Final Results

5 March 2015

MCG Announces Preliminary Results for 2014

Group performance in line with expectations, reflects weaker

Alexander Proudfoot and strong currency headwinds, offset by good progress in Kurt Salmon

Management Consulting Group PLC ("MCG" or "the Group"), the global professional services group, today announces its results for the year ended 31 December 2014.

 Key points

· Reported revenues down 6% at £242.8m (2013: £257.3m) due to strong currency headwinds. Revenues flat at constant exchange rates.

· Underlying* operating profit of £11.8m (2013: £21.2m), with underlying operating profit margin lower at 4.9% (2013: 8.2%), reflecting revenue weakness and the impact of investment in Alexander Proudfoot

· Profit from operations of £8.1m (2013: £17.5m) with margin on profit from operations down at 3.3% (2013: 6.8%).

· Retained loss for the year of £1.0m (2013: profit of £9.1m) reflecting an unusually high tax charge in 2014

· Strong cash generation in the second half of the year resulting in a reduction in net debt to £33.6m (2013: £39.8m), representing approximately 2x adjusted EBITDA** and comfortably within the Group's revised banking covenants

· Underlying* EPS of 0.2p (2013: EPS 2.4p); basic loss per share of 0.2p (2013: EPS 1.9p)

· Proposed final dividend of 0.595p per share. Total dividend unchanged at 0.825p per share (2013: 0.825p per share)

* Throughout this statement the term 'underlying' is defined as 'before non-recurring items and amortisation of acquired intangibles'.

**Adjusted EBITDA is adjusted operating profit, after adding back depreciation and amortisation and certain other non-cash items including the cost of share awards.

Nick Stagg, Chief Executive, commented:

"The Group's reported results in 2014 reflect the impact of strong currency headwinds and a year of planned change and weak revenues in Alexander Proudfoot. Kurt Salmon delivered an encouraging performance overall, despite continued weakness in its key French market, delivering underlying revenue growth and maintaining its margin. We have had a good start to 2015 in Kurt Salmon and we expect the trends seen in that business in 2014 to continue this year. We will continue to invest in the Alexander Proudfoot business and develop the operating model to improve its longer term performance". 

For further information please contact:

An analyst briefing will be held at the offices of FTI Consulting at 200 Aldersgate, EC1A on 5 March at 8.30am.

Notes to Editors

Management Consulting Group PLC (MMC.L) provides professional services across a wide range of industries and sectors. It comprises two independently managed practices: Alexander Proudfoot and Kurt Salmon, which both operate worldwide. Alexander Proudfoot helps clients to embed disciplined execution in their operations to achieve growth targets, revenue and profit goals. Kurt Salmon provides services to a wide range of industries. For further information, visit www.mcgplc.com.

Forward looking statements

This preliminary 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 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 4 March 2015. The directors do not make any undertakings to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Nothing in this statement should be construed as a profit forecast.

Chairman's Statement

The Group's performance in 2014 was badly affected by the impact of strong currency headwinds accounting for the six per cent decline in reported revenues. On a local currency basis, weaker revenues in Alexander Proudfoot were offset by a stronger performance in Kurt Salmon. We have invested in and taken action to restore growth and profitability in Alexander Proudfoot and I am confident that we will begin to see the benefits in 2015. Kurt Salmon has performed well in North America and other geographies and despite continued macroeconomic weakness in France it is now well placed to prosper in its core markets.

Some of the significant reduction in our profitability has been caused by our decision to develop and invest in Alexander Proudfoot to establish a firm platform for future profitable growth. After a long period during which it has been successful and profitable we are investing in the business to establish Alexander Proudfoot on a clear growth path. In the short term the action we have taken has adversely affected our 2014 results but we believe that the changes we are making will lead to a better performing and less volatile business in the future. As previously announced in 2015 I will continue to support our Group Chief Executive, Nick Stagg, in his additional role as Chief Executive of Alexander Proudfoot. Proudfoot has a distinctive and valuable offering in a crowded consulting market and we need to preserve and enhance what makes it different and compelling to clients.

Kurt Salmon had a good start to 2014 and despite some signs of weakness in the third quarter, it delivered a strong performance towards the end of the year which bodes well for 2015. In its French business revenues are stable and margins in 2014 benefited from the management action taken in 2013 to adjust resources to lower activity levels. We saw positive underlying trends in revenue elsewhere in Europe. In North America Kurt Salmon delivered an excellent performance and our challenge now is to respond to improving demand by growing our capacity to deliver, which may affect margins in 2015 as we recruit. Kurt Salmon continues to benefit from increasing work in digital transformation for clients across all sectors, and it has developed a real expertise here which is proving to be a competitive advantage.

