TIDMMMC
RNS Number : 9593S
Management Consulting Group PLC
15 March 2019
14 March 2019
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 2018. These results reflect
the continuing operations of the Group, comprising Proudfoot.
Key highlights
-- Substantial investment in sales capability and marketing at Proudfoot. The transformation of the US leadership
team and the full implementation of our new offering and strategy in that market continues to show early signs of
success.
-- Reported revenues of GBP28.3m (2017 restated: GBP32.7m), with H2 revenues up 14% compared to H2 2017 (restated).
-- Operating costs reduced by around 19% during the year.
-- Adjusted operating loss* of GBP4.2m (2017 restated: GBP7.5m loss).
-- After non-underlying items retained net loss of GBP13.7m (2017 restated: retained net loss GBP31.0m) including
loss on discontinued operations of GBP6.7m. (2017 restated: loss of GBP1.4m).
-- Cash balances at 31 December 2018 were GBP17.3m (2017: GBP21.0m) including GBP4.2m (2017: GBP8.5m) restricted
cash reserved for contingent creditors.
-- Equity fundraising successfully completed in July increasing cash resources by GBP8.6m (net of expenses).
-- Pam Hackett, CEO of Proudfoot, appointed to the Board.
* Being operating loss before non-underlying costs and
credits.
Nick Stagg, Chairman and Chief Executive, commented:
"We continue to invest in the sales capability of Proudfoot.
Whilst revenues for 2018 were lower, the second-half showed an
increase of 14% compared to the same period in 2017 and there are
early indications for a continuation of this trend. With Proudfoot
now working with a number of Fortune 500 companies the Board
remains confident Proudfoot will continue to deliver sustainable
change to our clients and that this will create value for our
shareholders"
For further information please contact:
Management Consulting Group PLC
Nick Stagg Chairman and Chief Executive 020 7710 5000
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
Market Abuse Regulation
The information contained within this announcement is deemed by
the Group to constitute inside information as stipulated under the
Market Abuse Regulation. Upon the publication of this announcement
via a regulatory information service, this inside information is
now considered to be in the public domain.
The person responsible for arranging for the release of this
announcement on behalf of the Group is Nick Stagg, Chairman and
Chief Executive.
Forward Looking Statements
Certain information contained in this announcement constitutes
forward looking information. This information relates to future
events or occurrences or the Company's future performance. All
information other than information of historical fact is forward
looking information. The use of any of the words "anticipate",
"plan", "continue", "estimate", "expect", "may", "will", "project",
"should", "believe", "predict" and "potential" and similar
expressions are intended to identify forward looking information.
This information involves known and unknown risks, uncertainties
and other factors that may cause actual results or events to differ
materially from those anticipated in such forward looking
information. No assurance can be given that this information will
prove to be correct and such forward looking information included
in this announcement should not be relied upon. Forward-looking
information speaks only as of the date of this announcement.
The forward looking information included in this announcement is
expressly qualified by this cautionary statement and is made as of
the date of this announcement. The Group does not undertake any
obligation to publicly update or revise any forward looking
information except as required by applicable securities laws.
Chairman and Chief Executive's statement
After returning value to shareholders through the successful
building and selling of multiple consultancy brands over the past
decade, MCG is now focused on the execution of rebuilding and
transformation of Proudfoot into a profitable global player in the
operations consulting marketplace. With the second half of 2018
delivering a 14% increase in sales on the same period in 2017 and
with a significant reduction in operating costs, this now provides
the Board with confidence that it is within reach.
The priority in 2018 was to put in place a new American
leadership team to develop a strong marketing and sales capability,
in order to tap into the world's largest consulting market and
position Proudfoot for success in 2019. Additionally, we started to
reinvigorate the Proudfoot brand and reputation in that market. The
US leadership team was formed late in the first half of the year
and by the year-end had re-established Proudfoot as a brand capable
of winning and retaining Fortune 500 clients and top talent. This
investment will yield benefits into 2019 and beyond. Concurrently,
it was critical to maintain growth in Europe which was also
achieved.
While Proudfoot continues to focus on operational transformation
as its core offering, we have made significant progress in
positioning Proudfoot as a transformation leader achieving
measurable results through people. This is evident through the
expansion of its client base into businesses and industry leaders.
Proudfoot continued the rollout of its sector-based go-to-market
strategy in the Americas and Europe, focused on the established
Natural Resources and Industrials sectors, as well as Maintenance
& Repair Operations (MRO) (with a focus on Transportation and
Aviation), and Digital & Operational Transformation (with a
focus on Financial Services and Healthcare). This approach was
taken to reduce the risk of dependence on any one vertical.
Group revenues were GBP28.3m in 2018. While 13% lower than in
2017 (restated: GBP32.7m), second half revenues rose by 14%
compared to the same period last year. This was achieved by
maintaining growth in Europe, demonstrating the success of our new
US talent, continuing a flexible approach to meet client needs and
alignment with our specialist verticals. We also continued to
invest in sales capability and marketing in order to scale the
Proudfoot business to generate the growth required to deliver an
increase in value to shareholders.
The Group has continued to reduce its cost base: adjusted
operating costs were GBP32.5m in 2018 compared to GBP40.2m (2017
restated), a reduction of approximately 19%. Furthermore we
restructured the business to reduce the global administrative
footprint by combining the MCG and Proudfoot back-offices across
two hubs to service Proudfoot's global business; we sold the
Proudfoot Brazilian operations to cost-effectively maintain the
Proudfoot brand presence in Brazil through local ownership; and we
continue to manage the residual activities and liabilities linked
to our discontinued businesses, which has significantly reduced
over the course of the last year. The Group reported a narrower
adjusted operating loss of GBP4.2m for the year compared to GBP7.5m
loss in 2017 (restated). The reported loss for the year was
GBP13.7m (2017 restated: GBP31.0m) after charging non-underlying
costs of GBP2.2m (2017 restated: GBP1.3m) and the loss on the
discontinued business in Brazil of GBP6.7m (2017 restated:
GBP1.4m).
