TIDMMMC
RNS Number : 4890Z
Management Consulting Group PLC
15 March 2017
15 March 2017
This announcement contains inside information
Management Consulting Group PLC
Preliminary Results
Management Consulting Group PLC ("MCG" or "the Group"), the
global professional services group, today announces its preliminary
results for the year ended 31 December 2016. These results reflect
continuing operations of the Group, comprising Proudfoot, and
discontinued operations relating to the Kurt Salmon business, which
was sold by means of three separate transactions which completed
during the year (the "Disposals).
Key points
-- The sale of the Kurt Salmon retail and consumer goods
business was completed on 1 November 2016 for net proceeds of
GBP124.1m, allowing a return of capital to shareholders of GBP75m
in December 2016
-- Earlier in the year the Group completed the disposals of the
Kurt Salmon business in France and related geographies for net
proceeds of GBP58.6m, and the Kurt Salmon healthcare business for
net proceeds of GBP6.2m
-- The Group is now in a strong financial position with net cash
balances** at 31 December 2016 of GBP38.1m (2015: net debt of
GBP52.8m)
-- Reported revenues from continuing operations (comprising
Proudfoot) down 10% year on year at GBP45.2m (2015 restated:
GBP50.2m)
-- Underlying* operating loss from continuing operations of
GBP8.8m (2015 restated: loss of GBP5.3m)
-- Overall loss from continuing operations of GBP39.6m (2015
restated: loss of GBP5.7m) reflects GBP30.4m impairment charge for
Proudfoot goodwill
-- Profit from discontinued operations of GBP38.5m (2015 restated: GBP55.2m loss)
-- Retained loss for the year of GBP0.1m (2015 restated: retained loss GBP65.6m)
-- Net assets lower at GBP32.6m (2015: GBP129.3m), largely as a
result of the return of capital and impairment of goodwill
*Net cash/(debt) is cash and cash equivalents less financial
liabilities
**Throughout this statement the term 'underlying' is defined as
'before non-underlying items and amortisation of acquired
intangible assets'. See note 5
Nick Stagg, Chairman and Chief Executive, commented:
"The sale of the Kurt Salmon businesses in 2016 allowed the
Group to repay debt and return GBP75 million in cash to
shareholders. The performance of Proudfoot, the Group's ongoing
business, was disappointing, but it continues to deliver value to
clients and remains a distinctive and recognised brand and an
established global operator in key sectors. Proudfoot requires
management focus and further change to restore the business to
profitable growth, including changes to the cost base to reflect
the reduced scale and narrower focus of the Group following the
disposals in 2016. The Board remains committed to delivering the
changes needed, and the Group is now in a strong financial position
with cash resources to support these initiatives. The Board will
continue to focus on value creation from the Group's remaining
operations."
For further information please contact:
Management Consulting Group PLC
Chairman and Chief
Nick Stagg Executive 020 7710 5000
FTI Consulting
Ben Atwell
Victoria Foster
Mitchell 0203 727 1000
Notes to Editors
Management Consulting Group PLC (MMC.L) provides professional
services across a wide range of industries and sectors. For further
information, visit www.mcgplc.com.
Chairman and Chief Executive's statement
2016 was a transformational year for the Group. Three separate
transactions were executed during the year to complete the disposal
of the Kurt Salmon business, the final step being the sale of the
retail and consumer goods business to Accenture in November. These
disposals realised net proceeds for Kurt Salmon as a whole of
approximately GBP189m, allowing the Group to repay its bank debt in
full, to distribute GBP75 million in cash to shareholders as a
return of capital and to retain cash to support the recovery of
Proudfoot.
The disposals provided an opportunity to exit from Kurt Salmon
at an attractive price for shareholders. The Board firmly believes
that the disposals and return of capital were the best means to
deliver value to MCG shareholders, given the limited potential for
investment and growth in Kurt Salmon as part of the MCG Group. For
an interim period MCG has continued to provide back office support
for the Kurt Salmon businesses under transitional services
agreements with the acquirors. The Group's financial statements
reflect the results and disposals of the Kurt Salmon businesses as
discontinued operations.
MCG's continuing business, Proudfoot, had a disappointing year
with revenues falling to GBP45.2m, driven in particular by a weak
performance in North America, delivering an underlying operating
loss for the year of GBP8.8m. The reported overall loss for the
year from continuing operations of GBP39.6m includes a charge of
GBP30.4m for the impairment of goodwill relating to the Proudfoot
business, a recognition both of recent weak trading and the
challenge ahead to restore the business to historic revenue and
profit levels. Following the sale of Kurt Salmon, the Board now has
the opportunity and resources to focus on the recovery of Proudfoot
and is implementing a series of strategic and operational
initiatives in 2017 to promote growth. These include a rebrand from
"Alexander Proudfoot" to "Proudfoot", beginning in the second
quarter.
A number of changes to the Board were announced towards the end
of 2016 following the successful completion of the Kurt Salmon
disposals. Chris Povey stepped down in November, and Alan Barber
and Nigel Halkes stepped down at the end of December. From 1
January 2017 I have succeeded Alan as Chairman, and will continue
as Chief Executive. I would like to thank Alan and Chris for their
valuable contributions to the Group over a long period, as Chairman
and Finance Director respectively, and Nigel for his input over a
shorter but very active period during 2016. On 10 March 2017 Fiona
Czerniawska joined the Board as an independent non-executive
director. Fiona has long experience of the management consulting
industry and her insight will be a valuable addition to the Board.
These changes to the Board are consistent with the reduced scale
and change in focus of the Group's operations following the
disposals.
Proudfoot is a long standing business with a history of creating
value for its clients. The Board is committed to restoring the
business to growth and profitability, and to deliver value to MCG
shareholders.
The Group is in a strong financial position with cash balances
of GBP38.1 million at 31 December 2016. Following the disposal of
Kurt Salmon, MCG's continuing operations are smaller and more
focused. The Board is taking action to align the cost base and
management structure with the change in scale of the Group's
activities.
Financial and operating review
The continuing operations of the Group comprise Proudfoot and
the commentary below on the 2016 results (and 2015 comparatives)
chiefly relates to that business.
The Group's reported results in 2016 reflect the impact of the
completion of the disposal of the Kurt Salmon business, which was
sold by means of three separate transactions which completed during
the year (the "Disposals"). The results of the businesses which
have been sold are reported in the 2016 Group financial statements
(and in the restated 2015 results) as discontinued operations.
Reported discontinued operations in 2016 also reflect the financial
effects of these disposals and include related non-underlying
items.
Results from continuing operations
Proudfoot's reported revenue for 2016 was 10% lower at GBP45.2m
(2015: GBP50.2.m). Following a poor performance in the second half
of 2015, Proudfoot delivered two quarters of solid revenue growth
in the first half of 2016 although not achieving the levels
recorded in the first half of 2015. Proudfoot reported an
underlying operating loss for the first half of 2016 of GBP1.9m on
revenues of GBP25.7m. In line with the Board's expectations
highlighted in the Circular to shareholders dated 22 October 2016,
second half revenues were significantly weaker at GBP19.5m, driving
an increased underlying operating loss of GBP8.8m (2015: GBP5.3m)
for the year as a whole.
The reported results of Proudfoot in 2015 and 2016 include an
allocation of MCG head office costs. Up to the relevant disposal
dates in 2016, the Kurt Salmon businesses also received an
allocation of such costs and these are reflected in the reported
results from discontinued operations. Following completion of the
Disposals, all MCG head office costs are reflected in the reported
results of Proudfoot, that is as part of the results from
continuing operations. The impact of these costs contributed to the
increased underlying operating loss for 2016.
Review of continuing operations
Proudfoot is organised on the basis of two regional centres
focused on the Americas and Europe/Africa/Asia. The principal
office locations are in the United States, Brazil and Chile,
serving the Americas, and in the UK, France, South Africa and Hong
Kong. There is also a dedicated natural resources business unit
working across geographies. Proudfoot has a global delivery
capability, frequently operating in remote and difficult locations.
