Final Results

RNS Number : 8316Z

Tribal Group PLC

22 March 2012

 



Tribal Group plc

22 March 2012

Preliminary results for the year ended 31 December 2011 

Summary

·      Restructuring complete, following disposal of non-core activities and cost reduction programme

·      Simplified two-division structure established

·      Continuing business profitability increased

·      Good underlying cashflow in continuing business

·      Net debt reduced

·      New strategy in place

Financial summary 

Year Ended 31 December	2011	2010	Change
Revenue	£108.2m	£104.1m	4.0%
Adjusted operating profit1	£11.3m	£8.3m	36.7%
Adjusted operating profit margin	10.4%	8.0%	30.0%
Adjusted profit before tax1	£9.5m	£6.8m	39.3%
Exceptional costs (continuing business)	£5.4m	£6.3m	-
Profit/(loss) before tax (continuing business)	£3.7m	(£0.4m)	-
Adjusted diluted earnings per share1	7.9p	5.6p	41.1%
Loss for the year	£22.4m	£62.1m	63.9%
Dividend per share	1.00p	2.50p	(60.0)%
Operating cash flow from continuing operations2	£7.6m	£21.0m	(63.9)%
Net debt	£16.0m	£18.5m	(13.5)%

Notes:

^1.The adjusted operating profit, adjusted profit before tax and adjusted diluted earnings per share are in respect of continuing operations, excluding intangible asset amortisation of £0.2m (2010: £0.3m), exceptional costs of £5.4m (2010: £6.3m), in the case of adjusted profit before tax and earnings per share financial instruments charge of £0.1m (2010: £0.6m) and, in the case of earnings per share, the related tax of £1.7m (2010: £1.4m). 

^2.Operating cash flow from continuing operations is defined as net cash from continuing operating activities after capital expenditure, and before exceptional cashflows.

Commentary

Keith Evans, Chief Executive, commented: "The past two years have been a period of transformation for Tribal.  We have restructured the business, focusing on our core strengths in the education, learning and training markets.  Our cost base is leaner, we have simplified our organisational structure, and our strategy to build on our market leading technology assets and strong service related intellectual property is clear.

"Whilst the macro-economic environment has been uncertain during 2011, our products and services demonstrated resilience in mixed market conditions.  Our financial performance improved and, with revenue growing by 4% and adjusted operating margins rising to over 10%, we concluded 2011 with trading performance ahead of our earlier expectations. 

"Our UK markets are responsive to our product and service propositions, and we have identified good opportunities to develop new products and services over the medium term. We have also established strong positions in our chosen international markets, and are seeing good opportunities for continued growth.

"Our current trading is in line with our expectations for 2012, which will continue to be a period of investment in our products, people and our international presence. As a result of seasonality in our business, and our programme of investment, we anticipate our profits will be weighted towards the second half of the year, and Tribal has good potential to make further progress over the medium term."

Further information

A presentation of these results will be made to analysts and investors at 9.30am today at the offices of Weber Shandwick, Fox Court, 14 Gray's Inn Road, London WC1X 8WS.  A copy of the presentation will be made available later this morning on the Tribal Group website: www.tribalgroup.com.

Tribal Group plc Keith Evans, Chief Executive Steve Breach, Group Finance Director	Tel: [phone]
Weber Shandwick Financial Nick Oborne Stephanie Badjonat Robert Cook	Tel: [phone]
Canaccord Genuity Limited Simon Bridges Cameron Duncan	Tel: [phone]

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.

Chairman's Statement

Our evolution

The year ended 31 December 2011 was a period of significant change for Tribal, and one in which we have achieved a major repositioning of the group.

Initial development as a support services business

Tribal evolved over the past decade as a diverse support services business, growing successfully during a period of economic prosperity.  Initially developed through an acquisition-led strategy, the group evolved to encompass operations in a number of markets, and under a range of business models.

Addressing challenges

As the economic climate has become more challenging, some of the businesses within the group faced difficult trading conditions.  During 2010 and 2011, we directly confronted these challenges.  Our short-term strategy sought to:

•           exit those activities which created unacceptable risk to the future financial stability of the group;

•           simplify our organisational structure;

•           significantly reduce our cost base; and

•           focus our future on areas of strength within the group. 

Delivering our short-term objectives

We have made good progress in delivering our short-term objectives.

Exiting non-core markets

We completed the disposal programme, which was initiated in 2010.  The disposal of our Support Services division, made up of the Nightingale Associates architecture business, the Kindred communications business and the Tribal Resourcing business, was concluded in March 2011.  In April 2011 we completed the sale of our Health and Government businesses to Capita Group PLC.

Simplifying our organisation

The conclusion of the disposal programme allowed us to focus on development of the former Education division.  We have simplified our organisational structure, creating greater flexibility and enhancing accountability throughout the business.

We are now organised into two distinct, but clearly related, divisions:

•           Technology - providing a range of proprietary software products to support the business needs of education, learning and training providers; and

•           Services - delivering a range of services to support the improvement of education, learning and training delivery by our customers.

Cost reduction programme

Following the completion of our disposal programme, we undertook a further cost reduction programme, lowering our cost base by approximately £5.3m on an annualised basis.  In so doing, we have removed unnecessary layers of management and exited surplus properties, whilst retaining our focus on delivering quality products and services.

Developing a three year strategy

Our strategy now aims, over the medium term, to build on the market-leading technology assets and strong service-related intellectual property within our business.

Establishing the foundations for growth

We have put in place building blocks that are fundamental to a well-balanced growth strategy, reducing risk and providing investment capacity.

Management team

We were pleased to appoint Keith Evans, formerly Chief Operating Officer, to become our Chief Executive in November 2011.  Keith has successfully led the business through a period of transformation, and continues to be supported by Steve Breach, our Group Finance Director who joined us in 2010.

Our divisional leadership has been refreshed.  Clive Ansell (Managing Director - Technology) and Janet Tomlinson (Managing Director - Services) have considerable experience leading software and educational delivery in the UK and internationally.

We have a committed and energised leadership team, with the right skills and capability for the task at hand.

People and culture

Our business depends on the expertise of our staff.  We are fortunate to work with a talented group of people, who have shown great resilience during a period of change.  Tribal embraces a positive culture in which our people continue to grow, develop and innovate. 

Efficient cost base

Streamlining an organisation is a painful process, but has been essential to create an efficient and flexible cost base to support our growth plans.  Our cost base is now appropriate to our business' needs.

Dividends

The board has reviewed our dividend policy and believes it is appropriate, given the strength and prospects of the business, to continue to pay dividends.  The Board has proposed a final dividend of 0.60p which taken with the earlier interim dividend of 0.40p means a total dividend per share of 1.00p.  This dividend is well covered, and it is the company's intention to maintain this level of cover going forward, and progressively to grow the dividend in line with the growth in the company's underlying earnings.  The board will continue regularly to review this policy, but at the current time believes re-investing surplus funds back into the business together with maintaining this policy is appropriate.

Financial stability

Whilst our reported net debt at 31 December 2010 was £18.5m, underlying net debt was somewhat higher for reasons set out in the Financial Review.  During 2011, we have reduced our net borrowings to £16.0m, and have a long-standing and supportive relationship with our lending banks, HSBC and Lloyds Banking Group.  As we enter 2012, our balance sheet is more resilient, and we have suitable financing facilities in place for the medium term to support our development strategy.

Looking to the future

We look to the future with renewed confidence.

Competitive advantages

We remain cautious of the impact of uncertainties in the world economy.  Nevertheless, given our competitive advantages and the market opportunities available to us, we believe that Tribal is well positioned to grow its existing strong customer base in the UK, and to take advantage of a significant range of international opportunities.

Our vision

Our vision is to build a business that creates, builds and delivers world-class technology-based software products and services that help our education, learning and training customers deliver excellence.

Our recent success in Australia and New Zealand demonstrates the world-class credentials of our technology products.  The New South Wales Department of Education and Communities, one of the largest English-speaking education systems in the world, has provisionally chosen our systems to deliver its Student Administration and Learning Management programme, which subject to conclusion of negotiations will roll out our systems across New South Wales.

Likewise, our work in Nashville, Tennessee, helping the local school district to improve under-performing schools, demonstrates the international credentials of our service capabilities.

Our mission

Tribal is emerging from a period of transformation.  Our mission is now to continue to provide market-leading products to our customers, to retain and recruit high calibre staff to support our growth, and to restore and grow shareholder value, in which respect we are targeting to more than double earnings per share within a three year period.

John Ormerod

Chairman

22 March 2012

Our business - Technology

What do our products do?

We bring together world-class software development with deep domain expertise in our selected markets to provide the essential "plumbing" of records management for our customers' core business.  Our workflow processes manage student applications, curriculum design, training and learning records, through to social care records for children in local authorities.  These systems increase the efficiency and effectiveness of our customers, and improve the experience of their students, learners and clients.

Our products have a growing international market, based on independent evaluation of the world-class nature of our products and associated delivery services.

In some areas, the requirements may be unique and spread across complex multiple institutions, in which case we provide bespoke one-off software tools, processes and content.  Typically these are based on existing platforms we have developed and worked on with multiple customers.

Our expertise in the technology and practice of records and information management, in complex software oversight systems, and in mobile and e-learning, is sought after by public and private sector customers around the world.

Product portfolio

Student management systems

In universities, SITS:e-vision streamlines student administration, managing the whole process from initial enquiries from prospective students to engaging with alumni.  In Further Education colleges, ebs4 records and manages information throughout the life of the student, simplifying curriculum planning and delivery and improving data reporting.

Both of these product sets require extensive configuration around detailed processes in educational institutions, led by our professional services teams, who are often drawn from practitioners with considerable experience in these institutions.

Maytas is the market leading solution for the management of work-based learner information and tracking, supporting training providers and major corporates' internal training programmes.

Childrens Services systems

Our Synergy product range is designed to help Childrens Services departments to improve the way information is collated, analysed and distributed, from integrated school applications across a local authority, ranging from case management for Special Educational Needs through to a Family Information Service.