As previously reported, the Group successfully raised new equity
of GBP8.6m (net of expenses) in July. The issue was well supported
by our existing major shareholders and was over-subscribed
resulting in applications being scaled back.
The Group's cash and cash equivalents fell to GBP17.3m as at 31
December 2018 (31 December 2017: GBP21.0m). This reflects operating
losses as well as restructuring costs and the new equity funds
raised and included GBP4.2m (2017: GBP8.5m) held in escrow accounts
connected with the sale of parts of the Kurt Salmon business.
In July Pamela Hackett, CEO of Proudfoot, was appointed to the
Board, joining Fiona Czerniawska, and together they raise female
representation on the Board to one third.
In 2018, we were able, with the support of our shareholders, to
progress substantially the investment and reinvigoration of the
Proudfoot business, serving our clients successfully and recruiting
experienced sales and delivery talent. It is evident that the
Proudfoot model has the potential to grow into a global player with
the ability to provide lasting value to the world's business
community. As we look ahead to 2019, we will seek to maintain and
increase the momentum of the transformation we have started in
order to deliver a profitable and growing business.
Financial and Operating Review
The Group results have been restated to exclude the results of
the Brazilian business which was sold during the year, and
therefore the Group financial statements (and the restated 2017
results) reflect the Brazilian results as discontinued operations.
Reported discontinued operations in 2018 also reflect the financial
effect of this disposal. Following the sale of its Kurt Salmon
businesses in 2015 and 2016, the Group's performance now solely
reflects its Proudfoot business.
Alternative Performance Measures
We have adopted the use of certain alternative performance
measures and therefore have adjusted profit/loss to reflect the
exclusion of material non-underlying costs. The non-underlying
costs relate to items which are not related to the normal operating
costs of the business and therefore have been removed from
operating profit/loss to ensure more clarity around the trading
operations of the business. Each of the non-underlying costs have
been assessed to determine its nature and that the class of cost
would not be expected to recur.
Continuing operations
During 2018 we continued to focus on the transformation of
Proudfoot, particularly in the US, with further investment in sales
capability and marketing.
Group reported revenue for 2018 was 13% lower at GBP28.3m (2017
restated: GBP32.7m), however second half revenues of GBP14.5m
showed growth of 14% compared to the second half of 2017 (restated:
GBP12.7m). Given the lower revenues, and with substantial cost
reduction measures of around 19%, the Group reported a reduced
adjusted operating loss of GBP4.2m (2017 restated: loss of GBP7.5m)
for the year as a whole. The lower adjusted loss shows the impact
of the significant cost reductions implemented and the improvement
in second half revenues compared to 2017. The reported operating
loss was also lower at GBP6.4m (2017 restated: loss of
GBP24.8m)
The Group has reported a net non-underlying charge of GBP2.2m
(2017 restated: GBP0.7m) comprising a charge of GBP1.6m relating to
restructuring of the Proudfoot business and GBP0.6m provision
relating to additional costs from prior years disposals.
The net interest expense from continuing operations was
marginally higher at GBP0.7m (2017 restated: GBP0.5m). In
accordance with IAS 19 the reported net interest charge for 2018
includes an imputed charge in relation to defined benefit pensions
of GBP0.6m (2017 restated: GBP0.6m).
The loss before tax on continuing operations was GBP6.9m (2017
restated: loss of GBP25.3m). The tax charge on continuing
operations was GBP0.1m (2017 restated: GBP4.4m credit) which
reflects corporate taxes arising in profit-making jurisdictions
without the availability of brought forward losses and the impact
of project specific withholding taxes, offset by a tax credit
relating to prior year adjustments with regard to submitted 2017
tax returns.
As at the date of this report, it is not yet clear whether or
when the UK will leave the European Union ('Brexit'). Despite the
continued uncertainly, the Board has reviewed the impact of the
various potential outcomes of Brexit on the Group, and although the
final outcome is not yet clear, we have considered the impact of
labour mobility, our client base, regulatory issues, taxation, the
potential for more complex administration matters and foreign
exchange implications. In particular the Board have considered the
impact on our future cash flow forecasts for the purposes of
assessing the Group's viability and its status as a going concern.
Due to the nature of Proudfoot's business and our group structure
and operating model, based on the information available at the date
of approval of these financial statements, the Board believes that
the Group will not be materially impacted by Brexit, irrespective
of the final form this takes.
Discontinued operations
In May 2018, as previously reported, the Group made the decision
to sell its Brazilian business, Alexander Proudfoot Servicos
Empresarias Ltda. to the local management team. This provided
Proudfoot with the ability to maintain a global brand presence in
that market but realise the benefits of locally run operations in a
non-core market. The loss attributable to discontinued operations
was GBP6.7m which comprises a GBP1.4m loss after tax for the period
and GBP5.3m being the loss on disposal. The discontinued tax charge
of GBP0.8m relates to a reversal of a tax debtor no longer
recoverable.
Loss for the year
Taking into account the loss from discontinued operations, the
reported Group loss for the year attributable to shareholders was
GBP13.7m (2017 restated: GBP31.0m loss).
The adjusted loss per share attributable to continuing
operations was 0.5p (restated 2017: loss of 2.4p) and the basic
loss per share attributable to continuing operations was 0.7p
(restated 2017: loss of 5.8p).
Balance sheet
Intangible assets
Intangible assets of GBP0.04m (2017: GBP0.2m) relate solely to
computer software assets following the impairment of goodwill in
2017.
Deferred tax assets
The balance sheet includes GBP0.1m of deferred tax assets (2017:
GBP0.1m). In 2018 and 2017, this principally relates to the
deferred tax asset on the French pension scheme offset by a small
deferred tax liability in Botswana.
Net cash
At 31 December 2018, the Group reported cash and cash
equivalents of GBP17.3m (2017: GBP21.0m).
