6th Mar 2006 07:02
Management Consulting Group PLC06 March 2006 MANAGEMENT CONSULTING GROUP PLC Financial results for the year ended 31 December 2005 Management Consulting Group PLC ("MCG" or "the Group"), the internationalmanagement consultancy group, today announces its results for the year ended 31December 2005. Key points • Revenue up 9% to £129.6 million (2004: £119.2 million) • Profit before tax up 12% to £13.9 million (2004: £12.4 million) • Basic earnings per share up 15% to 5.3 pence (2004: 4.6 pence) • Dividend up 19% to 0.8 pence per share (2004: 0.67 pence per share) • The new year has started well and we look forward to the year ahead with confidence Rolf Stomberg, Chairman: "2005 was a year of continued success that strengthened as the year progressed.In the light of the performance, our strong cash position and future prospects,the Board is recommending a final dividend 19% up on last year." Kevin Parry, Chief Executive: "2006 has started strongly. It is already clear that the first half of the yearwill deliver excellent progress on last year, driven by the demand for ProudfootConsulting services. We continue actively to explore the strategic development of the Group on theback of a strong balance sheet with over £20 million of cash and no debt." For further information please contact: Management Consulting Group PLCKevin Parry Chief Executive 020 7710 5000Mark Currie Finance Director 020 7710 5000 The Maitland ConsultancySuzanne Bartch 020 7379 5151 (mobile) 07769 710 335Peter Ogden 020 7379 5151 (mobile) 07811 124 197 An analyst briefing will be held at the offices of Management Consulting GroupPLC on the 6th floor of Fleet Place House, 2 Fleet Place, Holborn Viaduct,London, EC4M 7RF on Monday 6 March 2006 at 9.30 am. Notes to Editors Management Consulting Group PLC will, over time, become an umbrella organisationfor a diverse range of consulting and professional services offerings. Itcurrently comprises two consulting businesses: Proudfoot Consulting and ParsonConsulting. Proudfoot Consulting helps clients to achieve significantly increasedprofitability through the implementation of operational improvements leading toincreased sales, lower operating and overhead costs, greater output and lowercapital expenditure. Its clients include AMP, BP, Degussa, Exide, NewmontMining, Sara Lee and Societe Generale. Parson Consulting specialises in financial management consultancy. It has fourservice lines: governance and risk management, operational financial management,strategic financial management and transaction support. Its clients includeAstra Zeneca, Avis, Barclays, Citigroup, Ford, General Mills, JP Morgan Chase,Shell, Unilever and Warner Bros. Forward-looking statements This preliminary announcement contains certain forward-looking statements withrespect to the financial condition, results of operations and businesses ofManagement Consulting Group PLC. These statements and forecasts involve risk anduncertainty because they relate to events and depend upon circumstances thatwill occur in the future. There are a number of factors that could cause actualresults of developments to differ materially from those expressed or implied bythese forward-looking statements and forecasts. Nothing in this announcementshould be construed as a profit forecast. Overview 2005 2004 2004 IFRS Restated UK GAAP for IFRS £'000 £'000 £'000Continuing operationsRevenue 129,601 119,248 119,248Cost of sales (64,847) (60,414) (60,270) -------- -------- --------Gross profit 64,754 58,834 58,978Selling costs (34,931) (30,448) (30,362)Administrative expenses (16,264) (15,950) (20,067) -------- -------- --------Profit from operations 13,559 12,436 8,549Finance income / (costs) 361 (34) (34) -------- -------- --------Profit before tax 13,920 12,402 8,515Tax expense (4,128) (3,945) (2,995) -------- -------- --------Profit for the year from continuingoperations 9,792 8,457 5,520 -------- -------- --------Basic/headline earnings per share 5.3 4.6 5.0(pence) -------- -------- -------- Trading in 2005 showed good progress in both consultancies. The performance ofthe Group improved as the year progressed. We entered 2006 with a strong orderbook. Revenue for the year was up 9%. There was no material change in the balance ofour businesses with Proudfoot Consulting generating 67% of revenue (2004: 68%)and Parson Consulting generating 