Final Results

RNS Number : 9825I
Tribal Group PLC
23 March 2010
 



Tribal Group plc

23 March 2010

 

Preliminary results for the year ended 31 December 2009 

 

 

Summary

 

 

§ Revenue of £238.0m, an increase of 5%

 

§ Adjusted profit before tax1 of £17.2m (2008: £17.6m)

 

§ Adjusted diluted earnings per share1 of 13.3p (2008: 13.9p)

 

§ Final dividend of 2.75p, a full year increase of 5.7%

 

§ Substantial growth in committed income to £217m, an increase of 56%

 

§ Adjusted operating profit1 to cash conversion of 127%

 

§ Cost reduction programme well-advanced; continuing focus on operational improvements

 

§ Goodwill impairment of £61.6m

 

 

Financial summary 

 

Year ended 31 December

2009

2008

Change





Revenue

£238.0m

£226.7m

+5%

Adjusted profit before tax1

£17.2m

£17.6m

-3%

Goodwill impairment

£61.6m

-


(Loss)/profit before tax

(£45.6)m

£17.1m


Adjusted diluted earnings per share1

13.3p

13.9p

-4%

(Loss)/earnings per share

(55.6)p

13.4p


Dividend per share

4.60p

4.35p

+6%

Operating cash flow2

£16.8m

£21.8m


Adjusted operating profit to cash conversion3

127%

145%


 

Notes:

 

1.             The adjusted profit before tax and adjusted diluted earnings per share are in respect of continuing operations after restructuring costs of £1.1m (2008: £nil) but exclude goodwill impairment of £61.6m (2008: £nil), intangible asset amortisation of £1.2m (2008: £0.6m) and, in the case of earnings per share, the related tax of £0.3m (2008: £0.2m). 

 

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

 

3.             Net cash from operating activities before tax divided by adjusted operating profit. 

 

 

 



Commentary

 

Peter Martin, Chief Executive of Tribal, commented: "Despite the more challenging conditions experienced by certain parts of the Group, Tribal has continued to make good progress across many of its key areas of activity during 2009.  We are pleased by the significant increase in revenue visibility, that will be further enhanced by the recent award of the Ofsted Early Years contract.

 

"Whilst we expect the first half of the year to reflect the anticipated impact of the general election, particularly in our advisory markets, we remain confident that, with increasing levels of committed income and the benefit of our cost reduction programme, Tribal's trading performance will be in line with its expectations for the full year.  In the longer-term, the pace of public sector reform will need to accelerate significantly in order to meet the challenges of future spending constraints.  The initiatives that we are undertaking and our focus on operational improvements will place Tribal in a strong position to support the change required by our public sector clients in the UK and overseas."

 

 

Further information

 

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

 

Tribal Group plc                                                          Tel: 020 7323 7100

Peter Martin, Chief Executive

Steve Breach, Group Finance Director

 

Weber Shandwick Financial                                       Tel: 020 7067 0700

Nick Oborne

Stephanie Badjonat

Clare Thomas

 

Editors' note:

 

Tribal provides service delivery, advisory and technology solutions focused on improving the delivery of public services in the UK and internationally.  Our core markets are education, health and government. Tribal employs over 2,200 staff and its shares are quoted on the London Stock Exchange (TRB).  

 

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

 

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



Introduction

 

Whilst the Group's financial results for 2009 reflect the challenges experienced in certain parts of our consulting and support services markets, we continued to make good progress in our key areas of education and health and we have taken significant action to position the Group for future growth, both in the UK and internationally.

 

In the year ended 31 December 2009, the Group's revenue from continuing operations was up 5.0% at £238.0m (2008: £226.7m).  Adjusted operating profit was £18.2m (2008: £19.0m) and adjusted operating margin was 7.7% (2008: 8.4%).  Adjusted profit before tax was £17.2m (2008: £17.6m) and adjusted diluted earnings per share were 13.3p (2008: 13.9p).  (Adjusted results are for continuing operations after absorbing £1.1m of restructuring costs, but before goodwill impairment of £61.6m and intangible asset amortisation of £1.2m.  The statutory loss before tax for the year was £45.6m (2008: profit £17.1m)). 

 

The underlying cash generation of the Group has remained strong.  During 2009, the Group generated operating cash flows of £16.8m (2008: £21.8m), representing an adjusted operational cash conversion of 127% (2008: 145%).  During the year, we completed one acquisition and also purchased the outstanding minority interests in four subsidiary companies.  Tribal now wholly owns all of its principal subsidiaries.  At the year end, net debt was £27.8m (2008: £19.7m) against committed bank facilities of £40m that mature in June 2012.  In addition, Tribal has a working capital facility of £8m. 

 

The Board is proposing a final dividend of 2.75p per share, making a total of 4.60p per share for the year, an increase of 5.7%.  The final dividend will be paid on 16 July 2010 to shareholders on the register on 18 June 2010.

 

In 2009, 90% of our revenue was generated from the UK public sector, of which 41% came from education, 18% from health and 31% from government.  Our international revenues grew significantly last year and now represent 6% of revenue.

 

We have been pleased by the increase in the Group's committed income which, at the end of 2009, stood at £217m, an increase of 56% on a year earlier.  Our sales pipeline has also remained strong, totalling £284m at the end of the year (2008: £297m).

 

Business review

 

We have recently completed a review of the Group's activities and we are implementing a programme of change that will ensure that the Group will be in a strong position both to face the short-term challenges in certain of our markets and to take advantage of future growth opportunities.  We are focusing on driving operational efficiencies and improved performance across the Group, while seeking to build on our improving levels of committed income, principally through organic growth in the UK and, increasingly, overseas. 

 

§ Market focus. We are now operating through three principal business streams: Education, Health and Government.  Education will continue to be operated and managed as a separate business stream.  Following the acquisition of the outstanding minority interests in our consulting businesses last year, we are now running Health as a separate business stream and we have created an integrated Government business stream focused on public sector reform in the UK and Ireland and the international development market.

 

§ Support services. We have concluded that our three Support services businesses (Architecture, Resourcing and Communications) are no longer central to the Group's operations.  We are therefore exploring a range of strategic options for each of these businesses.

 

§ Activity focus. Within each of our three core business streams, we will focus on three areas of activity: service delivery (long-term service contracts), advisory (domain expertise focused on supporting change) and technology (proprietary software and technology services). 

 

§ Growth.  Service delivery and technology will be our two principal sources of growth.  In service delivery, our priority will be to continue to secure larger, longer-term contracts in areas where our domain expertise provides a competitive advantage.  In technology, we will be building on our strong market positions in further and higher education software to develop wider service offerings, both within education and in other areas of the public sector, particularly health.  We will therefore be increasing the level of investment in product development. 

