8th Aug 2005 07:00
Management Consulting Group PLC08 August 2005 Interim results for the six months ended 30 June 2005 Management Consulting Group PLC ("MCG" or "the Group"), the internationalmanagement consultancy group, today announces its results for the six monthsended 30 June 2005. Highlights • Revenue of £57.2 million (first half of 2004: £62.9 million) - more than double the market growth rate for the last two years - in line with the second half of 2004 for both Parson Consulting and Proudfoot Consulting • Operating profit of £4.6 million (first half of 2004: £7.7 million) - in line with the second half of 2004 • Basic earnings per share of 1.9 pence (first half of 2004: 2.9 pence; second half of 2004: 1.6 pence) • New offices opened in China, France and Australia now winning client engagements • Proudfoot Consulting has an order book which is over 75% ahead of the start of the year • Parson Consulting's order book at a similar level to the start of the year • Given the strength of the order book, a significant improvement in revenue is expected in the second half of the year Rolf Stomberg, Chairman:"This is a solid set of results. The Board is particularly pleased with thegrowth in the order book and the success of both Proudfoot Consulting and ParsonConsulting in winning new business." Kevin Parry, Chief Executive:"The substantially increased order book has positioned us well for the secondhalf. The consulting market place continues to improve notwithstanding theeconomic slowdown in some sectors of the economy. We continue to look atopportunities to expand our service offerings and geographic presence." 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 710335Peter Ogden 020 7379 5151 (mobile) 07811 124197 Notes to Editors Management Consulting Group PLC (www.mcgplc.com), the international managementconsultancy group, comprises two businesses, Proudfoot Consulting and ParsonConsulting. Proudfoot Consulting is a specialist management consultancy which implementssustainable operational improvements in sales, costs, overheads, major capitalexpenditure projects and production output, typically at no net annualised costto its clients. Its clients include BP, National Australia Bank, Newmont Mining,Nissan, PSA Peugeot-Citroen and Societe Generale. Parson Consulting is a financial management consultancy that improves theaccuracy, speed and efficiency of finance and support functions free of auditingconflicts of interest. Its clients include Avis, Citigroup, Diageo, Ford,General Mills, Kingfisher, Paramount, Shell and Warner Bros. Management statement As we indicated in our trading update on 11 July 2005, trading in the first halfof 2005 was similar to that of the second half of 2004. The results aresummarised as follows: Unaudited Unaudited Unaudited Audited six months six months six months year ended ended ended ended 30 June 31 Dec 30 June 31 Dec 2005 2004 2004 2004 (restated (restated for for IFRS) IFRS) --------- ---------- --------- ---------- £m £m £m £m --------- ---------- --------- ----------RevenueProudfoot 36.0 34.6 46.8 81.4Parson 21.2 21.7 16.1 37.8 --------- ---------- --------- ---------- 57.2 56.3 62.9 119.2 --------- ---------- --------- ----------Operating profitProudfoot 3.6 3.1 7.0 10.1Parson 1.0 1.6 0.7 2.3 --------- ---------- --------- ---------- 4.6 4.7 7.7 12.4 --------- ---------- --------- ---------- All figures are stated in accordance with International Financial ReportingStandards Group resultsOverall revenue for the six months ended 30 June 2005 was £57.2 million (sixmonths ended 30 June 2004: £62.9 million; six months ended 31 December 2004:£56.3 million). In 2004, the Proudfoot business benefited from two large client engagements thatresulted in a revenue bias to the first half of the year. In 2005, we have alsowon some large client engagements including repeat work from two of the largeengagements undertaken in 2004; these large projects will underpin our revenuein the second half. In the period, 61% of Group revenue was attributable to North America (sixmonths ended 30 June 2004: 67%). North American revenue declined by 18% comparedwith the corresponding period of 2004. In contrast Europe's share of revenue was34% (six months ended 30 June 2004: 25%) with revenue 24% up compared with thecorresponding period of 2004. The Group's gross margin continued to be well managed and was 49% (2004: 49%).The margin has been held despite the investment of time into some largeproposals for consulting engagements, offset by continued progress on pricing ofwork in Parson Consulting. Selling costs were £1.6 million higher than in the corresponding period of 2004primarily as a result of the expansion of our businesses to new geographiclocations. Administrative expenses were £1.7 million less than in the corresponding perioddue to lower bonuses as a result of lower operating profits and a credit of £0.9million arising from a time expired indemnity given in 2000 in connection withthe sale of Proudfoot's operation