MMC.L Regulatory News (MMC)

30 Apr 2009 17:32



30 April 2009 

Dissemination Announcement

Management Consulting Group PLC ("MCG" or "the Group"), the international management consultancy group, in accordance with DTR 6.3.5, today issues its Dissemination Announcement in connection with its Annual Report and Accounts for the year ended 31 December 2008 a copy of which can be found on the Group's website www.mcgplc.com. The financial information for the year ended 31 December 2008 was previously disclosed in the preliminary announcement issued on 9 March 2009.

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Notes to Editors

Management Consulting Group PLC (MMC.L) is an umbrella organisation for a diverse range of consulting and professional services offerings.

MCG operates through three divisions: Ineum Consulting, Kurt Salmon Associates, and Proudfoot. Ineum Consulting provides consulting services with industry expertise. Kurt Salmon Associates provides retail and healthcare consulting. Proudfoot provides operational improvement consulting.  The Group operates worldwide. For further information, visit www.mcgplc.com.

Forward-looking statements

This dissemination announcement contains certain forward-looking statements with respect to the financial condition, results of operations and businesses of Management Consulting Group PLC. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results of developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. The forward looking statements are based on the directors' current views and information known to them at 9 March 2009. The directors do not make any undertaking to update or revise any forward looking statements, whether as a result of new information, future events, or otherwise. Nothing in this announcement should be construed as a profit forecast.

Chairman's Statement

Overview

2008 was a challenging but ultimately very successful year for MCG. Record underlying results and strong cash generation were achieved despite the gathering economic recession and the need to carry out a painful restructuring of the Group. By the end of the year we had created a more balanced and broad-based business that is far less reliant on any one industrial sector or geography for its success. 

The business is now structured as three resilient and client-focused practices: Ineum Consulting, Kurt Salmon Associates and Proudfoot. These continue to enjoy Group synergies while benefiting from independent management driving their growth. Although our share price has fallen by 36% during 2008 this compares favourably with a significant number of other small-cap companies. I hope that our share price during 2009 will reflect the broad base of our profit stream, the strong cash generation capability of our business and the benefits of the cost reduction exercise completed late in 2008.

Proudfoot and Ineum Consulting, in particular, performed very well in 2008. Proudfoot recorded its highest revenue and profit figures since the early 1990s and Ineum Consulting continued its very successful growth, reaching almost double its revenue in 2006, the year of its acquisition. Kurt Salmon Associates experienced more difficult trading towards the end of the year, particularly due to the slowdown in its core retail market. However it responded well by actively managing its cost base in advance of the downturn and is in good shape to face its future challenges.

The Group generates well over 90% of its business outside the UK and so the current weakness of Sterling is beneficial to its reported revenue and profits. Unless Sterling strengthens significantly against major currencies, this trend will continue during 2009.

The Group again generated cash strongly during 2008, with excellent working capital management across the divisions. Although the reported year-end net debt figure is inflated by the weakness of Sterling and a cash outflow relating to over £10m of non-recurring costs, at constant exchange rates debt decreased by £18.6m during the year. We remained comfortably within our debt facility and covenant limits throughout the year.

Shareholder returns remain uppermost in our priorities and, having restructured the Group during 2008, we regularly review and consider all the strategic options open to us as we look to maximise these returns.

Summary of trading performance

MCG reached record levels of revenue and underlying profit in 2008. Total revenue for the year ended 31 December 2008 from continuing businesses was up 60.0% to £343.1m (2007: £214.5m). The Group benefited from full year trading of the two 2007 acquisitions and the strength of the Euro and the US Dollar, the Group's major trading currencies. Underlying profit from operations was up 33.3% to £34.7m (2007: £26.1m). The weakness of Sterling compared to the Euro and the US Dollar had a positive effect on the Group's results. If translated at 2007 exchange rates revenue would have been £34.4m lower and underlying profit from operations £2.7m lower.

The performance of the Group's consultancies is set out below:

*Note that excluding the US, UK and Australian results of Parson Consulting, Ineum Consulting would have recorded revenue of £131.0m (2007: £101.9m) and operating profit of £13.9m (2007: £13.1m) 

Non-recurring costs of £21.5m (2007: £2.5m) were incurred in respect of the many restructuring programmes undertaken during 2008. There was a charge of £26.7m (2007: zero) relating to the impairment of the goodwill in respect of Parson Consulting. Consequently there was an overall loss from operations of £15.9m (2007: £21.9m profit). The full year effect of the additional debt, taken on during 2007 to finance acquisitions, has increased interest expense, net of investment income, to £4.2m (2007: £2.1m). The loss before tax was £20.0m (£19.8m profit). 

