REG - Tribal Group PLC - Half-year Report

TribalAnnouncement

20/08/2019 07:05

RNS Number : 5556J
Tribal Group PLC
20 August 2019
 


 
 
20 August 2019
Tribal Group plc
 
Half year results for the six months ended 30 June 2019 (unaudited)







2019


2018


Change


Change %




Revenue


£40.4m


£42.0m


£(1.6)m


(4)%




Adjusted operating profit 1,2


£6.3m


£6.3m


-


-




Adjusted EBITDA


£8.3m


£7.9m


£0.4m


5%




Statutory profit after tax


£3.6m


£2.9m


£0.7m


24%




Operating cash flow


£(2.7)m


£0.5m


£(3.2)m


(640)%




Net cash


£6.0m


£9.2m


£(3.2)m


(35)%




Earnings per Share (diluted)


1.7p


1.4p


0.3p


21%



 
Financial Highlights
·    Full year earnings expected to be in line with the Board's expectations
·    Adjusted operating profit performance in line with 2018 H1
·    Annual recurring revenue increased 5% to £19.9m representing 49% of total revenue (2018 H1: £18.9m, 45% of total revenue)
·    Adjusted operating margin up 50bps to 15.5% (2018 H1: 15.0%)
·    Net cash of £6m following the £6m acquisition of Crimson Consultants
·    Committed income increased to £123.5m (2018 FY: £121.6m) - 89% of full year revenue expectation already recognised or committed
·    Adjusted earnings per share increased 14% to 2.5p (2018 H1: 2.2p)
 
Operational Highlights
·    Continued progress against long-term strategy of developing and delivering our next generation student information services platform, Tribal Edge
·    Good Student Information Systems performance in EMEA
·    Signed new 3-year £9m Education Services contract with NCETM in the UK
·    Completed acquisition of Crimson Consultants for £6m with £4m contingent consideration - integration progressing well
·    Continued investment into new and existing product development
·    Investment in Tribal Edge at full headcount with first module expected January 2020
·    Mark Pickett appointed Chief Executive Officer and Paul Simpson appointed Acting Chief Financial Officer
·    Appointment of Mike Cope, former Chief Information Officer of University College London, as Chief Technology Officer
 
Mark Pickett, CEO of Tribal Group, commented:
 
"Tribal continued to make good progress against its strategic objectives in the first six months of the year. First half performance overall was encouraging - recurring revenue and operating margin were both up. We completed the acquisition of Crimson Consultants, boosting our next generation cloud solution Tribal Edge's functionality and accelerating its speed to market as well as bringing new customers and relationships into the Group. Our outlook for the full year remains unchanged subject to successfully winning the Middle East inspections work in H2, we continue to work on a number of new revenue opportunities, and we remain very excited about the longer-term growth opportunities available to us through the transition to Tribal Edge."
 



 
1      Adjusted Operating Profit and Adjusted Operating Margin is in respect of continuing operations, excluding intangible asset amortisation of £0.6m (2018 H1: £0.9m), restructuring costs of £0.3m (2018 H1: £0.1m), and share based payments £0.5m (2018 H1: £1.1m)
2      Adjusted Operating Profit is considered a Key Performance Indicator of the Group.  We consider this to represent the underlying performance of the business and provides greater clarity to users of the accounts



 
 
Further Information
 
A presentation of these results will be made to analysts at 9.30am today at the offices of Tulchan Communications LLP, 85 Fleet Street, London EC4Y 1AE.  Please contact tribal@tulchangroup.com to register to attend. A copy of the presentation will be available on the Tribal Group website: www.tribalgroup.com.
 



Tribal Group plc


Tel: 0117 311 5293




Mark Pickett, Chief Executive Officer
Paul Simpson, Acting Chief Financial Officer


 




 


 




Investec Bank plc


Tel: 020 7597 5970


 




Sara Hale
Andrew Pinder
Will Godfrey
Neil Coleman


 


 




 


 


 




N+1 Singer Capital Markets Limited

Shaun Dobson
 
Tulchan Communications LLP                           
James Macey White
David Ison


Tel: 020 7496 3000
 
 
Tel:  020 7353 4200


 




 


 


 










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 Review
Introduction
 
Tribal continued to make good progress against its strategy in the first half of the year, reporting good profitability on slightly reduced revenue, in line with the Board's expectations. 
 
Revenue decreased by 4% to £40.4m (2018 H1: £42.0m), adjusted operating profit remained consistent at £6.3m (2018 H1: £6.3m), adjusted operating margin increased by 50 basis points to 15.5% (2018 H1: 15.0%) and statutory profit increased 27% to £3.6m.
 
Almost 40% of Tribal's income is generated outside the UK, and is therefore subject to foreign exchange movement.  Using a constant currency basis, applying 2019 exchange rates to 2018 results, the constant currency revenue1 decreased by 3%, adjusted operating profit increased by 2% and adjusted operating margin increased by 70 basis points.
 
Strategy & Market Position
 
Our strategy is to focus on international education sectors Higher Education, Further Education and Vocational institutions, Schools, Government and State bodies, Training Providers, and Employers - and to underpin student success through the provision of expertise, software and services.
 
The strategic direction of the business was set after a detailed review early in 2016 and our strategic priorities remain unchanged:
 
-      Deliver Tribal Edge
-      Increase Annual Recurring Revenue
-      Grow market share in established and new territories
-      Drive improved margin
 
There is a structural shift taking place in the industry, with a move away from costly and inefficient on-premise solutions and demand increasing for flexible, cloud-based student information platforms built on an open ecosystem. We continue to work closely with those institutions to ensure Tribal Edge, our next generation cloud platform, meets that demand, and firmly believe that it has the potential to transform the Group's long-term growth prospects.
 
Tribal Edge
 
Tribal Edge has seen significant progress in the last six months and the developments were well received at our annual "Empower" conference, attended by more than 500 delegates.
 
The first Edge module, for the collection and submission of Student Information in Australia, will go live at the end of 2019, followed by the first Applicant Management module in early 2020, and further modules at regular intervals thereafter.  We have ongoing beta trials and a strong pipeline of early adopters looking to deploy the new Tribal Edge modules. 
 
We also introduced Tribal Edge "Exchange" which allows partners and existing customers to simply and easily offer their solutions to other Tribal Edge customers.  In time, Edge Exchange will offer additional value to our customers and provide incremental revenue streams to Tribal.
 
Student Information Systems
 
This segment includes all software-related products and services sold into Higher Education, Further Education, Schools and Work-based and Vocational Learning organisations. 
 
On a constant currency basis, Student Information Systems revenue remained consistent with the previous year at £28.7m (2018 H1: £28.8m).   
 
The Student Information Systems business has performed well. Overall activity levels in our markets for the replacement or enhancement of student information systems remain stable and we continue to see a steady flow of new opportunities in all sectors.
 
In the first half of the year, the Group won two new Further Education college contracts, including a significant win at Capital City Colleges Group, one of the largest college groups in the UK.  This follows our win in 2018 with Colleges Northern Ireland, consolidating ebs as the leading Further Education student management system in the UK.  We also signed a large contract with Sopra Steria to implement our Maytas product to manage the apprenticeship program for the Construction industry Training Board.
 
