Final Results

Tribal Group PLC 20 June 2006 Tribal Group plc Preliminary results for the year ended 31 March 2006 Highlights • Strong organic revenue growth during the year, up by 19 per cent • Profit before tax* up 6.7 per cent at £19m • Full year dividend up 10 per cent to 3.3p • Excellent cash conversion of 123 per cent and free cash flow of £19.1m • Successful integration into six divisions has delivered a robust operating structure • Strong financial and operational performance by Mercury Health 'This has been a successful period for the Group and the Board is confident about prospects.' - Strone Macpherson, Chairman Financial highlights Year ended 31 March 2006 2005 Turnover £259.9m £229.5m +13.2% Revenue £214.8m £179.9m +19.4% Operating profit £23.3m £13.4m Adjusted operating profit* £24.1m £22.3m +8.1% Operating margins* 11.2% 12.4% Profit before tax* £19.0m £17.8m +6.7% Profit on ordinary activities before £17.5m £9.0m taxation Profit on ordinary activities after £12.8m £3.6m taxation Adjusted diluted earnings per share* 17.2p 15.3p +12.4% Basic earnings per share 16.2p 4.6p Free cash flow £19.1m £2.9m Operating profit to cash conversion* 123% 60% Note: *The adjusted operating profit, operating margins, profit before tax and adjusted diluted earnings per share are stated before goodwill impairment of £nil (2005: £6.7m), intangible asset amortisation of £0.3m (2005: £0.3m), share option costs of £0.4m (2005: £0.1m), IAS 32/39 finance costs of £0.8m (2005: £nil) and exceptional bid costs of £nil (2005: £1.7m) (see page 12 and page 19). Chairman's statement I am pleased to report on the results of Tribal Group plc for the year ended 31 March 2006. This has been a successful period for the Group, during which we have further strengthened our position as a leading professional support services and consultancy business, predominantly operating in the UK public sector. During the year, the Group has generated strong organic growth through its core consultancy and support services businesses in education; local government, housing and regeneration; health and social care; and central government; and has successfully developed its healthcare delivery business, Mercury Health. We have delivered strong turnover growth for the year, up 13 per cent at £259.9m (2005: £229.5m). Operating profit* was £24.1m (2005: £22.3m) and operating margins* were 11.2 per cent (2005: 12.4 per cent). Profit before tax* was up 6.7 per cent at £19.0m (2005: £17.8m), profit after tax was £12.8m (2005: £3.6m) and adjusted diluted earnings per share* were 17.2p (2005: 15.3p). During the year, the Group generated free cash flow of £19.1m (2005: £2.9m), representing an operating profit* to cash conversion rate of 123 per cent (2005: 60 per cent). Net debt at the year end was £75.9m including the non-recourse Mercury Health project debt of £20.2m. Our gearing was 47 per cent and our interest cover was 4.7 times. At 31 March 2006, the Group's committed revenue was £333m. Note: *The operating profit, operating margins, profit before tax and adjusted diluted earnings per share are stated before goodwill impairment of £nil (2005: £6.7m), intangible asset amortisation of £0.3m (2005: £0.3m), share option costs of £0.4m (2005: £0.1m), IAS 32/39 finance costs of £0.8m (2005: £nil) and exceptional bid costs of £nil (2005: £1.7m) see page 12 (consolidated income statement) and page 19 (earnings per share note). Operating structure We now have three reporting segments: consulting services, education and technology services, and healthcare delivery. Within this structure, we have continued to strengthen management and financial reporting arrangements and have further invested in our business development teams. We are seeing significant benefits from an ever strengthening Tribal brand and from offering a more integrated package of services across our customer base. Our ability to do this will increasingly differentiate Tribal from other competitors in our markets, opening up more opportunities and increasing barriers to entry. Mercury Health During the year, the major focus for Mercury Health was the implementation of the £214m contract we signed with the NHS in December 2004, to design, build and manage a regional network of treatment centres for elective surgery and diagnostic procedures. The first three centres in Wycombe, Medway and Portsmouth are now open, on time and to budget, and performing well. The fourth and largest centre, in Mid-Sussex, will open at the end of June. Mercury Health has a significant market share of this emerging market and is well placed to develop into a major UK healthcare provider. We are currently bidding for several contracts as part of the £3.5bn Phase 2 procurements for diagnostics and elective surgery. We are also bidding for a number of primary care opportunities and we announce today our first primary care contract in City & Hackney. This contract is an important first step in the development of our primary care business. Dividend The board is pleased to announce that it is recommending a final dividend of 2.25p per share, making a total of 3.3p per share for the year (2005: 3.0p). Subject to approval at Tribal's 2006 annual general meeting, this dividend will be paid on 13 October 2006 to Tribal's shareholders on the register at 22 September 2006. People The Group is a people-based business and its success is a result of the broad base of talented employees across the Group. We would like to put on record the thanks of the board to our 2,300 employees at all levels. Their