Approximately 96% of 2016 revenues from continuing operations were
generated outside the UK. The same proportion of revenues was
billed in currencies other than Sterling, with the US Dollar
representing approximately 54% of the total.
The number of staff employed in the Group's continuing
operations, by Proudfoot and at the MCG head office decreased from
320 at the end of 2015 to 281 at the end of 2016. Average headcount
in continuing operations during 2016 was lower than the previous
year at 274 (2015: 326), reflecting lower levels of activity.
Work for clients in the natural resources sector continued to
represent a significant proportion of Proudfoot's activities, at
42% of total revenues in 2016 (2015: 45%). The continuing overall
weakness in this sector has had a significant adverse impact on
Proudfoot's revenues in the last two years. The business was
successful in 2016 in securing an increased level of work from
larger global mining groups, rather than the mid-market players who
have been most affected by sector weakness. Other industry sectors
in which the business generated significant revenues in 2016 were
manufacturing, transportation and financial services.
Revenues from the Americas region represented approximately 62%
of total revenues in 2016 (2015: 63%).
The strong performance of the North American business seen in
the first half of 2015 was not sustained, with 2016 revenues down
by nearly 30% and a loss-making outcome for the year as a whole.
This disappointing performance was principally driven by a failure
to identify and secure sales opportunities rather than the
macroeconomic environment, which remained broadly favourable during
2016. Management remains committed to the key US market and is
developing a series of internal initiatives to generate an improved
performance in 2017.
Weakness in North America was countered to some extent by an
improved performance in Brazil and elsewhere in South America. The
operations in Brazil in particular delivered excellent progress
with year on year revenue growth in local currency terms of
approximately 91%. Elsewhere in South America the business
delivered projects in Chile, Peru and Ecuador, with a focus on work
for natural resources clients. The Brazilian and other South
American operations made a positive profit contribution in
2016.
Revenues from the Europe, Africa and Asia region represented
approximately 38% of total revenues in 2016 (2015: 37%).
The European business was focused principally on the UK, French
and German markets, but also derived revenues from projects
delivered elsewhere in the world for Europe-based clients. Good
progress was made during the year in enhancing the sales and
delivery functions in the European business through selective
recruitment and management changes. Revenues from the European
business in 2016 were nearly 10% ahead of the previous year, and
the business delivered a reduced loss for 2016 as a whole compared
with the prior year.
The smaller operations in Africa and Asia, supported from
offices in Johannesburg and Hong Kong, had a difficult year in
2016. The Africa operations have historically benefited from work
for clients in the mining sector in South Africa and elsewhere, but
demand here was significantly weaker in 2016, with a consequent
impact on revenues and profitability. The small Hong Kong-based
business was adversely affected by management and personnel changes
in 2016 but has the potential for significant growth in the broader
Asian market in the years ahead.
In 2014 the Board of MCG announced that it intended to develop
the Proudfoot offering in order to help build a more stable and
predictable revenue base and drive top-line growth. Whilst progress
was made during 2015 and 2016 in implementing these changes, the
business has not adapted quickly enough to changes in the market
for consulting and business services, in particular in relation to
the selling of such services to clients. Management is now focusing
on further enhancing the front end capabilities of the business and
building long term client relationships, building on those parts of
the offering which are genuinely distinctive and drive value for
clients.
Action continues to be taken to mitigate the profit impact of
lower revenues by reducing headcount and discretionary expenditure,
although a significant element of the operating costs of the
Proudfoot business relate to the sales function and the
infrastructure of the business across a range of geographies and
these are less easily flexed downwards without reducing the
potential for revenue recovery and growth in the future. The move
to a new regional structure has enabled costs to be reduced and
further action on back office support costs is being taken, both in
the Proudfoot operations and at the MCG head office, which should
benefit the results for the current year.
Proudfoot has a long and successful history. The performance of
the business has suffered in the last two years as a result of
weakness in the key natural resources sector, but it has a
distinctive operating model which delivers real value to clients,
together with global reach and a flexible delivery capability. The
Board of MCG will continue to promote the changes needed to restore
growth and profitability and remains confident that the performance
of the business can be improved in the medium term.
Loss for the period from continuing operations
The Group has reported a charge for net non-underlying items
relating to continuing operations of GBP0.4m in 2016 (2015
restated: a net expense of GBP0.5m). This principally comprises a
credit of GBP1.6m being the net impact of the release of a
provision for post-retirement medical benefits in Proudfoot as a
result of the termination of the related plan, offset by redundancy
costs of GBP1.6m and fixed asset write-offs of GBP0.6m, all related
to restructuring in the Group's continuing operations.
The operating loss from continuing operations also reflects a
charge of GBP30.4m for the impairment of goodwill relating to
Proudfoot. Goodwill is tested annually for impairment, based on
determining recoverable amounts from value-in-use calculations. The
Board reviewed the carrying value of Proudfoot goodwill at 31
December 2016 and concluded that the recoverable amount was lower
than the value of goodwill then recorded at cost in the Group
balance sheet. Consequently the Group has reported an impairment
charge and Proudfoot goodwill is reflected in the Group balance
sheet at the impaired value of GBP16.0m. The value-in-use
assessment in relation to the Proudfoot goodwill reflects the
Board's expectation and belief that the recent weak trading
performance of the business will not persist in the medium term and
the business will achieve profitability.
After non-underlying expenses and goodwill impairment there was
an operating loss from continuing operations of GBP39.6m (2015
restated: loss of GBP5.7m).
The net interest expense from continuing operations was lower at
GBP1.2m (2015 restated: GBP3.5m). The reported net interest charge
for 2016 includes an imputed charge in relation to defined benefit
pensions of GBP0.8m (2015 restated: GBP1.5m).
The loss before tax on continuing operations was GBP40.8m (2015
restated: GBP9.2m loss). The tax credit on continuing operations
was GBP2.2m (2015 restated: GBP1.2m expense). The tax credit on
continuing operations in 2016 reflects the impact of unrelieved
losses in certain jurisdictions driven largely by loss-making
operations and the impact of project specific withholding taxes in
Proudfoot. The Group has now utilised most of the existing tax
losses which it retained following the Disposals.
Discontinued operations
Discontinued operations comprise the underlying operating
results for the year of the Kurt Salmon businesses which were sold,
the profit or loss on sale, and non-underlying items related to the
operations of the businesses concerned. The Disposals during 2016
comprised:
-- The sale of the French and related operations of Kurt Salmon
(namely the businesses in Belgium, Luxembourg, Switzerland and
Morocco together with two New York-based practices in the United
States) to Solucom (now Wavestone), which completed on 7 January
2016 for net proceeds of GBP58.6m.
-- The sale of the US healthcare consulting business of Kurt
Salmon to ECG Management Consultants, which completed on 29 July
2016 for net proceeds of GBP6.2m.
-- The sale of the global retail and consumer goods consulting
operations of Kurt Salmon to Accenture, which completed on 1
November 2016 for net proceeds of GBP124.1m.
Certain existing back-office operations of Kurt Salmon in the
United States did not form part of the Disposals. As a result,
certain office leases, supplier and other contracts and back office
personnel supporting Kurt Salmon have been retained by MCG
following completion and have been used to support transitional
services agreements with the acquirors of the Kurt Salmon
businesses. The income and expense relating to these transitional
services activities are included in discontinued operations in
2016, including a provision for the estimated net cost of providing
these services up to the expected termination dates, on the basis
that these obligations are onerous contracts.
Revenues from discontinued operations in 2016, including income
from the transitional services were GBP81.3m (2015 restated:
GBP180.3m). Underlying operating profit from discontinued
operations in 2016 was GBP5.7m (2015 restated: GBP10.9m).
Non-underlying expenses related to discontinued operations were
GBP9.1m (2015 restated: GBP6.4m), the main elements of which are
employee related costs of GBP2.4m, and charges relating to surplus
property and onerous contracts of GBP 5.4m. Amortisation of
acquired intangibles was GBP0.5m (2015 restated: GBP0.5m).
