Tribal -
 

Notes to the condensed consolidated financial information


for the six months to 30 June 2008

1.

General information
 

The condensed consolidated financial information for the six months ended 30 June 2008 was approved by the Board of Directors on 19 August 2008.

The information for the nine months ended 31 December 2007 does not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985. A copy of the statutory accounts for the nine months ended 31 December 2007 has been filed with the Registrar of Companies. The auditors’ report on those accounts was not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under Section 237 (2) or (3) of the Companies Act 1985.

2.

Accounting policies
 

The condensed consolidated financial information for the six months ended 30 June 2008 has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) and in accordance with IAS 34 ‘Interim Financial Reporting’.

The same accounting policies, presentation and methods of computation are followed in the condensed consolidated financial information as applied in the Group’s latest annual audited financial statements.

3.

Segmental analysis
 

The Group is currently organised into three business segments – Consulting, Education and Support services.

Principal activities are as follows:
 

Consulting -      

 one of the largest consulting businesses operating in the public sector providing a broad range of management consultancy services.
     
  Education - one of the largest providers of education services to the public sector including software, managed services, school inspection services, consultancy, e-learning, benchmarking, publishing and training.
     
  Support services - support services businesses largely operate in the public sector providing a range of PR and communications, resourcing and architectural design services.
     
 

From 1 January 2008, the Group transferred certain business units between its business segments to realign with its revised reporting structure.

Accordingly, the business segment information for the nine months ended 31 December 2007 and the six months
ended 30 September 2007 has been restated to reflect the transfers. As a result, there has been an adjustment to
inter-segment sales.
          Pro forma        
      Six months   six months   Six months   Nine months
      ended   ended   ended   ended
      30 June   30 June   30 September   31 December
      2008   2007   2007   2007
      £’000   £’000   £’000   £’000
  Revenue                
                   
  Consulting   37,467   35,247   31,041   49,035
  Education   50,527   45,523   42,323   67,512
  Support services   26,182   24,977   24,896   38,618
  Inter segment   (880)   (1,976)   (1,171)   (1,866)
  Continuing operations   113,296   103,771   97,089   153,299
                   
  Operating profit before amortisation of IFRS 3 intangibles and goodwill impairment                
                   
  Consulting   3,318   2,604   2,161   3,853
  Education   7,483   7,961   4,698   8,899
  Support services   1,945   1,436   2,004   2,878
  Unallocated corporate expenses   (3,248)   (3,387)   (3,101)   (4,457)
                   
  Operating profit before amortisation of IFRS 3 intangibles and goodwill impairment     9,498     8,614     5,762     11,173
  Amortisation of IFRS 3 intangibles   (171)   (160)   (160)   (240)
  Goodwill impairment   -   -   (9,000)   (9,000)
  Operating profit/(loss)   9,327   8,454   (3,398)   1,933
 

4.

Investment revenues

       Pro forma        
      Six months   six months   Six months   Nine months
      ended   ended   ended   ended
      30 June   30 June   30 September   31 December
      2008   2007   2007   2007
      £’000   £’000   £’000   £’000
                   
  Interest on bank deposits   302   518   919   448
  Other investment receivable   144   9   -   671
                   
                   
      446   527   919   1,119
 

5.

Other gains and losses

       Pro forma        
      Six months   six months   Six months   Nine months
      ended   ended   ended   ended
      30 June   30 June   30 September   31 December
      2008   2007   2007   2007
      £’000   £’000   £’000   £’000
                   
  Change in the fair values of derivatives classified as held for trading   296   143   (126)   62
  Hedge ineffectiveness in the cash flow hedge   (94)   (62)   90   (188)
                   
                   
      202   81   (36)   (126)
 

6.

