Final Results

RNS Number : 8727D

Tribal Group PLC

30 March 2011

 



Tribal Group plc

30 March 2011

Preliminary results for the year ended 31 December 2010 

Summary

§ Revenue of £175.4m (2009: £193.7m)

§ Adjusted profit before tax¹ of £5.9m (2009: £13.8m)

§ Adjusted diluted earnings per share¹ of 5.0p (2009: 10.7p)

§ Final dividend of 0.65p (2009: 2.75p)

§ Committed income of £217m, an increase of 7%

§ Cash generated from operations² of £20.1m (2009: £20.3m)

§ Net debt of £18.5m (2009: £27.8m)

§ Implementation of substantial restructuring programme to reduce the Group's cost base, dispose of non-core activities and improve the Group's operating structure:

-     annualised savings of £28.0m

-     exceptional costs of £10.4m

-     sale of support services businesses completed

§ Goodwill impairment of £51.6m in respect of Health and Government businesses

§ Bank facilities committed to February 2015

Financial summary 

Year ended 31 December	2010	2009	Change
Revenue	£175.4m	£193.7m	-9%
Adjusted profit before tax1	£5.9m	£13.8m	-57%
Goodwill impairment	£51.6m	£30.7m
Loss before tax	(£57.8)m	(£17.8)m
Adjusted diluted earnings per share1	5.0p	10.7p	-53%
Loss per share	(59.6)p	(23.9)p
Dividend per share	2.50p	4.60p	-46%
Operating cash flow2	£20.1m	£20.3m
Net debt	£18.5m	£27.8m

Notes:

1.            The adjusted profit before tax and adjusted diluted earnings per share are in respect of continuing operations, excluding goodwill impairment of £51.6m (2009: £30.7m), intangible asset amortisation of £1.0m (2009: £1.0m), exceptional costs of £10.4m (2009: £nil), financial instruments charge of £0.6m (2009: credit £0.1m) and, in the case of earnings per share, the related tax of £3.2m (2009: £0.3m). 

2.            Operating cash flow is defined as net cash from continuing operating activities less interest.

Commentary

John Ormerod, Chairman of Tribal, commented: "2010 was a year of considerable change for Tribal.  Our markets in the UK, particularly for advisory activities, were impacted by public sector spending constraints.  Internally, we implemented a substantial change programme to reduce costs, streamline our operations and dispose of non-core assets. We maintained our focus on working capital management and negotiated revised banking facilities committed to 2015. 

"Since the publication of the Comprehensive Spending Review in October 2010, we have seen some stability return to our advisory markets and an increase in new business activity across all parts of the Group.  Public sector reform will continue, with Tribal well positioned to play an increasing role in the transformation and delivery of public services. 

"Tribal remains in an offer period and further announcements will be made with regard to any potential offer for the Group as and when appropriate. 

"Peter Martin will be standing down as Chief Executive at the end of April.  On behalf of the Board, I should like to thank Peter for his leadership of the Group during a very challenging period. 

"Our committed income levels remain strong and our sales pipeline, particularly internationally, is very encouraging.  As a result of the actions we have taken, the Group now has a sound footing from which to make progress in 2011."

Further information

A presentation of these results will be made to analysts and investors at 9.30am today at the offices of Investec, 2 Gresham Street, London EC2V 7QP.  A copy of the presentation will be made available later this morning on the Tribal Group website: www.tribalgroup.com.

Tribal Group plc                                                          Tel: [phone]

Keith Evans, Chief Operating Officer

Steve Breach, Group Finance Director

Weber Shandwick Financial                                       Tel: [phone]

Nick Oborne

Stephanie Badjonat

Robert Cook

Links: Tribal Group plc website: www.tribalgroup.com.  

This Statement has been prepared for and is addressed only to our shareholders as a whole and should not be relied on by any other party or for any other purpose.  Tribal, its directors, employees, agents or advisers do not accept or assume responsibility to any other person to whom this Statement is shown or into whose hands it may come and any such responsibility or liability is expressly disclaimed.  This Statement may contain forward-looking statements.   Any forward-looking statement has been made by the directors in good faith based on the information available to them up to the time of approval of this Statement and should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward-looking information.  To the extent that this Statement contains any statement dealing with any time after the date of its preparation, such statement is merely predictive and speculative as it relates to events and circumstances which are yet to occur and therefore the facts stated and views expressed may change.  Tribal undertakes no obligation to update these forward-looking statements.

Operating review

Introduction

The Group encountered challenging market conditions during 2010 with reduced levels of government spending in the UK, particularly on advisory work in our Health and Government businesses, coupled with delays in procurement decisions.  As a result, our Health and Government businesses performed significantly below our expectations, particularly in the second half of the year. 

Despite the challenges, the Group continued to make progress in a number of key areas.  The level of committed income increased and our international business, particularly in Education, made encouraging progress. We also undertook a restructuring of our technology activities in order to create a more integrated and coherent approach to product development and customer support.  

During the course of 2010, we implemented an extensive programme of actions to reduce our cost base significantly, dispose of non-core activities and create a more integrated and coherent operating structure.  Our staff numbers at the start of 2011 were 1,937 against 2,246 twelve months earlier and, in our continuing businesses, we expect to achieve overall annualised savings of £28.0m. 

In the year ended 31 December 2010, the Group's revenue from continuing operations was £175.4m (2009: £193.7m).  Adjusted operating profit was £7.4m (2009: £14.9m) and adjusted operating margin was 4.2% (2009: 7.7%).  Adjusted profit before tax was £5.9m (2009: £13.8m) and adjusted diluted earnings per share were 5.0p (2009: 10.7p).  The adjusted numbers set out above exclude exceptional costs of £10.4m associated with our restructuring programme and a goodwill impairment charge against our Health and Government businesses of £51.6m.  The statutory loss before tax was £57.8m.

During 2010, the Group generated operating cash flows of £20.1m (2009: £20.3m) and, at 31 December 2010, net debt was £18.5m (2009: £27.8m).  A significant part of the reduction in net debt was generated through favourable working capital terms from third parties which will have reversed by the end of the first quarter of 2011.  The Group has operated in full compliance with its banking covenants during 2010 and, in order to provide additional flexibility and headroom during 2011, the Group has recently agreed with its lenders a revised set of banking covenants.  The Group's borrowing facilities total £45m, of which £40m are committed until February 2015. 

The Board is proposing a final dividend of 0.65p per share, making a total of 2.50p for the year.  The final dividend will be paid on 15 July 2011 to shareholders on the register on 17 June 2011.

The Group's committed income has continued to increase and, at the end of 2010, stood at £217m (2009: £203m), an increase of 7% on a year earlier. At the start of 2011, 52% of our planned revenue for the year had already been secured with the balance of our committed income to be realised over the following four years.  Our sales pipeline has also remained strong, totalling £289m at the end of the year (2009: £256m). 

Goodwill impairment

In undertaking our goodwill impairment review, we have adopted future growth assumptions and appropriate discount rates to reflect the challenging market conditions referred to above.  The carrying value of goodwill for our Education business has significant headroom.  However, we have taken a non-cash goodwill impairment charge of £51.6m in relation to our Health and Government businesses.  In respect of our discontinued Support services businesses, we took additional impairment charges of £4.8m on the Communications and Resourcing operations during 2010. 