Net finance costs relating to discontinued operations were
GBP0.2m (2015 restated: GBP1.7m) and the tax charge relating to
discontinued operations was GBP0.2m (2015 restated: GBP4.0m).
Consequently the loss after taxation from discontinued operations
for the period was GBP4.3m (2015 restated: GBP1.8m loss).
The net profit on disposal from discontinued operations in 2016
was GBP42.8m, comprising a profit on the sale of the retail and
consumer goods consulting operations of Kurt Salmon of GBP53.2m, a
loss on the sale of the US healthcare consulting business of Kurt
Salmon of GBP10.7m, and a profit on the sale of the French and
related operations of Kurt Salmon of GBP0.3m.
The disposal of the French and related operations of Kurt Salmon
was completed on 7 January 2016 but the transaction was
sufficiently advanced as at 31 December 2015 to warrant treatment
as a discontinued operation in 2015. Accordingly the Group
financial statements for 2015 included a loss on disposal of
GBP53.4m arising as a result of the impairment of goodwill relating
to that business. The profit on the sale of the French and related
operations of Kurt Salmon included in discontinued operations of
GBP0.3m for 2016 reflects the impact of the finalisation of the
disposal, primarily comprising the transfer of a GBP1.3m currency
translation reserve to the profit and loss account and a tax charge
of GBP0.5m relating to the disposal.
The loss on disposal of GBP10.7m for the Kurt Salmon healthcare
business which completed on 29 July 2016 principally arises as a
result of the impairment of goodwill.
The disposal of the retail and consumer goods operations of Kurt
Salmon was completed on 1 November 2016. The profit on disposal of
GBP53.2m includes GBP21.8m relating to the net proceeds of the
disposal exceeding the book value of the related net assets
including goodwill, and GBP31.4m relating to the transfer of a
currency translation reserve.
The total profit from discontinued operations for 2016 was
GBP38.5m (2015 restated: GBP55.2m loss).
Loss for the period
Taking into account the profit from discontinued operations
there was a total loss for the Group for the year attributable to
shareholders of GBP0.1m (2015 restated: GBP65.5m loss).
The underlying loss per share attributable to continuing
operations was (1.6p) (2015 restated: (2.0p) and the basic loss per
share attributable to continuing operations was (7.6p) (2015
restated: (2.1p).
Balance sheet and Reduction of Capital
At a general meeting on 21 October 2016 shareholders approved a
reduction of MCG's share capital (the "Reduction of Capital") which
was subsequently approved by the High Court of Justice of England
and Wales. As a result the share premium account of MCG was reduced
by GBP75 million and the amount so arising was paid in cash to
shareholders on 19 December 2016 as a return of capital (the
"Return of Capital") equivalent to approximately 14.67 pence per
share. In addition, as part of the Reduction of Capital, the
existing deferred shares were cancelled and the sum arising, being
GBP79.5m, was credited to MCG's profit and loss account to create
distributable reserves in the parent company balance sheet.
Goodwill
Intangible assets of GBP17.7m largely comprise goodwill relating
to Proudfoot of GBP16.0m, taking into account an impairment charge
in 2016 of GBP30.4m referred to above. The impaired value of
goodwill in the balance sheet is the recoverable amount determined
by the value-in-use calculations prepared for the purposes of the
annual impairment review, which reflect assumptions as to discount
rates, and projected revenue growth rates and profitability.
Sensitivity analysis on key assumptions in the impairment review
indicates that a reasonably possible change in key assumptions over
the course of the next year could result in the recoverable amount
falling to a level below the impaired value reflected in the
balance sheet at 31 December 2016. Given that the value-in-use
calculations reflect assumptions for the return of Proudfoot to
break-even and profitability, relatively small changes in the
underlying assumptions will result in material changes in the
recoverable amount on a value-in-use basis.
Deferred tax assets
The balance sheet includes GBP8.3m of deferred tax assets,
principally relating to pension liabilities and tax losses carried
forward, in both cases in relation to the US operations. The
recoverability of these deferred tax assets is dependent upon the
future profitability of the US operations of Proudfoot.
Net debt/cash
The Group's bank borrowings were repaid in full on 7 January
2016 from the net proceeds of the disposal of the French and
related operations of Kurt Salmon and the Group's bank borrowing
facility was terminated on that date and replaced by a working
capital facility with HSBC. The Group's working capital facility
was terminated on completion of the sale of the retail and consumer
goods consulting practice of Kurt Salmon on 1 November 2016.
At 31 December 2016, following the Return of Capital, the Group
reported cash and cash equivalents in the Group balance sheet of
GBP38.1m (2015: net debt of GBP52.8m). Reported cash balances at 31
December 2016 include approximately GBP9.6m of cash which is
required to be retained to support cash-backed letters of credit in
favour of certain contingent creditors of the Group, in particular
in relation to the indemnity obligations to Wavestone, the acquiror
of the French and related operations of Kurt Salmon. This cash is
expected become available to the Group for general corporate
purposes as the contingent obligations fall away over time.
Pensions
The retirement benefits obligation reflected in the Group
balance sheet at 31 December 2016 relates to the net liability
under a part-funded US defined benefit pension scheme of GBP10.9m,
a part-funded UK pension obligation of GBP0.4m, and an unfunded
French retirement obligation of GBP0.3m. The US defined benefit
pension scheme is not open to new employees and existing members
are not accruing further benefits. The gross obligations under the
US defined benefit pension scheme were GBP58.5m at 31 December 2016
(2015: GBP50.2m). The assets of the plan reflected in the reported
net obligation in the Group balance sheet at 31 December 2016 were
GBP47.7m (2015: GBP40.6m), representing a funded level of 82%
(2015: 81%). No employer cash contributions were made to the US
defined benefit pension scheme during 2015 or 2016.
The total net post-retirement obligation for defined benefit
schemes decreased from GBP21.8m at 31 December 2015 to GBP11.6m at
31 December 2016, principally as a result of the sale of Kurt
Salmon which included the transfer to the acquiror of an unfunded
German defined benefit pension obligation, and the write back of a
provision for post-retirement medical benefits liabilities in
Proudfoot in the US as a result of the discontinuance of the scheme
to which the liabilities related.
Provisions
Provisions principally relate to the cost of leases for surplus
property, and have increased from GBP1.2m at 31 December 2015 to
GBP7.7m at 31 December 2016. Following the Kurt Salmon disposals
the Group has retained office accommodation which is surplus to the
requirements of the continuing operations of the business in
Atlanta and San Francisco.
The changes in the Group balance sheet reflect the impact of the
Disposals and the Return of Capital in 2016. The net assets of the
Group have decreased from GBP129.3m at 31 December 2015 to GBP32.6m
at 31 December 2016, primarily as a result of the Return of
Capital, the net profit on the Disposals reflected in the Group
profit and loss account during 2016, and the retained loss for the
year from continuing operations.
Dividends
The Board will consider the Company's future dividend policy in
the light of the trading performance and financial position of the
Group. The Board does not intend to declare a dividend for 2016,
and it is likely that future dividends will not be paid until the
Board is satisfied that the performance of the continuing
operations of the Group has improved significantly.
Summary and outlook
Summary
During 2016 the Board focused on the continued restructuring of
the Group. The Disposals of the Kurt Salmon businesses have allowed
the Group to repay bank debt in full and return significant value
to shareholders by means of a capital distribution in cash of
GBP75m.
The Disposals have strengthened the financial position of the
continuing operations of the Group. At the end of 2016, after the
return of capital, the Group had cash balances of GBP38.1m which
will be available to meet the Group's obligations and to support
the recovery of Proudfoot.
The performance of the Group's continuing operations in 2016 was
driven by weaker revenues in Proudfoot, 10% lower than the prior
year at GBP45.2m. These lower revenues and the negative impact of
MCG head office costs previously charged to the disposed Kurt
Salmon businesses were the drivers of a significantly increased
underlying operating loss from continuing operations of GBP8.8m.
Continuing weakness in demand from clients in the natural resources
sector, which has typically provided around half the revenues of
the Proudfoot business, was a key factor in the disappointing
performance in 2016, as was the reversal of the positive trends in
performance in the key North American business seen in the first
half of 2015.
