REG - Tribal Group PLC - Half Yearly Report <Origin Href="QuoteRef">TRBG.L</Origin> - Part 2
12/08/2015 07:00
- Part 2: For the preceding part double click ID:nRSL7710Va
Unallocated corporate expenses (1,895) (2,057) (4,108)
Adjusted operating profit 2,445 5,643 14,509
Amortisation of IFRS 3 intangibles (833) (906) (1,729)
Other items (6,847) (12,018) (17,079)
Operating loss (5,235) (7,281) (4,299)
The accounting policies of the reportable segments are the same as the Group's
accounting policies. Segment profit represents the profit earned by each
segment, without the allocation of central administration costs, including
Directors' salaries, finance costs and income tax expense. This is the
measure reported to the Group's Chief Executive for the purpose of resource
allocation and assessment of segment performance.
Revenues of approximately 21% (31 December 2014: 19%) have arisen within our
QAS segment from the Group's largest customer and revenues of approximately 6%
(31 December 2014: 10%) have arisen within our PD & CS and IS segments from
the Group's second largest customer.
Included within other items is goodwill impairment of £7.3m, of which £4.2m
arises in respect of the QAS segment, and the remaining £3.1m arises in
respect of the PBS segment (see note 11).
5. Other items
Six monthsended30 June2015£'000 Six monthsended30 June2014£'000 Yearended31 December2014£'000
Operating loss from closed business - - (100)
Other items:
Acquisition costs (218) (345) (397)
Property related 81 (630) (543)
Impairment of goodwill (7,260) (9,232) (12,849)
Gain on bargain purchase 403 - -
Impairment of development costs and related charges - (1,811) (2,630)
Onerous contracts 233 - (788)
Movement in deferred contingent consideration (86) - 228
Other administrative costs (6,847) (12,018) (17,079)
Amortisation of IFRS 3 intangibles (833) (906) (1,729)
Total administrative costs (7,680) (12,924) (18,808)
Unwinding of discount on deferred contingent consideration (293) (384) (876)
(7,973) (13,308) (19,684)
Tax on other items 202 699 1,348
(7,771) (12,609) (18,336)
Other items have arisen throughout the period, which are not part of the
Group's underlying activities. This principally includes impairment of
goodwill (see note 11) as well as onerous contracts, direct costs arising on
acquisition activity, onerous contracts ,adjustments to deferred consideration
in respect of acquisitions and amortisation of intangible assets fair valued
at acquisition by the Group. Onerous contracts arise where the Group has
chosen to withdraw from products or markets, but where contracts remain to
provide multi-year maintenance services, which are expected to result in costs
in excess of revenue.
6. Finance costs
Six monthsended30 June2015£'000 Six monthsended30 June2014£'000 Yearended31 December2014£'000
Interest on bank overdrafts and loans 401 378 749
Write off of loan arrangement fees - 338 338
Other interest payable 77 39 62
478 755 1,149
Unwinding of discount on deferred contingent consideration 293 384 876
771 1,139 2,025
7. Tax
Continuing operations Discontinued operations Total
Six monthsended30 June2015£'000 Six monthsended30 June2014£'000 Yearended31 December2014£'000 Six monthsended30 June2015£'000 Six monthsended30 June2014£'000 Yearended31 December2014£'000 Six monthsended30 June2015£'000 Six monthsended30 June2014£'000 Yearended31 December2014£'000
Current tax
UK corporation tax (41) (36) 100 - 36 15 (41) - 115
Overseas tax 371 958 2,456 - - - 371 958 2,456
Adjustments in respect of prior years (325) (9) (104) - - - (325) (9) (104)
Deferred tax 5 913 2,452 - 36 15 5 949 2,467
Current year 93 (833) (962) - - - 93 (833) (962)
Adjustments in respect of prior years 176 9 (8) - - - 176 9 (8)
269 (824) (970) - - - 269 (824) (970)
Tax charge 274 89 1,482 - 36 15 274 125 1,497
In addition to the amount charged to the income statement, a deferred tax
charge of £218,000 (30 June 2014: credit of £73,000; 31 December 2014: charge
of £204,000) has been taken directly to equity.
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.
