Final Results
Tribal Group PLC
21 June 2005
Tribal Group plc
Preliminary results for the year ended 31 March 2005
Highlights:
- Revenues up 23.6 per cent to £229.5m
- Profit before tax* of £17.9m
- Establishment of divisional structure now completed
- Integration benefits starting to flow
- Entry into healthcare delivery - £214m NHS contract signed during the
year
- £50m Ofsted school inspection contracts signed in April 2005
- Forward order book up from £94m to £350m
Strone Macpherson, Chairman of Tribal Group plc, commented:
This was a challenging year for the Group, with significant organisational
change which, as anticipated, affected margins adversely. The Group has,
however, now completed its restructuring into seven divisions and has made good
progress with the integration of businesses into this structure. Management has
been strengthened at group and divisional level.
The Group's markets remain buoyant and our profile within them has continued to
improve. We are seeing an increasing number of opportunities to deliver an
integrated service solution that brings together skills from across the Group.
We recently announced contracts worth £50m with Ofsted to provide school
inspections. The Group will continue to focus primarily on organic growth.
The highlight of the year was the award to Mercury Health, Tribal's healthcare
delivery business, of a £214m NHS contract to design, build and manage a
regional network of five treatment centres, as part of the Government's
Independent Sector Treatment Centre programme. This contract gives Tribal a
significant share of this new market which in time is expected to deliver up to
15 per cent of NHS elective surgery.
The Group continues to be well placed to take advantage of the many
opportunities arising in the markets it serves.
Financial highlights:
Year ended 31 March
2005 2004
Turnover £229.5m £185.7m up 24%
Gross revenue £179.9m £152.2m up 18%
Operating profit* £22.4m £23.2m down 3%
Operating margins on gross revenue* 12.4% 15.2%
Profit before tax* £17.9m £20.1m down 11%
(Loss)/profit on ordinary activities before
taxation (£0.2m) £5.3m
Loss on ordinary activities after taxation (£5.6m) (£0.9m)
Adjusted diluted earnings per share* 15.6p 20.5p down 24%
Operating cash flow before Mercury Health £17.5m £34.3m
Operating profit to cash conversion* 78% 148%
Note: *The operating profit, operating margins, profit before tax and adjusted
diluted earnings per share are stated before goodwill amortisation and
impairment of £16.6m (2004: £10.7m), employee benefit trust credit of £0.2m
(2004: costs of £1.0m) and exceptional items of £1.7m (2004: £3.0m) (see page 14
and page 20).
For further information contact:
Henry Pitman, Chief Executive, Tribal Group plc Tel: 01285 886020
Simon Lawton, Group Finance Director, Tribal Group plc
Neil Bennett/Colin Browne, Maitland Tel: 020 7379 5151
A copy of the presentation on these results made to analysts on 21 June 2005,
will be made available on the Group's website: www.tribalgroup.co.uk from 9am
today.
Tribal Group plc
Chairman's statement
I am pleased to report on the results of Tribal Group plc for the year ended 31
March 2005. During this period, we strengthened our position as a leading
professional support services and consultancy business, predominantly operating
in the UK public sector. The Group is now well positioned in its core markets of
education; local government, housing and regeneration; health and social care;
and central government. The year also saw our successful move into the direct
delivery of healthcare services through Mercury Health.
Results This was a challenging year for the Group with significant
organisational change which, as previously indicated, adversely affected
margins.
Nevertheless, we continued to deliver revenue growth with turnover for the year
up 24 per cent at £229.5m (2004: £185.7m). Operating profit* was £22.4m (2004:
£23.2m) and operating margins* were 12.4 per cent (2004: 15.2 per cent). Profit
before taxation* was £17.9m (2004: £20.1m), loss after tax was £5.6m (2004:
£0.9m), and adjusted diluted earnings per share* were 15.6p (2004: 20.5p).
Goodwill amortisation was £16.6m (2004: £10.7m) and included an impairment write
down of £5.2m (2004: £0.6m) relating to a review of the carrying value of two
businesses.
During the year, the Group generated operating cash flow before Mercury Health
of £17.5m (2004: £34.3m), representing an operating profit* to cash conversion
rate of 78 per cent (H1 24 per cent and H2 114 per cent). Net debt at the year
end was £53.0m, representing gearing of 35 per cent, with interest cover of over
five times. Our gross return on capital employed was 12.3 per cent (2004: 15.0
per cent).
* The operating profit, operating margins, profit before tax and adjusted
diluted earnings per share are stated before goodwill amortisation and
impairment of £16.6m (2004: £10.7m), employee benefit trust credit of £0.2m
(2004: cost of £1.0m) and exceptional items of £1.7m (2004: £3.0m) see page 14
(consolidated profit and loss account) and page 20 (earnings per share note).
Organisational restructuring During the year, the Group continued the process of
implementing its new corporate structure. Our businesses are now managed as
seven divisions: consulting, education, resourcing, technology, property,
communications and healthcare delivery. The integration of businesses into this
structure has enabled us to strengthen management and financial reporting
arrangements and provide a better focus for business development. There has been
a very positive response across the Group to this reorganisation and we are
already seeing the benefits of offering a more integrated package of services
across our customer base. The ability to do this will increasingly differentiate
Tribal from other competitors in our markets, opening up more opportunities and
creating barriers to entry.
Major contracts During the year, we signed our largest contract to date, a £214m
contract with the NHS to design, build and manage a regional network of
treatment centres for elective surgery and diagnostic procedures. Implementation
is progressing well and the first centre is expected to open in August 2005.
This contract has given Mercury Health, the Group's healthcare delivery
business, a significant market share and places us in a strong position to bid
for the next wave of contracts, which are expected to be procured during the
next 12 months.