A strong account management performance in SITS, with additional modules and components being sold into the existing SITS customer base, continued to drive license sales and Support & Maintenance.  However, no new SITS customer sales were made following the five new customers won in the previous 12 months. This was largely as a result of a fall in the number of universities coming to market.
 
In APAC, our existing business continues to operate well, with additional work obtained from TAFE New South Wales in support of its migration to OneTAFE, a single TAFE entity.  Two new ebs customer were won, and in SchoolEdge, we signed a AUS$1.3m contract to support the migration to a new provider, as previously announced.
 
Education Services
 
This segment includes non-software services including Quality Assurance Solutions (QAS) inspections, training and benchmarking and i-graduate surveys which are now managed as one business with shared resource;  the segment also includes other non-core software services.
 
Overall revenue in Education Services decreased by 9% on a constant currency basis to £11.7m (2018 H1: £12.9m).
 
Our Quality Assurance Solutions (QAS) business continues to be successful in winning new contracts for the provision of school and teacher training inspection services through.  Revenue was down in the first half of the year, though, as the Abu Dhabi Ministry for Education curtailed the existing schools inspection contract (ADEK) early, to redefine its requirements for future inspections; this resulted in £1m less revenue in H1 2019 than H1 2018.  A subsequent tender has been submitted and if the contract decision is positive and timely, Education Services will make up the revenue and operating profit in H2. We also won work in a new emirate, Sharjah, which commenced at the beginning of H2.
 
In the UK, we secured a new, £9m 3-year contract with the DfE for the National Centre for the Excellence in the Teaching of Mathematics (NCETM), and in New Zealand, we secured a one-year extension of the Tertiary Education Council (TEC) benchmarking contract for all.  In the US, we secured a new customer with a contract to review the teacher training in the State of Louisiana (US$1.6m).
 
Management Changes
 
In March 2019, Mark Pickett was appointed as Chief Executive Officer, having previously been Acting Chief Executive Officer and Chief Financial Officer.  At the same time, Paul Simpson was appointed Acting Chief Financial Officer.  Paul had previously been the Global Financial Controller of Tribal.
 
We have appointed a Chief Technology Officer, Mike Cope, who joins from University College London where he was CIO, and an existing SITS customer.  His experience will be invaluable as we drive adoption of the Tribal Edge modules.
 
Acquisition
 
In May 2019, Tribal acquired Crimson Consultants ('Crimson'), the UK's market-leading provider of customer relationship management ('CRM') based solutions to the education market.  Crimson's technology provides valuable, additional functionality to Tribal Edge.  It will accelerate its speed to market and reduces Tribal's requirement to develop this functionality. Additionally, Crimson brings with it a broad existing customer base and strong relationships with Higher Education universities and Further Education colleges, both existing Tribal customers and competitors, presenting compelling new cross-selling opportunities.  The initial consideration was £6m with a further £4m contingent consideration based on meeting an annual recurring revenue target. The acquisition was financed through existing cash resources and the integration continues to progress well.
 
Legal Matters
 
On 25 January 2019, we notified the stock exchange that the Group had received a letter of claim from lawyers acting for a provider of a software platform on which a number of the Company's material products are based.  The letter claims that Tribal Education Limited has failed to account properly for royalties under the terms of a Value Added Reseller Agreement dated 1 April 2000 and has breached the terms of that agreement.  Whilst no specific amount is claimed, the letter of claim estimated the losses at between £15m and £30m, which we dispute.  These claims date back over a period of more than 18 years during which time the Group has regularly made royalty payments and the Board does not consider the claims to be justified.  The Board is vigorously defending the claim and is actively working with the provider to reach a resolution at the earliest opportunity.
 
On 12 August 2019, the company announced that it had been made aware of the unauthorised disclosure and likely access of personal information of approximately 9,300 individuals, held by Tribal Campus, an Australian subsidiary of the Group, in its capacity as a provider of a student information system to MEGT, an educational organisation in Australia.  Upon discovery of the unauthorised disclosure, immediate steps were taken by Tribal to secure the data and external forensic cyber security experts were appointed to investigate the circumstances and scope of the incident. While those investigations are ongoing, the individuals that may have been affected have been contacted and advised on the steps they should take.  The Group continues to work closely with the regulator in Australia.
 
Tribal confirms that this is an isolated incident relating to the migration of data for a single Tribal Campus customer in Australia involving a non-production system. No other customers, products or regions have been affected. Whilst there can be no certainty as to the financial impact, based on current estimates, costs to Tribal are not expected to be material.
 
Outlook and Current Trading
 
Despite fewer institutions coming to market for traditional full student information systems both in the UK and Australia/New Zealand, there is growing demand for moving existing systems into the public cloud, providing an opportunity to drive incremental revenue from ebs, Maytas and SITS through the provision of Cloud services.
 
At the same time, demand for our Tribal Dynamics products, through the acquisition of Crimson Consultants, is strong, with universities increasingly looking to invest in CRM for their Marketing and Recruitment requirements.
 
Management therefore remains confident that full year earnings will be in line with the Board's expectations.
 
Looking beyond the full year, the outlook will be affected if large new licence opportunities in Higher Education remain depressed.  The team continues to work on a number of bids, but the longer-term nature of the sales cycles may have a slight impact on the expected revenues and operating profit in 2020.
 
While growth may be slower in the short to medium-term, we continue to make good progress in delivering Tribal Edge in response to the structural shift we are seeing in our industry. It is potentially transformational technology in a market ripe for change, and we remain very excited about the compelling longer-term growth opportunities it will create.
Financial Performance
In the six months ended 30 June 2019 the Group's revenue was down 3.8% to £40.4m (2018 H1: £42.0m). 
 
Adjusted operating profit was in line at £6.3m (2018 H1: £6.3m) and operating profit margin increased to  15.5% (2018: 15.0%).  To improve understanding of the underlying performance of the business, these numbers are adjusted for certain items, including share based payments, as detailed in the section "Items excluded from adjusted profit figures".
 
Statutory profit after tax was £3.6m (2018 H1: £2.9m) and diluted earnings per share were 1.7p (2018 H1: 1.4p).
 
At the end of the period, the Group had net cash of £6.0m, excluding the acquisition of Crimson Consultants this would have increased to £12.0m (2018 FY: £20.0m; 2018 H1: £9.2m).
 



Results
£m
6 months to 30 June


2019


2018


2018
Constant

Currency


Growth
Constant

Currency




Revenue


40.4


42.0


41.7


(3.2)%




Student Information Systems


28.7


29.1


28.8


-




Education Services


11.7


12.8


12.9


(9.2)%


























Adjusted Operating Profit
(before Central Overheads) 1


11.8


12.4


12.2


(2.9)%




Student Information Systems


9.2


9.2


9.0


1.8%




Education Services


2.6


3.2


3.2


(16.5)%


























Central Overheads


(5.6)


(6.1)


(6.0)


7.3%


























Adjusted Operating Profit


6.3


6.3


6.2


1.4%




Adjusted Operating Margin


15.5%


15.0%


14.8%


70bps



 
1 Adjusted Operating Profit and Adjusted Operating Margin is in respect of continuing operations, excluding intangible asset amortisation of £0.6m (2018 H1: £0.9m), restructuring costs of £0.3m (2018 H1: £0.1m), and share based payments £0.5m (H1 2018: £1.1m)
 
Over 40% of Tribal's income is generated outside the UK, and is therefore subject to foreign exchange movement.  Overall, there was an adverse impact due to foreign exchange fluctuations of £0.3m in revenue and £0.2m in operating profit, due particularly to the Group's exposure to the Australian dollar, which was on average 6% stronger against GBP sterling in 2019 compared with 2018. 
 