8. Discontinued operations
Discontinued operations include the Health & Government, Resourcing and
Communications businesses which were disposed of during 2010 and 2011. The
Resourcing and Communication 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:
Six monthsended30 June2015£'000 Six monthsended30 June2014£'000 Yearended31 December2014£'000
Operating profit before other items - 18 18
Other items (81) 46 61
Operating (loss)/profit (81) 64 79
Attributable tax charge - (36) (15)
Loss on the disposal of discontinued operations - (152) (260)
Net loss attributable to discontinued operations (81) (124) (196)
Operating cash flows for discontinued operations (22) 36 34
Investing cash flows for discontinued operations - 321 321
Total cash flows for discontinued operations (22) 357 355
9. Earnings per share
Earnings per share and diluted earnings per share are calculated by reference
to a weighted average of ordinary shares calculated as follows:
Six monthsended30 June2015£'000 Six monthsended30 June2014£'000 Yearended31 December2014£'000
Basic weighted average number of shares in issue 94,435 94,769 94,061
Employee share options - - -
Weighted average number of shares outstanding for dilution calculations 94,435 94,769 94,061
Diluted earnings per share only reflects the dilutive effect of share options
for which performance criteria have been met. The maximum number of
potentially dilutive shares, based on options that have been granted but have
not yet met vesting criteria is nil (December 2014: 1,712,593).
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.
Six monthsended30 June2015£'000 Six monthsended30 June2014£'000 Yearended31 December2014£'000
Earnings
From continuing operations
Net loss from continuing operations attributable to equity holders of the parent (6,278) (8,507) (7,748)
Earnings per share
Basic and diluted (6.6)p (9.0)p (8.4)p
From continuing and discontinued operations
Net loss from continuing operations attributable to equity holders of the parent (6,359) (8,631) (7,944)
Earnings per share
Basic and diluted (6.7)p (9.1)p (8.4)p
Six monthsended30 June2015£'000 Six monthsended30 June2014£'000 Yearended31 December2014£'000
Adjusted earnings
From continuing operations
Net loss from continuing operations attributable to equity holders of the parent (6,278) (8,507) (7,748)
Amortisation of IFRS 3 intangibles (net of tax) 593 698 1,233
Impairment of goodwill 7,260 9,232 12,849
Gain on bargain purchase (403) - -
Impairment of development costs (net of tax) - 1,422 2,028
Unwinding of discount on deferred consideration 293 384 876
Other items (net of tax) (58) 873 1,578
Movement in deferred contingent consideration 86 - (228)
Adjusted earnings from continuing operations 1,493 4,102 10,588
Adjusted earnings per share from continuing operations
Basic and diluted 1.6p 4.3p 11.3p
From continuing and discontinued operations
Net loss from continuing and discontinued operations attributable to equity holders of the parent (6,359) (8,631) (7,945)
Amortisation of IFRS 3 intangibles (net of tax) 593 698 1,233
Impairment of goodwill 7,260 9,232 12,849
Gain on bargain purchase (403) - -
Impairment of development costs (net of tax) - 1,422 2,028
Unwinding of discount on deferred consideration 293 384 876
Other items (net of tax) (26) 836 1,585
Movement in deferred contingent consideration 86 - (228)
Discontinued operations and associated tax adjustments 49 161 190
Adjusted earnings from continuing and discontinued operations 1,493 4,102 10,588
Adjusted earnings per share from continuing and discontinued operations
Basic and diluted 1.6p 4.3p 11.3p
10. Dividends
Six monthsended30 June2015£'000 Six monthsended30 June2014£'000 Yearended31 December2014£'000
Amounts recognised as distributions to equity holders in the period:
Interim dividend for the year ended 31 December 2014 of 0.60 pence per share - - 556
Final dividend for the year ended 31 December 2014 of 1.20 pence per share (2013: 1.10 pence per share) 1,138 1,031 1,031
1,138 1,031 1,587
The Board has declared an interim dividend of 0.70 pence per share (2014: 0.60
pence per share), which will result in a cash outflow of £0.7m (2014: £0.6m).
The interim dividend was approved by the Board on 11 August 2015 and has not
been included as a liability as at 30 June 2015.