Since the year end, the Group has announced two contracts with a combined value
of £50m with Ofsted to provide school inspection services. We are currently
preferred bidders on further significant contracts. As a result of our contract
wins, our committed revenue has increased to £350m, up from £94m.
Dividend The Group paid a dividend of 1.0p per share following the announcement
of the interim results last November. The board is pleased to announce that it
is recommending a final dividend of 2.0p per share, making a total of 3.0p per
share for the year.
Board changes I would like to record the Board's gratitude to Dominic Collins
who stood down as non-executive director on 24 March 2005 and Miles Hunt who
retired at our last Annual General Meeting on 14 September 2004. Both Dominic
and Miles made significant contributions to the Group and we thank them for
their guidance and support. There have been no other board changes during the
period.
Staff The Group is a people-based business and its success is a result of the
broad base of talented employees across the Group. We would like to put on
record the thanks of the Board to our 2,000 employees at all levels. Their
efforts have ensured that Tribal continues to be one of the most respected,
dynamic and fast-growing companies in its markets.
Prospects Tribal is firmly established as a major supplier of high value-added
consultancy and professional support services to the public sector. We are well
placed to take advantage of opportunities to build and extend our service
offering, to increase the level of committed revenue by successfully bidding for
longer-term contracts, and to leverage our relationships and advisory experience
to develop delivery services in our principal markets.
With the reorganisation largely completed, investment in business development,
account management and bidding for long-term contracts is being increased to
ensure long-term revenue growth across the Group. The focus continues to be on
improving profitability, margins and operational efficiency.
We are now starting to see the benefits of the significant investment we have
made over the last 18 months in developing the Group's infrastructure and in our
divisional and central management.
The Group has started the year well and, although first half results will be
influenced by the increased weighting of trading to the second half and by our
continuing investment in products, services and capacity building, the Board is
confident about the Group's future prospects.
Strone Macpherson
Chairman
Chief Executive's statement
During the year, our businesses have continued to strengthen their service
offering and have increasingly been able to offer customers an integrated
package of services drawn from across the Group. This capability, alongside our
excellent relationships with public sector organisations, positively
differentiates Tribal from its competitors.
Markets We continue to operate in expanding markets and to benefit from
increasing government expenditure, particularly in education and health. We now
work in sectors that account for over £250bn of annual government spending.
While Tribal has benefited from increasing public expenditure, the main driver
to our business continues to be the growing acceptance and use of the private
sector in reforming and delivering public services.
The Government's election manifesto and subsequent Queen's Speech confirmed the
continuing and increasing use of the private sector in public service reform,
particularly in education and health. In her first speech following the
election, the Secretary of State for Health, Patricia Hewitt, announced the
procurement of £3bn of elective surgery procedures from the private sector
through the extension of the independent sector treatment centre (ISTC)
initiative.
There continue to be other major opportunities as a result of a number of
specific government initiatives. The 'Building Schools for the Future',
academies and hospital PFI programmes together present very significant capital
investment plans until at least 2010; the Gershon Review will introduce cost
efficiencies across government through improved supply chain and business
process management and lead to a radical re-design of many services; the Lyons
Review, which recommends the relocation of government departments and agencies
to areas outside London and the south-east, is generating the requirement for
improved technology and resourcing solutions; and the Children Act is re-shaping
education and social services departments.
In the year ended 31 March 2005, 94 per cent (2004: 96 per cent) of our revenues
were from the public sector and we expect to retain this focus in the immediate
future. We are, however, starting to see opportunities to increase our presence
in the private sector as we transfer and apply the skills that we have developed
in the public sector.
Operating review Tribal provides a range of consultancy and professional support
services and, through Mercury Health, is moving into the delivery of public
services.
Tribal Consulting
Year ended Year ended
31 March 2005 31 March 2004
£000 £000
Gross revenue 55,238 42,130
EBITA** 6,669 7,121
EBITA margin ** 12.1% 16.9%
** before goodwill and employee benefit trust costs
Consulting achieved revenue growth of 31 per cent due, in part, to a full year
contribution from HACAS, which was acquired in July 2003.
Operating profit** was down by 6 per cent and operating margins** were
significantly lower compared to 2004. This was, in part, a consequence of
organisational restructuring but also as a result of lower utilisation rates in
parts of our healthcare practice, increasing competitive pressures in certain
areas and higher associate costs due to skill shortages, particularly in the
first half of the year. Areas of underperformance were addressed and margins
across the division improved in the second half of the year.
We have now built one of the largest consultancy businesses operating in the
public sector with expertise across local government; housing and regeneration;
health and social care; and central government. Generally, the market for
consultancy remains buoyant and average fee rates remain firm.
During the year, we have continued to build our local government practice by
expanding our regional coverage and developing our advisory services in areas
such as PFI and performance improvement. Our housing and regeneration
consultancy has expanded into economic development, establishing two new teams
in Edinburgh and Manchester, both of which have achieved notable contract
successes, including business planning for the National Nuclear Academy, the
evaluation of Hull Citybuild, the city's urban regeneration company, and
securing a substantial high profile contract with English Partnerships to
provide consultancy support to the Government's first-time buyers initiative.
This business area will be further developed in 2005/06. Our housing
consultancy remains the leading adviser to registered social landlords. The
Government's agenda for 'sustainable communities' will ensure that this remains
an expanding market for us. A major contract completed during the year was the
setting up of Wakefield Housing Trust, the largest housing stock transfer to a
single organisation.