33% of revenue (2004: 32%). North America remains our most important geographic region but its dominancedeclined somewhat from 65% of revenue to 61% of revenue with a greater share inEurope and elsewhere. This reflected our investment in geographic regionsoutside North America. The gross profit margin continues to be tightly managed and was little changedfrom last year at 50% (2004: 49%). Administrative expenses increased by only 2%.Selling costs increased to 27% of revenue compared with 26% last year reflectingthe recruitment costs as we expanded the geographic coverage of ProudfootConsulting to Greater China and Parson Consulting to France and Australia. Profit from operations increased by 9% to £13.6 million. This includes a creditof £0.9 million arising from a time expired indemnity given in 2000 inconnection with the sale of Proudfoot Consulting's Japanese operations. The 2004profit included a similar sized credit of £0.8 million arising from an expiredmanagement incentive plan. Net finance income increased to £0.4 million, primarily from interest income onour cash balance. Profit before tax was £13.9 million, an increase of 12% on 2004. Earnings per share increased by 15% to 5.3 pence per share. The performance of the two consultancies is set out below: Year ended Year ended 31 Dec 2005 31 Dec 2004 £'000 £'000 RevenueProudfoot Consulting 86,385 81,437Parson Consulting 43,216 37,811 ------- ------- 129,601 119,248 ------- -------Profit from operationsProudfoot Consulting 11,314 10,082Parson Consulting 2,245 2,354 ------- ------- 13,559 12,436 ------- ------- All figures are stated in accordance with International Financial ReportingStandards. Proudfoot Consulting Proudfoot Consulting's revenue was £86.4 million, an increase of 6% over 2004.Revenue grew in both the dominant markets of North America and Europe; NorthAmerica by 7% and Europe by 3%. In North America, the same industry sectors continued to buy ProudfootConsulting's services as last year: manufacturing, natural resources,telecommunications and financial. The services purchased focussed on clientsachieving greater sales effectiveness and greater output through productivitygains as well as an ongoing emphasis on lower cost production through bettersupply chain and procurement management in particular. The UK business continued to be the strongest in Europe. In addition there were,late in 2005, encouraging signs of increased activity in continental Europe,particularly in Germany. We have not, however, yet seen a sustained pattern ofincreased activity in any individual continental European country. The revenue in the rest of the world included revenue of £0.8 million fromGreater China following our opening of offices in Hong Kong and Shanghai inearly 2005. The profit from operations for the Proudfoot Consulting business was £11.3million (2004: £10.1 million). After adding back depreciation, the EBITDA marginwas unchanged at 13%, compared with our target of a sustainable 15% margin. Thesecond half margin was 16% reflecting the higher revenue in the second half thanin the first half and the inherent operational gearing in the business. Parson Consulting Parson Consulting's revenue increased to £43.2 million, an increase of 14% over2004. The growth in revenue was achieved despite the peak demand for US domesticSarbanes-Oxley related work having passed in 2004. The profit from operations was £2.2 million, £0.1 million lower than in 2004.After adding back depreciation and the start up costs, the EBITDA margin was 9%.We continue to target a sustainable 15% EBITDA margin from top line growth andoperational gearing. Parson Consulting has continued to invest in diversifying its worldwide serviceofferings and its non US geographic regions to counteract the impact of thedeclining demand for US based Sarbanes-Oxley related work. The revenue growthresults from these investments. Non Sarbanes-Oxley related work amounted to £17million in the year and the non US business now represents nearly 25% of thetotal revenue. There were significant improvements in project margins in the year but this isnot yet visible in the profit from operations due to the investments in servicedevelopments and people in Australia and France. Balance sheet Net assets increased by £9.7 million to £57.9 million, driven primarily by thepost tax profits in the year of £9.8 million. Whilst