The dividend is payable on 16 October 2015 to ordinary shareholders who are on
the register on 18 September 2015. The shares will be quoted ex-dividend on
16 September 2015.
11. Goodwill
£'000
Cost
At 1 January 2015 120,239
Exchange differences (842)
At 30 June 2015 119,397
Accumulated impairment losses
At 1 January 2015 42,429
Impairment charge in the period 7,260
At 30 June 2015 49,689
Net book value
At 30 June 2015 69,708
At 31 December 2014 77,810
The Group tests annually for impairment, or more frequently if there are
indicators that goodwill could be impaired. In 2014, Ofsted announced its
intention to in-source one of the two inspections contracts held by the Group
with effect from the end of the current contract in August 2015. As a
result, the Group recognised an impairment in 2014 of goodwill held in respect
of the contract. The Group has also revisited the impairment calculation
as at 30 June 2015 and, given the recognition of ongoing cash flows under the
contract during the period, a further impairment of £4.2m arises as at the
reporting date. In addition, the Professional and Business Solutions
division recognised an impairment in 2014 as a result of the cessation of
contracts in non-core areas. An updated discounted cash flow valuation for
this division was performed for the purposes of the half year, and as a result
of our withdrawal from careers advice delivery and weakness in certain
markets, an additional impairment was identified of £3.1m.
The recoverable amounts of cash generating unit (CGU) groups 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, sales volumes and direct costs during
the period. The assumptions made reflect a cautious view of short-term
trading. Management estimates discount rates using pre-tax rates that reflect
current market assessments of the time value of money and the risks specific
to the CGU groups. The growth rates are based on internal two-year budgets or
latest forecasts in the short-term and general market rates thereafter.
Changes in selling prices, sales volumes 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
forecasts approved by management for the next two years and has extrapolated
cash flows in perpetuity based on an estimated growth rate of 2% (other than
PBS, where a 0% rate has been used to reflect the greater uncertainty in that
business). These rates do not exceed the average long-term growth rate for the
relevant market. The rates used to discount the forecast cash flows are 16%
for PBS and 14% for the other CGU groups (2014: 16% for PBS and 14% for other
CGU groups) and have been chosen to reflect the directors' assessment of the
relative degree of risk associated with the CGU groups.
12. Other intangible assets
Software £'000 Customercontracts andrelationships£'000 Developmentcosts £'000 Businesssystems £'000 Total £'000
Cost
At 1 January 2015 6,747 6,600 26,365 4,724 44,436
Additions 292 185 2,651 430 3,558
Exchange differences (487) (207) (51) (13) (758)
At 30 June 2015 6,552 6,578 28,965 5,141 47,236
Amortisation
At 1 January 2015 925 3,422 12,832 4,008 21,187
Charge for the period 613 219 1,757 245 2,834
Exchange differences - - (4) (7) (11)
At 30 June 2015 1,538 3.641 14,585 4,246 24,010
Carrying amount
At 30 June 2015 5,014 2,937 14,380 895 23,226
At 31 December 2014 5,822 3,178 13,533 716 23,249
Software and customer contract and relationships have arisen from
acquisitions, and are amortised over their estimated useful lives, which is
over 3-6 years and 3-12 years respectively. The amortisation period for
development costs incurred on the Group's software development and product
development is three to seven years, based on the expected life-cycle of the
product. The Group' corporate business systems software is amortised over an
average of five years from the date it first comes into use.
