Tribal Grp. Regulatory News (TRB)

Tribal Group plc

13 August 2013

Half year results for the six months ended 30 June 2013 

Summary

· Good financial and operational performance

· Adjusted operating profit1 up by 15% from £4.7m to £5.4m

· Adjusted operating margin1 held at 9%

· Interim dividend of 0.50p, 25% up on prior year

· Healthy operating cash flow, with net debt reduced to £9.3m (December 2012: £9.9m)

· Continued progress towards strategic objectives, including first major university customer in North America

Keith Evans, Chief Executive of Tribal, commented: "Tribal continues to make strong progress. Our business in the UK is continuing to perform well. Our activities in Asia Pacific are growing strongly, we are seeing encouraging momentum in the Middle East, and importantly we have secured our first major university customer in North America. Tribal is now a business with genuine international credentials".

Further Information

A presentation of these results will be made to analysts and investors at 09.30am today at the offices of Weber Shandwick, 2 Waterhouse Square, 140 Holborn, London EC1N 2AE. A copy of the presentation will be available later this morning on the Tribal Group 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.

Chief Executive's Statement

Introduction

Tribal continues to advance towards its strategic objectives, with a firm focus on helping our customers to deliver excellent education and learning. We are driving increasing emphasis on our fundamental capabilities:

· Business systems which support the efficient management of education institutions' operations; and

· Analytics and other tools and solutions to support performance improvement.

Our strong market positions in the UK bring us deep understanding of our customers' requirements, guiding our investment programme which aims to enhance and build scalable software products and solutions which can be deployed in the UK, and in our increasing international markets.

Financial performance summary

Adjusted revenue for the six months ended 30 June 2013 was £62.1m (2012: £55.4m), an increase of 12%. At a divisional level, our Systems revenues grew by 24% to £30.6m (2012: £24.6m), with good levels of activity in the UK supported by strong performance in Asia Pacific. Our Solutions revenues were £31.7m (2012: £31.4m) in a quiet UK services market.

Adjusted operating profit was £5.4m (2012: £4.7m), an increase of 15%, with adjusted operating margins of 9% (2012: 9%), led by strong growth in our Systems activities. Adjusted profit before tax was £4.9m (2012: £4.4m), and adjusted earnings per share were 4.9p (2012: 3.6p), an increase of 36%, driven principally by operating profit growth and beneficial tax credits relating to prior year items.

Tribal generated good operating cash flow in the period. Cash conversion was 71% (2012: 70%). Strong cash flow underpinned our investment programmes in new software development, and in increased sales and business development capacity in the UK and internationally. We have increased our investment levels in new software products and modules to £3.5m (2012: £3.0m).

Good cash flow has allowed us to invest whilst carefully managing our net debt. Net debt at 30 June 2013 was £9.3m (30 June 2012: £13.2m; 31 December 2012: £9.9m), despite the net payment of £2.5m of initial consideration for the acquisition of i-graduate. Our order book as at 30 June 2013 remains robust at £145m (31 December 2012: £168m).

Strategic progress

The internationalisation of Tribal has advanced well during the period. Approximately 24% (HY 2012: 18%; FY 2012: 21%) of our adjusted revenues were generated from international customers, and we expect to see our international revenues continue to increase as a proportion of our overall income. Our business is firmly established and growing in Australia and New Zealand, with our activities in the region now combining our Solutions capabilities together with our Systems deployments.

We have now established an anchor relationship for our Systems business in North America. Our first student management system deployment will be undertaken for the University of British Columbia (UBC). UBC is one of Canada's leading research universities, is consistently ranked in the top 40 universities worldwide and attracts 54,000 students from across Canada and 140 countries around the world. UBC is an important partner as we localise our student management systems for the North American markets, complementing our established performance improvement solutions in US schools and our mobile learning partnership with the US Department of Defense.

The extension of our implementation and software support capabilities to support new market entry, through both our own resources and partnering arrangements where appropriate, is a key development priority for us over the coming twelve months.

Tribal's Solutions work has established a good track record in the Middle East, and we are pleased to have now secured new business in Saudi Arabia working in collaboration with a major international management consultancy, building on our capabilities in the United Arab Emirates, Bahrain and Turkey.

Our acquisition of i-graduate, and our software development outsourcing arrangements, have provided us with good insight to other potential geographic markets, which we are now evaluating carefully for future growth opportunities.

Our markets

Higher Education

We are continuing to see good activity levels in Higher Education as universities respond to the need to compete for students, the internationalisation of their student recruitment base, and the impact of the current economic environment.