the average exchange rates were little changed in 2005 compared with2004, the year end closing rates of exchange showed a strengthening of the USdollar to Sterling. As a result net assets increased by £1.5 million. This wasoffset by the lowering of the discount rate used to estimate our closed definedbenefit pension fund liability which reduced net assets by approximately £1.6million. The cash balance increased by £7.1 million to £21.6 million at 31 December 2005(2004: £14.5 million). The increase in cash is attributable to the tradingresult, offset by contributions to the closed US defined benefit pension plan,tax and dividends. The current cash balance places the Group in a strongposition to pursue modest sized acquisitions as part of its strategy to grow theGroup and diversify its consulting offerings. Long term provisions declined due to the release of the Japanese indemnityprovision, offset by a £0.5 million increase in the liability to the USretirement benefit plan as a result of foreign exchange losses and moreconservative actuarial assumptions. In the year we continued to fund the plan toreduce the deficit further. The investment performance was broadly in line withactuarial assumptions. Dividend As a result of the growth in earnings per share from 4.6 pence to 5.3 pence, thecash position and the outlook for 2006, the Board is pleased to recommend afinal dividend of 0.8 pence per share which represents an increase of 19% overthe 0.67 pence per share in respect of 2004. The dividend will be payable on 5June 2006 to shareholders on the register on 19 May 2006. Under IFRS, thisdividend will be recognised in the Group's results in 2006. People We are grateful for the contribution of all employees and their part in thecontinued development of Proudfoot Consulting and Parson Consulting. On 1 March 2005, Mark Currie joined the Board and succeeded Stephen Purse as thefinance director. At the Annual General Meeting held on 26 April 2005, AlanBarber was appointed as a non-executive director to the Board. On 3 March 2006, Mr Stephen Ferriss and Mr Andrew Simon joined the Board asnon-executive directors and will offer themselves for re-election at theforthcoming Annual General Meeting. Strategy Our strategy is focussed on building a Group comprising a series ofconsultancies with particular specialisms in different aspects of consulting.This approach will diversify the dependency of the Group from our two existingconsultancies. We remain of the view that both the Proudfoot Consulting and the ParsonConsulting businesses have excellent medium term prospects. Going forward, wewill continue to expand the geographical overlap of the two businesses tomaximise the benefit that comes from our existing infrastructure. We also intendto deepen the resource and our commitment to our existing businesses andcontinue to develop our service offerings. Prospects 2005 was characterised by an abnormal first half to second half revenue split inProudfoot Consulting. We do not expect this to be repeated in the current year.As it is too early in our current year to have good visibility into second halftrading, it would be appropriate to assume that the normal seasonal bias to thefirst half of the year will be observed in 2006. The strong end to 2005 in Proudfoot Consulting produced a high order book inthat consultancy providing good visibility into the first half of the year.Parson Consulting's order book was little changed from the end of the previousyear. Trading in the first two months of the year in Proudfoot Consulting hasshown strong year on year growth in all its markets. Parson Consulting hasstarted the year slowly in North America but has shown good growth in othergeographic regions. Consequently, the Group should deliver strong year on year revenue growth in thefirst half of the year driven by an encouraging outlook for Proudfoot Consultingbalanced by a more cautious view for Parson Consulting. Dr Rolf Stomberg Kevin ParryChairman Chief Executive Consolidated income statementyear ended 31 December 2005 2004 note £'000 £'000Continuing operationsRevenue 3 129,601 119,248Cost of sales (64,847) (60,414) --------- ---------Gross profit 64,754 58,834Selling costs (34,931) (30,448)Administrative expenses (16,264) (15,950) --------- ---------Profit from operations 3 13,559 12,436Finance income / (costs) 6 361 (34) --------- ---------Profit