 

§ International.  We have identified significant opportunities to grow our international activities, particularly in education and the international development market.  We are exploring a number of initiatives that are designed to accelerate the growth of our international operations. 

 

§ Operational improvements.  Our cost reduction programme is well-advanced and we remain on track to deliver annualised savings in excess of £7.5m.  In addition, we have a series of continuing actions designed to raise operational performance, including better resource management, enhanced sales skills, improved pricing models and a continued focus on overheads.    

 

Goodwill

 

In undertaking our goodwill impairment review, we have adopted a cautious approach to future growth rates and appropriate discount rates.  As a result, we have taken a total non-cash goodwill impairment charge of £61.6m.  We have significant headroom in our Education business and only a small impairment charge of £2.3m has been made in respect of Health.    Government has been impaired by £28.4m, reflecting its higher exposure to changes in public spending patterns.  In the case of the Support services businesses, we are considering a range of strategic options and we have concluded that an impairment charge of £30.9m is appropriate.

 

The goodwill impairment charge has reduced the headroom in the Group's distributable reserves.  In order to increase the level of distributable reserves, the Group is proposing a capital reduction process that will require shareholder consent at the Annual General Meeting and subsequent court approval. 

 



Operating review

 

The operating review is presented in line with the new structure implemented on 1 January 2010, under which the Group's activities are divided into Education, Health, Government and Support services. 

 

Education

 

Year ended 31 December

 


2009

£'000

2008

£'000

Revenue


101,264

96,408

Operating profit


15,226

14,303

Operating profit margin


15.0%

14.8%

 

Our Education business had a successful year with revenue increasing by 5.0% to £101.3m (2008: £96.4m), operating profit rising by 6.4% to £15.2m (2008: £14.3m) and the operating margin improving to 15.0% (2008: 14.8%).  The business saw its total committed income increase substantially during the period to over £150m, led by the £75m, six-year schools inspections contract with Ofsted.  Since the year end, we have been awarded a further contract with Ofsted, worth £64m over five years, to undertake Early Years inspections. 

 

In the UK, we operate across education and training, working in Early Years, with schools, colleges and universities and supporting employability and skills initiatives.  Despite the changes in funding regimes in certain areas and the restructuring of core government departments, our UK markets have continued to provide further opportunities for growth.  Overseas, we have also seen our education business make significant progress during the period, particularly in our software and inspections businesses in Australia and the Middle East respectively. 

 

In all of our markets, we provide a range of solutions that are designed to improve the quality of education and training services.  Our technology and service delivery solutions are enhanced by the strength of education domain expertise that resides within the business. 

 

In our core software offering, we have continued to strengthen our market shares in further and higher education (where we supply student administration and management information systems); in work-based learning environments (where we provide learner management systems to training providers); and in children's services departments (where we supply management information systems).  We have continued to invest in the development of our products and this has supported us in winning new clients and in strengthening our installed base. 

 

We have been successful in winning a large number of contracts that deploy our technology capabilities to support educational improvement.  During the period, we were awarded a £10m two-year extension to our contract for the National Centre for Excellence in the Teaching of Mathematics, a virtual centre that provides professional development for mathematics teachers. Our mobile technologies have been used in a wide range of applications, including a mobile learning programme for taxi drivers across the UK and mobile training applications for the US Navy. 

 

At the end of 2009, we launched a new software-based schools transformation programme, the Inspirational Schools Partnership, that is designed to support all schools in improving performance and their educational outcomes. The initial response to the launch of the programme has been very encouraging and we see this as an area of strategic growth for our school improvement business. 

 

In early 2009, we were awarded the largest of three regional contracts to inspect schools and other education providers in the south of England.  The contract, which commenced on 1 September 2009, is worth £75m over six years.  Our share of the school inspection services market is now approximately 40%.  The recently-awarded Early Years Ofsted contract will involve us in undertaking inspections of all Early Years providers in the south of England.  We expect to commence service delivery under the new contract on 1 September 2010.

 

During the year, we also became the largest provider of career advice and guidance in prisons in England, following the award of a number of regional contracts with a total value of £11m over three years.

 

We have continued to develop our position in the school improvement market and our successful Greater Manchester Challenge Programme was extended during the year.  We have also been working closely with large employers such as Ford, McDonald's, Sainsbury's and J. D. Wetherspoon delivering programmes that develop the skills of their workforces.

 

We have taken significant strides during the year to develop our international education business.  We secured a £10m contract with the University of Sydney to implement a new student management system and have now opened an office in Sydney to explore other opportunities in the region.  We have also opened offices in Bahrain and Abu Dhabi to build on a number of contracts that we have won in the Middle East.  We are establishing a joint venture in China to address the Early Years market and we are exploring a number of opportunities to provide school improvement programmes in North America. 

 

Health

 

Year ended 31 December

 


2009

£'000

2008

£'000

Revenue


25,674

17,444

Operating profit


2,432

2,355

Operating profit margin


9.5%

13.5%

 

Revenue from our Health business increased significantly during the year to £25.7m (2008: £17.4m), supported by the acquisition in January of Newchurch, a leading health strategy consultancy.  Operating profit increased by 3.3% to £2.4m.  Operating margins declined to 9.5% (2008: 13.5%) reflecting lower utilisation in our traditional consulting activities in the second half of the year and investment in the development of new business opportunities.

 

Since 1 January 2010, we have been operating Health as a separate business stream.  We see major opportunities to grow the business as the NHS accelerates the pace of reform to meet rising demand in a sustained period of funding constraints.

 

During the year, we saw a significant increase in the number of opportunities to provide large-scale cost-reduction and transformation programmes to both Primary Care Trusts (PCTs) (the principal commissioners of health services) and acute hospitals (the principal providers of acute medical services).  As a result, committed income in our health business had risen to £28.5m at 1 January 2010, an increase of £19.5m over the previous year.

 

We had a very successful year in developing our business with PCTs and Tribal is now established as one of the leading providers under the Department of Health's Framework for procuring External Support for Commissioners (FESC).  Our long-term partnership with Ashton, Leigh & Wigan PCT has generated very significant cost reductions for the client and efficiency improvements for the local health economy.  During the year, we won a number of new commissioning contracts with PCTs, including North Yorkshire and York PCT, Derby City PCT and Westminster PCT.  At the end of the year, we were awarded our single largest contract in health, a £20m, four-year programme to work with an alliance of nine PCTs in the south of England.  We will be providing an innovative set of informatics and data analytics solutions that will support enhanced productivity and efficiency across the participating PCTs.

