RNS Number:7912I
Management Consulting Group PLC
17 March 2003
For Immediate Release 17 March 2003
Management Consulting Group PLC
Financial results for the year ended 31 December 2002
Management Consulting Group PLC, the international management consultancy group,
announces its financial results for the year ended 31 December 2002.
Key points
* Group turnover increased by 49% to #107.3 million (2001: #72.1 million)
* Proudfoot Consulting turnover increased by 29% to #93.2 million (2001:
#72.1 million)
* Operating profit before goodwill amortisation #7.6 million (2001: #1.8
million, including exceptional pension credit of #2.0 million)
* Total operating profit of #4.5 million (2001: #0.1 million, including
exceptional pension credit)
* Return to dividend list: proposed dividend of 0.5 pence per share (2001:
nil pence)
* Parson Consulting, acquired in May 2002 for #38.5 million, expands the
group into financial management consulting
* Cash balance of #21.9 million at year end (2001: #18.9 million)
* Fully diluted earnings per share 2.43 pence (2001: 0.04 pence)
* Headline earnings per share, before goodwill amortisation, 4.68 pence
(2001: 1.41 pence)
Rolf Stomberg, Chairman:
"These results demonstrate the success in turning around Proudfoot Consulting
over the last three years. We look forward to continuing growth in 2003 albeit
that the first half will be affected by slower order intake at the end of last
year and the current political and economic uncertainty."
Kevin Parry, Chief Executive:
"We have delivered results for 2002 in line with expectations despite the
adverse consulting market conditions and the effects of the weak dollar on our
reported earnings. I am very satisfied with the order intake so far this year
which is in stark contrast to the slow fourth quarter last year.
Proudfoot Consulting is well positioned for continued growth. Parson
Consulting, acquired in May 2002, has been stabilised to provide a platform for
its turnaround. It is now beginning to undertake a substantial number of
engagements directly resulting from the Sarbanes-Oxley Act."
For further information please contact:
Kevin Parry, Chief Executive
Stephen Purse, Finance Director
Management Consulting Group PLC 020 7832 3700
Richard Darby/Bobbie Swanson
Buchanan Communications 020 7466 5000
An analyst briefing will be held at the offices of Buchanan Communications, 107
Cheapside, London EC2 on Monday, 17 March 2003, at 10:00am.
Management statement
Overview
2002 marked the completion of the turnaround of MCG with the return of the Group
to operating profitability. The acquisition of Parson Consulting initiated the
next phase of MCG's development: the formation of a group with a number of
different specialised consultancies. The operating profit was #4.5 million
(2001: loss of #1.9 million after excluding the #2.0 million exceptional pension
credit). Before goodwill amortisation, the operating profit increased by #7.9
million to #7.6 million (2001: loss of #0.3 million after excluding the
exceptional pension credit). The operating profit was achieved against the
backdrop of the weakest market place for consulting for a decade and the
substantial depreciation of the US dollar against Sterling in the second half of
2002. The Group has delivered results in line with market expectations despite
these two adverse external factors.
Group consultancies
The Group now comprises two consultancies: Proudfoot Consulting and Parson
Consulting.
Proudfoot Consulting specialises in substantial operational improvement,
ensuring that clients obtain a significant increase in profitability as a direct
result of the change installed by our consultants. This is achieved through
delivering higher sales, lower costs and overheads and reduced capital
expenditure. Proudfoot's appeal is to performance focused senior management who
recognise success is about the operational achievement of strategies and goals.
Parson Consulting specialises in financial management consultancy. It improves
the accuracy, speed and efficiency of finance and operational support functions.
By not undertaking auditing, Parson Consulting is free of the traditional
conflicts experienced by external and internal auditors who frequently audit the
work which they either advised on or carried out. Parson Consulting's appeal is
to financial managers who are highly focused on contemporary standards of
corporate governance and who recognise the benefits that can be obtained from
quality finance and 'back office' functions.
Proudfoot Consulting
Proudfoot is the dominant consultancy in the Group, accounting for approximately
80% of the total Group turnover (on a full year basis).