In our health and social care consultancy, we continue to be involved in
ground-breaking areas of activity, including advising existing and aspirant
foundation hospital trusts; continuing support for the implementation of the NHS
National Programme for IT (NPfIT); developing the first 'productive time
delivery framework', and planning a new model for contract management to enable
GP practice-based commissioning work. Other successes include the closure of our
nineteenth PFI project as corporate finance adviser, membership of winning teams
on four major PFI developments, including Sherwood Forest and Colchester, and
further growth of our project support for primary care 'local improvement
finance trusts' (LIFT).
At the end of the year, we established a Centre for Organisational Learning as a
focal point for our HR consultancy activities. The centre has already won work
with clients such as the Forensic Science Service, Hull and East Yorkshire NHS
Trust and Merton Council.
In central government, we have made excellent progress, having now grown to 50
consultants from a standing start two years ago. Major assignments have been won
with the Ministry of Defence, Environment Agency, Pensions Regulator, Cabinet
Office and the Foreign and Commonwealth Office. A number of recent wins, such as
a senior management training programme within the Ministry of Defence, have been
against competition from the major international consultancy groups.
Management processes have been strengthened and, as a result of our divisional
integration exercise, all support services have been brought together in a
shared service centre that will also deliver improved financial management
arrangements.
Tribal Resourcing
Year ended Year ended
31 March 2005 31 March 2004
£000 £000
Gross revenue 24,684 20,909
EBITA** 5,252 5,406
EBITA margin ** 21.3% 25.9%
** before goodwill and employee benefit trust costs
Resourcing achieved good levels of turnover growth, up 36 per cent to £74m, with
gross revenue growth of 18 per cent in a competitive public sector market. There
has been some pressure in certain areas on consultancy fee rates and advertising
commission rates which, combined with increased investment in infrastructure,
has resulted in lower operating margins**.
The opportunities for our resourcing business continue to be driven by
organisational change within our client organisations. Our recruitment
advertising business has continued to grow its contractual base. We now work
with over 50 local authorities and over 100 health trusts, with an additional
£9m new advertising turnover secured this financial year. Whilst we saw some
slowdown in advertising spend by the NHS, the market in local government and
education has remained strong. During the year, we won several major local
authority advertising contracts including Camden, Westminster and the
Cambridgeshire councils' consortium; new NHS contracts with Sheffield and
Nottingham Primary Care Trusts; and a new university contract with Nottingham
Trent.
Our resourcing proposition has been further developed and now includes a
web-based product, 'careers for leaders'. Although it is still early days, this
is showing good potential and we will continue to increase our investment in
this area.
We are experiencing strong growth in our healthcare supply business, where
profit and margins have increased. We have recently opened a new office in the
north-west and will continue to invest in this area in 2006.
During the year, we established a new interim management business to target
senior management roles in local government and housing. This has had a
successful start and will make a good contribution in 2005/06. We expect to
extend this service into other Tribal markets over the next 12 months.
Although our executive resourcing business has experienced challenging market
conditions with increased competition, we continue to see good levels of growth.
Over the last 12 months, we have made over 30 chief executive appointments
across the local government and housing sectors, work that has been important in
raising the Group's profile in these markets. We are now differentiating
ourselves from most of our competitors by agreeing three year preferred supplier
contracts for executive resourcing services, as we have done recently with
Wolverhampton Council. We also continue to develop new markets in the central
government and 'not for profit' areas.
Over the next year, we will be launching several new resourcing products which
will extend our range of services and will help further to increase barriers to
entry.
Tribal Communications
Year ended Year ended
31 March 2005 31 March 2004
£000 £000
Gross revenue 9,958 6,921
EBITA** 2,382 1,741
EBITA margin ** 23.9% 25.2%
** before goodwill and employee benefit trust costs
Within Communications, both gross revenue (up 44 per cent) and operating profit*
* (up 37 per cent) showed good growth, with Geronimo and Tribal MPC both making
full year contributions following their acquisition by the Group in 2003/04.
The integration of our communications businesses in education, local government
and health is now well advanced. Based on the consolidated fee income of the
division, we have created a top ten public relations agency as judged by PR Week
criteria and are one of the top three companies working in the £300m per annum
public sector communications market. Much of this work is procured through
framework arrangements. We are on all the main government frameworks including
the Department of Health, Central Office of Information, Department for Work and
Pensions, Learning and Skills Council and Department for Education and Skills.
We are currently responsible for developing and delivering a number of public
information campaigns. Our contract to deliver the UK-wide 'Aimhigher' campaign,
which advises young people on the benefits of going on to higher education, is
worth £5m over four years. We are also working with the Department for Work and
Pensions on the 'Age Positive' and 'Age Partnership' campaigns, which promote
age diversity in the workplace, and the Edge Employer Awards for the Edge
Foundation which raises awareness of the value of practical learning.
Our communications work in local government continues to develop. We now have
interim heads of communication in a range of public sector bodies, including the
London Fire & Emergency Planning Authority and the London Borough of Tower
Hamlets, and are running best value communications reviews for both the
Cambridgeshire Constabulary and the Association of Local Government.
Within the NHS and health sector, we have substantially developed our creative
businesses with new offices opening in Nottingham and Bury St Edmunds.
We are confident that our new integrated management arrangements put us in a
strong position to capitalise on the growing opportunities for PR and
communications services in the public sector. We are now well placed to expand
both our capacity and geographical coverage.
Tribal Property
Year ended Year ended
31 March 2005 31 March 2004
£000 £000
Gross revenue 21,331 18,443
EBITA** 2,658 2,819
EBITA margin ** 12.5% 15.3%
** before goodwill and employee benefit trust costs
Property achieved revenue growth of 16 per cent, 7 per cent of which was from
the acquisition of Derek Hicks and Thew (DHT) in November 2004.
The decline in operating profit and margins was a consequence of the significant
investment made in extending geographic coverage and in developing capacity for
capital spending programmes such as 'Building Schools for the Future'.