Reported cash balances at 31 December 2018 include GBP4.2m
(2017: GBP8.5m) of cash required to be retained to support certain
contingent creditors of the Group. In particular, EUR1.6m was held
in an escrow account and in addition a further EUR1.6m was held at
HSBC to secure further indemnity obligations to Wavestone, the
acquirer of the French and related operations of Kurt Salmon. The
HSBC security has been extended to 17(th) September 2019. The total
held in respect of potential Wavestone claims amounts to EUR3.2m.
Although a substantial proportion of this cash is expected to
become available to the Group for general corporate purposes as the
contingent obligations fall away over time, the exact amount and
timing is still subject to uncertainty.
Pensions
The retirement benefits obligation reflected in the Group
balance sheet at 31 December 2018 relates to the net liability
under a part-funded US defined benefit pension scheme of GBP9.1m,
an unfunded French retirement obligation of GBP0.3m, and a legacy
Kurt Salmon UK defined benefit pension scheme which shows a closing
asset position of GBP0.2m. The US defined benefit pension scheme is
not open to new employees and existing members are not accruing
further benefits. The net post-retirement obligation for defined
benefit schemes increased from GBP7.3m at 31 December 2017 to
GBP9.1m at 31 December 2018, principally as a result of the
actuarial changes in respect of the US scheme liabilities together
with a fall in market value of the investments held to support this
liability, most of this decline in market value has been reversed
in early 2019. During 2017 the fund was managed on a basis to
reduce (as far as possible) the deficit between liabilities and
assets whilst maintaining an appropriate risk profile. This was
achieved by having 60% of the fund in equities and 40% in bonds.
This risk profile was adjusted, in early 2018, to a more
conservative 60% in bonds and 40% in equities.
Provisions
Provisions principally relate to the cost of leases for surplus
property, other onerous contracts, restructuring costs and other
liabilities linked to the 2016 disposals. These have decreased from
GBP4.7m at 31 December 2017 to GBP3.7m at 31 December 2018. The
reduction principally relates to the utilisation of the provisions
set up to cover the transitional service agreements and onerous
leases in Atlanta and San Francisco.
Net assets
The net assets of the Group decreased from GBP2.1m at 31
December 2017 to GBP0.8m at 31 December 2018, primarily due to the
retained loss for the year offset by the capital increase as a
result of raising new equity.
Dividends
The Board does not intend to declare a dividend for 2018 (2017:
nil).
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in the principal risks and uncertainties section in
this announcement. The financial position of the Group is described
in this Chairman and Chief Executive's review. In addition, note 2
of the consolidated financial statements include the Group's
objectives, policies and processes for managing its capital and its
exposures to risk. The Group prepares regular business forecasts
which are reviewed by the Board. Forecasts are adjusted for
sensitivities, which address the principal risks to which the Group
is exposed, and consideration is given to actions open to
management to mitigate the impact of these sensitivities. The Board
used assumptions for 2019 and in particular, the Board noted that
Proudfoot revenues in H2 2018 were 14% higher than in the
corresponding period of 2017 and early indications are for a
continuation of this trend into 2019. For 2020, the Board's base
case assumed that Proudfoot's revenues would continue to rise.
In assessing sensitivities, the Board took into account the
previous slower than expected pace of change at Proudfoot and the
disappointing results in past periods. The Board has, in
particular, considered risks related to revenue and looked at
assumptions both consistent with the recent past and the long-term
changes in revenue. In addition, we have considered the risks
related to the Kurt Salmon escrow funds (being an amount of GBP4.2m
as of the date of this report) and have made assumptions on a worst
case that these are not resolved during the period of review. The
Board has considered mitigating actions that could be taken if
these scenarios become likely and these have been reflected in our
sensitised forecasts.
These assumptions are predicated on Proudfoot continuing to win
and deliver on contracts throughout 2019 and 2020 in line with
board expectations.
The Group continues to manage the liabilities related to the
disposals made in 2015 and 2016 and, in particular, to negotiate
the release of funds held under the escrow arrangements which
guarantee certain contingent liabilities relating to the disposal
of parts of the Kurt Salmon business in 2016.
The Board has concluded that its forecasts, even on a worst case
basis, indicate that the Group has adequate resources to be able to
operate for the foreseeable future. For this reason, the going
concern basis has been adopted in preparing the financial
statements.
Outlook
The Board notes Proudfoot revenues in H2 2018 were 14% higher
than in the corresponding period of 2017 and early indications are
for a continuation of this trend going forwards. The necessary
infrastructure has now been put in place for Proudfoot to grow its
client base and revenues, and we continue to see evidence that
clients value the work we do for them. With this, and the
distinctly new positioning of Proudfoot as a firm that delivers not
only results but visible behaviour and cultural change for our
clients, the Board remains confident in the power of the Proudfoot
model to deliver sustainable improvement and change for our
clients.
The Board is confident of a return to increasing revenues and
profitability within the underlying Proudfoot business together
with a successful resolution of historic liabilities on
disposals.
Principal risks and uncertainties
Identifying key areas
The Board has carried out a robust assessment of the principal
risks facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity.
Risk management process
The risk management process can be summarised as follows:
Identify risk, then assess, develop mitigation plans, reassess
and report to the Board
1. Demand for services provided by Proudfoot in the markets and
sectors in which it operates
Description
Proudfoot operates in several geographies and industry sectors
and demand for its services can be affected by global, regional or
national macro-economic conditions and conditions within individual
industry sectors. Proudfoot operates in a competitive environment,
where other consulting firms seek to provide similar services to
its clients. Changes in demand for Proudfoot's services can
significantly impact revenues and profits.
Mitigation
In response to anticipated changes in demand and competitive
pressures, the Group made changes in 2018 to Proudfoot's offering
to exploit opportunities for business in geographies and sectors
where demand is increasing. Proudfoot operates a flexible model and
can deploy staff to areas of higher demand to optimise utilisation.
Part of the total remuneration paid to senior employees is in the
form of variable pay related to financial performance, which
provides some profit mitigation in the event of a decline in
revenues.
