Tribal Group PLC - Interim Results

RNS Number:1555I

Tribal Group PLC

21 November 2007

Tribal Group plc

Interim results for the six months ended 30 September 2007

'...Encouraging improvement in performance with profits and earnings

significantly ahead...'

Strone Macpherson, Chairman

Highlights

* Organic revenue growth of 12%

* Adjusted profit before tax up 124% to #5.6m (2006: #2.5m)

* Adjusted diluted EPS up 134% to 4.22p (2006:1.80p)

* Interim dividend increased by 10% to 1.15p

* Overall strong performance; weaker trading in resourcing

* Strategy review concluded

* Profit on disposal of Mercury Health of #27m

* Net debt reduced substantially to #6.9m

Financial summary:

Normalised results Six months Six months

ended ended

30 September 30 September

2007 2006

Turnover #120.4m #107.2m +12%

Revenue #97.1m #86.9m +12%

Adjusted operating profit #6.0m #4.4m +36%

Adjusted operating margins 6.2% 5.1%

Adjusted profit before tax #5.6m #2.5m +124%

Adjusted diluted earnings per share 4.22p 1.80p +134%

Operating profit to cash conversion 55% (17%)

Proposed interim dividend 1.15p 1.05p +10%

Note: Adjusted results are presented to provide a better indication of overall

financial performance of the continuing operations and to reflect how the

business is managed and measured on a day-to-day basis. The adjusted operating

profit excludes goodwill impairment of #9.0m (see below for details) (2006:

#2.0m), intangible asset amortisation of #0.2m (2006: #0.2m), share option costs

of #0.3m (2006: #0.2m). The adjusted profit before tax and diluted earnings per

share exclude the financial instrument charge of #nil (2006: #nil).

Statutory results Six months Six months

ended ended

30 September 30 September

2007 2006

Turnover #120.4m #107.2m +12%

Revenue #97.1m #86.9m +12%

Operating (loss)/profit (#3.4m) #2.0m

(Loss)/profit before tax (#3.8m) #0.1m

Loss after tax (#5.6m) (#0.5m)

Basic loss per share (6.90)p (1.00)p

Profit for the period #21.7m #0.9m

Both the normalised and statutory results, with the exception of profit for the

period are for continuing operations only and so exclude the discontinued

operations of Mercury Health.

For further information contact:

Peter Martin Chief Executive Tribal Group plc Tel: 020 7323 7110

Simon Lawton Group Finance Director Tribal Group plc Tel: 020 7323 7110

Colin Browne/ Maitland Tel: 020 7379 5151

Anthony Silverman

A copy of the presentation on these results, to be made to analysts this morning

at 9.30am, will be available on the Group's website. www.tribalgroup.co.uk,

shortly afterwards.

Chairman's statement

The six month period to 30 September 2007 has seen an encouraging improvement in

performance with profits and earnings significantly ahead of the corresponding

period last year.

We are pleased by the level of organic revenue growth (12 per cent.) and the

recovery in operating margins from 5.1 per cent. to 6.2 per cent. The period

also saw the successful sale of Mercury Health, realising a profit of #27

million and allowing us to reduce substantially our level of debt to #6.9

million.

Overall, our markets remain buoyant and we continue to see good demand for our

services. Generally, our businesses have performed well, with particularly

strong performances from consulting and architectural services. However, our

resourcing business has suffered further margin erosion in its core advertising

business as clients continue to move away from the use of traditional media to

the internet.

Following the appointment of Peter Martin as Chief Executive in June 2007, we

have undertaken a review of the Group's core competencies, competitive strengths

and growth opportunities. Tribal has an extensive range of skills and

capabilities and deep knowledge of its chosen markets that together provide the

Group with a distinct competitive advantage. We have concluded that the Group is

well-placed to take advantage of opportunities to grow through the provision of

consultancy, support and delivery services that improve the delivery of public

services.

The key elements of our future strategy will be:

*A focus on our core markets of education, health, housing and

regeneration, local government and central government;

*Development of more integrated service offerings to meet the requirements

of our clients;

*A target of increasing the proportion of revenue from support and

delivery to 60 per cent. of annual revenue by 2010;

*Focused investment in key areas to take advantage of emerging

opportunities; and

*Small, selective acquisitions that support the strategic development of

the Group.

Over the next 12 months, we will be introducing measures to improve

profitability, including applying stricter commercial criteria to our new

business activity. We will also be developing systems and processes that will

encourage greater collaboration and accelerate growth across the Group.

As part of our review, we have given careful consideration to goodwill carrying

values and, in the light of the trading weakness in our resourcing business, we

have taken an impairment charge of #9m in respect of this activity.

Our financial goals are to drive significant earnings growth over the

medium-term through double digit organic increases in annual revenue and

progressive improvement in operating margins. We will ensure that our operations

have the necessary investment and management resource to provide a robust

platform for growth in 2008 and beyond.