Our architecture business, now employing close to 300 people, has extended its
regional network to include Exeter and Liverpool. We have also set up our first
off-shoring centre in Cape Town that will provide the business with the capacity
needed to run several major public sector PFI projects in parallel. We have also
now fully integrated our education and healthcare practices. Our property
services business continues to grow and has, during the year, extended its
building surveying operation and the regional spread of its project management
business. We will continue to invest in the growth of this business area.
We are currently involved in the major capital programmes in healthcare (PFI,
independent sector treatment centres (ISTCs), local improvement finance trusts
(LIFT) and Procure 21), and in education (Building Schools for the Future,
academies, further education colleges and higher education institutions). We
have well-established relationships with many of the major contractors.
A number of significant contracts have been won which underpin much of our
future revenue growth. In health, we have recently won work at Birmingham
Hospital PFI; we are currently preferred bidder on the £250m Peterborough PFI
hospital project; and, working with Mercury Health, are involved in the first
wave of the ISTC programme. Extending our work in higher education, we have
recently won a £40m research facility at Oxford University's Old Road campus. In
further education, we have now established a leading market position and are
winning both property consultancy and architectural work. For example, we have
been appointed to deliver the £40m first phase of the new campus for the
Mid-Kent College at Chatham; we are advising on the £25m campus redevelopment at
Barking; and within the academies programme, we have won project management
contracts in Reading and Leicester.
Increasingly, there are opportunities to provide clients in the property area
with an integrated proposition. For Solihull College, we brought together our
property and grant funding capability; for the academies programme, we combined
our education and property project management skills.
Over the next few years, we will be focusing on developing new services to
complement our existing offering and extending our presence in our core markets
while diversifying into related sectors such as science and higher education.
Tribal Education
Year ended Year ended
31 March 2005 March 2004
£000 £000
Gross revenue 36,317 35,884
EBITA** 5,784 6,634
EBITA margin ** 15.9% 18.5%
** before goodwill and employee benefit trust costs
Education achieved overall revenue growth of 1 per cent despite the decline of
our teacher training business. Excluding teacher training, the division's
activities delivered organic growth of 20 per cent and an operating margin of 18
per cent
The integration of our education services and advisory businesses has
strengthened our position as a top five education company. In April 2005, we
announced that we had won contracts worth £50m over four years to deliver school
inspection services for Ofsted. These contracts, which increased our market
share from 21 per cent to approximately 30 per cent, are together the largest
educational contract we have won to date. We are seeing increasing signs that we
are well placed to win other large scale contracts in education.
During the year, we increased investment in our education benchmarking service,
extending our product into higher as well as further education, where it has
been used by over 100 colleges. During 2005/06, we will seek opportunities to
take this business into other Tribal markets.
Our highly successful school improvement programme 'Pupils' Champions!', which
currently provides teaching support through contracts with the DfES and LEAs to
schools in disadvantaged areas, has been expanded to meet the needs of the
post-16 sector (Students' Champions) and the professional development
requirements of teachers (Teachers' Champions). All are now part of our overall
product range 'Tribal's Champions'.
The market for courses and conferences for teachers and FE lecturers, which now
accounts for 4 per cent of the Group's turnover, has remained difficult, with
funding changes and switching priorities impacting delegate numbers. However,
the market for distance learning continues to be very strong with over 100
colleges now working with us. Our e-learning and skills for life services have
also been developing well with major contracts won with the DfES, LSC, FE
colleges and regional development agencies.
Good opportunities are emerging to bring together our property and education
consultancy expertise to support capital projects. The Building Schools for the
Future (BSF) initiative will now include primary as well as secondary schools
and the Government has also announced an extension of the academies programme.
In further education, Sir Andrew Foster is undertaking a fundamental review of
the future management of FE colleges, with likely benefits for private sector
involvement. All these will create further demand for our services.
Looking ahead, we are confident that opportunities will emerge for the
increasing involvement of the private sector in the delivery of education,
including the opportunity in the future to run schools and colleges.
Tribal Technology
Year ended Year ended
31 March 2005 31 March 2004
£000 £000
Gross revenue 34,391 30,457
EBITA** 5,145 4,308
EBITA margin ** 15.0% 14.1%
** before goodwill, employee benefit trust costs
Operating profit in technology was up 19 per cent The two acquisitions made
during the year, Aldcliffe Computer Systems and Strategic Information Technology
Services (SITS), contributed 16 per cent to revenue growth.
We have now integrated our education software businesses, managed services
activities, and information management services and systems operations. We are
now the market leader in many of our sectors, providing services to over 35 per
cent of FE colleges, 60 per cent of universities, over 50 per cent of local
education authorities and more than 30 per cent of work-based learning
providers.
We are becoming increasingly successful at winning contracts which incorporate
our complete service offering of technology, consultancy and managed services.
In particular, we are making strong headway in taking on the management of
learning delivery.
Significant contracts during the year include a £4m contract with Total for
information management services; a £1.5m contract with the Science Learning
Centres to deliver and support an online learning environment; a £9m contract
with Ufi learndirect as a 'hub' operator to manage its learning centres across
the south west; and the Learning and Skills Council awarded us a contract to
manage the information, advice and guidance (IAG) service in Dorset. These wins
are a direct result of investment in our bidding capabilities and our combined
service offering as an integrated division.
We are now well-positioned to bid for progressively larger contracts,
predominantly in the education and skills market, but also from the private
sector where there is growing demand for our information management services.
Mercury Health - healthcare delivery
Year ended Year ended
31 March 2005 31 March 2004
£000 £000
Gross revenue 349 7
EBITA** (343) -
** before goodwill, employee benefit trust costs and exceptional items
The revenue and operating loss reported for this division is in line with
expectations reflecting the start-up nature of Mercury Health and the associated
business development overheads. We expensed bid costs of £1.7m in accordance
with UITF34 'Pre-contract costs' as an exceptional item.