The revenue and operating profit by segment in the table shows the reported results for 2019 H1 and 2018 H1, and the 2018 H1 results restated to "constant currency" using 2019 rates to exclude foreign currency impact.  The growth percentages shown are on the 2018 constant currency numbers. 
 
Overall revenue decreased by 3.1% on a constant currency basis to £40.4m (2018 H1: £41.7m).  This was mainly due to Education Services where Middle East contracts were lower, compared to a strong first half in 2018.
 
Adjusted operating profit before central overheads decreased by 3.3% to £11.8m (2018 H1: £12.2m).
 
Central overheads, representing costs in HR, IT, Finance, Marketing and Management that can't be directly attributed to lines of business, reduced to £5.6m (2018 H1: £6.0m). We continue to drive operational efficiencies and cost savings operating on a centralised basis globally, helping to improve margin without impacting the Group's ability to serve our customers or grow, for example absorbing the acquisition of Crimson Consultants.
 
Adjusted operating profit increased by 1.6% on a constant currency basis to £6.3m (£2018 H1: £6.2m).
 
Adjusted operating margin, which is traditionally stronger in the first half, increased by 50 basis points to 15.5%; excluding the impact of foreign currency movement it has increased by 70 basis points, as ongoing efficiencies and cost savings continue to benefit profitability. 
 
Student Information Systems: On a constant currency basis, Student Information Systems revenue remained consistent with the previous year at £28.7m (2018 H1: £28.8m).   
 
License sales decreased by £1.4m on a constant currency basis.  In EMEA sales increased by £0.2m reflecting strong account management sales with existing customers and the recognition of new license sales in the previous year Canterbury Christ Church University, University of Portsmouth, Queen Mary's University, Ravensbourne University London and Colleges Northern Ireland where license revenue is recognised under IFRS15 as the implementation is completed.  In APAC sales fell by £1.7m reflecting the completion of work in relation to prior years sales and the lack of new customers coming to the market.
 
Implementation is in line on a constant currency basis, reflecting that the delivery of the large contracts won in 2018 as noted above.  Callista continued to perform well with good margins although accelerated development work was slightly lower than 2018. 
 
Support & Maintenance revenue increased 5% on a constant currency basis.  This reflects the new license and account management sales achieved, together with the contractual annual inflationary uplift.
Cloud revenue has increased by 21% as more customers, including newer contract wins, include Cloud solutions.
 
Overall operating profit increased by 2% to £9.2m on a constant currency basis (2018 H1: £9.0m) and operating margin increased to 32% (2018 H1: 31%).
 
Education Services: Overall revenue in Education Services decreased by 9% on a constant currency basis to £11.7m (2018 H1: £12.9m).
 
QAS revenue decreased by 5% to £9.1m (2018 H1: £9.5m).  Strong performance on UK contracts, coupled with increased performance in the US and Professional Development & Training, was offset by a reduction in Middle East revenue representing almost 50% of revenue. 
 
i-graduate revenue decreased by 29% to £0.8m (2018 H1: £1.2m), mainly driven by the return of the Destination of Leavers from Higher Education (DLHE) contract to HESA who have decided to manage inhouse.  The revenues for i-graduate are seasonal with a stronger second half, although the southern hemisphere international student barometer will be lower as the majority of institutions partake every other year.
 
Overall operating profit decreased by 16% to £2.6m on a constant currency basis (2018 H1: £3.2m) and operating margin decreased to 23% (2018 H1: 25%).  Improved profitability in i-graduate due to restructuring and costs savings from operating as one business with QAS have been offset by reduced margins on QAS contract, notably in the Middle East.
 
Key Performance Indicators (KPIs)
 
The Group monitors its performance using the KPIs in the table below.
 



KPIs
6 months to 30 June


2019


2018


 
Variance


2018
Constant Currency


Growth
Constant

Currency




Revenue


£40.4m


£42.0m


(4)%


£41.7m


(3)%




Adjusted operating profit1


£6.3m


£6.3m


-


£6.2m


1%




Adjusted operating margin1


15.5%


15.0%


50bps


14.8%


70bps




Annual recurring revenue
(6 months)2


£19.9m


£18.9m


5%


£18.5m


7%




Committed income3,4


£123.5m


£122.5m


£1.0m


£121.6m


£1.9m




Staff retention


93%


96%


(30)bps












Revenue / average FTE 4

(£'000s: annualised)


£95.9


£91.7k


£4.2m











 
1 Adjusted Operating Profit and Adjusted Operating Margin is in respect of continuing operations which excludes "Other Items" charges of £1.9m (H1 2018: charge of £2.1m).
2 Annually Recurring Revenue is calculated assuming maintenance revenue is received equally throughout the year.
3 Committed income relates to the total value of orders which have been signed on or before, but not delivered by, 30 June 2019, based on the Total Contract Value, even though customers may be permitted, under certain circumstances, to reduce their commitment at a future date. This is reported on an IFRS15 basis and represents the best estimate of business expected to be delivered and recognised in future periods, and includes License sales, Implementation work and two years of Support & Maintenance revenue.
4 2018 committed income and revenue / average FTE comparatives are as at 31 December 2018
 
Annual recurring revenue (ARR) includes Support & Maintenance fees paid on all software and Cloud hosting services, increase by 7% on a constant currency basis to £19.9m (2018 H1: £18.5m).  The growth includes the benefit of new license sales in 2018 and contractual inflationary uplift applied annually.
 
Committed income at 30 June 2019 this increased by £1.9m on a constant currency basis to £123.5m (2018 FY: £121.6m).  The growth includes the benefit of new License sales in 2018 and contractual inflationary uplift applied annually to Support & Maintenance, but is impacted by £3.6m due to the reduction in the term life of the contract with Callista to 2.5 years.  The acquisition of Crimson Consultants has added £3.0m of ARR from Software-as-a-Service sales and committed professional services (implementation) work.
 
One-off items: The adjusted operating profit in 2018 benefitted by £0.4m from a number of one-off impacts which were not repeated in the first half of 2019.  This included £1.0m bad debt releases, £(0.4)m of revenue contingencies, £0.3m of other provisions and £(0.5)m data centre exit costs.
 
Product development costs: The Group spent £5.8m on product development, of which £2.8m was capitalised in relation to Tribal Edge, no further capitalised development took place on SchoolEdge (2018 H1:  £5.2m spent; £1.7m capitalised: £1.5m Tribal Edge, £0.3m SchoolEdge).  The Group spent £2.9m on current products including SITS, ebs, SchoolEdge and Maytas, this was £0.6m lower than the previous year (2018: £3.5m) due to increased efficiency across all products.
 