Level
Market conditions in 2018 varied between the key sectors and
geographies in which Proudfoot operates, in some cases showing
positive trends, in others negative ones. Demand from Natural
Resources clients, a key sector for Proudfoot's services, improved
in 2018.
2 Development and retention of key client relationships
Description
Proudfoot typically contracts with clients for the delivery of
project-related consulting services over relatively short periods.
These individual projects can lead to repeat business or form part
of a longer-term series of related projects. However, individual
clients may change their preferred suppliers or may change the
quantity of such services or the price at which they buy such
services. Failure by Proudfoot to develop and retain client
relationships could result in a significant reduction in the
Group's revenues. Potential unforeseen contractual liabilities may
arise from client engagements that are not completed
satisfactorily.
Mitigation
The changes made to Proudfoot's business processes in 2018 were
designed to promote and enhance client relationships, and to
generate revenues over longer periods than those of a typical
single project. This includes different contracting models as well
as a continued focus on the delivery of high quality work that
meets clients' expectations. Our human resources management
policies emphasise the importance of maintaining and developing
client relationships. Potential contractual liabilities arising
from client engagements are managed through the control of
contractual conditions and insurance arrangements.
Increasing
Proudfoot has retained key client relationships and continued to
work to develop new long-term relationships. Repeat work for
clients in 2018 rose to 63%
3 Recruitment and retention of talented employees
Description
The Group is dependent on the recruitment and retention of key
personnel to develop and maintain relationships with clients and to
deliver high quality services. Any failure to attract and retain
such personnel, or which results in their unforeseen departure from
the business, may have detrimental consequences on the Group's
financial performance. The Group has made a number of important
hires in 2018 notably in its US business.
Mitigation
The Group has remuneration policies and structures that reward
good performance consistent with prevailing market levels of
remuneration. For senior employees, a significant element of total
remuneration is variable and linked to financial and other
performance measures, which provides opportunities for enhanced
rewards. The Group is actively looking to hire from as broad a pool
of talent as possible.
Increasing
Staff retention has been managed effectively and we have
recruited in areas of the business which are being developed as the
business returns to growth. Further skilled consultants will need
to be recruited.
4 Optimisation of the Group's intellectual capital
Description
The intellectual capital of the Proudfoot business, including
its methodologies and its track record of successful sale and
delivery of assignments to clients, is a key asset which must be
maintained, continually developed and protected, so that its
offerings remain distinctive and attractive to clients. It is
possible that employees who exit the business may appropriate this
intellectual capital for use by themselves or by the Group's
competitors.
Mitigation
The Group maintains a comprehensive knowledge management system
to record its methodologies and track record of client assignments.
It develops and refreshes these continually in response to, and in
anticipation of, market demand. The Group protects its intellectual
property through appropriate contractual arrangements with
employees and others, and through legal action where necessary.
Level
We have continued to invest to develop new offerings and to
build our intellectual capital.
5 Fluctuations in foreign currency exchange rates
Description
The Group reports its results and financial position in Pounds
Sterling, but operates in and provides services to clients in many
countries around the world, conducting most of its business in
other currencies. In particular, a significant proportion of the
Group's business is conducted in US Dollars and Euros. Fluctuations
in prevailing exchange rates may have a significant impact on
reported revenues.
Mitigation
Where appropriate, the Group will undertake hedging to mitigate
currency risk. This is rarely undertaken since the Group's cost
base is, in broad terms, located in those countries in which the
Group generates revenues. The currencies in which costs and
revenues are denominated are therefore, to a great extent, matched
and this tends to reduce the impact of exchange rate fluctuations
on reported profits.
Level
Currency volatility has not had a significant impact on reported
revenues and operating results in 2018.
6. Management of residual liabilities
Description
In 2016, the Group completed three major disposals. As part of
these disposals, the Group agreed to provide certain transitional
services and also retained responsibility for certain contingent
liabilities relating to the businesses sold. It placed certain of
its cash balances in escrow as guarantees for these potential
liabilities. The amount of actual costs and the timing and amount
of the release of cash from escrow could vary from our initial
assumptions, thereby reducing the amount of liquidity available for
the Group's Continuing operations.
Mitigation
The initial contractual arrangements were structured to limit in
amount and time the overall potential liabilities of the Group and
management monitors the actual costs and potential liabilities.
Level
Whilst transition services agreements have been effectively
managed and have now been completed, there remains risk to the
effective timing of release from liabilities (including of cash
reserved to cover them) arising from existing warranty claims from
the acquirers.
7. Pension liabilities
Description
The Group has a number of retirement plans covering both current
and former employees, including defined benefit plans notably in
the US and the UK. The US defined benefit pension scheme is not
open to new employees and existing members are not accruing further
benefits. The net post-retirement obligation for defined benefit
schemes increased from GBP7.3m at 31 December 2017 to GBP9.3m at 31
December 2018, principally as a result of the actuarial changes in
respect of the US scheme liabilities together with a fall in market
value of the investments held to support this liability. There is a
risk that the amount of the liability changes depending on the
actuarial value and investment return in the schemes. In addition,
there is a risk that if the funding ratio in the US drops
significantly there would be a risk for additional contributions
into the fund thereby decreasing the Group's cash resources.
Mitigation
The Group maintains an active dialogue with the trustees of the
plans. In addition, the Group continues to explore exit plans for
the remaining plan members of the Kurt Salmon UK pension
scheme.
Level
The increased liability for the US defined benefit pension
scheme due to falls in the stock market in December 2018. These
market losses were materially reversed in January 2019 and the
deficit has subsequently reduced.
Viability statement
As referred to above, the Board having considered the impact of
Brexit, do not see this resulting in any significant additional
challenges to the Group and therefore does not change in our view
the Group's viability.
The Directors have assessed the Group's prospects, taking into
account its current position and the principal risks to the
business, over a two-year time period. The Directors consider this
to be the appropriate time horizon given the Group's continuing
operations, retained obligations after the 2015 and 2016 disposals,
its financial position and the industry segments to which it
provides services. Furthermore, the use of a two year review period
is considered appropriate due to the nature of short term nature of
the order book. This is consistent with the period which has been
used for planning purposes and with the approach taken in 2017.