efforts have ensured that Tribal continues to be one of the most respected and dynamic companies in its markets. Seasonal weighting Our business has always been weighted to the second half and in particular to the final quarter of the year. The weighting towards the second half of the year will be even more pronounced this year with first half profits and earnings expected to be below last year. This is partly due to the increasing seasonal weighting of revenue to the second half, in line with government spending. However, this year, the first half will also be impacted by higher Mercury Health bid costs, higher interest costs (as a result of the Group's investment in Mercury Health) and only a partial contribution from Mercury Health's largest centre in mid-Sussex. Prospects Tribal is firmly established as a major supplier of high value-added consulting, education and healthcare delivery services. We have a robust business model with a balanced and extensive range of services operating across public sector markets. We are well placed to capitalise on the increasing number of opportunities arising from the Government's public sector reform agenda. We continue to diversify our service offering, focusing primarily on delivering organic growth, increasing the level of committed revenue by winning long term contracts, and by leveraging our relationships and advisory expertise to develop delivery services in our principal markets. We have strengthened our divisional management structure during the year and are now in a stronger position to achieve further improvements in margins through both operational efficiency and the centralisation of support services. The board is confident about the Group's prospects. Strone Macpherson Chairman 20 June 2006 Chief Executive's statement During the year, our businesses have continued to strengthen their service offerings and deliver an integrated package of services drawn from across the Group. This capability, alongside our excellent relationships with public sector organisations, positively differentiates Tribal from its competitors. Markets We continue to operate in expanding markets and to benefit from increasing government expenditure, particularly in education and health. We now work in sectors that account for over £275bn of annual government spending. The main driver for our business continues to be the expanding role of the private sector in both advising the public sector and delivering services on its behalf. In the year ended 31 March 2006, 95 per cent (2005: 94 per cent) of our revenues were from the public sector and we expect to retain this focus in the immediate future. We are, however, starting to see good opportunities to transfer and apply the skills we have developed to the private sector. Operating review Tribal's businesses now report in three segments: consulting services, education and technology services and healthcare delivery. All divisional operating profit and operating profit margins are stated before amortisation of IFRS 3 intangibles, goodwill impairment, share option charges and exceptional bid costs. Consulting services Consulting services is managed through four divisions: consulting, resourcing, communications and property. Year ended Year ended 31 March 2006 31 March 2005 £000 £000 Revenue 122,743 110,750 Operating profit 15,464 16,912 Operating profit margin 12.6% 15.3% Consulting Year ended Year ended 31 March 2006 31 March 2005 £000 £000 Revenue 63,242 55,238 Operating profit 6,965 6,677 Operating profit margin 11.0% 12.1% Consulting achieved good levels of revenue growth, up 14 per cent to £63.2m. Operating profit was up by 4 per cent, but operating margins were lower compared with 2005. We have now developed into one of the 'top six' major consulting practices operating in the public sector, with expertise across health, local government, regeneration, housing and central government. Overall, the market for consultancy remains strong, with demand driven by the Government's efficiency agenda and the increasing pace and complexity of its reforms. During the year, we delivered a solid performance across the portfolio, with very strong performances in central government off-setting lower than planned levels of utilisation in health, housing and local government. In central government, we have recruited some very high quality consultants into the Group, growing numbers from 35 to over 60. We continue to widen our portfolio of clients, with work won at the Ministry of Defence, Environment Agency, Revenue & Customs, Forensic Science Service, Office for National Statistics, Department for Rural Affairs and several high profile departments within the Home Office. We have made a significant investment in the re-tendering of the Office of Government Commerce's 'Catalist' consultancy framework (formerly S-Cat). Tribal Consortium has now been awarded a total of 15 'Catalist' consultancy framework agreements by OGC buying solutions, an executive agency of the Office of Government Commerce in the Treasury. We have been awarded more consultancy agreements under this framework than any other company. In healthcare, utilisation rates have fallen in health planning and financial management. This is, in large part, the result of the reorganisation of strategic health authorities and primary care trusts, which has delayed decision making and increased uncertainty over the future of PFI schemes and funding issues generally across the NHS. Now that the picture is clearer and PFI projects are moving ahead, we are more