We have also recently introduced a new product, our Childrens Social Care Record system, developed during 2011, to provide an integrated information management system for the social care of children by local authorities, based on the latest policy drivers around whole-family, whole-environment information to support decision making.

Bespoke software development

We develop a wide range of solutions including mobile apps, collaborative web portals and online professional continuing professional development (CPD) systems.

Specific examples include k2, which offers a new and innovative approach to estate and property management, offering a single integrated system for all property-related management functions, and Advance, our leading e-learning solution to improve functional, key and core skills across workforces.

Other platforms provide, for example, integrated learning support for NHS South West, including a major programme of learning content digitisation; and a placement management service for the University of East London and 10 other tertiary educational establishments.

Sales and Revenue

We sell our software products and our project capabilities directly to our end customers, both in the UK and internationally.

In general, our software products attract a software licence fee, and additional fees for deployment and implementation, given that larger customers will require significant amounts of configuration to provide specific local and functional tailoring to their particular requirements.  Subsequent maintenance includes scope for a series of upgrades, agreed at User Forums.  Bespoke projects may also attract ongoing service fees if there is an element of the solution that requires human services to support it, and/or if there is user-specific content that requires redesign, construction, or digitisation.

Delivery

Technologies underpinning our products

Although rooted in an increasingly integrated technological architecture, we deploy a range of underlying software technologies, from specialist systems to Microsoft platforms to Open Source software, either because of appropriateness for the task at hand, or because of significant customer preference across a customer sector.

Our products and bespoke implementations can be either hosted by customers, ourselves or using cloud-based or shared service models.

	Software product	Customers	UK market status (company estimates)	International market status
Student management systems	SITS: Vision	Universities and other higher education institutions	Number 1	Successfully entered Australia and New Zealand
	ebs	Further Education colleges and secondary education	Number 1	Successfully entered Australia and New Zealand
	Maytas	Vocational learning providers and large employers	Number 1	Early stage
Childrens' Services systems	Synergy	Local education authorities	Number 2	Early stage
	Childrens' Social Care Records	Local authorities	New product	Early stage
Asset management system	k2	Broad-based offering	Established product	Early stage

Software development capabilities

Our products and projects are developed within so-called "Agile" methodologies, where the immediate software deliverables are very regularly prioritised to deliver the highest priority features and maintenance fixes, working closely with customers, including sector-specific User Forums.  We also canvass customers around the long-term strategic direction of product development, for example through Strategic User Forums.

Our software development teams are mainly based in the UK.  We are however moving towards a global delivery model, where we have begun to deploy and recruit developers and implementation teams in the territories where we are seeing significant expansion, to add to our growing operations in the UK.

Implementation teams are growing in scale to match the increasing number of larger contracts, and the associated increased geographic spread of those contracts.  Within our global delivery model, this has already led to substantial professional service and programme management teams in Australia and New Zealand.

In line with our product roadmaps, over the course of 2012, all of our products will have new modules provided, and a number will have programmes of re-platforming (entirely renewing the software base of a product) completed.  In addition to the new product development of our Children's Social Care Records system, and the development of some large new products for single customers, 2012 will be a period of investment in an increasingly strong and broadening portfolio of offers.

Our business - Services

What do our Services deliver?

Our services underpin the better delivery of education and training by universities, colleges, schools and training providers.  We deliver our services either as discrete activities, or as an integrated package of work, assisting customers to enhance their performance and efficiency.

Measurement

Our Measurement activities encompass primarily benchmarking and school improvement services.

We are the leading provider of benchmarking services to universities and Further Education colleges in the UK and New Zealand.  Our teams use established cost accounting techniques to derive a range of measures that, with a broad databank, can be cross-compared to similar organisations.  Benchmark findings are used to guide strategic planning by these institutions.

In school improvement services, we use evidence based diagnostic and assessment software tools developed as part of our compliance work.  These self-evaluation tools enable education stakeholders' perceptions to be captured and analysed, before being correlated with external review findings.

In Nashville, we are using these tools within a wider programme which combines elements of measurement, compliance and delivery under a 5 year contract to support the evidence based improvement of under-performing schools.

Compliance

Tribal is the largest and leading provider of inspection services for Ofsted in the UK.  We are the only provider to have been awarded two of the five Ofsted inspections contracts; one for school and learning and skills inspections, and the other for Early Years registrations and regulation. Tribal inspects more than 30,000 providers each year, including Further Education colleges, work-based learning providers, maintained schools, independent schools, child minders, childcare settings, and Initial Teacher Education providers.

We also provide inspection services for a range of customers in the UK and overseas, where our work extends from teacher accreditation services in Massachusetts, through establishing inspection protocols, competency frameworks and inspection activity.  During 2011 we successfully delivered contracts for the education departments of Abu Dhabi and Guernsey.  Looking forward into 2012, our work will continue in the Middle East, and will extend into new areas such as inspection of training provision for the National Skills Academy for Railway Engineers.

Delivery

Our Delivery services bring together specialist learning content and operational support capabilities, designed directly to enhance the outcomes achieved by education and training providers.

We are experts in personal development e-portal management, delivering the underpinning technology developed by our Technology business, and programme managing projects such as the National Centre for Excellence in the Teaching of Mathematics, which provides professional development for over 70,000 mathematics teachers in the UK, and a service for the NHS South West which provides e-learning professional development to over 120,000 staff across 3,000 sites.

In Further Education, our specialist content activities deploy vocational learning material through remote and e-learning technologies to over 30,000 students in colleges and in the workplace.

Tribal provides apprenticeship training programmes for large employers, including McDonalds, where we combine deep vocational training domain expertise with technology solutions and service delivery capabilities.

We are also a key participant in the provision of careers advice and guidance.  We work in diverse settings, ranging from over 50 prisons in England where we engage with over 70,000 offenders each year to assist their return to the job market, through schools careers advice, to international locations such as Croatia where we are providing lifelong career guidance services under an EU funded contract.

	Services	Customers	UK market status (company estimates)	International market status
Measurement	Benchmarking	Universities and FE colleges	Number 1	Number 1 in New Zealand
	Improvement services	Early Years providers, schools and FE colleges	Established provider	Successfully entered US (Tennessee)
Compliance	Inspections	UK: Ofsted, education or training providers, Academy chains International: country/state education departments, British Schools	Number 1	Number 1 in Abu Dhabi Successfully entered US (Tennessee) DfE Accredited Inspectorate of British Schools Overseas
	Competency and standards frameworks	UK: Ofsted, Academy chains, local authorities; International: education departments of countries and states	Number 1	Number 1 in Abu Dhabi and Guernsey; successfully entered US (Tennessee and Massachusetts)
	Registration and regulation	UK: Ofsted International: US states	Number 1	Successfully entered US (Massachusetts)
Delivery	E-portal management	Government departments and education or training providers	Strongly established provider	Present in EU funded markets
	Specialist content and delivery	Schools, FE colleges, training providers, employers	Established provider	Products under development
	Apprenticeship services	Large employers and vocational learning providers	Established provider	N/a
	Careers advice and guidance	Schools, local authorities, Government agencies	Number 1 in offender management advice	Present in EU funded markets

Delivering our services

Our people

Our people bring a unique set of knowledge and direct experience in nurseries, schools, Further and Higher Education, adult learning and local / central government.  Organisationally, we promote close working between our domain experts resulting in better solutions.

Driving operational efficiency

Bringing together our service offerings under a single management structure enables efficiency in our working style, and aids the identification of synergies.

Underpinning technologies

Our services are becoming increasingly technology based.  Our participation in important education and learning initiatives creates an ideal environment in which new products and services can be developed.

In order to accelerate the introduction of applied technology into our current portfolio, we are investing in the development of software solutions in our high growth areas.

Our markets

Introduction

With continued investment in education, learning and training remaining a key theme for governments and businesses around the world, Tribal operates in markets which have good long term growth potential.  We are seeing growth opportunities in the majority of our markets although, given current macroeconomic conditions, some areas are currently experiencing longer buying cycles.

Higher education

Tribal is the leading provider of student management systems to universities in the UK, with 89 of 165 UK universities using our systems. Student management systems are characterised by long replacement cycles (typically in excess of 10 years), with opportunities for multiple module enhancement purchases over the lifecycle of the system.

In the UK, funding changes for universities have brought the "student experience" into sharp focus, as universities compete for student fees.  The administrative interaction between a prospective student and a university is a key feature of that experience, and universities are investing to enhance their "front end", creating demand for new functionality in our student management systems.

In addition, across the UK and our international markets, we believe that there are more than 50 universities which continue to use in-house or near end-of-life systems, and which will need to procure replacement systems within the next 3-4 years.  Tribal is well placed to participate in this renewal process both in the UK and in its chosen international markets.

Further education and vocational training

The longer buying cycles we are experiencing in Further Education colleges in the UK, particularly in student management system procurements, have been more than compensated by strong levels of activity in the Further Education and vocational learning markets in Australia and New Zealand.

Our Services division is increasingly active across a range of areas in the Further Education market.  Our Measurement business, which includes benchmarking services across all aspects of college performance, has experienced good demand in the UK and internationally.  In Delivery, we have seen good activity levels in apprenticeship investment programmes by large employers, supported by UK government policy and funding, and our careers advice and guidance services continue to see a healthy level of opportunities in both schools and in offender management programmes.

Further Education training providers are also responding to cost-challenges by seeking more efficient ways of delivering training and learning.  Our specialist content business is responding to this trend, with increased remote learning and e-learning solutions, and we are encouraged by our progress to date.

Schools

Governments around the world are placing ever-greater emphasis on the pursuit of quality in their schools.  Tribal is the leading provider of quality assurance services on behalf of the UK Government through its inspection contracts with Ofsted.  Whilst the UK market for such compliance work is stable, we are seeing increasing opportunities in international markets to develop our compliance activities, both through direct inspection work (such as we are undertaking in the Middle East) or allied to evidence based school improvement programmes (such as we are delivering in Nashville in the US).

Other government departments

Tribal provides specialist services to government departments, both in local and central government. 