Education

Year ended 31 December		2010 £'000	2009 £'000
Revenue		106,621	101,264
Segment operating profit		14,079	15,226
Operating profit margin		13.2%	15.0%

Despite funding constraints in certain of our UK markets, our Education business performed well, recording revenue growth of 5.3%, supported by new contract wins in the UK and the expansion of the business internationally. 

Revenue increased to £106.6m (2009: £101.3m).  Operating profit decreased to £14.1m (2009: £15.2m) with the operating margin falling to 13.2% (2009: 15.0%) as a result of a change in the mix of products and services and investment in new business initiatives.  At 31 December 2010, committed income had increased to £186m (2009: £152m) and the pipeline of sales opportunities had increased to £201m (2009: £168m).  The pipeline now contains a larger proportion of higher value contracts than a year ago and includes an increasing overseas component. 

A number of cost reduction activities have been completed to plan during the year in order to improve efficiency and reduce exposure to variations in government programmes.  We expect that a significant future benefit, in terms of both productivity and innovation, will be realised as a result of the pooling of our technology teams, products and programmes. 

Early Years.  Our contract with the Children's Workforce Development Council to develop qualifications and competencies within the early years workforce continued to operate successfully during 2010.  In addition, the implementation of our major new contract with Ofsted to inspect early years provision in the south of England (£64m contracted income over five years) has established further our leading position in the sector.

Schools.  Our contract with Ofsted to inspect circa 45% of all schools and colleges in England continues to deliver excellent results. Outside of this contract, we have made good progress in building our schools improvement capability.  We have had a successful year running the national professional development programme for maths teachers, which has made a real impact on the quality of maths education in schools.  Our Children's Services software suite made good progress and has continued to increase its market share.  The Government's 'Academies' programme stalled during the middle of the year but is now re-emerging and, coupled with our winning two of the first 'Free Schools' project management contracts, will allow us to remain a leading provider of schools improvement services. 

Further education (FE).  Our further and vocational education software businesses in the UK have performed well, showing resilience in the face of funding constraints and linking well with our benchmarking service for colleges which had a strong year.  We were successful in renewing our contracts to provide national support programmes to FE colleges, although our learning materials publishing business was adversely impacted by a change in funding allocations. 

Higher education (HE).  Our HE software business had an excellent year, with a strong trading performance confirming its leading position in the UK. We have also seen good growth in our benchmarking services to the HE sector and were awarded a £1.7m contract by a consortium of ten universities to provide a shared student placement service across London for up to 10,000 students studying in seven health-related disciplines.

Lifelong learning.   We have seen strong operational performance and significant growth in this area, particularly in our careers advisory and apprenticeship contracts.  We were successful in winning two major new contracts in the south west of England, one for an Integrated Adult Careers Service (£4.5m) and the second to support the work of the National Offender Management Service (£5.4m).  At the end of the year, we won, in collaboration with Tribal's Health business, a major e-learning contract to provide professional development training to NHS staff, also in the south west. 

International review.  Our investment in developing our international business is proving successful with over 10% of Education's revenue in 2010 coming from overseas sales.  In Australasia, our implementation of a major new student administration system at the University of Sydney is progressing well; we have won our first HE student system contract in New Zealand with the University of Otago, our first FE student system contract with the Wairiki Institute in New Zealand and we have extended our existing FE benchmarking contract in New Zealand for a further two years.  We have also generated a significant pipeline of further software opportunities in the region. 

In the Middle East, we have extended our existing contracts in Abu Dhabi for the delivery of private school inspections and for monitoring the Emirate's Schools PPP programme.  We have also successfully delivered projects in Bahrain and Qatar and we have generated a promising pipeline of new opportunities across the region.

In the USA, we acquired and integrated the Class Measures business in Massachusetts, enabling us to link our UK inspection and professional development expertise with 'Race to the Top' and 'Teacher Incentive Fund' opportunities in the USA. 

We have placed on hold our discussions regarding a possible joint venture in China. 

During 2010, we initiated a strategic initiative to access donor aid funded international education projects.  The pipeline for such projects is now strong and we have been successful in winning a significant contract to provide special education needs advice to the Turkish government (€5.6m). 

Technology.  Technology accounted for 37% of the Education revenue during 2010.  In order to create a more efficient software development and support capability, we announced in July 2010 that we were planning to pool our existing technology skills and assets and align our product and service offerings around common technology platforms for deployment across our principal markets.  The new operating structure became effective in December 2010. We have already seen in the early weeks of 2011 improvements in delivery times, reductions in development costs and improved levels of productivity. 

Our student management systems form the core of our portfolio of software products and, during the year, we have maintained our leading market position in the further and higher education and work-based learning markets. Technology is an increasingly important component of our education services, providing an important underpin to our inspections, professional development and benchmarking activities. We have continued to invest in product development with work beginning on a new mobile platform which is planned to provide secure, high quality and tailored mobile access right across our product range. 

Health

Year ended 31 December		2010 £'000	2009 £'000
Revenue		26,088	25,674
Segment operating profit		392	2,432
Operating profit margin		1.5%	9.5%

Despite the challenging trading conditions, particularly for advisory work, revenue in the Health business increased by 2% to £26.1m (2009: £25.7m).  This revenue has been underpinned by major long-term commissioning and informatics contracts with primary care trusts (PCTs) on which margins are typically lower than advisory services.  The arrival of the new government in the UK significantly reduced activity across the health sector, especially in the second half of the year, in particular as a result of the decision to impose a moratorium on all central government consulting contracts.  In response to these challenges, the Health business cut its cost base significantly in the second half of the year, reducing staff numbers and overheads.

Major commissioning support contracts with Ashton Leigh and Wigan PCT and North Yorkshire PCT operated successfully throughout the year, delivering savings and quality improvements for our NHS clients and their patients.

Our five-year contract to deliver informatics services to support NHS commissioners in nine PCTs in South Central strategic health authority (SHA) commenced implementation at the beginning of 2010 and has progressed satisfactorily.  This contract, one of the largest of its type ever let by the NHS, provides a model for how commissioning support services might be delivered across the NHS under the government's proposed reforms for the NHS in England.

The challenges facing the NHS have been reflected in the development of our services to healthcare providers.  During 2010, we have successfully established our support programme for major acute hospitals seeking to improve clinical productivity in the face of increasingly difficult financial problems.  We expect the demand for these services to grow in the coming year.

In December, Tribal won a £22m, five-year contract to deliver training and learning services, based on Tribal's e-learning platform, to healthcare staff in the South West Strategic Health Authority.  The programme is designed to support multi-disciplinary staff working in NHS and other healthcare organisations across seven clinical pathways.  The programme will provide blended learning, combining a specially designed e-learning platform with traditional face-to-face learning opportunities.  The e-learning platform will give learners access to the majority of learning content that they need to progress their professional development, along with tools to share and discuss their knowledge. 

The operational efficiencies implemented during the second half of 2010 have ensured a significantly reduced cost base for the business.  Our sales pipeline in Health remains encouraging and, at 31 December 2010, our committed income for 2011 represented approximately 39% of planned revenue for the year. 