The Group remains in a good financial position. Despite weaker profits in 2014 we have produced strong operating cash flows and have reduced our net indebtedness further in the year to £33.6m at the year end. The Board is proposing to maintain the dividend for the full year at 0.825 pence per share.

Kurt Salmon and Alexander Proudfoot are long established and successful consulting businesses with a superb portfolio of clients and highly capable employees. The Board of MCG will continue to focus on promoting profitable growth in these businesses to benefit our shareholders.

Alan Barber

Chairman

5 March 2015

Chief Executive's review

Overview

The Group's profit performance in 2014 was affected by currency headwinds, weaker revenues in Alexander Proudfoot and the adverse impact on profit of the change initiatives being implemented in that business to build a more flexible model focused on profitable growth. As a consequence, Alexander Proudfoot reported a small loss in 2014, but the Board believes that the current strategy for the business will deliver an improved performance in 2015 and beyond.

In Kurt Salmon revenues on a constant currency basis increased in 2014 from the previous year, and the underlying operating profit margin also increased slightly. Continued weakness in its key French market has contrasted with impressive revenue growth in the North American operations, and the business is well placed to benefit from further growth opportunities in 2015.

MCG operates globally with 96% of revenues in 2014 coming from projects delivered outside the UK. The same proportion of the Group's revenues in the year were billed in currencies other than Sterling and most of these currencies weakened significantly (in terms of average exchange rates) between 2013 and 2014. All of the 6% reported reduction in Group revenues in 2014 is attributable to currency translation.

MCG's strategy is to exploit the platform provided by its existing businesses to drive organic revenue and margin growth. We have no current intention to make large scale acquisitions, but will look to add capabilities where appropriate through smaller acquisitions and team hires. We will focus on opportunities in growth markets and industry sectors where we can readily exploit our strengths. The geographical spread of our businesses and our existing global office infrastructure will support an increase in operational activity.

Results for the year

Total revenue for the year ended 31 December 2014 was £242.8m, 6% lower than the previous year (2013: £257.3m). As noted, currency headwinds had a significant effect on reported revenues in both MCG's businesses, accounting for all of the year on year reduction. Alexander Proudfoot's revenues in 2014 on a constant currency basis were 4% lower than those in the previous year, with both first and second half reported revenues in the order of £30m, in contrast to 2013 which benefited from a much stronger second half. On the same constant currency basis, and excluding the Cleversys business sold in 2013, Kurt Salmon's revenues increased by more than 4% from the previous year.

Underlying operating profit in 2014 was £11.8m (2013: £21.2m), the £9.4m reduction principally reflecting the impact of lower revenues and margins in Alexander Proudfoot, resulting in a loss for the year as a whole in that business of £1.6m. Underlying operating profit in Kurt Salmon was slightly lower than the previous year in absolute terms at £13.4m, although the margin improved slightly on 2013.

Underlying operating profit for 2014 reflects a charge of £2.4m relating to share awards made to employees (2013: £3.9m). During the year 105 senior employees received awards over approximately 9.4 million shares in total, generally vesting over three years and conditional upon continued employment, and in some cases also subject to financial or share price performance. At the year end there were outstanding awards in place over 35.5 million shares relating to 141 employees (2013: 48.8 million shares and 135 employees). Some 24.0 million of these share awards, should they vest, are required to be satisfied from existing MCG shares, and the other awards may be satisfied from existing or new shares. The Group's employee benefit trusts held 8.5 million shares at the year end for this purpose, and a further 2.4 million treasury shares were held by the Group which may be used to satisfy share awards.

The Groups reported non-recurring expenses of £2.9m in 2014 (2013: £1.5m) which are largely related to the change initiatives implemented in Alexander Proudfoot and mainly comprises redundancy costs and the costs associated with the departure of the former Chief Executive of that business in March 2014.

The charge for amortisation of acquired intangibles was £0.8m (2013: £2.2m). Consequently the profit from operations decreased to £8.1m (2013: £17.5m), representing a margin of 3.3% (2013: 6.8%).

