RNS Number:8258P
Management Consulting Group PLC
08 August 2005
Interim results for the six months ended 30 June 2005
Management Consulting Group PLC ("MCG" or "the Group"), the international
management consultancy group, today announces its results for the six months
ended 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 the
growth in the order book and the success of both Proudfoot Consulting and Parson
Consulting in winning new business."
Kevin Parry, Chief Executive:
"The substantially increased order book has positioned us well for the second
half. The consulting market place continues to improve notwithstanding the
economic slowdown in some sectors of the economy. We continue to look at
opportunities to expand our service offerings and geographic presence."
For further information please contact:
Management Consulting Group PLC
Kevin Parry Chief Executive 020 7710 5000
Mark Currie Finance Director 020 7710 5000
The Maitland Consultancy
Suzanne Bartch 020 7379 5151 (mobile) 07769 710335
Peter Ogden 020 7379 5151 (mobile) 07811 124197
Notes to Editors
Management Consulting Group PLC (www.mcgplc.com), the international management
consultancy group, comprises two businesses, Proudfoot Consulting and Parson
Consulting.
Proudfoot Consulting is a specialist management consultancy which implements
sustainable operational improvements in sales, costs, overheads, major capital
expenditure projects and production output, typically at no net annualised cost
to 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 the
accuracy, speed and efficiency of finance and support functions free of auditing
conflicts 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 half
of 2005 was similar to that of the second half of 2004. The results are
summarised 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
--------- ---------- --------- ----------
Revenue
Proudfoot 36.0 34.6 46.8 81.4
Parson 21.2 21.7 16.1 37.8
--------- ---------- --------- ----------
57.2 56.3 62.9 119.2
--------- ---------- --------- ----------
Operating profit
Proudfoot 3.6 3.1 7.0 10.1
Parson 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 Reporting
Standards
Group results
Overall revenue for the six months ended 30 June 2005 was #57.2 million (six
months 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 that
resulted in a revenue bias to the first half of the year. In 2005, we have also
won some large client engagements including repeat work from two of the large
engagements undertaken in 2004; these large projects will underpin our revenue
in the second half.
In the period, 61% of Group revenue was attributable to North America (six
months ended 30 June 2004: 67%). North American revenue declined by 18% compared
with the corresponding period of 2004. In contrast Europe's share of revenue was
34% (six months ended 30 June 2004: 25%) with revenue 24% up compared with the
corresponding 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 large
proposals for consulting engagements, offset by continued progress on pricing of
work in Parson Consulting.
Selling costs were #1.6 million higher than in the corresponding period of 2004
primarily as a result of the expansion of our businesses to new geographic
locations.
Administrative expenses were #1.7 million less than in the corresponding period
due to lower bonuses as a result of lower operating profits and a credit of #0.9
million arising from a time expired indemnity given in 2000 in connection with
the sale of Proudfoot's operation in Japan.
The total operating profit was #4.6 million compared with #7.7 million in the
corresponding 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 indemnity
provision, is 34% (2004 full year: 32%).
Proudfoot Consulting
Proudfoot Consulting's revenue was #36.0 million (2004: #46.8 million). The
decline in revenue is primarily attributable to North America which benefited in
the first half of 2004 from some larger than normal client engagements. In
contrast, Europe's revenue increased by some 6% over the corresponding period of
2004 primarily due to engagements in the United Kingdom.
There were no significant changes in the scope of the Proudfoot business around
the world with the exception of South East Asia where we continued to invest in
our capabilities in Hong Kong, China and Taiwan.
The decline in profitability compared with the first half of last year reflects
the operational gearing in the business and our investment in expanding the
Asian operations.
The order book at the half year was over 75% ahead of the start of the year with
a number of orders extending into 2006.
Parson Consulting
Parson Consulting's revenue was #21.2 million (2004: #16.1 million). The growth
in revenue is attributable to a widening of the services provided to clients and
the continued growth in the UK business which benefited from the application of
Sarbanes-Oxley to non-US domestic SEC registrants.
The profit increased to #1.0 million (2004: #0.7 million) due to operational
gearing, 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 billing
clients. Early signs are that the offices are gaining good traction in their
market places. For the more established businesses, we anticipate increasing
demand for non-governance related services with a continuing solid stream of
work associated with governance related projects.
The order book at the half year was at a consistent level to the beginning of
the current year.