 

We have also seen a marked increase in the number of opportunities to work with major hospitals in supporting large-scale transformation programmes.  We are working with Heatherwood and Wexham Park Hospitals NHS Foundation Trust on a two-year contract that will deliver significant cost savings and with Nottingham University Hospital NHS Trust, initially over the next 12 months, to transform their services. 

 

As the health market develops, we see increasing opportunities to deliver a range of community-based services.  We are already delivering wellness programmes in a number of areas and, during 2010, we plan to launch a care management business, supporting patients with long-term conditions.

 

Government

 

Year ended 31 December

 


2009

£'000

2008

£'000

Revenue


69,440

65,778

Operating profit


5,269

5,510

Operating profit margin


7.6%

8.4%

 

During theyear, our Government business increased revenue by 5.6% to £69.4m (2008: £65.8m), supported by full-year contributions from acquisitions made in 2008.  The business encountered challenging trading conditions in certain areas and operating profit fell to £5.3m (2008: £5.5m).  The operating margin was 7.6% (2008: 8.4%).

 

In the second half of the year, we completed the acquisition of three outstanding minority interests in subsidiaries.  Following these purchases, we have implemented a comprehensive reorganisation of our Government business to create a single, integrated practice covering the UK and Ireland and our international development operation, Tribal HELM.

 

The new organisation, which will be fully operational from April 2010, is expected to generate significant cost savings and will markedly improve productivity and the effectiveness of our business development activities.

 

Our central government businesses had a strong year, working with a wide range of government departments and agencies.  The majority of our work has been directed at supporting the public sector reform agenda and reflects key priorities such as cost reduction, operational improvement, collaboration between public sector organisations and procurement.  During the year, we strengthened our relationships with key clients such as the Foreign and Commonwealth Office.  We have also been very successful in bidding for the new Buying Solutions Management Consultancy and Accounting Services framework, the single largest channel for procuring advisory work across central (and other areas of) government.

 

In housing, we retained our position as the leading adviser to the social housing sector, although trading conditions became more challenging in the second half of the year as the sector responded to funding constraints.  In local government, we made significant strides as organisations sought support to implement plans to reduce costs and to improve efficiency and productivity.  During the year, we were awarded a contract worth more than £3.5m over five years by the States of Guernsey to deliver over £30m of savings. 

 

Our regeneration business encountered difficult market conditions and we therefore took the decision to close this business at the end of the year.  The business has been treated as discontinued and, after a goodwill write-off of £4.0m and exceptional costs of closure of £2.3m, recorded a total loss of £7.1m. 

 

Our international development business, Tribal HELM, had a successful year.  We delivered public sector reform projects across Asia, Europe and South America supporting the development programmes of the leading international donor organisations, including the UK Department for International Development, the World Bank, the European Commission Group and AusAID.  These programmes remain a policy priority for international governments and we have continued to see a good flow of new contract opportunities.  We have recently initiated a strategy to extend our offering to support the activities of USAID.  We have also had initial success in generating international development opportunities for our Education business.

 

Support services

 

Year ended 31 December

 


2009

£'000

2008

£'000

Revenue


45,058

49,010

Operating profit


3,292

4,386

Operating profit margin


7.3%

8.9%

 

Our Support services businesses faced challenging trading conditions across several areas of activity. Revenue fell by 8.1% to £45.1m (2008: £49.0m).  Operating profit was £3.3m (2008: £4.4m) and the operating margin declined to 7.3% (2008: 8.9%).  As announced above, we have concluded that the Group's resources should be focused on our core activities in Education, Health and Government and we are therefore exploring a number of strategic alternatives for each of our Support services businesses.

 

Resourcing

 

Our Resourcing business encountered softer trading conditions in its core recruitment advertising market.  Whilst revenue declined, a focus on more effective procurement, higher levels of productivity and a significant reduction in overheads allowed the business to improve margins.

 

Across government, there is an increasing demand for e-recruitment solutions.  During the year, we secured a number of technology-based contracts, including a new schools recruitment service that we are operating on behalf of the Department for Children, Schools and Families (which already has 65 local authorities signed up for the service) and an online applicant tracking system and recruitment portal for the Appointments Commission.

 

We have continued to build market share in our principal advertising market and gained a number of important new clients during the year, including Surrey County Council, The Insolvency Service and Dorset County Council.

 

Architecture

 

Our architectural design business operates across health, education and science.  Our health activities had a strong year with three significant wins in Scotland; the £120m redevelopment of Dumfries and Galloway Royal Infirmary, the new £130m children's hospital in Edinburgh and the £840m Southern General Hospital in Glasgow, our largest project win to date which is expected to deliver revenues of £17m over the next five years. 

 

We have continued to deliver and win a wide range of other health projects across the UK and, increasingly, overseas.  The first two phases of the large Peterborough Hospital development were handed over on time and we completed our first international private hospital in Warsaw. Our international pipeline in health has continued to grow.

 

Our education activities suffered as a result of the difficulties surrounding the funding of capital projects in the further education sector.  During the year, we reduced our cost base significantly in this area but continued to win a number of new assignments including further design projects under the Tower Hamlets Building Schools for the Future programme. 

 

During the period, we decided to diversify our activity base through developing a presence in the science sector, which will complement our health and education activities.  We were successful in being appointed to two national frameworks with the Medical Research Council and the Science & Technology Facilities Council.

 

Communications

 

In 2009, we continued to develop our integrated offering, combining our leading position in public sector communications with our advertising expertise and our growing capabilities in digital and social media.

 

Our public relations business performed well during the period but our advertising activities, which operate in both the private and the public sectors, found trading conditions challenging.  Nevertheless, we achieved some notable wins, including contracts to promote science and Early Years education, integrated programmes with the Milk Marketing Forum, the Chartered Management Institute and the Royal Pharmaceutical Society of Great Britain and an advertising and PR contract with the Welsh Assembly Government.

 

People

 

Tribal has continued to make good progress in key areas of its activities and we have responded to more difficult trading conditions in certain parts of the Group by implementing reorganisation plans and reducing costs.  These initiatives represent significant change and I would like to thank all of our staff and associates for their commitment and hard work during a year of transition.

 

We have continued to invest in the development of our people.  During the year, we have implemented a comprehensive sales and business development programme.  More than 200 of our staff have participated in the programme.  We have also continued training and development programmes covering core areas such as leadership, skills acquisition and professional development.