In local government, Tribal is a leading provider of management information systems to Childrens Services departments in the UK.  We have seen subdued activity levels in this market over the last year, as funding pressures have reduced local government's capacity to invest.  However, the recommendations of the Munro report now place increased obligations on Childrens Services departments to maintain key information on at-risk children. Our new Childrens Services Care Record system satisfies the requirements of the Munro report.  Whilst it is at an early stage, we are encouraged by the progress made by this new product, and believe that this will stimulate further activity during 2012.

Elsewhere, the UK government has adopted a cautious approach to new initiatives which require significant expenditure.  We were pleased recently to extend our contract to operate the National Centre for Excellence in the Teaching of Mathematics, but the wider environment means we have seen reduced activity levels in our work with UK central government during 2011, and we expect this to continue during 2012. 

	Higher Education	Further Education	Schools	Other Government Departments and non-government	Total Tribal share of market (revenue in year ended 31 December 2011)	Overall market growth potential (high / medium / low)
Student management systems	Systems used in 89 of 165 UK universities Systems used in 10 universities outside the UK	Systems used in 391 of c2,800 FE colleges and training providers in the UK Systems used in 6 FE colleges outside the UK			Tribal share: £28.1m	High
Childrens Services systems				Systems used in 112 of 202 local authorities	Tribal share: £5.0m	Medium
Bespoke software development					Tribal share: £13.4m	Low
Measurement	Benchmarking in21 of165 universities	Benchmarking in 39 of 328 FE colleges			Tribal share: £5.9m	Medium
Compliance		Inspecting 160 of 328 FE colleges	Inspecting c9,500 of c30,000 schools, and 47,000 of 105,000 early years settings Inspecting 266 schools internationally		Tribal share: £31.5m	Low
Delivery		150 of 328 FE colleges use our specialist content 52 of 135 prisons use our careers advice service			Tribal share: £26.9m	Medium
TRIBAL REVENUES	£20.8m	£32.2m	£31.7m	£26.1m	£110.8m
Less: intersegment sales relating to bespoke software development provided from Technology division to Services division					£(2.6)m
TOTAL TRIBAL EXTERNAL REVENUES					£108.2m

Our Strategy

Refocused and re-energised organisation

After two years of change, Tribal is emerging as a refocused business, underpinned by strong competitive advantages in both its Technology and its Services activities.

Our vision is to establish a business that creates, builds and delivers world-class technology based products and services that help our education, learning and training customers deliver excellence.  We have organised our business with this aim in mind.

Customer focussed

Our strong market positions give us considerable insight and empathy with our customers' needs.  This allows us to create the right products and services to remain or become number 1 or 2 provider in our chosen markets.

Right people, right roles, right incentives

Delivery of our goals depends on our people, and the environment in which we facilitate their success.  We sustain a high performance culture which supports our strategic ambitions.  We keep and attract the right people, put them in the right roles, and provide the right incentives to reward success.

Focus on organic growth

Tribal's strategy is based on organic growth, which we believe offers the most attractive returns to our shareholders.  We will however consider acquisition opportunities which may arise, particularly smaller bolt-on acquisitions which can enhance our product or service offerings.

Delivering shareholder value

Our mission is now to restore and grow shareholder value.  We are focused on more than doubling earnings per share over the medium term, underpinned by resilient and profitable revenue streams across our selected domestic and international markets.

Delivering our strategy - across the Group

We are driving towards key goals which have applicability across the Group.

Embedding technology throughout the business

The power of technology to drive efficiency for our customers is dramatic.  Our student management systems help education and training providers run their businesses intelligently and cost effectively.  Our services are more compelling for customers when delivered on the back of scalable applied technology which allows us to capture our intellectual property in "repeatable" systems, and opens up access to our services to many new users, often across physically dispersed locations.

Maintaining creative synergy between Technology and Services

Our Technology and Services businesses are complementary and increasingly collaborative.  Our technology expertise allows us to develop efficient tools and approaches to enhance our service provision.  At the same time, our services place us in the front line with our customers, bringing us insight into the challenges they face, and stimulating innovative ideas for new technology products which can help our customers.

Internationalise our customer base

Our products and services have increasing resonance in international markets.  We are now established in Australia and New Zealand, and are pleased with our initial progress in the US.  We aim to enter other carefully selected international markets, focusing on English-speaking locations where our credentials are most powerful.

Enhancing our sales and business development capability

Organic growth demands a high-performing sales and business development capability.  We are expanding our sales and business development teams to support our growth aspirations.

Maintain a tight grip on our overheads

We have significantly reduced our overhead cost base, and we now benefit from a lean organisational structure.  We will continue to focus on overhead cost reduction.

Reducing debt

We remain focused on driving down our borrowings, and on generating cash from our operations.

Group - Key strategic actions	Applicable key performance measures
Embedding technology throughout Tribal, with creative synergy between Technology and Services businesses, moving us from a Technology and Services business to become a technology-based Products and Services business	Proportion of revenues which are underpinned by technology
Internationalise our customer base, growing international revenue as a proportion of total revenue	Revenues from international sources
Enhancing our sales and business development capability to drive profitable organic revenue growth	Total revenue growth rates
Deliver shareholder value through earnings per share growth, growing revenue whilst maintaining a tight grip on costs	Sustainable earnings per share growth
Revenue growth across the Technology and Services divisions	Revenue growth year-on-year
Enhancing operating margins through increased efficiency and controlling overheads	Operating margins growth
Reducing debt, create the opportunity (subject to investment opportunities) for a debt free business	Cash conversion %
	Net debt levels

Delivering our strategy - Technology

Maintaining our leading UK positions through investment in our products

We will continue to invest in development of our existing products, ensuring that the underlying technology remains robust and its functionality meets customers' evolving needs in our chosen markets.

Establishing leadership in Australia and New Zealand

During 2010 and 2011, we have established a strong presence in Australia and New Zealand with our student management systems.  As universities and colleges in these locations are increasingly upgrading their legacy systems, we now aim to establish ourselves as the leading provider of these systems in those markets.

Entering new markets

We consider that universities and colleges in other English-speaking Commonwealth markets will follow a similar path to those in Australia and New Zealand.  North America is a competitive and advanced market, but we believe it nevertheless offers potential opportunities to a new entrant such as Tribal.  We continue to assess the most appropriate new markets for our software products and the most effective means of market entry.

Establishing a leading position in the UK for Childrens Services systems

We are a leading provider of management information systems for education services to Childrens Services departments of local authorities in the UK.  In addition, we have recently launched a new product, focused on the Childrens Social Care Record requirements of the Munro report.  We aim to maintain our leading position in the education services market, and establish a leading position in the children's social care market.

Technology - Key strategic actions	Applicable key performance measures
Investment in our technology products - maintain technological robustness and enhance functionality	Product development investment as a % of technology revenue
Internationalising our software products:
Establish leading market positions in Australia and New Zealand - for student management system products	Number 1 or 2 in the market
Entering new markets - consider selective entry to new markets with student management system products	Establish market participation
Establish leading position in UK market for Childrens Services systems	Number 1 or 2 in market

Our strategy - Services

Delivering our strategy - Services

Create new technology-based tools and solutions

We are leaders in measurement, inspections and career advice and guidance services in the UK, and today we use technology to enhance our productivity and quality assurance.  We will build on these existing skills and tools to develop and market new software products based on this expertise.

Establishing leadership for Measurement-based services internationally

Our education performance measurement services hold a leading position in the UK; we aim to grow these activities in Australasia, where we are already a leader in the FE college market.

In the US, we believe there are significant market opportunities in evidence based school performance improvement.  We are progressing well with our initial school project in Nashville, and we aim to replicate this in due course with similar projects in the US.

Expand support for apprenticeship providers

Tribal has established a strong presence in managing apprenticeship programmes for large employers, such as McDonald's.  Our service brings together our technology products to manage apprenticeship student records, and delivery expertise through remote e-learning provision.  Government policy increasingly supports vocational learning, and more large employers are establishing apprenticeship schemes to develop junior staff.  Tribal is well placed to support these programmes.

Expand scope of careers guidance services

We are a key provider of careers guidance in UK prisons and schools.  Under the 2012 Education Bill, UK schools are obliged to provide careers advice and guidance to pupils. Tribal will use its expertise to support schools in meeting this new duty, drawing on our skills and our technology capabilities.

Specialist learning content and management

We are a leading provider of specialist vocational learning materials to FE colleges in the UK.  We are also an innovator in professional development solutions for virtual communities, such as healthcare professionals, teaching professionals in mathematics and special educational needs.

Services - Key strategic actions	Applicable key performance measures
Create new technology-based tools and solutions to enhance the productivity of ourselves and our customers through:	Proportion of revenues which are underpinned by technology
Productising technology platforms for measurement services (focused on benchmarking and school improvement activities)
Developing technology-based self-evaluation tools to support, complement and enhance compliance services (primarily inspections activities)
Creating new technology based solutions for professional and workforce development requirements and specialist content needs
Establish leadership positions in measurement-based education performance improvement services internationally	Number 1 or 2 in relevant market
Expand support for apprenticeship providers - grow large employer customer base in apprenticeship programme management	Services revenues from international sources
Expand scope of careers guidance services - grow careers advice and guidance service into schools and specialist communities	Related revenue growth

Key performance indicators

Key Performance Indicator	Objective	2011	2010	Outlook
Adjusted earnings per share	Long term sustainable growth in EPS	41%	(53)%	Whilst we plan to invest in additional business development resource during 2012, we see the opportunity for sustainable growth in the medium term
Adjusted operating margin	Maintain and enhance our operating margin	10%	8%	We have made good progress during the latter part of 2011, and the increasing application of technology throughout the business is expected to enhance margins further over the medium term
Internationalisation	Increasing proportion of overall revenue generated from international markets	12%	10%	Our international sales pipeline continues to grow, and the New South Wales Student Administration and Learning Management project, subject to completion of negotiations, will underpin international revenue growth
Order book	Increasing order book supporting enhanced revenue visibility	£178m	£186m	Subsequent to the year end, we announced our appointment as preferred bidder on the New South Wales Student Administration and Learning Management contract which, subject to completion of negotiations, will significantly increase our order book
Product development investment	Sustained investment in development of existing and new technology products, stated as a percentage of Technology division revenue	6%	3%	We are investing and working to product roadmaps which will see enhancement and upgrades across our product range over the medium term
Cash conversion	Generate strong cash flow from our continuing operations (measured before exceptional costs but after capital expenditure)	67%	254%	After a period of some distortion to our working capital profile, we are now working from a stable platform; cash generation will remain a key measure as we explore new business opportunities going forward

Note: it is our intention to extend our KPI reporting over the forthcoming reporting periods, to include measures such as retention of people, environmental impact and the extent to which technology underpins our wider activities.  However, at this stage, with the restructuring programme having only recently been completed, we wish to establish a suitable track record in new KPI measurements before disclosing them in our reports.