The net interest expense was lower at £3.2m (2013: £3.5m). In accordance with IAS 19R the reported net interest charge for 2014 includes an imputed charge in relation to defined benefit pensions of £0.8m (2013: £1.2m).

The profit before tax was lower at £4.9m (2013: £14.0m). The tax charge was £5.9m (2013: £4.9m). After adjusting for non-underlying items, the underlying effective tax rate was 89% (2013: 34%). The significant increase in the tax charge and the underlying tax rate in 2014 reflects the impact of project-specific tax charges in the Alexander Proudfoot business in certain geographies, together with revenue-based taxes or unrelieved losses in certain jurisdictions. A large component of the £5.9m tax charge for the year is a £2.8m non-cash item relating to the utilisation of part of the deferred tax asset relating to brought forward losses.

Consequently, there was a loss for the year attributable to the shareholders of £1.0m (2013: a profit of £9.1m). Underlying earnings per share were 0.2p (2013: EPS 2.4p) and the basic loss per share was 0.2p (2013: EPS 1.9p).

Balance sheet and dividend

The weak first half revenue performance in Alexander Proudfoot resulted in net debt rising to £48.0m at the half year stage, however strong cash generation from operations in the second half reduced net debt by £14.4m to £33.6m at the end of the year (2013: £39.8m). This equates to 2.04x adjusted EBITDA for 2014 as measured for the purpose of the Group's borrowing facility, an increase from 1.46x at the previous year end, reflecting lower profits in 2014. As a precautionary measure in order to provide some additional headroom the maximum leverage covenant has been increased at the next two quarterly testing dates in March and June 2015, from 2.75x to 3x. Positive working capital movements meant that cash generated by operations was £17.6m, significantly higher than in the previous year (2013: £6.7m).

During 2014 the Group's employee benefit trusts purchased 3.8 million of the Company's ordinary shares of 1p each for a total consideration of £1.0m.

The interim dividend for 2014 of 0.23p per share was paid on 6 January 2015. The Board is recommending, subject to shareholder approval, an unchanged total dividend for the year of 0.825p per share. The directors therefore recommend, subject to shareholder approval, a final dividend for 2014 of 0.595p per share to be paid on 7 July 2015 to shareholders on the register on 15 May 2015.

Alexander Proudfoot

Results for the year

Alexander Proudfoot's reported revenue for 2014 was 12% lower than 2013 at £60.9m (2013: £68.8m). The year on year comparison has been affected by a significant negative currency translation effect; at constant exchange rates 2014 revenues would have been £66.2m, a decrease of 4% on 2013.

The business reported a broadly break even position for the first half of 2014 on revenues of £31.3m and a loss of £1.7m in the second half on slightly weaker revenues of £29.6m, compared with underlying operating profit of £7.4m and a margin of 10.8% for 2013 as a whole. The loss for 2014 reflects both the margin impact of weaker revenues and, as expected, the impact of additional expenses and investment associated with the change initiatives announced in March 2014.

The number of staff employed by Alexander Proudfoot decreased from 337 at the end of 2013 to 327 at the end of 2014. Whilst overall headcount has reduced slightly at the year end there has been investment in people and capabilities during 2014, in particular in adding industry sector expertise and strengthening the team of executives responsible for business development. Average headcount during 2014 was slightly higher than the previous year at 343 (2013: 332).

Review of operations

During 2014 Alexander Proudfoot was organised on the basis of six business units: Europe, North America, Africa, Brazil, Chile and Hong Kong. The business is headquartered in Atlanta in the United States. Alexander Proudfoot serves clients globally, and frequently the project delivery location lies outside the geography of the business unit from which it is sold and managed. In the second quarter of 2014 a dedicated natural resources business unit was established, working across geographies.

Alexander Proudfoot had a slow start to 2014. The opening order book at the beginning of the year was stronger than at the same time in 2013, but the rate of order input in the first quarter was lower than in the second half of 2013 and so revenues were consequently weaker. There was some improvement in order input at the half year stage, but the third quarter was disappointing and saw the postponement of certain significant planned client projects from 2014 to 2015, affecting the North American business unit in particular. As a result the trading update on 6 October 2014 reported that MCG expected Alexander Proudfoot to deliver second half revenues in 2014 close to those in the first half of the year and a small operating loss for the year as a whole; actual results for the year are in line with these revised expectations.