The goodwill relating to Proudfoot business in the Group balance
sheet has been written down to GBP16.0m to reflect the value-in-use
assessment of goodwill in accordance with IAS 36. The value-in-use
assessment reflects the Board's expectation and belief that the
recent weak trading performance of the business will not persist in
the medium term and that the business will achieve
profitability.
The Group is taking steps to further restructure the Proudfoot
business and the MCG head office functions, in order to
significantly reduce costs. The MCG Board has been resized and
reconfigured following the Disposals to focus on the recovery of
Proudfoot.
Outlook
The level of order input in Proudfoot towards the end of 2016
was sufficient to produce a positive trend in revenues in the first
two months of 2017 versus the last quarter of 2016. Proudfoot has
continued to successfully secure follow-on work from existing
clients of the business. The current order book is at a similar
level to the same time in 2016. Whilst these indicators are broadly
positive at this early stage in the year, current revenues are not
yet at levels which restore the business to profitability. The
Board retains a cautious outlook at this stage of the year.
The Board will continue to make changes to its operating
structure and cost base to reflect the reduced scale of the
continuing operations of the Group and as the transitional services
arrangements with the acquirers of the Kurt Salmon businesses
largely fall away during the course of 2017.
The Group will continue to remain alert to all opportunities to
generate value for shareholders. The key focus of the Board and
management now is on promoting the return of Proudfoot to
profitable growth. The Proudfoot business has a long and successful
history of delivering value to its clients and the Board is
confident that it can deliver further value to shareholders.
Group income statement
2016 2015
Note GBP'000 GBP'000
restated
Continuing operations
Revenue 4 45,193 50,152
Cost of sales (23,711) (25,330)
------------------------------------------ ---- -------- --------
Gross profit 21,482 24,822
------------------------------------------ ---- -------- --------
Administrative expenses - underlying (30,327) (30,108)
------------------------------------------ ---- -------- --------
Loss from operations - underlying (8,845) (5,286)
Administrative expenses - non-underlying
- impairment (30,358) -
Administrative expenses - non--underlying
(net) 5 (410) (450)
------------------------------------------ ---- -------- --------
Total administrative expenses (61,095) (30,558)
------------------------------------------ ---- -------- --------
Loss from operations 4 (39,613) (5,736)
Investment revenues 8 64 8
Finance costs 8 (1,220) (3,464)
------------------------------------------ ---- -------- --------
Loss before tax (40,769) (9,192)
Tax 9 2,209 (1,185)
------------------------------------------ ---- -------- --------
Loss for the period from continuing
operations (38,560) (10,377)
Profit /(Loss) for the period
from discontinued operations 12 38,505 (55,171)
------------------------------------------ ---- -------- --------
Loss for the period attributable
to company owners (55) (65,548)
------------------------------------------ ---- -------- --------
Loss per share - pence
From loss from continuing operations
for the year attributable to
owners of the Company
Basic 10 (7.6) (2.1)
Diluted 10 (7.6) (2.1)
Basic - underlying 10 (1.6) (2.0)
Diluted - underlying 10 (1.6) (2.0)
From the loss for the period
Basic 10 0.0 (13.3)
Diluted 10 0.0 (13.3)
Basic - underlying 10 (1.0) (1.1)
Diluted - underlying 10 (1.0) (1.1)
------------------------------------------ ---- -------- --------
Group statement of comprehensive income
2016 2015
GBP'000 GBP'000
Loss for the period (55) (65,548)
---------------------------------------- ---------- ----------
Items that will not be subsequently
reclassified to profit and loss:
Actuarial (losses)/ gains on defined
benefit post-retirement obligations (574) 639
Tax on comprehensive income items (186) 306
---------------------------------------- ---------- ----------
(760) 945
Items that may be subsequently
reclassified to profit and loss:
Gain on available-for-sale investments 7 -
Exchange differences on translation
of foreign operations (20,667) (1,738)
---------------------------------------- ---------- ----------
(20,660) (1,738)
--------------------------------------- ---------- ----------
Total comprehensive expense for
the period attributable to owners
of the company (21,475) (66,341)
---------------------------------------- ---------- ----------
Group statement in changes of equity
Shares
Share held
by
Share Share Merger compensation employee Translation Other Retained
benefits
capital premium reserve reserve trust reserve reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ----------- --------- --------- ------------ -------- ----------- -------- --------- ---------
Balance
at
1 January
2015 84,518 82,362 32,513 5,737 (3,063) 19,029 6,082 (29,513) 197,665
------------------ ----------- --------- --------- ------------ -------- ----------- -------- --------- ---------
Loss for
the year - - - - - - - (65,548) (65,548)
Other
comprehensive
expense - - - - - (1,738) - 945 (793)
------------------ ----------- --------- --------- ------------ -------- ----------- -------- --------- ---------
Total
comprehensive
expense - - - - - (1,738) - (64,603) (66,341)
Shares issued 20 302 - - - - - 322
Share-based
payments - - - 1,797 - - - - 1,797
Lapsed/
vested shares - - - (3,355) - - - 2,028 (1,327)
Shares
transferred
from employee
benefits
trust - - - - 1,208 - - - 1,208
Dividends
paid to
shareholders - - - - - - - (4,018) (4,018)
Recycling
of merger
reserve - - (26,830) - - - - 26,830 -
------------------ ----------- --------- --------- ------------ -------- ----------- -------- --------- ---------
Balance
at
31 December
2015 84,538 82,664 5,683 4,179 (1,855) 17,291 6,082 (69,276) 129,306
------------------ ----------- --------- --------- ------------ -------- ----------- -------- --------- ---------
Loss for
the year - - - - - - - (55) (55)
Other
comprehensive
income/(expense) - - - - - (20,667) 7 (760) (21,420)
------------------ ----------- --------- --------- ------------ -------- ----------- -------- --------- ---------
Total
comprehensive
income - - - - - (20,667) 7 (815) (21,475)
Shares issued 107 359 - - - - - - 466
Cancellation
of deferred
shares (79,534) - - - - - - 79,534 -
Cancellation
of share
premium - (75,000) - - - - - - (75,000)
Share-based
payments - - - 1,521 - - - - 1,521
Lapsed/
vested shares - - - (5,474) - - - 1,521 (3,953)
Shares
transferred
from employee
benefits
trust - - - - 1,747 - - - 1,747
Recycling
of merger
reserve - - (5,683) - - - - 5,683 -
Recycling
of investment
reserve - - - - - - 975 (975) -
------------------ ----------- --------- --------- ------------ -------- ----------- -------- --------- ---------
Balance
at
31 December
2016 5,111 8,023 - 226 (108) (3,376) 7,064 15,672 32,612
------------------ ----------- --------- --------- ------------ -------- ----------- -------- --------- ---------
Group balance sheet
2016 2015
GBP'000 GBP'000
--------------------------------- -------- ---------
Non--current assets
Intangible assets and goodwill 17,724 148,387
Property, plant and equipment 1,108 1,996
Investments - 711
Deferred tax assets 8,324 14,448
---------------------------------- -------- ---------
Total non--current assets 27,156 165,542
---------------------------------- -------- ---------
Current assets
Trade and other receivables 7,212 29,115
Current tax receivable 1,404 1,096
Cash and cash equivalents 38,067 15,478
Assets held for sale - 91,785
---------------------------------- -------- ---------
Total current assets 46,683 137,474
---------------------------------- -------- ---------
Total assets 73,839 303,016
---------------------------------- -------- ---------
Current liabilities
Financial liabilities - (68,294)
Trade and other payables (20,162) (39,875)
Current tax liabilities (1,070) (4,020)
Liabilities held for sale - (33,105)
---------------------------------- -------- ---------
Total current liabilities (21,232) (145,294)
---------------------------------- -------- ---------
Net current assets/(liabilities) 25,451 (7,820)
---------------------------------- -------- ---------
Non--current liabilities
Financial liabilities - -
Retirement benefit obligations (11,577) (21,781)
Deferred tax liabilities (707) (5,413)
Long-term provisions (7,711) (1,222)
---------------------------------- -------- ---------
Total non--current liabilities (19,995) (28,416)
---------------------------------- -------- ---------
Total liabilities (41,227) (173,710)
---------------------------------- -------- ---------
Net assets 32,612 129,306
---------------------------------- -------- ---------
Equity
Share capital 5,111 84,538
Share premium account 8,023 82,664
Merger reserve - 5,683
Share compensation reserve 226 4,179
Shares held by employee benefits
trust (108) (1,855)
Translation reserve (3,376) 17,291
Other reserves 7,064 6,082
Retained earnings 15,672 (69,276)
---------------------------------- -------- ---------
Equity attributable to owners
of the Company 32,612 129,306
---------------------------------- -------- ---------
Group cash flow statement
2016 2015
Note GBP'000 GBP'000
-------------------------------- ---- --------- --------
Net cash (outflow)/inflow
from operating activities 11 (14,369) 909
-------------------------------- ---- --------- --------
Investing activities
Interest received 65 36
Purchases of property, plant
and equipment (414) (577)
Purchases of intangible assets (239) (467)
Net proceeds from disposals 188,950 -
Disposal of financial assets - 36
Acquisitions - (316)
-------------------------------- ---- --------- --------
Net cash generated from /
(used in) investing activities 188,362 (1,288)
-------------------------------- ---- --------- --------
Financing activities
Interest paid (845) (2,589)
Dividends paid (7) (4,000)
Proceeds from borrowings 9,663 48,574
Repayment of borrowings (78,697) (38,357)
Return of Capital (75,000) -
-------------------------------- ---- --------- --------
Net cash (used in) / generated
from financing activities (144,886) 3,628
-------------------------------- ---- --------- --------
Net increase in cash and cash
equivalents 29,107 3,249
Cash and cash equivalents
at beginning of year 20,737 24,920
Effect of foreign exchange
rate changes (11,777) (7,432)
-------------------------------- ---- --------- --------
Cash and cash equivalents
at end of year 38,067 20,737
-------------------------------- ---- --------- --------
Cash and cash equivalents in the 2015 comparatives include
GBP5.3m of cash balances held by the French and related operations
of Kurt Salmon and included in assets held for sale at 31 December
2015.