In December 2004, we signed a £214m contract with the NHS to design, build,
staff and operate a regional network of treatment centres. This contract, which
runs until June 2011, was part of the £2.5bn first wave of contracts procured
under the Government's Independent Sector Treatment Centre (ISTC) initiative.
This NHS initiative was developed to seek private sector capacity to develop
treatment centres to carry out over 250,000 elective surgery procedures per
annum.
The contract provides Mercury Health with guaranteed volumes and there will also
be opportunities to secure additional volumes from both the NHS and the private
sector.
Financing for the contract totalled £57.5m. The Group has provided equity of
£17.5m and secured additional funding of £40.0m comprising non-recourse senior
debt of £33.5m and equipment lease finance of £6.5m.
The implementation of the contract is well advanced and the centres located in
High Wycombe, Haywards Heath, Portsmouth and Gillingham are scheduled to open
between Summer 2005 and Summer 2006. A fifth centre in Havant is due to open in
early 2008.
We have made excellent progress with the establishment of the Mercury Health
management team, recruiting some experienced managers from the NHS and private
sector healthcare companies.
As a result of this contract, Mercury Health has a significant share of this
progressive new market. The Government has already announced that there will be
further procurements, commencing over the coming months, with a combined value
of more than £4bn over five years. Mercury Health intends to bid selectively for
a number of these contracts. Mercury Health will be supported in these bids, and
in the development of its existing business, by the Hospital for Special
Surgery, one of the leading orthopaedic hospitals in the US.
We expect that the NHS market for independent healthcare will grow very strongly
over the next few years, driven in part by the move to 'payment by results', and
we believe that Mercury Health is well placed to take advantage of these
developments.
Customers The majority of the Group's customers continue to be at the delegated
level of government. For example, in education: schools, colleges and
universities; and in health: primary care trusts, acute trusts and strategic
health authorities. However, we have continued to make very good progress in
developing our customer base in central government.
Now that the re-organisation of our business is completed, we are increasing our
investment in business development, account management and in bidding for
longer-term contracts. We have developed bidding resource in each of our
divisions and have also increased the size of our central team. We are
particularly targeting contract opportunities that allow us to provide an
integrated service offering, deploying skills from across the Group. The major
example of this has been the Mercury Health contract, which brought together our
consulting, resourcing, property and communications services. There are now many
other examples of different parts of the business successfully working together.
Branding and profile From 1 April 2005, with very few exceptions, businesses
across the Group commenced trading as Tribal. This re-branding has been received
positively by staff and customers and it will help to raise further Tribal's
profile in its markets. It will also assist by enabling us to present a fully
integrated proposition to our customers.
Growth During the financial year, we announced three acquisitions: SITS, a
student administration software business in the higher education market,
Aldcliffe, a trainee administration software business in the work-based learning
market, and DHT, a healthcare architectural practice based in Liverpool. These
businesses are now integrated into our technology and property divisions and are
all performing ahead of our expectations. The acquisitions made in the year cost
an aggregate initial consideration of £16.0m, paid for by a combination of cash
and shares. Deferred consideration of up to £5.9m is payable in respect of these
acquisitions, principally in shares, based on increases in operating profits.
At the year end, our total estimated earn-out liability in respect of the period
to 31 March 2007 was £21.8m, of which we expect to pay £14.3m in 2005/06 and
£7.5m in 2006/07. Although these liabilities are primarily to be satisfied in
shares, the Group always retains sufficient headroom in its banking facilities
to finance the remaining earn-outs in cash. As previously announced, in a number
of cases, we have already crystallised earn-out payments in order to facilitate
our integration process.
While we do still consider there to be interesting consolidation opportunities
in our markets, we are currently focused on delivering organic growth through
increasing headcount, developing new services and winning new contracts.
Over the year, the businesses owned for two full years or more have increased
headcount by 12 per cent and demonstrated underlying organic revenue growth of 5
per cent. We have continued to broaden and strengthen our management teams with
an increasing number of high quality senior managers joining us from major
support services and consultancy competitors. We have adopted a very proactive
approach to the recruitment of consultants and senior managers.
We are seeing an acceleration of cross-selling, with many examples of the Group
providing our customers with an integrated package of services from across the
business. Our five sector service groups (education; health and social care;
local government and housing; regeneration; and central government) are now well
established and are becoming more influential in developing the Group's
strategy, marketing approach and brand profile in their respective markets. The
operational head office in London and the network of regional hub offices are
making a significant contribution to joint working as well as enabling us to
consolidate our office network, reducing the number of individual locations over
the next two years.
Management The Group is managed through a divisional structure. We are confident
that the benefits of integration have been achieved whilst retaining much of our
entrepreneurial culture.
We have now appointed divisional CEOs to lead each of the seven divisions. We
are starting to see benefits from cost efficiencies, brand leverage, shared best
practice, enhanced recruitment and staff development initiatives and from shared
services provided from the Group's eight hub offices.
The Group's executive management board, consisting of divisional CEOs and other
key Group directors, is responsible for the strategic and operational management
of Tribal, assessing investment priorities and managing the Group's risk
profile.
People We are a business that relies on the quality and commitment of our people
and our success is due to the hard work and professional integrity of our
management and employees across the Group. We have created a culture in which
individuals at all levels are given a high degree of autonomy within a
supportive Group framework. We have established a clear set of values which
encourage entrepreneurialism, profit focus and a dynamic culture within a strong
ethos of customer service, integrity and social awareness. Our staff believe
they are making a substantial contribution to improving public services and to
the lives of those affected by those services.