The interim dividend is being raised by 10 per cent. to 1.15p. Tribal has the

authority to buy back its own shares and the Board regularly reviews the merits

of this course of action.

As previously announced, we have taken the decision to change our year end to 31

December. Our businesses have continued to enjoy good trading conditions in

October and November and the Board remains confident that the results for the

nine months to December 2007, before impairment charges, will be significantly

ahead of the corresponding period last year.

Strone Macpherson

Chairman

21 November 2007

Interim management report

Chief Executive's statement

Results for the six months ended 30 September 2007

We are pleased to report a strong overall set of results for the six months

ended 30 September 2007. The Group's revenue from continuing operations was up

12 per cent. at #97.1m (2006: #86.9m), operating profit* increased by 36 per

cent. to #6.0m (2006: #4.4m) and the operating margin* improved to 6.2 per cent.

(2006: 5.1 per cent.). Adjusted profit before tax* was up 124 per cent. at #5.6m

(2006: #2.5m) and the adjusted diluted earnings per share* increased by 134 per

cent. to 4.2p (2006: 1.8p).

The statutory loss before tax of #3.8m (2006: profit of #0.1m) is after an

impairment charge of #9.0m (2006: #2.0m). Retained profit for the period was

#21.7m (2006: #0.9m), reflecting the profit of #27m realised on the disposal of

Mercury Health.

Cash inflow from continuing operating activities for the six months to

30 September 2007 was #3.3m before tax (2006: outflow #0.7m) representing an

operating profit* to cash conversion of 55 per cent. (2006: outflow 17% per

cent.).

Net debt at 30 September 2007 was #6.9m (2006: #84.3m) representing gearing of 4

per cent. Interest was covered 14 times by operating profit*.

* The operating profit, operating margin, adjusted profit before tax and

adjusted diluted earnings per share are stated before goodwill impairment of

#9.0m (2006: #2.0m), intangible asset amortisation of #0.2m (2006: #0.2m), share

option costs of #0.3m (2006: #0.2m) and, in the case of adjusted profit before

tax and adjusted diluted earnings per share, financial instrument charge of #nil

(2006: #nil).

Dividend

The interim dividend is being increased by 10 per cent. to 1.15p per share

(2006: 1.05p). This will be paid on 16 January 2008 to shareholders on the

register on 14 December 2007.

Markets

Overall, our markets have remained buoyant as evidenced by the double digit

growth in revenue in the six months to 30 September 2007. Our core business is

working in partnership with our client organisations to improve the delivery of

public services. We remain confident that the scale of the Government's reform

agenda, the changing role of public sector organisations, the drive for improved

standards and the pressure to deliver better value for money will create

increasing demand for our services.

The Comprehensive Spending Review announced on 9 October 2007 confirmed an

overall increase in public spending of 2.1 per cent. per annum in the period to

2011, with education and health receiving above average awards of 5.6 per cent.

and 4 per cent. per annum respectively. Whilst the overall level of spending on

public services is important, Tribal's growth is principally determined by our

ability to position ourselves to support the implementation of specific

initiatives.

In education, our businesses are working to support the training and skills

agenda, offender learning programmes, schools inspections, the development of

new academies and 'Building Schools for the Future'. In health, we have been

closely involved in Connecting for Health (the national IT programme) and

capital investment projects across England and Wales and we have recently been

appointed to the new commissioning framework supporting the work of primary care

trusts. In housing and regeneration, we are providing services to the social and

affordable housing sector, urban regeneration projects and the built

environment. In local government, we are working with local authorities across

the country to fill capacity and capability gaps that are arising as these

organisations face significant changes in their structure and role. Our work in

central government supports a wide range of departments as they implement the

Government's priorities of improved delivery and productivity, more effective

procurement and commissioning and the introduction of shared services.

Operating review

Following the disposal of Mercury Health, we are reporting our results under

three business streams, Education, Consulting and Support services, in order to

provide a clearer focus on our underlying activities and to reflect our

operating and management structure. Support services comprises our

communications and PR, architectural design and resourcing businesses. All three

business streams have increased revenue and operating profit* during the period

under review.

Note: the segmental operating profit and operating profit margin figures are

stated in accordance with the business segment information in note 3.

Education

6 months 6 months

ended ended

30 September 30 September

2007 2006

#000 #000

Revenue 38,269 35,748

Operating profit 4,361 4,327

Operating profit margin 11.4% 12.1%

Education revenues grew 7 per cent. in the period to #38.3m (2006: #35.7m),

representing 39 per cent. of total group revenue. Operating margins reflect

investment in new products and services and the increased competitive

environment for our software products.

Tribal is one of the leading education businesses in the UK, providing a wide

range of services that support the delivery of education and learning in

schools, further and higher education and the wider community through

relationships with adult learning organisations and private training providers.