confident about the outlook for these parts of the business. Both the informatics and equipping areas have performed strongly. In informatics, we continue to win a number of important contracts including support to the National Programme for IT within the NHS in England, and a contract to support the development of IT for the NHS in Wales. We have won equipping consultancy work with West Hertfordshire NHS Trust and with several PFI consortia. In local government, regeneration and housing, market conditions have overall remained strong, although utilisation rates have been impacted by the reorganisation of our management arrangements and investment in additional teams to service new areas of opportunity. During the year, we continued to win a range of consulting assignments in local government for performance management, capital projects and organisational learning. We have also won a wide range of economic development and regeneration projects, including a three year contract as the private sector partner to the Boston Area Regeneration Company; further high profile housing stock transfer assignments across England, Scotland and Wales, and a major long term programme for administration of grants to the voluntary sector. The integration of the division has now been completed, enabling us to provide a strong and unified brand proposition to the marketplace. Coupled with our new operational structure, this will considerably strengthen both our profile and delivery capability, and ensure we offer our customers a fully integrated portfolio of advisory and transformational services. The appointment of Ian McCagherty as the new chief executive will further strengthen overall divisional management and our shared service arrangements for finance, IT and HR have started to yield savings as well as improve operational efficiency. Resourcing Year ended Year ended 31 March 2006 31 March 2005 £000 £000 Turnover 71,296 74,297 Revenue 26,193 24,603 Operating profit 4,276 5,231 Operating profit margin 16.3% 21.3% Resourcing increased revenues to £26.2m, up 6 per cent. Operating profit has fallen by 18 per cent to £4.3m and operating margins have fallen by five percentage points to 16.3 per cent. This is a satisfactory result in a more difficult recruitment market. Our recruitment advertising business has had a particularly challenging year, during which turnover has fallen, despite winning new contracts worth an annualised £14m. The NHS market has been particularly weak. The reorganisation of primary care trusts and funding deficits in several NHS trusts has resulted in a 34 per cent fall in our recruitment advertising volumes, with some trusts reducing their spend by up to 45 per cent. In the last quarter of the financial year, advertising volumes stabilised and we expect the market in the current year to be less turbulent. In response to the increasing shift of recruitment advertising to the internet, we have increased our investment in our web-based recruitment products. During the year, our recruitment job site for senior management, 'careers for leaders', moved into profit and, since the year end, we have launched a dedicated job site for head teachers and senior management in schools. We will launch other products in due course. During the year, the performances of our executive and interim search businesses have been very strong, and we have reinforced our position as one of the leading consultancies in local government, housing and education. We continue to develop services in other parts of the public sector. As in other areas of our business, there are now increasing barriers to entry. During the year, we won three preferred supplier contracts with Luton Council and the London Boroughs of Hackney and Lambeth; and were awarded framework contracts with Wolverhampton Council, London Borough of Waltham Forest, Nottingham City Council and Birmingham City Council. Looking forward, we intend to focus on delivering an integrated HR offering and on new service provision such as neutral vendor contracts, where there are opportunities to bid for large scale contracts to manage temporary and permanent staffing supply services, and work in partnership with local authorities to reduce expenditure on staffing overall. Communications Year ended Year ended 31 March 2006 31 March 2005 £000 £000 Revenue 10,571 9,958 Operating profit 2,887 2,364 Operating profit margin 27.3% 23.7% Communications achieved good levels of revenue growth, up 6 per cent to £10.6m. During the year, operating profit increased by 22 per cent to £2.9m with margins up to 27.3 per cent. The integration of the business has been successful and we are now able to offer our customers a comprehensive package of services. We are already seeing the benefits of this approach. With £5.7m of fee income derived from consumer campaigns, we are now the number one independent agency in PR Week's rankings for consumer PR and number eight in its overall rankings. We have continued to win high profile new contracts during the year with the National Lottery Promotions Unit, the Department for Education and Skills (DfES) and the Department of Trade and Industry. Framework contracts are becoming increasingly important . We are now on the rosters for the Central Office of Information, the DfES, the Department for Work and Pensions and the Department of Health. While we will continue to focus on organic growth, we are in parallel looking at a small number of acquisitions which will enable us to strengthen and broaden our proposition to customers. Property