Interim Results
Tribal Group PLC
22 November 2005
22 November 2005
Tribal Group plc
Interim results for the six months ended 30 September 2005
Henry Pitman, Chief Executive of Tribal Group commented 'We have had a solid
performance for the first half of the financial year and, with market conditions
buoyant, the group is well placed to benefit from opportunities emerging from
public sector reform.'
* A solid performance for the first half of the financial year
* Organic revenue growth of 15 per cent
* Implementation of healthcare contract on budget and schedule, with first
two treatment centres now operational
* New DfES contract for National Centre for Teaching of Mathematics
Tribal Group today announces its interim results for the six months ended 30
September 2005. This is the first time that the Group has reported under IFRS.
Financial highlights:
Unaudited Unaudited
six months six months
ended ended
30 September 30 September Percentage
2005 2004 change
Revenue £98.0m £81.8m up 19.8%
Operating profit* £9.4m £8.8m up 6.8%
Adjusted profit before tax * £7.3m £6.8m up 7.4%
Profit/(loss) before taxation £6.4m £(0.1)m
Adjusted diluted earnings per 6.3p 6.4p down 1.6%
share *
Profit/(loss) for period £4.4m £(2.1)m
Operating cash flow before Mercury £4.6m £2.2m up 109.1%
Health**
Proposed interim dividend 1.05p 1.0p up 5%
* Operating profit, adjusted profit before tax and adjusted diluted earnings per
share are stated before amortisation of IFRS 3 intangibles of £0.2m (2004:
£0.01m), goodwill impairment of £nil (2004: £3.9m), share option charges of
£0.2m (2004: £0.9m), exceptional Mercury Health bid costs of £nil (2004: £2.0m).
Adjusted profit before tax and adjusted diluted earnings per share are also
amended for IAS 39 financial instruments adjustments of £0.5m (2004: £nil) (see
page 9 of the interim statement).
** Mercury Health operating cash outflows were £3.3m (2004: £2.0m) (see Note 8).
Strone Macpherson, Chairman of Tribal Group plc, commented:
'We have had a solid performance for the first half of the financial year, with
good progress being made across most of the Group. Our half year figures
reflect, as expected, the seasonal weighting of trading to the second half.
Market conditions overall remain buoyant, with strong consulting demand and
increasing evidence of longer term outsourcing opportunities, particularly in
education and health. There is some softness in the recruitment advertising
market and in healthcare PFI, where several architectural contracts have been
delayed.
Our integrated divisional structure has enabled us to benefit from increasing
joint working across the Group resulting in a number of new contract wins. Since
the start of the year, we have won two contracts with Ofsted for school
inspections valued at £50m over four years; a contract with the Learning and
Skills Council to manage prisoner learning valued at £11m over four years and
several contracts with the DfES and LSC to deliver e-learning valued at £4m in
all. We today announce that we have signed a prestigious three year contract
with the DfES, valued at £12m, to develop and run the National Centre for
Excellence in the Teaching of Mathematics.
The implementation of the Independent Sector Treatment Centres is proceeding to
schedule and budget. The first two centres in Wycombe and Medway are now open
and the third centre in Portsmouth will open shortly. We are now in the process
of bidding for further diagnostic and elective surgery contracts.
We recently announced our exclusive strategic alliances with Chilvers McCrea, a
leading primary care business and with Frome Medical Practice, one of the
leading GP practices in the country. These arrangements position us to
participate in the emerging and potentially very sizeable primary care market.
We are confident that trading for the year as a whole will be in line with our
expectations.'
For further information contact:
Henry Pitman, Chief Executive Tribal Group plc Tel. 01285 886020
Simon Lawton, Group Finance Director Tribal Group plc Tel: 01285 886020
Neil Bennett/Colin Browne Maitland Tel: 020 7379 5151
A copy of the presentation on these results made to analysts on 22 November
2005, will be made available on the Group's website: www.tribalgroup.co.uk from
9am today.
Tribal Group plc
Unaudited interim results for the six months ended 30 September 2005.
Chief Executive's statement
Results
For the six months ended 30 September 2005, the Group's turnover increased by
14.9 per cent to £123.8m (2004: £107.7m). Organic revenue growth was
15 per cent, operating profit* was £9.4m (2004: £8.8m); operating margins* were
9.6 per cent (2004: 10.8 per cent); adjusted profit before taxation* was £7.3m
(2004: £6.8m); and basic earnings per share was 5.7p (2004: loss per share of
3.0p). The Group reports a profit before tax of £6.4m (2004: £0.1m loss).
The adjusted diluted earnings per share* was 6.3p (2004: 6.4p). The weighted
average diluted shares in issue have increased almost 10 per cent from 74.2m to
81.4m.