Items excluded from adjusted profit figures: Certain items not directly related to the trading business or regarded as exceptional in nature have been removed from the adjusted profit figure and disclosed as "Other Items" on the Income Statement to provide greater understanding of the Group's underlying performance.  The main adjustments are as follows:
 
•    Share based payments charges (including employer related taxes) decreased to £0.5m (2018 H1: £1.1m), and are excluded from the Adjusted Operating profit. The charges in the current year relate to the Long-Term Incentive Plan options (LTIPs) which were granted to the executive and senior management teams in 2016, 2017, 2018 and 2019.
 
•    Amortisation of IFRS3 Intangibles charge in relation to IFRS3 intangible assets of £0.6m (2018 H1: £0.9m) arose from separately identifiable assets recognised as part of previous acquisitions.  The assets principally relate to software and customer relationships and are amortised over their expected life which was determined in the year the acquisition took place.
 
•    Restructuring and associated costs relate to the restructuring of the Group's operations, principally in Australia, which was completed early in 2019, and includes a charge for redundancy costs of £0.3m (2018 H1: £0.1m).
 
•    Legal costs: relate to the legal fees incurred in relation to the items mentioned previously in the Legal Matters section.
 
•    Acquisition costs: include amounts relating to corporate activity in the period, specifically the acquisition of Crimson Consultants Limited.
 
Net Cash and Cash flow
 
Net cash at 30 June 2019 was £6.0m (H1 2018: £9.2m).



Cash flow
£m
6 months to 30 June


2019


2018




Net cash from operating activities


(2.7)


0.5




Capitalised product development on Tribal Edge


(3.0)


(1.8)




Capital expenditure


(0.3)


(0.6)




Acquisition of Crimson Consultants


(5.9)


-




Deferred consideration


-


(0.8)




Dividend payment


  (2.1)


  (2.0)




Net decrease in cash & cash equivalents


(14.0)


(4.7)




Cash & cash equivalents at beginning of the year


20.0


14.1




Cash & cash equivalents at end of period


6.0


9.4




Less: Effect of foreign exchange rate changes


-


(0.2)




Net cash & cash equivalents at end of period


6.0


9.2



 
Operating cash inflow for the period was £(2.7)m (2018: £0.5m).  This reflects the Group's working capital profile, and the additional cash requirements in the first half of the year; most Support & Maintenance and Cloud Services renewals are invoiced and collected towards the end of the calendar year.  In QAS there was one large contract receipt totalling £1.9m that was due in June but was not received until July, and exit payments were also made in relation to the restructuring in Australia.  Cash conversion is expected to normalise in the second half of the year.
 
Share Options and Share Capital: On 7 June 2019, 3,360,563 share options were granted to executive and senior management, including 760,563 nil-cost share options to Mark Pickett, Chief Executive Officer as part of his ongoing remuneration.  As at 30 June 2019, there were 196,051,181 shares issued (2018 FY: 196,051,181).
 
Earnings per share:  Diluted earnings per share increased by 21% to 1.7p (2018 H1: 1.4p).
Adjusted diluted earnings per share from continuing operations before other costs, including intangible asset amortisation, restructuring costs and share based payment charges, which reflects the Group's underlying trading performance, increased by 14% to 2.5p (2018 H1: 2.2p). 
 
Dividends: The annual dividend for 2018 increased to 1.1p per share (2017: 1.0p per share), paid by the Company in May 2019; the Board reaffirms its intention to continue a progressive dividend policy, with a single dividend payment each year following annual results.
 
Condensed consolidated income statement
For the six months to 30 June 2019
 







Note


Adjusted
£'000


Other items
(note 6)
£'000


Six months ended
30 June 2019
Total
£'000


Adjusted
£'000


Other items
(note 6)
£'000


Six months ended
30 June 2018
Total
£'000




Continuing operations
































Revenue


4


40,374


-


40,374


41,989


-


41,989




Cost of sales






(20,045)


-


(20,045)


(20,828)


-


(20,828)




Gross profit






20,329


-


20,329


21,161


-


21,161




Total administrative expenses






(14,064)


(1,845)


(15,909)


(14,879)


(2,064)


(16,943)




Operating profit


4


6,265


(1,845)


4,420


6,282


(2,064)


4,218




Investment income






33


-


33


18


-


18




Finance costs


7


(58)


(86)


(144)


(13)


(60)


(73)




Profit before tax






6,240


(1,931)


4,309


6,287


(2,124)


4,163




Tax (charge)/credit


8


(1,040)


354


(686)


(1,748)


441


(1,307)






































 Profit/(loss) for the period






5,200


(1,577)


3,623


4,539


(1,683)


2,856






































Earnings per share
































Basic


9


2.7p


(0.8)p


1.9p


2.3p


(0.8)p


1.5p




Diluted


9


2.5p


(0.8)p


1.7p


2.2p


(0.8)p


1.4p



 
All activities are from continuing operations
 
Condensed consolidated income statement
For the six months to 30 June 2019 (continued)
 















 
 
 


 
 
 
Note


Adjusted
£'000


Other items
(note 6)
£'000


Year ended 31 December 2018
£'000






































Revenue














4


80,062


-


80,062




Cost of sales


















(40,837)


-


(40,837)




Gross profit


















39,225


-


39,225




Total administrative expenses


















(28,430)


(6,212)


(34,642)




Operating profit














4


10,795


(6,212)


4,583




Investment income


















46


-


46




Finance (costs)/income














7


(54)


274


220




Profit before tax


















10,787


(5,938)


4,849




Tax (charge)/credit














8


(1,873)


1,171


(702)




Profit/(loss) for the year


















8,914


(4,767)


4,147




Earnings per share
































Basic














9


4.6p


(2.5)p


2.1p




Diluted














9


4.3p


(2.3)p


2.0p



 
Condensed consolidated statement of comprehensive income and expense
For the six months to 30 June 2019
 







Six months
ended
30 June
2019
£'000


Six months
ended
30 June
2018
£'000


Year ended
31 December
2018
£'000




 
Profit for the period
 


 
3,623


 
2,856


 
4,147




Other comprehensive income/(expense)
















Items that will not be reclassified subsequently to profit or loss:
 
















Re-measurement of defined benefit pension schemes
 


-


-


430




Deferred tax on measurement of defined benefit pension schemes
 


-


-


(73)




Items that may be reclassified subsequently to profit or loss:
















Exchange differences on translation of foreign operations
 


75


(513)


(792)




 
Other comprehensive income/(expense) for the period net of tax


 
75


 
(513)


 
(435)




 
Total comprehensive income for the period attributable to equity holders of the parent


 
3,698


 
2,343


 
3,712



 
Condensed consolidated balance sheet
As at 30 June 2019
 















 
 
 


 
 
Note


30 June
2019
£'000


 
30 June
2018
£'000


 
31 December
2018
£'000




Non-current assets
































Goodwill














10


29,953


20,728


20,517




Other intangible assets














11


14,023


13,417


12,718




Property, plant and equipment


















1,571


1,737


1,762




Right of use assets














5


4,527


-


-




Deferred tax assets


















3,465


4,579


3,776




Contract assets


















66


44


77
























53,605


40,505


38,850




Current assets
































Trade and other receivables














12


13,337


15,110


12,840




Contract assets


















6,036


6,363


3,750




Current tax assets


















97


86


73




Deferred tax assets


















-


-


228




Cash and cash equivalents (excluding bank overdrafts)