During the period, our three education businesses have continued to win

significant new business.

Our Learning and Publishing business is well-placed to address the Government's

agenda for skills and has developed strong relationships with key delivery

organisations. In the past six months, we have won contracts worth over #5m to

deliver literacy, language and numeracy programmes for the Quality Improvement

Agency and to develop the national strategy for adult numeracy for the

Department for Innovation Universities and Skills (DIUS). In addition, we won

employee skills training contracts from Ford Motor Company and the London

Borough of Barking and Dagenham. As previously announced, we have acquired the

outstanding minority interest in Sportsvine, allowing us to accelerate the

integration of our publishing activities.

Our core Software business of providing student administration systems has

performed well, winning a number of new contracts including New College, Swindon

and Highbury College in further education (FE) and the University of Nottingham

and Queen Mary University of London in higher education (HE). In HE, we are the

market leader. In work based learning, we remain the leading supplier and have

added new clients such as South Tees Hospital NHS Trust, Whitbread Group and the

Jaguar and Land Rover Academy. We continue to develop new solutions both for our

existing markets and new areas such as children's services. Our asset management

software has won several new clients, including English Heritage and London Fire

and Emergency Planning Authority, and our information management business has

won important new business with private sector organisations such as Total and

Microsoft and with public sector clients such as Transport for London. We are

also seeing increasing interest in our products from overseas.

In Services, our core schools inspection contracts continued to perform well

during the period. We were appointed to the new Department for Children, Schools

and Families (DCSF) Academies framework and have subsequently won two

significant project management contracts for academies in Birmingham. Our

benchmarking services had a busy period that included winning a major national

FE contract in New Zealand, launching an improved product in the UK and winning

several new clients in the HE sector, including the University of East Anglia.

We also made significant progress in Building Schools for the Future, both on

the client side and working with consortia.

Consulting

6 months 6 months

ended ended

30 September 30 September

2007 2006

#000 #000

Revenue 31,818 25,912

Operating profit 2,237 1,536

Operating profit margin 7.0% 5.9%

Our consulting businesses had a very good start to the year with revenues up 23

per cent. to #31.8m (2006: #25.9m), representing 33 per cent. of group revenue,

and a considerable improvement on the disappointing results of last year.

Operating profit increased by 46 per cent. to #2.2m (2006: #1.5m) and operating

margins rose to 7.0 per cent. (2006: 5.9 per cent.). The performance reflects

the importance of accessing and developing government framework contracts such

as Catalist.

Our health business saw good demand for its services, particularly in growth

areas such as health informatics, service improvement and organisational

development. We recently won important extensions to our contracts that support

the national IT programme. During the period, we secured a major new framework

contract with the Department of Health, the Framework for External Support of

Commissioning (FESC). The new framework positions Tribal as a major player in

one of our key growth markets and we are working on some early opportunities.

Elsewhere, the practice is seeing success in exporting its services to countries

such as the Republic of Ireland, and Qatar. We also won a number of new

framework contracts with government organisations.

We have now brought together our housing and regeneration businesses in order to

better align Tribal's offering with the needs of our clients. The combined

practice has continued to strengthen its market position in the social housing

market, working with a wide range of clients implementing their housing

transfer, funding and development plans. We are also supporting new government

initiatives such as the merger of English Partnerships and the Housing

Corporation and the 'First time buyer' initiative to tackle housing

affordability. Our regeneration business has continued to support a number of

development projects in England and Scotland. Our planning advisory practice is

seeing buoyant market conditions and recently won a landmark planning

application on behalf of Center Parcs for a new development in Bedfordshire.

Our central government businesses continue to experience strong growth with the

development of key NHS, Home Office and Foreign and Commonwealth accounts. We

are seeing significant opportunities to develop our procurement and supply chain

offerings. We won places on the MoD and HM Revenue and Customs consulting

frameworks and are exploring ways in which our specific skills and capabilities

currently deployed in central government can be extended into other sectors. Our

rate of growth is determined by our ability to recruit capable staff and we are

very pleased by the quality of people now joining our businesses.

We see significant opportunities to develop our local government consulting

practice. We are currently restructuring the business to ensure we are

positioned to take advantage of market growth. We have made a new appointment of

a Group business development director for local government and we have also

recently recruited one of the country's leading children's services directors

who will be supporting our initiatives in local government.

Support services

6 months 6 months

ended ended

30 September 30 September

2007 2006

#000 #000

Revenue 27,925 26,322

Operating profit 2,386 1,697

Operating profit margin 8.5% 6.4%

Our support services businesses have increased revenue by 6 per cent. to #27.9m

(2006: #26.3m), representing 28 per cent. of group revenue. Overall, operating

profit increased by 41 per cent. to #2.4m (2006: #1.7m) with margins rising to

8.5 per cent. (2006: 6.4 per cent.). The profit outturn was buoyed by the #1.25m

of fees earned for reaching financial close on the Peterborough PFI hospital

project in July.