 

We are fortunate at Tribal in having people who are motivated by a desire to improve the quality and effectiveness of public services.  The strong set of client testimonials and the high level of repeat and follow-on work is a direct result of the commitment of our staff and associates to delivering high levels of client service.

 

Board changes

 

As previously announced, Tribal's Chairman, Strone Macpherson, will be retiring at the AGM in May.  I would like to thank Strone for his steadfast leadership of the Board and his support for the Executive Team during the past six years.  John Ormerod, currently Deputy Chairman, will become Chairman following the AGM. 

 

Simon Lawton, a founder director of Tribal and Group Finance Director for the past ten years, stood down from the Board at the end of the year.  Simon has made a very substantial contribution to Tribal's development and the Group will miss his energy and commitment.  Steve Breach was appointed Group Finance Director and joined the Board on 1 January 2010. 

 

Outlook

 

The political and economic outlook in the UK remains unclear.  However, the overriding objective of any new government will be to reduce the public sector deficit.  Whilst areas such as health and education will remain policy priorities, all areas of government spending will be under scrutiny.  Public sector organisations will therefore be facing two key challenges: first, to reduce costs; and second, to improve outcomes in the face of rising expectations.  These two challenges will be met successfully only through reform and change.  Tribal's combination of domain expertise, technology capability and track record of service delivery provides a robust foundation from which to support the transformation of public services.

 

We are implementing a significant change programme that is designed to create a more effective and efficient organisation. We have a simpler and more coherent structure and, for the first time, we have no minority interests.  We have a clear strategic direction and plans to grow our service delivery and technology activities in order to further improve our levels of revenue visibility.  Our cost reduction programme will deliver annualised cost savings of at least £7.5m and we will continue to focus on operational efficiency in order to drive earnings growth.    

 

Our total committed income stood at £217m at the end of 2009 (2008: £139m) and 42% of our planned revenue for 2010 was already committed at 1 January 2010 (2008: 38%).  Our revenue visibility will rise significantly during 2010 as a result of the recently-awarded Ofsted Early Years contract.

 

Whilst we expect the first half of the year to reflect the anticipated impact of the general election, particularly in our advisory markets, we remain confident that, with improving levels of committed income and the benefits of our cost reduction programme, Tribal's trading performance will be in line with its expectations for the full year. 

 

 

 

 

Peter Martin

Chief Executive

 

23 March 2010



Responsibility statement of the directors on the annual report

 

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

 

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

 

§ the Company and Group financial statements in this annual report, which have been prepared in accordance with UK GAAP and IFRS, respectively, give a true and fair view of the assets, liabilities, financial position and profit of the Company and of the Group taken as a whole; and

 

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

 

By order of the Board  

 

 

 

 

 

Peter Martin                                                  Steve Breach

Chief Executive                                               Group Finance Director

 

23 March 2010

 

 

 

 

 



Consolidated income statement

for the year ended 31 December 2009

 


 

Note

 

Before amortisation and impairment costs


 

 

Amortisation and impairment costs


 

Year

 ended

31 December 2009

Total


 

Before amortisation and impairment

costs


 

 

Amortisation and impairment

costs


 

Year

 ended

31 December 2008

Total

 

Continuing operations


£'000

 


£'000


£'000


£'000

 


£'000


£'000

Turnover


282,832


-


282,832


286,939


-


286,939

Direct agency costs


(44,784)


-


(44,784)


(60,202)


-


(60,202)



























Revenue

       2

238,048


-


238,048


226,737


-


226,737

Cost of sales


(145,029)


-


(145,029)


(135,823)


-


(135,823)














Gross profit


93,019


-


93,019


90,914


-


90,914










Net administrative expenses


(74,801)


-


(74,801)


(71,951)


-


(71,951)














Other administrative expenses:













Amortisation of IFRS 3 intangibles

        

-


(1,192)


(1,192)


-


(556)


(556)

Goodwill impairment

       9

-


(61,613)


(61,613)


-


-


-














Total administrative expenses


(74,801)


(62,805)


(137,606)


(71,951)


(556)


(72,507)














Operating profit/(loss)


18,218


(62,805)


(44,587)


18,963


(556)


18,407














Investment income

       3

231


-


231


586


-


586

Other gains and losses

       4

95


-


95


(66)


-


(66)

Finance costs

       5

(1,371)


-


(1,371)


(1,835)


-


(1,835)














Profit/(loss) before tax


17,173


(62,805)


(45,632)


17,648


(556)


17,092

Tax

        

(4,197)


334


(3,863)


(4,725)


156


(4,569)














Profit/(loss) for the year from continuing operations


12,976


(62,471)


(49,495)


12,923


(400)


12,523














Discontinued operations













(Loss)/profit from discontinued operations

       7

(3,117)


(3,961)


(7,078)


1,830


-


1,830

Profit/(loss) for the year


9,859


(66,432)


(56,573)


14,753


(400)


14,353














Attributable to:













Equity holders of the parent

        





(57,401)






13,443

Minority interest

        





828






910







(56,573)






14,353














Earnings per share

from continuing operations













Basic

       8

13.4p


(69.0)p


(55.6)p


13.9p


(0.5)p


13.4p

Diluted

       8

13.3p


(68.6)p


(55.3)p


13.9p


(0.5)p


13.4p














From continuing and discontinued operations













Basic

       8

9.9p


(73.3)p


(63.4)p


16.0p


(0.5)p


15.5p

Diluted

       8

9.9p


(73.0)p


(63.1)p


16.0p


(0.5)p


15.5p

 

 



Consolidated statement of comprehensive income

for the year ended 31 December 2009

 




Year

ended

31 December

2009


Year

ended

31 December

2008




£'000


£'000







(Loss)/profit for the year



(56,573)


14,353







Actuarial loss on defined benefit plans

         


(810)


(408)

Transfer to cash flow hedge reserve



(29)


(1,109)

Deferred tax

         


235


423







Other comprehensive income for the year



(604)


(1,094)







Total comprehensive income for the year



(57,177)


13,259







Attributable to:






Equity holders of the parent



(58,005)


12,349

Minority interest



828


910










(57,177)


13,259







 



Consolidated balance sheet

at 31 December 2009

 


     Note


2009


2008


2007




£'000


£'000


£'000

Non-current assets








Goodwill

           9


158,050


209,765


186,991

Other intangible assets

            