Turnover grew by 29% in 2002. North America reported growth of 40% in Sterling
terms despite the depreciation of the US dollar by 10% relative to Sterling
during the year. Asia Pacific grew by 187% and solid growth of 15% was
achieved in Europe. The small African unit reported lower turnover in 2002 but
has made a strong start to 2003.
The gross margin remained little changed from prior periods at 50% because the
Group continues to manage the number of its consultants in line with the amount
of work being delivered.
The operating profit of the Proudfoot business was #8.3 million (2001: loss of
#1.9 million after excluding exceptional pension credit). After adding back
goodwill amortisation and depreciation, EBITDA was #11.7 million (2001: #0.9
million, excluding exceptional pension credit). This gives an EBITDA margin of
13% on turnover compared with our goal of a sustainable 15%.
Parson Consulting
The acquisition of Parson Consulting, then a solely US business, was completed
at the end of May 2002. Our aim is to build a substantial consultancy that
occupies a space in between the large accounting firms (the so-called "final 4")
and the large systems houses.
In 2002, we rebranded and clarified the offering and started to make management
changes that would allow us to deliver a turnaround in that business using many
of the same methodologies that we have used in Proudfoot over the last three
years. In addition, shortly after acquiring Parson Consulting, we took a
strategic decision that it should offer its services on a basis that is free
from potential conflicts of interest. Accordingly, we ceased to offer internal
audit services which reduced revenues for 2002. We believe that this strategic
decision is of sound commercial merit and reflects the developing state of US
corporate governance laws and practices following the Sarbanes-Oxley Act. This
legislation will, during 2003, substantially restrict the services that auditing
firms can provide to their clients.
Parson Consulting contributed #14.1 million to turnover resulting in a loss of
#2.7 million before goodwill amortisation. The result was adversely affected by
a combination of four factors: the weakness of the US dollar, ceasing to offer
internal auditing, investment in strengthening the sales process and trading
under-performance. The trading under-performance is being addressed by
management changes together with an in-depth review of the business model using
the expertise of Proudfoot Consulting. As indicated in our January trading
update, we continue to anticipate that Parson will return to monthly
profitability in the second half of 2003, some three months later than we had
anticipated at the time of the acquisition.
Earnings
Net finance income is little changed on the prior year at #0.4 million (2001:
#0.5 million). The tax charge is also little changed at #0.6 million (2001:
#0.5 million). The effective tax charge of 13% reflects the use of tax losses
brought forward from prior years.
The improved overall trading performance and the low tax charge result in basic
earnings per share of 2.71 pence (2001: 0.05 pence). The fully diluted earnings
per share is 2.43 pence (2001: 0.04 pence) and the headline earnings per share,
which adds back goodwill amortisation to the basic earnings per share, is 4.68
pence (2001: 1.41 pence).
Balance sheet
The acquisition of Parson Consulting was financed entirely out of the proceeds
of an equity issue of #38.8 million, net of expenses. This accounts for the
significant increase in the net assets from #20.1 million at the end of 2001 to
#57.0 million at the end of 2002.
Year end cash was #21.9 million (2001:#18.9 million). Debtors remain very
tightly managed and accounted for 11 days' sales at the year end (2001: 23
days). This reflects the policy of both Proudfoot and Parson of billing clients
weekly.
The Group fully implemented FRS17 last year and so we show the entire deficit of
the closed US defined benefit pension and post retirement plans on our balance
sheet. Like most companies, we report a worsening of the deficit which
increased by some #5 million during the year. The overall deficit of #17.3
million has to be made good over the remaining working lives of our deferred
pensioners by a combination of market movements and cash contributions.
Dividend
After an absence from the dividend list of four years, the Board is delighted to
recommend a final dividend of 0.5 pence per share which will be payable on 21
May 2003 to shareholders on the register on 22 April 2003.
The directors consider that the Group continues to have considerable growth
potential and that cash resources can provide to shareholders, over the medium
term, better returns by investment in consultancies than by paying substantial
dividends. In particular, in current market conditions, we consider that it is
prudent to hold surplus cash to allow flexibility for market opportunities as
they arise. It is the Board's intention that dividend cover will remain high
and that, accordingly, the dividend will rise with earnings per share. To
minimise administration costs, it is the intention to pay only one dividend a
year.