Our architectural design practice has performed particularly well during the

period. Besides the Peterborough PFI hospital, we reached financial close on

another significant PFI hospital scheme in North Middlesex. We are also working

on a wide range of other health projects and see significant opportunities to

grow, particularly in Wales where we are members of one of only three consortia

in a #1.8bn health framework. The significant capital investment in the further

education sector continues to provide opportunities and we have won a number of

important new assignments including Bedford College and Liverpool City Council.

We are implementing our expansion plans with the opening of a Belfast office and

the extension of our business in South Africa.

Our communications and PR business has had a strong six months, securing some

significant work from central government and corporate clients. We achieved

considerable organic growth from existing client accounts in terms of extended

contracts and additional spend and also had success in winning new business from

government departments and agencies.

The market for our resourcing business has seen a further marked shift to

on-line media, a significant reduction in senior vacancies year-on-year and

increased competition. This challenging trading environment has significantly

impaired profitability beyond the level we anticipated previously. We have had

to make further staff reductions and review our cost structure and competitive

strengths. We have developed and are executing a plan to improve margins and we

expect results to improve in 2008 with a stronger management structure and

increasing demand for our new service offerings in interim management,

recruitment process outsourcing and e-resourcing. Despite the actions taken

during the period, a detailed review of the carrying value of goodwill has

highlighted the impact of the structural and competitive changes in the sector

and so we have therefore concluded that an impairment charge of #9m should be

recorded.

Strategy review

During the past few months, we have undertaken a review of the Group's core

competencies, competitive strengths and market opportunities. In summary, the

key outcomes of the review are as follows:

* Tribal's core business is improving the delivery of public services;

* We will primarily focus on the significant opportunities for growth in

our existing markets of education, health, housing and regeneration, local

government and central government;

* The Group will offer a range of services spanning consulting, support

and delivery;

* We will be looking to increase the proportion of revenue from support

and delivery in order to raise progressively the level of committed income

to 60 per cent. of annual revenue by 2010 (circa 40% in 2007);

* Our businesses will increasingly focus on intra-group collaboration in

order to deliver integrated service offerings for our clients and to

maximise the revenue potential of our client base; and

* We will selectively market our services to take advantage of

opportunities in the private sector and overseas.

Growth strategy

The Group's principal financial targets are to generate double digit organic

increases in annual revenue and to raise progressively operating margins in

order to drive significant growth in earnings. The Group will look to increase

revenue and profits in the following ways:

* Ensuring that we focus our development efforts on key government

initiatives;

* A rigorous approach to new business to ensure that resources are

deployed effectively and opportunities are properly qualified;

* A re-engineering of our pricing and delivery model to ensure that

acceptable margins are achieved across all businesses;

* Focused investment in key areas to take advantage of emerging

opportunities;

* Organic expansion of our core businesses; and

* Selective acquisitions that support the strategic development of the

Group.

Education

Annual revenue of circa #90m. The key elements of our education strategy are as

follows:

* Continued investment in our student administration systems to generate

organic growth in our core markets and to allow development into related

areas such as children's services. In 2008, we will be investing

approximately #1.7m in software development. We will also be selectively

targeting international opportunities, particularly in higher education;

* Acquisition of strategically complementary software and other education

and learning businesses that will enable us to provide clients with

increasingly comprehensive solutions;

* Development of integrated service offerings to address key initiatives

such as city academies, 'Building Schools for the Future' and the skills

agenda;

* Establishing a strong competitive proposal to take advantage of the next

wave of large-scale offender learning outsourcing contracts that will be

tendered in 2009 (the total value of the opportunity is estimated to be in

excess of #35m over three years); and

* Diversification of our inspections business both in the UK and overseas

and the development of a strong proposition to ensure retention of a

significant market share when the existing Ofsted contracts are re-tendered

in 2009.

Consulting

Annual revenue of circa #60m. The key features of our consulting strategy are as

follows:

* A strong focus on gaining and retaining access to framework agreements.

These agreements are increasingly the principal gateway to public sector

consulting assignments (for example, we recently won a place on the HMRC

consulting, MOD technical support and the DIUS frameworks);

* Development of strong 'horizontal' service capabilities in areas such as

procurement, supply chain, performance management and IT strategy to

complement our 'vertical' market expertise;

* Organic growth through the continuing recruitment of high quality

consultants;

* Rigorous review of our business model to ensure that we generate

consistently high margins; and

* Investment in developing a strong commissioning capability to support

emerging opportunities in health. We will be investing approximately #0.5m

in 2008 to take advantage of anticipated commissioning opportunities that

collectively are expected to be worth several million pounds a year.

