (5) - Sale of tangible fixed assets 168 115 Net cash outflow for capital expenditure and financial investment (2,316) (1,033) Acquisitions Purchase of subsidiary undertakings (30,681) (6,935) Net increase in cash from acquisition of subsidiary undertakings 2,613 3,599 Net cash outflow from acquisitions (28,068) (3,336) Cash (outflow)/inflow before financing (15,555) 3,248 Financing Issue of ordinary share capital less issue costs 20,881 (21) Repayment of borrowings (26,479) (951) New secured loans less issue costs 36,180 - Capital element of finance lease rental payments (238) (42) Net cash inflow from financing 9,442 19,888 (Decrease)/increase in cash in the year (6,113) 23,136 Consolidated cash flow statement (continued) For the year ended 31 March 2003 Year ended Year ended 31 March 31 March 2003 2002 £000 £000 Reconciliation of net cash flow to movement in net debt (Decrease) / increase in cash in the year (6,113) 23,136 Cash outflow from movements in debt (12,828) (27,173) Change in net debt resulting from cash flows (18,941) (4,037) Finance leases acquired with subsidiaries (75) (235) New finance leases (39) (38) Movement in net debt in the year (19,055) (4,310) Net (debt)/funds at the start of the year (3,028) 1,282 Net debt at the end of the year (22,083) (3,028) Notes 1 Preliminary Announcement A duly appointed and authorised committee of the board of directors approved the preliminary announcement on 25 June 2003. The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 March 2003 or 2002, but is derived from those accounts. The financial information is prepared on the basis of the accounting policies as stated in the previous year's financial statements. Statutory accounts for 2002 have been delivered to the Registrar of Companies and those for 2003 will be delivered following the company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under s237 (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 Earnings per share Year ended Year ended 31 March 31 March 2003 2002 Basic Earnings for year (£000) 3,118 2,829 Weighted average number of shares outstanding (thousands) 49,030 37,342 Basic earnings per share (pence) 6.4p 7.6p Diluted Earnings for year (£000) 3,118 2,829 Weighted average number of shares in issue including dilutive shares: Basic weighted average number (thousands) 49,030 37,342 Employee share options (thousands) 1,563 1,416 Shares to be issued in respect of deferred consideration (thousands) 5,892 4,156 Adjusted number of shares outstanding (thousands) 56,485 42,914 Diluted earnings per share (pence) 5.5p 6.6p Notes (continued) 3 Earnings per share (continued) Year ended Year ended 31 March 31 March 2003 2002 Adjusted basic before goodwill amortisation, EBT costs and exceptional items Earnings for year (£000) 3,118 2,829 Goodwill amortisation (£000) 6,288 2,903 EBT costs net of tax (£000) 406 346 Exceptional items (£000) 702 - Adjusted earnings before goodwill amortisation, 10,514 6,078 EBT costs and exceptional items (£000) Weighted average number of shares in issue (thousands) 49,030 37,342 Adjusted basic earnings per share (pence) 21.4p 16.3p Adjusted diluted before goodwill amortisation, EBT costs and exceptional items Adjusted earnings before goodwill amortisation, 10,514 6,078 EBT costs and exceptional items (£000) Weighted average number of shares in issue including dilutive shares (thousands) 56,485 42,914 Adjusted diluted earnings per share (pence) 18.6p 14.2p The two additional adjusted earnings per share figures shown on the profit and loss account are included as the directors believe that it provides a better understanding of the underlying trading performance of the Group. 4 Intangible assets: Goodwill £000 Net book value at 31 March 2002 92,697 Goodwill arising on acquisitions 55,906 Amortisation charge (6,288) Net book value at 31 March 2003 142,315 Notes (continued) 5 Note to the cash flow statement Reconciliation of operating profit to operating cash flows Year ended Year ended 31 March 31 March 2003 2002 £000 £000 Operating profit 9,115 4,963 Depreciation 1,513 563 Amortisation of goodwill 6,288 2,903 Amortisation of development expenditure 265 109 Provision for impairment of investments 35 - Profit on disposal of fixed assets (1) (32) Contribution to employee share awards 505 419 Amortisation of employee benefit trust 75 75 Increase in debtors (6,137) (4,789) Increase in creditors 8,957 5,494 Increase in stocks (204) (203) Net cash inflow from operating activities 20,411 9,502 6 Cash Management Year ended Year ended 31 March 31 March 2003 2002 £000 £000 Cash at bank 14,174 11,326 Cash collateralised 15,497 24,458 29,671 35,784 Loan notes - cash backed (14,692) (22,659) Loan notes - bank guarantees - (15,218) Other loan notes (739) (668) Bank loans (36,180) - Finance leases (143) (267) (51,754) (38,812) Net debt (22,083) (3,028) 7 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 and Partners Limited August 2002 Yale Data Management Consultants Limited September 2002 Atlas Media Group Limited December 2002 Action Medical Limited December 2002 Kingsway Advertising Limited This information is provided by RNS The company news service from the London Stock Exchange

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