Notes
1. Basis of preparation
The financial information included in this statement does not
constitute the Company's statutory accounts for the years ended 31
December 2016 or 2015, but is derived from those accounts.
Statutory accounts for 2015 have been delivered to the Registrar of
Companies and those for 2016 will be delivered following the
Company's annual general meeting. The auditor has reported on those
accounts; their reports were unqualified, did not draw attention to
any matters by way of emphasis without qualifying their reports and
did not contain statements under Section 498 Companies Act
2006.
While the financial information included in this preliminary
announcement has been computed in accordance with International
Financial Reporting Standards (IFRS), this announcement does not
itself contain sufficient information to comply with IFRS.
The Group's Annual Report and Accounts and notice of Annual
General Meeting will be sent to shareholders and will be available
at the Company's registered office at 10 Fleet Place, London, EC4M
7RB, United Kingdom and on our website: www.mcgplc.com.
The Annual General Meeting will be held on 30(th) May 2017 at
the offices of Baker & McKenzie LLP, 100 New Bridge Street,
London, EC4V 6JA.
2. Accounting policies
The financial information has been prepared in accordance with
IFRS. These financial statements have been prepared in accordance
with those IFRS standards and IFRIC interpretations issued and
effective or issued and early adopted as at the time of preparing
these statements (as at 31 December 2016). The policies have been
consistently applied to all the periods presented.
Full details of the Group's accounting policies can be found in
note 2 to the 2015 Annual Report which is available on our website:
www.mcgplc.com.
3. Going concern
The Group's bank borrowings were repaid in full on 7 January
2016 from the net proceeds of the sale of the French and related
operations of Kurt Salmon and the Group's bank borrowing facility
was terminated on that date. The Group's working capital facility
with HSBC was terminated on completion of the sale of the retail
and consumer goods consulting practice of Kurt Salmon on 1 November
2016. The Group prepares regular business forecasts and monitors
its projected cashflows, which are reviewed by the Board. Forecasts
are adjusted for reasonable sensitivities that address the
principal risks and uncertainties to which the Group is exposed.
Consideration is given to the potential actions available to
management to mitigate the impact of one or more of these
sensitivities in particular the discretionary nature of a
significant amount of cost incurred by the Group.
The Board has concluded that the Group should have adequate
resources to continue in operational existence for the foreseeable
future being a period of at least twelve months from the date of
approval of the financial statements, and, accordingly, continues
to adopt the going concern basis in preparing the annual report and
financial statements.
4. Segmental information
The Group's continuing operating segment is one professional
services practice, Proudfoot. This is the basis on which
information is provided to the Board of Directors for the purposes
of allocating certain resources within the Group and assessing the
performance of the business. All revenues are derived from the
provision of professional services.
(a) Geographical analysis
The Group operates in three geographical areas; the Americas,
Europe and the Rest of World. The following is an analysis of
financial information by geographic segment:
(i) Revenue and underlying operating loss by geography
Rest
of
Americas Europe World Group
-------------------------------- -------- ------- ------- --------
Year ended 31 December 2016 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- ------- ------- --------
Revenue - continuing operations 27,822 13,190 4,181 45,193
Loss from operations before
non-underlying expenses
and amortisation of acquired
intangibles (4,418) (1,867) (2,560) (8,845)
Non-underlying expenses
and amortisation of acquired
intangibles (470) (216) 276 (410)
-------------------------------- -------- ------- ------- --------
Loss from operations before
impairment (4,888) (2,083) (2,284) (9,255)
-------------------------------- -------- ------- ------- --------
Goodwill impairment (30,358)
Loss from operations (39,613)
-------------------------------- -------- ------- ------- --------
Investment revenue 64
Finance costs (1,220)
-------------------------------- -------- ------- ------- --------
Loss before tax (40,769)
-------------------------------- -------- ------- ------- --------
Rest
of
Americas Europe World Group
--------------------------------- -------- ------- ------- -------
Year ended 31 December 2015
- restated GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- ------- ------- -------
Revenue - continuing operations 31,402 12,103 6,647 50,152
Profit/(loss) from operations
before non-underlying expenses
and amortisation of acquired
intangibles 180 (2,264) (3,202) (5,286)
Non-underlying (expenses)/income
and amortisation of acquired
intangibles (454) 70 (66) (450)
--------------------------------- -------- ------- ------- -------
Loss from operations (274) (2,194) (3,268) (5,736)
--------------------------------- -------- ------- ------- -------
Investment revenue 8
Finance costs (3,464)
--------------------------------- -------- ------- ------- -------
Loss before tax (9,192)
--------------------------------- -------- ------- ------- -------
(ii) Net assets by geography
Rest
of
Americas Europe World Group
At 31 December 2016 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- -------- ------- -------- --------
Assets
Intangibles, including
goodwill 11,254 6,470 - 17,724
Other segment assets 12,152 3,869 466 16,487
----------------------- -------- ------- -------- --------
23,406 10,339 466 34,211
Unallocated corporate
assets 39,628
----------------------- -------- ------- -------- --------
Consolidated total
assets 73,839
----------------------- -------- ------- -------- --------
Liabilities
Segment liabilities (20,260) (6,688) (1,478) (28,426)
Unallocated corporate
liabilities (12,801)
----------------------- -------- ------- -------- --------
Consolidated total
liabilities (41,227)
----------------------- -------- ------- -------- --------
Net assets 32,612
----------------------- -------- ------- -------- --------
Rest
of
Americas Europe World Group
At 31 December 2015 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ----------- ----------- ---------- ---------
Assets
Intangibles, including
goodwill 120,529 24,173 3,685 148,387
Other segment assets 34,990 16,099 2,944 54,033
----------------------- ----------- ----------- ---------- ---------
155,519 40,272 6,629 202,420
Unallocated corporate
assets 8,811
Assets held for sale 91,785
----------------------- ----------- ----------- ---------- ---------
Consolidated total
assets 303,016
----------------------- ----------- ----------- ---------- ---------
Liabilities
Segment liabilities (41,296) (52,259) (4,515) (98,070)
Unallocated corporate
liabilities (42,535)
Liabilities held for
sale (33,105)
----------------------- ----------- ----------- ---------- ---------
Consolidated total
liabilities (173,710)
----------------------- ----------- ----------- ---------- ---------
Net assets 129,306
----------------------- ----------- ----------- ---------- ---------
5. Loss before tax
Loss before tax has been arrived at after charging/ (crediting)
the following:
2016 2015
GBP'000
Note GBP'000 restated
------------------------------------ ---- ------- ---------
Net foreign exchange (gains)/losses (153) (281)
Amortisation of intangible assets 109 317
Depreciation of property, plant
and equipment 328 301
(Profit) / loss on disposal of
fixed assets (54) 1
Non-underlying impairment 30,358 -
Non--underlying items 410 450
Staff costs 7 34,535 35,201
------------------------------------ ---- ------- ---------
The GBP0.4m of non-underlying expenses comprise GBP1.6m of
restructuring related redundancy costs, a GBP0.6m write off of
capitalised costs relating to a discontinued product offering in
Proudfoot, offset by a GBP0.3m provision release and a GBP1.6m
credit arising on the closure of the Proudfoot Defined Benefit
Medical Scheme.