Earnings per share
The basic earnings per share for the six months ended 30 June 2005 were 1.9
pence compared with 2.9 pence in the corresponding period.
Dividend
In accordance with our established policy, we pay dividends once per year, after
the declaration of the annual results. Accordingly, no interim dividend is being
declared.
Balance sheet
The Group's cash balance was #10.9 million compared with #14.5 million at 31
December 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 pension
plan and the seasonal increase in working capital.
The deficit relating to the closed defined benefit pension and medical plans
increased from #11.4 million at 31 December 2004 to #14.6 million. This was a
result of a lower discount rate applied to the liabilities, US market returns
being below the long-term benchmark investment return and the stronger US dollar
(as the underlying currency of the liability is US dollars), offset by funding
of #0.9 million in the period.
The decrease in long-term provisions of #0.9 million arose in respect of the
lapse of the indemnity in connection with the sale of Proudfoot's operations in
Japan.
International Financial Reporting Standards
For the first time, our results are reported in accordance with International
Financial Reporting Standards (IFRS), the main impact of this being that
goodwill is no longer amortised and a charge has been recognised for share
options of #0.3 million during the period. An explanation of the share options
expense is given in note 10.
The comparative information for June 2004 has been restated for IFRS, resulting
in 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 a
charge for share options of #0.2 million.
The restatements of the 2004 full year results and balance sheet under IFRS are
published in the 2004 Annual Report and Accounts, which is available on the
company's website, www.mcgplc.com.
Strategy
Our strategy is focused on building a Group comprising a series of consultancies
with particular specialisms in different aspects of consulting. This approach
will diversify the dependency of the Group from our two existing consultancies.
We remain of the view that both the Proudfoot Consulting and Parson Consulting
businesses have excellent medium term prospects. Going forward, we will continue
to expand the geographical overlap of the two businesses to maximise the benefit
that comes from our existing infrastructure. We also intend to deepen the
resource and our commitment to our existing businesses and continue to develop
our service offerings.
Our organic growth strategy has resulted in the Group being named by Kennedy
Information 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.
Outlook
The Group order book is considerably higher than at both the same time last year
and the beginning of this year. That backlog of work, the current prospect
stream and the additional revenue attributable to the expansion of our business
arising 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 Stomberg
Non-executive Chairman
Kevin Parry
Chief Executive
Independent review report
by Deloitte & Touche LLP to Management Consulting Group PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2005 which comprises the consolidated income
statement, the consolidated statement of recognised income and expense, the
consolidated balance sheets, the consolidated cash flow statement and related
notes 1 to 12. We have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
International Financial Reporting Standards
As disclosed in note 2(a), the next annual financial statements of the Group
will be prepared in accordance with International Financial Reporting Standards
("IFRS") as adopted for use in the EU. Accordingly, the interim report has been
prepared in accordance with the recognition and measurement criteria of IFRS and
the disclosure requirements of the Listing Rules. The accounting policies are
consistent with those that the directors intend to use in the annual financial
statements. There is, however, a possibility that the directors may determine
that some changes to these policies are necessary when preparing the full annual
financial statements for the first time in accordance with IFRS as adopted for
use in the EU.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of Group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (UK and
Ireland) 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 that
should be made to the financial information as presented for the six months
ended 30 June 2005.