Having completed the fund raising in 2018 and reduced the
Group's cost base, the stress testing of the Group's cash flows
show that the business can withstand further delays to recovery,
which are not expected, without the need for further cash
resources.
Following the disposals, the Group's continuing business
comprises Proudfoot, and is materially smaller, less diverse and
has reduced global reach and scale. The Board remains committed to
improving the performance of Proudfoot and restoring that business
to profitable growth. Proudfoot has a long-established brand and a
historically successful business model. The Board has in place a
plan to restore revenue growth and profitability in the Proudfoot
business. The Board has prepared an operating budget and financial
projections for the Group covering 2019 and 2020 as part of its
strategic planning process. The Directors have assessed the
financial impact of potential downside financial scenarios, taking
into account the principal risks to the business, and the potential
uncertainties arising from Brexit and the actions that the Board
can take to mitigate those risks and reduce costs. The Board has,
in particular, considered risks related to revenue and looked at
assumptions consistent with both the recent and long-term changes
in revenue, including no growth in revenue and decreasing revenue
in line with historic long-term trends. In addition, the Board has
considered the risks related to the Kurt Salmon escrow funds (being
an amount of GBP4.2m as of the date of this report) and have made
assumptions on a worst case that these are not resolved during the
period of review. The Board has considered mitigating actions that
could be taken if these scenarios become likely and these have been
reflected in the Group's sensitised forecasts. The Board has
concluded that, even in the reasonable worse case, the Group has
sufficient cash resources.
On the basis of the assessment summarised above, the Directors
have a reasonable expectation that the Group can continue to
operate and meet its liabilities as they fall due for the
foreseeable future, being the two years considered.
Group income statement
for the year ended 31 December 2018
2017
2018 GBP'000
Note GBP'000 Restated
-------------------------------------------------- ----- --------- ----------
Continuing operations
Revenue 5 28,285 32,714
Cost of sales (13,975) (17,122)
-------------------------------------------------- ----- --------- ----------
Gross profit 14,310 15,592
-------------------------------------------------- ----- --------- ----------
Administrative expenses - adjusted 6 (18,521) (23,068)
-------------------------------------------------- ----- --------- ----------
Loss from operations - adjusted (4,211) (7,476)
Administrative expenses - non-underlying
impairment 6a - (16,665)
Administrative expenses - non-underlying
other 6a (2,156) (1,336)
Administrative expenses - non-underlying
credit 6a - 664
-------------------------------------------------- ----- --------- ----------
Total administrative expenses (20,677) (40,405)
-------------------------------------------------- ----- --------- ----------
Operating loss (6,367) (24,813)
Investment revenues 8a 89 224
Finance costs 8b (670) (719)
-------------------------------------------------- ----- --------- ----------
Loss before tax 6 6,948 (25,308)
Tax 9 (112) (4,350)
-------------------------------------------------- ----- --------- ----------
Loss for the period from continuing operations (7,060) (29,658)
Loss for the period from discontinued operations 12 (6,670) (1,361)
-------------------------------------------------- ----- --------- ----------
Loss for the period (13,730) (31,019)
-------------------------------------------------- ----- --------- ----------
Loss per share - pence
From loss from continuing operations for
the year attributable to owners of the
Company:
Basic 10 (0.6) (5.8)
Diluted 10 (0.6) (5.8)
Basic - adjusted 10 (0.5) (2.4)
Diluted - adjusted 10 (0.5) (2.4)
-------------------------------------------------- ----- --------- ----------
From the loss for the period:
Basic 10 (1.4) (6.1)
Diluted 10 (1.4) (6.1)
Basic - adjusted 10 (0.6) (2.6)
Diluted - adjusted 10 (0.6) (2.6)
-------------------------------------------------- ----- --------- ----------
Group statement of comprehensive income
for the year ended 31 December 2018
2018 2017
GBP'000 GBP'000
------------------------------------------------------- ---- --------- ---------
Loss for the year (13,730) (31,019)
------------------------------------------------------------- --------- ---------
Items that will not be reclassified subsequently
to profit and loss
Actuarial (losses)/gains on defined benefit
post-retirement obligations (789) 3,838
Tax items taken directly to comprehensive income 6 (3,867)
Exchange differences recycled through loss 4,931 -
for the year as part of the Brazil disposal
------------------------------------------------------- ---- --------- ---------
4,148 (29)
---- --------- ---------
Items that may be reclassified subsequently
to profit and loss
Exchange differences on translation of foreign
operations (342) 643
(342) 643
---- --------- ---------
Total comprehensive expense for the year attributable
to owners of the Company (9,924) (30,405)
-------------------------------------------------------- --- --------- ---------
Group statement of changes in equity
for the year ended 31 December 2018
Shares
held
by
Share employee
Share Share compensation benefit Translation Other Retained
capital premium reserve trusts reserve reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ --------- --------- ------------- --------- ------------ --------- --------- -----------
Balance at 1
January
2017 5,111 8,023 226 (108) (3,376) 7,064 15,672 32,612
------------------ --------- --------- ------------- --------- ------------ --------- --------- -----------
Loss for the
period - - - - - - (31,019) (31,019)
Other
comprehensive
income/(expense) - - - - 643 - (29) 614
------------------ --------- --------- ------------- --------- ------------ --------- --------- -----------
Total
comprehensive
income/(expense) - - - - 643 - (31,048) (30,405)
Share based
payments - - (63) - - - - (63)
Lapsed/Vested
shares - - (5) - - - - (5)
Shares
transferred
from ESOP - - - 5 - - - 5
Balance at 31
December
2017 5,111 8,023 158 (103) (2,733) 7,064 (15,376) 2,144
------------------ --------- --------- ------------- --------- ------------ --------- --------- -----------
Loss for the
period - - - - - - (13,730) (13,730)
Other
comprehensive
income/(expense) - - - - 4,589 - (783) 3,806
------------------ --------- --------- ------------- --------- ------------ --------- --------- -----------
Total
comprehensive
income/(expense) - - - - 4,589 - (14,513) (9,924)
Transition to
IFRS
9 - - - - - - (153) (153)
Issue of new
shares 10,054 (1,409) - - - - - 8,645
Share based
payments - - 74 - - - - 74
Balance at 31
December
2018 15,165 6,614 232 (103) 1,856 7,064 (30,042) 786
------------------ --------- --------- ------------- --------- ------------ --------- --------- -----------
Group balance sheet
as at 31 December 2018
2018 2017