Support services

Annual revenue of circa #45m. In each of our three areas of operation, we see

opportunities to grow and develop as follows:

* Our communications business will focus on organic growth, expanding the

range of services that it offers and ensuring that we are represented on an

increasing number of framework agreements for public sector PR work;

* Our architectural design business is now the largest in the UK

specialising in health, education and science and is well placed to take

advantage of the continuing investment in public sector infrastructure. For

example, in further education, approximately #5bn will be invested in

capital projects over the next five years. We will also be seeking

acquisitions in order to develop a more broadly-based design business.

* Our resourcing business will continue to refocus its operations to take

account of the maturity of its core advertising market. There are

significant opportunities to develop its newer areas of activity,

particularly recruitment process outsourcing, and focused investment will be

made in these initiatives in order to drive future growth.

People

The Group now employs 2,000 staff and our success is a reflection of the hard

work and commitment of all our employees. I would like to take this opportunity

to thank them for their contribution. I am very pleased to announce that

Virginia Rothwell has joined our executive management team as Group HR Director.

Virginia has held a number of senior HR posts during a highly successful career

at BT. She will be working with me to develop the leadership of the Group and to

establish attractive recruitment and retention policies.

Risks and uncertainties

As required under IAS 34 'Interim reporting' and the new UKLA Disclosure and

Transparency rules ('DTR'), the Board is providing a description of the

principal risks and uncertainties for the remainder of the accounting period.

The Board considers risk assessment, identification of mitigating actions and

internal controls to be fundamental to achieving the Group's strategic

objectives. The principal risks that the Group manages are as follows:

*Reputational risk

*Changes in government policy and spending

*Operational risks - competition, pricing policy

*Financial risks - funding, credit risk, interest rate risk.

Our risk management policies are more fully documented in the Group's annual

report and accounts for the year ended 31 March 2007.

A further factor to report under the DTR is that the Group has changed its year

end to 31 December and will be reporting results for the nine months to 31

December 2007. Since the Group's formation, trading has been very seasonally

weighted to the second half of its financial year to 31 March due to government

spending patterns. Accordingly, there is a degree of uncertainty over the impact

the change to a December period end may have on the Group's performance over the

remaining three months of the current financial period.

Prospects

Trading conditions have remained favourable across the Group during October and

November and the forward order book of the Group now stands at #133m (2006:

#112m). The Board is confident that the Group's performance in the nine month

period to 31 December 2007, before impairment charges, will be significantly

ahead of the corresponding period last year.

We believe that successful execution of our strategy will deliver significant

medium-term growth in earnings. Our principal financial goals are to achieve

double digit increases in annual revenue and a progressive improvement in

operating margins. We are currently working to ensure that all of the Group's

businesses have the required investment and management resources to realise

their growth plans. The Board believes that this investment in people, systems

and new and enhanced services will allow the Group to make good progress in 2008

and provide a robust platform for accelerated growth in 2009 and 2010.

Peter Martin

Chief Executive

21 November 2007

Condensed consolidated income statement

For the six months to 30 September 2007

Six months Six months Year

ended ended ended

30 Sept 30 Sept 31 March

2007 2006 2007

Note #000 #000 #000

Continuing operations

Turnover 120,419 107,182 234,462

Direct agency costs (23,330) (20,265) (40,406)

---------- ---------- ----------

Revenue 3 97,089 86,917 194,056

Cost of sales (57,953) (54,976) (114,633)

---------- ---------- -----------

Gross profit 39,136 31,941 79,423

Administrative expenses before

amortisation of IFRS 3 intangibles, (33,103) (27,567) (64,957)

goodwill impairment and share ---------- ---------- ----------

option costs

Operating profit before

amortisation of IFRS 3

intangibles, goodwill impairment 3 6,033 4,374 14,466

and share

option costs

Amortisation of IFRS 3 intangibles (160) (160) (320)

Goodwill impairment 4 (9,000) (2,000) (14,429)

Share option costs (271) (171) (4)

Total administrative expenses (42,534) (29,898) (79,710)

---------- ---------- ----------

Operating (loss)/profit (3,398) 2,043 (287)

Investment revenues 5 1,017 549 1,225

Finance costs 6 (1,443) (2,446) (5,279)

--------- --------- ---------

(Loss)/profit before tax (3,824) 146 (4,341)

Tax 7 (1,744) (611) (2,846)

--------- ------- ---------

Loss after tax from continuing (5,568) (465) (7,187)

operations

Discontinued operations

Profit/(loss) from discontinued 8 27,254 1,346 (1,421)

operations -------- ------- ---------

Profit/(loss) for the period 21,686 881 (8,608)

-------- ----- ---------

Attributable to:-

Equity holders of the parent 21,412 544 (9,379)