Domestically, our customers are adopting a cautious stance in response to increased budget pressure, but at the present time we are seeing new system procurement activity levels similar to previous periods. Internationally, our pipeline of work with universities is strong, with opportunities in Asia Pacific, North America, the Middle East and South Africa. As previously identified, we are pleased to have now concluded a contract with the University of British Columbia to deploy our SITS- vision student management system for the first time in North America.

Operationally, we continue to make good progress with major implementations at Staffordshire University, University of Kent and University of Oxford in the UK. In Asia Pacific, our systems implementations at University of Sydney, Royal Melbourne Institute of Technology and University of Queensland are now well advanced, and we are making good progress at Otago University and University of Canterbury, Christchurch in New Zealand.

Schools

Our schools-based work in the UK remains steady. Our quality review programmes for Ofsted continue to make good progress, and North Yorkshire County Council has become our 106th customer for our Synergy Children's Services management system.

Our implementations for our initial partners of our complementary social care-focussed management system for Children's Services departments (Synergy EIS - Early Intervention and Safeguarding) are nearing completion. We are also beginning testing of our new schools-based student management system with a partner school in the UK.

Internationally, the schools-based elements of the New South Wales Student Administration and Learning Management (SALM) programme continue to progress well, and it is anticipated that our systems will be deployed in an initial selection of schools in the coming months.

In addition to our work for Ofsted, our Quality Review and Evaluation solutions are expanding in international markets, with work now underway in Abu Dhabi, Bahrain and Saudi Arabia, and with new contract wins in the US for the National Charter Schools Institute, building on our work in Nashville, New York and Massachusetts.

Vocational Learning

We are seeing generally good activity levels in our vocational learning markets, where we offer a range of leading Systems and Solutions to the Further Education and work-based learning communities.

In the UK, cost pressures are slowing the buying decisions of Further Education colleges, leading to some uncertainty in the market. Nevertheless, we are pleased to have secured four new college customers for our student management systems in the period.

We are also seeing continuing strong demand for our new Maytas 5 work-based learning student management system amongst training organisations and large employers. Approximately 60% of our Maytas customer base has now opted to upgrade to the new version of this system. Our apprenticeship programme management solution is also showing encouraging momentum, with pilot projects now underway with Tesco, Pizza Hut and KFC.

Outside the UK, our mobile learning platform for the Joint Knowledge Organisation of the US Department of Defense continues to extend, and our activity levels in Asia Pacific are high.

Our work for the SALM programme is advancing well, and our system is expected to be deployed in Technical and Further Education (TAFE) colleges later this year. Elsewhere in Asia Pacific, our student management systems are now deployed in 33% of Institutes of Technology and Polytechnics (ITPs) in New Zealand, with our systems having gone live in the Bay of Plenty Polytechnic and Nelson Marlborough Institute of Technology in the year.

Our analytics work in Asia Pacific has also gained further momentum. We have renewed our national contract to provide operational analytics across all ITPs in New Zealand, and are now providing operational analytics to TAFEs in Queensland, Canberra and Western Australia.

Divisional Performance

Systems

Our Systems business' revenue grew by 24% to £30.6m (2012: £24.6m). International revenues represented 39% (2012: 22%) of total income. Divisional adjusted operating profit was £5.8m (2012: £5.1m), and the adjusted operating margin was 19% (2012: 21%).

Whilst we have seen generally good trading conditions in the UK, we have experienced strong growth in Australia and New Zealand, and we are seeing good early signs in North America.

Licence revenues have increased significantly. Our development work on the New South Wales SALM programme commenced towards the middle of 2012. As a result, no licence revenues associated with SALM were recognised in the six months ended 30 June 2012 whereas licence revenues from the SALM programme in the six months ended 30 June 2013 were £3.6m. Total SALM-related licence and development fee revenues recognised to date are £7.1m. Other licence revenues in the period include those related to new further education college system sales, and customers upgrading to our new Maytas 5 system.

Implementation revenues have increased, driven by strong activity levels in Asia Pacific, of which SALM-related implementation fees were £4.9m in the period (2012: £1.3m). Total SALM-related implementation revenues are now £9.7m.

Our annuity maintenance income base is growing, led by continued expansion of our installed customer base across universities, colleges and local government.