Operating review

Introduction

Despite the distraction of substantial change across Tribal during 2011, the continuing business has performed well throughout the year. 

Following changes to our sales and business development capabilities, and after completion of our cost reduction programme, the Group performed particularly strongly during the final quarter of the year.  As a result, our operating profit for the year ended 31 December 2011 was significantly ahead of our previous expectations.

Technology

Year ended 31 December	2011 £'000	2010 £'000
Revenue
Licence	7,854	6,802
Implementation	16,969	16,767
Maintenance	14,641	14,607
Other	7,098	6,161
	46,562	44,337
Of which:
UK	82%	87%
International	18%	13%
	100%	100%
Adjusted segment operating profit	9,343	10,733
Adjusted operating profit margin	20%	24%
Technology product development	£3.0m	£1.1m
Services product development	£0.6m	£0.8m
Total product development investment	£3.6m	£1.9m

Our Technology business grew revenue by 5.0% to £46.6m (2010: £44.3m).  Divisional adjusted operating profit was £9.3m (2010: £10.7m), and the adjusted operating margin was 20% (2010: 24%).

We experienced mixed market conditions across the different sectors and geographies in which our Technology business operates.  In the UK, funding pressures on some of our customers have continued to present challenges, and have contributed to extended purchasing cycles.  Nevertheless, we have continued to win important new customers in both Higher Education and Further Education in the UK.

Our products also continue to demonstrate their credentials in international markets, and we have had a number of further notable successes in New Zealand and Australia.   As a result, we grew our international revenues from £6.2m to £8.3m, which represents 18% of our total Technology revenues.

Our group-wide cost reduction programme has contributed to margin improvements within the Technology division during the second half of 2011.  Approximately £1.5m of the total £5.3m of annualised savings arising from this programme relates to streamlining the organisational structure in our Technology business.

The reduced operating margin in the year ended 31 December 2011 reflects significant, non-recurring licence sales to the University of Sydney in 2010, the impact of the reduced level of funding for our UK customers in 2011, increasingly complex implementations (primarily in our Bespoke Solutions business) which requires heavier up-front investment ahead of significant revenue generation, and increased investment in business development activities in our international markets.  We have already experienced returns on this additional business development investment with strong UK sales of software product upgrades and module enhancements during the final quarter of the year, and internationally securing preferred bidder status on the recently announced student management system contract with the New South Wales Department of Education and Communities.  As a consequence, we expect to see margins improve in 2012.

The cost reduction programme and the strong software sales in the final quarter of the year has resulted in operating margins improving since the half year and we now plan to further increase our investment in business development activities during 2012 in both the UK and internationally.

We have also continued to invest in product development.  During the year we invested £3.6m in enhancements across all of our key products.  In particular our focus has been on developments to further tailor our products for the Australasian markets and our recently launched Childrens Social Care Record system.  We expect to continue to invest in product development over the medium term in line with the broad investment levels we have made in 2011.

At 31 December 2011, our order book in our Technology business was £55.9m (2010: £52.6m), of which £28.9m related to software maintenance and support services extending two years to 31 December 2013.  These maintenance and support arrangements typically extend over the entire period of a customer's use of our products, which usually is in excess of 10 years, and thus we would anticipate these sources of revenue substantially to recur for the foreseeable future.

Higher Education (HE)

We have continued to build on our UK market-leading position, securing significant new customers and delivering product enhancements to our existing customer base.

We are now well progressed with the implementation of our student management system in both the University of Oxford and Trinity College Dublin.  The scope of our system implementation has continued to expand in the University of Sydney, which is now our largest HE customer site.

In spite of uncertainties in the worldwide economy, our pipeline of opportunities is strong, particularly in international markets.

Further Education (FE)

Our Further Education and work-based learning student management systems business has performed well, driven by strong international activity levels compensating for subdued activity in the UK.

Domestically, the Further Education and work-based learning markets continue to be affected by funding pressures, although we have seen signs of easing towards the latter part of 2011, with for example our ebs4 student management system recently being purchased by Kingston College and Tower Hamlets College.

In New Zealand, we have continued to expand our installed customer base, and in the second half of 2011 we completed the sale of our ebs4 system to six further polytechnic colleges.  We now provide student management systems to approximately 20% of colleges in New Zealand, having initially entered the market in 2010.

In Australia, our preferred bidder status on the contract with the New South Wales Department of Education and Communities will, subject to negotiations, provide significant underpinning to our expectations for 2012, whilst our international pipeline remains promising.

Childrens Services

The market for our Childrens Services software has experienced inertia following government consultation in late 2010 which recommended changes in the approach to records management taken by Childrens Services departments.  As a result, new software product sales in this market have been low during 2011, although our installed base remains in place.

In response to the new legal requirements faced by our customers, at the end of 2011 we launched our new Childrens Social Care Record system which provides the requisite functionality for Childrens Services departments to meet their obligations, and Stockport Council has recently become the first local authority to purchase this new system.  Looking forward, we are seeing positive signs that this new product will stimulate revenue growth in this market.

Bespoke Solutions

Our Bespoke Solutions capability undertakes a range of specialist software development work, focused on creation of database systems for customers in a number of markets, as well as supporting development projects for our Technology and Services businesses.

During 2011, our Bespoke Solutions business' customers remained cautious due to public funding constraints, and we have seen lower procurement activity as a result.  However, our Bespoke Solutions team delivered the technology solution underpinning our NHS South West professional development contract in conjunction with our Services business.

Looking forward, our pipeline of new opportunities is showing positive trends.  We have a number of significant one-off bespoke project opportunities, are seeing increased activity for our Microsoft product implementation services by local government and have recently been selected by the Department of Education to support delivery of its Property Data Survey programme across schools in England.

Services

Year ended 31 December	2011 £'000	2010 £'000
Revenue
Measurement	5,922	5,710
Compliance	31,474	23,238
Delivery	26,897	33,563
	64,293	62,511
Of which:
UK	93%	93%
International	7%	7%
	100%	100%
Adjusted segment operating profit	5,442	1,607
Adjusted operating profit margin	8%	3%

Our Services business grew revenue by 3% to £64.3m (2010: £62.5m).  Divisional adjusted operating profit was £5.4m (2010: £1.6m), and the adjusted operating margin was 8% (2010: 3%).

Our markets have generally remained active, in spite of public sector funding restraint.  New opportunities in discretionary spending areas remain subdued, but domestically we have seen continued good opportunities in apprenticeships, vocational learning and careers advice and guidance, reflecting the Government's wish to enhance the quality of vocational training and careers support across the UK.  Internationally, the appetite of governments to drive up educational achievement is leading to a range of interesting new opportunities for which we are well qualified.

Our international revenues were £4.8m, up £0.7m in comparison to 2010, and representing 7% of our total Services revenue.  Our services are establishing increasingly strong credentials in our international markets.  Within our measurement business, our college benchmarking offering is the leading provider in New Zealand and in the US we are progressing well with the Nashville schools improvement programme.  In compliance, we have recently extended our schools inspection work in the Middle East and we are seeing increasing interest in our inspection capabilities from a number of other international markets.

Our group-wide cost reduction programme, coupled to a firm focus on efficient delivery, exiting loss-making activities and increasing use of technology to enable that efficiency, has contributed to margin improvements within the Services division during the second half of 2011.  Approximately £1.7m of the total £5.3m of annualised savings arising from this programme relate to streamlining the organisational structure in our Services business.

At 31 December 2011, our order book in our Services business was £121.6m (2010: £133.5m).

Measurement

Our Measurement activities have experienced solid demand through the year, underpinned by our benchmarking activities in both the UK and New Zealand. 

In the US, delivery of our schools improvement work in Nashville, Tennessee commenced in the second half of 2011.  This contract represents an example of our strategy to deploy our technology to enhance our service delivery.  Supported by analytical software tools, the program uses a model which delivers sustainable evidence based improvement by allowing the school and its community to lead the action plan.  Early feedback on the program is encouraging and we anticipate expanding the activity in this area in both Nashville and surrounding areas.  This contract will last for up to 5 years and is worth up to US$6m.

Compliance

Our Compliance revenue growth has been led by the successful implementation of our Ofsted Early Years inspection contract, which went live in the last quarter of 2010.  We continue to benefit from a strong working relationship with Ofsted.

We are successfully expanding our inspections activities both in the UK and internationally.  For example, in the UK, we secured a 3 year £0.5m contract to inspect the provision of training by the National Skills Academy of Railway Engineering.  Internationally, we are active in the US through our Class Measures business which we acquired in 2010, and following successful delivery of schools inspections on behalf of the Abu Dhabi Education Council in 2011, we have recently been awarded a contract worth up to £6m to conduct school inspections in Abu Dhabi over the next 3 years.

Delivery

Our delivery activities are underpinned by a number of contracts in careers guidance, apprenticeships, vocational learning and professional development.

Revenue in this area declined due to a number of contracts reaching completion at the end of 2010 which were not renewed or replaced due to restrictions in public sector funding.  As a result a number of business lines were closed in the UK in order to focus our delivery activities in areas where we see an ongoing demand for our services.

Our careers advice and guidance expertise is deployed in the UK and internationally in donor aid markets.  Our Offender Learning And Skills Services ("OLASS") careers advisory contracts, under which we provide advice and guidance to offenders in 52 prisons in England, performed well throughout the year. Implementation of our National Offender Management Services contract is well underway and this contract went live in early 2012.  Under this contract, our people work with hard to reach offenders in custody or in the community to help move them towards participation in mainstream further learning and employment. Internationally, we are working in Turkey and Croatia on behalf of the European Union to enhance and develop frameworks to improve educational delivery in specialist areas such as Special Educational Needs.