6. Dividends
2016 2015
GBP'000 GBP'000
------------------------------------- ------- -------
Amounts recognised as distributions
to equity holders in the year
Final dividend for the year ended 31
December 2015 (2014: 0.595p) - 2,902
Interim dividend for the year ended
31 December 2015 (2014: 0.23p) - 1,116
------------------------------------- ------- -------
- 4,018
------------------------------------- ------- -------
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 2016 was GBPnil (2015: GBP73,377)
7. Staff numbers and costs
The average number of persons employed by the Group (including
executive directors) during the year, analysed by category, was as
follows:
2016 2015
Number Number
------------------------ ------- -------
Sales and marketing 53 72
Consultants 161 185
Support staff 60 69
------------------------ ------- -------
Continuing activities 274 326
Discontinued operations 359 1,201
------------------------ ------- -------
Total 633 1,527
------------------------ ------- -------
The number of Group employees at the year end was 281 (2015
restated: 320).
Discontinued operations reflect employees in Kurt Salmon
healthcare and Kurt Salmon retail and consumer good business. 2015
reflects Kurt Salmon France and related operations, Kurt Salmon
healthcare and Kurt Salmon retail and consumer goods business up to
their respective disposal dates.
The aggregate payroll costs for the employees of the continuing
operations were as follows:
2016 2015
GBP'000
GBP'000 restated
Wages and salaries 28,593 29,603
Social security costs 4,316 3,937
Other pension costs 1,626 1,661
---------------------- ------- ---------
34,535 35,201
---------------------- ------- ---------
8. Investment revenues and finance costs
Investment revenues 2016 2015
GBP'000
GBP'000 restated
Interest receivable on bank deposits
and similar income 64 8
-------------------------------------- -------- ----------
Finance costs 2016 2015
GBP'000
GBP'000 restated
Interest payable on bank overdrafts
and loans and similar charges (468) (1,964)
Finance costs on retirement benefit
plans (752) (1,500)
------------------------------------- ------- ---------
(1,220) (3,464)
------------------------------------ ------- ---------
9. Tax
UK corporation tax is calculated at 20.00% (2015: 20.25%) of the
estimated assessable profit for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
The tax credit for the year can be reconciled to the pre-tax
loss from continuing operations per the income statement as
follows:
Before
Before Non-underlying Non-underlying
Recognised in the income Non- Non-underlying items items Total
statement: underlying items Total 2015 2015 2015
Income tax expense items 2016 2016 2016 GBP'000 GBP'000 GBP'000
on continuing operations GBP'000 GBP'000 GBP'000 restated restated restated
-------------------------- ----------- -------------- -------- --------------- -------------- ---------
Current tax
Current year 1,860 (3) 1,857 1,194 (5) 1,189
Adjustment in respect
of prior years (2,353) - (2,353) 87 - 87
-------------------------- ----------- -------------- -------- --------------- -------------- ---------
Current tax (credit)
/ expense (493) (3) (496) 1,281 (5) 1,276
-------------------------- ----------- -------------- -------- --------------- -------------- ---------
Deferred tax
Current year (3,171) 190 (2,981) 17 (15) 2
Adjustment in respect
of prior years 1,268 - 1,268 (93) - (93)
-------------------------- ----------- -------------- -------- --------------- -------------- ---------
Deferred tax (credit)
/ expense (1,903) 190 (1,713) (76) (15) (91)
-------------------------- ----------- -------------- -------- --------------- -------------- ---------
Total income tax
Income tax (credit)
/ expense on continuing
activities (2,396) 187 (2,209) 1,205 (20) 1,185
-------------------------- ----------- -------------- -------- --------------- -------------- ---------
10. Earnings per share
The calculation of the basic and diluted loss per share is based
on the following data:
2015
2016 re-presented
-------- ---------- ------------ ------------------------------------
All Continuing Discontinued All Continuing Discontinued
Earnings GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------- ---------- ------------ -------- ---------- --------------
(Loss)/ profit for
the period (55) (38,560) 38,505 (65,548) (10,377) (55,171)
Add back: non-underlying
items 39,856 30,768 9,088 6,825 450 6,375
Add back: amortisation
of acquired intangibles 527 - 527 569 - 569
Adjustment for (profit)
/ loss on disposal (43,189) - (43,189) 53,372 - 53,372
Reduction in tax
charge due to add
backs (2,134) (359) (1,775) (642) (20) (622)
---------------------------- -------- ---------- ------------ -------- ---------- --------------
Underlying (loss)/profit
for the period (4,995) (8,151) 3,156 (5,424) (9,947) 4,523
---------------------------- -------- ---------- ------------ -------- ---------- --------------
2016 2015
Number Number
Number of shares (million) (million)
---------------------------- -------- ---------- ------------ -------- ---------- --------------
Weighted average
number of ordinary
shares for the purposes
of basic earnings
per share, and basic
excluding non-underlying
items and amortisation
of acquired intangibles 505 492
Effect of dilutive
potential ordinary
shares:
Restricted share
plans 0 13
---------------------------- -------- ---------- ------------ -------- ---------- --------------
Weighted average
number of ordinary
shares for the purposes
of diluted earnings
per share 505 505
---------------------------- -------- ---------- ------------ -------- ---------- --------------
2016 2015 re-presented
-------- ---------- ------------ ----------------------------------
Loss per share All Continuing Discontinued All Continuing Discontinued
---------------------------- -------- ---------- ------------ -------- ---------- ------------
Basic loss per share
for the year attributable
to the owners of
the company 0.0 (7.6) 7.6 (13.3) (2.1) (11.2)
Diluted loss per
share for the year
attributable to the
owners of the company 0.0 (7.6) 7.6 (13.3) (2.1) (11.2)
Basic loss per share
- excluding non-underlying
items and amortisation
of acquired intangibles (1.0) (1.6) 0.6 (1.1) (2.0) 0.9
Diluted loss per
share - excluding
non-underlying items
and amortisation
of acquired intangibles (1.0) (1.6) 0.6 (1.1) (2.0) 0.9
---------------------------- -------- ---------- ------------ -------- ---------- ------------
The average share price for the year ended 31 December 2016 was
16.5p (2015: 15.6p).
11. Intangible assets and goodwill
The GBP30.4m amortisation charge for goodwill relates to the
impairment of Proudfoot goodwill.