8,797


7,740


4,254

Property, plant and equipment



7,936


9,103


7,363

Investments



38


7


157

Deferred tax assets



3,191


2,149


1,389

Derivative financial instruments



-


-


178




178,012


228,764


200,332

Current assets








Inventories



954


801


1,055

Trade and other receivables

         10


62,457


66,190


62,326

Amounts recoverable on contracts



-


6


63

Cash and cash equivalents



9,370


13,892


15,982

Collateralised cash



-


-


192




72,781


80,889


79,618

 

Total assets



250,793


309,653


279,950

 

Current liabilities








Trade and other payables

         11


(66,723)


(68,456)


(67,418)

Tax liabilities



(5,002)


(7,234)


(5,400)

Obligations under finance leases



-


-


(3)

Bank loans and loan notes



(381)


(662)


(876)

Provisions



(435)


(655)


(577)

Derivative financial instruments



-


(188)


-




(72,541)


(77,195)


(74,274)

Net current assets



240


3,694


5,344









Non-current liabilities








Bank loans



(36,780)


(32,894)


(22,098)

Pension liabilities



(2,143)


(1,425)


(1,228)

Deferred tax liabilities



(1,881)


(1,927)


(1,108)

Derivative financial instruments



(931)


(809)


-




(41,735)


(37,055)


(24,434)









Total liabilities



(114,276)


(114,250)


(98,708)

 

Net assets



136,517


195,403


181,242

Equity








Share capital



4,685


4,394


4,239

Share premium account



78,723


78,749


74,750

Other reserves



31,597


64,486


64,582

Retained earnings



21,512


45,945


36,606


            







Equity attributable to equity holders of the parent



136,517


193,574


180,177

Minority interest



-


1,829


1,065

 

Total equity



136,517


195,403


181,242

 



Consolidated statement of changes in equity

for the year ended 31 December 2009

 

 


Share


Share


Other


Retained




Minority


Total


capital


premium


reserves


earnings


Total


interest


equity


£'000


£'000


£'000


£'000


£'000


£'000


£'000















Balance at 1 January 2009

4,394


78,749


64,486


45,945


193,574


1,829


195,403

Total comprehensive income for the year

-


-


(21)


(57,984)


(58,005)


828


(57,177)

Issue of share capital

291


(26)


4,326


-


4,591


-


4,591

Dividends

-


-


-


(4,055)


(4,055)


(319)


(4,374)

Credit to equity for share-based payments

-


-


324


88


412


-


412

Transfer

-


-


(37,518)


37,518


-


-


-

Sale to minorities

-


-


-


-


-


6


6

Purchase of minorities

-


-


-


-


-


(2,344)


(2,344)

 

Balance at 31 December 2009

4,685


78,723


31,597


21,512


136,517


-


136,517

 

 

 

for the year ended 31 December 2008

 


Share


Share


Other


Retained




Minority


Total


capital


premium


reserves


earnings


Total


interest


equity


£'000


£'000


£'000


£'000


£'000


£'000


£'000















Balance at 1 January 2008

4,239


74,750


64,582


36,606


180,177


1,065


181,242

Total comprehensive income for the year

-


-


(799)


13,148


12,349


910


13,259

Issue of share capital

155


3,999


-


-


4,154


-


4,154

Dividends

-


-


-


(3,957)


(3,957)


(439)


(4,396)

Credit to equity for share-based payments

-


-


703


148


851


-


851

New minorities

-


-


-


-


-


884


884

Purchase of minorities

-


-


-


-


-


(591)


(591)

 

Balance at 31 December 2008

4,394


78,749


64,486


45,945


193,574


1,829


195,403



Consolidated cash flow statement

for the year ended 31 December 2009

 


Note


Year

ended

31 December 

2009


Year

ended

31 December

 2008




£'000


£'000







Net cash from operating activities

     13


15,124


22,303







Investing activities






Interest received



233


586

Proceeds on disposal to minorities



18


-

Disposal of subsidiary



-


225

Proceeds on disposal of property, plant and equipment



493


53

(Purchase)/disposal of investments



(31)


320

Purchases of property, plant and equipment



(2,366)


(3,632)

Expenditure on product development



(1,304)


(1,031)

Expenditure on business systems



(1,211)


(820)

Acquisitions and deferred consideration



(13,366)


(24,855)

 

Net cash outflow from investing activities



(17,534)


(29,154)







Financing activities






Interest paid



(1,252)


(1,514)

Equity dividend paid



(4,055)


(3,957)

Dividends to minorities



(319)


(439)

Issue of shares



-


(9)

Repayment of borrowings



(3,736)


-

Repayments of obligations under finance lease



-


(3)

New bank loans



7,250


10,491

Movements in collateralised cash



-


192

 

Net cash (used in)/ from financing activities



(2,112)


4,761







Net decrease in cash and cash equivalents



(4,522)


(2,090)







Cash and cash equivalents at beginning of year



13,892


15,982







 

Cash and cash equivalents at end of year



9,370


13,892

 



Notes to the preliminary announcement

 

1.      General information

 

The basis of preparation of this preliminary announcement is set out below.

 

The financial information in this announcement, which was approved by the Board of Directors on 23 March 2010, does not constitute the Company's statutory accounts for the years ended 31 December 2009 or 31 December 2008, but is derived from these accounts.

 

Statutory accounts for the year ended 31 December 2008 have been delivered to the Registrar of Companies and those for the year ended 31 December 2009 will be delivered following the Company's Annual General Meeting.  The auditors have reported on these accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under S498 (2) or (3) of the Companies Act 2006 or equivalent preceding legislation.

 

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

 

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

 

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

 

It is intended that the full financial statements which comply with IFRSs will be posted to shareholders on or around 20 April 2010 and will be available to members of the public at the registered office of the Company from that date and available on the Company's website: www.tribalgroup.com.

 

Going concern

 

The Group has considerable financial resources in that it maintains sizeable cash balances, has a credit facility of £40m (of which £37.0m was drawn down at 31 December 2009), which is not due for renewal until June 2012, and has an overdraft facility of £8m, which is renewable annually in February.  Net debt was £27.8m at 31 December 2009.   Although the current economic conditions create some uncertainty in terms of the maintenance of current public sector spending levels, the Group also has a number of long-term contracts with a range of customers across different geographic areas, 42% of planned revenue for 2010 committed at the start of the year and a strong pipeline of new opportunities.  The Group's forecasts and projections, which allow for reasonably possible changes in trading performance, show that the Group will be cash generative across the forecast period.  As a consequence, the directors believe that the Group is well-placed to manage its business risks successfully despite the current uncertain economic outlook.

 

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

 

2.      Business segments

 

Following the restructuring of the business announced in October 2009, the Group is now organised into four business segments - Health, Government, Education and Support services.  In view of the relevance to future reporting the business segment information for the year ended 31 December 2009 has been reported under this structure and the segment information for the year ended 31 December 2008 has been restated to reflect the changes.