The Board
In recognition of the practices recommended by the Higgs review and those
normally operated in the United States, we have decided that the Board should
comprise a majority of non-executive directors. Executive representation will be
limited to the Chief Executive and the Finance Director. Accordingly both Mr
Cara and Mr George will step down from their positions as executive directors at
the next AGM. In addition, Mr Mackenzie will retire from the Board having been
a non-executive director for nine years.
The Board would like to thank Mr Cara and Mr George for the parts that they
played in the turnaround of our business. Mr Cara will continue to pursue North
American executive responsibilities within the Group. Mr George has, in full
consultation with the Board, decided to pursue other opportunities. In
addition, the Board would like to thank Mr Mackenzie for his services and
particularly his contribution in stabilising the Group in the late 1990s.
We are currently recruiting two additional independent non-executive directors.
Prospects
The climate for consulting is more challenging than we have seen since 1991. In
particular, all of the major European economies face challenges at the same time
and market expectations of private sector consulting growth are flat to
negative. In the US, the picture is more mixed with the financial sector
suffering more than other sectors.
In addition, the continued weakness of the US dollar against Sterling reduces
the Group's turnover as reported in Sterling. At the current exchange rate of
1.60 the US dollar has depreciated relative to Sterling by some 6% compared with
the average rate for 2002 of 1.50. We remain of the view, however, that it is
inappropriate to hedge the impact of changes in the exchange rate as the impact
is solely the effect of translation and we have no need to convert US dollars
into Sterling.
As indicated in our January trading update we are more cautious than six months
ago in our outlook, even though the Proudfoot business has proven its ability to
perform well in tough economic conditions. This caution, which applies
especially to the first half of 2003, is based on the level of the order book at
31 December 2002 and the continued strength of Sterling relative to the dollar.
Nevertheless, we are pleased to report that the work won by Proudfoot Consulting
in the year to date is very substantially ahead of the work delivered and is
also ahead of the work won in the corresponding period of last year. This is
primarily due to greater business outside the financial sector in the United
States. In addition, early sales activity levels in Europe are considerably
ahead of the corresponding period last year although it will be the second half
before the full effects of these feed through into revenue.
As reported previously, we stabilised the Parson Consulting business in the
latter part of 2002 and are now able to report that a number of forward
indicators are also encouraging, notably the work being won is now in line with
the work being delivered, the price of work being sold continues to increase and
the number of larger opportunities is higher than at any time during our
ownership. We have now undertaken eight engagements as a result of the
Sarbanes-Oxley legislative changes and there are approximately six times as many
opportunities in the pipeline. In addition, a number of key management
positions have been strengthened by the recruitment of experienced leaders from
other financial management consulting businesses. We remain confident of our
ability to return Parson Consulting to a monthly break-even position during the
second half of the year.
Overall, mindful of the current political and economic uncertainties, we are
confident that Management Consulting Group will overcome the slow start to 2003
and will for the fourth consecutive year report annual growth.
Dr Rolf Stomberg
Chairman
Kevin Parry
Chief Executive
Group profit and loss account
year ended 31 December 2002 2001
note #'000 #'000
Turnover
Continuing operations 93,229 72,122
Acquisitions 14,067 -
Total turnover 2,3 107,296 72,122
Cost of sales (53,710) (35,917)
Gross profit 53,586 36,205
Selling costs (29,189) (20,942)
Administrative expenses
Excluding goodwill amortisation and exceptional pension credit (16,787) (15,521)
Goodwill amortisation (3,107) (1,629)
Exceptional credit related to pension scheme 11 - 2,036
Total administrative expenses (19,894) (15,114)
Operating profit:
Before goodwill amortisation 7,610 1,778
After goodwill amortisation
Continuing operations 8,347 149
Acquisitions (3,844) -
Total operating profit and profit on ordinary activities
before finance income 2,3,10 4,503 149
Finance income (net) 4 395 457
Profit on ordinary activities before taxation 2 4,898 606
Tax on profit on ordinary activities (636) (548)
Profit on ordinary activities after taxation 4,262 58
Equity dividends proposed 5 (930) -
Retained profit for the financial year 3,332 58
Earnings per share 8
Basic 2.71p 0.05p
Diluted 2.43p 0.04p
Headline 4.68p 1.41p
There is no material difference between the profit on the historical cost basis
and that disclosed in the profit and loss account.