Minority interest 274 337 771

-------- ----- ---------

21,686 881 (8,608)

-------- ----- ---------

Condensed consolidated income statement (continued)

For the six months to 30 September 2007

Six months Six months Year

ended ended ended

30 Sept 30 Sept 31 March

2007 2006 2007

Note

Earnings/(loss) per share

From continuing and discontinued

operations

Basic 9 25.27p 0.67p (11.5)p

Diluted 9 25.24p 0.65p (11.5)p

Adjusted basic before amortisation

of IFRS 3

intangibles, goodwill impairment,

share

option costs, profit on disposal of

Mercury 9 4.27p 3.52p 10.4p

Health, Mercury Health disposal

costs and

financial instrument charge/(credit)

Adjusted diluted before amortisation

of IFRS 3

intangibles, goodwill impairment,

share

option costs, profit on disposal of

Mercury 9 4.26p 3.39p 10.3p

Health, Mercury Health disposal

costs and

financial instrument charge/(credit)

From continuing operations

Basic 9 (6.90)p (1.00)p (9.8)p

Diluted 9 (6.90)p (1.00)p (9.8)p

Adjusted basic before amortisation

of IFRS3

intangibles, goodwill impairment,

share 9 4.22p 1.88p 8.1p

option costs and financial

instrument

charge/(credit)

Adjusted diluted before amortisation

of IFRS3

intangibles, goodwill impairment,

share 9 4.22p 1.80p 8.0p

option costs and financial

instrument

charge/(credit)

Condensed consolidated balance sheet

At 30 September 2007

30 Sept 30 Sept 31 March

2007 2006 2007

Note #000 #000 #000

Non-current assets

Goodwill 183,086 204,950 192,099

Other intangible assets 3,894 3,407 3,786

Property, plant and equipment 11 7,356 46,000 45,056

Investments 155 150 149

Amounts recoverable on contracts - 7,266 11,833

Deferred tax assets 1,429 823 772

--------- --------- ---------

195,920 262,596 253,695

--------- --------- ---------

Current assets

Inventories 1,508 1,453 1,298

Trade and other receivables 12 59,323 55,356 63,205

Amounts recoverable on contracts 288 2,583 2,840

Cash and cash equivalents 15,293 16,264 33,483

Collateralised cash 199 1,131 949

--------- --------- ---------

76,611 76,787 101,775

-------- -------- ---------

Total assets 272,531 339,383 355,470

-------- -------- ---------

Current liabilities

Trade and other payables 13 (63,590) (62,795) (81,499)

Tax liabilities (4,942) (2,754) (2,742)

Obligations under finance leases (5) (91) (98)

Bank loans and loan notes (337) (1,690) (5,530)

Provisions 14 (706) (150) (450)

Shares to be issued - (5,304) (489)

-------- -------- ---------

(69,580) (72,784) (90,808)

-------- -------- ---------

Net current assets 7,031 4,003 10,967

------- ------- --------

Non-current liabilities

Bank loans (22,076) (99,500) (102,307)

Pension liabilities 15 (1,260) (1,977) (1,436)

Deferred tax liabilities (1,260) (1,034) (2,358)

Obligations under finance leases (2) (378) (327)

Shares to be issued - (973) -

-------- -------- ---------

(24,598) (103,862) (106,428)

-------- -------- ---------

Total liabilities (94,178) (176,646) (197,236)

-------- -------- ---------

Net assets 178,353 162,737 158,234

-------- ----- ---------

Equity

Share capital 4,239 4,073 4,234

Share premium account 74,750 81,749 74,633

Other reserves 67,714 62,307 67,823

Retained earnings 29,786 13,396 9,941

-------- -------- -------

Equity attributable to equity holders

of 16 176,489 161,525 156,631

the parent

Minority interest 1,864 1,212 1,603

--------- --------- ---------

Total equity 178,353 162,737 158,234

--------- --------- ----------

Condensed consolidated statement of recognised income and expense

For the six months to 30 September 2007

Six months Six months Year

ended ended ended

30 Sept 30 Sept 31 March

2007 2006 2007

#000 #000 #000

Actuarial gain on defined benefit plans - - 436

Transfer to cash flow hedge reserve (48) 472 1,194

Deferred tax 10 (141) (489)

-------- -------- ---------

Net (expense)/income recognised directly to

equity (38) 331 1,141

Profit/(loss) for the period 21,686 881 (8,608)

-------- -------- ---------

Total recognised income and expense for the

period 21,648 1,212 (7,467)

-------- -------- ---------

Attributable to:

Equity holders of the parent 21,374 875 (8,238)

Minority interest 274 337 771

-------- -------- ---------

21,648 1,212 (7,467)