in Japan. The total operating profit was £4.6 million compared with £7.7 million in thecorresponding period of 2004 and £4.7 million in the second half of 2004. The income tax charge on pre-tax profits, before the release of the indemnityprovision, is 34% (2004 full year: 32%). Proudfoot ConsultingProudfoot Consulting's revenue was £36.0 million (2004: £46.8 million). Thedecline in revenue is primarily attributable to North America which benefited inthe first half of 2004 from some larger than normal client engagements. Incontrast, Europe's revenue increased by some 6% over the corresponding period of2004 primarily due to engagements in the United Kingdom. There were no significant changes in the scope of the Proudfoot business aroundthe world with the exception of South East Asia where we continued to invest inour capabilities in Hong Kong, China and Taiwan. The decline in profitability compared with the first half of last year reflectsthe operational gearing in the business and our investment in expanding theAsian operations. The order book at the half year was over 75% ahead of the start of the year witha number of orders extending into 2006. Parson ConsultingParson Consulting's revenue was £21.2 million (2004: £16.1 million). The growthin revenue is attributable to a widening of the services provided to clients andthe continued growth in the UK business which benefited from the application ofSarbanes-Oxley to non-US domestic SEC registrants. The profit increased to £1.0 million (2004: £0.7 million) due to operationalgearing, offset by our investment in start up operations in Sydney and Paris. In the second half of the year both of the new offices have started billingclients. Early signs are that the offices are gaining good traction in theirmarket places. For the more established businesses, we anticipate increasingdemand for non-governance related services with a continuing solid stream ofwork associated with governance related projects. The order book at the half year was at a consistent level to the beginning ofthe current year. Earnings per shareThe basic earnings per share for the six months ended 30 June 2005 were 1.9pence compared with 2.9 pence in the corresponding period. DividendIn accordance with our established policy, we pay dividends once per year, afterthe declaration of the annual results. Accordingly, no interim dividend is beingdeclared. Balance sheetThe Group's cash balance was £10.9 million compared with £14.5 million at 31December 2004. The decline in cash reflects the payment of 2004's dividend,bonuses in respect of 2004, the funding of the closed US defined benefit pensionplan and the seasonal increase in working capital. The deficit relating to the closed defined benefit pension and medical plansincreased from £11.4 million at 31 December 2004 to £14.6 million. This was aresult of a lower discount rate applied to the liabilities, US market returnsbeing below the long-term benchmark investment return and the stronger US dollar(as the underlying currency of the liability is US dollars), offset by fundingof £0.9 million in the period. The decrease in long-term provisions of £0.9 million arose in respect of thelapse of the indemnity in connection with the sale of Proudfoot's operations inJapan. International Financial Reporting StandardsFor the first time, our results are reported in accordance with InternationalFinancial Reporting Standards (IFRS), the main impact of this being thatgoodwill is no longer amortised and a charge has been recognised for shareoptions of £0.3 million during the period. An explanation of the share optionsexpense is given in note 10. The comparative information for June 2004 has been restated for IFRS, resultingin an increase in both operating profit and profit before tax of £2.1 million(see note 11). The increase arises from adding back goodwill amortisation of£1.9 million and reversing a deferred bonus expense of £0.4 million, offset by acharge for share options of £0.2 million. The restatements of the 2004 full year results and balance sheet under IFRS arepublished in the 2004 Annual Report and Accounts, which is available on thecompany's website, www.mcgplc.com. StrategyOur strategy is focused on building a Group comprising a series of consultancieswith particular specialisms in different aspects of consulting. This approachwill diversify the dependency of the Group from our two existing consultancies. We remain of the view that both the Proudfoot Consulting and Parson Consultingbusinesses have excellent medium term prospects. Going forward, we will continueto expand the geographical overlap of the two businesses to maximise the benefitthat comes from our existing infrastructure. We also intend to deepen theresource and our commitment to our existing businesses and continue to developour service offerings. Our organic growth strategy has resulted in the Group being named by KennedyInformation Services as the second fastest growing consultancy in 2004. We climbed from the 66th