Year ended Year ended 31 March 2006 31 March 2005 £000 £000 Revenue 23,603 21,331 Operating profit 1,336 2,640 Operating profit margin 5.7% 12.4% Property achieved good revenue growth, up 11 per cent to £23.6m. Operating profits were down 49 per cent to £1.3m with a large fall in margins to 5.7 per cent. Architecture The market for architectural services has been very strong in education with progressively larger projects in the further education, universities and schools' markets. During the year, we won contracts with Colchester College of Further Education and Bournemouth University. We have also been successful in the Academy programme, where we are now appointed as project managers and designers on a number of academies including the Arcadia Fashion Academy in London. In healthcare, it has been a difficult year in which there has been considerable uncertainty over the future of PFI. Several large projects have been delayed, resulting in revenue slippage and impacting margins in 2006. Following clarification of the Government's position, we are hopeful that projects will move forward again and that margins will improve in 2007. We expect our consortium to reach financial close on the £220m Peterborough hospital PFI scheme in late 2006. We have been awarded a place, as one of three consortia, on the £1.2bn NHS All Wales 'Designed for Life' capital spend framework contract to be delivered over the next four to six years, working as the architectural partner of HBG construction. Over the medium term, we expect fewer major acute hospitals to be built as more healthcare is delivered through primary care and in independent sector, and NHS, treatment centres. As a result, we are adjusting our focus to reflect this change. During the year, significant new work has been won through the LIFT primary care programme. We have now reached financial close on the Accrington LIFT scheme and our consortia are preferred bidders on various other schemes. We have also designed four independent sector treatment centres for Mercury Health. Our architectural business, which has an extensive reach across education and health, is now ranked as the third largest in the UK by the Architect's Journal. Property services Our project management, surveying and town planning businesses have had a good year, particularly in education. A number of significant contracts have been won over the period including Herefordshire College and Suffolk College. In 2006/7, we will add capacity to our property services business by increasing our project management headcount. This will enable us to strengthen our position in education and extend our services into other public sector markets. The divisional management has been strengthened by the appointment of Simon Hall as the divisional chief executive. The shared service arrangements in finance, IT and HR will improve business efficiency and the newly formed divisional business development function will help us to market a fully integrated property service to our clients. Our established presence in education and health means we remain well placed to benefit from the high levels of capital spend in these markets. Education and technology services Year ended Year ended 31 March 2006 31 March 2005 £000 £000 Revenue 79,184 70,397 Operating profit 13,735 10,893 Operating profit margin 17.3% 15.5% Education and technology achieved good levels of revenue growth, up 12 per cent to £79.2m. Operating profit has increased by 26 per cent to £13.7m, with operating margins increasing to 17.3 per cent. This has been an outstanding year for the division, with good performances across the board. We are now firmly established as one of the UK's leading education businesses, offering a broad range of services to schools, local education authorities, further education colleges, the Learning and Skills Council (LSC), universities and to the DfES and its agencies. The implementation of our largest education contract to date, a £50m contract with the Office for Standards in Education (Ofsted), was completed to plan, and during this financial period we have inspected a total of 1,300 schools. Over the next few years, we expect that Ofsted will assume responsibility for the work of other inspectorates including the Adult Learning Inspectorate and for early year's education and childcare inspections. This will give us the opportunity to develop further our inspection services. We continue to have considerable success with our school improvement programme, 'Pupil Champions!', which now provides teacher support to 51 schools in disadvantaged areas through contracts with the DfES and local authorities. We have seen some excellent results; 90 per cent of schools improved their percentage of five A* to C grades this year. Our education consulting and benchmarking business has continued to develop its services, winning significant new work in further and higher education. We have recently announced an important contract with the Quality Improvement Agency (QIA) to provide a national improvement service to the learning and skills sector. We will identify, train, support and deploy a network of around 100 specialist advisers. We have also won a contract to benchmark expenditure in all further education colleges in Wales through ElWa, the Welsh learning and skills body. During the year, we secured an important £15m contract from the DfES to develop and manage, in partnership with Plymouth University, the National Centre for Excellence in Teaching Mathematics. This work will be aligned