Following an underlying effective tax rate of 33% (2007: 31%), the underlying earnings per share from continuing operations were up 4.9% to 6.2p (2007: 5.9p). Basic earnings per share were -6.4p (2007: 4.7p). An interim dividend of 0.40p per share (2007: 0.33p per share) was paid on 21 October 2008. The directors recommend a final dividend of 0.90p per share (2007: 0.82p per share) to be paid on 2 July 2009 to ordinary shareholders on the register at 5 June 2009.

Cash generation was strong throughout the year and net debt at year end was £62.1m (2007: £60.9m). The vast majority of the Group's debt is in Euros and US Dollars and so was adversely affected by exchange movements during the year. At 2007 exchange rates, year-end net debt would have been £42.3m.

Group structure and strategy

Ineum Consulting and Kurt Salmon Associates are industry-led consultancies offering strategic and business management consultancy services. Proudfoot is an operational improvement business. To maintain the appropriate focus on these three practices I have revamped the organisational structure of the Group so that each reports directly to me. As a consequence their results will be shown separately in this report. During 2008 Parson Consulting and Viaduct Consulting were integrated into Ineum Consulting and their names discontinued. In December 2008 the stake in Salzer Consulting was sold back to the original owner. 

In parallel to these organisational changes a strategic review was undertaken to develop a blueprint for the future direction of the Group. This too was completed just as the credit squeeze began to take hold and the global economy headed towards recession. Growth opportunities for the Group were identified during the process and the Group intends to invest cautiously in the resource required to exploit these as external economic conditions allow. Likewise many cost saving opportunities became evident and the Group has embraced these quickly and expediently in order to refocus the business to its three key brands and its appropriate geographical footprint. Non-client facing costs, particularly central costs, have been minimised during 2008. Around a dozen properties have been withdrawn from during the year and a further five downsized. The Group has restructured its old Parson Consulting and Viaduct Consulting businesses, integrating these into Ineum Consulting, sold its stake in Salzer Consulting and downsized its operations in China to reduce substantially the losses in the region.

The strategy of MCG remains to maximise shareholder value through organic growth and selected small acquisitions whilst reducing the net debt of the business, with a view to becoming debt free before the expiry of the current committed banking facility in 2012. 

People

On 19 February 2008, Rolf Stomberg, Chairman and Kevin Parry, Chief Executive, stood down from the Board. On the same day I was appointed Executive Chairman and continue to have overall executive responsibility for the Group. On 19 March 2008, Luiz Carvalho, Miguel de Fontenay and Mark Wietecha joined the Board as Executive Directors. On 23 April 2008, Mark Wietecha was appointed Deputy Chairman and Luiz Carvalho and Miguel de Fontenay appointed Managing Directors of MCG. On 19 February 2008, Craig Smith, Finance Director, announced his resignation but on 23 April 2008 agreed to withdraw this and continue in that role. On 8 October 2008, Julian Waldron was appointed to the Board as Non-executive Director. At the 2008 Annual General Meeting Mark Wietecha will relinquish his position as Deputy Chairman and become a Managing Director of MCG with executive responsibility for Kurt Salmon Associates. The Board currently has five Non-executive Directors and is seeking to appoint one more to reflect the geographical diversity of MCG. I would like to take this opportunity to thank all the Directors who worked with MCG during 2008, and indeed all the employees, for their sterling efforts during this turbulent year in the Group's history.

Alan Barber

Executive Chairman

Directors' Responsibility Statement

The following statement was prepared in connection with the full Annual Report and Accounts and Directors' Report. Certain notes and parts of the Directors Report are not included in this Dissemination Announcement. The Directors' Responsibility Statement, which should be read in conjunction with the report of the independent auditors contained in the full Annual Report and Accounts, is made with a view to distinguishing for shareholders the respective responsibilities of the directors and auditors in relation to the financial statements.

The directors are responsible for preparing the Annual Report including the Directors' Report, Remuneration Report and financial statements. The directors are required to prepare financial statements for the Group in accordance with International Financial Reporting Standards ("IFRS") and have also elected to prepare financial statements for the Company in accordance with IFRS. United Kingdom company law requires the directors to prepare the Directors' Report, Remuneration Report and financial statements in accordance with IFRS, the Companies Act 1985 and Article 4 of the IAS Regulation.

The Group financial statements are required to present fairly the financial position and performance of the Group. The Companies Act 1985 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving fair presentation. The Company financial statements are required by law to give a true and fair view of the state of affairs of the Company.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company. They have responsibility for taking reasonable steps to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates have been used in the preparation of these financial statements and applicable accounting standards have been followed. These policies and standards, for which the directors accept responsibility, have been discussed with the auditors.

