Tribal Grp. Regulatory News (TRB)

FOR IMMEDIATE RELEASE 14 DECEMBER 2015

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES, CANADA, AUSTRALIA, JAPAN, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THIS ANNOUNCEMENT.

Tribal Group plc

Update on Trading and Financial Position

Rights Issue

Proposed Delisting from Official List and Admission to AIM

Tribal Group plc ("Tribal" or the "Company") today issues an update on its trading and financial position.

Key points

· Since our update issued on 19 October 2015, and despite the Company having been appointed preferred bidder with a number of important new customers, sales momentum has continued to be slow and a number of key customer contract milestones have moved into 2016

· As a result of this adjusted operating profit for the year ending 31 December 2015 ("FY15") is likely to be significantly lower than anticipated

· Connected to the above trading position and the movement of customer contract milestones, certain significant cash receipts may not be received until early 2016, and if this happens net debt at 31 December 2015 will be higher than our previous expectations

· Discussions are being held with our debt providers to negotiate amendments to the operation of covenants and the waiver of any event of default that may result from our current trading performance

· The Board is proposing an equity rights issue (the "Rights Issue") of up to £35 million in the first quarter of 2016, in respect of which £30 million is fully underwritten on a standby basis by Investec pursuant to a standby underwriting agreement entered into today. The proceeds of the Rights Issue will be used primarily to reduce debt, and for general working capital purposes

· The Board is proposing, following completion of the Rights Issue, to cancel the listing of the Company's ordinary shares on the Official List and their admission to trading on the Main Market and to apply for admission to AIM

Richard Last, Chairman, said:

"Tribal is a leading provider of student management systems to universities, colleges and schools in the UK, Australia and elsewhere in the world, and it has been successful in winning and delivering substantial software and services contracts over recent years. Tribal serves an excellent installed customer base including some of the world's leading universities, colleges and schools, from which recurring annual support revenues in excess of £30m are expected to be generated for FY15.

"Despite considerable effort, a number of larger customer programmes have moved forward more slowly than previously anticipated, resulting in increased delivery costs, and recognition of related revenues will be deferred beyond the current financial year. Additionally, given the proximity to the year end, the Company considers it is likely that certain contract completions previously expected to be achieved in the current year will now be achieved in the first half of 2016.

"Under the terms of some of our larger contracts, invoicing and payments from customers are linked to customer programme milestones. In some cases, these milestones are not wholly within the Company's control. Consequently, a number of significant cash receipts which had previously been anticipated to be received during the second half of 2015 may now be deferred into 2016, thereby increasing expected net debt at the year end.

"As Tribal looks to the future, we will continue to invest in our software portfolio, enhancing our capabilities to deploy our systems in the Cloud and to offer Software-as-a-Service models. Tribal has market-leading products and a very strong customer base. We are moving forward with plans to streamline and simplify our operational structure, enabling Tribal to re-build momentum.

"Our current balance sheet constrains our ability to proceed confidently with these planned changes, and we have therefore announced today that the Company proposes to launch a rights issue to raise up to £35 million, the proceeds of which will be primarily used to reduce debt, and for working capital.

"Additionally, the Company is proposing to apply for admission to AIM. AIM is a market appropriate for a company of Tribal's size, and it offers greater flexibility with regard to future transactions."

Current trading

In the trading update issued on 19 October 2015, the Company announced that it has seen the extension of certain large customer programme timelines, resulting in the deferral of revenue and higher project delivery costs. In particular, the Company has been engaged in the delivery of complex state-wide student management systems in Australia for the New South Wales, Queensland and Tasmanian governments.

Our software is now operational across all 138 Technical and Further Education ("TAFE") campuses in New South Wales, and is being rolled out progressively across New South Wales' school network. This project is known as the "Student Administration and Learning Management" programme, or "SALM". In the middle of the year, the contractual arrangements which underpin our role on SALM were renegotiated as customer needs evolved, leading to a slowdown in activity levels. During this time we kept our delivery team intact, despite much reduced revenues during that period, in order that we would be well placed to continue to deliver and support the programme after the renegotiation.