We have exceptionally talented individuals amongst our middle and senior
management teams. Many of our directors are nationally leading figures in their
specialist areas. We will continue to recruit ambitious and talented individuals
who will contribute to the growth of the business. These will be from a variety
of backgrounds, both public and private sector.
In October 2004, we launched the second Tribal management development programme
in conjunction with Henley Business School. In the last two years, 50
individuals have attended. We will continue to invest further in the development
of our senior managers and staff during 2005/06.
Tribal is committed to positive and proactive communications with our employees.
We have embraced the 'Information and Consultation Rights' directive and
introduced elected staff forums which are currently being rolled-out across the
business. We have also during the year introduced an independent and
confidential counselling service for our staff and are currently reviewing our
Employee Assistance Programme to ensure it is delivering a valuable service in a
range of areas.
We are grateful to staff at all levels of the company for their effort
throughout the year and for their contribution to our continuing success.
Prospects We have now completed our organisational re-structuring and are
well-advanced with our integration process. We have won several major contracts
which demonstrate the potential of the Tribal business model. The Group is now
in a strong position to take advantage of the many opportunities arising in its
key markets.
Henry J Pitman
Chief Executive
Consolidated profit and loss account
For the year ended 31 March 2005
2005 Before 2004
Before Goodwill, Total goodwill Goodwill Total
goodwill, EBT and EBT and EBT and
EBT and Exceptional exceptional exceptional
exceptional Items items items
Note Items
£000 £000 £000 £000 £000 £000
Turnover(gross
earnings) 2
Continuing
operations 221,035 - 221,035 185,744 - 185,744
Acquisitions 8,435 - 8,435 - - -
229,470 - 229,470 185,744 - 185,744
Direct agency
costs (49,613) - (49,613) (33,523) - (33,523)
-
Gross revenue 2 179,857 - 179,857 152,221 - 152,221
Cost of sales (102,772) - (102,772) (81,134) - (81,134)
Gross profit 77,085 - 77,085 71,087 - 71,087
Net administrative
expenses (54,707) - (54,707) (47,934) - (47,934)
Goodwill
amortisation
and impairment - (16,636) (16,636) - (10,690) (10,690)
Employee
benefit trust
credit/(costs) - 244 244 - (1,025) (1,025)
Exceptional
items 3 - (1,747) (1,747) - (3,040) (3,040)
Total
administrative
expenses (54,707) (18,139) (72,846) (47,934) (14,755) (62,689)
22,378 (18,139) 4,239 23,153 (14,755) 8,398
Operating
profit 2
Continuing
operations 20,044 (17,694) 2,350 23,153 (14,755) 8,398
Acquisitions 2,334 (445) 1,889 - - -
22,378 (18,139) 4,239 23,153 (14,755) 8,398
Net interest
payable (4,451) - (4,451) (3,076) - (3,076)
Profit/(loss)
on ordinary
activities
before
taxation 17,927 (18,139) (212) 20,077 (14,755) 5,322
Taxation 5 (5,367) - (5,367) (6,176) - (6,176)
Profit/(loss)
on ordinary
activities
after taxation 12,560 (18,139) (5,579) 13,901 (14,755) (854)
Minority
interest
(equity) (303) - (303) (108) - (108)
Profit/(loss)
for the
financial year 12,257 (18,139) (5,882) 13,793 (14,755) (962)
Dividends
(equity) 6 (2,280) - (2,280) (2,090) - (2,090)
Retained
profit/(loss)
for the year 9,977 (18,139) (8,162) 11,703 (14,755) (3,052)
Earnings/
(loss) per
share
Basic 4 17.2p (25.4)p (8.2)p 22.0p (23.5)p (1.5)p
Diluted 4 15.6p (23.8)p (8.2)p 20.5p (22.0)p (1.5)p
Consolidated balance sheet
At 31 March 2005
31 March 31 March
Note 2005 2004
£000 £000
Fixed assets
Intangible assets
- goodwill 7 197,188 200,798
- development expenditure 740 557
Tangible assets 13,047 6,356
Investments 151 190
-------- --------
211,126 207,901
Current assets
Stocks 9,102 2,058
Debtors 8 56,959 45,245
Cash at bank and in hand 12 28,335 41,740
-------- --------
94,396 89,043
Creditors: amounts falling due within one year 9 (75,734) (67,784)
-------- --------
Net current assets 18,662 21,259
-------- --------
Total assets less current liabilities 229,788 229,160
Creditors: amounts falling due after more than
one year 10 (78,489) (72,015)
-------- --------
Net assets 151,299 157,145
-------- --------
Capital and reserves
Called up share capital 3,748 3,448
Share premium account 86,928 79,548
Revaluation reserve 91 -
Capital reserve 9,545 9,545
Merger reserve 36,615 33,444
Shares to be issued 17,934 27,172
Profit and loss account (5,456) 2,861
-------- --------
Equity shareholders' funds 149,405 156,018
Equity minority interests 1,894 1,127
-------- --------
Total capital employed 151,299 157,145
-------- --------
Reconciliation of movements in consolidated shareholders' funds
At 31 March 2005
31 March 31 March
2005 2004
£000 £000
Loss for the financial year (5,882) (962)
Dividends (2,280) (2,090)
New share capital subscribed (net of issue costs) 7,680 36,995
Increase in revaluation reserve 91 -
Movement in merger reserve 3,171 17,605
Movement in shares to be issued (8,571) (10,355)
Share related awards (244) 912
Share related awards acquired - 248
Share option exercises (578) -
-------- --------
Net (reduction)/addition to shareholders' funds (6,613) 42,353
Opening shareholders' funds 156,018 113,665
-------- --------
Closing shareholders' funds 149,405 156,018
-------- --------
Consolidated cash flow statement
For the year ended 31 March 2005
31 March 31 March
Note 2005 2004
£000 £000
Cash inflow from operating 11 12,240 31,293
activities
Returns on investments and servicing
of finance
Interest paid (5,547) (4,957)
Interest element of finance lease (8) (14)