Goodwill Customer Software Total
GBP'000 relationships costs intangibles
Group GBP'000 GBP'000 GBP'000
--------------------- --------- -------------- -------- ------------
Cost
At 1 January 2016 197,701 18,791 6,714 223,206
Additions - - 366 366
Impairment charge (30,358) - (587) (30,945)
Category transfer - - 1,292 1,292
Disposals (180,127) (20,946) (5,259) (206,332)
Exchange differences 28,784 2,155 1,285 32,224
--------------------- --------- -------------- -------- ------------
At 31 December 2016 16,000 - 3,811 19,811
--------------------- --------- -------------- -------- ------------
Amortisation
At 1 January 2016 53,372 17,711 3,736 74,819
Charge for the year - 527 1,006 1,533
Disposals (53,372) (20,946) (3,518) (77,836)
Exchange differences - 2,708 863 3,571
--------------------- --------- -------------- -------- ------------
At 31 December 2016 - - 2,087 (2,087)
--------------------- --------- -------------- -------- ------------
Carrying amount
At 31 December 2016 16,000 - 1,724 17,724
--------------------- --------- -------------- -------- ------------
At 31 December 2015 144,329 1,080 2,978 148,387
--------------------- --------- -------------- -------- ------------
Company Software
costs
GBP'000
--------------------- ---------
Cost
At 1 January 2016 873
--------------------- ---------
At 31 December 2016 873
--------------------- ---------
Amortisation
At 1 January 2016 861
Charge for the year 6
--------------------- ---------
At 31 December 2016 867
--------------------- ---------
Carrying amount
At 31 December 2016 6
--------------------- ---------
At 31 December 2015 12
--------------------- ---------
Goodwill Customer Software Total
GBP'000 relationships costs intangibles
Group GBP'000 GBP'000 GBP'000
------------------------------ -------- -------------- -------- ------------
Cost
At 1 January 2015 253,195 18,961 10,758 282,914
Acquisitions 638 - - 638
Transferred to assets
held for sale (52,840) - (4,356) (57,196)
Additions - - 425 425
Disposals - - (174) (174)
Exchange differences (3,292) (170) 61 (3,401)
------------------------------ -------- -------------- -------- ------------
At 31 December 2015 197,701 18,791 6,714 223,206
------------------------------ -------- -------------- -------- ------------
Amortisation
At 1 January 2015 - 17,337 7,035 24,372
Charge for the year - 569 1,224 1,793
Impairment charge
recognized on classification
to assets held for
sale 53,372 - - 53,372
Transferred to assets
held for sale - - (4,326) (4,326)
------------------------------ -------- -------------- -------- ------------
Category transfer - - 82 82
------------------------------ -------- -------------- -------- ------------
Disposals - - (178) (178)
------------------------------ -------- -------------- -------- ------------
Exchange differences - (195) (101) (296)
------------------------------ -------- -------------- -------- ------------
At 31 December 2015 53,372 17,711 3,736 74,819
------------------------------ -------- -------------- -------- ------------
Carrying amount
At 31 December 2015 144,329 1,080 2,978 148,387
------------------------------ -------- -------------- -------- ------------
At 31 December 2014 253,195 1,624 3,723 258,542
------------------------------ -------- -------------- -------- ------------
Company Software
costs
GBP'000
--------------------- ---------
Cost
At 1 January 2015 873
--------------------- ---------
At 31 December 2015 873
--------------------- ---------
Amortisation
At 1 January 2015 729
Charge for the year 132
--------------------- ---------
At 31 December 2015 861
--------------------- ---------
Carrying amount
At 31 December 2015 12
--------------------- ---------
At 31 December 2014 144
--------------------- ---------
Analysis of goodwill
Goodwill acquired in a business combination is allocated to the
cash-generating units ("CGUs") that are expected to benefit from
that business combination. Following the disposal of Kurt Salmon,
the remaining goodwill relates to Proudfoot.
Kurt Salmon Alexander Total
GBP'000 Proudfoot GBP'000 GBP'000
GBP'000
----------------------- ----------- ------------------ ---------
As at 1 January 2016 104,223 40,106 144,329
Impairment Charge - (30,358) (30,358)
Disposal (127,413) - (127,413)
Translation 23,190 6,252 29,442
----------------------- ----------- ------------------ ---------
As at 31 December 2016 - 16,000 16,000
----------------------- ----------- ------------------ ---------
The recoverable amount of goodwill is determined based on
value-in-use calculations. The key assumptions used for
value-in-use calculations as at 31 December 2016 are that the CGU
will trade broadly in accordance with projections for the three
years 2017 - 2019. These project higher financial results than that
reported for 2016 and for example compound revenue growth in excess
of 10% over that period. The budgets were prepared on a bottom-up
basis, taking into account market and economic factors and have
been approved by the Board. The key assumptions underlying the
forecasts are revenue and EBITA. EBITA is deemed to be a reasonable
proxy for cash and assumed EBITA margins are consistent with past
experience and industry norms.
For longer term financial projections, cash flows are
extrapolated based on long-term average growth rates of 2%. The
rate used to discount the forecast post-tax cash flows is 13.2%
which represents the Group's weighted average cost of capital,
based on the risk-free rate with an additional premium added to
reflect market risk and the size of the Group. Goodwill is tested
against the value in use of operating segments on the basis that,
given the integrated nature of the segments, it cannot reasonably
be allocated to a lower level of CGU.
The Board believes that the growth rates used in the
value-in-use calculations are appropriate, have applied
sensitivities to the calculations and are satisfied that the
current recoverable amount of goodwill is appropriate. Trading
activity to date in 2017 and performance against budget supports
the growth rates used in our calculations. The assumptions used
fall within historic variations experienced by the Group and are
considered as reasonable estimations.
Review of the carrying value of goodwill
The financial performance of Proudfoot has deteriorated in the
last financial year, reporting an underlying operating loss of
GBP8.8 million. During 2015 and 2016 Proudfoot's business model was
significantly challenged as the Board implemented changes to
develop the Proudfoot offering in order to build a more stable and
predictable revenue base and drive top-line growth, as well as
continuing weakness in demand from clients in the natural resources
sector. Whilst the business did not adapt quickly enough to changes
in the market, management is now focussed on further enhancing the
front-end capabilities to drive revenue growth as well as
continuing to take action to reduce costs. This has resulted in a
pick-up in order input towards the end of 2016 and accordingly the
Directors remain confident in the long-term prospects of the
business.
The Directors recognise that there are risks and uncertainties
in the CGU if the performance of the business does not improve as
expected over the long term in line with management's forecasts.
Factors that could cause the deterioration in future cash flows of
the business compared to the forecasts include:
-- the inability to recruit and retain key staff
-- the inability to win new and retain existing contracts at appropriate margins; and
-- a failure to reduce costs to reflect lower base revenues
The value of goodwill attributed to Proudfoot is GBP16.0m (2015:
GBP40.1m) and is calculated at its value in use using the pre-tax
discount rate of 13.2%. The goodwill impairment amounting to
GBP30.4 million was derived from the detailed forecast using a long
term growth rate of 2%.
As the carrying amount of the goodwill represents its
value-in-use, the Directors recognise that it is possible that a
further impairment to the goodwill could be identified if the
business does not improve as expected over the longer term in line
with the business plan. Sensitivity analysis on key assumptions
indicates that relatively small changes in the underlying
assumptions will result in additional changes in the recoverable
amount on a value-in-use basis. Indeed, small unfavourable changes
to the assumptions and projections could result in the recoverable
amount of goodwill falling below its carrying value.