 

Principal activities are as follows:

 

Health                      -   one of the largest of its type providing health services in the public sector including strategy, commissioning and analytics.

Government           -   working for central and local government in the UK and development agencies and governments internationally to transform public services. 

Education               -   one of the largest providers of education services to the public sector including software, managed services, school inspection services, consultancy, benchmarking, e-learning publishing and training.

Support services   -   support services businesses largely operating in the public sector providing a range of PR, advertising and communications, resourcing and architectural design services.

 

Previously the Group reported under three principal segments, Consulting, Education and Support services.  In practice the restructuring has resulted in the Consulting business segment being split between Health and Government.  Accordingly, for the purpose of facilitating comparison with historical reporting, a subtotal of Health and Government is provided. 

 

On 1 January 2009, the Group transferred a business unit between Support services and Consulting.  The comparatives have been restated to reflect this. 

 

 

Year ended

31 December 2009

Health


Government


Consulting

Total1


Education


Support

services


Eliminations


Consolidated


£'000


£'000


£'000


£'000


£'000


£'000


£'000

Revenue














External sales

25,021


68,623


93,644


100,010


44,394


-


238,048

Inter-segment sales

653


817


1,470


1,254


664


(3,388)


-





























Total revenue

25,674


69,440


95,114


101,264


45,058


(3,388)


238,048















Segment operating profit

2,432


5,269


7,701


15,226


3,292


-


26,219















Unallocated corporate expenses













(8,001)















Adjusted operating profit













18,218

Amortisation of

IFRS 3 intangibles













(1,192)

Goodwill impairment

(2,278)


(28,405)


(30,683)


-


(30,930)


-


(61,613)

Operating loss













(44,587)

Investment income













231

Other gains and losses













95

Finance costs













(1,371)















Loss before tax













(45,632)

Tax













(3,863)















Loss for the year from discontinued operations












(7,078)















Loss after tax and

discontinued operations













(56,573)

 



 

Year ended

31 December 2008

Health

 


Government

 


Consulting

Total1


Education

 


Support

services


Eliminations

 


Consolidated

 

 

Revenue

£'000


£'000

 


£'000

 


£'000


£'000


£'000

 


£'000

External sales

17,439


65,399


82,838


95,798


48,101


-


226,737

Inter-segment sales

5


379


384


610


909


(1,903)


-





























Total revenue

17,444


65,778


83,222


96,408


49,010


(1,903)


226,737















Segment operating profit

2,355


5,510


7,865


14,303


4,386


-


26,554















Unallocated corporate expenses













(7,591)















Adjusted operating profit













18,963

Amortisation of

IFRS 3 intangibles













(556)

Operating profit













18,407

Investment income













586

Other gains and losses













(66)

Finance costs













(1,835)















Profit before tax













17,092

Tax













(4,569)















Profit for the year from discontinued operations












 

1,830















Profit after tax and

discontinued operations













14,353

 

1 Consulting subtotal is disclosed to reflect the segments as they would have been reported under the previous segmental structure. 

 

3.      Investment income



Year

ended

31 December

2009


Year

ended

31 December

2008



£'000


£'000






Interest on bank deposits


42


373

Other interest receivable


189


213








231


586

 

4.      Other gains and losses



Year

ended

31 December

2009


Year

ended

31 December

2008



£'000


£'000






Change in the fair value of derivatives


357


109

Hedge ineffectiveness in the cash flow hedges


(262)


(175)








95


(66)

 

 

5.      Finance costs

 



Year

ended

31 December

2009


Year

ended

31 December

2008



£'000


£'000






Finance charges





Interest on bank overdrafts and loans


1,270


1,717

Interest on loan notes


4


29

Net interest payable on retirement benefit obligations


62


17






Total borrowing costs


1,336


1,763






Financial instruments





Discounting charge for deferred consideration


35


72








1,371


1,835

 

6.      Dividends



Year

ended

31 December

2009


Year

ended

31 December

2008



£'000


£'000

Amounts recognised as distributions to equity holders in the period:





Interim dividend for the nine months ended 31 December 2007 of 1.15 pence per share


-


966

Final dividend for the year ended 31 December 2008 of 2.65 pence (nine months ended 31 December 2007: 1.8 pence) per share


2,384


1,511

Interim dividend for the year ended 31 December 2009 of 1.85 pence (year ended 31 December 2008: 1.7 pence) per share


1,671


1,480








4,055


3,957






 

Proposed final dividend for the year ended 31 December 2009 of 2.75 pence (year ended 31 December 2008: 2.65 pence) per share


2,600


2,425

 

The interim dividend for 2009 was approved by the Board on 18 August 2009 and was paid on 23 October 2009 to ordinary shareholders who were on the register on 25 September 2009.

 

The Board is recommending a final dividend of 2.75p per share.  This dividend will be paid on 16 July 2010 to shareholders on the register at 18 June 2010. 

 

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


 

7.      Discontinued operations

 

During October 2009, the decision was taken to close the regeneration business. The results of the discontinued operations which have been included in the consolidated income statement were as follows:

 

 

 

Year

ended

31 December

2009


Year

ended

31 December

2008


£'000


£'000





Revenue

4,025


7,253

Expenses

(5,112)


(6,393)

Goodwill impairment

(3,961)


-

Exceptional costs

(3,243)


-

(Loss)/profit before tax

(8,291)


860

Attributable tax credit

1,213


970

 

Net (loss)/profit attributable to discontinued operations

 

(7,078)


 

1,830

 

The discontinued operations for the year ended 31 December 2008 also include a tax credit of £1.2m which relates to the release of tax provisions arising from the closure of the Mercury Health 2006 computations by HMRC.

 

During the year, the discontinued operations created an operating cash outflow of £2,663,000 (2008: £467,000).  There were no investing or financing cash flows in either year. 