Operating margins are lower in this period as a result of an increased weighting of our revenue mix towards implementation work on the SALM programme, and continued investment in sales capacity particularly in international markets. Our investment in new software development has been sustained, and we are particularly investing in new functionality in our key student management systems for both domestic and international markets. Order book levels in our Systems business were £67m (31 December 2012: £73m) reflecting in particular the ongoing delivery of the SALM contract.

Solutions

Our Solutions business' revenue grew by 1% to £31.7m (2012: £31.4m). International revenues represented 9% (2012: 12%) of total income. The domestic market remains quiet, and whilst the timing of international revenues carries some uncertainties, we are making good progress developing our pipeline of new business in international markets. Divisional adjusted operating profit was £1.9m (2012: £1.9m), and adjusted operating margins remained steady at 6% (2012: 6%).

Our Benchmarking and Analytics revenues have grown following the acquisition of i-graduate in January 2013. i-graduate is performing in line with our expectations, and the combination of i-graduate's intellectual property and customer base with Tribal's pre-existing capabilities is generating new business opportunities.

Overall activity levels in our Review and Evaluation business are satisfactory. Our work for Ofsted remains the largest part of this revenue stream. The phasing of our work in Abu Dhabi will be weighted towards the second half of the year in 2013, whereas this activity was weighted towards the first part of the year in 2012.

Our work in Professional Development and Training Support has made good progress. In professional development, our learning portals for the National Centre for Excellence in the Teaching of Mathematics (NCETM), NHS South West and the Welsh Assembly Government are continuing to perform well. Our careers advice and guidance work for the national offender management service has been extended for a further year to March 2014. Our apprenticeship programme management work is making progress towards an increasingly software based solution, and we are currently engaged in a number of pilot projects which have the potential to widen our customer base in this market.

In Learning and Assessment, we are seeing generally good appetite for our vocational learning solutions from FE colleges, and the early market response to our GoLearn system has been encouraging.

The order book in our Solutions business totals £78m (31 December 2012: £95m), reflecting particularly our continuing delivery of our contracts with Ofsted.

People

We are fortunate at Tribal in employing talented staff and associates who are motivated by working with our customers to deliver systems and solutions which support the delivery of education, learning and training.

As we move forward as an international business, our development creates new opportunities and challenges for our people. We are very grateful for the continued support of our staff across Tribal, and their commitment to realising our strategic goals.

Risks and uncertainties

Our risk management policies and key risks are documented on pages 28-33 of the Group's report and accounts for the year ended 31 December 2012, which can be found at www.tribalgroup.com/investors. Our key risks remain materially unchanged since that report.

In summary, the key risk areas faced by the Group, and examples of the consequences of risks crystallising in these areas, are:

· Geographic distribution - which may cause over-stretch of management control, resource capacity challenges, foreign exchange currency risk and damage from unforeseen local market conditions;

· Resource allocation - which may cause substandard delivery of key contracts, and excessive resource and management stretch;

· Innovation and technology - which may render existing software products and solutions obsolete;

· Intellectual property - which may result in loss of control over or infringement of key elements of our intellectual property;

· Customer demands - which may change unpredictably as a result of political, economic or policy change. Changing customer demands may impact existing contracted activity, and can create uncertainty in the timing of new business wins;

· Competitive positioning - which may result in aggressive commercial action by competitors or inappropriate pricing strategies in new markets;

· Reputation - which may cause loss of key contracts, or loss of customer confidence and trust;

· People - which may cause inability to attract and retain staff, destabilise morale and create shortfalls in operational capabilities; and

· Governance and controls - which may cause poor control particularly of international expansion.

Going concern

The Group has sufficient financial resources for its foreseeable requirements. Tribal maintains sizeable cash balances, has a revolving credit facility of £30m which is committed until February 2015 and has a combined guarantee and overdraft facility of £10m which is renewable annually in March 2014. This facility is supplemented by a £9.5m guarantee facility renewable annually in May 2014.

The Group's software products benefit from a significant installed customer base, whilst its Solutions activities are underpinned by a portfolio of long-term contracts. Collectively, the Group has a range of customers across different geographic areas, high levels of committed income 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.

The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis in preparing the financial statements.

Cash conversion

Cash conversion for the period is 71% (2012: 70%). Cash conversion is calculated as operating cash flow from continuing operations after capital expenditure, divided by adjusted operating profit.

Taxation

The effective tax rate in the period has benefitted from non-recurring prior year items. Our effective tax rate for ongoing activities is expected to be broadly equivalent to the UK statutory corporation tax rate for the foreseeable future.