18


6,989


9,214


19,974
























26,459


30,773


36,865




Total assets


















80,064


71,278


75,715




Current liabilities
































Trade and other payables














13


(7,406)


(7,531)


(6,755)




Contract liabilities


















(18,488)


(17,222)


(20,872)




Accruals


















(5,419)


(7,194)


(7,941)




Current tax liabilities


















(1,127)


(2,888)


(1,097)




Lease liabilities














5


(994)


-


-




Borrowings














18


(985)


-


-




Provisions














14


(209)


(256)


(879)
























(34,628)


(35,091)


(37,544)




Net current liabilities


















(8,169)


(4,318)


(679)




Non-current liabilities
































Contract liabilities


















(328)


(709)


(707)




Retirement benefit obligations


















(1,002)


(1,718)


(1,002)




Lease liabilities














5


(3,255)


-


-




Other payables














13


(1,872)


(160)


(62)




Deferred tax liabilities


















(550)


(1,013)


(713)




Provisions














14


(1,000)


(349)


(213)
























(8,007)


(3,949)


(2,697)




Total liabilities


















(42,635)


(39,040)


(40,241)




Net assets


















37,429


32,238


35,474




Equity
































Share capital














16


9,803


9,803


9,803




Share premium


















15,539


15,539


15,539




Other reserves


















25,440


23,661


25,020




Accumulated losses


















(13,353)


(16,765)


(14,888)




Total equity attributable to equity holders of the parent


















37,429


32,238


35,474



 
 
Condensed consolidated cash flow statement
for the six months to 30 June 2019
 















 
 
 


 
 
 
 
Note


Six months ended 30 June
2019
£'000


Six months ended 30 June
2018
£'000


Year ended 31 December
2018
£'000




Net cash (used in)/from operations














17


(2,737)


549


14,241




Investing activities
































Interest received


















33


17


46




Purchases of property, plant and equipment


















(279)


(676)


(1,203)




Expenditure on intangible assets


















(2,999)


(1,769)


(4,217)




Payment of deferred consideration for acquisitions


















-


(826)


(826)




Acquisition of investments in subsidiaries


















(5,919)


-


-




Net cash outflow from investing activities


















(9,164)


(3,254)


(6,200)




Financing activities
































Interest paid


















-


(1)


(1)




Equity dividend paid


















(2,147)


(1,952)


(1,952)




Net cash used in financing activities


















(2,147)


(1,953)


(1,953)




Net (decrease)/increase in cash and cash equivalents


















(14,048)


(4,658)


6,088




Net cash and cash equivalents at beginning of period


















19,974


14,082


14,082




Effect of foreign exchange rate changes


















78


(210)


(196)




Net cash and cash equivalents at end of period














18


6,004


9,214


19,974



 
Condensed consolidated statement of changes in equity
For the six months to 30 June 2019
 











Note


Share Capital
£'000


Share Premium
£'000


Other reserves
£'000


Accumulated losses
 £'000


Total Equity
£'000




Balance at 31 December 2017 as previously reported










9,803


15,539


22,783


(15,573)


32,552




Effect of IFRS15










-


-


-


(1,704)


(1,704)




Balance at 31 December 2017 restated










9,803


15,539


22,783


(17,277)


30,848




Profit for the period










-


-


-


2,856


2,856




Other comprehensive expense for the period










-


-


-


(513)


(513)




Equity dividend paid










-


-


-


(1,952)


(1,952)




Charge to equity for share-based payments










-


-


878


-


878




Tax credit on charge to equity for share-based payments










-


-


-


121


121




Contributions by and distributions to owners










-


-


878


(1,831)


(953)


 




Balance at 30 June 2018 as previously reported










9,803


15,539


23,661


(16,765)


32,238


 




Effect of IFRS15










-


-


-


193


193


 




Tax effect of IFRS15










-


-


-


265


265


 




Balance at 30 June 2018 restated










9,803


15,539


23,661


(16,307)


32,696


 




Profit for the period










-


-


-


1,291


1,291


 




Other comprehensive income for the period










-


-


-


78


78


 




Charge to equity for share-based payments










-


-


1,387


-


1,387


 




Tax credit on charge to equity for share-based payments










-


-


-


50


50


 




Foreign exchange difference on share-based payments










-


-


(28)


-


(28)


 




Contributions by and distributions to owners










-


-


1,359


50


1,409


 




Balance at 31 December 2018 as previously reported










9,803


15,539


25,020


(14,888)


35,474


 




Effect of IFRS16






5


-


-


-


(73)


(73)


 




Balance at 31 December 2018 restated










9,803


15,539


25,020


(14,961)


35,401


 




Profit for the period










-


-


-


3,623


3,623


 




Other comprehensive loss for the period










-


-


-


75


75


 




Equity dividend paid










-


-


-


(2,147)


(2,147)


 




Charge to equity for share-based payments










-


-


420


-


420


 




Tax credit on charge to equity for share-based payments










-


-


-


57


57


 




Contributions by and distributions to owners










-


-


420


57


477


 




Balance at 30 June 2019










9,803


15,539


25,440


(13,353)


37,429


 



























 
Notes to the condensed consolidated financial information
for the six months to 30 June 2019
 
1.         General information
 
The condensed consolidated financial information for the six months ended 30 June 2019 was approved by the Board of Directors on 19 August 2018.  This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006.
 
Statutory accounts for the year ended 31 December 2018 were approved by the Board of Directors on 19 March 2019.  A copy of the statutory accounts for that year has been delivered to the Registrar of Companies.  The auditor reported on those accounts: its report was unqualified, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. 
 
2.         Accounting policies
 
The condensed consolidated set of financial statements included in this half-yearly financial report has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority.
 
The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2018 which have been prepared in accordance with IFRSs as adopted by the European Union. 
 
In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were as stated within the consolidated financial statements for the year ended 31 December 2018.
 
The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2018 with the exception of the Leases policy.  The introduction of IFRS16 has resulted in a new policy as follows:
 
All leases are treated as finance leases unless they are classified as a short lease. Right-of-use assets are created by reference to the lease liability, less adjustments for future dilapidation costs. Right-of-use assets are amortised on a straight line basis over the period of the lease, the amortisation period being equivalent to the length of the lease. The implicit rate used in the calculations is 1.8% + LIBOR.
 
3.         Going concern
 
The Directors, having considered the cash-flow forecast, and while noting the Group has net current liabilities, have performed a risk assessment of likely downside scenarios and associated mitigating actions, and have a reasonable expectation that adequate financial resources will continue to be available for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the financial statements.
 
4.         Segmental analysis
 
Information reported to the Group's Chief Executive for the purposes of resource allocation and assessment of segment performance is focused on the nature of each type of activity.  The Group's reportable segments and principal activities under IFRS 8 are detailed below:
 
Student Information ("SIS") represents the delivery of software and subsequent maintenance and support services and the activities through which we deploy and configure our software for our customers; and
 
Education Services representing inspection and review services which support the assessment of educational delivery, previously Quality Assurance Solutions (QAS), and a portfolio of performance improvement tools and services, including analytics, software solutions, facilities and asset management, previously i-graduate.
 
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.
 