Deloitte & Touche LLP
Chartered Accountants
London
8 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 #'000
Continuing operations
Revenue 3 57,218 62,939 119,248
Cost of sales (29,307) (31,828) (60,414)
-------- -------- ---------
Gross profit 27,911 31,111 58,834
Selling costs (16,746) (15,171) (30,448)
Administrative expenses (6,600) (8,275) (15,950)
-------- -------- ---------
Profit from operations 3 4,565 7,665 12,436
Finance income / (costs) 173 68 (34)
-------- -------- ---------
Profit before tax 4,738 7,733 12,402
Income tax expense 5 (1,285) (2,320) (3,945)
-------- -------- ---------
Profit for the period from
continuing
operations 3,453 5,413 8,457
======== ======== =========
Earnings per share
From continuing operations
Basic 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 of
foreign operations (478) (2,496) (1,745)
Actuarial losses on defined benefit
pension 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 expense
for the period 123 2,495 5,016
======== ======== =========
Consolidated balance sheet
30 June 2005 30 June 30 June 31 December
2005 2004 2004
(restated (restated for
for IFRS) IFRS)
Non-current assets Note #'000 #'000 #'000
Goodwill 66,358 66,783 66,109
Other intangible assets 522 357 392
Property, plant and equipment 1,468 1,551 1,397
-------- -------- ---------
Total non-current assets 68,348 68,691 67,898
-------- -------- ---------
Current assets
Trade and other receivables 15,037 14,684 12,735
Cash 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 liabilities
Trade 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 liabilities
Retirement 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
======== ======== =========
Equity
Share capital 7 47,373 47,256 47,256
Share premium account 38,146 38,026 38,026
Shares to be issued 46 1,636 185
Share compensation reserve 948 378 616
Own shares held by employee share (1,270) (970) (970)
trust
Translation reserve (2,223) (2,496) (1,745)
Other reserves 12,747 12,747 12,747
Retained earnings (48,479) (49,609) (47,839)
-------- -------- ---------
Total equity 47,288 46,968 48,276
======== ======== =========
Consolidated cash flow 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 #'000
Net cash from operating activities 8 (2,142) 5,456 8,242
-------- -------- ---------
Investing activities
Interest received 149 109 206
Acquisitions of subsidiaries - (1,074) (1,074)
Purchase of property, plant and
equipment (385) (601) (943)
Purchase of intangible assets (334) (241) (378)
Proceeds on disposal of property,
plant
and equipment 16 - -
Purchase of own shares (181) - -
-------- -------- ---------
Net cash used in investing
activities (735) (1,807) (2,189)
-------- -------- ---------
Financing activities
Dividends 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 cash
and cash equivalents (4,083) 2,772 5,176
Cash and cash equivalents at
beginning of period 14,510 9,738 9,738
Effect of foreign exchange
rate changes 431 (126) (404)
-------- -------- ---------
Cash and cash equivalents at
end of period 10,858 12,384 14,510
======== ======== =========
NOTES
1. General information
The information for the year ended 31 December 2004 does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985. A copy
of the statutory accounts for that year has been delivered to the Registrar of
Companies. The auditors' report on those accounts was unqualified pursuant to
Section 235 of the Companies Act 1985 and did not contain a statement under
sub-section (2) or Section 237 of that Act.
2. Summary of significant accounting policies
The following accounting policies have been applied consistently for items which
are considered material in relation to the financial statements.
(a) Basis of preparation
These interim financial statements for the six months ended 30 June 2005 have
been prepared in accordance with International Financial Reporting Standards
(IFRS) for the first time, and are covered by IFRS 1, First-time Adoption of
IFRS, as they are part of the period covered by the group's first IFRS financial
statements for the year ending 31 December 2005. These interim financial
statements have been prepared in accordance with those IFRS standards and IFRIC
interpretations issued and effective or issued and early adopted as at the time
of preparing these statements (August 2005). The IFRS standards and IFRIC
interpretations that will be applicable at 31 December 2005, including those
that will be applicable on an optional basis, are not known with certainty at
the time of preparing these interim financial statements.
The policies set out below have been consistently applied to all the periods
presented, and the comparative figures in respect of 2004 have been restated to
reflect IFRS adjustments. The disclosures required by IFRS 1 concerning the
transition from UK GAAP to IFRS for the comparative prior period are given in
note 11.
The interim financial statements have been prepared on the historical cost
basis.
(b) Basis of consolidation
(i) Subsidiaries
The consolidated interim financial statements incorporate the financial
statements of Management Consulting Group PLC and entities controlled by the
Company (its subsidiaries). Control is achieved where the Company has the power
to govern the financial and operating policies of an investee entity so as to
obtain benefits from its activities. This generally accompanies a shareholding
of more than one half of the voting rights. The existence and effect of
potential voting rights that are currently exercisable or convertible are
considered when assessing whether the Group controls another entity. The results
of subsidiaries acquired or disposed of during the period are included in the
consolidated income statement from the effective date of acquisition or
disposal, as appropriate.
All inter-company transactions, balances and unrealised gains on transactions
between group companies are eliminated on consolidation. Subsidiaries'
accounting policies have been changed where necessary to ensure consistency with
the policies adopted by the Group.
Minority interests in the net assets of consolidated subsidiaries are identified
separately from the Group's equity therein. Minority interests consist of the
amount of those interests at the date of the original business combination and
the 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 the
subsidiary's equity are allocated against the interests of the Group except to
the extent that the minority has a binding obligation and is able to make an
additional investment to cover the losses.
