The financial year (to end Dec 2012) results of Tribal Group had been pre-empted by a trading update last week (see Tribal profits ahead of expectations). As expected revenues increased (up 7% to £115.4m) as was the adjusted operating profit (up 27% to £12.8m). And following the first year of its three-year strategic plan, it is clear that a focus on enhanced operational and financial performance is paying off, illustrated by good cash generation and a reduction in net debt from £16.0m to £9.9m.
What the results reveal that the trading update didn’t is that some areas of the business continue to perform more strongly than others. The jewel in the crown is the ‘Systems’ division, where total revenues increased by 23% to £55.5m. All the growth came from international markets; UK revenues were flat year-on-year. But even keeping revenues steady in the UK is an achievement considering the tough market conditions. The systems business has two things going for it: 1) Tribal has got a strong handle on what higher and further education institutions need at a time when students are becoming more demanding as ‘customers’ and the education market is becoming increasingly international. And Tribal is upping investment to ensure its systems are hitting the spot; and 2) At a time when the UK market is tough, its software is repeatable such that it can be relatively easily deployed in international markets.
On the other hand, the ‘Solutions’ business, which predominantly operates in the UK market, suffered a revenue decline of 6% (9% down in the UK). Tribal is attempting to refocus the business so that it offers services which are founded upon software-based tools utilising the rich IP in Tribal’s business. This will allow it to follow the example of the ‘Systems’ business and offer its services internationally (international sales are just 10% of the Solutions business today). It is still early days for this journey. It does beg the question whether the current divisional structure is appropriate. Would it not be better for the ‘Systems’ and ‘Solutions’ businesses to be reorganised into vertical go-to-market units (e.g. higher education, further education, schools and central government) so that Tribal can more easily combine its IP and services capabilities?