to 55th largest consulting firm in the world in its recently published league table. OutlookThe Group order book is considerably higher than at both the same time last yearand the beginning of this year. That backlog of work, the current prospectstream and the additional revenue attributable to the expansion of our businessarising from investment in prior periods positions us well for the future. We anticipate making good progress in the second half of the year. Dr Rolf StombergNon-executive Chairman Kevin ParryChief Executive Independent review reportby Deloitte & Touche LLP to Management Consulting Group PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2005 which comprises the consolidated incomestatement, the consolidated statement of recognised income and expense, theconsolidated balance sheets, the consolidated cash flow statement and relatednotes 1 to 12. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. International Financial Reporting Standards As disclosed in note 2(a), the next annual financial statements of the Groupwill be prepared in accordance with International Financial Reporting Standards("IFRS") as adopted for use in the EU. Accordingly, the interim report has beenprepared in accordance with the recognition and measurement criteria of IFRS andthe disclosure requirements of the Listing Rules. The accounting policies areconsistent with those that the directors intend to use in the annual financialstatements. There is, however, a possibility that the directors may determinethat some changes to these policies are necessary when preparing the full annualfinancial statements for the first time in accordance with IFRS as adopted foruse in the EU. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2005. Deloitte & Touche LLPChartered AccountantsLondon8 August 2005 Consolidated income statement Six months ended 30 June 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 (restated (restated for for IFRS) IFRS) Note £'000 £'000 £'000Continuing operationsRevenue 3 57,218 62,939 119,248Cost of sales (29,307) (31,828) (60,414) -------- -------- --------- Gross profit 27,911 31,111 58,834Selling costs (16,746) (15,171) (30,448)Administrative expenses (6,600) (8,275) (15,950) -------- -------- --------- Profit from operations 3 4,565 7,665 12,436Finance income / (costs) 173 68 (34) -------- -------- --------- Profit before tax 4,738 7,733 12,402Income tax expense 5 (1,285) (2,320) (3,945) -------- -------- ---------Profit for the period fromcontinuingoperations 3,453 5,413 8,457 ======== ======== =========Earnings per shareFrom continuing operationsBasic 6 1.87 2.93 4.57 ======== ======== ========= Diluted 6 1.83 2.92 4.53 ======== ======== ========= Consolidated statement of recognised income and expense Six months ended 30 June 2005 Six months Six months Year ended Ended ended 30 June 30 June 31 December 2005 2004 2004 (restated (restated for for IFRS) IFRS) Note £'000 £'000 £'000 Exchange differences on translation offoreign operations (478) (2,496) (1,745) Actuarial losses on defined benefitpension and medical schemes 9 (3,152) (422) (1,696) Tax on items taken directly to equity 300 - - -------- -------- --------- Net loss recognised directly in (3,330) (2,918) (3,441)equity Profit for the period 3,453 5,413 8,457 -------- -------- ---------Total recognised income and expensefor the period 123 2,495 5,016 ======== ======== ========= Consolidated balance sheet30 June 2005 30 June 30 June 31 December 2005 2004 2004 (restated (restated for for IFRS) IFRS)Non-current assets Note £'000 £'000 £'000Goodwill 66,358 66,783 66,109Other intangible assets 522 357 392Property, plant and equipment 1,468 1,551 1,397 -------- -------- ---------Total non-current assets 68,348 68,691 67,898 -------- -------- --------- Current assetsTrade and other receivables 15,037 14,684 12,735Cash and cash equivalents 10,858 12,384 14,510 -------- -------- ---------Total current assets 25,895 27,068 27,245 -------- -------- ---------Total assets 94,243 95,759 95,143 ======== ======== ========= Current liabilitiesTrade and other payables (22,503) (24,430) (24,222)Tax liabilities (4,256) (5,785) (4,722) -------- -------- ---------Total current liabilities (26,759) (30,215) (28,944) -------- -------- ---------Net current liabilities (864) (3,147) (1,699) ======== ======== ========= Non-current liabilitiesRetirement benefit obligation 9 (14,574) (12,507) (11,383)Tax liabilities (4,094) (3,380) (4,080)Long-term provisions (880) (1,836) (1,774)Other non-current payables (648) (853) (686) -------- -------- ---------Total non-current liabilities (20,196) (18,576) (17,923) -------- -------- ---------Total liabilities (46,955) (48,791) (46,867) ======== ======== =========Net assets 47,288 46,968 48,276 ======== ======== ========= EquityShare capital 7 47,373 47,256 47,256Share premium account 38,146 38,026 38,026Shares to be issued 46 1,636 185Share compensation reserve 948 378 616Own shares held by employee share (1,270) (970) (970)trustTranslation reserve (2,223) (2,496) (1,745)Other reserves 12,747 12,747 12,747Retained earnings (48,479) (49,609) (47,839) -------- -------- ---------Total equity 47,288 46,968 48,276 ======== ======== ========= Consolidated cash flow statementSix months ended 30 June 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 (restated (restated for for IFRS) IFRS) Note £'000 £'000 £'000 Net cash from operating activities 8 (2,142) 5,456 8,242 -------- -------- ---------Investing activitiesInterest received 149 109 206Acquisitions of subsidiaries - (1,074) (1,074)Purchase of property, plant andequipment (385) (601) (943)Purchase of intangible assets (334) (241) (378)Proceeds on disposal of property,plantand equipment 16 - -Purchase of own shares (181) - - -------- -------- ---------Net cash used in investing activities (735) (1,807) (2,189) -------- -------- --------- Financing activitiesDividends paid 4 (1,241) (925) (925)Proceeds from issue of shares 35 48 48 -------- -------- ---------Net cash used in financing activities (1,206) (877) (877) -------- -------- --------- Net (decrease) / increase in cashand cash equivalents (4,083) 2,772 5,176 Cash and cash equivalents atbeginning of period 14,510 9,738 9,738 Effect of foreign exchangerate changes 431 (126) (404) -------- -------- ---------Cash and cash equivalents atend of period 10,858 12,384 14,510 ======== ======== ========= NOTES 1. General information The information for the year ended 31 December 2004 does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. A copyof the statutory accounts for that year has been delivered to the Registrar ofCompanies. The auditors' report on those accounts was unqualified pursuant toSection 235 of the Companies Act 1985 and did not contain a statement undersub-section (2) or Section 237 of that Act. 2. Summary of significant accounting policies The following accounting policies have been applied consistently for items whichare considered material in relation to the financial statements. (a) Basis of preparation These interim financial statements for the six months ended 30 June 2005 havebeen prepared in accordance with International Financial Reporting Standards(IFRS) for the first time, and are covered by IFRS 1, First-time Adoption ofIFRS, as they are part of the period covered by the group's first IFRS financialstatements for the year ending 31 December 2005. These interim financialstatements have been prepared in accordance with those IFRS standards and IFRICinterpretations issued and effective or issued and early adopted as at the timeof preparing these statements (August 2005). The IFRS standards and IFRICinterpretations that will be applicable at 31 December 2005, including thosethat will be applicable on an optional basis, are not known with certainty atthe time of preparing these interim financial statements. The policies set out below have been consistently applied to all the periodspresented, and the comparative figures in respect of 2004 have been restated toreflect IFRS adjustments. The disclosures required by IFRS 1 concerning thetransition from UK GAAP to IFRS for the comparative prior period are given innote 11. The interim financial statements have been prepared on the historical costbasis. (b) Basis of consolidation (i) Subsidiaries The consolidated interim financial statements incorporate the financialstatements of Management Consulting Group PLC and entities controlled by theCompany (its subsidiaries). Control is achieved where the Company has the powerto govern the financial and operating policies of an investee entity so as toobtain benefits from its activities. This generally accompanies a shareholdingof more than one half of the voting rights. The existence and effect ofpotential voting rights that are currently exercisable or convertible areconsidered when assessing whether the Group controls another entity. The resultsof subsidiaries acquired or disposed of during the period are included in theconsolidated income statement from the effective date of acquisition ordisposal, as appropriate. All inter-company transactions, balances and unrealised gains on transactionsbetween group companies are eliminated on consolidation. Subsidiaries'accounting policies have been changed where necessary to ensure consistency withthe policies adopted by the Group. Minority interests in the net assets of consolidated subsidiaries are identifiedseparately from the Group's equity therein. Minority interests consist of theamount of those interests at the date of the original business combination andthe minority's share of changes in equity since the date of the combination.Losses applicable to the minority in excess of the minority's interest in thesubsidiary's equity are allocated against the interests of the Group except tothe extent that the minority has a binding obligation and is able to make anadditional investment to cover the losses. (ii) Joint ventures The Group's interests in jointly controlled entities are accounted for byproportionate consolidation. The