(ii) Joint ventures
The Group's interests in jointly controlled entities are accounted for by
proportionate consolidation. The Group combines its share of the joint venture's
individual income and expenses, assets and liabilities and cash flows on a
line-by-line basis with similar items in the Group's financial statements. Where
the Group transacts with its jointly controlled entities, unrealised profits and
losses are eliminated to the extent of the Group's interest in the joint
venture.
(c) Goodwill
Goodwill arising on the acquisition of a subsidiary or a jointly controlled
entity represents the excess of the cost of acquisition over the Group's
interest in the net fair value of the identifiable assets and liabilities of the
subsidiary or jointly controlled entity recognised at the date of acquisition.
Goodwill is initially recognised as an intangible asset at cost. Goodwill is
tested annually for impairment and carried at cost less any accumulated
impairment losses.
Goodwill is allocated to cash-generating units for the purpose of impairment
testing. Each of those cash-generating units represents the Group's investment
in each geographic region of operation by each primary reporting segment.
(d) Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for services provided to third
parties in the normal course of business, net of discounts, VAT and other sales
related taxes. Revenue from services is recognised when services have been
provided 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 the
basis 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 exceed
three years. Costs associated with developing or maintaining computer software
programs 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 and
are tested annually for impairment and whenever events or changes in
circumstance indicate that the carrying amount may not be recoverable. Assets
that are subject to amortisation are tested for impairment whenever events or
changes in circumstance indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset's fair value less costs to sell and value in use. For
the purposes of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash flows (cash-generating units).
(h) Foreign currencies
The individual financial statements of each group entity are presented in the
currency of the primary economic environment in which the entity operates (its
functional currency). For the purpose of the consolidated financial statements,
the results and financial position of each entity are expressed in pounds
sterling, which is the Company's functional and presentation currency.
In preparing the financial statements, transactions in currencies other than
pounds sterling are recorded at the rates of exchange prevailing on the dates of
the transactions. At each balance sheet date, monetary items denominated in
foreign currencies are retranslated at the rates prevailing on the balance sheet
date. Non-monetary items carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the fair
value was determined. Non-monetary items that are measured in terms of
historical cost in a foreign company are not retranslated.
Exchange differences arising on the settlement and retranslation of monetary
items are included in profit or loss for the period. Exchange differences
arising on the retranslation of non-monetary items carried at fair value are
included in profit or loss for the period except for differences arising on the
retranslation of non-monetary items in respect of which gains and losses are
recognised directly in equity. For such non-monetary items, any exchange
component of that gain or loss is also recognised directly in equity.
For the purposes of presenting consolidated financial statements, the assets and
liabilities of the Group's foreign operations (including comparatives) are
expressed in pounds sterling using exchange rates prevailing on the balance
sheet date. Income and expense items (including comparatives) are translated at
the average exchange rate for the period unless exchange rates fluctuated
significantly during that period, in which case the exchange rates at the dates
of the transactions are used. Exchange differences arising, if any, are
classified as equity and transferred to the Group's translation reserve. Such
translation differences are recognised in profit or loss in the period in which
the foreign operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
(i) Operating leases
Rentals payable under operating leases are charged to profit or loss on a
straight-line basis over the term of the relevant lease. Benefits received and
receivable as an incentive to enter into an operating lease are also spread on a
straight-line basis over the lease term.
(j) Taxation
Income tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit as reported in the income statement because it
excludes items of income and expense that are taxable or deductible in other
years or are never taxable or deductible. The Group's liability for current tax
is calculated using tax rates that have been enacted or substantively enacted by
the balance sheet date.
Deferred tax is recognised on differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding tax bases used
in the computation of taxable profit and is accounted for using the balance
sheet liability method. Deferred tax liabilities are generally recognised for
all taxable temporary differences. Deferred tax assets are generally recognised
for all deductible temporary differences to the extent that it is probable that
taxable profits will be available against which such differences can be
utilised.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered in the foreseeable future.
Deferred tax is calculated at the tax rates which are expected to apply in the
period when the liability is settled or the asset realised. Deferred tax is
charged or credited to profit or loss, except when it relates to items charged
or credited directly to reserves, in which case the deferred tax is also dealt
with in reserves.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis.
(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 income
statement represents the contributions payable in the period. Differences
between contributions payable in the period and contributions actually paid are
shown 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 gains
and losses on settlements and curtailments. Past service costs are recognised
immediately 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 held
separately from those of the Group in separate trustee administered funds.