* Operating profit, adjusted profit before tax and adjusted diluted earnings per
share are stated before amortisation of IFRS 3 intangibles, goodwill impairment,
exceptional Mercury Health bid costs, and share option charges. Adjusted profit
before tax and adjusted earnings per share are also amended for IAS 39 charges.
Cash and net debt
Cash inflow from operating activities before Mercury Health for the six months
to 30 September 2005 was £4.6m (2004: £2.2m) representing an operating profit to
cash conversion of 51 per cent (2004: 24 per cent). This has been achieved
through improved credit control.
Net debt at 30 September 2005 was £76.6m, representing gearing of 52 per cent,
and interest cover (before IAS 39 financial instruments charges of £0.5m) was
4.2 times. Included within net debt is £11.0m drawn down under the non-recourse
Mercury Health project finance facility.
On 14 October 2005, the Group agreed a new £180m syndicated bank facility until
2010. Under the terms of the facility £125m is available under a revolving loan,
£40m under a new performance bond facility and £15m for loan note guarantees.
The working capital facility remains at £6m. The new performance bond facility
will allow us to support Mercury Health in bidding for new elective surgery and
diagnostic contracts.
We have now closed out almost all of our earn-out arrangements. The 2005
earn-out obligations will be settled shortly leaving an estimated £6.9m
outstanding of which £0.6m will be settled in cash and the remainder through the
issue of shares (or cash, at our option) through to November 2007.
Dividend
The interim dividend is 1.05p per share (2004: 1.0p) which will be paid on
13 January 2006 to shareholders on the register on 16 December 2005.
Adoption of International Financial Reporting Standards ('IFRS')
The results previously reported for the first half to 30 September 2004, and for
our financial year to 31 March 2005, have been restated following our adoption
of IFRS in place of the UK Generally Accepted Accounting Practices (UK GAAP)
used previously. The principal effect on our historic accounts arises from
differences in the treatment of defined benefit pension costs, goodwill, share
based payment and the timing of recognition of dividends. These are explained in
more detail in a separate document 'Transition to International Financial
Reporting Standards' that was published on the Tribal website
(www.tribalgroup.co.uk) on 28 October 2005 and which is also available on
request. In addition, we have adopted IAS32 'Financial Instruments: Disclosure
and Presentation' and IAS39 'Financial Instruments: Recognition and Measurement'
from 1 April 2005.
Divisional trading
We have decided to rationalise further the reporting of our activities (from
seven segments into four). We shall report under these new segments from 1 April
2006 but will continue to show comparatives under the old sub-segments as part
of these interim results and in our full current year results.
All divisional operating profit and operating profit margins are stated before
amortisation of IFRS 3 intangibles, goodwill impairment, share option charges
and exceptional Mercury Health bid costs.
Consulting Services
6 months ended 6 months ended 12 months ended
30 September 2005 30 September 2004 31 March 2005
£000 £000 £000
Revenue 29,564 25,582 55,238
Operating profit 3,017 2,489 6,677
Operating profit margin 10.2% 9.7% 12.1%
Our consultancy services division comprises all of the Group's consultancy
activities.
Consultancy achieved revenue growth of 16 per cent, all of which is organic.
Operating profit improved strongly, up 21 per cent to £3.0m (2004: £2.5m). This
translated through to higher operating margins of 10.2 per cent (2004: 9.7 per
cent).
The improvement is due to higher utilisation rates, lower use of associates and
cost control through the divisional shared service centre. Utilisation rates
across the business range from 67 per cent to 72 per cent. We have made good
progress in our central government market increasing our fee earners from 25 to
50 over the period. Our average daily fee rates rose 5 per cent despite keen
competition, particularly from the major international consultancy groups.
In healthcare, we continue to be very actively involved with NHS Connecting for
Health, the NHS national IT programme and we have recently won an important
contract for Integrated Service Improvement with the DoH.
In local government and housing we have won contracts with Renfrewshire Council
for housing stock transfer and are advising Bath and North Somerset Council on
the Bath Spa project.
In central government, we have become one of the largest consultancy providers
to the Environment Agency and won business with several other major departments,
such as Revenue & Customs, for the first time. In October, we were awarded a
contract by the Home Office's Active Communities Directorate to administer a
significant proportion of their grant programmes.
Our consultancy markets remain buoyant in response to the Government's reform
agenda. Although this has attracted greater competition from major
consultancies, we are pleased to see overall gains in our market share. In
particular, we have made significant progress in being short-listed in our first
four submissions within the new IT services and consultancy procurement
framework (Catalist). This is replacing the existing S-CAT framework from 2006.