Finance costs

       Pro forma        
      Six months   six months   Six months   Nine months
      ended   ended   ended   ended
      30 June   30 June   30 September   31 December
      2008   2007   2007   2007
      £’000   £’000   £’000   £’000
  Finance charges                
  Interest on bank overdrafts and loans   846   2,524   1,260   1,666
  Interest on loan notes   18   51   23   30
  Interest on obligations under finance leases   -   1   -   1
  Net finance cost of retirement benefit obligations   1    -   15   2
  Total borrowing costs   865   2,576   1,298   1,699
                   
  Financial instruments                
  Discounting charge for deferred consideration   49   -   11   43
      49   -   11   43
      914   2,576   1,309   1,742
 

7.

Tax

       Pro forma        
      Six months   six months   Six months   Nine months
      ended   ended   ended   ended
      30 June   30 June   30 September   31 December
      2008   2007   2007   2007
      £’000   £’000   £’000   £’000
  Continuing operations                
                   
  Current tax                
  UK corporation tax   3,144   2,060   1,536   3,358
  Adjustments in respect of prior periods   (500)   (363)   (8)   (517)
      2,644   1,697   1,528   2,841
  Deferred tax                
  Current year   (173)   (81)   216   161
                   
  Tax charge   2,471   1,616   1,744   3,002
   

8.

Discontinued operations
  The Group disposed of its healthcare delivery business, Mercury Health, to Care UK on 20 April 2007; its results are presented in this condensed half year financial information as discontinued operations. In the six months ended 30 June 2008, we report a profit of £0.4m in the condensed consolidated income statement, this relates to a release of tax provisions arising from the closure of the March 2006 tax computations by HMRC.
   

9.

Earnings per share


Earnings per share and diluted earnings per share are calculated by reference to a weighted average number of ordinary shares calculated as follows:
 
          Pro forma        
      Six months   six months   Six months   Nine months
      ended   ended   ended   ended
      30 June   30 June   30 September   31 December
      2008   2007   2007   2007
      £’000   £’000   £’000   £’000
                   
  Basic weighted average number of shares in issue   84,927   84,691   84,725   84,741
  Employee share options   61   65   88   73
  Weighted average number of diluted shares outstanding   84,988   84,756   84,813   84,814
 
 

Earnings and adjusted earnings



From continuing operations		     Pro forma        
      Six months   six months   Six months   Nine months
      ended   ended   ended   ended
      30 June   30 June   30 September   31 December
      2008   2007   2007   2007
      £’000   £’000   £’000   £’000
                   
  Profit/(loss) after tax   6,590   4,870   (5,568)   (1,818)
  Minority interest   (318)   (390)   (274)   (402)
  Profit/(loss) for period   6,272   4,480   (5,842)   (2,220)
  Goodwill impairment   -   -   9,000   9,000
  Amortisation of IFRS 3 intangibles
(net of tax)		   123   115   115   173
  Financial instrument (credit)/charge (net of tax)   (145)   (57)   36   133
                   
  Adjusted earnings   6,250   4,538   3,309   7,086
   

 

Earnings/(loss) per share from continuing operations
 
  Basic earnings/(loss) per share            7.4p   5.3p   (6.9)p   (2.6)p
  Diluted earnings/(loss) per share   7.4p   5.3p   (6.9)p   (2.6)p
                   
  Adjusted basic earnings per share before amortisation of IFRS 3 intangibles, goodwill impairment and financial instrument (credit)/charge 7.4p   5.4p   3.9p   8.4p
                   
  Adjusted diluted earnings per share before amortisation of IFRS 3 intangibles, goodwill impairment and financial instrument (credit)/charge 7.4p   5.4p   3.9p   8.4p
   

 

Earnings and adjusted earnings
 
  From continuing and discontinued operations   Pro forma        
      Six months   six months   Six months   Nine months
      ended   ended   ended   ended
      30 June   30 June   30 September   31 December
      2008   2007   2007   2007
      £’000   £’000   £’000   £’000
                   
  Profit for period   6,664   28,968   21,412   25,034
  Goodwill impairment   -   -   9,000   9,000
  Amortisation of IFRS 3 intangibles
(net of tax)		   123   115   115   173
  Profit on disposal of Mercury Health   -   (23,917)   (27,217)   (27,217)
  Financial instrument (credit)/charge
(net of tax)		 (145)   (57)   36   133
                   