Pension scheme assets are measured at fair value. Liabilities in relation to the
defined benefit pension scheme and the unfunded post-retirement medical benefits
plan are measured on an actuarial basis using the projected unit method and
discounted at a rate equivalent to the current rate of return on a high quality
corporate bond of equivalent currency and term to the scheme liabilities. The
actuarial valuations are obtained at least triennially and are updated at each
balance sheet date. The resulting defined benefit asset or liability is
presented separately on the face of the balance sheet.
(m) Provisions
Provisions for legal claims are recognised when the Group has a present legal or
constructive obligation as a result of past events, and it is more likely than
not that an outflow of resources will be required to settle that obligation, and
the amount has been reliably estimated. Provisions are measured at the present
value of the directors' best estimate of the expenditure required to settle the
obligation at the balance sheet date and are discounted to present value where
the effect is material.
(n) Dividend distribution
Dividend distribution to the Company's shareholders is recognised as a liability
in the Group's financial statements in the period in which the dividends are
approved by the Company's shareholders.
(o) Own shares held by employee trust
The Management Consulting Group PLC shares owned by the employee share trust are
presented as a reduction of equity.
3. Segmental information
(a) Primary reporting format - business segments
For management purposes, the group has two businesses - Parson Consulting and
Proudfoot Consulting. These businesses are the basis on which the Group reports
its primary segment information.
The principal activities of the business segments are as follows:
Parson Consulting - financial management consultancy
Proudfoot Consulting - operational management consultancy
Six months ended 30 June 2005 Financial Operational Group
management management
consultancy consultancy
#'000 #'000 #'000
Revenue
External sales 21,229 35,989 57,218
========= ========= ========
Operating profit 1,032 2,636 3,668
Release of indemnity provision - 897 897
--------- --------- --------
Profit from operations 1,032 3,533 4,565
========= =========
Finance income 173
--------
Profit before tax 4,738
Income tax expense (1,285)
--------
Profit after tax 3,453
========
Six months ended 30 June 2004 Financial Operational Group
management management
consultancy consultancy
#'000 #'000 #'000
Revenue
Total revenue 16,108 46,831 62,939
========= ========= ========
Profit from operations 654 7,011 7,665
Finance income 68
--------
Profit before tax 7,733
Income 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 the
Rest of the World. The Group reports secondary segment information on the basis
of geographical area.
Six months ended 30 June 2005 North Europe Rest of Group
America World
#'000 #'000 #'000 #'000
Revenue
External 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 #'000
Revenue
External 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 #'000
Amounts recognised as distributions to
equity holders in the period:
Final dividend in respect of the year ended 31
December 2004
of 0.67p (2003: 0.5p) per share 1,241 925
========== =========
Dividends are not payable on shares held in the employee share trust which has
waived its entitlement to dividends. The amount of the dividend waived in 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 #'000
Current tax
UK - 445 127
Foreign 1,164 1,564 3,828
Prior year (12) 707 490
--------- --------- ---------
1,152 2,716 4,445
Deferred 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 tax
rate expected for the full financial year. The effective tax charge for the half
year is 34% (2004 full year: 32%), based on profit before tax excluding the
release 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 the
following 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 #'000
Earnings for the purposes of basic
earnings per share being net profit
attributable 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 ordinary
shares for the purposes of basic
earnings per share 185.1 184.9 185.0
Effect of dilutive potential ordinary
shares:
Share options 3.5 0.7 1.8
Long-term incentive plan 0.2 - -
--------- --------- ---------
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share 188.8 185.6 186.8
========= ========= =========
Pence Pence Pence
Basic earnings per share 1.87 2.93 4.57
Diluted 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 (30
June 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 pence
each:
Number of Nominal
shares value
#'000
At 1 January 2005 189,024,358 47,256
Issued for the management incentive plan share award 333,049 83
Employee 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 12,436
Adjustments for:
Depreciation of property, plant and
equipment 288 391 818
Amortisation of intangible assets 234 165 346
Gain 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 332 201 439
Decrease in provisions (886) (48) (110)
--------- --------- ---------
Operating cash flows before movements
in 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 on
the face of the balance sheet) comprise cash at bank and other short-term highly
liquid investments with a maturity of three months or less.
9. 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.
Entitlement to additional benefits under the US defined benefits pension scheme
ceased on 31 December 2001. 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.