GBP'000 GBP'000
---------------------------------------------- --------- ---------
Non-current assets
Intangible assets and goodwill 40 151
Property, plant and equipment 108 358
Other receivables 420 394
Deferred tax assets 86 79
----------------------------------------------- --------- ---------
Total non-current assets 654 982
----------------------------------------------- --------- ---------
Current assets
Trade and other receivables 6,400 4,075
Current tax receivables 164 965
Cash and cash equivalents 17,263 20,979
Total current assets 23,827 26,019
----------------------------------------------- --------- ---------
Total assets 24,481 27,001
----------------------------------------------- --------- ---------
Current liabilities
Trade and other payables (9,548) (11,390)
Current tax liabilities (1,153) (1,391)
Total current liabilities (10,701) (12,781)
----------------------------------------------- --------- ---------
Net current assets 13,126 13,238
----------------------------------------------- --------- ---------
Non-current liabilities
Retirement benefit obligations (9,286) (7,320)
Deferred tax liabilities (4) (24)
Long-term provisions (3,704) (4,732)
----------------------------------------------- --------- ---------
Total non-current liabilities (12,994) (12,076)
----------------------------------------------- --------- ---------
Total liabilities (23,695) (24,857)
----------------------------------------------- --------- ---------
Net assets 786 2,144
----------------------------------------------- --------- ---------
Equity
Share capital 15,165 5,111
Share premium account 6,614 8,023
Share compensation reserve 232 158
Shares held by employee benefit trusts (103) (103)
Translation reserve 1,856 (2,733)
Other reserves 7,064 7,064
Retained earnings (30,042) (15,376)
----------------------------------------------- --------- ---------
Equity attributable to owners of the Company 786 2,144
----------------------------------------------- --------- ---------
Group cash flow statement
for the year ended 31 December 2018
2018 2017
Note GBP'000 GBP'000
---------------------------------------------- ----- --------- ---------
Net cash outflow from operating activities 11 (11,867) (15,014)
---------------------------------------------- ----- --------- ---------
Investing activities
Interest received 89 224
Purchases of property, plant and equipment (4) (108)
Purchases of intangible assets - (15)
Net cost of disposal (804) -
Net cash (used in)/generated from investing
activities (719) 101
---------------------------------------------- ----- --------- ---------
Financing activities
Net proceeds of issue of new shares 8,645 -
Net cash generated from financing activities 8,645 -
---------------------------------------------- ----- --------- ---------
Net decrease in cash and cash equivalents (3,941) (14,913)
Cash and cash equivalents at beginning
of year 20,979 38,067
Effect of foreign exchange rate changes
on cash 225 (2,175)
---------------------------------------------- ----- --------- ---------
Cash and cash equivalents at end of year 11 17,263 20,979
---------------------------------------------- ----- --------- ---------
Cash and cash equivalents comprise cash and short-term bank
deposits with an original maturity of three months or less, net of
outstanding bank overdrafts. The carrying amount of these assets is
approximately equal to their fair value. Cash and cash equivalents
at the end of the reporting period as shown in the consolidated
statement of cash flows can be reconciled to the related items in
the consolidated balance sheet position as shown above.
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 2018 or 2017 but is derived from those accounts. Statutory
accounts for 2017 have been delivered to the Registrar of Companies
and those for 2018 will be delivered following the Company's annual
general meeting. An unqualified report including an emphasis of
matter in respect of going concern was issued on the 2017 financial
statements, and did not contain statements under section 498
Companies Act 2006. A condensed version is attached to this
preliminary announcement.
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 St Paul's House, 4(th) Floor,
10 Warwick Lane, London, EC4M 7BP, United Kingdom and on our
website: www.mcgplc.com.
2. Significant 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 2018). 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 2017 Annual Report which is available on our website:
www.mcgplc.com.
3. Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in the Strategic Report. The Group prepares regular
business forecasts which are reviewed by the Board. Forecasts are
adjusted for sensitivities, which address the principal risks to
which the Group is exposed, and consideration is given to actions
open to management to mitigate the impact of these sensitivities.
The Board used assumptions for 2019 and in particular, the Board
noted that Proudfoot revenues in H2 2018 were 14% higher than in
the corresponding period of 2017 and early indications are for a
continuation of this trend into 2019. For 2020, the Board's base
case assumed that Proudfoot's revenues would continue to rise.
In assessing sensitivities, the Board took into account the
previous slower than expected pace of change at Proudfoot and the
disappointing results in past periods. The Board has, in
particular, considered risks related to revenue and looked at
assumptions both consistent with the recent past and the long-term
changes in revenue, including no growth in revenue and decreasing
revenue in line with historic long-term trends. In addition, we
have considered the risks related to the Kurt Salmon escrow funds
(being an amount of GBP4.2m as of the date of this report) and have
made assumptions on a worst case that these are not resolved during
the period of review. The board has considered mitigating actions,
including reductions in discretionary compensation and reversal of
the investments made in marketing and business development
expenditure that could be taken if any of these scenarios become
likely and these have been reflected in our sensitised
forecasts.
In addition, the Board has taken into consideration, as at the
date of this report, that it is not yet clear whether or when the
UK will leave the European Union ('Brexit'). Despite the continued
uncertainly, the Board has reviewed the impact of the various
potential outcomes of Brexit on the Group, and although the final
outcome is not yet clear, we have considered the impact of labour
mobility, our client base, regulatory issues, taxation, the
potential for more complex administration matters and foreign
exchange implications. In particular the Board have considered the
impact on our future cash flow forecasts for the purposes of
assessing the Group's status as a going concern. Due to the nature
of Proudfoot's business and our group structure and operating
model, based on the information available at the date of approving
these financial statements, the Board believes that the Group will
not be materially impacted by Brexit, irrespective of the form this
takes.