Government

Year ended 31 December		2010 £'000	2009 £'000
Revenue		45,405	69,440
Segment operating (loss)/profit		(1,294)	5,269
Operating (loss)/profit margin		(2.8)%	7.6%

During the year, the Government business experienced very challenging trading conditions, particularly in its central government markets.  The impact of a post-election environment characterised by a high level of uncertainty in advance of the Comprehensive Spending Review (CSR), and substantially reduced spending on central government advisory work, was very significant. 

During the year, revenue fell to £45.4m (2009: £69.4m) and the business incurred an operating loss of £1.3m (2009: profit £5.3m).  The cost base has been realigned by reducing the level of spend on third-party subcontractors and significantly reducing the number of employed consulting staff. 

The local government market experienced reduced activity but the slowdown was not as significant as in other markets.  Despite the subdued levels of demand, we successfully delivered a number of large cost reduction advisory projects, including supporting the London Borough of Sutton on its Smarter Services Sutton initiative and assisting with Comprehensive Spending Reviews in both Guernsey and Jersey. 

In Jersey, we conducted peer reviews on a cost reduction programme to achieve £50m savings over three years.  More recently, we have provided programme delivery expertise to drive the implementation of the CSR. 

The social housing market was also the subject of some uncertainty as a result of radical changes in the way that both the local authority and housing association sectors are being funded and regulated.  Key areas such as stock transfers and support for inspections have been affected and the significant reduction in development grants plus new planning regulations has resulted in a slowdown in new affordable housing programmes.

Nevertheless, during the year, we secured a significant development agency role at Westminster and we are also one of the lead consultancies assisting authorities with the implementation of the new system for council housing finance having played a significant role in its original development.  Tribal supported Westminster Community Homes with the development of its £30m intermediate housing programme and, in addition to delivering a number of stock transfers in Wales and the North of England, we have also been working on a number of innovative approaches to stock transfers.

Although the central government advisory market presented significant challenges, we delivered several large projects for clients such as the UK Border Agency, supporting the design and implementation of its identity cards for the Foreign Nationals Programme, and the Foreign and Commonwealth Office.  We secured, in partnership with PA Consulting, a contract to support the Police Continuous Improvement Programme.  The three-year contract was let by the Home Office and the National Policing Improvement Agency to provide support to all 43 police forces in England and Wales in delivering challenging cost saving targets.  We were also involved in supporting two eastern forces in developing their business case for merger.

During the year, we developed growth platforms for our international development business (Tribal HELM) in the six regions of Europe, the Middle East and North Africa, Africa, Asia, Australasia and the Americas.  A number of successful partnerships in 2010 have ensured progress in expanding our services offer and opening up routes to new donor markets such as AusAID and USAID. 

Although the market for new business became increasingly competitive, Tribal HELM has delivered a number of strategic reviews, continuing our long-standing track record with DFID and the World Bank.   We successfully completed our fifth Public Financial Management (PFM) reform project with the Government of the Philippines and are now recognised as a leading authority on PFM in the Philippines.

Since the end of the year, Tribal HELM (in conjunction with our Education business) has been successful in winning a significant contract to provide special education needs advice to the Turkish government (€5.6m). 

Support services

During 2010, we sold our Architectural Design and Communications businesses and, in February 2011, we completed the sale of our Resourcing activities.  We have now concluded the programme of selling our Support services businesses that we announced in March 2010.  During the year ended 31 December 2010, our support services activities were treated as discontinued, recording an adjusted operating profit of £1.5m (2009: £2.2m) on revenue of £26.6m (2009: £48.4m). 

People

The period under review has been one of considerable change, both in terms of our external markets and our internal operating structure.  Every member of staff across the Group has had to adapt to a changing environment.  We are fortunate that our people have a strong commitment to working with our clients to improve the quality and efficiency of public services.  The Board of Tribal is very appreciative of the hard work and commitment shown by everyone in the organisation and the consistently high quality of service provided to clients. 

Board changes

On 1 January 2010, Steve Breach was appointed Group Finance Director.  Following the AGM in May 2010, John Ormerod was appointed Chairman in succession to Strone Macpherson. On 1 June 2010, Simon Ball joined the board as an independent non-executive director and was appointed chairman of the Audit Committee.  

In November 2010, we announced that our Chief Executive, Peter Martin, would be leaving at the end of the year and that we had started the search for a new chief executive.  Following the announcement of a potential offer for the company in December 2010, we announced that Peter would defer leaving the Group, and he will now be standing down as Chief Executive at the end of April.  The Board would like to thank Peter for his leadership of the Group during a very challenging period. 

We announced last month that Keith Evans, previously our Group Commercial Director, had joined the Board as Chief Operating Officer.  We will resume the search for a new chief executive once the uncertainties surrounding the current potential offer have been resolved. 

Outlook

Over the next few years, public sector organisations in the UK will be adapting to an environment of spending constraints.  The need for reform will continue, creating opportunities for organisations that are able to support changes in the way public services are commissioned and delivered.  Tribal is well placed to participate in this reform process through a combination of its domain expertise, technology capability and track record of service delivery.

During the past year, the Group has implemented a substantial change programme to address both the short-term trading challenges facing the business and the longer-term market opportunities.  The key elements in this programme included:

§ the disposal of non-core assets;

§ a significant reduction in the Group's cost base;

§ the establishment of a single integrated software development and customer support capability; and

§ the securing of revised bank facilities that are committed until 2015.

Strategically, we remain focused on growing our service delivery and technology activities, both in the UK and overseas.  We have maintained strong levels of committed income and our sales pipeline, particularly internationally, remains healthy.  At 1 March 2011, we had secured 62% of our planned revenue for the year (2010: 65%), with a further 10% of 2011 revenue at preferred bidder stage, and our sales pipeline totalled £260m. 

The Group has traded in line with expectations during the first two months of the year.  As a result of the actions we have taken across the Group, the Board is confident that the Group now has a sound footing from which to make progress during 2011. 

30 March 2011

Responsibility statement of the directors on the annual report

The annual report contains the following statements regarding responsibility for the financial statements and business review included in the annual report:

"The directors confirm that, to the best of their knowledge:

§ the Company and Group financial statements in this annual report, proposed in accordance with the relevant Financial Reporting Framework, give a true and fair view of the assets, liabilities, financial position and loss of the Company and of the Group taken as a whole; and

§ the business review contained in this annual report includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face."

By order of the Board  

Peter Martin                                                  Steve Breach

Chief Executive                                               Group Finance Director