Support Services
6 months ended 6 months ended 12 months ended
30 September 2005 30 September 2004 31 March 2005
£000 £000 £000
Revenue 35,382 31,154 70,397
Operating profit 4,725 3,559 10,893
Operating profit margin 13.4% 11.4% 15.5%
Education
6 months ended 6 months ended 12 months ended
30 September 2005 30 September 2004 31 March 2005
£000 £000 £000
Revenue 17,986 16,029 36,317
Operating profit 2,017 1,743 5,766
Operating profit margin 11.2% 10.9% 15.9%
Technology
6 months ended 6 months ended 12 months ended
30 September 2005 30 September 2004 31 March 2005
£000 £000 £000
Revenue 17,446 15,303 34,391
Operating profit 2,708 1,816 5,127
Operating profit margin 15.5% 11.9% 14.9%
Our support services division comprises education and technology.
With effect from 1 April 2006 we are merging our education and technology
divisions to create one of the largest education focused support services
businesses in the UK. We expect to see many benefits from the merger including a
clear market proposition that eliminates duplication of services, a
strengthening of management and of our bid resources, improved business support
through shared services and enhanced career opportunities for staff.
Overall revenue growth for the combined divisions was strong at 14 per cent.
Operating profit growth was 33 per cent resulting in overall operating margin
growth to 13.4 per cent (2004: 11.4 per cent).
We are seeing very positive opportunities in the education and learning market,
with three recent large contract wins - Ofsted re-tender (£50m); delivery of
prison and youth offender learning in the South-West (£11m); several contracts
with the DfES and LSC to deliver e-learning valued at £4m and the National
Centre for Excellence in the Teaching of Mathematics (NCETM) (£12m). Tribal is
now firmly established as a major partner to the DfES and LSC. We are one of
only a few companies who are able to offer a comprehensive and integrated range
of services and products across the spectrum of education clients.
Within the education division, revenue increased by 12 per cent, all of which
was organic. The operating margins improved to 11.2 per cent (2004: 10.9 per
cent).
Our distance-learning, e-learning and inspection businesses have performed well
and we continue to make good progress in our education consultancy and
benchmarking businesses. Our teacher training business is performing close to
expectations albeit at much reduced volumes, reflecting, as previously
discussed, funding changes in this market.
Within the technology division, revenue increased by 14 per cent, although
organic revenue fell by six per cent. Much of this fall is related to slower
demand for new software products in our local education authority market.
Operating margins increased strongly to 15.5 per cent (2004: 11.9 per cent).
The pipeline of new bid opportunities is very encouraging.
Professional Services
6 months ended 6 months ended 12 months ended
September 2005 September 2004 31 March 2005
£000 £000 £000
Revenue 30,394 25,631 55,892
Operating profit 4,638 4,752 10,235
Operating profit margin 15.3% 18.5% 18.3%
Communications
6 months ended 6 months ended 12 months ended
September 2005 September 2004 31 March 2005
£000 £000 £000
Revenue 4,859 4,660 9,958
Operating profit 1,435 1,086 2,364
Operating profit margin 29.5% 23.3% 23.7%
Property
6 months ended 6 months ended 12 months ended
September 2005 September 2004 31 March 2005
£000 £000 £000
Revenue 11,890 9,935 21,331
Operating profit 725 1,216 2,640
Operating profit margin 6.1% 12.2% 12.4%
Resourcing
6 months ended 6 months ended 12 months ended
30 September 2005 30 September 2004 31 March 2005
£000 £000 £000
Revenue 13,679 11,084 24,684
Operating profit 2,478 2,450 5,231
Operating profit margin 18.1% 22.1% 21.2%
Our professional services division comprises communications, property and
resourcing.
Overall revenue growth across the professional services businesses was 19 per
cent but operating profit fell 2 per cent and the overall operating margin was
lower at 15.3 per cent (2004: 18.5 per cent).
Our communications business is performing very well delivering organic revenue
growth of 4 per cent and a 32 per cent growth in operating profit. Operating
margins increased to 29.5 per cent (2004: 23.3 per cent).
We have maintained our position as a top ten PR agency and secured a number of
new prestigious briefs including the promotion of the DfES London Challenge,
administering the Edge Employer Awards for practical learning opportunities for
young people and promoting the DTI's 'Enterprising Britain' competition. We
continue to manage a number of national campaigns for the DfES, many of which
have been extended this year.
Within property, revenue increased by 20 per cent with organic revenue growth of
10 per cent. However, operating profit and operating margins fell significantly
due to a loss making business unit, now closed and due to slippage on some
health sector PFI and LIFT projects.
We have a strong pipeline of business in both education and healthcare and
expect operating margins to improve in H2 as projects come on stream and we
benefit from the usual spending pattern of our education clients.
We continue to win work as part of the Academy programme in schools and have
recently won the first Skills Academy project, working for Arcadia.
Resourcing increased revenue by 23 per cent but operating profit was unchanged
and operating margins fell to 18.1 per cent (2004: 22.1 per cent).