Group statement of total recognised gains and losses
year ended 31 December 2002 2001
note #'000 #'000
Profit for the financial year 4,262 58
Actuarial loss relating to retirement benefit schemes 11 (7,605) (6,111)
Currency translation differences on foreign currency net (453) (1,711)
investments
Total recognised gains and losses relating to the year (3,796) (7,764)
Group reconciliation of movements in shareholders' funds
year ended 31 December 2002 2001
#'000 #'000
Profit for the financial year 4,262 58
Other recognised gains and losses during the year (8,058) (7,822)
(3,796) (7,764)
Equity dividends proposed (930) -
Issue of share capital
Acquisitions 2,458 4,136
New issue (net of expenses) 38,790 -
Share option schemes 232 154
Movement in reserve for shares to be issued 189 4,873
Net increase in shareholders' funds 36,943 1,399
Opening shareholders' funds 20,052 18,653
Closing shareholders' funds 56,995 20,052
Group balance sheet
as at 31 December 2002 2001
note #'000 #'000 #'000 #'000
Fixed assets
Intangible assets 9 73,600 35,761
Tangible assets 2,471 2,595
Investments 970 970
Total fixed assets 77,041 39,326
Current assets
Debtors 8,256 10,228
Cash at bank and in hand and deposits 21,928 18,927
30,184 29,155
Creditors: amounts falling due within one year (25,265) (28,749)
Net current assets 4,919 406
Total assets less current liabilities 81,960 39,732
Creditors: amounts falling due after
more than one year (4,971) (4,412)
Provisions for liabilities and charges (2,704) (3,056)
Net assets excluding retirement
benefits liability 74,285 32,264
Retirement benefits liability 11 (17,290) (12,212)
Net assets including retirement
benefits liability 56,995 20,052
Capital and reserves
Called up share capital 46,530 30,488
Share premium account 37,978 14,173
Shares to be issued 9,427 9,238
Other reserves (423) (1,603)
Profit and loss account (36,517) (32,244)
Shareholders' funds - equity 56,995 20,052
Group cash flow statement
year ended 31 December 2002 2001
note #'000 #'000 #'000 #'000
Net cash inflow from operating activities 10 4,884 1,016
Returns on investments and
servicing of finance
Interest received 958 667
Interest paid (86) -
Net cash inflow from returns on
investments and servicing of finance 872 667
Taxation (2,093) (875)
Capital expenditure and financial investment
Purchase of tangible fixed assets (1,116) (1,525)
Disposal of investments - 715
Net cash outflow from capital expenditure
and financial investment (1,116) (810)
Acquisitions and disposals
Payments to acquire subsidiary undertakings 9 (37,633) (2,811)
(Debt)/cash acquired with subsidiary 9 (691) 846
Net cash outflow from acquisitions and disposals (38,324) (1,965)
Cash outflow before use of liquid resources
and financing (35,777) (1,967)
Management of liquid resources
Cash withdrawn from liquid resources 2,475 -
Net cash inflow from management
of liquid resources 2,475 -
Financing
Net proceeds from issue of ordinary shares 39,022 1,117
Net cash inflow from financing 39,022 1,117
Increase/(decrease) in cash in the year 5,720 (850)
Notes
1. Accounting policies
The financial information has been prepared on the basis of the accounting
policies set out in the Annual Report and Accounts for the year ended 31
December 2002.
2. Segmental information
(a) Turnover
The analysis of turnover by geographical origin is as follows:
2002 2001
Continuing operations #'000 #'000
North America 66,186 37,243
Europe 34,634 30,040
Africa 2,188 3,347
Asia Pacific 4,288 1,492
107,296 72,122
There is no material difference between turnover by geographical origin and
turnover by geographical destination.