The retirement benefits liability at 30 June 2005 has been estimated by the
actuaries on the basis described in the last annual report except that the
discount rate applied to the liabilities has been decreased by 0.5% to 5.25%. An
actuarial 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 #'000
Opening 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 2,583
Benefits 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 #'000
Opening fair value of plan assets 24,387 22,373 22,373
Expected return 990 887 1,765
Actuarial (losses) / gains (847) (328) 567
Contributions by employer 920 1,024 2,912
Exchange 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 #'000
Equities 18,310 16,464 17,099
Bonds 7,992 6,280 6,903
Cash 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, nor
any other assets used by the Group.
10. Share based payments
Share options are granted to directors and senior employees under the Proudfoot
PLC Executive Share Option Scheme. The exercise price of the options is equal to
the market price of the shares on the date of grant. Options granted under this
Scheme are exercisable in two equal instalments after three years and five years
respectively. The half of the options exercisable between three and ten years
after 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 years
after 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 takes
share option awards into account), options were subject to a performance
condition that compares the Total Shareholder Return ("TSR") over the three year
period following grant with the TSR of the FTSE Mid 250.
The fair value of options granted was determined using the stochastic valuation
model. An expense of #0.3 million has been recognised in the period in respect
of the share options granted above (2004 full year: #0.4 million). The
cumulative share compensation reserve at 30 June 2005 is #0.9 million, which
includes 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 the
reconciliation of profit to 31 December 2004, as required by IFRS 1, have been
published within the 2004 Annual Report and Accounts. These can be found on the
company's website, www.mcgplc.com.
The reconciliations have been amended subsequently to recognise a deferred tax
liability for the 2004 full year of #0.9 million relating to tax deductible
goodwill.
The reconciliation of equity at 30 June 2004 and the reconciliation of profit
for the six months ended 30 June 2004 have been included below to enable a
comparison of the 2005 published interim figures with those published in the
corresponding period of the previous financial year.
Reconciliation of equity at 30 June 2004
UK GAAP Effect of IFRS
transition to
IFRS
#'000 #'000 #'000
Non-current assets
Goodwill 64,890 1,893 66,783
Other intangible assets - 357 357
Property, plant and equipment 1,908 (357) 1,551
--------- ---------- ---------
Total non-current assets 66,798 1,893 68,691
--------- ---------- ---------
Current assets
Trade and other receivables 14,564 120 14,684
Cash and cash equivalents 12,384 - 12,384
--------- ---------- ---------
Total current assets 26,948 120 27,068
--------- ---------- ---------
Total assets 93,746 2,013 95,759
========= ========== =========
Current liabilities
Trade and other payables (24,810) 380 (24,430)
Tax liabilities (5,785) - (5,785)
--------- ---------- ---------
Total current liabilities (30,595) 380 (30,215)
--------- ---------- ---------
Net current liabilities (3,647) 500 (3,147)
--------- ---------- ---------
Non-current liabilities
Retirement benefits (12,507) - (12,507)
Tax liabilities (2,920) (460) (3,380)
Long-term provisions (1,836) - (1,836)
Other non-current payables (853) - (853)
--------- ---------- ---------
Total non-current liabilities (18,116) (460) (18,576)
--------- ---------- ---------
Total liabilities (48,711) (80) (48,791)
========= ========== =========
Net assets 45,035 1,933 46,968
========= ========== =========
Equity
Share capital 47,256 - 47,256
Share premium account 38,026 - 38,026
Shares to be issued 1,636 - 1,636
Share compensation reserve - 378 378
Own shares held by employee share trust (970) - (970)
Translation reserve (14,834) 12,338 (2,496)
Other reserves 12,747 - 12,747
Retained earnings (38,826) (10,783) (49,609)
--------- ---------- ---------
Total equity 45,035 1,933 46,968
========= ========== =========
Reconciliation of profit for the six months ended 30 June 2004
Effect of IFRS
UK GAAP transition to
IFRS
#'000 #'000 #'000
Revenue 62,939 - 62,939
Cost of sales (31,771) (57) (31,828)
-------- -------- ---------
Gross profit 31,168 (57) 31,111
Selling costs (15,121) (50) (15,171)
Goodwill amortisation (1,893) 1,893 -
Administrative expenses excluding goodwill
amortisation (8,542) 267 (8,275)
-------- -------- ---------
Profit from operations 5,612 2,053 7,665
Finance income 68 - 68
-------- -------- ---------
Profit before tax 5,680 2,053 7,733
Income tax expense (1,980) (340) (2,320)
-------- -------- ---------
Profit for the period from operations 3,700 1,713 5,413
======== ======== =========
The standards giving rise to changes to the Group's consolidated results on
transition from UK GAAP to IFRS, and their financial impact, are as follows:
IFRS 2 Share-based Payment
Under IFRS 2, the Group recognises a charge for the fair value of outstanding
share options granted to employees after 7 November 2002. The charge has been
calculated using the stochastic option pricing model and the resulting cost has
been charged to the income statement over the relevant option vesting periods,
adjusted to reflect actual and expected levels of vesting. There was no charge
to the profit and loss account in the six months ended 30 June 2004 under UK
GAAP in relation to share options granted to employees. The impact of IFRS 2 is
a reduction in retained earnings as at 1 January 2004 of #0.2 million and a
charge of #0.2 million for the six months ended 30 June 2004. A deferred tax
asset of #0.1 million is recognised in relation to the share option scheme.