The traditional press recruitment advertising market is very challenging with
the growth of the free NHS on-line web portal; the recent onset of a recruitment
freeze in many of our London NHS clients largely due to the strategic review of
the number of Primary Care Trusts, and budgetary pressures in some local
authorities. We have won 26 of our 27 renewal bids retaining accounts worth £11
million of media spend annually and have secured over £8 million of annualised
new business in the period. This has helped to offset the lower spending from
existing clients.
Despite the fall off in profit from recruitment advertising, our overall margins
have been supported by a strong performance from our executive search business,
healthy growth in our interim management start-up business and a solid
performance from our healthcare supply business.
We expect to see challenging markets in the second half of the year mitigated to
an extent by some cost restructuring that will generate annualised savings of
£0.4 million.
We continue to develop new resourcing products to extend our range of services
and counter the effect of changes in the marketplace.
Delivery
6 months ended 6 months ended 12 months ended
September 2005 September 2004 31 March 2005
£000 £000 £000
Revenue 2,693 88 349
Operating profit (214) (7) (345)
Our delivery division comprises Mercury Health, the Group's healthcare delivery
business.
The revenue and operating loss reported continue to be in line with expectations
reflecting the start-up nature of the business and the opening of the first
diagnostic treatment centre at High Wycombe on 8 August 2005. Our second centre
opened in Medway on 5 October 2005. Both centres opened on time and within
budget. The implementation and construction of our remaining centres at
Portsmouth and Haywards Heath are well advanced and are scheduled to open in
December 2005 and June 2006 respectively. We are also providing interim elective
orthopaedic surgery at Haywards Heath and this contract is performing well.
During the period, Mercury Health has tendered for regional diagnostic contracts
as part of the second phase of NHS procurement of diagnostic services worth an
estimated £1bn over five years. We are shortlisted on a number of regions and we
have now started developing our detailed proposals. Contract awards are not
expected before the second half of next year.
In addition, the Government recently sought tenders for 24 elective surgery
procurement schemes worth an estimated £2.5bn over five years. We have submitted
preliminary bids for a number of these contracts and we consider that, together
with our US clinical partners, Health Inventures and Hospital for Special
Surgery, we are well placed to take advantage of this development and maintain
our market share. All costs relating to these bids are currently being expensed.
On 4 November 2005, we announced strategic alliances with Chilvers & McCrea, one
of the leading independent providers of primary care to NHS organisations and
patients, and Frome Medical Practice, one of the leading GP practices in the
country.
These two alliances position Mercury Health to become one of the leading
independent sector providers of primary care services. We are already bidding
for a number of pilot primary care schemes to allow new providers to run GP
practices and provide other primary care services.
Growth
As indicated previously, we are concentrating our efforts on delivering organic
growth from our existing businesses and winning large scale contracts.
We have continued to increase our investment in our bidding and business
development capability, both in our core business and in Mercury Health. The
value of our 'big ticket' contract pipeline is at its highest level to date, at
circa £120m in the core business and at circa £1bn in Mercury Health. We expect
the forthcoming education and health White Papers to set out good opportunities
for the private sector to develop delivery capability in these markets.
People
The period has been very demanding for our senior management and for all
employees across the Group and it is thanks to their commitment and ability that
we have achieved such progress.
We have many very talented individuals across the Group and continue to attract
very able staff from our major competitors and from the public sector. Our
overall staff numbers have increased to 2,100 (2004: 1,800).
Prospects
We have had a solid performance for the first half of the financial year with
progress being made across most of the Group. As usual, we expect our
performance to be weighted towards the second half. Trading has continued in
line with expectations during October.
The board is confident that the Group continues to make good progress and is
well placed to benefit from the opportunities emerging from public sector
reform, to apply our integrated service offering to new contracts, particularly
in education and health.
We expect trading for the full year to be in line with our expectations.