with a more recent £2m assignment we have also secured with the QIA to provide networks of subject learning coaches for maths teachers in post-16 education. Our student administration software businesses in the further education, work-based learning, children's services and university sectors have had a successful year, increasing market share and launching new products. A number of new contracts have been won including Regent College (an independent institution) and Doncaster College. We have also won a number of new asset management contracts. We have continued to build on our successful distance learning and e-learning offering. Since 2001, we have supplied distance learning to over 300,000 learners through more than 150 FE colleges and training providers. We have won a number of important new e-learning contracts, many of which involve the development of industry leading learning technologies such as m-learning, the delivery of learning through mobile phones. Recent contract wins include the Access to Employment Programme, a European funded project to support access to employment and career development for minority ethnic people. The market in teacher and lecturer training remains difficult. However, this has been compensated by several new training contract wins during the year including a £10.7m contract with the LSC to deliver learning to offenders in prison and during probation. Since the year end, we have signed a £3m three year contract with Thames Valley Police to support the training of probationer police officers. We continue to develop our information management capability with a number of new customers won in the local government and private sectors. Our education and technology business is very well positioned in the sector. We have developed an extensive range of high value niche education services: e and m-learning; information, advice and guidance; curriculum design; professional development; and distance learning. We are able to offer these to our customers, along with other services from across the Group, as a bundled service offering. For example, by combining education curriculum advice with property and architectural advice, or education consultancy with software products. The breadth of our service offering, the range of our technical skills and our in-depth knowledge of our markets, increasingly differentiates us from our competitors. Mercury Health - healthcare delivery Year ended Year ended 31 March 2006 31 March 2005 £000 £000 Revenue 14,550 349 Operating profit 1,476 (345) Mercury Health, the Group's healthcare delivery subsidiary, performed strongly with revenue of £14.6m and operating profit of £1.5m after bid costs. This has been a very successful first year of trading for Mercury Health, during which we have exceeded all our financial and operational expectations. In December 2004, we signed a £214m contract with the NHS to design, build, staff and manage a regional network of five treatment centres. We have now opened a diagnostic centre in Wycombe, an elective surgery centre in Medway and an elective surgery, diagnostic and minor injuries unit and walk-in centre in Portsmouth. All these centres have opened on time and to budget. The fourth and largest centre, an elective orthopaedic facility, will open at the end of June in Haywards Heath, Sussex. The fifth and smallest centre in Havant is expected to open in 2008. To date, the clinical performance of the centres has been excellent and the response from the NHS and from patients has been very encouraging. Last year, the Secretary of State for Health, Patricia Hewitt, announced Phase 2 of the national procurement of independent sector treatment centres (ISTC). The procurement embraces both diagnostic and elective surgery capacity and has an overall value of £700m per annum, some £3.5bn over the five year contract period. Mercury Health is currently short-listed on a number of contracts. Preferred bidder announcements are expected later this year. In parallel with developing a diagnostic and elective surgery business, Mercury Health is also starting to build a primary care business. In November 2005, we announced that we had formed two strategic partnerships with organisations involved in running GP practices. At the end of last year, the Department of Health issued the first national procurement in primary care, with six pilot schemes. We are pleased to announce today that Mercury Health has been successful in winning a five year contract, valued at £4.5m, with City & Hackney PCT to operate a GP practice and walk-in centre. The contract is strategically important for Mercury Health, placing us in a strong position to participate in this emerging market. There is increasing consensus within the NHS that the independent sector will play a significant role in the delivery of healthcare. Having secured more than 10 per cent of the first wave of ISTC contracts, Mercury Health is well placed to become one of the largest providers of clinical services to the NHS. People Tribal continues to employ and attract some of the most talented people in our markets. Our headcount has increased through organic growth by 16 per cent during the year. Our success is a result of the high quality of advice and services that our 2,300 employees and over 1,000 associates deliver for our customers. I would like to thank them all for their hard work over the last year and for their contribution to ensuring Tribal is one of the most exciting businesses to work for in our sector. Prospects We have developed a