 

8.      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:

 

 

 

Year

ended

31 December

2009


Year

ended

31 December

2008


thousands


thousands

Weighted average number of shares outstanding:




Basic weighted average number of shares in issue

90,523


86,358

Employee share options

487


101

 

Weighted average number of shares outstanding for dilution calculations

 

91,010


 

86,459

 

The adjusted basic and adjusted diluted earnings per share figures shown on the consolidated income statement on page 12 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:


Year ended

31 December 2009


Year ended

31 December 2008

From continuing operations

 

(Loss)/

earnings

£'000


(Loss)/

earnings

per share

pence


 

 

Earnings

£'000


 

Earnings

per share

pence

Basic and adjusted basic (loss)/earnings per share:








(Loss)/profit and basic (loss)/earnings per share

(50,323)


(55.6)p


11,613


13.4p

Adjustments:








Goodwill impairment

61,613


68.1p


-


-

Amortisation of IFRS 3 intangibles (net of tax)

858


0.9p


400


0.5p









Adjusted earnings and adjusted basic earnings per share

12,148


13.4p


12,013


13.9p









Diluted and adjusted diluted (loss)/earnings per share:








(Loss)/profit and diluted (loss)/earnings per share

(50,323)


(55.3)p


11,613


13.4p

Adjustments:








Goodwill impairment

61,613


67.7p


-


-

Amortisation of IFRS 3 intangibles (net of tax)

858


0.9p


400


0.5p









Adjusted earnings and adjusted diluted earnings per share

12,148


13.3p


12,013


13.9p

 

The loss of £50,323,000 (2008: profit £11,613,000) is arrived after adding/deducting the minority interest charge of £828,000 (2008: £910,000) from the loss for the year from continuing operations of £49,495,000 (2008: profit £12,523,000).

 


Year ended

31 December 2009


Year ended

31 December 2008

From continuing and discontinued operations

 

(Loss)/ earnings

£'000


(Loss)/ earnings

per share

pence


 

 

Earnings

£'000


 

Earnings

per share

pence

Basic and adjusted basic (loss)/earnings per share:








(Loss)/profit and basic (loss)/earnings per share

(57,401)


(63.4)p


13,443


15.5p

Adjustments:








Goodwill impairment

65,574


72.4p


-


-

Amortisation of IFRS 3 intangibles (net of tax)

858


0.9p


400


0.5p









Adjusted earnings and adjusted basic earnings per share

9,031


9.9p


13,843


16.0p









Diluted and adjusted diluted (loss)/earnings per share:








(Loss)/profit and diluted (loss)/earnings per share

(57,401)


(63.1)p


13,443


15.5p

Adjustments:








Goodwill impairment

65,574


72.1p


-


-

Amortisation of IFRS 3 intangibles (net of tax)

858


0.9p


400


0.5p









Adjusted earnings and adjusted diluted earnings per share

9,031


9.9p


13,843


16.0p

 

 

9.      Goodwill


2009


2008


£'000


£'000

Cost

At beginning of year

 

260,896


 

238,122

Additions - including minority interests

13,859


22,079

Disposals

(4,867)


(225)

Revisions to prior periods

-


920





At end of year

269,888


260,896





Accumulated impairment losses

At beginning of year

 

51,131


 

51,131

Impairment charge -  continuing

61,613


-

                                -  discontinued

3,961


-

Disposals

(4,867)


-





At end of year

111,838


51,131





Net book value

At end of year

 

158,050


 

209,765





At beginning of year

209,765


186,991

 

Additions to goodwill during the year relate to the acquisition of Newchurch Limited and the purchase of minority interests.

 

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

 


2009


2008


2007


£'000


£'000


£'000

Support services -






      Communications

2,250


19,168


17,677

      Architecture

7,500


17,636


17,606

      Resourcing

2,500


6,614


6,614


12,250


43,418


41,897







Health

24,759


20,937


18,490

Government

49,351


73,728


56,345

      Consulting

74,110


94,665


74,835







Education

71,690


71,682


70,259








158,050


209,765


186,991

 

The carrying amount of goodwill by business stream as at 31 December 2007 and 31 December 2008 has been restated due to the Group restructuring of business segments with effect from 31 December 2009 so that the Consulting segment has now been subdivided between Health and Government. In addition a specific business was transferred from Resourcing to Government during the year and as a result, £6m of goodwill was reallocated between these business streams. 


The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The test performed at 31 December 2009 has taken account of weaknesses in specific aspects of the CGUs' trading during 2009, the uncertainty surrounding UK Government spending plans as a result of the upcoming general election, and the anticipated impact of the pressure to reduce government debt in the medium term. We have also considered carefully the assumptions used in the review.  In the case of the three CGUs of Support services, the decision to explore a variety of strategic options for these has caused the directors to conclude that they should use their estimated realisable values rather than the value in use approach.  The outcome of the impairment test has been a write down of goodwill of £61.6m, broken down as follows:

 


Basis of assessment

£'000

Communications

Net realisable value

16,917

Architecture

Net realisable value

10,139

Resourcing

Net realisable value

3,874

Health

Value in use

2,278

Government

Value in use

28,405



61,613

 

The table excludes the impairment of £4m arising within Government from the closure of the regeneration business earlier in the year. This is included as part of the loss on discontinued operations.

 

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

 

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next two years and has extrapolated cash flows in perpetuity based on an estimated growth rate of 2%.   This rate does not exceed the average long-term growth rate for the relevant markets and reflects the current caution in the market.  The rates used to discount the forecast cash flows are 12% for Education and Health and 13% for Government and are chosen to reflect the directors' assessment of the relative degree of risk associated with each CGU.  To the extent that the outcome of any of these variables differs from the assumption, an additional impairment would be required.  For example if the net cash flows were to be 5% below the budgets for each of 2010 and 2011, additional impairments of £1.5m and £3.8m would be required for Health and Government respectively.  If the discount rate increased by 1%, then additional impairments of £2.2m and £4.0m would be required for Health and Government respectively. 

 

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

 

The recoverable amounts of the Communications, Architecture and Resourcing CGUs have been based on their estimated realisable values to reflect the fact that these businesses are not core to the Group's ongoing operations and hence may be sold in certain circumstances.  The realisable values are estimated based on consultation with the Group's advisers, our knowledge and understanding of the market in the current, difficult environment for such transactions, and any informal discussions which have taken place with interested parties.  To the extent that the actual realisable value of any of these CGUs were to fall below the assumed level, a corresponding additional impairment would be required.