We confirm to the best of our knowledge:

1. the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

2. the Management Statement, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

The directors having prepared the financial statements, have requested the auditors to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland) and have requested the auditors to take whatever steps and to undertake whatever inspections they consider appropriate for the purpose of giving their report.

The Management Statement and the Financial Review contain certain forward-looking statements with respect to the financial condition, results of operations and businesses of the Group. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. The forward looking statements are based on the directors' current views and information known to them at 9 March 2009. The directors do not make any undertaking to update or revise any forward looking statements, whether as a result of new information, future events, or otherwise. Nothing in this report should be construed as a profit forecast.

By order of the Board 

Charles Ansley

Company Secretary

Group balance sheet

Consolidated cash flow statement

Notes

1. Basis of preparation

The financial information included in this statement does not constitute the company's statutory accounts for the years ended 31 December 2008 or 2007, but is derived from those accounts. Statutory accounts for 2007 have been delivered to the Registrar of Companies and those for 2008 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their reports and did not contain statements under S237(2) or (3) Companies Act 1985.

While the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRSs.

The Group's 2008 Annual Report and Accounts is available at the Company's registered office at 10 Fleet Place, London, EC4M 7RB, United Kingdom and on our website: www.mcgplc.com.

The Annual General Meeting was held at 2pm on 21 April 2009 at the offices of Baker & McKenzie LLP, 100 New Bridge Street, London, EC4V 6JA.

2. Accounting policies

The financial information has been prepared in accordance with IFRSs. These financial statements have been prepared in accordance with those IFRS standards and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these statements (as at 31 December 2008). The policies have been consistently applied to all the periods presented.

Full details of the Group's accounting polices can be found in the 2008 Annual Report in note 2 which is available on our website: www.mcgplc.com.

3. Principal risks and uncertainties and going concern

The Group has operating and financial policies and procedures designed to maximise shareholder value within a defined risk management framework. The key risks to which the business is exposed are reviewed regularly by senior management and the Board.

The major risks facing the business relate to the demand for services provided by the Group in the markets and sectors in which it operates, management of its client base, recruitment and retention of talented employees and optimisation of the Group's intellectual capital. These risks are managed by anticipating market trends, maximising staff utilisation, developing remuneration policies that reward good performance and promote continued employment with the Group, and maintaining a comprehensive knowledge management system.

Potential contractual liabilities arising from client engagements are managed through control of contractual conditions and insurance arrangements. The Directors are aware of no material outstanding litigation against the Group not covered by an appropriate level of insurance or provision in the financial statements.

The directors have acknowledged the latest guidance on going concern. Whilst the current economic environment has caused general uncertainty, the Group has committed borrowing facilities until September 2012, together with a balanced and broad-based business which is not reliant on any one industrial sector or geography. There is significant working capital headroom and strong covenant compliance. As a consequence, the directors believe that that Group is well placed to manage its business risks successfully and as such the Group's financial statements have been prepared on a going concern basis.

4. Segmental information

The Group has one business reporting segment: management consultancy consisting of the three consultancies: Ineum Consulting, Kurt Salmon Associates, Proudfoot Consulting.

Primary reporting format - geographic segments

The Group operates in three geographic areas: the Americas, Europe and the Rest of the World.

The Group reports segment information on the basis of geographic area as follows:

(a) Income statement

 (b) Net assets 

(c) Capital additions, depreciation and amortisation 

 (d) Income statement

 (e) Net assets

(f) Capital additions, depreciation and amortisation

5. Dividends

Dividends are not payable on shares held in the employee share trust which has waived its entitlement to dividends. The amount of the dividend waived in 2008 (in respect of the year ended 31 December 2007 was £51,000 (2007: £56,000).

The directors recommend the payment of a final dividend in respect of 2008 of 0.90 pence per share to be paid on 2 July 2009 to ordinary shareholders on the register on 5 June 2009.

6. Staff numbers and costs

The average number of persons employed by the Group (including directors) during the year, analysed by category, was as follows:

As at 31 December 2008, the Group employed 2,231 (2007: 2,176) people.

The aggregate payroll costs of these persons were as follows:

Wages and salaries include £1,324,000 (2007: £779,000) relating to share options recognised as an expense under IFRS 2.

7. Finance income/(costs)

8. Tax

UK corporation tax is calculated at 28.5% (2006: 30%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rate prevailing in the respective jurisdictions.

9. Earnings per share

From continuing operations

The calculation of the basic and diluted earnings per share is based on the following data:

The average share price for the year ended 31 December 2008 was 31.6p (2007: 45.2p).

10. Notes to the cash flow statement

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.

11. Group statement of changes in equity