The revenue weakness in 2014 was not obviously driven by common macroeconomic factors across all geographies. Revenues in the North American business unit, representing around one third of total revenues in 2014, were significantly weaker than in 2013. In Europe 2014 revenues were broadly stable versus 2013. Elsewhere the business units in Brazil and Africa reported weaker revenues, whilst revenues from the business units in Latin America and Asia were higher than the previous year.

The proportion of work for clients in the natural resources sector was higher than in 2013, at around half the total revenue for the year (2013: approximately one-third), and higher in absolute terms. Alexander Proudfoot continues to excel in this sector, where the business has a distinctive offering well suited to the practical operational issues faced by its clients in often difficult locations. Alexander Proudfoot's work in natural resources is diverse, ranging from precious metals to aggregates and phosphates. Work for clients in the oil and gas sector has been a relatively small proportion of the total and has not been significantly affected by falling oil prices. Alexander Proudfoot has continued to find success across a range of other industries, with the financial services and manufacturing sectors again being the most significant sources of revenue after natural resources clients.

In March 2014 the then Chief Executive of Alexander Proudfoot stepped down and the MCG Board announced that it intended to invest in and develop the Alexander Proudfoot offering in order to help build a more stable and predictable revenue base and drive top-line growth. A series of initiatives have been implemented to enhance sales and operations, introduce innovations relating to the offering and to explore new contracting models with clients. Good progress was made during 2014 with these changes which we believe will in time deliver improved performance. As previously reported, these initiatives have required investment principally in recruitment and lower utilisation,and have had an adverse effect on underlying profit in 2014 estimated at more than £2m in the year, compounding the margin impact of weaker than expected revenues. Much of the focus of the change initiatives has been on the North American operations, and the adverse margin impact in 2014 has been most apparent here.

Alexander Proudfoot has a unique and compelling offering that produces real and sustainable performance improvement for its clients. The business has a global reach and a flexible capability and is well placed to grow in those industry sectors where it has a strong track record of success, in both developed and emerging markets. It continues to operate very effectively in emerging market locations and in 2014 nearly 60% of total revenues related to work delivered outside North America and Western Europe (2013: nearly 50%). The strategy of the MCG Board and the Alexander Proudfoot management team is to build on these existing strengths, and to develop and invest in the offering, in order to provide a more stable revenue base and establish a sound platform for long term profitable growth.

Kurt Salmon

Results for the year

Kurt Salmon's reported revenue for 2014 was £181.9m, £6.6m or 3.5% lower than 2013 revenues of £188.5m. Revenues in 2013 included £5.0m from the Cleversys business which was sold in September of that year. On a constant currency basis 2014 revenues would have been £191.7m, an increase of 2% on the previous year, or more than 4% if the Cleversys revenues in 2013 are excluded.

Underlying operating profit for 2014 was £13.4m (2013: £13.8m) representing a slightly improved margin of 7.4% (2013: 7.3%).

The number of staff employed by Kurt Salmon increased during the year from 1,131 at the end of 2013 to 1,161 at the end of 2014. The overall increase in headcount mainly reflects a deliberate increase in capacity in North America in response to growth in demand, whilst in Europe there has been some net recruitment on a smaller scale. Kurt Salmon continues to recruit in the higher growth sectors and geographies within the business. Average headcount during 2014 was lower than the previous year at 1,140 (2013: 1,227), reflecting the impact of the initiatives which reduced headcount during 2013.

Review of operations

Kurt Salmon is organised on the basis of geography and global industry verticals. Kurt Salmon has its headquarter operations in Paris and New York. In Continental Europe Kurt Salmon operates from offices in France, Germany, Belgium, Luxembourg and Switzerland. It operates in the UK from MCG's head office location in London, and in the United States from offices in New York, Atlanta and San Francisco. In Asia, Kurt Salmon has offices in Tokyo, Shanghai and Hong Kong.

Kurt Salmon's operations in North America represent nearly 40% of the division as a whole, the largest element of which is the retail and consumer goods practice which contributed nearly two-thirds of North American revenues in 2014. This practice delivered an impressive performance in 2014, growing revenues by more than 12% on a constant currency basis. The business has benefited from increasing demand from US retail clients facing the challenges of adapting business models and operations to a digital environment. Kurt Salmon's healthcare consulting practice represents around 20% of North American revenues and continued to make good progress, growing revenues by nearly 7% on a constant currency basis. Kurt Salmon's other activities in North America are represented by its New York based financial sector and related CIO Advisory practices which in aggregate delivered slightly lower year on year revenues on a constant currency basis.