rental payments
Interest received 914 1,347
------- --------
Net cash outflow from returns on
investments and servicing of finance (4,641) (3,624)
Taxation
Corporation tax paid (4,655) (7,772)
Capital expenditure and financial 13
investment
Payments to acquire tangible fixed (5,315) (3,399)
assets
Payments in respect of items in the
course of construction (2,652) -
Development costs capitalised (640) (502)
Payments to acquire investments (35) (10)
Sales of investments 170 865
Sale of tangible fixed assets 2,265 718
-------- --------
Net cash outflow from capital
expenditure and financial investment (6,207) (2,328)
Acquisitions
Purchase of subsidiary undertakings (12,988) (55,813)
Net cash acquired with subsidiary
undertakings 5,067 7,350
-------- --------
Net cash outflow from acquisitions (7,921) (48,463)
Equity dividend paid (2,135) (688)
-------- --------
Cash outflow before financing (13,319) (31,582)
Financing
Issue of ordinary share capital less 106 20,123
issue costs
Repayment of borrowings (6,231) (11,617)
New secured loans less issue costs 6,095 35,243
Capital element of finance lease
rental payments (56) (98)
------- --------
Net cash (outflow)/inflow from
financing (86) 43,651
------- --------
(Decrease)/increase in cash in the
year 13,405) 12,069
------- --------
Consolidated cash flow statement (continued)
For the year ended 31 March 2005
31 March 31 March
2005 2004
£000 £000
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the year (13,405) 12,069
Cash outflow from movement in debt (1,680) (27,615)
--------- --------
Change in net debt resulting from cash flows (15,085) (15,546)
Finance leases acquired with subsidiaries (31) (1)
Debt acquired with subsidiaries - (267)
New finance leases (18) -
--------- --------
Movement in net debt in the year (15,134) (15,814)
Net debt at the start of the year (37,897) (22,083)
--------- --------
Net debt at the end of the year (53,031) (37,897)
--------- --------
Notes
1 Preliminary Announcement
The Board of directors approved the preliminary announcement on 21 June 2005.
The financial information set out above does not constitute the Group's
statutory accounts for the years ended 31 March 2005 or 2004, but is derived
from those accounts.
Turnover represents the amounts (excluding value added tax) derived from the
provision of goods and services to third party customers and includes the gross
amounts billed in respect of commission based income.
Direct agency costs comprise media payments and production costs in respect of
commission based income. Gross revenue comprises commission and fees earned in
respect of turnover.
Cost of sales includes the direct expenditure incurred in providing the goods
and services described above, including the costs of associates and the salary
costs of employed fee earners. Administrative expenses include the salary costs
of non-fee earners. The comparative results for cost of sales and administrative
expenses have been shown on a consistent basis and this has resulted in a net
reclassification of £16.5m (2004: £15.3m) from administrative expenses to cost
of sales. There is no impact on operating profit or net assets in either period.
In all other respects the financial information is prepared on a basis
consistent with the accounting policies as stated in the previous year's
financial statements. Statutory accounts for 2004 have been delivered to the
Registrar of Companies and those for 2005 will be delivered following the
company's Annual General Meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under s237 (2) or
(3) of the Companies Act 1985.
International Financial Reporting Standards ('IFRS')
The Group will adopt IFRS in its consolidated financial statements for the year
ending 31 March 2006. The Group has made significant advances in assessing the
financial impact of convergence with IFRS and in compliance with European Union
regulation the interim results for the half year to 30 September 2005 will be
presented under IFRS.
2 Segmental analysis
The Group operates through seven divisions, Tribal Communications, Tribal
Consulting, Tribal Education, Tribal Property, Tribal Resourcing, Tribal
Technology and Mercury Health.
The turnover and profit before tax of the Group for the year has been derived
from its principal activities, wholly undertaken in the United Kingdom.
Turnover Gross revenue Operating profit before
goodwill, EBT and
exceptional items
2005 2004 2005 2004 2005 2004
£000 £000 £000 £000 £000 £000
Communications 9,958 6,921 9,958 6,921 2,382 1,741
Consulting 55,238 42,130 55,238 42,130 6,669 7,121
Education 36,317 35,884 36,317 35,884 5,784 6,634
Property 21,331 18,443 21,331 18,443 2,658 2,819
Resourcing 74,297 54,432 24,684 20,909 5,252 5,406
Technology 34,391 30,457 34,391 30,457 5,145 4,308
Mercury Health 49 7 349 7 (343) -
Central and
bid costs - - - (5,169) (4,876)
Inter segment
sales (2,411) (2,530) (2,411) (2,530) - -
------- ------- ------ ------- ------- --------
Total 229,470 185,744 179,857 152,221 22,378 23,153
-------- -------- ------- ------- -------- --------
Items below operating profit before goodwill amortisation, EBT and exceptional
items, are not analysed by division.
Notes (continued)
3 Exceptional items
The exceptional items of £1,747,000 (2004: £3,040,000) are in relation to
further bid and implementation costs incurred on the NHS Independent Sector
Treatment Centre contract. In September 2004 the Board received sufficient
assurance to believe the contract would reach financial close (which occurred on
10 December 2004) and has capitalised subsequent bid costs post September 2004
in accordance with UITF 34.