  Adjusted earnings   6,642   5,109   3,346   7,123
   

 

Earnings per share from continuing and discontinued operations
 
  Basic earnings per share            7.8p   34.2p   25.3p   29.5p
  Diluted earnings per share   7.8p   34.2p   25.2p   29.5p
                   
  Adjusted basic earnings per share before amortisation of IFRS 3 intangibles, goodwill impairment and financial instrument (credit)/charge 7.8p   6.0p   3.9p   8.4p
                   
  Adjusted diluted earnings per share before amortisation of IFRS 3 intangibles, goodwill impairment and financial instrument (credit)/charge 7.8p   6.0p   3.9p   8.4p
 

10.

Dividends

       Pro forma        
      Six months   six months   Six months   Nine months
      ended   ended   ended   ended
      30 June   30 June   30 September   31 December
      2008   2007   2007   2007
      £’000   £’000   £’000   £’000
                   
  Amounts recognised as distributions to equity holders in the period:                
                   
  Final dividend for the year ended 31 March 2007 of 2.42 pence per share   -   -   2,031   2,031
                   
  Interim dividend for the year ended 31 March 2007 of 1.05 pence per share   -   880   -   -
                   
  Interim dividend for the nine months ended 31 December 2007 of 1.15 pence per share   966   -   -   -
                   
  Final dividend for the nine months ended 31 December 2007 of 1.8 pence per share   1,511   -   -   -
                   
      2,477   880   2,031   2,031
   

 

The Board has declared an interim dividend of 1.7 pence per share (2007: 1.15 pence per share), which will absorb £1.5m (2007: £1m).

The interim dividend was approved by the Board on 19 August 2008 and has not been included as a liability as at 30 June 2008. The dividend is payable on 24 October 2008 to ordinary shareholders who are on the register on 26 September 2008. The shares will be quoted ex-dividend on 24 September 2008.
 

11.

Goodwill

   £’000
  Cost    
  At 31 December 2007   238,122
  Additions – including minority interests   14,969
  Revision to prior periods   909
  At 30 June 2008   254,000
       
  Accumulated impairment losses    
  At 31 December 2007 and 30 June 2008   51,131
       
  Net book value    
  At 30 June 2008   202,869
  At 31 December 2007   186,991
   

 

Additions to goodwill during the period relates primarily to the acquisition of HELM Corporation but also includes two small acquisitions (£1m) and the purchase of minority interests (£1m).

Revision to prior periods relates to a change in estimate of the likely final settlement of deferred consideration due on the acquisition of the remainder of the share capital in Sportsvine Holdings Limited.
 

12.

Other intangible assets

   Business   Development   Business   Total
      combinations   costs   systems    
      £’000   £’000   £’000   £’000
  Cost                
  At 31 December 2007   2,204   4,954   1,452   8,610
  Additions   2,939   311   439   3,689
  Disposals   -   (398)   -   (398)
  At 30 June 2008   5,143   4,867   1,891   11,901
                   
  Amortisation                
  At 31 December 2007   1,198   2,813   345   4,356
  Charge for the period   171   647   135   953
  Disposals   -   (398)   -   (398)
  At 30 June 2008   1,369   3,062   480   4,911
                   
  Carrying amount                
  At 30 June 2008   3,774   1,805   1,411   6,990
  At 31 December 2007   1,006   2,141   1,107   4,254
   
  Additions to business combinations during the period relates primarily to the acquisition of HELM Corporation but also includes two small acquisitions of £0.2m.
 

13.

Trade and other receivables

   30 June   30 June   30 September   31 December
      2008   2007   2007   2007
      £’000   £’000   £’000   £’000
                   
  Trade receivables   42,363   33,991   34,747   45,658
  Other receivables   788   1,026   575   400
  Prepayments and accrued income   22,434   20,363   23,540   16,268
      65,585   55,380   58,862   62,326
 

14.