In apprenticeships, we have worked increasingly closely with McDonald's, which operates one of the UK's largest apprenticeships programmes.  Elsewhere, in Further Education, we are a leading provider of specialist e-content and vocational learning.  Following difficult trading conditions in 2010 in this area, as government funding streams changed, we have evolved our offering and have seen a significant improvement in trading during 2011.  We believe we are now well placed to develop further our remote learning capabilities in 2012.

Our professional development services are performing well.  Having established the National Centre for the Excellence in Teaching of Mathematics under a contract with the Department for Education, we have now successfully won the second phase of this project under a £5m contract which extends to early 2015.

Financial Review

Introduction

Tribal has completed a significant restructuring programme during 2011.  The continuing business has continued to perform well, and the changes to the business' operating structures and strategy are benefiting our trading performance and balance sheet strength.

Group Trading Summary

Continuing operations

	2011 £'000	2010 £'000	Change
Revenue	108,231	104,097	4.0%
Adjusted operating profit from divisions before central costs	14,785	12,340	19.8%
Central costs	(3,473)	(4,065)	14.6%
Adjusted operating profit	11,312	8,275	36.7%
Net finance costs	(1,860)	(1,491)	(24.7)%
Adjusted profit before tax	9,452	6,784	39.3%
Adjusted effective tax rate	21.9%	21.9%
Adjusted diluted earnings per share	7.9p	5.6p

In the year ended 31 December 2011, the Group's revenue from continuing operations was £108.2m (2010: £104.1m).  Adjusted operating profit was £11.3m (2010: £8.3m) and adjusted operating margin was 10.4% (2010 8.0%).  Adjusted profit before tax was £9.5m (2010: £6.8m) and adjusted diluted earnings per share were 7.9p (2010: 5.6p).  The statutory profit for our continuing business before tax was £3.7m (2010: loss of £0.4m).

Revenue

Revenue from continuing operations increased by 4.0% to £108.2m, driven by organic growth in the Technology business of 5.0% and the Services business of 2.9% (divisional growth rates are stated gross of intra-divisional trading).

Adjusted operating profit

Adjusted operating profit for the year ended 31 December 2011 grew from £8.3m to £11.3m, and adjusted operating margins grew from 8.0% to 10.4%.  Our operating margin for the six months ended 30 June 2011 was 6.8%.

After completing our programme of disposals in May 2011, our restructuring and cost reduction programme focused on streamlining our organisational structure and rationalising our property portfolio.  Within the continuing business, our staff numbers at the end of 2011 were 1,300 compared to 1,389 at the start of the year.  We have now focused the business into 9 key operating offices in the UK, and have re-balanced our operational activities towards low cost locations.  Our central costs were 3.2% of revenue during the year ended 31 December 2011.

In our continuing business, we have achieved annualised savings of £5.3m, of which £2.9m has benefitted the year ended 31 December 2011.  The operating margin enhancement arose from a combination of the benefits of the cost reduction programme, together with good underlying performance in both the Technology and Services divisions in the final quarter of 2011. The adjusted numbers set out above exclude exceptional costs of £5.3m associated with the cost reduction programme in our continuing business. 

Exceptional costs

	2011 £'000	2010 £'000
Restructuring costs:
- redundancy costs	3,327	1,151
- property-related costs	1,773	1,161
- other	913	626
	6,013	2,938
Write down of business system	-	1,888
Business development costs relating to abortive venture in China	-	770
Other including professional fees relating to responding to expressions of interest in the Group	-	661
Release of deferred consideration relating to US acquisition	(664)	-
Exceptional costs arising from continuing activities	5,349	6,257
Exceptional costs arising from discontinued activities	4,506	6,369
Total exceptional costs	9,855	12,626

During the year, Tribal incurred significant costs which are outside the normal course of trading relating primarily to restructuring costs following the completion of the disposal programme.  These costs have been excluded from our adjusted operating profit as they distort the underlying trading performance of the Group.

The restructuring costs relate in part to the costs of reducing headcount, particularly as we have reduced the number of management layers and sought to reduce our Group overheads. Alongside headcount reduction, our property rationalisation programme has resulted in onerous lease charges for the remaining cost commitments under property leases where we have exited surplus locations, appropriately reduced for any mitigation.

Other exceptional costs incurred in the year include mainly intangible asset impairments arising as a result of our restructuring activities.

Discontinued activities

	2011 £'000	2010 £'000
Loss attributable to Resourcing	(2,528)	(1,399)
Loss attributable to Health and Government	(2,764)	(57,414)
Loss attributable to Kindred	(780)	(4,738)
Profit attributable to Nightingale Associates	-	639
Operating loss attributable to discontinued operations	(6,072)	(62,912)
Loss on disposal of Resourcing	(2,661)	-
Loss on disposal of Health and Government	(18,390)	-
Loss on disposal of Kindred	(3)	(1,326)
Profit on disposal of Nightingale Associates	1,087	352
Loss on disposal of discontinued operations	(19,967)	(974)
Attributable tax credit	275	2,239
Net loss attributable to discontinued operations	(25,764)	(61,647)

During the early part of 2011, the discontinued activities incurred trading losses and exceptional restructuring costs prior to their disposal.  Revenue from all discontinued operations in the period was £23.3m (2010: £97.8m).  Operating losses from discontinued operations before IFRS3 intangibles and exceptional costs were £1.3m (2010: profit of £0.6m). Total losses from discontinued operations were £25.8m (2010: £61.7m).

On 1 March 2011, we completed the sale of our Resourcing business to TMP (UK) Limited for an initial consideration of £1 resulting in a loss on disposal of £2.7m.TMP will pay to Tribal 20% of the revenue from existing customers for three years following completion for its Advertising and E-Solutions business streams up to a maximum deferred consideration of £6m.

On 28 April 2011, we concluded the sale of our Health and Government businesses to Capita Group PLC for a maximum consideration of £15.9m, of which up to £0.5m remains payable subject to the satisfaction of certain conditions. Net assets disposed of totalled £31.7m, of which £22.5m related to goodwill, and £0.9m of liabilities related to retirement benefit obligations.  A loss on disposal arose of £18.4m. Additionally a contingent liability of £10.6m in relation to a further defined benefit pension scheme was transferred out of the Group as part of this transaction.

Pension obligations

As a consequence of certain contract awards, primarily the Ofsted Early Years inspection contract which was entered into during the year ended 31 December 2010, a number of employees participate in defined benefit pension schemes.

The combined deficits calculated under IAS 19 at the end of the year totalled £0.5m (with gross assets of £3.2m and gross liabilities of £3.7m), compared to £1.2m last year.

Group net finance costs

	2011 £'000	2010 £'000
Investment income	(50)	(143)
Finance costs	1,910	1,634
Net finance costs	1,860	1,491
Financial instruments	145	625
	2,005	2,116

Net finance costs for the year were broadly consistent with costs of the prior year, in spite of reducing net debt levels. 

The interest rate hedge which was in place at the start of the year meant that the Group bore interest at a margin of 4.90% over LIBOR for the six months ended 30 June 2011.  This hedge instrument was settled on 1 July 2011, and the Group has borrowed at a floating rate since that date, thus benefiting from currently low interest rates.

Tax

The effective tax rate on our continuing business of 21.9% is lower than the standard rate due to group relief from the parts of the Group that were loss making up to disposal.  The ongoing tax charge on current year profits is likely to be in broadly line with the standard corporation tax rate, reflecting disallowed expenses and non-qualifying depreciation.

Earnings per share

As a result of the losses attributable to discontinued operations, and the exceptional costs incurred during the year, the basic loss per share was 23.9p (2010: 66.3p).

The adjusted diluted earnings per share from continuing operations before exceptional costs and intangible asset amortisation, which reflects the underlying trading performance of the Group, grew from 5.6p to 7.9p.

Shareholder returns and dividends

Following completion of the restructuring programme, the statutory loss for the year was £22.4m (2010: £62.1m).

In light of the significant changes to the Group, the business opportunities now available to the business, and the risks presented by the continuing macro-economic environment, we have reviewed our dividend policy.  The Board has proposed a final dividend of 0.60p per share which, together with the interim dividend of 0.40p per share, gives a total dividend of 1.00p per share (2010: 2.50p).

The dividend is covered 7.9 times by adjusted earnings per share.  The final dividend will be paid on 13 July 2012 to shareholders on the register on 15 June 2012.

The Directors intend to pursue a progressive dividend policy, reflecting the cash generative nature of the continuing business, but seeking to reduce debt levels over the medium term and to retain capital sufficient to allow the Group to implement its strategic plan.

Cash flow and net debt

Net debt

	2011 £'000	2010 £'000
Cash at bank and in hand	6,524	14,659
Short-term loans	-	-
Syndicated bank facility (net of bank arrangement fees)	(22,503)	(33,157)
Gross debt	(22,503)	(33,157)
Net debt	(15,979)	(18,498)
Gearing	35%	27%

Group net debt decreased from £18.5m at 31 December 2010 to £16.0m at 31 December 2011.  At 31 December 2010, our net debt levels were significantly reduced through non-recurring favourable working capital terms from third parties which reversed by the end of the first quarter of 2011. Adjusting for the one-off effect of these favourable working capital terms, the underlying net debt of the Group at 31 December 2010 was £20.9m.