13. Trade and other receivables
30 June2015£'000 30 June2014£'000 31 December2014£'000
Trade receivables 15,531 17,937 13,064
Amounts recoverable on contracts 111 106 115
Other receivables 341 550 294
Prepayments 3,591 3,482 3,822
Accrued income 11,884 10,486 10,842
31,458 32,561 28,137
14. Trade and other payables
30 June2015£'000 30 June2014£'000 31 December2014£'000
Trade payables 4,121 3,849 2,774
Other taxation and social security 4,509 6,557 4,834
Other payables 3,157 8,815 7,468
11,787 19,221 15,076
15. Provisions
30 June2015£'000 30 June2014£'000 31 December2014£'000
At beginning of period 12,068 4,827 4,827
Addition to provision in period 375 271 (1,525)
Reduction to provision in period (450) - 241
On acquisition of subsidiary 1,733 7,312 8,430
Exchange rate movement (412) 101 (291)
Unwinding of discount on deferred consideration 293 384 876
Utilisation of provision (6,360) (2,864) (3,058)
At end of period 7,397 10,031 12,068
The provisions are split as follows:
30 June2015£'000 30 June2014£'000 31 December2014£'000
Future lease costs 221 - 342
Deferred contingent consideration 5,894 9,264 10,242
Onerous contracts 624 - 726
Potential litigation claims 658 767 758
7,397 10,031 12,068
Less than one year: 30 June2015£'000 30 June2014£'000 31 December2014£'000
Future lease costs 221 - 342
Deferred contingent consideration 990 7,760 8,786
Onerous contracts 624 - 284
Potential litigation claims 658 767 758
2,493 8,527 10,170
More than one year: 30 June2015£'000 30 June2014£'000 31 December2014£'000
Deferred contingent consideration 4,904 1,504 1,456
Onerous contracts - - 442
4,904 1,504 1,898
The potential litigation 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 the 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. Further details are contained in note 20.
16. Acquisition of subsidiary
On 6 March 2015, the Group acquired 100% of the issued share capital of
Callista Software Services Pty Ltd (Callista), a company incorporated in
Australia that is a leading provider of student management systems to the
Australian university market.
This transaction has been accounted for by the purchase method of accounting.
The total expected cost of acquisition is £1.7m, with payment being made
indirectly by payment of maintenance fees for Callista software services on
behalf of the vendor for a 3 year period.
The provisional carrying amount of each class of Callista Software Pty
Limited's assets before combination is set out below:
Book value Alignment ofAccounting policies£'000 Provisional fairvalue adjustments£'000 Provisional fairvalue
£'000 £'000
Intangible assets - - 477 477
Tangible assets 335 - - 335
Deferred tax asset - 316 - 316
Trade and other receivables 3,176 - - 3,176
Cash and cash equivalents 1,819 - - 1,819
Trade and other payables (3,905) - - (3,905)
Deferred tax liabilities - - (143) (143)
Net assets acquired 1,425 316 334 2,075
Gain on bargain purchase (403)
Consideration 1,672
Satisfied by:
Initial cash consideration -
Deferred consideration 1,672
1,672
The acquisition led to a net cash in-flow, taking into account of the cash
acquired of £1.8m.
The acquisition resulted in a gain on acquisition of £0.4m. This reflected the
low price paid for acquisition, which arose because of the maturity of the
technology which Callista supplies to its customer base and the non-core
nature of the company for the vendor.
Intangible assets arising on acquisition are in respect of software (£0.3m)
and customer relationships and contracts (£0.2m).
Callista Software Pty Limited contributed revenue of £2.7m and operating
profit of £0.3m to the Group for the period between the date of acquisition
and the balance sheet date. Acquisition related costs amounted for £0.2m.
Had the acquisition occurred on 1 January 2015, the Group's revenue would have
increased by £1.2m and its operating profit by £0.1m.
17. Defined benefit schemes
Two of the Group's subsidiary undertakings participate in defined benefit
pension schemes: Tribal Technology Limited participates in the TfL Pension
Fund, and Tribal Education Limited participates in the Federated Pension Plan.
During the period the final member of the TfL Fund left the company,
resulting in the full settlement of all outstanding obligations in respect of
the fund. As a result, a settlement gain of £0.02m has been recognised in the
Income Statement.
Payments to pension schemes in the period were £0.3m (2014: £0.5m).