comprehensive service offering and have a very strong position in our public sector markets. Our divisional operating structure is now helping us to deliver improved operational performance and win contracts which involve several parts of the Group. We are in an excellent position to build on this strong platform. We have also made good progress in developing Mercury Health, which is well positioned to become a major healthcare business. We believe that the prospects for the Group are encouraging. Henry J Pitman Chief Executive 20 June 2006 Consolidated income statement for the year ended 31 March 2006 2006 2005 Before other Other Before other Other administrative administrative administrative administrative expenses and expenses and expenses and expenses and financial financial financial financial instruments instruments instruments instruments costs costs costs costs Note Total Total £'000 £'000 £'000 £'000 £'000 £'000 Continuing operations Turnover 259,897 - 259,897 229,470 - 229,470 Direct agency costs (45,103) - (45,103) (49,613) - (49,613) ------- ------- ------- ------- ------- ------- Revenue 214,794 - 214,794 179,857 - 179,857 Cost of sales (122,008) - (122,008) (102,772) - (102,772) ------- ------- ------- ------- ------- ------- Gross profit 92,786 - 92,786 77,085 - 77,085 ------- ------- ------- ------- ------- ------- Net administrative (68,708) - (68,708) (54,794) - (54,794) expenses Other administrative expenses: Share option charges - (449) (449) - (134) (134) Amortisation of - (316) (316) - (322) (322) IFRS 3 intangibles Goodwill impairment - - - - (6,665) (6,665) Exceptional bid - - - - (1,747) (1,747) costs ------- ------- ------- ------- ------- ------- Total administrative (68,708) (765) (69,473) (54,794) (8,868) (63,662) expenses ------- ------- ------- ------- ------- ------- Operating profit 24,078 (765) 23,313 22,291 (8,868) 13,423 Finance income 446 - 446 914 - 914 ------- ------- ------- ------- ------- ------- Finance charges (5,522) - (5,522) (5,380) - (5,380) Financial - (765) (765) - - - instruments Finance costs (5,522) (765) (6,287) (5,380) - (5,380) ------- ------- ------- ------- ------- ------- Net finance (5,076) (765) (5,841) (4,466) - (4,466) costs ------- ------- ------- ------- ------- ------- Profit before 19,002 (1,530) 17,472 17,825 (8,868) 8,957 taxation Taxation 4 (4,751) 97 (4,654) (5,498) 97 (5,401) ------- ------- ------- ------- ------- ------- Profit for the 14,251 (1,433) 12,818 12,327 (8,771) 3,556 year from continuing operations ======= ======= ======= ======= ======= ====== Attributable to:- Equity holders 12,544 3,253 of the parent Minority interest 274 303 ------- ------- 12,818 3,556 ======= ======= Earnings per share From continuing operations Basic 3 18.1p (1.9p) 16.2p 16.8p (12.2p) 4.6p Diluted 3 17.2p (1.8p) 15.4p 15.3p (11.2p) 4.1p Consolidated statement of recognised income and expense for the year ended 31 March 2006 Note 2006 2005 £'000 £'000 Actuarial (loss)/gain on defined 10 (594) 105 benefit plans Transfer to cash flow hedge reserve 10 51 - Deferred tax 10 163 - ------ ------ Net expenses recognised directly to (380) 105 equity Profit for the year 12,818 3,556 ------ ------ Total recognised income 12,438 3,661 and expense for the year ====== ====== Attributable to: Equity holders of the parent 12,164 3,358 Minority interest 274 303 ====== ====== Change in accounting policy to adopt IAS32 and 39 Equity holders of the parent (248) - Consolidated balance sheet at 31 March 2006 Note 2006 2005 £'000 £'000 Non-current assets Goodwill 6 206,392 205,247 Other intangible assets 3,255 3,479 Property, plant and equipment 40,962 12,538 Investment property 200 180 Investments 151 151 Deferred tax assets 823 1,282 ------- ------- 251,783 222,877 ------- ------- Current assets Inventories 11,495 9,102 Trade and other receivables 7 59,170 56,315 Cash and cash equivalents 22,615 26,810 Collateralised cash 1,392 1,525 ------- ------- 94,672 93,752 ------- ------- Total assets 346,455 316,629 ======= ======= Current liabilities Trade and other payables 8 (69,938) (65,254) Tax liabilities (5,399) (5,758) Obligations under finance leases (78) (20) Bank overdrafts and loans (2,907) (3,802) Shares to be issued (6,102) - ------- ------- (84,424) (74,834) ------- ------- Net current assets 10,248 18,918 ------- ------- Non-current liabilities Bank loans (96,556) (77,518) Pension liabilities (1,977) (1,370) Deferred tax liabilities (939) (1,058) Obligations under finance leases (351) (26) Shares to be issued (135) - Deferred consideration - (411) ------- ------- (99,958) (80,383) ------- ------- Total liabilities (184,382) (155,217) ======= ======= Net assets 162,073 161,412 ======= ======= Equity Share capital 4,008 3,748 Share premium account 80,771 80,156 Capital reserve 10 9,545 9,545 Merger reserve 10 52,164 43,387 Own shares reserve 10 (1,668) - Share based payment reserve 10 889 597 Hedging reserve 10 6 - Shares to be issued - 16,517 Retained earnings 10 15,173 5,568 ------- ------- Equity attributable to equity 160,888 159,518 holders of the parent ------- ------- Minority interest 1,185 1,894 Total equity 162,073 161,412 ======= ======= Consolidated cash flow statement for the year ended 31 March 2006 Note 2006 2005 £'000 £'000 £'000 £'000 Net cash from operating 9 26,194 7,585 activities ======= ======= Investing activities Interest paid (7,524) (5,555) Interest received 446 914 Proceeds on disposal of - 170 investments Proceeds on disposal of property 34 2,265 plant and equipment Purchases of property plant and (4,039) (5,315) equipment - other Purchases of property plant and (26,569) (2,652) equipment - Mercury Health ------- ------- Purchases of property plant and (30,608) (7,967) equipment Purchases of trading investments - (35) Expenditure on product (1,048) (640) development Acquisitions (deferred (3,642) (7,921) consideration and minority interests) ------- ------- Net cash outflow from investing (42,342) (18,769) activities ======= ======= Financing activities Equity dividend paid (2,362) (2,135) Issue of shares 304 106 Repayment of borrowings (15,400) (6,231) Repayments of obligations under (57) (56) finance lease New bank loans 31,538 6,095 Movements in collateralised cash 133 5,942 Purchase of own shares (1,668) - Loan to third party (535) - ------- ------- Net cash from financing 11,953 3,721 activities ======= ======= Net decrease in cash and cash (4,195) (7,463) equivalents Cash and cash equivalents at 26,810 34,273 beginning of year ------- ------- Cash and cash equivalents at end 22,615 26,810 of year ======= ======= Notes to the preliminary announcement 1. General information The basis of preparation of this preliminary announcement is set out below. The financial information in this announcement, which was approved by the Board of Directors on 20 June 2006, does not constitute the Company's statutory accounts for the years ended 31 March 2006 or 2005, but is derived from these accounts. Statutory accounts for 2005 have been delivered to the Register of Companies and those for 2006 will be delivered following the Company's annual general meeting. The auditors have reported on these accounts; their reports were unqualified and did not contain statements under S237 (2) or (3) of the Companies Act 1985. The preliminary announcement has been prepared in accordance with the accounting policies adopted under IFRS for the first time with a transition date of 1 April 2005. The disclosures required by IFRS 1 'First-time Adoption of International Financial Reporting Standards' concerning the transition from UK GAAP to IFRS can be found in our announcement of 28 October 2005, 'Transition to International Financial Reporting Standards'. The financial statements have been prepared on the historical cost basis. The Group has adopted IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement' with effect from 1 April 2005. Derivatives are initially accounted for and measured at fair value. The gain or loss on re-measurement is taken to the income statement except where the derivative is a designated cash flow hedging instrument. 2. Segmental information The Group is currently organised into three business streams - Consulting services, Education and technology services and Healthcare delivery. For the purpose of the Group's segmental reporting, Consulting services is divided into four segments in line with internal management reporting to give six primary business segments. Segment information about the businesses is presented below:- Year ended 31 March 2006 Education and technology Healthcare Communications Property Resourcing Consulting services delivery Eliminations Consolidated 2006 2006 2006 2006 2006 2006 2006 2006 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue External sales 10,099 23,190 25,587 62,568 78,800 14,550 - 214,794 Inter-segment 472 413 606 674 384 - (2,549) - sales ------- ------ ------- ------- ------- ------- ------- ------- Total revenue 10,571 23,603 26,193 63,242 79,184 14,550 (2,549) 214,794 ======= ====== ======= ======= ======= ======= ======= ======= Segment profit 2,887 1,336 4,276 6,965 13,735 1,476 - 30,675 ======= ====== ======= ======= ======= ======= ======= ======= Unallocated corporate (6,597) expenses Amortisation of IFRS3 (316) intangibles Share option charges (449) ------- Operating profit 23,313 Finance income 446 Finance costs (6,287) ------- Profit before 17,472 taxation Taxation (4,654) ------- Profit for 12,818 the period ------- Year ended 31 March 2005 Education and technology Healthcare Communications Property Resourcing Consulting services Delivery Eliminations Consolidated 2005 2005 2005 2005 2005 2005 2005 2005 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue External 9,772 21,119 24,379 54,624 69,614 349 - 179,857 sales Inter-segment 186 212 224 614 783 - (2,019) - sales ------- ------ ------- ------- ------- ------- ------- ------- Total revenue 9,958 21,331 24,603 55,238 70,397 349 (2,019) 179,857 ======= ====== ======= ======= ======= ======= ======= ======= Segment profit 2,364 2,640 5,231 6,677 10,893 (345) - 27,460 ======= ====== ======= ======= ======= ======= ======= ======= Unallocated corporate (5,169) expenses Amortisation of IFRS3 (322) intangibles Goodwill impairment (6,665) Share option charges (134) Exceptional (1,747) bid costs ------- Operating profit 13,423 Finance income 914 Finance costs (5,380) ------- Profit before 8,957 taxation Taxation (5,401) ------- Profit for 3,556 the period ======= 3. 