The Group continues to manage the liabilities related to the
disposals made in 2015 and 2016 and, in particular to negotiate the
release of funds held under the escrow arrangements which guarantee
certain contingent liabilities relating to the disposal of parts of
the Kurt Salmon business in 2016.
These assumptions are predicated on Proudfoot continuing to win
and deliver on contracts throughout 2019 and 2020 in line with
board expectations
The Board has concluded that its forecasts, even on a worst case
basis, indicate that the Group has adequate resources to be able to
operate for the foreseeable future. For this reason, the going
concern basis has been adopted in preparing the financial
statements.
4. Alternative performance measures
The Group has adopted a number of alternative performance
measures to provide additional information to understand underlying
trends and the performance of the Group. These alternative
performance measures are not defined by IFRS and therefore may not
be directly comparable to other companies' alternative performance
measures.
Adjusted profit/loss from operations
The Group's operating results are split between adjusted and
non-underlying to better understand the performance of the group
without distortion by items of income and expense that are of
non-underlying in nature. The definition of non-underlying is
referred to below. Adjusted profit/loss is used by management
internally to evaluate performance and to establish and measure
strategic goals. Adjusted profit/loss is arrived at by removing
non-underlying items from operating profit/loss as seen on the face
of the income statement reconciled to gross and operating profit.
Adjusted loss per share is reconciled to loss per share by removing
non-underlying items from operating profit/loss.
Non-underlying
Non-underlying items are those significant charges or credits
which, in the opinion of the directors, should be disclosed
separately by virtue of their size or incidence to enable a full
understanding of the Group's financial performance. Transactions
that may give rise to non-underlying items include charges for
impairment, restructuring costs, employee severance, acquisition
costs and profits/losses on disposals of subsidiaries. The Group
exercises judgement in assessing whether items should be classified
as non-underlying. This assessment covers the nature of the item
and the material impact of that item on reported performance.
Reversals of previous items are assessed based on the same
criteria. Items charged to non- underlying are one off in nature
and typically comprise restructuring, impairments, disposals and
acquisitions. None of these items form part of the ongoing
operational costs of the business.
5. Operating segments
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 the World. The following is an analysis of
financial information by geographic area:
(i) Revenue and adjusted operating loss by geography
Rest of
Americas Europe the World Group
Year ended 31 December 2018 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- --------- --------- ----------- ---------
Revenue - continuing operations 7,101 18,751 2,433 28,285
---------------------------------------- --------- --------- ----------- ---------
Adjusted (Loss)/profit from operations (4,249) 696 (658) (4,211)
Non-underlying expenses (608) (1,409) (139) (2,156)
Loss from operations (4,857) (713) (797) (6,367)
---------------------------------------- --------- --------- ----------- ---------
Investment revenue 89
Finance costs (670)
---------------------------------------- --------- --------- ----------- ---------
Loss before tax (6,948)
---------------------------------------- --------- --------- ----------- ---------
Included in revenues arising from Europe are revenues of
approximately GBP3.7m which arose from sales in 2018 to the Group's
largest customer. In 2017, revenues in Americas reflected GBP3.6m
of revenue which arose from sales to Groups largest customer. In
either year no other single customer contributed to 10% or more to
the Group's revenue in 2018 or 2017.
Rest of
Americas Europe the World Group
GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31 December 2017 restated restated restated restated
---------------------------------------- ---------- ---------- ----------- ----------
Revenue - continuing operations 12,988 14,762 4,964 32,714
---------------------------------------- ---------- ---------- ----------- ----------
Adjusted loss from operations (5,321) (1,580) (575) (7,476)
Non-underlying expenses (1,037) (148) (151) (1,336)
Non-underlying income 664 - - 664
---------------------------------------- ---------- ---------- ----------- ----------
Loss from operations before impairment (5,694) (1,728) (726) (8,148)
---------------------------------------- ---------- ---------- ----------- ----------
Goodwill impairment (16,665)
---------------------------------------- ---------- ---------- ----------- ----------
Loss from operations (24,813)
Investment revenue 224
Finance costs (719)
---------------------------------------- ---------- ---------- ----------- ----------
Loss before tax (25,308)
---------------------------------------- ---------- ---------- ----------- ----------
(ii) Net assets by geography
Rest of
Americas Europe the World Group
At 31 December 2018 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ --------- --------- ----------- ---------
Assets
Intangibles 40 - - 40
Other segment assets 3,353 5,510 105 8,968
------------------------------------ --------- --------- ----------- ---------
Total assets allocated to segments 3,393 5,510 105 9,008
Unallocated corporate assets 15,473
------------------------------------ --------- --------- ----------- ---------
Consolidated total assets 24,481
------------------------------------ --------- --------- ----------- ---------
Liabilities
Segment liabilities (11,194) (6,522) (1,038) (18,754)
Unallocated corporate liabilities (4,941)
------------------------------------ --------- --------- ----------- ---------
Consolidated total liabilities (23,695)
------------------------------------ --------- --------- ----------- ---------
Net assets 786
------------------------------------ --------- --------- ----------- ---------
Rest of
Americas Europe the World Group
GBP'000 GBP'000 GBP'000 GBP'000
At 31 December 2017 restated restated restated restated
------------------------------------ ---------- ---------- ----------- ----------
Assets
Intangibles 151 - - 151
Other segment assets 2,401 3,417 901 6,719
------------------------------------ ---------- ---------- ----------- ----------
Total assets allocated to segments 2,552 3,417 901 6,870
Unallocated corporate assets 20,131
------------------------------------ ---------- ---------- ----------- ----------
Consolidated total assets 27,001
------------------------------------ ---------- ---------- ----------- ----------