-------- -------- ---------

Condensed consolidated cash flow statement

For the six months to 30 September 2007

Six months Six months Year

ended ended ended

30 Sept 30 Sept 31 March

2007 2006 2007

Note #000 #000 #000

Net cash from operating activities 17 1,854 2,514 24,280

-------- -------- ---------

Investing activities

Interest received 919 197 1,873

Proceeds on disposal to minorities 159 1 2

Disposal of subsidiary 36,251 - -

Proceeds on disposal of property, 236 28 213

plant and

equipment

Purchases of property, plant and (1,926) (8,865) (12,196)

equipment

Expenditure on product development (942) (612) (1,564)

Acquisitions (204) (275) (556)

Purchase of trading investments (6) - -

-------- -------- ---------

Net cash inflow/(outflow) from

investing 34,487 (9,526) (12,228)

activities -------- --------- ----------

Financing activities

Interest paid (1,336) (2,216) (7,905)

Equity dividend paid - - (2,685)

Dividends to minorities (100) - (95)

Issue of shares 122 515 487

Repayment of borrowings (53,966) (1,217) (2,352)

Repayments of obligations under (1) (39) (83)

finance leases

New bank loans - 2,944 10,576

Movements in collateralised cash 750 261 443

Purchase of own shares - (122) (105)

Loan to third party repaid - 535 535

-------- -------- ---------

Net cash (used in)/from financing (54,531) 661 (1,184)

activities --------- ------- ---------

Net (decrease)/increase in cash and

cash (18,190) (6,351) 10,868

equivalents

Cash and cash equivalents at

beginning of 33,483 22,615 22,615

period -------- -------- --------

Cash and cash equivalents at end of 18 15,293 16,264 33,483

period -------- -------- --------

Notes to the condensed consolidated financial information for the six months

ended 30 September 2007

1 General information

The condensed consolidated financial information for the six months ended 30

September 2007 was approved by the Board of Directors on 21 November 2007.

The information for the year ended 31 March 2007 does not comprise statutory

accounts within the meaning of Section 240 of the Companies Act 1985. A copy of

the statutory accounts for the year ended 31 March 2007 has been filed with the

Registrar of Companies. The auditors' report on those accounts was not qualified

and did not contain statements under section 237 (2) or (3) of the Companies Act

1985.

2 Accounting policies

The condensed consolidated financial information for the six months ended 30

September 2007 has been prepared using accounting policies consistent with

International Financial Reporting Standards (IFRS) and in accordance with IAS 34

'Interim Financial Reporting'.

The same accounting policies, presentation and methods of computation are

followed in the condensed consolidated financial information as applied in the

Group's latest annual audited financial statements.

Change in accounting policies

In the current period, the Group will adopt IFRS 7 'Financial Instruments:

Disclosures' for the first time. As IFRS 7 is a disclosure standard, there is no

impact of that change in accounting policy on the half-yearly financial report.

Full details of the change will be disclosed in our report for the nine months

ended 31 December 2007.

3 Segmental analysis

The Group is currently organised into three business segments - Consulting,

Education and Support services.

Principal activities are as follows:

Consulting one of the largest consulting businesses operating in the public

- sector providing a broad range of management consultancy services.

Education one of the largest providers of education services to the public

- sector including software, managed services, school inspection

services, consultancy, benchmarking, publishing and training.

Support support services businesses largely operate in the public sector

services providing a range of PR and communications, resourcing and property

- services.

The Group previously included Mercury Health, a healthcare delivery business as

a separate segment - that operation was discontinued with effect from 20 April

2007 (see note 8). As part of the business review, following the disposal of

Mercury Health, the Group has realigned its reporting structure, splitting out

part of its Consulting segment into a separate Support services segment.

Accordingly, the business segment information for the year ended 31 March 2007

and the six months ended 30 September 2006 has been restated to show the current

business segment structure. As a result, there has been an adjustment to

inter-segment sales.

3 Segmental analysis (continued)

Six months Six months Year

ended ended ended

30 Sept 30 Sept 31 March

2007 2006 2007

#000 #000 #000

Revenue

Consulting 31,818 25,912 63,040

Education 38,269 35,748 78,700

Support services 27,925 26,322 54,917

Inter segment (923) (1,065) (2,601)

------- --------- ---------

Continuing operations 97,089 86,917 194,056

Discontinued operations (Mercury Health) 2,346 17,576 37,795

------- -------- --------

Total revenue 99,435 104,493 231,851

-------- --------- ---------

Operating profit before amortisation of

IFRS 3 intangibles, goodwill impairment and

share option costs

Consulting 2,237 1,536 2,953

Education 4,361 4,327 14,102

Support services 2,386 1,697 3,844

Unallocated corporate expenses (2,951) (3,186) (6,433)

--------- --------- ---------

Continuing operations 6,033 4,374 14,466

Discontinued operations (Mercury Health) 186 1,795 3,785

-------- ------- -------

Total operating profit before amortisation of

IFRS 3 intangibles, goodwill impairment and 6,219 6,169 18,251

share option costs ------- ------- --------

4 Goodwill impairment

The Group tests goodwill annually for impairment or more frequently if there are

indications that goodwill might be impaired.