Group combines its share of the joint venture'sindividual income and expenses, assets and liabilities and cash flows on aline-by-line basis with similar items in the Group's financial statements. Wherethe Group transacts with its jointly controlled entities, unrealised profits andlosses are eliminated to the extent of the Group's interest in the jointventure. (c) Goodwill Goodwill arising on the acquisition of a subsidiary or a jointly controlledentity represents the excess of the cost of acquisition over the Group'sinterest in the net fair value of the identifiable assets and liabilities of thesubsidiary or jointly controlled entity recognised at the date of acquisition.Goodwill is initially recognised as an intangible asset at cost. Goodwill istested annually for impairment and carried at cost less any accumulatedimpairment losses. Goodwill is allocated to cash-generating units for the purpose of impairmenttesting. Each of those cash-generating units represents the Group's investmentin each geographic region of operation by each primary reporting segment. (d) Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for services provided to thirdparties in the normal course of business, net of discounts, VAT and other salesrelated taxes. Revenue from services is recognised when services have beenprovided and the right to consideration has been earned. (e) Depreciation of property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is charged so as to write off the cost or valuation of assets, less estimated residual value, by equal annual instalments over their estimated useful lives of between three and seven years. (f) Amortisation of computer software Acquired computer software licences are capitalised as intangible assets on thebasis of the costs incurred to acquire and bring to use the specific software.These costs are amortised over their estimated useful lives, which do not exceedthree years. Costs associated with developing or maintaining computer softwareprograms are recognised as an expense as incurred. (g) Impairment of tangible and intangible assets Assets that have an indefinite useful life are not subject to amortisation andare tested annually for impairment and whenever events or changes incircumstance indicate that the carrying amount may not be recoverable. Assetsthat are subject to amortisation are tested for impairment whenever events orchanges in circumstance indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which theasset's carrying amount exceeds its recoverable amount. The recoverable amountis the higher of an asset's fair value less costs to sell and value in use. Forthe purposes of assessing impairment, assets are grouped at the lowest levelsfor which there are separately identifiable cash flows (cash-generating units). (h) Foreign currencies The individual financial statements of each group entity are presented in thecurrency of the primary economic environment in which the entity operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each entity are expressed in poundssterling, which is the Company's functional and presentation currency. In preparing the financial statements, transactions in currencies other thanpounds sterling are recorded at the rates of exchange prevailing on the dates ofthe transactions. At each balance sheet date, monetary items denominated inforeign currencies are retranslated at the rates prevailing on the balance sheetdate. Non-monetary items carried at fair value that are denominated in foreigncurrencies are translated at the rates prevailing at the date when the fairvalue was determined. Non-monetary items that are measured in terms ofhistorical cost in a foreign company are not retranslated. Exchange differences arising on the settlement and retranslation of monetaryitems are included in profit or loss for the period. Exchange differencesarising on the retranslation of non-monetary items carried at fair value areincluded in profit or loss for the period except for differences arising on theretranslation of non-monetary items in respect of which gains and losses arerecognised directly in equity. For such non-monetary items, any exchangecomponent of that gain or loss is also recognised directly in equity. For the purposes of presenting consolidated financial statements, the assets andliabilities of the Group's foreign operations (including comparatives) areexpressed in pounds sterling using exchange rates prevailing on the balancesheet date. Income and expense items (including comparatives) are translated atthe average exchange rate for the period unless exchange rates fluctuatedsignificantly during that period, in which case the exchange rates at the datesof the transactions are used. Exchange differences arising, if any, areclassified as equity and transferred to the Group's translation reserve. Suchtranslation differences are recognised in profit or loss in the period in whichthe foreign operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. (i) Operating leases