The SALM contract renegotiation was successfully concluded in early October. Since that time, activity levels have recovered, but recognised revenue has been lower as new work orders associated with the programme have in some cases not yet been committed. Additionally, significant cash receipts associated with our historical delivery remain outstanding and it is uncertain whether these will be received before the end of our financial year.

During late 2014, we entered into a contract to provide a cloud-based student management system to support all 48 TAFE campuses in Queensland. Due to changes in the scope of the customer's programme we have incurred additional costs during this time. While we are in advanced discussions with our customer to ensure we support its new plans, certain revenues on this project could be deferred until we have contractual certainty in 2016. Our invoicing schedule on this programme is linked to milestones which have not yet been met due to the changes in the customer's timeline, and as a result we also now expect significant anticipated cash receipts to be deferred until 2016.

Going forward, Tribal will focus on supporting and developing its existing customer base, improving the quality and efficiency of our account management as well as continuing to win new customers. Tribal's business cycle typically sees sales completions cluster towards the end of a calendar year. Whilst at this time we are finalising terms with a number of new prospective customers and larger orders from existing customers, we consider it likely that a significant portion of the signings we had previously anticipated to conclude late in 2015 will be now be concluded in 2016. As a result, related revenues will become recognisable in 2016.

This difficult trading environment now means our adjusted operating profit (stated before costs of approximately £0.6m in respect of a strategy review and the ongoing CEO recruitment) for FY15 is likely to be significantly lower, and our net debt higher, than we had previously anticipated.

We commenced streamlining of the business during the second half of the year, and have re-assessed our investment priorities. We are also now re-appraising the carrying value of certain intangible fixed assets. The operating profit for FY15 excludes capitalised development costs expected to be approximately £4.4m, which is broadly similar to the previous year. Approximately £1.1m of this amount, due to the impairment review referred to above, may be required to be written off in the period. Capitalised development costs in the period also include approximately £0.9m in relation to new modules developed in Australia, the accounting treatment for which is under review.

Capital structure and Rights Issue

The Company's revolving credit facility for up to £50.0 million includes a net debt to EBITDA covenant of not greater than 3.0x and a senior interest cover covenant of not less than 3.0x.

Tribal has informed the banks providing its revolving credit facility of the matters described in this announcement and that the reduced expectations of FY15 trading may result in a breach of covenant obligations. The Company has therefore commenced discussions with the banks providing its revolving credit facility to seek a waiver of any event of default that may result from the matters described in this announcement and to amend the operation of covenants to ensure that, going forward, the Company remains in compliance with the terms of its debt facilities and to reflect the Company's intention to strengthen its capital structure through the proposed raising of new equity.

Should new customer deal completions and cash receipts in FY15 be greater than our revised expectations, the Board still intends to proceed with the proposed rights issue, conditional on securing covenant waivers as required from the Company's debt providers, to raise up to £35 million in order to reduce the Company's indebtedness significantly, reset the balance sheet and provide further working capital to support the business going forward.

This is anticipated to be launched in the first quarter of 2016 alongside the publication of the Company's FY15 results. £30 million of the proposed rights issue has been underwritten on a standby basis by Investec. The standby agreement, entered into today, contains customary representations and warranties, undertakings, conditions, and termination rights.

Further details of the Rights Issue are expected to be announced at the same time as the publication of the Company's FY15 results.

Delisting and Admission to AIM

The Board believes that given the size of the Company, the AIM market is a more appropriate market on which to develop. AIM has the benefit of lower transactional costs, lower annual costs and simpler administration and regulatory requirements more appropriate to a company of the Company's size and which will help the implementation of Tribal's plans for the next stage of growth.

The Board, however, envisages no significant alteration in the standards of reporting and governance which the Company has always achieved. Following admission to AIM (which is intended to occur subsequent to the Rights Issue), the Company will be subject to the regulatory and disciplinary controls of the AIM Rules for Companies.