before tax 13,920 12,402Tax expense (4,128) (3,945) --------- ---------Profit for the year from continuing 9,792 8,457operations --------- --------- Earnings per share - penceFrom continuing operationsBasic 7 5.3 4.6Diluted 7 5.2 4.5 --------- --------- Consolidated statement of recognised income and expenseyear ended 31 December 2005 2004 £'000 £'000 Exchange differences on translation of 1,488 (1,745)foreign operationsActuarial losses on defined benefit pensionfund and medical schemes (1,646) (1,696)Tax on items taken directly to equity 825 - --------- ---------Net income / (expense) recognised directly in 667 (3,441)equityProfit for the year 9,792 8,457 --------- ---------Total recognised income and expense for the year 10,459 5,016 --------- --------- Consolidated statement of changes in equity 2005 2004 £'000 £'000 At 1 January 48,276 45,652Dividends paid (1,241) (925)Net profit for the year 9,792 8,457Own shares purchased for deferred share awards (181) -Issue of share capitalDeferred consideration for acquisitions - 27Exercise of share option schemes 35 48Movement in share compensation reserve 640 439Movement in reserve for management incentive plan (56) (1,981)Other recognised income and expense 667 (3,441) -------- --------At 31 December 57,932 48,276 -------- -------- Consolidated balance sheet 2005 2004 £'000 £'000Non-current assetsGoodwill 68,278 66,109Other intangible assets 418 392Property, plant and equipment 1,521 1,397 ---------- -----------Total non-current assets 70,217 67,898 ---------- ----------- Current assetsTrade and other receivables 16,159 12,735Cash and cash equivalents 21,555 14,510 ---------- -----------Total current assets 37,714 27,245 ---------- -----------Total assets 107,931 95,143 ---------- ----------- Current liabilitiesTrade and other payables (28,045) (24,222)Current tax liabilities (3,959) (4,722) ---------- -----------Total current liabilities (32,004) (28,944) ---------- -----------Net current assets / (liabilities) 5,710 (1,699) ---------- ----------- Non-current liabilitiesRetirement benefit obligation (11,869) (11,383)Non-current tax liabilities (4,674) (4,080)Long-term provisions (871) (1,774)Other non-current accruals (581) (686) ---------- -----------Total non-current liabilities (17,995) (17,923) ---------- -----------Total liabilities (49,999) (46,867) ---------- -----------Net assets 57,932 48,276 ---------- ----------- EquityShare capital 47,373 47,256Share premium account 38,146 38,026Shares to be issued 46 185Share compensation reserve 1,256 616Own shares held by employee share trust (1,270) (970)Translation reserve (257) (1,745)Other reserves 12,747 12,747Retained earnings (40,109) (47,839) ---------- -----------Total equity 57,932 48,276 ---------- ----------- Consolidated cash flow statement 2005 2004 Note £'000 £'000 Net cash from operating activities 8 8,826 8,242 -------- ---------Investing activitiesInterest received 323 206Acquisitions of subsidiaries - (1,074)Purchases of property, plant and equipment (669) (1,061)Purchases of intangible assets (454) (377)Proceeds on disposal of property, plant 13 117and equipmentPurchases of own shares (181) - -------- ---------Net cash used in investing activities (968) (2,189) -------- --------- Financing activitiesDividends paid 4 (1,241) (925)Proceeds from issue of shares 35 48 -------- ---------Net cash used in financing activities (1,206) (877) -------- --------- Net increase in cash and cash equivalents 6,652 5,176 Cash and cash equivalents at beginning of 14,510 9,738period Effect of foreign exchange rate changes 393 (404) -------- ---------Cash and cash equivalents at end of period 21,555 14,510 -------- --------- Notes 1. Basis of preparation The financial information included in this statement does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. Thefinancial information has been extracted without material adjustment from theconsolidated financial statements of Management Consulting Group PLC for theyear ended 31 December 2005, which have been audited. The auditors have made areport under Section 235 of the Companies Act 1985 in respect of the statutoryconsolidated accounts for the years ended 31 December 2005 and 31 December 2004.Their reports were unqualified within the meaning of Section 262(1) of theCompanies Act 1985 and did not contain a statement under Section 237(2) or (3)of that