30 March 2011

Consolidated income statement

for the year ended 31 December 2010

	Note	Before exceptional and amortisation costs		Exceptional  and amortisation costs		Year  ended 31 December 2010 Total		Before exceptional and amortisation costs		Exceptional and amortisation costs		Year  ended 31 December 2009 Total
Continuing operations		£'000		£'000		£'000		£'000		£'000		£'000
Revenue	2	175,372		-		175,372		193,654		-		193,654
Cost of sales		(126,081)		-		(126,081)		(126,352)		-		(126,352)
Gross profit		49,291		-		49,291		67,302		-		67,302
Administrative expenses	3	(41,917)		(10,446)		(52,363)		(52,376)		-		(52,376)
Amortisation of IFRS 3 intangibles		-		(1,027)		(1,027)		-		(1,011)		(1,011)
Goodwill impairment	10	-		(51,610)		(51,610)		-		(30,683)		(30,683)
Total administrative expenses		(41,917)		(63,083)		(105,000)		(52,376)		(31,694)		(84,070)
Operating profit/(loss)		7,374		(63,083)		(55,709)		14,926		(31,694)		(16,768)
Investment income	4	143		-		143		231		-		231
Other gains and losses	5	-		(625)		(625)		-		95		95
Finance costs	6	(1,634)		-		(1,634)		(1,371)		-		(1,371)
Profit/(loss) before tax		5,883		(63,708)		(57,825)		13,786		(31,599)		(17,813)
Tax		(1,231)		3,215		1,984		(3,248)		256		(2,992)
Profit/(loss) for the year from continuing operations		4,652		(60,493)		(55,841)		10,538		(31,343)		(20,805)
Discontinued operations
Profit/(loss) from discontinued operations	8	1,049		(7,312)		(6,263)		1,588		(37,356)		(35,768)
Profit/(loss) for the year		5,701		(67,805)		(62,104)		12,126		(68,699)		(56,573)
Attributable to:
Equity holders of the parent						(62,104)						(57,401)
Minority interest						-						828
						(62,104)						(56,573)
Earnings per share
From continuing operations
Basic	9	5.0p		(64.6)p		(59.6)p		10.7p		(34.6)p		(23.9)p
Diluted	9	5.0p		(64.6)p		(59.6)p		10.7p		(34.6)p		(23.9)p
From continuing and discontinued operations
Basic	9	6.1p		(72.4)p		(66.3)p		12.5p		(75.9)p		(63.4)p
Diluted	9	6.1p		(72.4)p		(66.3)p		12.4p		(75.8)p		(63.4)p

 

 

 

 

Consolidated statement of comprehensive income

for the year ended 31 December 2010

			Year ended 31 December 2010		Year ended 31 December 2009
			£'000		£'000
Loss for the year			(62,104)		(56,573)
Actuarial gain/(loss) on defined benefit plans			969		(810)
Transfer to cash flow hedge reserve			(618)		(29)
Deferred tax			(98)		235
Exchange differences on translation of foreign operations			63		-
Other comprehensive income for the year			316		(604)
Total comprehensive income for the year			(61,788)		(57,177)
Attributable to:
Equity holders of the parent			(61,788)		(58,005)
Minority interest			-		828
			(61,788)		(57,177)

 

 

 

 

 

Consolidated balance sheet

at 31 December 2010

	Note		2010		2009		2008
			£'000		£'000		£'000
Non-current assets
Goodwill	10		95,116		158,050		209,765
Other intangible assets			7,801		8,797		7,740
Property, plant and equipment			6,188		7,936		9,103
Investments			1		38		7
Deferred tax assets			3,256		3,191		2,149
			112,362		178,012		228,764
Current assets
Inventories			610		954		801
Trade and other receivables	11		34,885		62,457		66,190
Amounts recoverable on contracts			-		-		6
Cash and cash equivalents			14,659		9,370		13,892
Assets held for sale	8		4,319		-		-
			54,473		72,781		80,889
Total assets			166,835		250,793		309,653
Current liabilities
Trade and other payables	12		(50,771)		(66,723)		(68,456)
Tax liabilities			(2,227)		(5,002)		(7,234)
Bank loans and loan notes			-		(381)		(662)
Provisions			(525)		(435)		(655)
Liabilities held for sale	8		(5,382)		-		-
Derivative financial instruments			-		-		(188)
			(58,905)		(72,541)		(77,195)
Net current (liabilities)/assets			(4,432)		240		3,694
Non-current liabilities
Bank loans			(33,157)		(36,780)		(32,894)
Retirement benefit obligations			(1,159)		(2,143)		(1,425)
Deferred tax liabilities			(1,024)		(1,881)		(1,927)
Derivative financial instruments			(2,173)		(931)		(809)
Other payables	14		(662)		-		-
			(38,175)		(41,735)		(37,055)
Total liabilities			(97,080)		(114,276)		(114,250)
Net assets			69,755		136,517		195,403
Equity
Share capital			4,685		4,685		4,394
Share premium account			-		78,723		78,749
Other reserves			26,246		31,597		64,486
Retained earnings			38,824		21,512		45,945
Equity attributable to equity holders of the parent			69,755		136,517		193,574
Minority interest			-		-		1,829
Total equity			69,755		136,517		195,403

 

 

 

 

 

Consolidated statement of changes in equity

for the year ended 31 December 2010

	Share		Share		Other		Retained		Total
	capital		premium		reserves		earnings		equity
	£’000		£’000		£’000		£’000		£’000
Balance at 1 January 2010	4,685		78,723		31,597		21,512		136,517
Total comprehensive income for the year	-		-		(445)		(61,343)		(61,788)
Capital reduction	-		(78,723)		-		78,723		-
Dividends	-		-		-		(4,284)		(4,284)
Debit to equity for share-based payments	-		-		(580)		(110)		(690)
Transfer	-		-		(4,326)		4,326		-
Balance at 31 December 2010	4,685		-		26,246		38,824		69,755

 

for the year ended 31 December 2009

	Share		Share		Other		Retained				Minority		Total
	capital		premium		reserves		earnings		Total		interest		equity
	£'000		£'000		£'000		£'000		£'000		£'000		£'000
Balance at 1 January 2009	4,394		78,749		64,486		45,945		193,574		1,829		195,403
Total comprehensive income for the year	-		-		(21)		(57,984)		(58,005)		828		(57,177)
Issue of share capital	291		(26)		4,326		-		4,591		-		4,591
Dividends	-		-		-		(4,055)		(4,055)		(319)		(4,374)
Credit to equity for share-based payments	-		-		324		88		412		-		412
Transfer	-		-		(37,518)		37,518		-		-		-
Sale to minorities	-		-		-		-		-		6		6
Purchase of minorities	-		-		-		-		-		(2,344)		(2,344)
Balance at 31 December 2009	4,685		78,723		31,597		21,512		136,517		-		136,517

 

 

On 16 June 2010, the High Court issued an order sanctioning the cancellation of the Company's share premium account. Tribal gave certain undertakings to the Court for the protection of the Company's creditors. On 17 June 2010, Tribal received from Companies House the certificate of registration of the Court order. In October 2010, Tribal discharged all the undertakings given to the Court and accordingly, the share premium account became distributable.

 

 

 

 

 

Consolidated cash flow statement

for the year ended 31 December 2010

	Note		Year ended 31 December  2010		Year ended 31 December  2009
			£'000		£'000
Net cash from operating activities	13		15,871		15,124
Investing activities
Interest received			143		233
Proceeds on disposal to minorities			-		18
Proceeds on disposal of discontinued operations			5,285		-
Proceeds on disposal of property, plant and equipment			185		493
Disposal/(purchase) of investments			1		(31)
Purchases of property, plant and equipment			(2,588)		(2,366)
Expenditure on product development			(1,907)		(1,304)
Expenditure on business systems			(1,296)		(1,211)
Acquisitions and deferred consideration			(839)		(13,366)
Net cash outflow from investing activities			(1,016)		(17,534)
Financing activities
Interest paid			(1,496)		(1,252)
Equity dividend paid			(4,284)		(4,055)
Dividends to minorities			-		(319)
Repayment of borrowings			(3,843)		(3,736)
New bank loans			-		7,250
Net cash used in financing activities			(9,623)		(2,112)
Net increase/(decrease) in cash and cash equivalents			5,232		(4,522)
Cash and cash equivalents at beginning of year			9,370		13,892
Effect of foreign exchange rate changes			57		-
Cash and cash equivalents at end of year			14,659		9,370

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 30 March 2011, does not constitute the Company's statutory accounts for the years ended 31 December 2010 or 31 December 2009, but is derived from these accounts.