Trade and other payables

   30 June   30 June   30 September   31 December
      2008   2007   2007   2007
      £’000   £’000   £’000   £’000
                   
  Trade payables   20,031   17,154   16,495   18,441
  Other taxation and social security   7,734   8,266   8,402   8,603
  Other payables   12,087   6,463   7,653   6,306
  Accruals and deferred income   40,675   28,548   30,494   31,114
  Deferred cash consideration   147   -   546   2,954
      80,674   60,431   63,590   67,418

15.

Provisions
 

As at 30 June 2008, there were provisions of £560,000 (30 September 2007: £706,000; 31 December 2007: £577,000). Provisions represent an estimate of the cost of settling potential litigation claims. These claims are expected to be resolved within one year and are therefore shown within current liabilities. Further details are contained in note 22.

16.

Defined benefit schemes
 

One of the Group’s subsidiary undertakings, Tribal Technology Limited, participates in the TfL Pension Fund. Another subsidiary, SDP Regeneration Services 2 Limited, participates in the LPFA Pension Fund. Both are defined benefit arrangements.

The net pension liability has not been recalculated at 30 June 2008. There have been fluctuations in the financial markets since 31 December 2007 but the net effect on the liability is not considered to be material. The Group has however made total additional contributions of £0.2m in the period to fund the existing pension deficit. This amount has been recognised in the condensed consolidated balance sheet.
 

17.

Movements in equity

         Pro forma        
        Six months   six months   Six months   Nine months
        ended   ended   ended   ended
        30 June   30 June   30 September   31 December
        2008   2007   2007   2007
        £’000   £’000   £’000   £’000
                     
  Recognised income and expense for the period   6,854   28,906   21,374   24,853
  Dividends payable/paid     (2,477)   (880)   (2,031)   (2,031)
        4,377   28,026   19,343   22,822
                     
  Shares issued     3,368   51   122   122
  Share option exercises     -   -   -   (70)
  Own shares disposed     -   122   122   183
  Credit/(debit) in relation to share based payment   322   (52)   271   489
  Opening equity     180,177   156,430   156,631   156,631
        188,244   184,577   176,489   180,177
   

18.

Note to the cash flow statement
 
  Reconciliation of operating profit to operating cash flows
Pro forma		        
        Six months   six months   Six months   Nine months
        ended   ended   ended   ended
        30 June   30 June   30 September   31 December
        2008   2007   2007   2007
        £’000   £’000   £’000   £’000
                     
  Operating profit/(loss) from continuing operations   9,327   8,454   (3,398)   1,933
  Depreciation of property, plant and equipment   1,482   2,100   1,493   2,296
  Amortisation of other intangible assets     953   855   834   1,275
  Impairment of goodwill     -   -   9,000   9,000
  Net pension charge     (42)   (112)   (27)   (215)
  Gain on disposal of property, plant and equipment   (26)   (109)   (87)   (92)
  Gain on sale of investments     -   (68)   (68)   (68)
  Share based payments     322   (52)   271   489
  Operating cash flows before movements in working capital   12,016   11,068   8,018   14,618
  Decrease/(increase) in amounts recoverable on contracts   63   25   (21)   256
  Increase in inventories     (441)   (1,655)   (475)   (26)
  Decrease/(increase) in receivables     22   (4,186)   (2,442)   (5,519)
  Increase/(decrease) in payables     11,771   14,607   (4,153)   (437)
  (Decrease)/increase in provisions     (17)   -   256   127
  Net cash from operating activities before tax   23,414   19,859   1,183   9,019
                     
  Tax (paid)/repaid     (2,376)   (880)   671   (211)
  Net cash from operating activities     21,038   18,979   1,854   8,808
                     
  Net cash from operating activities before tax can be analysed as follows:   £’000   £’000   £’000   £’000
                     
  Continuing operations (excluding restricted cash)   19,637   15,486   2,408   11,016
  Increase in restricted cash     3,777   1,834   907   135
  Discontinued operations     -   2,539   (2,132)   (2,132)
        23,414   19,859   1,183   9,019
 

19.