(b) Profit before taxation
The analysis of the profit after goodwill amortisation, by geographical region
is as follows:
2002 2001
Continuing operations #'000 #'000
North America 8,645 4,806
Europe (3,479) (3,490)
Africa (947) (55)
Asia Pacific 284 (1,112)
Total operating profit 4,503 149
Finance income (net) 395 457
Group profit before taxation 4,898 606
Management consultancy is the Group's sole business segment.
3. Acquisitions
The figures for continuing operations in 2002 include the following amounts
related to acquisitions: turnover #14.1 million; cost of sales #8.9 million;
selling costs #4.1 million; administrative expenses #4.9 million (including
goodwill amortisation of #1.1 million) and operating loss #3.8 million.
4. Finance income (net)
2002 2001
#'000 #'000
Interest receivable and similar income 980 634
Interest payable and similar charges (249) -
Other finance charges (336) (177)
395 457
5. Equity dividends proposed
2002 2001
Equity shares #'000 #'000
Proposed final dividend of 0.5p (2001: nil) 930 -
The directors recommend the payment of a final dividend of 0.5 pence to be paid
on 21 May 2003 to ordinary shareholders on the register on 22 April 2003.
6. Earnings before interest, tax, depreciation and amortisation
2002 2001
Continuing operations #'000 #'000
Operating profit 4,503 149
Depreciation 1,639 1,171
Amortisation of goodwill 3,107 1,629
Exceptional credit related to pension scheme - (2,036)
EBITDA, excluding exceptional credit 9,249 913
7. Staff numbers
The average number of persons employed by the Group (including directors) during
the year, analysed by category, was as follows:
2002 2001
Sales and Marketing 157 119
Consultants 449 270
Support staff 138 101
744 490
8. Earnings per share
The basic earnings per share is calculated by dividing the profit after tax by
the weighted average number of Ordinary Shares in issue during the year after
deducting 3.9 million shares held by the Group in an employee share trust.
For diluted earnings per share, the weighted average number of Ordinary Shares
in issue is adjusted to assume conversion of all potentially dilutive Ordinary
Shares. The Group's dilutive instruments are share options granted to employees
where the exercise price is less than the average market price during the year,
shares potentially to be issued to executive directors under a long-term
incentive plan and shares to be issued as deferred consideration in respect of
acquisitions.
The average market price of Ordinary Shares for the year ended 31 December 2002
was 67.8 pence (31 December 2001: 62.0 pence).
Headline earnings per share has been calculated in accordance with the
definition in the Institute of Investment Management Research ('IIMR') Statement
of Practice No. 1, 'The Definition of IIMR Headline Earnings'.
The prior year earnings per share have been adjusted for the effect of the issue
of new shares at a discount to the market price in connection with the
acquisition of Parson Consulting.
Reconciliations of the earnings and weighted average number of shares used in
the calculations are set out below:
2002 2001
Weighted Weighted
average Earnings average Earnings
number of per share number of per share
Earnings shares amount Earnings shares amount
(#'000) (million) (pence) (#'000) (million) (pence)
Basic EPS
Profit attributable to 4,262 157.3 2.71 58 119.4 0.05
shareholders
Effect of dilutive securities
Options - 3.6 (0.06) - 3.4 -
Long-term incentive plan - 8.5 (0.13) - 10.1 (0.01)
Deferred consideration shares - 6.1 (0.09) - 3.2 -
Fully diluted EPS 4,262 175.5 2.43 58 136.1 0.04
Basic EPS 4,262 157.3 2.71 58 119.4 0.05
Goodwill amortisation 3,107 - 1.97 1,629 - 1.36
Headline earnings per share 7,369 157.3 4.68 1,687 119.4 1.41
9. Purchase of subsidiary undertaking
On 28 May 2002, the Group acquired 100% of the ordinary share capital of Parson
Consulting. The acquisition has been accounted for under the acquisition method
of accounting. The resultant goodwill of #40.3 million has been capitalised and
will be amortised over 20 years.