Henry Pitman
Chief Executive
Consolidated income statement
For the six months to 30 September 2005
(Restated under IFRS)
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2005 2004 2005
Note £000 £000 £000
Turnover 123,767 107,718 229,470
Direct agency costs (25,759) (25,902) (49,613)
------------------------- ----------- ----------- ----------
Revenue 2 98,008 81,816 179,857
Cost of sales (57,067) (45,625) (102,772)
------------------------- ----------- ----------- ----------
Gross profit 40,941 36,191 77,085
------------------------- ----- ----------- ----------- ----------
Administrative expenses before
amortisation of IFRS 3 intangibles, (31,525) (27,355) (54,794)
goodwill impairment, share option
charges and exceptional Mercury
Health bid costs
------------------------- ----------- ----------- ----------
Operating profit before amortisation 2 9,416 8,836 22,291
of IFRS 3 intangibles, goodwill
impairment, share option charges and
exceptional Mercury Health bid costs
Amortisation IFRS 3 intangibles (216) (11) (322)
Goodwill impairment - (3,933) (6,665)
Share option charges (187) (905) (134)
Exceptional Mercury Health bid costs - (1,991) (1,747)
------------------------- ----- ----------- ----------- ----------
Total administrative expenses (31,928) (23,195) (63,662)
----------- ----------- ----------
Operating profit 9,013 1,996 13,423
Finance income 373 486 914
------------------------- ----- ----------- ----------- ----------
Finance charges (2,503) (2,544) (5,380)
Financial instruments (483) - -
------------------------- ----- ----------- ----------- ----------
Finance costs (2,986) (2,544) (5,380)
Net finance costs 3 (2,613) (2,058) (4,466)
------------------------- ----------- ----------- ----------
Profit/(loss) before taxation 6,400 (62) 8,957
Taxation 4 (1,975) (2,030) (5,401)
------------------------- ----------- ----------- ----------
Profit/(loss) for the period 4,425 (2,092) 3,556
----------- ----------- ----------
Attributable to:-
Equity holders of the parent 4,303 (2,092) 3,253
Minority interest 122 - 303
------------------------- ----------- ----------- ----------
4,425 (2,092) 3,556
------------------------- ----------- ----------- ----------
Earnings/(loss) per share
Basic 6 5.68p (3.02)p 4.56p
Diluted 6 5.29p (3.02)p 4.15p
Adjusted basic before amortisation
of
IFRS 3 intangibles, goodwill 6 6.77p 6.85p 16.84p
impairment, share option charges
costs and exceptional Mercury Health
bid costs and IAS 39 charges
Adjusted diluted before amortisation
of IFRS 3 intangibles, goodwill 6 6.30p 6.40p 15.32p
impairment, share option charges and
exceptional Mercury Health bid costs
and IAS 39 charges
Consolidated balance sheet
At 30 September 2005
(Restated under IFRS)
Unaudited Unaudited Audited
30 September 30 September 31 March
2005 2004 2005
Note £000 £000 £000
Non-current assets
Goodwill 207,855 197,593 205,247
Other intangible assets 2,299 1,069 3,479
Property, plant and equipment 31,462 7,389 12,538
Investment property 180 89 180
Available for sale investments 151 190 151
Deferred tax assets 1,416 664 1,282
------------------------- ----------- ---------- ----------
243,363 206,994 222,877
----------- ---------- ----------
Current assets
Inventories - work in progress 13,561 4,616 9,102
Trade and other receivables 55,274 40,645 56,315
Cash and cash equivalents 11,222 27,493 28,335
------------------------- ----------- ---------- ----------
80,057 72,754 93,752
----------- ---------- ----------
Total assets 323,420 279,748 316,629
------------------------- ----------- ---------- ----------
Current liabilities
Trade and other payables (63,223) (47,413) (65,851)
Tax liabilities (7,278) (3,614) (5,758)
Obligations under finance leases (11) (48) (20)
Bank overdrafts and loans (4,092) (3,936) (3,802)
Shares to be issued 7 (8,441) - -
----------- ---------- ----------
(83,045) (55,011) (75,431)
----------- ---------- ----------
Net current assets (2,988) 17,743 18,321
------------------------- ----------- ---------- ----------
Non-current liabilities
Bank loans (83,273) (71,423) (77,518)
Pension liabilities (1,370) (277) (1,370)
Deferred tax liabilities (775) (207) (1,058)
Obligations under finance leases (436) (38) (26)
Shares to be issued 7 (4,737) - -
Other non current liabilities (1,729) (400) (411)
------------------------- ----------- ---------- ----------
(92,320) (72,345) (80,383)
------------------------- ----------- ---------- ----------
Total liabilities (175,365) (127,356) (155,814)
------------------------- ----------- ---------- ----------
Net assets 148,055 152,392 160,815
------------------------- ----------- ---------- ----------
Equity
Share capital 3,826 3,468 3,748
Share premium account 89,167 79,636 86,928
Equity reserve 46,160 43,646 46,160
Shares to be issued 7 - 23,021 16,517
Retained earnings 7,855 1,272 5,568
------------------------- ----------- ---------- ----------
Equity attributable to equity 147,008 151,043 158,921
holders of the parent
Minority interest 1,047 1,349 1,894
------------------------- ----------- ---------- ----------
Total equity and reserves 148,055 152,392 160,815
------------------------- ----------- ---------- ----------
Consolidated statement of recognised income and expense
At 30 September 2005
(Restated under IFRS)
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2005 2004 2005
£000 £000 £000
Net profit/(loss) for the period 4,303 (2,092) 3,253
Share options exercised 75 164 506
Derecognition of share based - - (578)
payment charges
Recognition of employee benefits - - (168)
acquired
Actuarial gain on defined benefit - - 105
plans
Transfer to cash flow hedge reserve (447) - -
Deferred tax 134 - -
Impact of adoption of IAS 39 on 1 (248) - -
April 2005