Rentals payable under operating leases are charged to profit or loss on astraight-line basis over the term of the relevant lease. Benefits received andreceivable as an incentive to enter into an operating lease are also spread on astraight-line basis over the lease term. (j) Taxation Income tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from profit as reported in the income statement because itexcludes items of income and expense that are taxable or deductible in otheryears or are never taxable or deductible. The Group's liability for current taxis calculated using tax rates that have been enacted or substantively enacted bythe balance sheet date. Deferred tax is recognised on differences between the carrying amounts of assetsand liabilities in the financial statements and the corresponding tax bases usedin the computation of taxable profit and is accounted for using the balancesheet liability method. Deferred tax liabilities are generally recognised forall taxable temporary differences. Deferred tax assets are generally recognisedfor all deductible temporary differences to the extent that it is probable thattaxable profits will be available against which such differences can beutilised. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered in the foreseeable future. Deferred tax is calculated at the tax rates which are expected to apply in theperiod when the liability is settled or the asset realised. Deferred tax ischarged or credited to profit or loss, except when it relates to items chargedor credited directly to reserves, in which case the deferred tax is also dealtwith in reserves. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe Group intends to settle its current tax assets and liabilities on a netbasis. (k) Share-based payments Share options are awarded annualy to selected employees on a discretionary basis.The options are subject to three and five year service vesting conditions, and their fair value (which is measured using the stochastic pricing model at the date of grant) is recognised as an employee benefits expense over the vesting period, with a corresponding increase in an other equity reserve. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. (l) Retirement benefits For defined contribution pension schemes, the amount charged to the incomestatement represents the contributions payable in the period. Differencesbetween contributions payable in the period and contributions actually paid areshown as either accruals or prepayments in the balance sheet. For the defined benefit scheme and the post-retirement medical benefits plan,the amounts charged to operating profit are the current service costs and gainsand losses on settlements and curtailments. Past service costs are recognisedimmediately in the consolidated income statement if the benefits have vested. If the benefits have not vested immediately, the costs are recognised over the period until vesting occurs. The interest costs and the expected return on assets are shown as a net amount of other finance costs or credits adjacent to interest. Actuarial gains and losses are recognised immediately in the statement of changes in shareholders' equity. The defined benefit pension scheme is funded, with the assets of the scheme heldseparately from those of the Group in separate trustee administered funds.Pension scheme assets are measured at fair value. Liabilities in relation to thedefined benefit pension scheme and the unfunded post-retirement medical benefitsplan are measured on an actuarial basis using the projected unit method anddiscounted at a rate equivalent to the current rate of return on a high qualitycorporate bond of equivalent currency and term to the scheme liabilities. Theactuarial valuations are obtained at least triennially and are updated at eachbalance sheet date. The resulting defined benefit asset or liability ispresented separately on the face of the balance sheet. (m) Provisions Provisions for legal claims are recognised when the Group has a present legal orconstructive obligation as a result of past events, and it is more likely thannot that an outflow of resources will be required to settle that obligation, andthe amount has been reliably estimated. Provisions are measured at the presentvalue of the directors' best estimate of the expenditure required to settle theobligation at the balance sheet date and are discounted to present value wherethe effect is material. (n) Dividend distribution Dividend distribution to the Company's shareholders is recognised as a liabilityin the Group's financial statements in the period in which the dividends areapproved by the Company's shareholders. (o) Own shares held by employee trust The Management Consulting Group PLC shares owned by the employee share trust arepresented as a reduction of equity. 