Cash flow and cash management

	2011 £'000	2010 £'000
Continuing operations
Net cash from operating activities before tax and before exceptional cashflows	12,200	26,016
Capital expenditure (net)	(836)	(1,847)
Capital expenditure on product development and business systems	(3,764)	(3,166)
Operating cash flow from continuing operations after capital expenditure before exceptional cashflows	7,600	21,003
Exceptional cashflows	(4,786)	(2,101)
Operating cash flow from continuing operations after capital expenditure	2,814	18,902
Discontinued operations
Net cash from operating activities before tax	(8,540)	(6,605)
Capital expenditure (net)	160	(555)
Capital expenditure on product development and business systems	(40)	(37)
Operating cash flow from discontinued operations after capital expenditure	(8,420)	(7,197)
Net interest	(1,557)	(1,353)
Tax	718	(1,439)
Free cash flow	(6,445)	8,913
Acquisitions and deferred consideration	(70)	(839)
Disposal of discontinued operations	12,378	5,285
Dividends paid	(980)	(4,284)
Financing	(10,958)	(3,843)
Settlement of interest rate swap instrument	(2,086)	-
Effect of foreign exchange rate changes	26	57
(Decrease)/increase in cash and cash equivalents in year	(8,135)	5,289

During 2011, the Group generated operating cash flows after capital expenditure, but before exceptional cashflows of £7.6m (2010: £21.0m).  The Group's operating cash flow from continuing operations before exceptional cash outflows and after adjusting for the distortive effects of non-recurring working capital terms was £10.0m (2010: £18.6m).

Cash conversion for the year from continuing operations was 67% (2010: 254%).  This is defined as operating cashflow from continuing activities before exceptional cash flows and after capital expenditure, divided by adjusted operating profit.  After further adjusting for the distortive effect of the non-recurring favourable working capital terms at 31 December 2010 (as described above), underlying cash conversion for the continuing operations for the year ended 31 December 2011 was 88%.

Order book

The total forward order book of the Group as at 31 December 2011 was lower by 5% at £178m (2010: £186m).  This relates to the next five years, but includes only 2 years of software maintenance income.  Based on the period of time over which our student management systems are typically installed in customer sites, it is probable that maintenance income streams will continue well beyond a two year timeframe; maintenance income for the year ended 31 December 2011 was £14.6m.

At 29 February 2012, our order book was £170m.  We have been appointed to continue to deliver the UK Government's National Centre for the Excellence in Teaching of Mathematics under a contract with a value of approximately £5m, and to conduct school inspections for the Abu Dhabi Education Council under a contract with a value of up to £6m. 

Financial risks and treasury management

The main financial risks faced by the Group relate to the availability of funds to meet business needs, credit risk arising from customer defaults, fluctuations in interest rates and foreign exchange risk. These risks are managed as described below.

Funding adequacy

The Group finances its operations by a combination of cash reserves from equity capital, retained profits and bank borrowings.  Our senior debt banking facility runs until February 2015 with Lloyds Banking Group and HSBC, subject to compliance with covenants.  Under the terms of the facility, £30m is available under a fully fluctuating revolving credit facility.  In addition, the Group currently has a combined committed bonding and working capital facility of £10m, of which up to £5m may be used as an overdraft, renewable in March 2013.

Treasury management is led by the Group finance team and operates within policies and procedures reviewed and approved by the Board.  Liquidity matters are discussed in more detail in the going concern section of the Corporate Governance report.

Credit risk

The Group seeks to reduce the risk of bad debts arising from non-payment from our customers. This risk is closely monitored by the Group finance team, of which the credit control function forms part.  We incurred no material bad debts (less than 0.5% of revenue) during 2011 due to our strong relationships with our predominantly public sector customers.

However, to reflect the risk associated with the sharp slowdown in the UK economy, we have maintained a relatively high allowance for doubtful debts. Debtor days outstanding at 31 December 2011 were 38 days (2010: 43 days).

Interest rate risk

Forward rate agreements and interest rate swaps are used where appropriate to achieve the desired mix of fixed and floating rate debt.  During the year ended 31 December 2011, a pre-existing £25m designated hedge under which the Group paid 4.90% was settled early as it was determined that it was economically disadvantageous to continue with the hedge arrangement.  An interest rate cap has been implemented which ensures that the Group's first £20m of borrowings will incur interest costs at a maximum of 3% plus the relevant margin until 2 January 2014.

Foreign exchange risk

A proportion of Tribal's business is transacted overseas, and the performance of the company is therefore exposed to movements in foreign currency exchange rates. 

Management of foreign exchange risk is overseen by the Group finance team, and policies and procedures are in place that have been approved by the Board.  Where appropriate, forward exchange contracts and options are taken out in order to reduce potential financial exposure to an acceptable level.  As the Group continues its international expansion, these policies and procedures are regularly reviewed to ensure that they are appropriate to the Group's operations.

There is increased risk of economic events in Europe leading to disruption in the Eurozone, possible sovereign default, banking instability and a consequent impact on economic growth rates. A relatively small part of the Group operates in countries at the centre of the Euro crisis. We currently have no activity in Greece, and aggregate revenue in 2011 across the rest of the Eurozone was less than 1%. Our cash deposits are principally with UK banks.

Outlook

Tribal now benefits from a leaner, focused operating structure.  We have a clear organic growth strategy in place, which is directing our activity and decision-making.

Our UK markets are responsive to our product and service propositions, and we have identified good opportunities to develop new products and services over the medium term.  We have also established strong positions in our chosen international markets, and are seeing good opportunities for continued growth.

Our current trading is in line with our expectations for 2012, which will continue to be a period of investment in our products, people and our international presence.  As a result of seasonality in our business, and our programme of investment, we anticipate our profits will be weighted towards the second half of the year, and Tribal has good potential to make further progress over the medium term.

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

Keith Evans                                                   Steve Breach

Chief Executive                                               Group Finance Director

22 March 2012

Consolidated income statement

For the year ended 31 December 2011

	Note	Before exceptional and amortisation costs £'000	Exceptional  and amortisation costs £'000	Year  ended 31 December 2011 Total £'000	Before exceptional and amortisation costs £'000	Exceptional and amortisation costs £'000	Year  ended 31 December 2010 Total £'000
Continuing operations
Revenue		108,231	-	108,231	104,097	-	104,097
Cost of sales		(66,516)	-	(66,516)	(67,180)	-	(67,180)
Gross profit		41,715	-	41,715	36,917	-	36,917
Other administrative expenses	3	(30,403)	(5,349)	(35,752)	(28,642)	(6,257)	(34,899)
Amortisation of IFRS 3 intangibles		-	(218)	(218)	-	(314)	(314)
Total administrative expenses		(30,403)	(5,567)	(35,970)	(28,642)	(6,571)	(35,213)
Operating profit/(loss)		11,312	(5,567)	5,745	8,275	(6,571)	1,704
Investment income	4	50	-	50	143	-	143
Other gains and losses	5	-	(145)	(145)	-	(625)	(625)
Finance costs	6	(1,910)	-	(1,910)	(1,634)	-	(1,634)
Profit/(loss) before tax		9,452	(5,712)	3,740	6,784	(7,196)	(412)
Tax		(2,066)	1,651	(415)	(1,484)	1,439	(45)
Profit/(loss) for the year from continuing operations		7,386	(4,061)	3,325	5,300	(5,757)	(457)
Discontinued operations
(Loss)/profit from discontinued operations	8	(1,113)	(24,651)	(25,764)	401	(62,048)	(61,647)
Profit/(loss) for the year		6,273	(28,712)	(22,439)	5,701	(67,805)	(62,104)
Attributable to:
Equity holders of the parent				(22,439)			(62,104)

Earnings per share
From continuing operations
Basic	9	7.9p	(4.4)p	3.5p	5.7p	(6.2)p	(0.5)p
Diluted	9	7.9p	(4.4)p	3.5p	5.6p	(6.1)p	(0.5)p
From continuing and discontinued operations
Basic	9	6.7p	(30.6)p	(23.9)p	6.1p	(72.4)p	(66.3)p
Diluted	9	6.7p	(30.6)p	(23.9)p	6.1p	(72.4)p	(66.3)p

Consolidated statement of comprehensive income for the year ended 31 December 2011

		Year ended 31 December 2011 £'000	Year ended 31 December 2010 £'000
Loss for the year		(22,439)	(62,104)
Actuarial (loss)/gain on defined benefit plans		(175)	969
Transfer from/(to) cash flow hedge reserve		234	(618)
Deferred tax		(121)	(98)
Exchange differences on translation of foreign operations		4	63
Total comprehensive income for the year attributable to equity holders of the parent		(22,497)	(61,788)

Consolidated balance sheet at 31 December 2011

	Note	2011 £'000	2010 £'000	2009 £'000
Non-current assets
Goodwill	10	72,616	95,116	158,050
Other intangible assets		5,655	7,801	8,797
Property, plant and equipment		2,576	6,188	7,936
Investments		1	1	38
Deferred tax assets		1,661	3,256	3,191
		82,509	112,362	178,012
Current assets
Inventories		333	610	954
Trade and other receivables	11	23,323	34,885	62,457
Cash and cash equivalents		6,524	14,659	9,370
Assets held for sale		-	4,319	-
		30,180	54,473	72,781
Total assets		112,689	166,835	250,793
Current liabilities
Trade and other payables	12	(8,781)	(16,915)	(26,438)
Accruals and deferred income		(28,271)	(33,856)	(40,285)
Tax liabilities		(2,671)	(2,227)	(5,002)
Bank loans and loan notes		-	-	(381)
Provisions		(2,419)	(525)	(435)
Liabilities held for sale		-	(5,382)	-
		(42,142)	(58,905)	(72,541)
Net current (liabilities)/assets		(11,962)	(4,432)	240
Non-current liabilities
Bank loans		(22,503)	(33,157)	(36,780)
Retirement benefit obligations		(540)	(1,159)	(2,143)
Deferred tax liabilities		(178)	(1,024)	(1,881)
Derivative financial instruments		-	(2,173)	(931)
Provisions		(1,439)	-	-
Other payables		-	(662)	-
		(24,660)	(38,175)	(41,735)
Total liabilities		(66,802)	(97,080)	(114,276)
Net assets		45,887	69,755	136,517
Equity
Share capital		4,685	4,685	4,685
Share premium account		-	-	78,723
Other reserves		26,245	26,246	31,597
Retained earnings		14,957	38,824	21,512
Total equity attributable to equity holders of the parent		45,887	69,755	136,517