 

 

10.    Trade and other receivables


2009


2008


2007


£'000


£'000


£'000







Amount receivable from sale of services

44,207


50,924


46,424

Allowance for doubtful debts

(1,399)


(1,196)


(766)








42,808


49,728


45,658

Other receivables

2,351


954


400

Prepayments and accrued income

17,298


15,508


16,268








62,457


66,190


62,326

 

11.    Trade and other payables


2009


2008


2007


£'000


£'000


£'000







Trade payables

13,255


19,832


18,441

Other taxation and social security

6,922


6,183


8,603

Other payables

5,630


3,947


6,306

Accruals and deferred income

40,285


37,368


31,114

Deferred cash consideration

631


1,126


2,954








66,723


68,456


67,418

 

 

 

12.    Notes to the cash flow statement

 


Year

ended

31 December

2009


Year

ended

31 December

2008


£'000


£'000





Operating (loss)/profit from continuing operations

(44,587)


18,407

Operating (loss)/profit from discontinued operations

(8,291)


860

Depreciation of property, plant and equipment

3,044


3,149

Decrease in fair value of investment property

35


-

Amortisation of other intangible assets

2,740


1,944

Impairment of goodwill

65,574


-

Net pension charge

(96)


(212)

Loss on disposal of property, plant and equipment

37


96

Gain on sale of investments

(12)


(304)

Share-based payments

412


851





Operating cash flows before movements in working capital

18,856


24,791





Decrease in amounts recoverable on contracts

6


57

(Increase)/decrease in inventories

(153)


426

Decrease in receivables

4,406


684

Decrease in payables

(1,670)


(387)

(Decrease)/increase in provisions

(220)


78





Net cash from operating activities before tax

21,225


25,649





Tax paid

(6,101)


(3,346)





Net cash from operating activities

15,124


22,303

 

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


£'000


£'000





Continuing operations (excluding restricted cash)

23,169


27,403

Increase/(decrease) in restricted cash

719


(1,287)


23,888


26,116

Discontinued operations

(2,663)


(467)






21,225


25,649

 



Principal risks and uncertainties

 

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

 

Risk management

 

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

§ setting strategic direction including targets

§ maintaining a clear authorisation framework

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

§ maintaining documented policies and procedures

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

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

§ identify and assess all significant risks facing their business

§ prioritise risk

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

§ review and report risk.

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

 

The executive directors provide the central leadership to ensure our strategy is effectively communicated throughout the organisation.  This is achieved through regular meetings of the senior leadership team, annual strategic planning meetings with individual business units and by clear guidance within the annual budget and three-year planning instructions issued to all business units.  The senior management of each business unit is specifically responsible for the management of risk within their operating business. In addition, 'risk owners' have been identified from amongst the Group's senior management to take the leadership role in managing certain risks.  We believe the key to success is a combination of strong central direction and accomplished management talent within our businesses.  Our businesses are expert in understanding customer requirements and market opportunities and adapting their plans to achieve their best possible performance.

 

Business stream performance is reviewed through regular meetings, enabling risks or other issues to be efficiently addressed and appropriate actions to be taken.  Risks are also assessed and monitored at a Group level at the regular meetings of the Board, supported by the Group's Risk Manager who also undertakes a range of risk reviews and internal audit activities. 

 

The principal risks that the Group manages are described below:

 

Responding to changes in the market

 

During 2010, we will face the uncertainty of a general election and the changes in government policy and spending that will inevitably follow. The pace and scale of future spending cuts remains unclear and represents a significant challenge to the Group achieving its strategic growth plans. 

 

Tribal has made a conscious effort to protect itself against this risk by restructuring the business so that we are better aligned to support our public sector clients as they enter this period of significant change.  We have launched the Fit for 2010 cost reduction programme and have committed ourselves to annualised savings of at least £7.5m, to ensure that we remain cost-competitive and have the capacity to accelerate our investment in areas of growth.  We also continue to make progress internationally, which is helping protect our income streams in an increasingly competitive domestic market.  The various initiatives that we have underway across the business will position us well to take advantage of the opportunities in our principal markets, both in the UK and internationally.

Contract win rate

This remains a key risk for Tribal in 2010.  One of our principal strategic objectives is to increase the level of committed income so that at least 60% of our planned annual revenue is already contracted at the start of the financial year.  To achieve this, we need to increase our win rate for larger, longer-term contracts.  The business development skills programme we embarked upon in 2009 is designed to support this aim and is progressing well, with the majority of our sales management staff trained in our new approach.  The sales and bid governance process we now have in place has risk assessments built into it.  We continually review our policies and procedures to ensure that the qualification and management of the bid and contract winning process remain effective.

Information security

The consequences of a failure to ensure the confidentiality, integrity and availability of data continue to be a key focus for the business.  Recent lapses in information security reported in the media have re-emphasised the risks associated with data handling. In response to the risks faced, Tribal established an Information Security Working Group, which is tasked with identifying and mitigating key information assurance risks and establishing best practice.  Through this group we have established a network of representatives across the business to reinforce the importance of information assurance amongst staff.  We have also implemented a formal Information Assurance Incident reporting process and regularly review and communicate our IT and Information Security policy to all staff.

Resource planning and management

With the increasing number of larger, longer-term contracts Tribal has been awarded, continued growth in our overseas business, and the need to create and deliver innovative and cost-effective solutions for our clients, it has become increasingly important to attract and retain the right people.  Developing, engaging, recognising and rewarding our people is at the heart of Tribal's success and we continue to look for new ways to broaden the range of benefits we offer to staff and encourage participation in, and ownership of, the business. The recent changes we have made to our organisational and management structure reflects our desire to continue to use our resources effectively and efficiently to remain cost-competitive.

International growth

Tribal continues to make significant progress in pursuit of opportunities to grow the business internationally.  However, this exposes the Group to a number of new risks, including greater competition, increased investment in overseas markets, foreign exchange volatility and staff safety and security.  To help mitigate these, we are in the process of updating our branding to build our external profile in our core markets to create greater clarity about who we are and what we do.  We have established an Investment committee, which will review all significant investment proposals, including overseas expansion plans, and we are in the process of reviewing and updating our existing policies and procedures to reflect the additional complexities associated with doing business overseas.

Service delivery implementation

Our clients are increasingly moving towards risk/reward contracts as an alternative to traditional contracts.  In these agreements buyers risk paying more fees for the work but are rewarded by having their objectives met or exceeded, suppliers risk reduced profits if they fail to deliver (more fees are at risk for more output based targets) but are rewarded for superior performance.  Tribal is passionate about working in partnership with our clients and we have an unrivalled depth of expertise across a broad range of services, which we are able to use to help us to work even more closely with our clients, to align our objectives with theirs to help deliver shared benefits.  The professionalisation programme we embarked upon in 2008 (sales and bid governance process) provides the structure through which we are able to identify, assess, and manage the risks and opportunities associated with increasingly complex contract arrangements, helping us, and our clients, plan for, achieve and exceed delivery objectives.  In addition, we have recently embarked on a review of our contract management and quality assurance processes, to identify opportunities for improvement.  As such, Tribal is well placed to benefit from the opportunities that risk/reward contracts present. 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Tribal Group (TRB)
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