Statutory accounts for the year ended 31 December 2009 have been delivered to the Registrar of Companies and those for the year ended 31 December 2010 will be delivered following the Company's Annual General Meeting.  The auditors have reported on these accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under S498 (2) or (3) of the Companies Act 2006 or equivalent preceding legislation.

Whilst the financial information included in this preliminary announcement has been completed in accordance with International Financial Reporting Standards (IFRSs), this announcement itself does not contain sufficient information to comply with IFRSs.

The financial information has been prepared on the historical cost basis, modified to include the revaluation of certain properties and financial instruments.

Copies of the announcement can be obtained from the Company's registered office at 87-91 Newman Street, London, W1T 3EY.

It is intended that the full financial statements which comply with IFRSs will be posted to shareholders on or around 18 April 2011 and will be available to members of the public at the registered office of the Company from that date and available on the Company's website: www.tribalgroup.com.

Going concern

The Group has considerable financial resources in that it maintains sizeable cash balances, has a credit facility of £40m (of which £34m was drawn down at 31 December 2010), which is not due for renewal until February 2015, and has a combined bonding and overdraft facility of £12m of which up to £5m may be drawn as an overdraft, which is renewable annually in March. Net debt was £18.5m at 31 December 2010.  A significant part of the reduction in net debt was generated through favourable credit terms from third parties which will reverse in the first quarter of 2011.  The Group has operated in compliance with its banking covenants during 2010.  However, in light of the challenging market conditions which the Group has experienced over the last year the Board considered it prudent to secure additional flexibility and headroom in the revolving credit facility, and the Group has recently agreed a revised set of covenants with its lenders for 2011.  Although the current economic conditions create some uncertainty in terms of the maintenance of current public sector spending levels, the Group also has a number of long-term contracts with a range of customers across different geographic areas, 52% of planned revenue for 2011 committed at the start of the year and a strong pipeline of new opportunities.  The Group's forecasts and projections, which allow for reasonably possible changes in trading performance, show that the Group will have adequate headroom against the committed facility across the forecast period.  As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.

The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the annual report and accounts.

2.      Business segments

The principal activities of the Group are as follows:

Health	-	one of the largest of its type providing health related services in the public and private sectors, including strategy, commissioning and analytics.
Government	-	working for central and local government in the UK and development agencies and governments internationally to transform public services.
Education	-	one of the largest providers of education services to the public sector including software, managed services, school inspection services, consultancy, benchmarking, e-learning, publishing and training.
Support services	-	support services businesses largely operating in the public sector providing a range of PR, advertising and communications, resourcing and architectural design services. As explained in note 8, the Support services businesses are presented within discontinued operations in the income statement.

Year ended 31 December 2010	Health		Government		Education		Eliminations		Consolidated
	£'000		£'000		£'000		£'000		£'000
Revenue
External sales	25,905		45,370		104,097		-		175,372
Inter-segment sales	183		35		2,524		(2,742)		-
Total revenue	26,088		45,405		106,621		(2,742)		175,372
Segment operating profit/(loss)	392		(1,294)		14,079		-		13,177
Unallocated corporate expenses									(5,803)
Adjusted operating profit									7,374
Amortisation of IFRS 3 intangibles									(1,027)
Exceptional costs									(10,446)
Goodwill impairment									(51,610)
Operating loss									(55,709)
Investment income									143
Other gains and losses									(625)
Finance costs									(1,634)
Loss before tax									(57,825)
Tax									1,984
Loss for the year from discontinued operations									(6,263)
Loss after tax and discontinued operations									(62,104)

2.      Business segments (continued)

Year ended 31 December 2009	Health		Government		Education		Eliminations		Consolidated
Revenue	£'000		£'000		£'000		£'000		£'000
External sales	25,021		68,623		100,010		-		193,654
Inter-segment sales	653		817		1,254		(2,724)		-
Total revenue	25,674		69,440		101,264		(2,724)		193,654
Segment operating profit	2,432		5,269		15,226		-		22,927
Unallocated corporate expenses									(8,001)
Adjusted operating profit									14,926
Amortisation of IFRS 3 intangibles									(1,011)
Goodwill impairment									(30,683)
Operating loss									(16,768)
Investment income									231
Other gains and losses									95
Finance costs									(1,371)
Loss before tax									(17,813)
Tax									(2,992)
Loss for the year from discontinued operations									(35,768)
Loss after tax and discontinued operations									(56,573)

3.       Exceptional administrative expenses

		2010		2009
		£'000		£'000
Restructuring costs		7,127		-
Write-down of business system		1,888		-
China business development		770		-
Other		661		-
		10,446		-

Exceptional costs have arisen throughout the year which are not part of the Group's normal trading activities. Significant restructuring costs of £7.1m have been incurred to reduce headcount and property capacity in order to improve the future operating efficiency of the Group and to adjust the Group's capacity to better match reduced demand for advisory services in the public sector.  This figure includes £0.4m in relation to compensation for loss of office for the CEO. 

The carrying value of the Group's business system has been written down by £1.9m.

The Group incurred £0.8m in developing business opportunities in China. These costs have been included as exceptional as they represent significant investment for the Group and are not part of normal trading activities to date.  This development has now been placed on hold. 

Other exceptional costs relate to professional fees which have been incurred in responding to expressions of interest which have been made during 2010 by third parties in relation to purchasing the share capital of Tribal Group plc.

4.       Investment income

		2010		2009
		£'000		£'000
Interest on bank deposits		87		42
Other interest receivable		56		189
		143		231

 

 

5.      Other gains and losses

		2010		2009
		£'000		£'000
Change in the fair value of derivatives		-		357
Hedge ineffectiveness in the cash flow hedges		(625)		(262)
		(625)		95

6.      Finance costs

		2010		2009
		£'000		£'000
Finance charges
Interest on bank overdrafts and loans		1,563		1,270
Interest on loan notes		-		4
Net interest payable on retirement benefit obligations		71		62
Total borrowing costs		1,634		1,336
Financial instruments
Discounting charge for deferred consideration		-		35
		1,634		1,371

7.      Dividends

		2010		2009
		£'000		£'000
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2009 of 2.75 pence (year ended 31 December 2008: 2.65 pence) per share		2,562		2,384
Interim dividend for the year ended 31 December 2010 of 1.85 pence (year ended 31 December 2009: 1.85 pence) per share		1,722		1,671
		4,284		4,055
Proposed final dividend for the year ended 31 December 2010 of 0.65 pence (year ended 31 December 2009: 2.75 pence) per share		615		2,600

The interim dividend for 2010 was approved by the Board on 16 August 2010 and was paid on 22 October 2010 to ordinary shareholders who were on the register on 24 September 2010.

The Board is recommending a final dividend of 0.65p per share.  This dividend will be paid on 15 July 2011 to shareholders on the register at 17 June 2011. 

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has therefore not been included as a liability in these financial statements. 