Consolidated statement of changes in equity

For the year ended 31 December 2011

		Share capital £'000	Other reserves £'000	Retained earnings £'000	Total equity £'000
Balance at 1 January 2011		4,685	26,246	38,824	69,755
Total comprehensive income for the year		-	169	(22,666)	(22,497)
Dividends		-	-	(980)	(980)
Charge to equity for share-based payments		-	(170)	(221)	(391)
Balance at 31 December 2011		4,685	26,245	14,957	45,887

For the year ended 31 December 2010

	Share capital £'000	Share premium £'000	Other reserves £'000	Retained earnings £'000	Total equity £'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)
Charge 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 capital £'000	Share premium £'000	Other reserves £'000	Retained earnings £'000	Total £'000	Minority interest £'000	Total equity £'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

Consolidated cash flow statement for the year ended 31 December 2011

	Note	Year ended 31 December  2011 £'000	Year ended 31 December  2010 £'000
Net cash from operating activities	13	(408)	15,871
Investing activities
Interest received		49	143
Proceeds on disposal of discontinued operations		12,786	8,217
Proceeds on disposal of property, plant and equipment		160	185
Disposal of investments		-	1
Purchases of property, plant and equipment		(836)	(2,588)
Expenditure on product development and business systems		(3,804)	(3,203)
Acquisitions and deferred consideration		(70)	(839)
Cash and cash equivalents disposed		(408)	(2,932)
Net cash inflow/(outflow) from investing activities		7,877	(1,016)
Financing activities
Interest paid		(1,606)	(1,496)
Equity dividend paid		(980)	(4,284)
Repayment of borrowings		(11,500)	(3,843)
Settlement of interest rate swap		(2,086)	-
New bank loans		542	-
Net cash used in financing activities		(15,630)	(9,623)
Net (decrease)/increase in cash and cash equivalents		(8,161)	5,232
Cash and cash equivalents at beginning of year		14,659	9,370
Effect of foreign exchange rate changes		26	57
Cash and cash equivalents at end of year		6,524	14,659

Notes to the financial statements

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 22 March 2012, does not constitute the Company's statutory accounts for the years ended 31 December 2011 or 31 December 2010, but is derived from these accounts.

Statutory accounts for the year ended 31 December 2010 have been delivered to the Registrar of Companies and those for the year ended 31 December 2011 will be delivered following the Company's Annual General Meeting.  The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under S498 (2) or (3) of the Companies Act 2006.

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 1-4 Portland Square, Bristol BS2 8RR.

It is intended that the full financial statements which comply with IFRSs will be posted to shareholders on or around 18 April 2012 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 directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.  Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. 

2.         Business segments

Following the sale of our Health and Government businesses, the Group is now organised into two business segments - Services and Technology.  These segments were previously reported together as "Education". In view of the relevance to future reporting, the business segment information for the year to 31 December 2011 has been reported under this structure and the comparative segment information for the year ended 31 December 2010 has been restated to reflect the changes.

In accordance with IFRS 8 "Operating Segments" information on segment assets is not shown as this is not provided to the Chief Operating decision maker.

The principal activities of the Group are now as follows:

Technology                   -        a range of proprietary software products to support the business needs of education, learning and training providers

Services                        -        a range of services to support the improvement of education, learning and training delivery by our customers

Year ended 31 December 2011

		Technology £'000	Services £'000	Eliminations £'000	Consolidated £'000
Revenue
External sales		44,042	64,189	-	108,231
Inter-segment sales		2,520	104	(2,624)	-
Total revenue		46,562	64,293	(2,624)	108,231
Segment operating profit		9,343	5,442	-	14,785
Unallocated corporate expenses					(3,473)
Adjusted operating profit					11,312
Amortisation of IFRS 3 intangibles					(218)
Exceptional costs					(5,349)
Goodwill impairment					-
Operating loss					5,745
Investment income					50
Other gains and losses					(145)
Finance costs					(1,910)
Profit before tax					3,740
Tax					(415)
Loss for the year from discontinued operations					(25,764)
Loss after tax and discontinued operations					(22,439)

Inter-segment sales are charged at prevailing market prices

Year ended 31 December 2010

		Technology £'000	Services £'000	Eliminations £'000	Consolidated £'000
Revenue
External sales		42,388	61,709	-	104,097
Inter-segment sales		1,949	802	(2,751)	-
Total revenue		44,337	62,511	(2,751)	104,097
Segment operating profit		10,733	1,607	-	12,340
Unallocated corporate expenses					(4,065)
Adjusted operating profit					8,275
Amortisation of IFRS 3 intangibles					(314)
Exceptional costs					(6,257)
Operating profit					1,704
Investment income					143
Other gains and losses					(625)
Finance costs					(1,634)
Loss before tax					(412)
Tax					(45)
Loss for the year from discontinued operations					(61,647)
Loss after tax and discontinued operations					(62,104)

Geographical information

Revenue from external customers

	2011 £'000	2010 £'000
UK	95,162	94,010
Australasia	7,498	6,853
Rest of the world	5,571	3,234
	108,231	104,097

3.         Exceptional administrative expenses

	2011 £'000	2010 £'000
Restructuring costs:
- Redundancy	3,327	1,151
- Property related	1,773	1,161
- Other restructuring costs	913	626
Release of deferred consideration	(664)	-
Write-down of business system	-	1,888
China business development	-	770
Other	-	661
	5,349	6,257

Exceptional costs have arisen throughout the year, which are not part of the Group's normal trading activities. As explained in the Financial Review, significant restructuring costs of £6.0m have been incurred to reduce headcount and property capacity, and certain assets have been impaired, following the disposal of the Group's Health and Government businesses and the subsequent refocusing of the continuing business. Also included within exceptional items is the release of deferred consideration in respect of acquisitions which are no longer expected to meet the criteria required to trigger these payments and have therefore been credited to the income statement in line with IFRS 3 (Revised 2008) "Business Combinations".

4.         Investment income

	2011 £'000	2010 £'000
Interest on bank deposits	42	87
Net interest receivable on retirement benefit obligations	1	-
Other interest receivable	7	56
	50	143

5.         Other gains and losses

	2011 £'000	2010 £'000
Hedge ineffectiveness in the cash flow hedges	84	625
Charge on settlement of interest rate swap	61	-
	145	625

6.         Finance costs

	2011 £'000	2010 £'000
Finance charges
Interest on bank overdrafts and loans	1,910	1,563
Net interest payable on retirement benefit obligations	-	71
	1,910	1,634

7.         Dividends

	2011	2010
	£'000	£'000
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2010 of 0.65 pence (year ended 31 December 2009: 2.75 pence) per share	606	2,562
Interim dividend for the year ended 31 December 2011 of 0.40 pence (year ended 31 December 2010: 1.85 pence) per share	373	1,722
	979	4,284
Proposed final dividend for the year ended 31 December 2011 of 0.60p pence (year ended 31 December 2010: 0.65 pence) per share	562	615

The interim dividend for 2011 was approved by the Board on 15 August 2011 and was paid on 21 October 2011 to ordinary shareholders who were on the register on 23 September 2011.

The Board is recommending a final dividend of 0.60p per share.  This dividend will be paid on 13 July 2012 to shareholders on the register at 15 June 2012. 

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

The Group disposed of its Health and Government businesses on 28 April 2011.  The maximum gross sale proceeds are £15.9 million payable as follows:

(i)            initial consideration at completion of £13.4m; and

(ii)           further deferred consideration of up to £2.5m payable on the satisfaction of certain conditions such as assigning key contracts and framework agreements. Of this, £2.0m had been received by 31 December 2011.

The total consideration estimated in determining the loss on disposal is £15.8 million which represents management's best view of the likely outcome.

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

		£'000
Goodwill		22,500
Other intangible assets		2,668
Property, plant and equipment		653
Trade and other receivables		18,490
Cash and cash equivalents		408
Trade and other payables		(12,531)
Retirement benefit obligations		(933)
Deferred tax		461
Net assets disposed		31,716
Loss on disposal		(18,390)
Consideration		13,326
Satisfied by:
Cash		15,372
Deferred and contingent consideration		450
Directly attributable costs		(2,496)
		13,326
Net cash flow arising from disposal
Cash consideration		15,372
Cash disposed		(408)
Directly attributable costs		(2,459)
Cash inflow from disposal		12,505

On 9 February 2011 we announced the sale of the trade and certain assets of our Resourcing business to TMP (UK) Limited for an estimated contingent consideration of £1.0m. A loss on disposal of £2.7m was recognised on the transaction, which completed on 1 March 2011. In the period we also recognised an additional profit on the disposal of our Architecture business which took place in June 2010. The increase in profit of £1.1m arises due to deferred contingent consideration exceeding the previous estimate.

The Group also closed its Treasury Services subsidiary during the year.  This business has therefore been presented within discontinued operations.

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

	2011 £'000	2010 £'000
Turnover	27,591	123,727
Direct agency costs	(4,275)	(25,898)
Revenue	23,316	97,829
Operating (loss)/profit before amortisation of IFRS 3 intangibles and exceptional costs	(1,329)	555
Exceptional restructuring costs	(4,506)	(6,369)
Goodwill impairment	-	(56,360)
Amortisation of IFRS 3 intangibles	(237)	(738)
Operating loss	(6,072)	(62,912)
Attributable tax credit	275	2,239
Loss on disposal of discontinued operations	(19,967)	(974)
Net loss attributable to discontinued operations	(25,764)	(61,647)
Operating cash flows for discontinued operations	(8,540)	(6,605)
Effect of foreign exchange rate changes	-	(9)
Investing cash flows for discontinued operations	12,498	4,752
Financing cash flows for discontinued operations	(11,500)	-
Total cash flows for discontinued operations	(7,542)	(1,862)

The major classes of assets and liabilities comprising the operations classified as held for sale are as set out below and related entirely to the Resourcing business in 2010.  This business has been sold during 2011 and therefore there are no assets held for sale at 31 December 2011.