Act. While the financial information included in this preliminary announcement hasbeen computed in accordance with International Financial Reporting Standards(IFRS), this announcement does not itself contain sufficient information tocomply with IFRSs. Statutory accounts for the financial year ended 31 December 2004 have beendelivered to the Registrar of Companies pursuant to Section 242 of the Actwhereas those for 2005 will be delivered following the Annual General Meeting. The Group's Annual Report and Accounts will be sent to shareholders on 20 March2006 and will be available at the Company's registered office at Fleet PlaceHouse, 2 Fleet Place, London, EC4M 7RF, United Kingdom and on our website:www.mcgplc.com. The Annual General Meeting will be held at the Regus Centre, 1 NorthumberlandAvenue, Trafalgar Square, London, WC2N 5BW on 12 May 2006 at 10 am. 2. Accounting policies The financial information has been prepared in accordance with IFRSs and iscovered by IFRS 1, First-time Adoption of IFRS. These financial statements havebeen prepared in accordance with those IFRS standards and IFRIC interpretationsissued and effective or issued and early adopted as at the time of preparingthese statements (March 2006). The policies have been consistently applied toall the periods presented, and the comparative figures in respect of 2004 havebeen restated to reflect IFRS adjustments. Full details of the Group's accounting polices can be found in the 2005 InterimReport in note 2 which is available on our website: www.mcgplc.com. 3. Segmental information The Group has one business reporting segment: management consultancy comprisingthe two consultancies, Proudfoot Consulting and Parson Consulting. Primary reporting format - geographic segments The Group operates in three geographic areas - North America, Europe and theRest of the World. The Group reports segment information on the basis of geographic area asfollows: Year ended 31 December 2005 North Europe Rest of Consolidated America World £'000 £'000 £'000 £'000RevenueExternal sales 79,484 40,701 9,416 129,601 -------- -------- -------- --------Profit/(loss) from operationsbefore release of indemnity 14,103 306 (1,747) 12,662provisionRelease of indemnity provision - - 897 897 -------- -------- -------- --------Profit from operations 14,103 306 (850) 13,559Finance income 361 -------- -------- -------- --------Profit before tax 13,920Income tax expense (4,128) -------- -------- -------- --------Profit after tax 9,792 -------- -------- -------- -------- 3. Segmental information (continued) Year ended 31 December 2005 North Europe Rest of Consolidated America World £'000 £'000 £'000 £'000 ------- ------- ------- ---------Capital additions by segment 718 168 83 969Unallocated corporate additions 154 ------- ------- ------- ---------Total capital additions 1,123 ------- ------- ------- ---------Depreciation and amortisationby segment 781 107 52 940Unallocated corporatedepreciation 125and amortisation ------- ------- ------- ---------Total depreciation and 1,065amortisation ------- ------- ------- --------- At 31 December 2005 North Europe Rest of Consolidated America World £'000 £'000 £'000 £'000Balance sheetAssetsGoodwill 30,856 37,422 - 68,278Other segment assets 8,047 6,473 835 15,355 ------- ------- ------- --------- 38,903 43,895 835 83,633Unallocated corporate assets 24,298 ------- ------- ------- ---------Consolidated total assets 107,931 ------- ------- ------- --------- LiabilitiesSegment liabilities (14,576) (10,855) (2,587) (28,018) Unallocated corporate (21,981)liabilities ------- ------- ------- ---------Consolidated total liabilities (49,999) ------- ------- ------- --------- 3. Segmental information (continued) Year ended 31 December 2004 North Europe Rest of Consolidated America World £'000 £'000 £'000 £'000RevenueExternal sales 77,656 33,670 7,922 119,248 -------- ------- ------- --------Profit/(loss) from operationsbefore release of managementincentive plan 12,487 66 (874) 11,679Release of managementincentive plan - - 757 757 -------- ------- ------- -------Profit from operations 12,487 66 (117) 12,436Finance income (34) -------- ------- ------- -------Profit before tax 12,402Income tax expense (3,945) -------- ------- ------- -------Profit after tax 8,457 -------- ------- ------- ------- North Europe Rest of Consolidated America World £'000 £'000 £'000 £'000Capital additions 857 126 25 1,008Unallocated corporate additions 430 -------- ------- ------ --------Total capital additions 1,438 -------- ------- ------ --------Depreciation and amortisation 742 230 82 1,054Unallocated corporate depreciation 110and amortisation -------- ------- ------ --------Total depreciation and 1,164amortisation -------- ------- ------ -------- 3. Segmental information (continued)At 31 December 2004 North Europe Rest of Consolidated America World £'000 £'000 £'000 £'000Balance sheetAssetsGoodwill 27,745 38,364 - 66,109Other segment assets 7,860 3,302 332 11,494 -------- ------- ------ --------- 35,605 41,666 332 77,603Unallocated corporate assets 17,540 -------- ------- ------ ---------Consolidated total assets 95,143 -------- ------- ------ ---------LiabilitiesSegment liabilities (12,605) (8,678) (2,052) (23,335) Unallocated corporate (23,532)liabilities -------- ------- ------ ---------Consolidated total liabilities (46,867) -------- ------- ------ --------- 4. Dividends 2005 2004 £'000 £'000 Amounts recognised as distributions to equityholders in the year: Final dividend for the year 1,241 925ended 31 December 2004 of 0.67p (2003: 0.5p) -------- -------- Dividends are not payable on shares held in the employee share trust which haswaived its entitlement to dividends. The amount of the dividend waived in 2005(in respect of the year ended 31 December 2004) was £26,000 (2004: £19,000). The directors recommend the payment of a final dividend in respect of 2005 of0.8 pence to be paid on 5 June 2006 to ordinary shareholders on the register on19 May 2006. 5. Staff numbers and costs The average number of persons employed by the Group (including directors) duringthe year, analysed by category, was as follows: 2005 2004 Sales and marketing 201 183Consultants 459 454Support staff 136 120 -------- -------- 796 757 -------- -------- The aggregate payroll costs of these persons were as follows: 2005 2004 £'000 £'000 Wages and salaries 62,936 58,670Social security costs 6,932 6,346Other pension costs 1,085 800 -------- -------- 70,953 65,816 -------- -------- Wages and salaries include £0.6 million (2004: £0.4 million) relating to shareoptions recognised as an expense under IFRS 2. 6. Finance income/(costs) 2005 2004 £'000 £'000 Interest receivable on bank deposits and similar 453 421incomeInterest payable on bank overdrafts and loans and (10) (183)similar chargesNet finance charge on retirement benefit plans (82) (272) -------- -------- 361 (34) -------- -------- 7. Earnings per share From continuing operations The calculation of the basic and diluted earnings per share is based on thefollowing data: Year Year ended ended 31 December 31 December 2005 2004Earnings £'000 £'000Earnings for the purposes of basic earnings pershare being net profit attributable to equityholders of the parent 9,792 8,457 ---------- --------- Number of shares Number Number (million) (million)Weighted average number of ordinary shares for thepurposes of basic earnings per share 185.2 185.0 Effect of dilutive potential ordinary shares:Share options 1.4 1.8Long-term incentive plan 0.2 - ---------- ---------Weighted average number of ordinary shares for thepurposes of diluted earnings per share 186.8 186.8 ---------- --------- Pence PenceBasic earnings per share 5.3 4.6Diluted earnings per share 5.2 4.5 ---------- --------- The average share price for the year ended 31 December 2005 was 51.5 pence (31December 2004: 41.3 pence). 8. Notes to the cash flow statement Year ended Year ended 31 December 31 December 2005 2004 £'000 £'000 Profit from operations 13,559 12,436Adjustments for:Depreciation of property, plant and equipment 604 818Amortisation of intangible assets 462 346Gain on disposal of plant and equipment 14 -Management incentive plan (56) (757)Adjustment for pension funding (2,528) (2,911)Adjustment for share options charge 640 439Decrease in provisions (903) (110) ---------- ---------Operating cash flows before movements in workingcapital 11,792 10,261 Increase in receivables (4,153) (4,053)Increase in payables 3,911 5,840 ---------- ---------Cash generated by operations 11,550 12,048 Income taxes paid (2,724) (3,806) ---------- ---------Net cash from operating activities 8,826 8,242 ---------- --------- Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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