8.      Discontinued operations

It was announced in March 2010 that the Group would be focusing on its core activities in Education, Health and Government and that strategic options were being considered for each of our Support services businesses.  As detailed below, the Architecture and Communications businesses were disposed of on 1 June 2010 and 20 October 2010 respectively. At 31 December 2010, the Group continued to review strategic alternatives for its Resourcing business and on 9 February 2011, the Group announced the disposal of this business. The Resourcing business is included within assets held for sale, and within discontinued operations along with the Architecture and Communications businesses, up to the dates of disposal. Discontinued operations in the year ended 31 December 2009 also include the Regeneration business.

The Group disposed of its Architecture business, Nightingale Architects Limited, to IBI Holdco Limited, the UK subsidiary of IBI Group on 1 June 2010.  The maximum gross sale proceeds are £13.1 million payable as follows:

(i)         initial consideration at completion of £8.2m;

(ii)        deferred contingent consideration of £1.8m paid on 31 December 2010; and

(iii)       further deferred consideration of between £1.1m and £3.1m payable in two tranches in respect of the periods from completion to 30 April 2011, and the following year to 30 April 2012, based on the profit performance of Nightingale Architects Limited over those periods.  The amounts are payable on 1 June 2011 and 1 June 2012 respectively.

The total consideration estimated in determining the profit on disposal is £12.1 million, which represents management's best view of the likely outcome. 

Details of net assets disposed and disposal proceeds are as follows:

		£'000
Goodwill		7,500
Property, plant and equipment		370
Inventories		25
Trade and other receivables		3,863
Cash and cash equivalents		2,932
Trade and other payables		(3,756)
Deferred tax		(220)
Net assets disposed		10,714
Profit on disposal		352
Consideration		11,066
Satisfied by:
Cash		9,961
Deferred and contingent consideration		2,128
Directly attributable costs		(1,023)
		11,066
Net cash flow arising from disposal
Cash consideration		9,961
Cash disposed		(2,932)
Directly attributable costs		(1,023)
Cash inflow from disposal		6,006

A profit of £352,000 arose on the disposal of Nightingale Architects Limited, being the net proceeds of disposal less the carrying amount of the subsidiary's net assets.  It is not anticipated that any tax will be payable on this profit as the directors believe that the substantial shareholder exemption will apply.  Accordingly no provision has been made.

The Group disposed of the trade and assets of its Communications business, Kindred Agency Limited (Kindred), to Weald Lane Limited, a company formed by Kindred's senior management team on 20 October 2010 for sale proceeds of £1.

Details of net assets disposed of and disposal proceeds are as follows:

		£'000
Intangibles		102
Property, plant and equipment		84
Investments		31
Inventories		600
Trade and other receivables		715
Trade and other payables		(1,027)
Net assets disposed		505
Loss on disposal		(1,326)
Consideration		(821)
Satisfied by:
Cash		-
Directly attributable costs		(721)
Contingent amount payable		(100)
		(821)
Net cash flow arising from disposal
Cash consideration		-
Directly attributable costs		(721)
Cash outflow from disposal		(721)

The results of the discontinued operations which have been included in the consolidated income statement were as follows:

	2010		2009
	£'000		£'000
Turnover	52,453		93,203
Direct agency costs	(25,898)		(44,784)
Revenue	26,555		48,419
Operating profit before amortisation of IFRS 3 intangibles  and exceptional costs	1,457		2,205
Exceptional restructuring costs	(2,181)		(3,243)
Goodwill impairment	(4,750)		(34,891)
Amortisation of IFRS 3 intangibles	(25)		(181)
Operating loss	(5,499)		(36,110)
Attributable tax credit	210		342
Loss on disposal of discontinued operations	(974)		-
Net loss attributable to discontinued operations	(6,263)		(35,768)
Operating cash flows for discontinued operations	(5,571)		(6,182)
Effect of foreign exchange rate changes	(13)		(13)
Investing cash flows for discontinued operations	4,882		(489)
Financing cash flows for discontinued operations	-		(3)
Total cash flows for discontinued operations	(702)		(6,687)

The major classes of assets and liabilities comprising the operations classified as held for sale are as set out below and relate entirely to the Resourcing business.  As explained in note 15, this business has been sold subsequently to the year end. 

		£'000
Property, plant and equipment		488
Deferred tax asset		202
Inventories		82
Trade and other receivables		3,547
Assets classified as held for sale		4,319
Trade and other payables		(5,262)
Tax liabilities		(120)
Liabilities classified as held for sale		(5,382)

 

9.       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:

	2010		2009
	thousands		thousands
Weighted average number of shares outstanding:
Basic weighted average number of shares in issue	93,696		90,523
Employee share options	160		487
Weighted average number of shares outstanding for dilution calculations	93,856		91,010

The adjusted basic and adjusted diluted earnings per share figures shown on the consolidated 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:

			2010		2009
			£'000		£'000
Earnings
From continuing operations
Loss for the year			(55,841)		(20,805)
Minority interests			-		(828)
Net loss from continuing operations attributable to equity holders of the parent			(55,841)		(21,633)
Earnings per share
Basic			(59.6)p		(23.9)p
Diluted			(59.6)p		(23.9)p
From continuing and discontinued operations
Loss for the year			(62,104)		(56,573)
Minority interest			-		(828)
Net loss from continuing and discontinued operations attributable to equity holders of the parent			(62,104)		(57,401)
Earnings per share
Basic			(66.3)p		(63.4)p
Diluted			(66.3)p		(63.4)p
From discontinued operations
Loss for the year			(6,263)		(35,768)
Minority interest			-		-
Net loss from discontinued operations attributable to equity holders of the parent			(6,263)		(35,768)
Earnings per share
Basic			(6.7)p		(39.5)p
Diluted			(6.7)p		(39.5)p

9.       Earnings per share (continued)

			2010		2009
			£'000		£'000
Adjusted earnings
From continuing operations
Net loss from continuing operations attributable to equity holders of the parent			(55,841)		(21,633)
Amortisation of IFRS 3 intangibles (net of tax)			739		728
Goodwill impairment and associated tax adjustments			51,027		30,683
Exceptional costs (net of tax)			8,277		-
Financial instruments charge/(credit) (net of tax)			450		(68)
Adjusted earnings			4,652		9,710
Adjusted earnings per share
Basic			5.0p		10.7p
Diluted			5.0p		10.7p
From continuing and discontinued operations
Net loss from continuing and discontinued operations attributable to equity holders of the parent			(62,104)		(57,401)
Amortisation of IFRS 3 intangibles (net of tax)			757		858
Goodwill impairment and associated tax adjustments			55,777		65,574
Exceptional costs (net of tax)			9,847		2,335
Loss on disposal of discontinued operations			974		-
Financial instruments charge/(credit) (net of tax)			450		(68)
Adjusted earnings			5,701		11,298
Adjusted earnings per share
Basic			6.1p		12.5p
Diluted			6.1p		12.4p
From discontinued operations
Net loss from discontinued operations attributable to equity holders of the parent			(6,263)		(35,768)
Amortisation of IFRS 3 intangibles (net of tax)			18		130
Goodwill impairment and associated tax adjustments			4,750		34,891
Exceptional costs (net of tax)			1,570		2,335
Loss on disposal of discontinued operations			974		-
Adjusted earnings			1,049		1,588
Adjusted earnings per share
Basic			1.1p		1.8p
Diluted			1.1p		1.7p

 

10.       Goodwill

 

	2010		2009
	£'000		£'000
Cost At beginning of year	269,888		260,896
Additions	926		13,859
Disposals	(11,209)		(4,867)
At end of year	259,605		269,888
Accumulated impairment losses At beginning of year	111,838		51,131
Impairment charge   -  continuing	51,610		30,683
-  discontinued	4,750		34,891
Disposals	(3,709)		(4,867)
At end of year	164,489		111,838
Net book value At end of year	95,116		158,050
At beginning of year	158,050		209,765

Additions to goodwill during the year relate to the acquisition of Class Measures (see note 14). 

Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to benefit from the business combination.  The carrying amount of goodwill has been allocated as follows:

	2010		2009		2008
	£'000		£'000		£'000
Support services -
Communications	-		2,250		19,168
Architecture	-		7,500		17,636
Resourcing	-		2,500		6,614
	-		12,250		43,418
Health	9,351		24,759		20,937
Government	13,149		49,351		73,728
Education	72,616		71,690		71,682
	95,116		158,050		209,765

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The test performed at 31 December 2010 has taken account of difficult trading conditions during the second half of 2010 in our Health and Government businesses (as described in more detail in the Operating Review). The continued uncertainty surrounding UK Government spending plans, and the anticipated impact of the pressure to reduce government debt in the medium-term, have also been factored into our review.  We have also considered carefully the assumptions used in the review. 

In the case of the Resourcing CGU, the ongoing exploration of a variety of strategic options at the year end and the subsequent disposal has caused the directors to conclude that they should continue to use 'fair value less costs to sell' rather than the 'value in use' approach.

The outcome of the impairment test has been a write-down of goodwill of £56.4m, broken down as follows:

	Basis of assessment	£'000
Resourcing	Fair value less costs to sell	2,500
Communications	Fair value less costs to sell	2,250
Health	Value in use	15,408
Government	Value in use	36,202
		56,360

The recoverable amounts of the Health, Government and Education CGUs are determined from value-in-use calculations.  The key assumptions for the value in use calculations are those regarding the discount rates, longer-term growth rates and expected changes to selling prices and direct costs during the period. The assumptions made reflect a cautious view of the short-term in the current economic climate. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs.  The growth rates are based on internal two-year budgets in the short-term and general market rates thereafter. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market.

The Group prepares cash-flow forecasts derived from the most recent financial budgets approved by management for the next two years and has extrapolated cash flows in perpetuity based on an estimated growth rate of 2%.  This rate does not exceed the average long-term growth rate for the relevant markets and reflects the current caution in the market. The rates used to discount the forecast cash flows are 12% for Education and Health and 13% for Government and are chosen to reflect the directors' assessment of the relative degree of risk associated with each CGU. To the extent that the outcome of any of these variables adversely differs from the assumption for impaired CGUs, an additional impairment would be required. For example, if the profits were to be 20% below the budgets for each of 2011 and 2012, additional impairments of £2.0m and £3.5m would be required for Health and Government respectively.  If the discount rate increased by 1%, then additional impairments of £0.9m and £1.2m would be required for Health and Government respectively. 

The goodwill relating to the Education CGU has not been impaired. The headroom in the calculations is such that management does not believe there is a reasonably possible change in the key assumptions that would result in an impairment of this CGU. 

The recoverable amounts relating to the Resourcing and Communication CGUs have been based on their estimated fair value less costs to sell and reflect the terms of sale of these units which were announced on 9 February 2011 and 20 October 2010 respectively.

 

11.     Trade and other receivables

	2010		2009		2008
	£'000		£'000		£'000
Amount receivable from sale of services	17,714		44,207		50,924
Allowance for doubtful debts	(860)		(1,399)		(1,196)
	16,854		42,808		49,728
Other receivables	3,608		2,351		954
Prepayments and accrued income	14,423		17,298		15,508
	34,885		62,457		66,190

12.     Trade and other payables

	2010		2009		2008
	£'000		£'000		£'000
Trade payables	4,864		13,255		19,832
Other taxation and social security	9,813		6,922		6,183
Other payables	2,166		5,630		3,947
Accruals and deferred income	33,856		40,285		37,368
Deferred cash consideration	72		631		1,126
	50,771		66,723		68,456

13.     Notes to the cash flow statement

	2010		2009
	£'000		£'000
Operating loss from continuing operations	(55,709)		(16,768)
Operating loss from discontinued operations	(6,473)		(36,110)
Depreciation of property, plant and equipment	2,830		3,044
Impairment of goodwill	56,360		65,574
Decrease in fair value of investment property	-		35
Amortisation of other intangible assets	4,192		2,740
Net pension charge	(157)		(96)
Loss on disposal of property, plant and equipment	413		37
Loss/(gain) on sale of investments	5		(12)
Share-based payments	(690)		412
Loss on disposal of discontinued operations	974		-
Operating cash flows before movements in working capital	1,745		18,856
Decrease in amounts recoverable on contracts	-		6
Increase in inventories	(363)		(153)
Decrease in receivables	21,816		4,406
Decrease in payables	(5,978)		(1,670)
Increase/(decrease) in provisions	90		(220)
Net cash from operating activities before tax	17,310		21,225
Tax paid	(1,439)		(6,101)
Net cash from operating activities	15,871		15,124

Net cash from operating activities before tax can be analysed as follows:

	£'000		£'000
Continuing operations (excluding restricted cash)	24,392		26,688
(Decrease)/increase in restricted cash	(1,511)		719
	22,881		27,407
Discontinued operations	(5,571)		(6,182)
	17,310		21,225

 

14.    Acquisitions

The Group has adopted IFRS 3(2008) Business Combinations and IAS 27(2008) Consolidated and Separate Financial Statements with effect from 1 January 2010.

On 27 July 2010, the Group acquired 100% of the issued share capital of Class Measures Limited, obtaining control of Class Measures Inc., a US provider of school inspection and improvement services and teacher licensure programmes, for total consideration of up to £1.0m. 

The total consideration is made up as follows:

-    initial consideration of £0.3m in cash

-    further consideration of up to £0.7m in cash upon confirmation of Class Measures' profits for the two years to 31 December 2011. 

Recognised amounts of identifiable assets acquired and liabilities assumed:

		Book value		Fair value adjustments		Fair value
		£'000		£'000		£'000
Intangible assets		-		117		117
Property, plant and equipment		9		-		9
Receivables		234		-		234
Cash		89		-		89
Payables		(311)		-		(311)
Deferred tax		-		(33)		(33)
Book/fair value of net assets		21		84		105
Total Identifiable assets acquired						105
Goodwill						926
Total consideration						1,031
Satisfied by:
Cash						297
Contingent consideration arrangement						734
Total consideration transferred						1,031

Net cash outflow arising on acquisition
Cash consideration						297
Less: cash and cash equivalent balances acquired						(89)
						208

The contingent consideration payable of £734,000 has been split between other payables in current (£72,000) and non-current (£662,000) liabilities. 

The above provisional fair value adjustments relate to the recognition of intangibles on acquisition. 

Intangible assets were recognised primarily in respect of customer relationships.  Goodwill arising on acquisition is attributable to the expected profitability arising from new business, anticipated future operating synergies arising from assimilation into the Group and the value attributed to the skilled workforce which does not meet the criteria for recognition as a separate intangible asset.