----------------------- ----------- ----------- ----------
Recognised income and expense for 3,817 (1,928) 3,118
the period
----------------------- ----------- ----------- ----------
Consolidated reconciliation of movements in equity
At 30 September 2005
(Restated under IFRS)
Unaudited Unaudited Audited
30 September 30 September 31 March
2005 2004 2005
£000 £000 £000
Recognised income and expense for the 3,817 (1,928) 3,118
period
Ordinary dividend payable (1,530) (1,400) (2,150)
------------------------- ---------- ----------- ---------
2,287 (3,328) 968
Shares issued 2,317 765 10,851
Movement in shares to be issued - (2,067) (8,571)
------------------------- ---------- ----------- ---------
4,604 (4,630) 3,248
Opening equity 158,921 155,673 155,673
Impact of adoption of IAS 32 on 1 (16,517) - -
April 2005
------------------------- ---------- ----------- ---------
Closing equity 147,008 151,043 158,921
------------------------- ---------- ----------- ---------
Consolidated cash flow statement
For the six months to 30 September 2005
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2005 2004 2005
Note £000 £000 £000
Net cash from operating activities 8 (2,205) (5,512) 2,030
---------- ----------- ----------
Investing activities
Interest received 567 688 914
Proceeds on disposal of available - - 170
for sale investments
------------------------ ------ ---------- ----------- ----------
Proceeds on disposal of property 35 2,040 2,265
plant and equipment
------------------------ ------ ---------- ----------- ----------
Purchases of property plant and (2,093) (3,133) (5,315)
equipment (excluding Mercury
Health)
------------------------ ------ ---------- ----------- ----------
Purchases of property plant and (15,311) (1,373) (2,652)
equipment (Mercury Health)
------------------------ ------ ---------- ----------- ----------
Purchases of property plant and (17,404) (4,506) (7,967)
equipment
------------------------ ------ ---------- ----------- ----------
Purchases of trading investments - - (35)
Expenditure on product development (76) (261) (640)
------------------------ ---------- ----------- ----------
Acquisitions (deferred (2,906) (2,538) (7,921)
consideration and minority interests)
------------------------ ---------- ----------- ----------
Net cash outflow from investing (19,784) (4,577) (13,214)
activities
------------------------ ---------- ----------- ----------
Financing activities
Equity dividend paid - - (2,135)
Issue of shares 104 83 106
Repayment of borrowings (13,464) (4,232) (6,231)
Repayments of obligations under (19) (9) (56)
finance lease
New bank loans 18,255 - 6,095
------------------------ ---------- ----------- ----------
Net cash used in financing 4,876 (4,158) (2,221)
activities
------------------------ ---------- ----------- ----------
Net decrease in cash and cash (17,113) (14,247) (13,405)
equivalents
Cash and cash equivalents at 28,335 41,740 41,740
beginning of period
------------------------ ---------- ----------- ----------
Cash and cash equivalents at end of 9 11,222 27,493 28,335
period
------------------------ ---------- ----------- ----------
Notes
1 Basis of preparation
The Group's interim results for the six months ended 30 September 2005 are the
first to be prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the EU. Consequently a number of the accounting
policies adopted in the preparation of these interim financial statements are
different from those adopted in the financial statements for the year ending 31
March 2005, which were prepared under UK GAAP.
Details of the changes in accounting policies arising from the adoption of IFRS,
together with restated information for the six months ended 30 September 2004
and for the year ending 31 March 2005, have been included in a separate document
'Transition to International Financial Reporting Standards' that was published
on the Tribal website (www.tribalgroup.co.uk) on 28 October 2005 and which is
also available in hard copy on request.
The accounting policies set out in that document have been consistently applied
to all periods presented in these interim financial statements with the
exception of the impact of IAS 32 and IAS 39 Financial Instruments. In
accordance with IFRS 1 'First Time Adoption of International Financial Reporting
Standards', the Group has elected not to restate comparative information for the
impact of IAS 32 and IAS 39, but has only adopted these standards in the interim
financial statements for the six months ended 30 September 2005. The effect of
this adoption is disclosed in Note 3.
Under IAS 39, the Group seeks to apply hedge accounting to interest rate swaps
where it is permissible. Due to the nature of its hedging arrangements, the
Group is unable to obtain hedge accounting in all cases. The Group continues,
however, to enter into these arrangements as they provide certainty over the
interest rate applying to the Group's debt. These arrangements result in fixed
and determined cash flows. The Group believes that these arrangements remain
effective, economic and commercial hedges.
The effect of being unable to apply hedge accounting under IAS 39 to the Group's
discounted swap means that the movement in the fair value of the swap in the
period is recognised in the finance charge for the period. Whilst the impacts
described above could be highly volatile on movements in interest rates, the
volatility will not be reflected in the cash flows of the Group, which will be
determined by the hedge rate. The volatility introduced to the income statement
as a result of this is not considered to be a realistic representation of the
on-going operation of the business, and has therefore been excluded when
calculating adjusted earnings.