Total Revenue


Adjusted segment operating profit








Six months
ended
30 June
2019
£'000


Six months
ended
30 June
2018
£'000


 
Year ended
31 December
2018
£'000


Six months
ended
30 June
2019
£'000


Six months
ended
30 June
2018
£'000


 
Year ended
31 December
2018
£000




 
SIS


 
28,656


 
29,147


 
56,922


 
9,067


 
9,247


 
16,506




Education Services


11,718


12,842


23,140


2,762


3,154


4,975




 
Total
 


 
40,374


 
41,989


 
80,062


 
11,829


 
12,401


 
21,481


































Unallocated corporate expenses
 














(5,564)


(6,119)


(10,686)




Adjusted operating profit
 














6,265


6,282


10,795




Amortisation of IFRS 3 intangibles (see note 6)
 










(575)


(909)


(1,787)




Other items
 














(1,270)


(1,155)


(4,425)




 
Operating profit
 














 
4,420


 
4,218


 
4,583
 













 
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.
 
Within Education Services revenues of approximately 3% (31 December 2018: 5%) have arisen from the Segments largest customer: within SIS revenues of approximately 4% (31 December 2018: 6%) have arisen from the Segments largest customer.
 
Geographical information:
Revenue from external customers, based on location of the customer, are shown below:
 







Six months
ended
30 June
2019
£'000


Six months
ended
30 June
2018
£'000


 
Year ended
31 December
2018
£'000




UK


24,220


20,470


42,554




Australia


9,564


12,068


22,234




Other Asia Pacific


1,954


3,005


5,529




North America and rest of world


4,636


6,446


9,745




 
 


 
40,374


 
41,989


80,062



 
5.       Effect of new accounting standards
 
The Group adopted IFRS16 "Leases" with effect from 1 January 2019. This has resulted in the group recognising right-of-use assets and lease liabilities. For leases currently classified as operating leases, under previous accounting requirements the group did not recognise related assets or liabilities, and instead spread the lease payments on a straight-line basis over the lease term. The Group has applied the modified retrospective approach method and has only recognised leases on the balance sheet as at 1 January 2019. Comparative amounts for the year prior to the first adoption have not been restated. In addition it has been decided to measure right-of-use assets by reference to the measurement of the lease liability on that date, less adjustments for future dilapidation costs. The key assumptions used in this assessment are as follows: Straight line amortisation of the right-of-use assets; amortisation period being equivalent to the length of the lease; and implicit rate used in the calculations being 1.8% + LIBOR.
The effects of adopting IFRS 16 for the periods ending 30 June 2019 are as follows:
 











30 June
2019
As reported
£'000


30 June
2019
Effect of IFRS16
£'000


30 June
2019 As would have been reported
£'000




Balance Sheet




















Assets




















Right of use assets






4,527


(4,527)


-




Liabilities




















Trade and other payables






(7,406)


(308)


(7,714)




Lease liabilities






(4,249)


4,249


-




Provisions






(1,209)


773


(436)


























Equity




















Accumulated losses






(13,353)


73


(13,280)


























Profit and loss account current year






3,623


876


4,499


































 
6.       Other items







Six months
ended
30 June
2019
£'000


Six months
ended
30 June
2018
£'000


 
Year ended
31 December
2018
£'000




Acquisition related costs


(135)


-


(62)




Share based payments (including employer related taxes)


(544)


(1,096)


(2,329)




-Impairment of development costs


-


-


(983)




-Legacy Defined benefit schemes


-


-


(73)




-Legal


(278)


-


-




-Property related


-


-


7




-Restructuring and associated costs


(313)


(59)


(985)




Other exceptional items


(591)


(59)


(2,034)




 Amortisation of IFRS 3 intangibles


(575)


(909)


(1,787)




Total administrative costs


(1,845)


(2,064)


(6,212)




Other financing costs


(86)


(60)


(106)




Other financing income


-


-


380




Total other items before tax


(1,931)


(2,124)


(5,938)




Tax on other items


354


441


1,171




Total other items after tax


(1,577)


(1,683)


(4,767)



 
IAS1, paragraph 97, requires separate disclosure of such items that are considered material by nature or value in the financial statements.  As such, 'other items' are not part of the Group's underlying trading activities and include the following for the six months ended 30 June 2018:
 
Acquisition costs: The numbers include amounts relating to corporate activity in the period. (30 June 2019: £135,000; 30 June 2018 £nil; 31 December 2018: £62,000).
 
Share based payments: The numbers above include the movement in associated employers taxes accrual (30 June 2019: £19,000; 30 June 2018: £155,000; 31 December 2018: £17,000) and the cash paid on dividends on share options that have met performance conditions (30 June 2019: £106,000; 30 June 2018: £46,000; 31 December 2018: £47,000). When the Company declares a cash dividend, some option holders are entitled to a 'dividend equivalent'. This is a payment in cash and/or additional shares with a value determined by reference to the dividends that would have been paid on the vested shares in respect of dividend record dates occurring during the period between the grant of the Award and the date on which it becomes exercisable.
 
Other exceptional items: Amounts principally reflect the costs arising in respect of the restructuring of the Group's operations and the legal costs associated with the current contingent liability (see note 19). The restructuring program has been be executed in the first half of 2019 and associated costs have been provided for. Amounts relate mainly to provision for redundancy costs. (30 June 2019; £313,000; 30 June 2018: £59,000; 31 December 2018: £985,000).
 
Amortisation of IFRS3 intangibles: Amortisation arising on the fair value of intangible assets acquired is separately disclosed as other items. (30 June 2019: £575,000; 30 June 2018 £909,000; 31 December 2018: £1,787,000).
 
Financing charges: Consistent with the treatment of movements in deferred consideration, the unwind of the discount on deferred consideration is separately presented as other financing costs in the income statement (30 June 2019: £86,000; 30 June 2018 £60,000; 31 December 2017: £106,000).
Financing income: Amounts relating to settlement gains on defined benefit schemes (30 June 2019: £nil; 30 June 2018 £nil; 31 December 2018: £380,000).
 
Taxation: the tax credit arising on the above items is presented on a consistent basis with the underlying cost or credit to which it relates and therefore is also presented separately on the face of the income statement.
 
7.       Finance costs/(income)
 







Six months
ended
30 June
2019
£'000


Six months
ended
30 June
2018
£'000


 
Year ended
31 December
2018
£'000




Interest on bank overdrafts and loans


58


-


1




Amortisation and write off of loan arrangement fees


-


-


12




Net interest payable on retirement benefit obligations


-


-


41




Other interest payable


-


13


-




Adjusted Finance costs


58


13


54




Unwinding of discounts                                                                                                   


86


60


106




Other finance costs


86


60


106




Total finance costs


144


73


160




Settlement gain on defined benefit schemes


-


-


(380)




 
Total finance costs/(income)


 
144


 
73


 
(220)



 
8.      Tax
 



























Six months
ended
30 June
2019
£'000


Six months
ended
30 June
2018
£'000


 
Year ended
31 December
2018
£'000




 
Current tax




































UK corporation tax






















-


-


114




Overseas tax






















253


1,752


702




Adjustments in respect of prior periods






















-


-


(179)




 
Deferred tax






















253


1,752


637




Current period






















433


(445)


79




Adjustments in respect of prior periods






















-


-


(14)




























433


(445)


65




 
Tax charge on losses






















 
686


 
1,307


 
702



In addition to the amount charged to the income statement, a deferred tax credit of £57,000 (30 June 2018: credit of £121,000; 31 December 2018: credit of £171,000) has been recognised directly in equity in relation to share schemes.  A deferred tax credit of £nil (30 June 2018: £nil; 31 December 2018: charge of £73,000) has been recognised in the Consolidated Statement of Comprehensive Income in relation to Defined Benefit pension schemes.
 