Acquisition related costs (included in administrative expenses) amount to £4,000.

The acquisition contributed £432,000 revenue and a £38,000 loss to the Group's operating profit for the period between the date of acquisition and the balance sheet date. 

If the acquisition had been completed on the first day of the financial year, group revenues and profits would not be materially different.

In addition to the net cash outflow on the acquisition of Class Measures, the Group paid £631,000 in respect of the final deferred consideration payable for Tribal HELM Corporation Limited. This amount was included within other payables as at 31 December 2009.

15.       Post balance sheet events

The Resourcing business, Tribal Resourcing Limited, was actively marketed for sale during 2010. On 9 February 2011, the trade and certain assets were sold to TMP (UK) Limited for an estimated contingent consideration of £1.9m. The transaction completed on 1 March 2011.

Principal risks and uncertainties

Risk is an accepted part of doing business.  The challenge for any business is to identify the principal risks and to develop and monitor appropriate controls. A successful risk management process balances risks and rewards and relies on a sound judgement of their likelihood and consequences.

Risk management

The Board has overall responsibility for risk management and internal control within the context of achieving the Group's objectives.  The Board establishes the overall risk framework and the risk management process is embedded within Tribal by:

§ setting strategic direction including targets;

§ maintaining a clear authorisation framework;

§ reviewing and approving annual plans and budgets for the Group and each business stream;

§ maintaining documented policies and procedures; and

§ regularly reviewing and monitoring the Group's performance in relation to risk through monthly Board reports.

To ensure that risk is robustly managed throughout Tribal, a Group risk management framework operates as part of the annual business planning and performance management process.  This requires each business unit to:

§ identify and assess all significant risks facing their business;

§ prioritise risk;

§ actively manage by detailing the steps to avoid or to mitigate risk; and

§ review and report risk.

The Group maintains a risk framework which contains the key risks faced by the Group, including their impact and likelihood, as well as the controls and procedures implemented to mitigate the risks.

The executive directors provide the central leadership to ensure our strategy is effectively communicated throughout the organisation.  This is achieved through regular meetings of the senior leadership team, annual strategic planning meetings with individual business units and by clear guidance within the annual budget and three year planning instructions issued to all business units.  The senior management of each business unit is specifically responsible for the management of risk within their operating business. In addition, 'risk owners' have been identified from amongst the Group's senior management to take the leadership role in managing certain risks. 

Business stream performance is reviewed through regular meetings, enabling risks or other issues to be efficiently addressed and appropriate actions to be taken.  Risks are also assessed and monitored at a Group level at the regular meetings of the Board. 

The principal risks that the Group manages are described below:

Responding to changes in the market

During 2010, the Group faced significant uncertainty as a result of the general election and the changes in government policy and spending that followed.  The pace and scale of spending cuts has been much greater than was anticipated at the beginning of 2010. Consequently, the ability of the Group to accurately forecast activity levels has been challenged materially.  This exposes the Group to a number of risks, particularly around the operational capacity which should be maintained in the business, the structuring of our banking arrangements to cope with such uncertainty, and maintaining financial capacity to support restructuring activities when required.

On a proactive basis, we continue to manage this risk through the following initiatives: (1) improving our future revenue visibility through longer-term contractual arrangements; (2) closely managing our cost base, and seeking to ensure our costs can be adjusted quickly to match evolving market conditions; (3) seeking to maintain long-term banking facilities with suitable levels of headroom; (4) developing our business internationally to reduce our exposure to macro-economic impacts in the UK market and (5) continuing to engage actively with policy makers to ensure that we are well positioned to support the domestic public sector in achieving its deficit reduction plans.  We have made significant progress in all of these initiatives throughout the year, whilst responding to the unprecedented changes in demand in some of our businesses.

Revenue visibility

The Group has a significant fixed cost base, and revenue visibility to support the appropriate levels of resource is critical to the Group's future success.  Measurement of the Group's pipeline of opportunities and committed income is a key performance indicator and we have made further improvements to the quality and timeliness of information available to assist management decision-making.  In addition, we are prioritising business opportunities that leverage long-term service arrangements and our technology expertise, as growth in these areas will enhance revenue visibility and stability.

Resource planning and management

During 2010, the uncertainty in some of our markets has unfortunately meant that we have been unable to retain all of the high quality people within Tribal.  Tribal needs to attract and retain the right people to ensure it is well positioned to take advantage of available growth opportunities.  Developing, engaging, recognising and rewarding our people is key to this and we continue to look for new ways to retain and incentivise our staff. Throughout the last financial year, we have made a series of changes to our organisational structure to ensure that we use our resources effectively and efficiently. 

International growth

Tribal continues to make significant progress in the pursuit of opportunities to grow the business internationally.  However, this exposes the Group to a number of new risks, including greater competition, increased investment in overseas markets, foreign exchange volatility and staff safety and security. We operate an Investment Committee, which reviews all significant investment proposals, including overseas expansion plans, and we continuously review our policies and procedures to ensure that they are appropriate for the additional complexities associated with doing business overseas.

Service delivery implementation

During 2010, we have entered into a number of long-term risk/reward contracts as an alternative to traditional short-term advisory contracts.  In these agreements, buyers risk paying more fees for the work but aim to be rewarded by having their objectives exceeded, whilst suppliers risk reduced profits if they fail to deliver (more fees are at risk for more output-based targets) but are rewarded for superior performance.  Tribal is passionate about working in partnership with our clients and we have an unrivalled depth of expertise across a broad range of services, which we are able to use to help us work even more closely with our clients and to align our objectives with theirs to help deliver shared benefits.  Due to the innovative nature of these contracts, there is an increased risk of mismatched expectations between the customer and supplier.  Tribal has adopted rigorous processes to manage the performance of these contracts and contract performance and progress is reported at every Board meeting. 

Technology obsolescence

The Group has a substantial technology offering. Changing customer requirements and the introduction of new technologies may render the Group's existing software offerings and associated services obsolete.  This risk is addressed through significant investment in the development of new or enhanced software to ensure that the Group's offering can deliver the latest requirements on a timely basis.  In addition, we have strengthened the Group's technology development resources by pooling all of our existing technology skills and assets into one team within the Education business. 

Information security

The consequences of a failure to ensure the confidentiality, integrity and availability of data continue to be a key focus for the business.  Some of our competitors have suffered lapses in information security that have been reported in the media.  These experiences emphasise the risks associated with data handling. Tribal has established an Information Security Working Group, which is tasked with identifying and mitigating key information assurance risks and establishing best practice.  We have established a network of representatives across the business to reinforce the importance of information assurance amongst staff.  We have also implemented a formal Information Assurance Incident reporting process and regularly review and communicate our IT and Information Security policy to all staff.

Pension obligations

The Group is seeking to grow its service delivery activities, a significant proportion of which may come through contracts with the UK public sector.  This may involve TUPE transfers of staff from the public sector to Tribal, under which Tribal will be obliged to provide matching defined benefit pension arrangements.  The Group already provides such benefits to a proportion of its employees.  Such pension commitments require significant funding over an extended period, and place risks for the provision of future pensions on the Group.  The Group monitors the performance and investment strategy of pension funds carefully, and maintains a close working relationship with pension fund trustees to ensure it influences and manages these commitments effectively.

 

END

 

 

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