	2011 £'000	2010 £'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:

	2011 thousands	2010 thousands
Weighted average number of shares outstanding: Basic weighted average number of shares in issue
	93,696	93,696
Employee share options	-	160
Weighted average number of shares outstanding for dilution calculations	93,696	93,856

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:

	2011 £'000	2010 £'000
Earnings
From continuing operations
Profit/(loss) for the year	3,325	(457)
Minority interests	-	-
Net profit/(loss) from continuing operations attributable to equity holders of the parent	3,325	(457)
Earnings per share
Basic	3.5p	(0.5)p
Diluted	3.5p	(0.5)p
From continuing and discontinued operations
Loss for the year	(22,439)	(62,104)
Minority interests	-	-
Net loss from continuing and discontinued operations attributable to equity holders of the parent	(22,439)	(62,104)
Earnings per share
Basic	(23.9)p	(66.3)p
Diluted	(23.9)p	(66.3)p

	2011 £'000	2010 £'000
From discontinued operations
Loss for the year	(25,764)	(61,647)
Minority interests	-	-
Net loss from continuing and discontinued operations attributable to equity holders of the parent	(25,764)	(61,647)
Earnings per share
Basic	(27.5)p	(65.8)p
Diluted	(27.5)p	(65.8)p

Adjusted earnings
From continuing operations
Net profit/(loss) from continuing operations attributable to equity holders of the parent	3,325	(457)
Amortisation of IFRS 3 intangibles (net of tax)	160	226
Exceptional costs (net of tax)	3,756	5,081
Financial instruments charge (net of tax)	145	450
Adjusted earnings	7,386	5,300
Adjusted earnings per share
Basic	7.9p	5.7p
Diluted	7.9p	5.6p

From continuing and discontinued operations
Net loss from continuing and discontinued operations attributable to equity holders of the parent	(22,439)	(62,104)
Amortisation of IFRS 3 intangibles (net of tax)	338	757
Goodwill impairment and associated tax adjustments	-	55,777
Exceptional costs (net of tax)	8,262	9,847
Loss on disposal of discontinued operations and associated tax adjustments	19,967	974
Financial instruments charge (net of tax)	145	450
Adjusted earnings	6,273	5,701
Adjusted earnings per share
Basic	6.7p	6.1p
Diluted	6.7p	6.1p

From discontinued operations
Net loss from discontinued operations attributable to equity holders of the parent	(25,764)	(61,647)
Amortisation of IFRS 3 intangibles (net of tax)	178	531
Goodwill impairment and associated tax adjustments	-	55,777
Exceptional costs (net of tax)	4,506	4,766
Loss on disposal of discontinued operations and associated tax adjustments	19,967	974
Adjusted earnings	(1,113)	401
Adjusted earnings per share
Basic	(1.2)p	0.4p
Diluted	(1.2)p	0.4p

10.        Goodwill

	2011 £'000	2010 £'000	2009 £'000
Cost
At beginning of year	259,605	269,888	260,896
Additions	-	926	13,859
Disposals	(157,409)	(11,209)	(4,867)
At end of year	102,196	259,605	269,888
Accumulated impairment losses
At beginning of year	164,489	111,838	51,131
Impairment charge -  discontinued	-	56,360	65,574
Disposals	(134,909)	(3,709)	(4,867)
At end of year	29,580	164,489	111,838
Net book value
At end of year	72,616	95,116	158,050
At beginning of year	95,116	158,050	209,765

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:

	2011 £'000	2010 £'000	2009 £'000
Support Services:
Communications	-	-	2,250
Architecture	-	-	7,500
Resourcing	-	-	2,500
	-	-	12,250
Health	-	9,351	24,759
Government	-	13,149	49,351
Technology	42,430	42,430	42,430
Services	30,186	30,186	29,260
	72,616	95,116	158,050

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.

Following the sale of our Health and Government businesses, the Group is now organised into two business segments - Services and Technology. These segments were previously reported together as "Education". These segments now represent individual CGUs for the purposes of goodwill impairment testing, and therefore the analysis of the total goodwill figure above has been restated accordingly.

The recoverable amounts of the Technology and Services 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, sales volumes 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, sales volumes 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 ongoing caution in the market. The rate used to discount the forecast cash flows is 11% and is chosen to reflect the directors' assessment of the relative degree of risk associated with the CGUs.

The goodwill 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 either CGU.

11.        Trade and other receivables

	2011 £'000	2010 £'000	2009 £'000
Amount receivable from sale of services	12,024	17,714	44,207
Allowance for doubtful debts	(1,178)	(860)	(1,399)
	10,846	16,854	42,808
Amounts recoverable on contracts	228	-	-
Other receivables	3,605	3,608	2,351
Prepayments and accrued income	8,644	14,423	17,298
	23,323	34,885	62,457

12.        Trade and other payables

	2011 £'000	2010 £'000	2009 £'000
Trade payables	4,241	4,864	13,255
Other taxation and social security	2,587	9,813	6,922
Other payables	1,953	2,166	5,630
Deferred cash consideration	-	72	631
	8,781	16,915	26,438

13.        Notes to the cash flow statement

	2011 £'000	2010 £'000
Operating profit from continuing operations	5,745	1,704
Operating loss from discontinued operations	(6,072)	(62,912)
Depreciation and impairment of property, plant and equipment	3,310	2,830
Impairment of goodwill	-	56,360
Amortisation of other intangible assets	2,153	4,192
Net pension charge/(credit)	102	(157)
Loss on disposal of property, plant and equipment	1,590	413
Loss/(gain) on sale of investments	-	5
Share-based payments	(223)	(690)
Release of deferred consideration	(664)	-
Operating cash flows before movements in working capital	5,941	1,745
Decrease/(increase) in inventories	359	(363)
(Increase)/decrease in receivables	(4,310)	21,816
Decrease in payables	(3,116)	(5,888)
Net cash from operating activities before tax	(1,126)	17,310
Tax received/(paid)	718	(1,439)
Net cash from operating activities	(408)	15,871

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

	2011 £'000	2010 £'000
Continuing operations (excluding restricted cash)	8,110	25,426
Decrease in restricted cash	(696)	(1,511)
	7,414	23,915
Discontinued operations	(8,540)	(6,605)
	(1,126)	17,310

Principal risks

The principal risks that the Group manages are described below.  Financial risks are covered in the Financial Review and principally relate to funding, credit risk, interest rate risk and foreign exchange risk.

Key risk categories	Specific risk(s)	Possible impact	Mitigating factors	Change since 2010
Technological change	·   Technological progress, particularly the use of the Cloud and delivery of Software as a Service (SaaS), renders our existing products obsolete	·   Development of new offerings by Tribal or our competitors, and managing transition of existing customers to those new offerings, may damage our existing income streams	·   Development resource is being maintained and diversified with judicious use of international capacity ·   Significant on-going investment in the development of new or enhanced software ·   Our products can already be deployed through the Cloud or through a SaaS model ·   At the current time, our customers typically express a wish to use traditional stand-alone systems managed within their existing IT resources	·   No change - technological development continues
Economic environment	·   Economic uncertainty, including that in the Eurozone, can delay purchasing decisions and reduce discretionary expenditure and appetite for innovation ·   Funding cuts by governments can reduce capacity for investment by our customers	·   Adverse effect on financial performance, new business wins falling short of expectations	·   Internationalisation, diversifying our dependence on single countries' economic climate ·   Our strong UK market position, with a substantial installed basis across our technology products, will be protected by customers' reluctance to invest in change in the short term ·   Weak economic conditions encourage our customers to seek efficiencies, which our products and services support ·   Supply of services that support essential functions rather than discretionary activities ·   Ensuring we keep an efficient and flexible cost base	·   No change -levels of uncertainty continue to be high
Attracting and retaining staff	·   Organisational change destabilises morale ·   Failure to retain key staff ·   Inability to attract high calibre staff, particularly in the technology market	·   Inability to develop and execute business plans ·   Poor morale ·   Competitive disadvantage	·   Training and development ·   Clear staff performance management system ·   Competitive incentive and bonus plans ·   Succession planning	·   Lower - following completion of our restructuring programme, stability is being restored
International expansion	·   Poor management control in geographically remote locations ·   Foreign currency risk ·   Misjudgement of market opportunity and / or local commercial environment	·   Adverse effect on financial performance and our reputation ·   Constraint on growth potential	·   Strengthened management teams in international locations ·   Foreign currency management policies in place ·   Due diligence / market research prior to material investment in new markets ·   Initial new market entry through low cost structures	·   No change - we are now established in Australasia, the Middle East and the US; new geographies are being evaluated
Operational delivery	·   Substandard delivery of key contracts ·   Significant new business wins create resource and management stretch ·   Significant international delivery programmes present new challenges to which Tribal has not previously been exposed	·   Failure to meet contractual obligations ·   Financial penalties and potential loss of contracts ·   Reputational damage ·   Adverse impact on financial growth and performance	·   MOR review processes ·   Risk management framework and Board escalation of risks/issues ·   Operating performance indicators in place ·   Internal audit ·   Fit with strategy and pricing is subject to review and approval by the Board for significant new contracts	·   Higher - our strategic aspirations place emphasis on creation of innovative solutions, and entering new markets
Business development capability	·   Increasing international aspirations requiring new market penetration ·   Misunderstanding obligations and challenges in new markets ·   Inability to design and present compelling propositions in new markets	·   Adverse effect on financial performance	·   Increased investment in business development resources ·   Enhanced senior management focus on business development activities ·   Strengthened bid review controls ·   Development of sales and business development team networks to encourage collaboration ·   Key account management processes refreshed ·   Renewed and focused incentive programmes	·   No change - impact of increased challenges offset by progress on mitigating factors during 2011
Data security	·   Loss of, or inadvertent disclosure of, sensitive customer data	·   Contractual penalties ·   Reputation damage	·   Robust information security framework through an Information Security Working Group, which is tasked with identifying and mitigating key information assurance risks and establishing best practice.  ·   Escalation to operating board ·   Staff training, monitoring and awareness programme ·   Internal audit	·   No change - enhanced control measures in place
Fraud, bribery and corruption	·   Corrupt business practices in UK or international markets	·   Civil and criminal penalties for business or senior management ·   Reputational damage ·   Exclusion from bidding for public sector contracts	·   Appropriate policies and procedures ·   Zero tolerance approach to corruption ·   Internal audit	·   Lower -  through enhancement of policies, procedures and staff training

 

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