Dividend

The Board has declared a dividend of 0.50p in respect of the six months ended 30 June 2013 (2012: 0.40p). This will be paid on 18 October 2013 to shareholders on the register on 20 September 2013.

Related parties

Transactions with related parties during the period are set out in note 23.

Outlook

Tribal is making good progress towards its strategic objectives. Whilst there remain uncertainties, in particular arising from the challenges of unpredictable procurement cycles, we are seeing generally good opportunities in our existing geographic markets, and we have increasing visibility of further potentially attractive opportunities in new international markets.

Our pipeline of identified new business is encouraging, particularly in international markets. Complementing these opportunities, our overseas delivery capabilities are growing in stature.

As previously indicated, as a result of seasonality in our business and the anticipated phasing of new business, we expect our profits to be weighted towards the second half of the year. Our current trading is at least in line with our expectations for the full year, and our cash generation is robust. Tribal has good potential to make further progress over the medium term.

12 August 2013

As set out in note 5, the results of closed businesses have been excluded from the underlying result. Comparatives have been restated accordingly, reducing 2012 adjusted revenue by £1.6m and increasing 2012 adjusted operating profit by £0.7m compared to the figures as previously stated.

Condensed consolidated income statement

Notes to the condensed consolidated financial information

for the six months to 30 June 2013

1. General information

The condensed consolidated financial information for the six months ended 30 June 2013 was approved by the Board of Directors on 12 August 2013.

The information for the year ended 31 December 2012 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

2. Accounting policies

The annual financial statements of Tribal Group plc are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union.

In the current financial year, the Group has adopted the amendments to IAS 1 'Presentation of Items of Other Comprehensive Income' and IAS 19 (revised 2011) 'Employee Benefits'. Otherwise, the same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements.

The amendments to IAS 1 require items of other comprehensive income to be grouped by those items that will be reclassified subsequently to profit or loss and those that will never be reclassified, together with their associated income tax. The amendments have been applied retrospectively, and hence the presentation of items of comprehensive income have been restated to reflect the change. The effect of these changes is evident from the condensed statement of comprehensive income.

IAS 19 (revised 2011) and the related consequential amendments have impacted the accounting for the Group's defined benefit scheme, by replacing the interest cost and expected return on plan assets with a net interest charge on the net defined benefit liability. There is no significant impact on the profit for the period or other comprehensive income as a result of adopting IAS 19 (revised 2011).

3. Going concern

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

4. Segmental analysis

The principal activities are as follows:

Systems: a range of proprietary software products and related services to support the business needs of education, learning and training providers.

Solutions: a range of services to support the improvement of education, learning and training delivery by our customers.

In accordance with IFRS 8 'Operating Segments' information on segment assets is not shown as this is not provided to the Chief Operating decision-maker. Inter-segment sales are charged at prevailing market prices.

Of the total net losses from closed business in the 6 months to June 2012, £298,000 arose in relation to the Systems division (December 2012: £483,000) and £416,000 in relation to the Solutions division (December 2012: £361,000).

5. Exceptional costs and closed businesses

9. Tax

The Group continues to hold an appropriate corporation tax provision in relation to the Group relief claimed from Care UK for the year ended 31 March 2007. The effective tax rate of the continuing Group for the foreseeable future is anticipated to be broadly equivalent to the UK corporation tax rate.

The effective tax rate in the period has benefitted from non-recurring prior year items.

10. Discontinued operations

Discontinued operations include the Health & Government, Resourcing and Communications businesses which were disposed of during 2010 and 2011. The Resourcing and Communications sales were trade and assets deals and so there continue to be transactions, for example as leases associated with those businesses wind down.

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

11. 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:

Diluted earnings per share only reflects the dilutive effect of share options for which performance criteria have been met. Current share incentive schemes vest based on cumulative EPS for a 3 year period with the earliest vesting based on the Group's results for the 3 years to 31 December 2013.

The adjusted earnings per share figures shown on the condensed consolidated income statement are included as the directors believe that they provide a better understanding of the underlying trading performance of the Group. A reconciliation of how these figures are calculated is set out below.

The Board has declared an interim dividend of 0.50 pence per share (2012: 0.40 pence per share), which will absorb £0.5m (2012: £0.4m).

The interim dividend was approved by the Board on 12 August 2013 and has not been included as a liability as at 30 June 2013. The dividend is payable on 18 October 2013 to ordinary shareholders who are on the register on 20 September 2013. The shares will be quoted ex-dividend on 18 September 2013.