Following the disappointing performance of the Resourcing business stream in the

six months ended 30 September 2007, due to a significant decline in local

government recruitment spend, reduced recruitment advertising spend and pressure

on advertising margins, a review of the goodwill carrying value has resulted in

an impairment charge of #9.0m (2006: #2.0m) being provided.

5 Investment revenues

Continuing operations

Six months Six months Year

ended ended ended

30 Sept 30 Sept 31 March

2007 2006 2007

#000 #000 #000

Interest on bank deposits 919 373 810

Gain arising on derivatives 98 176 415

1,017 549 1,225

6 Finance costs

Continuing operations

Six months Six months Year

ended ended ended

30 Sept 30 Sept 31 March

2007 2006 2007

#000 #000 #000

Finance charges

Interest on bank overdrafts and loans 1,260 2,223 4,894

Interest on loan notes 23 31 66

Interest on obligations under finance - - 1

leases

Net finance cost of retirement benefit

obligations 15 13 30

------- ------ ------

Total borrowing costs 1,298 2,267 4,991

Financial instruments

Loss arising on derivatives 134 45 124

Discounting charge for deferred

consideration 11 134 164

------- ------ ------

145 179 288

------- ------ ------

1,443 2,446 5,279

------- ------ ------

7 Tax

Six months Six months Year

ended ended ended

30 Sept 30 Sept 31 March

2007 2006 2007

#000 #000 #000

Continuing operations

Current tax

UK corporation tax 1,536 659 3,282

Adjustments in respect of prior years (8) - (828)

------- ------ ------

1,528 659 2,454

Deferred tax

Current year 216 (48) 392

------- ------ ------

Tax charge 1,744 611 2,846

------- ------ ------

Discontinued operations

Current tax

UK corporation tax - 366 130

Adjustments in respect of prior years - (1,095) (1,095)

------- ------ ------

- (729) (965)

Deferred tax

Current year - - 589

Tax credit - (729) (376)

------- ------ ------

8 Discontinued operations

The Group disposed of its healthcare delivery business, Mercury Health, to Care

UK on 20 April 2007; its results are presented in this condensed half-yearly

financial information as discontinued operations. The gross sale proceeds were

#76.2m, which after deduction of net debt of #15.8m and disposal costs of #4.9m

equates to net cash consideration of #55.5m.

Details of net assets disposed and disposal proceeds are as follows:

#000

Non-current assets:

Property, plant and equipment 37,567

Amounts recoverable on contracts 11,833

Other non-current assets 219

Current assets 9,516

Cash and cash equivalents 16,646

Current liabilities (13,436)

Share option reserve 7

Equity reserve 249

Deferred tax liabilities (1,961)

Bank loans (32,398)

--------

Net assets disposed 28,242

Profit on disposal 27,217

--------

Consideration 55,459

--------

Net cash flow arising from disposal #000

Cash consideration 55,459

Cash disposed (16,646)

Payment of prior period liabilities (2,562)

--------

Cash inflow from disposal 36,251

--------

The results of the discontinued operations which have been included in the

condensed consolidated income statement were as follows:

Period Six months Year

ended ended ended

20 April 30 Sept 31 March

2007 2006 2007

#000 #000 #000

Revenue 2,346 17,576 37,795

-------- -------- --------

Operating profit before share option costs

and disposal costs 186 1,795 3,785

Share option costs and disposal costs - (6) (3,306)

-------- -------- --------

Operating profit 186 1,789 479

Net finance costs (149) (1,172) (2,276)

-------- -------- --------

Profit/(loss) before tax 37 617 (1,797)

Attributable tax credit - 729 376

Profit on disposal of discontinued operations 27,217 - -

-------- -------- --------

Net profit/(loss) attributable to

discontinued 27,254 1,346 (1,421)

operations -------- -------- --------

Operating cash flows for discontinued

operations (2,132) 5,825 10,274

Investing cash flows for discontinued

operations 35,834 (7,512) (9,086)

Financing cash flows for discontinued

operations (149) 2,979 10,010

-------- -------- --------

Total cash flows 33,553 1,292 11,198

-------- -------- --------

A profit of #27.2m arose on the disposal of Mercury Health, being the net

proceeds of disposal less the carrying amount of the subsidiary's net assets. It

is not anticipated that any tax will be payable on this profit as the directors

believe that the substantial shareholder exemption will apply. Accordingly no

provision has been made.

9 Earnings per share

Earnings per share and diluted earnings per share are calculated by reference to

a weighted average number of ordinary shares calculated as follows:

Six months Six months Year