Analysis of net debt

   30 June   30 June   30 September   31 December
      2008   2007   2007   2007
      £’000   £’000   £’000   £’000
                   
  Non restricted cash 15,203   10,161   11,278   12,740
  Restricted cash   7,019   3,487   4,015   3,242
  Cash at bank and in hand 22,222   13,648   15,293   15,982
  Cash collateralised   -   817   199   192
  Gross cash   22,222   14,465   15,492   16,174
                 
  Short term loans (662)   (1,079)   (337)   (876)
  Syndicated bank facility (net of bank arrangement fees)   (28,896)   (22,141)   (22,076)   (22,098)
  Finance leases   (3)   (8)   (7)   (3)
  Gross debt   (29,561)   (23,228)   (22,420)   (22,977)
  Net debt   (7,339)   (8,763)   (6,928)   (6,803)
   
  Restricted funds represent funds restricted in use by the relevant commercial terms of certain trading contracts.
   

20.

Acquisitions
  On 13 June 2008 the Group acquired 72% of the HELM Corporation Limited for a total consideration of £16.7m satisfied by £13.3m in cash and £3.4m by way of 2,507,582 new Tribal shares. The number of Tribal shares issued was determined by the average mid-market price for the eight days preceding 12 June 2008, being the last practicable date before completion. The transaction has been accounted for in accordance with IFRS 3 ‘Business Combinations’.
 
  Net assets acquired were:       Fair value        
      Book value   adjustments   Fair value    
      £’000   £’000   £’000    
                   
  Intangible assets   -   2,784   2,784    
  Property, plant and equipment   1,515   (155)   1,360    
  Investments   30   -   30    
  Debtors   2,935   (250)   2,685    
  Cash   2,167   -   2,167    
  Creditors   (3,142)   (224)   (3,366)    
  Deferred tax   -   (780)   (780)    
  Book/fair value of net assets 3,505   1,375   4,880    
                 
  Net assets acquired           4,120    
  Goodwill           12,977    
  Total consideration           17,097    
                   
  Satisfied by:                          
                   
  Shares           3,368    
  Cash           11,752    
  Cash for cash           1,564    
  Purchase consideration         16,684    
  Directly attributable costs           413    
  Total consideration           17,097    
   
 

The provisional fair value adjustments represent changes to bring the accounting policies in line with those of the Group.

In accordance with the sale and purchase agreement, the net assets acquired represent 100% of the cash balance of £2,167,000 and 72% of the fair values of the remaining net assets.  

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

In the six months ended 30 June 2008, Tribal HELM contributed £634,000 to gross revenue and £103,000 to operating profit.

During the period there have been a number of other immaterial acquisitions as well as the purchase of minority interests.

If the acquisition of Tribal HELM had been completed on the first day of the financial year, group revenues for the period would have been £120.5m and group profit attributable to equity holders of the parent would have been £7.3m.

21.

Post balance sheet event
 

On 2 July 2008, the Group acquired the entire share capital of RSe Consulting Limited for a maximum total consideration of £2.6m. £1.6m was paid in cash on that date with the balance of the consideration, subject to the future performance of that business, deferred until March 2009.

The net assets at 30 June 2008 had a book value of £0.8m. The fair value of these assets has not yet been finalised. The excess of consideration paid over net assets acquired has not yet been allocated between goodwill and separately identifiable intangible assets.

22.

Contingent liabilities
  As reported at December 2007, the Group has received notification of potential claims, as set out below. In all cases the claims are being investigated by our lawyers and are being robustly contested as to both liability and quantum. The principal claims are:
  • breach of contract arising out of the provision of services to a further education college;
  • breach of contract relating to the design of a new college.

A provision of £560,000 (30 September 2007: £706,000, 31 December 2007: £577,000) has been made for defending the potential claims, where appropriate.

These claims are expected to be resolved within one year and are therefore shown within current liabilities. However, it is possible that these claims may take longer to resolve, or the Group may not be promptly notified that the claim has been dropped. The claim may be settled at amounts higher or lower than that provided depending on the outcome of commercial or legal arguments. The provision made is management’s best estimate of the Group’s liability based on past experience, commercial judgement and legal advice. There is no expected reimbursement for any economic outflow that may be required.