12. Notes to the cash flow statement
2015
2016 restated
GBP'000 GBP'000
---------------------------------------- -------- ---------
Loss from continuing operations (39,613) (5,736)
(Loss)/profit from discontinued
operations (3,876) 3,944
-------- ---------
Loss from operations (43,489) (1,792)
Adjustments for:
Depreciation of property, plant
and equipment 759 861
Amortisation of intangible assets 1,533 1,793
Profit on disposal of fixed assets (3) (7)
Adjustment for share awards 668 1,155
Increase/(decrease) in provisions 1,244 (3,143)
Goodwill impairment 30,358 -
Other non-cash items 2,108 159
---------------------------------------- -------- ---------
Operating cash flows before movements
in working capital (6,822) (974)
Increase in receivables 1,725 7,476
(Decrease)/increase in payables (5,607) 1,119
---------------------------------------- -------- ---------
Cash (used in) /generated by operations (10,704) 7,621
Income taxes paid (3,665) (6,712)
---------------------------------------- -------- ---------
Net cash (outflow) / inflow from
operating activities (14,369) 909
---------------------------------------- -------- ---------
13. Discontinued operations
The French and related operations of Kurt Salmon were reported
as discontinued operations in the Group financial statements for
the year ended 31 December 2015 and the financial impact of the
finalisation of the disposal of that business is reported in the
discontinued operations caption in the Group financial statements
for the year ended 31 December 2016. The assets and liabilities of
the French and related operations of Kurt Salmon were shown in the
Group balance sheet at 31 December 2015 as assets and liabilities
held for sale of GBP91.8m and GBP33.1m respectively. The disposal
transaction completed on 7 January 2016 for net cash proceeds of
GBP58.6m.
The healthcare consulting practice formed part of the reported
continuing operations of Kurt Salmon in the Group financial
statements for the year ended 31 December 2015. The sale of the
Kurt Salmon healthcare business was completed on 29th July 2016 for
net cash proceeds of GBP6.2m. The results of its operations and the
loss on disposal arising from the impairment of goodwill are
reported as discontinued operations in the financial statements for
the year ended 31 December 2016. The comparatives for 2015 have
been restated on the same basis.
The Kurt Salmon retail and consumer goods business formed part
of the reported continuing operations of Kurt Salmon in the Group
financial statements for the year ended 31 December 2015. The sale
of the Kurt Salmon retail and consumer goods business was completed
on 1st November for net cash proceeds of GBP124.1m. The proceeds of
disposal exceed the book value of the related net assets and
accordingly no impairment losses have been recognised. The results
of its operations and the profit on disposal are reported as
discontinued operations in the financial statements for the year
ended 31 December 2016. The comparatives for 2015 have been
restated on the same basis.
The results of the discontinued operations, which have been
included in the consolidated income statement with
in the loss from discontinued operations line, were as
follows:
Kurt Salmon
France Kurt Salmon
and related Kurt Salmon Retail
operations Healthcare and Consumer Total
twelve twelve goods twelve twelve
months months months months
ended ended ended ended
31 December 31 December 31 December 31 December
2016 2016 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ------------ ------------ ------------- ------------
Revenue - 8,729 72,543 81,272
Cost of sales - (7,282) (47,049) (54,331)
--------------------------------- ------------ ------------ ------------- ------------
Gross profit - 1,447 25,494 26,941
--------------------------------- ------------ ------------ ------------- ------------
Administrative expenses
- underlying (63) (2,951) (18,188) (21,202)
(Loss)/profit from operations
- underlying (63) (1,504) 7,306 5,739
Administrative income/(expenses)
- non-underlying 75 (419) (8,744) (9,088)
Amortisation of acquired
intangibles - - (527) (527)
--------------------------------- ------------ ------------ ------------- ------------
Total administrative expenses 12 (3,370) (27,459) (30,817)
--------------------------------- ------------ ------------ ------------- ------------
Profit/(loss) from operations 12 (1,923) (1,965) (3,876)
Net finance costs - - (188) (188)
--------------------------------- ------------ ------------ ------------- ------------
Profit/(loss) before tax 12 (1,923) (2,153) (4,064)
Tax - - (210) (210)
--------------------------------- ------------ ------------ ------------- ------------
Profit/(loss) for the
period attributable to
owners of the Company 12 (1,923) (2,363) (4,274)
Profit/(Loss) on disposal
from discontinued operations 244 (10,661) 53,196 42,779
--------------------------------- ------------ ------------ ------------- ------------
Net profit/(loss) attributable
to discontinued operations 256 (12,584) 50,833 38,505
--------------------------------- ------------ ------------ ------------- ------------
Kurt Salmon
France Kurt Salmon
and related Kurt Salmon Retail
operations Healthcare and Consumer Total
audited audited goods audited audited
twelve twelve twelve twelve
months months months months
ended ended ended ended
31 December 31 December 31 December 31 December
2015 2015 2015 2015
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------ ------------ ------------ -------------- ------------
Revenue 91,528 17,423 71,353 180,304
Cost of sales (67,167) (13,454) (49,081) (129,702)
------------------------------------------------ ------------ ------------ -------------- --------------
Gross profit 24,361 3,969 22,272 50,602
------------------------------------------------ ------------ ------------ -------------- --------------
Administrative expenses - underlying (19,528) (3,220) (16,967) (39,715)
Profit from operations - underlying 4,833 749 5,305 10,887
Administrative expenses - non-underlying (6,572) - 197 (6,375)
------------------------------------------------ ------------ ------------ -------------- --------------
Administrative expenses - amortisation
of acquired intangibles - - (568) (568)
------------------------------------------------ ------------ ------------ -------------- --------------
Total administrative expenses (26,100) (3,220) (17,338) (46,658)
------------------------------------------------ ------------ ------------ -------------- --------------
(Loss)/profit from operations (1,739) 749 4,934 3,944
Net finance cost (1,514) - (213) (1,727)
------------------------------------------------ ------------ ------------ -------------- --------------
(Loss)/profit before tax (3,253) 749 4,721 2,217
Tax (833) (175) (3,008) (4,016)
------------------------------------------------ ------------ ------------ -------------- --------------
(Loss) / profit for the period attributable
to owners of the Company (4,086) 574 1,713 (1,799)
Result on disposal from discontinued
operations (53,372) - - (53,372)
------------------------------------------------ ------------ ------------ -------------- --------------
Net (loss)/ profit attributable to discontinued
operations (57,458) 574 1,713 (55,171)
------------------------------------------------ ------------ ------------ -------------- --------------
Non-underlying expenses for the French and related operations of
Kurt Salmon related to a release of a surplus transaction bonus
(2015: GBP6.6m). Non-underlying expenses attributed to the Kurt
Salmon healthcare disposal comprise GBP0.4m (2015: GBPnil) relating
to the closure of the international business. Non-underlying
expenses for Kurt Salmon's retail and consumer goods business were
a net GBP8.7m expense (GBP2015: GBP0.2m credit) chiefly comprising
GBP2.4m of employee related costs and charges related to surplus
property and onerous contracts of GBP5.4m.
The gain on disposal for the French and related operations of
Kurt Salmon reflects the taxable gain that crystallised at
completion in respect of certain elements of the business sold, net
of GBP1.3m of currency translation reserve credits, which are
realised in the year the transaction was completed and a
post-closing adjustment of GBP1.1m, which has no impact on cash
flows.
The GBP10.7m Kurt Salmon healthcare loss on disposal arises as a
result of the impairment of goodwill relating the disposal group.
The impairment charge represents the difference between the
goodwill and the net assets attributed to the disposal group.
The GBP53.2m profit on disposal of Kurt Salmon's retail and
consumer goods consulting operations includes GBP21.8m relating to
the net proceeds of the disposal exceeding book value of the
related net assets including goodwill, and GBP31.4m relating to the
recycling of a currency translation reserve.
In respect of the Kurt Salmon France and related operations, no
operating cashflows were attributable to 2016 (2015: GBP1.4m
outflow). In 2016 there were no cash flows arising from investing
activities (2015: GBP0.1m outflow). There were no cash flows
arising from financing activities in either the current or prior
year. Cash balances transferred at completion totalled GBP5.3m.
During the year the Kurt Salmon healthcare business contributed
a net operating cash outflow of GBP4.1m (2015: GBP0.2m outflow).
There were no cash flows arising from investing or financing
activities in either the current or prior year.
The Kurt Salmon retail and consumer goods business contributed a
net operating cash inflow of GBP2.5m (2015: GBP9.8m inflow) of this
cash of GBP4.5m was held by that business at completion. There were
no cash flows arising from investing activities in the current year
(2015: GBP0.4m outflow). There was a cash outflow from financing
activities of GBP0.2m (2015: GBPnil).
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKQDKNBKBKND
(END) Dow Jones Newswires
March 15, 2017 03:01 ET (07:01 GMT)
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