In May, Tribal Group sought to renew confidence in the prospects for its business by revealing an increase in its order book – see Tribal: Geographic diversification boosts orders. But today’s H1 results give the first glimpse since then into what is happening under the covers. What’s clear is that Tribal is making progress in terms of transforming its business internally. It is still early days, having set out its three-year growth strategy at the beginning of the year, but the good news is that better financial management (improved cash flow and reduction in net debt) is allowing more money to be released for investment in new product development. However, what’s also clear is that the internal improvement is set against a backdrop of continuingly tough market conditions in the UK in particular.
With a focus now entirely on the provision of technology products and services for the education, learning and training markets, Tribal’s top line revenue declined by 0.9% in the first half of the year to £57.0m. But there is so much more to understand ‘under the covers’. Our view is that Tribal’s two divisions - Technology and Services – are two quite different businesses with very little synergy between the two. The Technology business was by far the best performer with revenues up 9.6% to £25.1m. The adjusted profit margin on the technology business is also impressive at 19% (no change from the year before). And the outlook is also decidedly rosy with an increase in the order book from £99.7m to £121.6m. With 22% of business coming from foreign shores, the international prospects for the Technology business also look good. But even in the UK, Tribal talks of a “recovery in activity levels for new student management procurements”, for example.
The Services business, though, is a different kettle of fish entirely. Revenues were down 11% to £32.5m after the business withdrew from loss making contract in 2011 and also suffered as a result of slow procurement cycles. The adjusted operating margin (on continuing operations) was just 5% in H1. The international business makes up a lower proportion of the Services business at 12%, albeit up from 8% the previous year. And the Services order book was down from £121.6m to £99.7m. The big challenge for the Services business is to increasingly use technology to underpin its business services (in for example, benchmarking, career guidance, specialist content and evidence-based improvement tools). It is seeking out technology partners to that end, and has already formed a partnership with SAS for its business analytics software. That will help push operating margins in the right direction but there is very little Tribal can do about the market conditions other than continue to seek out further international growth opportunities.