Net assets have been adversely affected by the introduction of IAS 39. Included
within liabilities are derivative financial instruments totalling £1.2m at fair
value which represents the total cost of buying out all the Group's interest
rate swaps at market prices prevailing on 30 September 2005.
The Group has determined that its interest rate hedging strategy is in the best
interests of the business and its shareholders. It is not, therefore altering
its hedging activities in order to achieve a particular accounting presentation
under IFRS.
These interim financial statements do not constitute full statutory accounts and
are Unaudited. The Group has elected not to adopt full compliance with IAS 34
'Interim financial reporting'.
The consolidated financial statements are prepared under the historical cost
convention modified to include the revaluation of certain assets. The unaudited
interim accounts were approved by the Board of Directors on 21 November 2005.
The financial information for the year ended 31 March 2005 does not represent
full accounts within the meaning of Section 240 of the Companies Act 1985. The
statutory accounts for this period, which were prepared under UK GAAP, have been
filed with the Registrar of Companies. The auditors' report on those accounts
was unqualified.
2 Segmental analysis
(Restated under IFRS)
30 September 30 September 31 March
2005 2004 2005
£000 £000 £000
Revenue
Consulting Services 29,564 25,582 55,238
Support Services 35,382 31,154 70,397
Professional Services 30,394 25,631 55,892
Delivery 2,693 88 349
Inter segment (25) (639) (2,019)
------------------------ ---------- ---------- ----------
98,008 81,816 179,857
------------------------ ---------- ---------- ----------
Operating profit before amortisation
of IFRS 3 intangibles, goodwill
impairment, exceptional Mercury
Health bid costs and share option
charges
Consulting Services 3,017 2,489 6,677
Support Services 4,725 3,559 10,893
Professional Services 4,638 4,752 10,235
Delivery (214) (7) (345)
Central & bid costs (2,750) (1,957) (5,169)
------------------------ ---------- ---------- ----------
9,416 8,836 22,291
------------------------ ---------- ---------- ----------
Exceptional Mercury Health bid costs of £nil (30 September 2004: £1,991,000; 31
March 2005: £1,747,000) have been incurred in relation to bid and implementation
costs on the NHS Independent Sector Treatment Contract. In September 2004 the
Board received sufficient assurance to believe that the contract would reach
financial close (which occurred in December 2004). Bid costs post September 2004
have been capitalised in accordance with IAS 11 'Construction Contracts' and IAS
16 'Property, Plant and Equipment'.
3 Finance costs
IAS 39 'Financial Instruments: Recognition and Measurement' has not been applied
retrospectively but has been adopted on 1 April 2005. It has increased the
interest charge by £0.5m for the six months ended 30 September 2005. This is a
non-cash adjustment arising primarily as a result of marking to market one of
the Group's interest rate swaps which does not qualify for hedge accounting
under IAS 39. The effect of this charge has been included in the adjustments to
basic earnings when calculating adjusted earnings per share.
4 Taxation
The taxation charge is calculated by applying the forecast full year effective
tax rate on operating profits adjusted for goodwill impairment and share option
charges to the interim profit, similarly adjusted.
5 Dividends
The Board has proposed an interim dividend of 1.05p per share, which will absorb
£0.8m, will be paid on 13 January 2006 to ordinary shareholders on the register
on 16 December 2005. The shares will be quoted ex-dividend on 14 December 2005.
6 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:
(Restated under IFRS)
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2005 2004 2005
thousands thousands thousands
Basic weighted average number of shares 75,725 69,293 71,421
in issue
Employee share options 933 1,128 890
Shares to be issued in respect of deferred 4,707 3,748 6,164
consideration
----------------------------------- ------- ------- -------
Weighted average number of diluted shares 81,365 74,169 78,475
outstanding
----------------------------------- ------- ------- -------
(Restated under IFRS)
30 September 2005 30 September 2004 31 March 2005
Loss)/
Earnings Earnings Earnings Earnings Earnings earnings
£000 per share £000 per share £000 per share
pence pence pence
Basic and adjusted basic
earnings per share:-
Profit/(loss) and basic 4,303 5.68p (2,092) (3.02)p 3,253 4.56p
earnings/(loss) per share
Adjustments:-
Amortisation of IFRS 3 151 0.20p 8 0.01p 225 0.31p
intangibles (net of tax)
Goodwill impairment - - 3,933 5.68p 6,665 9.33p
Share option charges 187 0.25p 905 1.31p 134 0.19p
Exceptional Mercury Health - - 1,991 2.87p 1,747 2.45p
bid costs
IAS 39 adjustments 483 0.64p - - - -
------- ------ ------ ------ ------ ------
Adjusted earnings and 5,124 6.77p 4,745 6.85p 12,024 16.84p
adjusted basic earnings
per share
-------------------- ------- ------ ------ ------ ------ ------
Diluted and adjusted diluted
earnings per share:-
Profit/(loss) and diluted 4,303 5.29p (2,092) (3.02)p 3,253 4.15p
earnings/(loss) per share
Adjustments:-
IAS 33 adjustment* - - - 0.21p - -
Amortisation of IFRS 3 151 0.19p 8 0.01p 225 0.29p
intangibles (net of tax)
Goodwill impairment - - 3,933 5.30p 6,665 8.49p
Share option charges 187 0.23p 905 1.22p 134 0.16p
Exceptional Mercury Health - - 1,991 2.68p 1,747 2.23p
bid costs
IAS 39 adjustments 483 0.59p - - - -
------ ------ ------ ------ ------ ------
Adjusted earnings and 5,124 6.30p 4,745 6.40p 12,024 15.32p
adjusted diluted earnings
per share
-------------------- ------ ------ ------ ------ ------ ------
The adjusted basic and adjusted diluted earnings per share figure shown on the
profit and loss account is included as the directors believe that it provides a
better understanding of the underlying trading performance of the Group.