Kurt Salmon's French consulting practice produced about 40% of divisional revenues in 2014 and market conditions in France have therefore continued to be a key driver for the business as a whole. Kurt Salmon remains a leader in the French management consulting market with a stable blue chip client base and a high proportion of its annual revenues derived from clients who have been commissioning work from Kurt Salmon for many years. Demand for Kurt Salmon's services was broadly stable during the year, but the year did not bring clear signs of growth in the French market and business sentiment remained fragile. Overall revenues in France were some 4% lower than the previous year on a constant currency basis but this was exacerbated in terms of reported results by the weaker Euro. Headcount in France increased slightly during 2014, mainly through recruitment at more junior levels.

Elsewhere in Europe, Kurt Salmon's operations in the UK, Germany, Luxembourg, Belgium and Switzerland together represented approximately 15% of total divisional revenues in 2014. In aggregate these other European practices performed well in 2014, generating near double-digit revenue growth on a constant currency basis, led by a particularly strong performance from the retail practices in Germany and the UK.

In Asia the Kurt Salmon retail consulting operations in China and Japan have continued to make progress but these are a relatively small component of the division as a whole and reported revenues in 2014 were affected by significant currency headwinds.

The overall underlying operating profit margin for Kurt Salmon overall in 2014 was slightly better than the previous year at 7.4%, on slightly lower reported revenues. While margins in the French business remain weaker than those in North America at this stage, France remains an important and profitable market for Kurt Salmon. In Kurt Salmon's North American operations there are good short term prospects for organic growth and management will continue to explore opportunities for investment, recognising the need to balance the impact of costs associated with promoting growth initiatives with the overall profitability of the business.

Summary

The Group's reported results for 2014 are in line with our revised expectations highlighted in the trading update on 6 October 2014. The primary driver of what is a disappointing overall result for the Group was the performance of Alexander Proudfoot, which experienced a year of planned change and weak revenues, and strong currency headwinds.

Alexander Proudfoot has been a successful and highly profitable business for many years, but it has always suffered from volatility in its revenues from quarter to quarter, and has not been able to grow revenues consistently year on year. The MCG board decided in March 2014 to make a number of changes designed in part to mitigate revenue volatility, but primarily to restore the growth potential of business for the longer term. This has involved some investment and additional cost, and consequent margin erosion in 2014, which unfortunately has coincided with a year in which revenues were weak in both the first and second halves. As a result the business has reported a small underlying operating loss, for the first time in more than a decade. Good progress has been made with the "growth plan" initiatives so far and these continue in 2015, with some further adverse margin impact this year, but alongside an encouraging revenue trend at this stage of the year, which, if maintained, should restore the business to profitability.

Kurt Salmon's performance provided a contrast between its two largest markets in France and North America, which each produced around 40% of divisional revenues. In North America both the retail and consumer goods and the healthcare practices produced excellent underlying revenue growth in US Dollars, and good margins. In France activity levels were broadly flat year on year, although total revenues in Euros were slightly lower than 2013, in a market which continues to be affected by macroeconomic weakness and shows few clear signs of growth. In overall terms Kurt Salmon increased underlying revenues on a constant currency basis by more than 4%, and slightly increased its underlying operating profit margin, but currency headwinds led to a reported decrease in revenue and profit in absolute terms.

Net debt has decreased year on year to £33.6m (2013: £39.8m) and remains at a comfortable level in relation to the Group's bank facility and covenant requirements. The normal phasing of cash flows means that indebtedness tends to increase towards the half year stage with stronger cash generation in the second half of the year, as was the case in 2014.

Outlook

Kurt Salmon has had a good start to 2015, with continuing strong demand in North America. In France our business has seen some benefit in the first two months of the year from a slightly more optimistic outlook amongst some clients, perhaps partly in anticipation of a positive impact on businesses from a weaker Euro and Quantitative Easing in the Eurozone. The current order book in Kurt Salmon is slightly higher than the same period last year. For Kurt Salmon overall, we expect the trends we saw in 2014 to continue in 2015. As we increase the pace of recruitment this year in our growth markets there is likely to be some negative margin impact in the short term before new senior employees become fully productive.