Listing Rule 5.2.5R(2) requires that a company wishing to cancel its listing on the Official List may only do so if at least 75 per cent. of the votes cast at a general meeting on a resolution to delist are in favour.

Further details on the regulatory and other consequences of moving to AIM will be set out in the prospectus to be published and distributed to shareholders on or about the date of publication of the Company's FY15 results.

As Tribal's existing shares are currently listed on the premium segment of the Official List, the AIM Rules for Companies do not require an AIM admission document to be published by the Company in connection with its application for admission to AIM. However, in order to achieve admission to AIM, the Company will be required to publish an announcement which complies with the requirements of Schedule One to the AIM Rules for Companies comprising information required to be disclosed by companies transferring their securities from the Official List, as an AIM Designated Market, to AIM. Although it is their intention, there is no guarantee that the Directors will be successful in achieving admission to AIM.

CEO appointment

Good progress continues to be made in the appointment of a new CEO. A number of interviews have been held with candidates and discussions continue. We are pleased with the quality of candidates being put forward.

Outlook

The Board expects the wider market backdrop for education management systems and services to be stable in 2016. Whilst the timing of order completions is difficult to predict, the Company is well positioned to benefit from continuing international demand for student management system upgrades which deliver strong back-office efficiencies and underpin student engagement programmes. The Company will focus on reducing its cost base and improving operating efficiency to reflect the present trading environment.

Whilst the deferral of revenues from 2015 into 2016 should benefit trading in the first half of 2016, our overall results are expected to remain weighted towards the second half of FY16.

END

Editors' note:

Tribal is a leading provider of software and services to the education management market. We build world-leading student management software, and provide performance improvement and quality assurance solutions across universities, colleges and schools, in the UK and internationally.

More information about Tribal is available online at www.tribalgroup.com. 

This announcement 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 announcement is shown or into whose hands it may come and any such responsibility or liability is expressly disclaimed. This announcement may contain forward-looking statements and the financial information is unaudited. 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 announcement 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 announcement 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.

Cautionary statements

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Tribal's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.

There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are; increased competition, the loss of or damage to one or more key customer relationships, changes to customer ordering patterns, delays in obtaining customer approvals for price level changes, the failure of one or more key suppliers, the outcome of business or industry restructuring, the outcome of any litigation, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in raw material or energy market prices, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, the failure to retain key management, or the key timing and success of future acquisition opportunities or major investment projects.

Tribal undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulation.

No statement in this announcement is intended as a profit forecast for FY16 and no statement in this announcement should be interpreted to mean that underlying operating profit for the current or future financial years would necessarily be above a minimum level, or match or exceed the historical published underlying operating profit or set a minimum level of underlying operating profit.

Investec Bank plc ("Investec"), which is both authorised in the United Kingdom by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, is acting exclusively for Tribal and no-one else in connection with the Rights Issue and the proposed admission to AIM and will not regard any other person (whether or not a recipient of this announcement) its client and will not be responsible to anyone other than Tribal for providing the protections afforded to its clients or for providing advice in connection with the Rights Issue and proposed admission to AIM referred to in this announcement or any other transaction, arrangement or matter referred to in this announcement.

This announcement has been issued by Tribal and is the sole responsibility of Tribal. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Investec Bank plc or by any of its affiliates or agents as to, or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

Important notice

This announcement does not constitute or form part of, and should not be construed as, any offer, invitation or recommendation to purchase, sell or subscribe for any securities in any jurisdiction and neither the issue of the information nor anything contained herein shall form the basis of or be relied upon in connection with, or act as an inducement to enter into, any investment activity. This announcement and the information contained herein do not constitute an offer of securities in the United States. The securities referred to in this announcement have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States absent registration under the Securities Act or pursuant to an exemption from, or a transaction not subject to, such registration requirements. The Group has not registered and does not intend to register the offering of any securities in the United States or to conduct a public offering of any securities in the United States.