The consideration payable was:
(i) cash consideration, including acquisition costs, of #37.2 million;
and
(ii) consideration in shares of the Company equivalent to #1.4
million of which one third was settled on closing and up to #0.9 million is
issuable in equal amounts on the first and second anniversaries of closing.
For the period from 1 January 2002 to 28 May 2002, Parson Consulting recorded
turnover of #12.7 million, an operating loss of #2.0 million and a loss before
and after taxation of #2.0 million. In the year to 31 December 2001, Parson
Consulting made a profit before taxation of #0.4 million.
The fair value to the Group is shown below:
Accounting
Book policy
value alignment Fair value
#'000 #'000 #'000
Fixed assets 809 - 809
Debtors 4,317 - 4,317
Creditors (including bank overdraft of #691,000) (3,346) (3,491) (6,837)
Net assets/(liabilities) 1,780 (3,491) (1,711)
Goodwill 40,256
Total cost of acquisition 38,545
Satisfied by:
Cash consideration, including acquisition costs 37,181
Shares issued as consideration 457
Shares to be issued as deferred consideration 907
38,545
The accounting policy alignments comprise the recognition of liabilities for
onerous contracts in accordance with the policies of the Group.
In addition, #452,000 was paid during the year as additional consideration in
relation to Czipin & Partners.
10. Reconciliation of operating profit to net cash flow from operating
activities
2002 2001
#'000 #'000
Operating profit 4,503 149
Depreciation 1,639 1,171
Amortisation of goodwill 3,107 1,629
Management long-term incentive plan charge - 1,420
Retirement benefit contributions in excess of service cost (1,210) (176)
Exceptional pension credit - (2,036)
Decrease/(increase) in debtors 6,695 (2,932)
(Decrease)/increase in creditors (9,402) 1,800
Decrease in provisions (448) (9)
Net cash inflow from operating activities 4,884 1,016
11. Retirement benefits
The retirement benefits liability relates to the closed US defined benefit
pension scheme and to the closed US post-retirement medical benefits plan. It
is based on full implemention of FRS17, as in the prior year.
Entitlement to additional benefit accruals under the US defined benefits pension
scheme ceased on 31 December 2001. The accounts for the year then ended include
an exceptional credit of #2,036,000 arising from the closure of the scheme.
The US post-retirement medical benefits plan relates to certain former employees
who retired prior to 30 September 1995 and to a small number of current and
former employees who were employed at that date. Accordingly, further benefit
accruals under this plan are insignificant.
2002 2001
#'000 #'000
Retirement benefits liability at start of year (12,212) (8,297)
Pension contributions 1,087 775
Payment of medical benefits 176 232
Service cost (53) (448)
Effect of curtailment - 2,036
Net finance expense (336) (177)
Actuarial loss (7,605) (6,111)
Foreign exchange translation 1,653 (222)
Retirement benefits liability at end of year (17,290) (12,212)
12. Statutory accounts
The above financial information does not constitute statutory accounts as
defined in Section 240 of the Companies Act 1985. The financial information has
been extracted without material adjustment from the consolidated financial
statements of Management Consulting Group PLC, which have been audited. The
auditors have made a report under section 235 of the Companies Act 1985 in
respect of the statutory consolidated accounts for the years ended 31 December
2001 and 31 December 2002. Their reports were unqualified within the meaning of
Section 262(1) of the Companies Act 1985 and did not contain a statement under
Section 237(2) or (3) of that Act.
Statutory accounts for the financial year ended 31 December 2001 have been
delivered to the Registrar of Companies pursuant to Section 242 of the Act
whereas those for 2002 will be delivered following the Annual General Meeting.
13. Annual report
A copy of the Group's Annual Report and Accounts will be sent to shareholders on
21 March 2003 and copies will be available at the Company's registered office at
21 New Fetter Lane, London EC4A 1AW, United Kingdom and available on our
website: www.mcgplc.com.
14. Annual General Meeting
The Annual General Meeting will be held on Tuesday 15 April 2003 at 11am.
This information is provided by RNS
The company news service from the London Stock Exchange
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