IAS 38 Intangible Assets
IAS 38 requires computer software costs, including development costs, to be
classified as intangible assets. Capitalised software of #0.4 million is
reclassified at 30 June 2004 as intangible assets, which continue to be
amortised over three years or the life of the software contract if shorter. The
opening balance sheet under IFRS included a similar reclassification of #0.4
million.
IFRS 3 Business Combinations
Under IFRS 3, goodwill is no longer amortised but held at carrying value in the
balance sheet and tested annually for impairment (with a specific requirement to
be tested at the date of transition) and when there are indications of
impairment. The goodwill amortisation under UK GAAP of #1.9 million charged
during the six months ended 30 June 2004 has been reversed under IFRS. All
goodwill has been tested for impairment for the six months ended 30 June 2004
and at the transition date in accordance with IFRS and no adjustment was deemed
necessary. A deferred tax liability of #0.5 million has been recorded in the six
months ended 30 June 2004 relating to the temporary difference arising as the
goodwill deductible for overseas tax purposes is no longer subject to
amortisation under IFRS (IAS 12 Income Taxes).
Under the transitional rules of IFRS 1, the Group has taken advantage of the
option not to apply IFRS 3 retrospectively to business combinations that took
place before the date of transition. As a result, goodwill arising from past
business combinations is recorded initially in the opening balance sheet at the
amortised carrying value under UK GAAP on that date.
IAS 10 Events after the Balance Sheet Date
IAS 10 requires that dividends are recognised in the period in which they are
declared. This is different to UK GAAP where the proposed dividend is recognised
in the profit and loss account. The final proposed dividend for 2003 of #0.9
million has been reversed out of the opening balance sheet and recorded at the
amount paid in the six months ended 30 June 2004.
IAS 19 Other Long-term Benefits
Deferred employee bonuses awarded in respect of the year ended 31 December 2004
but not payable in cash and shares until 31 December 2007, are accounted for
under IAS 19 as deferred long-term benefits, and will be expensed to the income
statement over the subsequent three year deferral period under IFRS. Under UK
GAAP #0.4 million of the full year expense was charged to the profit and loss
account in the six months ended 30 June 2004. This results in a credit to the
30 June 2004 income statement of #0.4 million, included in "Other adjustments,"
and a corresponding reduction in liabilities at 30 June 2004.
IAS 21 The Effects of Changes in Foreign Exchange
Under IFRS, translation differences arising from the date of transition to IFRS
that are permitted to be taken to reserves must be tracked in a separate foreign
exchange reserve. Foreign exchange taken to reserves relating to translation of
foreign equity investments must be recycled to the income statement on disposal
of the investment.
The Group has elected to take the exemption, permitted under the transitional
rules, of not applying IAS 21 retrospectively; this has allowed the Group to
reset to zero its historic foreign exchange reserve at 1 January 2004 of #12.3
million by means of a reclassification to retained earnings. The gain or loss on
any subsequent disposal of a foreign subsidiary will be adjusted only by those
accumulated translation adjustments arising after 1 January 2004.
12. Interim report
A copy of the Group's interim report will be sent to shareholders on 19 August
2005 and copies will be available at the Company's registered office at Fleet
Place House, 2 Fleet Place, Holborn Viaduct, London EC4M 7RF.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR IFFIITDIEIIE
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