* IAS 33 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, no adjustment is made
to diluted earnings per share in the six months ended 30 September 2004.
7 Shares to be Issued
IAS 32 'Financial Instruments: disclosure and presentation' has been
prospectively adopted from 1 April 2005. IAS 32 requires shares to be issued
totalling £13.4m to be treated as liabilities since the value of the estimated
liability is known rather than the number of shares that will be issued. The
comparative figures show shares to be issued within equity in accordance with
previous GAAP.
8 Note to the cash flow statement
Reconciliation of operating profit to operating cash flows
(Restated under IFRS)
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2005 2004 2005
£000 £000 £000
Profit from operations 9,013 1,996 13,423
Adjustments for:
Depreciation of property, plant 1,573 1,332 2,715
and equipment
Amortisation of development 281 195 457
expenditure
Amortisation of intangible assets 216 11 322
Impairment of goodwill - 3,933 6,665
Increase in fair value of - - (91)
investment property
Gain on disposal of available for - - (95)
sale investments
Gain on disposal of property, (5) (63) (30)
plant and equipment
Share option charges 187 905 134
----------------------- ---------- ----------- ---------
Operating cash flows before 11,265 8,309 23,500
movement in working capital
Increase in inventories (4,459) (2,518) (7,031)
Decrease/(increase) in 1,406 4,661 (7,015)
receivables
(Decrease)/increase in payables (6,948) (10,277) 2,786
----------------------- ---------- ----------- ---------
Cash generated from operations 1,264 175 12,240
Income taxes paid (523) (3,104) (4,655)
Interest paid (2,946) (2,583) (5,555)
----------------------- ---------- ----------- ---------
Net cash from operating (2,205) (5,512) 2,030
activities
----------------------- ---------- ----------- ---------
Cash generated from operations 1,264 175 12,240
Add exceptional Mercury Health - 1,991 1,747
bid costs
Add net outflow from Mercury 3,329 - 3,547
Health operations
----------------------- --------- ---------- -------
Cash generated from operation 4,593 2,166 17,534
before Mercury Health
----------------------- --------- ---------- -------
9 Cash management
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2005 2004 2005
£000 £000 £000
Cash at bank 9,125 24,058 26,810
Cash collateralised deposits 2,097 3,435 1,525
-------------------- ---------- ----------- ---------
11,222 27,493 28,335
Loan notes (4,092) (3,936) (3,802)
Bank loans (83,273) (71,423) (77,518)
Finance leases (447) (86) (46)
-------------------- ---------- ----------- ---------
Net debt (76,590) (47,952) (53,031)
-------------------- ---------- ----------- ---------
Included within net debt is £11.0m (30 September 2004 and 31 March
2005: £nil) drawn down under the non-recourse Mercury Health facility.
Independent review report to Tribal Group plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 September 2005 which comprises the consolidated income
statement, the consolidated balance sheet, the consolidated statement of
recognised income and expense, the consolidated reconciliation of movements in
equity, the consolidated cash flow statement and related notes 1 to 9. We have
read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
International Financial Reporting Standards
As disclosed in note 1, the next annual financial statements of the group will
be prepared in accordance with International Financial Reporting Standards as
adopted for use in the EU. Accordingly, the interim report has been prepared in
accordance with the recognition and measurement criteria of IFRS and the
disclosure requirements of the Listing Rules.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2005.
Deloitte & Touche LLP
Chartered Accountants
Bristol, UK
21 November 2005
Notes: A review does not provide assurance on the maintenance and integrity of
the website, including controls used to achieve this, and in particular on
whether any changes may have occurred to the financial information since first
published. These matters are the responsibility of the directors but no control
procedures can provide absolute assurance in this area.
Legislation in the United Kingdom governing the preparation and dissemination of
financial information differs from legislation in other jurisdictions.
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