16 Apr 2020 07:00
This announcement contains inside information for the purposes of article 7 of Regulation 596/2014 (the "Market Abuse Regulation").
16 April 2020
Management Consulting Group PLC
Update on current trading and impact of COVID-19
The Group has been carefully monitoring the developments with respect to the COVID-19 outbreak and the impact, both actual and expected, on its business activities. The Group's priority is to support and protect the safety and welfare of the Group's employees during this difficult time, and also to continue to support its clients and customers, while preserving shareholder value to the maximum extent possible.
Current trading
The market and general economic turmoil that has been unleashed in recent weeks by the COVID-19 epidemic has presented, and is expected to bring still further, significant challenges for the Company.
The start of 2020 was positive, and the Group was well placed to reap the benefits of the investment in people that was undertaken in 2019.
During February the Group began to suffer from the implications of the COVID-19 pandemic with a number of projects in its Asian business deferred or temporarily put on hold, although Asia only represents a modest proportion of Group revenues. During March the pandemic spread to a significant number of other countries and this has resulted in the majority of its projects being suspended or put on hold. In order for Proudfoot to carry out its services, its consulting workforce needs to travel to client premises. This often requires international travel which is severely restricted at present. Very little of Proudfoot's client work can be performed off site.
The Group has implemented a series of actions to protect the health and safety of its employees in line with advice from local authorities and governments in all the jurisdictions in which the group operates. These are monitored and reviewed on a regular basis and communicated to our employees and clients.
The duration of the current restrictions in the majority of geographies in which the Group operates is currently undefined and therefore the length of this period of interruption cannot be estimated with any reasonable certainty. During this business interruption the business is using all available governmental grants and assistance in all its geographies to maximise liquidity and minimise net cash outflow.
The Group is therefore managing its liquidity and its cost base very tightly including the deferral of any non-essential expenditure and where appropriate temporary salary reductions with the deferral of variable pay and bonus payments.
The Group has, unconnected to COVID-19, further reviewed it's cost base with the assistance of an international advisory firm and has identified cost savings amounting to approximately £4m on an annualised basis. These are in the process of being implemented.
Notwithstanding this period of business interruption, caused by COVID-19, the Group is still in contact with clients and prospective clients and further projects have been won, however the start dates are deferred until the current crisis abates. Our focus, in this time of crisis, is to continue to support our clients as they navigate through this uncertainty, while ensuring our business is well-prepared for the "new normal" of what will emerge post COVID-19, a time where every organisation will need to transform itself. Clients will continue to look for the outside support we provide: the implementation of transformational change and delivery of measurable results. With the current book of projects, Proudfoot's strong positioning in the operational transformation market, the Group should be well placed to take advantage of the expected upturn in activity with a significantly more efficient cost base once the economic and operational backdrop improves.
Financial position and liquidity
The global COVID-19 pandemic has resulted in the Board revising its initial forecasts for the period ending 31 December 2020. Management has built a detailed 26 week cash forecast, based on its current revenue, as adjusted for the COVID-19 impact, and overlaid where available governmental grants and assistance to maximise liquidity and minimise net cash outflows. In addition, a number of cash conserving initiatives have been implemented including the furlough of certain staff and a global temporary pay reduction by 25%. This 26 week forecast has been extended to a period to April 2021 in order to review the next 12 months liquidity.
At 31 December 2019, the Group had cash and cash equivalents of £11.7m (2018: £17.3m). Cash balances at 31 December 2019 include £4.0m (2018: £4.2m) of cash required to be retained to support certain contingent creditors of the Group. In particular, €1.5m was held in an escrow account and in addition a further €1.6m was held at HSBC to secure further indemnity obligations to Wavestone, the acquirer of the French and related operations of Kurt Salmon. The HSBC security has been extended to 17th September 2020. The total held in respect of potential Wavestone claims amounts to €3.1m. Although a substantial proportion of this cash is expected to become available to the Group for general corporate purposes as the contingent obligations fall away over time, the exact amount and timing is still subject to uncertainty.
The Board had therefore concluded that, even on a worst-case basis, the Group has adequate resources to be able to operate for the foreseeable future. However, the impact of COVID 19 has led to a material uncertainty in the Group's ability to generate revenue in the normal course of business whilst the current pandemic restricts international travel and almost complete remote working persists.
Management Consulting Group PLC
Tel: +44 20 7710 5000
Nick Stagg, Chairman and Chief Executive
Market Abuse Regulation
The information contained within this announcement is deemed by the Group to constitute inside information as stipulated under the Market Abuse Regulation. Upon the publication of this announcement via a regulatory information service, this inside information is now considered to be in the public domain.
The person responsible for arranging for the release of this announcement on behalf of the Group is Nick Stagg, Chairman and Chief Executive.
Forward-looking statements
Certain information contained in this announcement constitutes forward looking information. This information relates to future events or occurrences or the Company's future performance. All information other than information of historical fact is forward looking information. The use of any of the words "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "should", "believe", "predict" and "potential" and similar expressions are intended to identify forward looking information. This information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward looking information. No assurance can be given that this information will prove to be correct and such forward looking information included in this announcement should not be relied upon. Forward-looking information speaks only as of the date of this announcement.
The forward looking information included in this announcement is expressly qualified by this cautionary statement and is made as of the date of this announcement. The Group does not undertake any obligation to publicly update or revise any forward looking information except as required by applicable securities laws.
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