4 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:
2005 2004
thousands thousands
Weighted average number of
shares outstanding:
Basic weighted average number
of shares in 71,421 62,622
issue
Employee share options 890 1,926
Shares to be issued in respect of deferred
consideration 6,164 2,695
-------- -------
Weighted average number of shares
outstanding for dilution calculations 78,475 67,243
------- -------
The adjusted basic and adjusted diluted earnings per share figures shown on the
profit and loss account on page 14 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:
2005 2004
Earnings (Loss)/ Earnings (Loss)/
earnings earnings
per per
share share
£000 pence £000 pence
Basic and adjusted basic
earnings per share:
Loss and basic loss per
share (5,882) (8.2)p (962) (1.5)p
Adjustments:
Goodwill amortisation
and impairment 16,636 23.3p 10,690 17.1p
EBT costs net of tax (244) (0.3)p 1,025 1.6p
Exceptional items 1,747 2.4p 3,040 4.8p
------ ------- ------ -------
Adjusted earnings and
adjusted basic earnings
per share 12,257 17.2p 13,793 22.0p
------ ------- ------ -------
2005 2004
Earnings (Loss)/ Earnings (Loss)/
earnings earnings
per share per share
£000 pence £000 pence
Diluted and adjusted diluted earnings per share:
Loss and diluted loss per
share (5,882) (8.2)p (962) (1.5)p
Adjustments:
FRS 14 adjustment* - 0.7p - 0.1p
Goodwill amortisation and
impairment 16,636 21.2p 10,690 15.9p
EBT costs net of tax (244) (0.3)p 1,025 1.5p
Exceptional items 1,747 2.2p 3,040 4.5p
------ ------- ------ --------
Adjusted earnings and
adjusted diluted earnings per
share 12,257 15.6p 13,793 20.5p
------- ------- ------ --------
* FRS 14 requires presentation of diluted earnings per share when a company
could be called upon to issue shares that would decrease net profit or increase
net loss per share. For a loss making company, net loss per share would only be
increased by the exercise of out-of-money options. Hence the adjustment is made
to diluted earnings per share.
Notes (continued)
5 Taxation
The effective rate of tax on operating profit before goodwill amortisation, EBT
costs and exceptional items was 30.0% (2004: 30.8%).
6 Dividends
2005 2004
£000 £000
Interim paid 1.0 pence per share (2004: 1.0 pence) 750 690
Final proposed 2.0 pence per share (2004: 2.0 pence) 1,530 1,400
------- -------
Total 3.0 pence per share (2004: 3.0 pence) 2,280 2,090
------- -------
7 Intangible fixed assets: Goodwill
£000
Net book value at 31 March 2004 200,798
Goodwill arising on acquisitions 17,299
Revisions to prior years (4,273)
Amortisation charge (11,436)
Impairment (5,200)
--------
Net book value at 31 March 2005 197,188
--------
8 Debtors
2005 2004
£000 £000
Trade debtors 45,537 38,972
Other debtors 1,037 878
Prepayments and accrued income 8,350 4,629
Amounts recoverable on contracts 1,391 388
Deferred tax 644 378
------- -------
56,959 45,245
------ ------
Notes (continued)
9 Creditors: amounts falling due within one year
2005 2004
£000 £000
Loan notes 3,802 8,168
Obligations under finance leases and hire
purchase contracts 20 44
Trade creditors 25,457 23,209
Corporation tax 5,758 4,510
Other taxation and social security 9,264 8,500
Other creditors 1,666 1,176
Accruals and deferred income 27,039 18,950
Deferred consideration 1,198 1,827
Dividends 1,530 1,400
------- -------
75,734 67,784
------- -------
10 Creditors: amounts falling due after more than one year
2005 2004
£000 £000
Bank loans 77,518 71,423
Obligations under finance leases and hire
purchase contracts 26 2
Deferred consideration 411 590
Other creditors 534 -
------- -------
78,489 72,015
------- -------
11 Note to the cash flow statement
Reconciliation of operating profit to operating cash flows
2005 2004
£000 £000
Operating profit 4,239 8,398
Depreciation 2,715 2,134
Goodwill amortisation and impairment 16,636 10,690
Amortisation of development expenditure 457 255
Profit on sale of investments (95) (203)
Profit on disposal of fixed assets (30) (25)
(Credit)/contribution to employee share awards (244) 912
Amortisation of employee benefit trust - 113
Increase in debtors (6,636) (3,717)
Decrease in creditors (1,798) 12,317
(Increase)/decrease in stocks 543 419
Exceptional items 1,747 3,040
-------- -------
Net cash inflow from operating activities (excluding
Mercury Health) 17,534 34,333
Mercury Health
- increase in stocks (7,574) -
increase in debtors (379) -
increase in creditors 4,406 -
Exceptional items (1,747) (3,040)
-------- --------
Net cash inflow from operating activities 12,240 31,293
-------- --------
Notes (continued)
12 Net debt
2005 2004
£000 £000
Cash at bank 26,810 34,273
Cash collateralised 1,525 7,467
------- -------
28,335 41,740
Loan notes - cash backed (1,525) (7,467)
Other loan notes (2,277) (701)
Bank loans (77,518) (71,423)
Finance leases (46) (46)
-------- -------
(81,366) (79,637)
-------- -------
Net debt (53,031) (37,897)
-------- -------
13 Capital expenditure
Included in tangible fixed asset additions and disposals is the sale and
leaseback of medical equipment for Mercury Health comprising cost and proceeds
of £2.2m.
14 Acquisitions
Since 31 March 2004, Tribal Group plc has acquired the following principal
subsidiary undertakings:
Date Subsidiary acquired
April 2004 Aldcliffe Computer Systems Limited
October 2004 Strategic Information Technology Services Group Limited
November 2004 Derek Hicks & Thew Limited
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