30 Jun 2009 07:00
30 June 2009
Management Consulting Group PLC
Pre-Close Trading Update
Pre-Close Trading Update
Management Consulting Group PLC ('MCG' or 'the Group') issues the following pre-close period trading update ahead of the announcement of the Group's 2009 interim results which are due to be announced on 3 August 2009.
Trading by Division
Alexander Proudfoot (formerly Proudfoot Consulting) has remained robust in the first half of 2009, particularly in the United States. The vast majority of its business remained the provision of 'cost base improvement' projects, emphasising the counter-cyclical nature of its offering. Revenue to June 2009 is expected to be broadly in line with 2008 but underlying* operating profit is expected to be higher than last year due to a combination of favourable exchange rates and benefits from the restructuring projects.
Ineum Consulting (combining Ineum Consulting, Parson Consulting and Viaduct Consulting as reported in 2008) has been resilient with the French business performing particularly well. As previously reported, trading in the 'legacy' Parson US business was very slow at the beginning of the year and this business has now been closed. Losses in the first half of 2009 for this legacy business are expected to be around £1.6m and the underlying operating profit of Ineum Consulting as a whole is expected to be broadly in line with last year.
As disclosed in both the preliminary results in March and the Interim Management Statement in April, trading in Kurt Salmon Associates has been adversely affected by the current economic downturn in both its consumer products and health care markets. This trend has continued throughout the first half of 2009. Although there has been a slight improvement in the order book of the consumer products division in the second quarter, the health care business, which relies on capital expenditure in the US health care sector, continues to find its market challenging as clients conserve cash pending conclusion of the important national health reform debate later in the year. As a result of these factors, revenue for the first half of 2009 is expected to be between 20% and 25% below the corresponding figure for 2008 (and between 35% and 40% down in constant exchange rate terms) and the division is anticipated to be loss making for this period. However, Kurt Salmon Associates expects to return to profitability in the second half of the year and, although statistics for the period are not yet available, management does not believe it has lost market share.
Restructuring Programmes
The management of MCG has continued to be proactive in its restructuring of the business to mitigate the effects of the economic downturn on the short and longer term results of the business. Several programmes have been undertaken in the first half of 2009 with the result that the numbers employed worldwide in the Group are expected to be around 1,850 at the end of June, down around 300 or 14% from the number employed at the end of 2008 and around 500 or 21% from twelve months ago. The majority of this reduction has occurred in the US.
As previously reported the 'legacy' Parson US business has now been closed and it is only the CBH Consulting business, acquired in 2007, that remains active in this space. This has also involved a restructuring of the IT infrastructure in the US that used to be run in tandem with the Alexander Proudfoot systems.
Also as previously reported Kurt Salmon Associates has undertaken a substantial redundancy programme. In view of the continued soft trading this programme has been extended to cover both the US and European businesses.
In addition Alexander Proudfoot has taken the decision to close its Australian office due to the completion of its ongoing projects. The Australian business will now largely be run out of the global Natural Resource Centre of Excellence. As a result Ineum Consulting will be relocating its Sydney office to smaller premises. Alexander Proudfoot has also undertaken redundancy programmes, particularly in Europe where demand has been weak.
As a result of the above measures, non-recurring costs for the first half of 2009 are expected to be in the region of £6m to £7m (2008: £11.0m).
Amortisation of intangibles is estimated to be approximately £1.4m (2008: £1.1m). No charge is expected relating to the impairment of acquired goodwill (2008: £26.7m). Underlying earnings per share for the first half of 2009 is expected to be between 1.8p and 2.2p per share (2008: 2.8p)
Net Debt
Net debt is expected to be around £80m at 30 June 2009 (2008: £78.9m). At constant exchange rates this represents a reduction of about £15m in the past twelve months, demonstrating the continued cash generative nature of the business despite the difficult trading conditions. The Group expects to be comfortably within its covenant and facility limits. The seasonal nature of the Group's working capital cycle means that net debt generally increases in the first half of the year and decreases in the second half.
Outlook
While the Group has benefited in the first half of 2009 from the counter-cyclical nature of some of its businesses, the savings from previous restructuring programmes and the weakness in Sterling, this has been offset by the tough market conditions in the Kurt Salmon Associates business in particular. As a result revenue and underlying operating profit for the six months to 30 June 2009 are expected to be below those for the first half of 2008. The Group's revenue from continuing operations for the six-month period ended 30 June 2009 is estimated to be in the range of £150m to £160m (2008: £166.7m). Underlying operating profit is expected to be in the range of £11.5m to £12.5m (2008: £15.1m).
The recent strengthening of Sterling will, if it continues, adversely affect the reported revenue and profit of the Group for the full year but will reduce the net debt, which is held predominantly in US Dollars and Euros. The second half of 2009 also faces the challenge of being compared to a very strong second half performance in 2008, and the Group will start the period with an order book about ten percent lower than twelve months ago. As usual for MCG, visibility of this order book remains limited to three to four months and so forecasting results for the full year remains difficult although, given the above factors, the Board recognises that the Group may come in below market consensus for 2009.
Management continues to take decisions appropriate to balance its short term profitability with its longer term prospects. Shareholder returns remain uppermost in the minds of the Directors and the Board continues to review and consider its options regularly as it looks to maximise these returns.
\* The term 'underlying' is defined as '"before non-recurring items, the amortisation of acquired intangible assets and the impairment of acquired goodwill from continuing operations."
For further information please contact:
| Management Consulting Group PLC | Tel: +44 20 7710 5000 |
| Craig Smith, Finance Director | |
| Financial Dynamics | Tel: +44 20 7269 7242 |
| Ben Atwell |
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 Alexander Proudfoot. Ineum Consulting provides consulting services with industry expertise. Kurt Salmon Associates provides retail and healthcare consulting. Alexander Proudfoot provides operational improvement consulting. The Group operates worldwide. For further information, visit www.mcgplc.com.