3. Segmental information (a) Primary reporting format - business segments For management purposes, the group has two businesses - Parson Consulting andProudfoot Consulting. These businesses are the basis on which the Group reportsits primary segment information. The principal activities of the business segments are as follows: Parson Consulting - financial management consultancyProudfoot Consulting - operational management consultancy Six months ended 30 June 2005 Financial Operational Group management management consultancy consultancy £'000 £'000 £'000RevenueExternal sales 21,229 35,989 57,218 ========= ========= ======== Operating profit 1,032 2,636 3,668Release of indemnity provision - 897 897 --------- --------- --------Profit from operations 1,032 3,533 4,565 ========= =========Finance income 173 -------- Profit before tax 4,738Income tax expense (1,285) --------Profit after tax 3,453 ======== Six months ended 30 June 2004 Financial Operational Group management management consultancy consultancy £'000 £'000 £'000RevenueTotal revenue 16,108 46,831 62,939 ========= ========= ======== Profit from operations 654 7,011 7,665Finance income 68 --------Profit before tax 7,733Income tax expense (2,320) --------Profit after tax 5,413 ======== (b) Secondary reporting format - geographical segments The Group operates in three geographical areas - North America, Europe and theRest of the World. The Group reports secondary segment information on the basisof geographical area. Six months ended 30 June 2005 North Europe Rest of Group America World £'000 £'000 £'000 £'000RevenueExternal sales 34,666 19,673 2,879 57,218 ======== ========= ======== ======== Six months ended 30 June 2004 North Europe Rest of Group America World £'000 £'000 £'000 £'000RevenueExternal sales 42,282 15,853 4,804 62,939 ========= ========= ======== ======== 4. Dividends Six months Six months ended ended 30 June 30 June 2005 2004 (restated for IFRS) £'000 £'000Amounts recognised as distributions toequity holders in the period: Final dividend in respect of the year ended 31December 2004of 0.67p (2003: 0.5p) per share 1,241 925 ========== ========= 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). 5. Taxation Six months Six months Year ended ended ended 30 June 30 June 31 Dec 2005 2004 2004 (restated for (restated for IFRS) IFRS) £'000 £'000 £'000Current taxUK - 445 127Foreign 1,164 1,564 3,828Prior year (12) 707 490 --------- --------- --------- 1,152 2,716 4,445Deferred tax 133 (396) (500) --------- --------- ---------Total 1,285 2,320 3,945 ========= ========= ========= Corporation tax for the interim period is charged at 35% (2004 full year: 38%),representing the best estimate of the weighted average annual corporation taxrate expected for the full financial year. The effective tax charge for the halfyear is 34% (2004 full year: 32%), based on profit before tax excluding therelease of the Japan indemnity provision of £0.9 million. 6. Earnings per share From continuing operations The calculation of the basic and diluted earnings per share is based on thefollowing data: Six months Six month Year ended ended ended 30 June 30 June 31 Dec 2005 2004 2004 (restated for(restated for IFRS) IFRS)Earnings £'000 £'000 £'000Earnings for the purposes of basicearnings per share being net profitattributable to equity holders of the parent 3,453 5,413 8,457 ========= ========= ========= Number of shares Number Number Number (million) (million) (million)Weighted average number of ordinaryshares for the purposes of basicearnings per share 185.1 184.9 185.0 Effect of dilutive potential ordinaryshares:Share options 3.5 0.7 1.8Long-term incentive plan 0.2 - - --------- --------- ---------Weighted average number of ordinaryshares for the purposes of dilutedearnings per share 188.8 185.6 186.8 ========= ========= ========= Pence Pence PenceBasic earnings per share 1.87 2.93 4.57Diluted earnings per share 1.83 2.92 4.53 ========= ========= ========= The average share price for the six months ended 30 June 2005 was 50.2 pence (30June 2004: 35.3 pence and 31 December 2004: 41.3 pence). 7. Share capital During the period, the Company issued the following ordinary shares of 25 penceeach: Number of Nominal shares value £'000At 1 January 2005 189,024,358 47,256Issued for the management incentive plan share award 333,049 83Employee share options exercised 136,005 34 ------------ ---------At 30 June 2005 189,493,412 47,373 ============ ========= 8. Notes to the cash flow statement Six months Six months Year ended ended ended 30 June 30 June 31 Dec 2005 2004 2004 (restated for (restated for IFRS) IFRS) £'000 £'000 £'000 Profit from operations 4,565 7,665 12,436Adjustments for:Depreciation of property, plant andequipment 288 391 818Amortisation of intangible assets 234 165 346Gain on disposal of plant and equipment 16 - -Management long-term incentive plan - (503) (757)Adjustment for pension funding (920) (1,024) (2,911)Adjustment for share options charge 332 201 439Decrease in provisions (886) (48) (110) --------- --------- --------- Operating cash flows before movementsin working capital 3,629 6,847 10,261 Increase in receivables (1,940) (5,364) (4,053)(Decrease) / increase in payables (2,036) 6,325 5,840 --------- --------- ---------Cash generated by operations (347) 7,808 12,048 Income taxes paid (1,795) (2,352) (3,806) --------- --------- --------- Net cash from operating activities (2,142) 5,456 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. 