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: 2006 2005 thousands thousands Weighted average number of shares outstanding: Basic weighted average number of shares in issue 77,255 71,421 Employee share options 763 890 Shares to be issued in respect of 3,255 6,164 deferred consideration -------- -------- Weighted average number of shares outstanding for 81,273 78,475 dilution calculations ======== ======== The adjusted basic and adjusted diluted earnings per share figures shown on the consolidation income statement are included as the directors believe that they provide a better understanding of the underlying trading performance of the Group. A reconciliation of how these figures are calculated is set out below: 2006 2005 Earnings Earnings Earnings Earnings per share per share £'000 pence £'000 pence Basic and adjusted basic earnings per share: Profit and basic earnings per 12,544 16.2p 3,253 4.6p share Adjustments: Share option charges 449 0.6p 134 0.2p Amortisation of IFRS 3 intangibles 316 0.4p 225 0.3p (net of tax) Goodwill impairment - - 6,665 9.3p Exceptional bid costs - - 1,747 2.4p Financial instruments charge (net 668 0.9p - - of tax) ------- ------- ------- ------- Adjusted earnings and adjusted 13,977 18.1p 12,024 16.8p basic earnings per share ======= ======= ======= ======= Diluted and adjusted diluted earnings per share: Profit and diluted earnings per 12,544 15.4p 3,253 4.1p share Adjustments: Share option charges 449 0.6p 134 0.2p Amortisation of IFRS 3 intangibles 316 0.4p 225 0.3p (net of tax) Goodwill impairment - - 6,665 8.5p Exceptional bid costs - - 1,747 2.2p Financial instruments charge (net 668 0.8p - - of tax) ------- ------- ------- ------- Adjusted earnings and adjusted 13,977 17.2p 12,024 15.3p diluted earnings per share ======= ======= ======= ======= 4. Taxation The effective rate of tax on operating profit before share option charges, amortisation of IFRS 3 intangibles, goodwill impairment and exceptional bid costs of 25% (2005: 30.8%) due to releases of prudent prior year tax provisions no longer required. 5. Dividends 2006 2005 £'000 £'000 Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 March 2005 of 1,530 1,400 2.0 pence (2004: 2.0 pence) per share Interim dividend for the year ended 31 March 2006 832 750 of 1.05 pence (2005: 1.0 pence) per share ------ ------ 2,362 2,150 ====== ====== Proposed final dividend for the year ended 31 March 1,804 1,530 2006 of 2.25 pence (2005: 2.0 pence) per share ====== ====== The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. 6. Goodwill 2006 2005 £'000 £'000 Cost At beginning of year 232,949 221,835 Additions - including minority interests 4,136 15,387 Revisions to prior years (2,991) (4,273) ------- ------- At end of year 234,094 232,949 ======= ======= Amortisation At beginning of year 27,702 21,037 Impairment - 6,665 ------- ------- At end of year 27,702 27,702 ======= ======= Net book value At end of year 206,392 205,247 ======= ======= Revisions to prior years primarily relate to changes in estimates of the likely final settlement values under various earn out agreements, which are dependent on post acquisition performance. 7. Trade and other receivables 2006 2005 £'000 £'000 Trade receivables 45,431 45,537 Other receivables 1,675 1,037 Prepayments and accrued income 12,020 8,350 Amounts recoverable on contracts 44 1,391 ------- ------- 59,170 56,315 ======= ======= 8. Trade and other payables 2006 2005 £'000 £'000 Trade payables 24,147 25,457 Other taxation and social security 12,503 9,264 Other payables 1,892 1,539 Accruals and deferred income 30,623 27,796 Deferred consideration 254 1,198 Fair value of interest rate swaps 519 - ------- ------- 69,938 65,254 ======= ======= 9. Notes to the cash flow statement 2006 2005 £'000 £'000 Operating profit from continuing operations 23,313 13,423 Depreciation of property, plant and equipment 3,600 2,715 Amortisation of development expenditure 435 457 Amortisation of intangible assets 316 322 Impairment of goodwill - 6,665 Net pension charge 13 29 Gain on disposal of available for sale investments - (95) Gain on disposal of property, plant and equipment (24) (30) Increase in fair value of investment property (20) (91) Share option charges 449 134 Decrease/(increase) in receivables 1,539 (6,636) Increase/(decrease) in payables 4,008 (1,649) (Increase)/decrease in inventories (25) 543 Exceptional items - 1,747 Tax paid (3,365) (4,655) ------- ------- Net cash from operating activities 30,239 12,879 (excluding Mercury Health) Mercury Health: - increase in inventories (2,330) (7,574) - increase in receivables (2,224) (379) - increase in payables 509 4,406 Exceptional items - (1,747) ------- ------- Net cash from operating activities 26,194 7,585 Tax paid 3,365 4,655 ------- ------- Net cash from operating activities before tax 29,559 12,240 ======= ======= 10. Reserves Share Own based Capital Merger share payment Hedging Retained reserve reserve reserve reserve reserve earnings Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 April 2005 9,545 43,387 - 597 - 5,568 59,097 Impact of adoption - - - - (30) (218) (248) of IAS 39 ------- ------- ------- ------- ------- ------- ------- Restated at 1 9,545 43,387 - 597 (30) 5,350 58,849 April 2005 Dividends paid - - - - - (2,362) (2,362) Net profit for the - - - - - 12,544 12,544 year Premium on share - 8,777 - - - - 8,777 issues Share options - - - - - (100) (100) exercised Actuarial loss on defined benefit plans - - - - - (594) (594) Fair value movement on cash flow hedges - - - - 51 - 51 Deferred tax - - - - (15) 178 163 Own shares - - (1,668) - - - (1,668) purchased Credit in relation to share based payment - - - 449 - - 449 Transfers - - - (157) - 157 - ------- ------- ------- ------ ------- ------- ------- At 31 March 2006 9,545 52,164 (1,668) 889 6 15,173 76,109 ======= ======= ======= ====== ======= ======= ======= * The allocation between share premium and merger reserve has been revised to reflect the provisions of S131 of the Companies Act 1985 This information is provided by RNS The company news service from the London Stock Exchange

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