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, together with other appropriate Group provisions.
 
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.
 
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 months
ended
30 June
2019
£ '000


Six months
ended
30 June
2018
£ '000


 
Year ended
31 December
2018
£ '000




 
Basic weighted average number of shares in issue


 
195,224


 
195,223


 
195,224




Weighted average number of Employee share options


10,546


15,446


10,546




 
Weighted average number of shares outstanding for dilution calculations
 


 
205,770


 
210,669


 
205,770



 
Diluted earnings per share only reflects the dilutive effect of share options for which performance criteria have been met.  
 
As at 30 June 2019 there are 5,301,844 options that have met vesting criteria and can be exercised. Together with other potentially dilutive shares, based on options that have been granted but have not yet met vesting criteria of 1,838,220, the total number of potentially dilutive shares is 7,140,064 (31 December 2018: 7,140,064). In addition, there are a further 3,405,996 (31 December 2018: 3,405,996) potentially dilutive matching share options that have been granted and have met vesting criteria as at 30 June 2019.
 
The adjusted basic and diluted 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 months
ended
30 June
2019
£'000


Six months
ended
30 June
2018
£'000


 
Year ended
31 December
2018
£'000




Net profit


3,623


2,856


4,147




Earnings per share
















Basic


1.9p


1.5p


2.1p




Diluted


1.8p


1.4p


2.0p




Adjusted Net profit


5,200


4,539


8,914




Adjusted earnings per share
















Basic


2.7p


2.3p


4.6p




Diluted


2.5p


2.2p


4.3p



 
 



 


Profit for the period


Earnings per share




 


Six months
ended
30 June
2019
£'000


Six months
ended
30 June
2018
£'000


 
Year ended
31 December
2018
£'000


Six months
ended
30 June
2019
£'000


Six months
ended
30 June
2018
£'000


 
Year ended
31 December
2018
£'000


 




Profit for the period attributable to equity share holders


 
3,623


 
2,856


 
4,147


 
1.9p


 
1.5p


 
2.1p


 




Add back:


























 




Amortisation of IFRS 3 intangibles (net of tax)


412


647


1,271














 




Share based payments


420


800


2,237














 




Unwinding of discounts


86


60


106














 




Other items (net of tax)


659


176


1,153














 




Total adjusted items (net of tax)


1,577


1,683


4,767


0.8p


0.8p


2.5p


 




Adjusted earnings


5,200


4,539


8,914


2.7p


2.3p


4.6p


 














 
10.          Goodwill
 







£'000




Cost








At 1 January 2019


101,748




Additions


9,416




Exchange differences


20




 
At 30 June 2019


 
111,184




Accumulated impairment losses








At 1 January 2019


81,231














 
At 30 June 2018


 
81,231




Net book value








At 30 June 2019


29,953




 
At 31 December 2018


 
20,517



 
The Group tests annually for impairment, or more frequently if there are indicators that goodwill could be impaired.  At the half year, a review has been undertaken to ascertain if any indicators have arisen of potential impairments.  Based on the review performed, no impairment indicators that would require an impairment review have been noted.
 
11.          Other intangible assets
 







Software
£'000


Customer
contracts and
relationships
£'000


 
Acquired intellectual property
£'000


Development
costs
£'000


Business
systems
£'000


Software
licences
£'000


Total
£'000




Cost
































At 1 January 2019


7,414


6,945


1,873


30,507


6,415


1,486


54,640




Additions


-


-


-


2,812


175


12


2,999




Exchange differences


11


6


-


6


-


-


23




 
At 30 June 2019


 
7,425


 
6,951


 
1,873


 
33,325


 
6,590


 
1,498


 
57,662




Amortisation
































At 1 January 2019


6,563


5,287


561


22,577


5,509


1,425


41,922




Charge for the period


383


191


187


719


177


33


1,690




Exchange differences


15


4


-


8


-


-


27




 
At 30 June 2019


 
6,961


 
5,482


 
748


 
23,304


 
5,686


 
1,458


 
43,639




Carrying amount
































At 30 June 2019


464


1,469


1,125


10,021


904


40


14,023




 
At 31 December 2018


 
851


 
1,658


 
1,312


 
7,930


 
906


 
61


 
12,718



 
Software and customer contract and relationships have arisen from acquisitions, and are amortised over their estimated useful lives, which are 3-6 years and 3-12 years respectively.  The amortisation period for development costs incurred on the Group's product development is 3 to 7 years, based on the expected life-cycle of the product.  Amortisation of development costs is included within cost of sales; the amortisation for software, customer contracts and relationships and business systems is included within administrative expenses.  Intellectual property was acquired from WAMBIZ Limited in 2017 and is recorded as Acquired Intellectual property, discounted for deferred consideration payments which are included as a deferred consideration liability in Trade and other payables. This asset is being amortised over a period of 5 years.
 
12.          Trade and other receivables
 







30 June
2019
£'000


30 June
2018
£'000


31 December
2018
£'000




Amounts receivable for the sale of services


9,495


11,966


9,452




Less: loss allowance


(174)


(671)


(137)








9,321


11,295


9,315




Other receivables


437


677


375




Prepayments


3,579


3,138


3,150








13,337


15,110


 
12,840



 
13.          Trade and other payables
 







30 June
2019
£'000


30 June
2018
£'000


31 December
2018
£'000




Current
Trade payables


1,388


1,178


1,461




Other taxation and social security


2,414


2,592


3,028




Other payables


1,506


3,334


1,793




Deferred consideration


2,098


427


473








7,406


7,531


6,755




Non-current
















Other payables


35


160


62




Deferred consideration


1,837


-


-








1,872


160


62




Total


9,278


7,691


6,817



 
14.          Provisions
 







Property related
£'000


Legal claims
£'000


Restructuring
£'000


Total
£'000




At 1 January 2019


440


-


652


1,092




IFRS 16 adjustment


772


-


-


772




Increase/(release) in provision


(77)


154


-


77




Utilisation of provision


(97)


-


(652)


(749)




Exchange rate movement


17


-


-


17




 
At 30 June 2019


 
1,055


 
154


 
-


 
1,209


























The provisions are split as follows:
























Property related
£'000


Legal claims
£'000


Restructuring
£'000


Total
£'000


























Within one year


55


154


-


209




More than one year


1,000


-


-


1,000


























Total


1,055


154


-


1,209











 
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle the obligation.  Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.
 
Property related provision relates to the dilapidation costs arising from exiting leasehold properties, under IFRS 16.
 
Restructuring provision represent amounts provided in respect of the Group's restructuring and reorganisation and principally reflect redundancy costs.
 
15.          Acquisition of subsidiary
 
On 9 May 2019, the Group acquired 100% of the issued share capital of Crimson Holdings Limited and its subsidiary Crimson Consultants Limited (Crimson), a company incorporated in the UK that is  a leading provider of customer relationship management (CRM) based solutions to the education market.
 