Alexander Proudfoot has had a satisfactory start to 2015. There is a promising pipeline of opportunities at this stage, although the current order book is a little lower than the same stage last year and the rate of order input will need to build from current levels to meet our objectives over the course of the year as a whole. The new and enhanced offerings which we have developed have had some recent success with clients. The investment and change initiatives that we launched in 2014 are continuing this year and will continue have some adverse effect on profitability, as we build a firmer platform to generate revenue growth.

Recent shifts in exchange rates, if they persist, are likely to have some impact on MCG's reported results in 2015 compared with 2014. The Group's reported results will benefit from a stronger US Dollar, but a weaker Euro will have the opposite effect on reported revenues and profits in Sterling.

We will continue to work to develop our businesses with selective investment and recruitment in those sectors and geographies where there are good prospects for profitable growth in order to deliver value to our shareholders.

Group income statement

Group statement of comprehensive income

Group statement in changes of equity  

Group balance sheet  

Group 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 2014 or 2013, but is derived from those accounts. Statutory accounts for 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered following the Company's annual general meeting. The auditor has 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 Section 498 Companies Act 2006.

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 IFRS.

The Group's Annual Report and Accounts and notice of Annual General Meeting will be sent to shareholders on 21 March 2014 and will be 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 will be held on 22 April 2015 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 IFRS. 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 2014). The policies have been consistently applied to all the periods presented.

Full details of the Group's accounting policies can be found in note 2 to the 2014 Annual Report which is available on our website: www.mcgplc.com.

3. Going concern

The Group can draw up to £85 million under its fully revolving credit facility which runs until July 2016. The Group prepares regular business forecasts and monitors its projected compliance with its banking covenants, which are reviewed by the Board. Forecasts are adjusted for reasonable sensitivities which address the principal risks to which the Group is exposed. Consideration is given to the potential actions available to management to mitigate the impact of one or more of these sensitivities, in particular the discretionary nature of a significant amount of cost incurred by the Group. On this basis the Board has concluded that it is appropriate to continue to adopt the going concern basis in the Group's financial statements.

4. Segmental information

The Group's operating segments are defined as the two professional services practices, Alexander Proudfoot and Kurt Salmon. This is the basis on which information is provided to the Board of Directors for the purposes of allocating certain resources within the Group and assessing the performance of the business. All revenues are derived from the provision of professional services.

Inter-segmental sales are not significant.

(a) Geographical analysis

The Group operates in three geographical areas; the Americas, Europe and the Rest of World. The following is an analysis of financial information by geographic segment:

(i) Revenue and underlying operating profit by geography

 (ii) Net assets by geography

(iii) Capital additions, depreciation and amortisation by geography

(b) Revenue and underlying operating profit by operating segment

The two operating segments are combined into one reportable segment owing to similar underlying economic characteristics across the practices.

Not all significant non-recurring items and financial items can be allocated to the practices and are therefore disclosed for the reportable segment as a whole. Assets and liabilities by practice are not reviewed by the Board and are therefore not disclosed.

(b) Revenue and underlying operating profit by operating segment (continued)

5. Profit before tax

Profit before tax has been arrived at after charging/ (crediting) the following:

Non-recurring items in 2014 comprise of £2.5m in relation to restructuring costs within Alexander Proudfoot and £0.4m in relation to redundancy costs in Kurt Salmon.

Non-recurring items in 2013 comprised of £1.2m in relation to restructuring within Kurt Salmon, and £0.3m in respect of a loss on disposal of a subsidiary.

6. 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 2014 in respect of the interim dividend for the year ended 31 December 2014 and the final dividend for year ended 31 December 2013 was £29,783 and £77,660 respectively (2013: £32,934 and £79,135).

The 2013 final dividend of 0.595p per share was paid on 2 July 2014.

The 2014 interim dividend of 0.23p per share was paid on 6 January 2015.

The directors propose a final dividend of 0.595 p per share for the year ended 31 December 2014.

7. Staff numbers and costs

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

The number of Group employees at the year end was 1,509 (2013: 1,490).

The aggregate payroll costs of these persons were as follows:

*Prior year representment reflects £4,619,000 reclassification between social security and pension costs.

8. Investment revenues and finance costs

9. Tax

UK corporation tax is calculated at 21.50% (2013: 23.25%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

The tax expense for the year can be reconciled to the pre-tax profit from continuing operations per the income statement as follows:

10. Earnings per share

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

The average share price for the year ended 31 December 2014 was 23.0p (2013: 27.4p).

11. Notes to the cash flow statement