18. Note to the cash flow statement
Six monthsended30 June2015£'000 Six monthsended30 June2014£'000 Yearended31 December2014£'000
Operating loss from continuing operations (5,235) (7,281) (4,299)
Operating (loss)/profit from discontinued operations (30) 64 79
Depreciation of property, plant and equipment 748 823 1,446
Impairment of goodwill 7,260 9,232 12,849
Amortisation and impairment of other intangible assets 2,834 4,649 8,129
Other non cash items 450 244 26
Operating cash flows before movements in working capital 6,027 7,811 18,229
(Increase)/decrease in inventories (206) (204) 177
Decrease in receivables 182 1,170 5,780
(Decrease)/increase in payables and provisions (8,793) 5,648 (1,898)
Net cash (used in)/from operating activities before tax (2,790) 14,425 22,288
Tax paid (371) (1,897) (2,571)
Net cash (used in)/from operating activities (3,161) 12,528 19,717
Net cash (used in)/from operating activities before tax can be analysed as follows:
Continuing operations (excluding restricted cash) 3,097 11,526 20,401
(Decrease)/increase in restricted cash (5,865) 2,863 1,853
(2,768) 14,389 22,254
Discontinued operations (22) 36 34
(2,790) 14,425 22,288
19. Analysis of net debt
30 June2015£'000 30 June2014£'000 31 December2014£'000
Non restricted cash 3,748 8,258 2,729
Restricted cash1 751 7,627 6,616
Cash 4,499 15,885 9,345
Syndicated bank facility (net of bank arrangement fees) (27,589) (29,338) (21,023)
Net debt (23,090) (13,453) (11,678)
1Restricted funds represent funds restricted in use by the relevant commercial terms of certain trading contracts. Analysis of changes in net debt.
30 June2015£'000 30 June2014£'000 31 December2014£'000
Opening net debt (11,678) (4,559) (4,559)
Net (decrease)/increase in cash and cash equivalents (4,510) 8,375 1,955
Effect of foreign exchange rate changes (336) (45) (165)
Increase in bank loans (6,566) (17,224) (8,909)
Closing net debt (23,090) (13,453) (11,678)
20. Contingent liabilities
The Group has received notification of a number of potential litigation
claims, the majority of which relate to discontinued activities. On the basis
of legal advice, claims are being robustly contested as to the liability and
quantum. A provision of £0.7m (30 June 2014: £0.8m, 31 December 2014: £0.8m)
has been made for defending these claims, where appropriate (see note 15).
A cross-guarantee exists between Group companies in respect of bank facilities
totalling £28.0m (30 June 2014: £20.2m, 31 December 2014: £14.5m).
In addition, the Company and its subsidiaries have provided performance
guarantees issued by their banks on their behalf, in the ordinary course of
business totally £8.0m (30 June 2014: £8.9m, 31 December 2014: £8.5m). These
are not expected to result in any material financial loss.
21. Related party disclosures
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. No material contract or arrangement has been entered into during the
period, nor subsisted at 30 June 2015, in which a director had a material
interest. See note 17 for details of amounts paid to the Group's pension
schemes in the period.
The remuneration of the directors, who are the key management personnel of the
Group, is set out below in aggregate for each of the categories specified in
IAS 24 'Related Party Disclosures'.
30 June2015£'000 30 June2014£'000 31 December2014£'000
Short-term employee benefits 521 488 1,106
Share-based payments1 (141) 219 482
380 707 1,588
1Remuneration in respect of share-based payments reflects the IFRS2
charge/(credit) to the income statement during the relevant period in respect
of the directors' outstanding share options.
Responsibility statement
We confirm that to the best our knowledge:
a) the condensed set of financial statements has been prepared in
accordance with IAS 34 'Interim Financial Reporting';
b) the interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the first six
months and description of principal risks and uncertainties for the remaining
six month of the year); and
c) the interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related party transaction and changes
therein).
By order of the Board
Rob Garner
Steve Breach
Interim Chief Executive
Group Finance Director
11 August 2015
Independent review report to Tribal Group plc
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2015, which comprises the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income, the condensed
consolidated balance sheet, the condensed consolidated statement of changes in
equity, the condensed consolidated cash flow statement and related notes 1 to
21. We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condenses set of
financial statements.
The report is made solely to the company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim
Financial Information Performed by the Independent Auditor of the Entity'
issued by the Auditing Practices Board. Our work has been undertaken so that
we might state that the company those matters we are required to state to it
in an independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our review work, for this report, or for the
conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in the half-yearly financial
report has been prepared in accordance with International Accounting Standard
34, 'Interim Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months end 30 June 2015 is not prepared, in all
material respects, in accordance with International Accounting Standard 34 as
adopted by the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
Bristol, United Kingdom
11 August 2015
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