This transaction has been accounted for by the acquisition method of accounting.  This comprises an initial cash consideration of £6.0m and a deferred contingent consideration of £4.0m (the discounted figure at acquisition being £3.376m) which is payable on the annual recurring revenue (ARR) growth of the acquired business. Deferred contingent consideration that becomes due shall be satisfied in the period from March 2020 to March 2021.
 
Due to the timing of the acquisition, the acquisition accounting adjustments were not complete as at 30 June 2019, however, will be finalised prior to 31 December 2019.
 
The provisional carrying amount of each class of Crimson Consultants Limited's assets before combination is set out below:
 







 
 










Book value
£'000




Tangible assets














15




Trade and other receivables














723




Cash and cash equivalents














34




Trade and other payables














(858)




Net liabilities acquired














(86)




Goodwill arising on acquisition (note 10)














9,416




Consideration
Satisfied by:




















Initial cash consideration














5,954




Deferred contingent consideration














3,376




 
 














9,330



 
The initial cash consideration paid to Crimson was satisfied through existing cash balances.
 
Crimson Consultants Limited contributed revenue of £0.4m and operating profit of £nil to the Group for the period between the date of acquisition and the balance sheet date. Acquisition related costs amounted for £0.1m.
 
Had the acquisition occurred on 1 January 2019, the Group's revenue would have increased by £1.4m and its operating profit reduced by £0.1m.
 
16.          Share capital
 



 


Six months
ended
30 June
2019
number


Six months
ended
30 June
2019
£'000


Six months
ended
30 June
2018
number


Six months
ended
30 June
2018
£'000


 
Year ended
31 December 2018
number


 
Year ended
31 December
2018
£'000




Allotted, called up and fully paid




























At beginning of the period


196,051,181


9,803


196,051,181


9,803


196,051,181


9,803




Issued during the period


-


-


-


-


-


-




At end of the period


196,051,181


9,803


196,051,181


9,803


196,051,181


9,803



 
The Company has one class of ordinary shares of 5p which carry no right to fixed income.
 
17.          Notes to the cash flow statement
 







Six months
ended
30 June
2019
£'000


Six months
ended
30 June
2018
£'000


 
Year ended
31 December
2018
£'000




Operating profit from continuing operations


4,420


4,218


4,583




















 




Depreciation of property, plant and equipment


899


496


995




Amortisation and impairment of other intangible assets


1,690


2,025


5,099




Share based payments


418


895


2,265




Research and development tax credit


(180)


-


(325)




Net pension (credit)/charge


-


-


54




Other non-cash items


134


386


55




Operating cash flows before movements in working capital


7,381


8,020


12,726




(Increase)/Decrease in receivables


(2,159)


(2,942)


2,034




Decrease in payables


(8,036)


(3,333)


1,086




Net cash (used in)/ from operating activities before tax


(2,814)


1,745


15,846




Tax (paid)/received


77


(1,196)


(1,605)




 
Net cash (used in)/from operating activities


 
(2,737)


 
549


 
14,241




 
Net cash (used in)/from operating activities before tax can be analysed as follows:
















Continuing operations (excluding restricted cash)


(2,814)


1,784


15,885




Decrease in restricted cash


-


(39)


(39)








 
(2,814)


 
1,745


 
15,846













 
18.          Analysis of net cash
 







30 June
2019
£'000


30 June
2018
£'000


31 December
2018
£'000


 




Cash and cash equivalents


6,989


9,214


19,974


 




Overdrafts


(985)


-


-


 




 
Net cash


6,004


9,214


19,974


 




 
Analysis of changes in net cash


 




 
 


30 June
2019
£'000


30 June
2018
£'000


31 December
2018
£'000


 




Opening net cash


19,974


14,082


14,082


 




Net (decrease)/increase in cash and cash equivalents


(14,048)


(4,658)


6,088


 




Effect of foreign exchange rate changes


78


(210)


(196)


 


 




 
Closing net cash


 
6,004


 
9,214


 
19,974


 














 
19.          Contingent liabilities
 
On 24 January 2019 the Group received a letter of claim from lawyers acting for a provider of a software platform on which a number of the Group's material products are based. The letter claims that Tribal Education Limited, a subsidiary of Tribal Group plc, has failed to account properly for royalties under the terms of a Value Added Reseller Agreement dated 1 April 2000 and has breached the terms of that agreement. Whilst no specific amount is claimed the letter of claim estimates the losses at between £15 million and £30 million. These claims date back over a period of more than 18 years during which the Group has regularly made royalty payments and the Directors do not consider the claims to be justified. The Directors intend to defend these claims vigorously at this stage and are of the opinion that the claims can be successfully resisted. The information usually required by IAS 37 Provisions, Contingent Liabilities and Contingent Assets is not disclosed on the grounds that it can be expected to prejudice seriously the outcome of the litigation.
 
From time to time the Group is subject to potential litigation claims.  On the basis of legal advice, claims are being robustly contested as to both liability and quantum.  A provision of £0.2m (30 June 2018: £nil, 31 December 2018: £nil) has been made for defending these claims, where appropriate.
 
At any time, the Group is overseeing a portfolio of customer implementation projects.  Such projects may be complex, multi-phase projects giving rise to significant operational risks which the Group must manage.  Such risks may, in certain instances, lead to potential negotiations or disputes with customers which may give rise to consequential financial or commercial obligations or liabilities arising.
 
The Company and its subsidiaries have provided performance guarantees issued by their banks on their behalf, in the ordinary course of business totalling £1.1m (30 June 2018: £1.5m, 31 December 2018: £1.0m).  These are not expected to result in any material financial loss.
 
20.          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. 
 
On 7 June 2019, Tribal Group plc ("the Company") granted nil-cost options over a total of 760,563 ordinary shares (representing approximately 0.40% of the Company's issued shares) to Mark Pickett under the terms of its 2010 Long Term Incentive.  This award has been granted subject to performance conditions based on the Group's Adjusted Operating Profit over a performance period ending 31 December 2019.  This award will, ordinarily, vest on the third anniversary of the grant.
 
The remuneration of 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'.  The members of the Group Board and the Group's Executive Board are considered to be the key management personnel of the Group.
 







30 June
2019
£'000


30 June
2018
£'000


31 December
2018
£'000




Short-term employee benefits


1,069


1,166


3,674




Termination benefits


-


-


291




Share-based payments


203


895


2,164




 
 


1,272


2,061


6,129



 
21.          Seasonality
 
The overall performance for the second half of the year will be lower than for the first half as a result of phasing of Education Services school inspections.  In addition, i-graduate revenues and profit are skewed to the fourth quarter of the calendar year, in line with the start of the academic year. 
 
Responsibility statement
 
The Directors' confirm that these condensed interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Services Authority and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
 
• An indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
 
• Material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report
 
The Directors of Tribal Group plc are listed in the Tribal Group plc Report and accounts for the 12 month period ended 31 December 2018.  A list of current Directors is maintained on the Tribal Group plc website: www.tribalgroup.com.
 
The Directors are responsible for the maintenance and the integrity of the Group's website.  Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
 
By order of the Board
 
 
 
 
 
Mark Pickett                                                                     
Chief Executive                                                                                
 
 
20 August 2019
 




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END
 
 
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