9. Retirement benefits The retirement benefits liability relates to the closed US defined benefitpension scheme and to the closed US post-retirement medical benefits plan. Entitlement to additional benefits under the US defined benefits pension schemeceased on 31 December 2001. The US post-retirement medical benefits plan relatesto certain former employees who retired prior to 30 September 1995 and to asmall number of current and former employees who were employed at that date.Accordingly, further benefit accruals under this plan are insignificant. The retirement benefits liability at 30 June 2005 has been estimated by theactuaries on the basis described in the last annual report except that thediscount rate applied to the liabilities has been decreased by 0.5% to 5.25%. Anactuarial loss of £3.2 million arose in the period (30 June 2004: loss of£0.4 million). Changes in the present value of the defined benefit obligation are as follows: Six Six Year months months ended ended ended 31 30 June 30 June Dec 2005 2004 2004 £'000 £'000 £'000Opening defined benefit obligation (35,771) (35,586) (35,586)Service cost - - (1)Interest cost (1,029) (1,025) (2,037)Actuarial losses (2,305) (94) (2,263)Exchange differences (2,649) 652 2,583Benefits paid 747 790 1,534 --------- --------- --------- Closing defined benefit obligation (41,007) (35,263) (35,770) ========= ========= ========= Changes in the fair values of plan assets are as follows: Six Six Year months months ended ended ended 31 30 June 30 June Dec 2005 2004 2004 £'000 £'000 £'000Opening fair value of plan assets 24,387 22,373 22,373Expected return 990 887 1,765Actuarial (losses) / gains (847) (328) 567Contributions by employer 920 1,024 2,912Exchange differences 1,730 (410) (1,696)Benefits paid (747) (790) (1,534) --------- --------- --------- Closing fair value of plan assets 26,433 22,756 24,387 ========= ========= ========= Net retirement benefit obligation (14,574) (12,507) (11,383) ========= ========= ========= The fair value of plan assets at the balance sheet date is analysed as follows: Six Six Year months months ended ended ended 31 30 June 30 June Dec 2005 2004 2004 £'000 £'000 £'000Equities 18,310 16,464 17,099Bonds 7,992 6,280 6,903Cash 131 12 385 --------- --------- ---------Total fair value of assets 26,433 22,756 24,387 ========= ========= ========= The plan assets do not include any of the Group's own financial instruments, norany other assets used by the Group. 10. Share based payments Share options are granted to directors and senior employees under the ProudfootPLC Executive Share Option Scheme. The exercise price of the options is equal tothe market price of the shares on the date of grant. Options granted under thisScheme are exercisable in two equal instalments after three years and five yearsrespectively. The half of the options exercisable between three and ten yearsafter grant have been assumed to have an expected vesting period of five years,and the remaining half of the options exercisable between five and ten yearsafter grant have been assumed to have an expected life of seven years. For grants made since 7 November 2002 (the start date from which IFRS takesshare option awards into account), options were subject to a performancecondition that compares the Total Shareholder Return ("TSR") over the three yearperiod following grant with the TSR of the FTSE Mid 250. The fair value of options granted was determined using the stochastic valuationmodel. An expense of £0.3 million has been recognised in the period in respectof the share options granted above (2004 full year: £0.4 million). Thecumulative share compensation reserve at 30 June 2005 is £0.9 million, whichincludes the opening IFRS adjustment of £0.2 million. 11. Explanation of transition to IFRS The reconciliations of equity at 1 January 2004 (the date of transition to IFRS)and at 31 December 2004 (date of the last UK GAAP financial statements) and thereconciliation of profit to 31 December 2004, as required by IFRS 1, have beenpublished within the 2004 Annual Report and Accounts. These can be found on thecompany's website, www.mcgplc.com. The reconciliations have been amended subsequently to recognise a deferred taxliability for the 2004 full year of £0.9 million relating to tax deductiblegoodwill. The reconciliation of equity at 30 June 2004 and the reconciliation of profitfor the six months ended 30 June 2004 have been included below to enable acomparison of the 2005 published interim figures with those published in thecorresponding period of the previous financial year. Reconciliation of equity at 30 June 2004 UK GAAP Effect of IFRS transition to IFRS £'000 £'000 £'000Related Shares:
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