Liabilities
Segment liabilities (10,909) (5,692) (2,269) (18,870)
Unallocated corporate liabilities (5,987)
------------------------------------ ---------- ---------- ----------- ----------
Consolidated total liabilities (24,857)
------------------------------------ ---------- ---------- ----------- ----------
Net assets 2,144
------------------------------------ ---------- ---------- ----------- ----------
6. Loss before tax
Loss before tax has been arrived at after charging/(crediting)
the following:
Note 2017
2018 GBP'000
GBP'000 restated
----------------------------------------------- ----- ------------------ ----------
Net foreign exchange losses 58 1,175
Amortisation of intangible assets 114 1,503
Depreciation of property, plant and equipment 126 784
Loss on disposal of fixed assets 117 -
Non-underlying items - impairment 6a - 16,665
Non -underlying expense - other 6a 2,156 1,336
Non-underlying income 6a - (664)
Staff costs 7 20,456 23,557
Auditors remuneration 602 414
----------------------------------------------- ----- ------------------ ----------
A detailed analysis of the auditor's remuneration on a worldwide
basis is provided below:
2018 2017
Auditor's remuneration GBP'000 GBP'000
---------------------------------------------------------- --------- ---------
Fees payable to the Company's auditor for the audit
of the Company's annual accounts 50 47
Fees payable to the Company's auditor and its associates
for the audit of the Company's subsidiaries 182 173
---------------------------------------------------------- --------- ---------
Total audit fees 232 220
---------------------------------------------------------- --------- ---------
Taxation compliance services 71 51
Audit related assurance services 38 30
Taxation advisory services 11 -
Other non-audit services([) *(]) 250 113
---------------------------------------------------------- --------- ---------
Total non-audit fees 370 194
---------------------------------------------------------- --------- ---------
Total auditor's remuneration 602 414
---------------------------------------------------------- --------- ---------
* Other non-audit services in 2018 include a fee of GBP250,000
for reporting accounts work performed in respect of the placing and
open offer. (2017: GBP112,500 for reviewing the projections and
assumptions within the Group's financial models).
A description of the work of the Audit and Risk Committee is set
out in the Report of the Audit and Risk Committee and includes an
explanation of how auditor objectivity and independence are
safeguarded when non-audit services are provided by the
auditor.
6a. Non underlying items
2017
2018 GBP'000
GBP'000 restated
--------------------------------------------------- --------- ----------
Restructuring 1,630 984
Employee provision - 352
Goodwill impairment - 16,665
Defined medical benefit scheme closure (74) (664)
Additional costs relating to prior year disposals 600 -
--------------------------------------------------- --------- ----------
2,156 17,337
--------------------------------------------------- --------- ----------
Items charged to non- underlying are one off in nature and
typically comprise restructuring, impairments, disposals and
acquisitions. None of these items form part of the ongoing
operational costs of the business. The GBP2.2m (2017 restated:
GBP17.3m) of non-underlying expenses comprises GBP0.9m of
restructuring related redundancy costs and employee severance,
GBP0.7m in relation to advisory fees incurred for restructuring,
and GBP0.6m provision relating to additional costs from prior years
disposals. The GBP0.1m credit is in relation to the release of a
provision in relation to the closure of the Proudfoot Defined
Benefit medical Scheme in December 2016
GBP17.3m of non-underlying expenses in 2017 comprise GBP16.7m of
goodwill impairment, GBP0.9m of restructuring-related redundancy
costs and employee severance, GBP0.3m in connection to a provision
charge for a former Proudfoot employee's ongoing contractual
pension payments and GBP0.1m in relation to advisory fees incurred
for restructuring. The GBP0.7m credit is in relation to the release
of a provision in relation to the closure of the Proudfoot Defined
Benefit Medical Scheme in December 2016.
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:
2018 2017
Number re-presented
------------------------- -------- --------------
Sales and marketing 42 38
Consultants 79 107
Support staff 33 46
------------------------- -------- --------------
Continuing activities 154 191
------------------------- -------- --------------
Discontinued operations 19 23
------------------------- -------- --------------
Total 173 214
------------------------- -------- --------------
The number of Group employees at the year-end was 147 being
employed by continuing operations (2017 restated: 191).
The aggregate payroll costs were as follows:
2017
2018 GBP'000
GBP'000 restated
------------------------------- --------- ----------
Wages and salaries 18,063 20,573
Social security costs 1,693 2,163
Other including pension costs 700 821
------------------------------- --------- ----------
20,456 23,557
------------------------------- --------- ----------
The average number of Company employees for the year was 9
(2017: 11). The payroll costs of the Company were GBP1,605,000
(2017: GBP1,565,000) for wages and salaries, GBP140,000 (2017:
GBP189,000) for social security costs and GBP77,000 (2017:
GBP68,000) for pension costs. Disclosures in respect of directors'
emoluments are included in the Directors' Remuneration Report.
8a. Investment revenues
2018 2017
GBP'000 GBP'000
-------------------------------------------------- --------- ---------
Interest receivable on bank deposits and similar
income 89 224
-------------------------------------------------- --------- ---------
8b. Finance costs
2018 2017
GBP'000 GBP'000
------------------------------------------- --------- ---------
Interest payable on bank overdrafts and
loans and similar charges (37) (77)
Finance costs on retirement benefit plans (633) (642)
-------------------------------------------- --------- ---------
(670) (719)
------------------------------------------- --------- ---------
9. Tax
2018 2017
------------------------------------- --------------------------------------
Before
Before non- Non-
non- Non- underlying underlying
Recognised in the income statement: underlying underlying items items Total
Income tax expense on continuing items items Total GBP'000 GBP'000 GBP'000
operations GBP'000 GBP'000 GBP'000 restated restated restated
------------------------------------- ------------ ------------ --------- ------------ ------------ ----------
Current tax
Current year 380 - 380 856 - 856
Adjustment in respect of prior
years (249) - (249) 95 - 95
------------------------------------- ------------ ------------ --------- ------------ ------------ ----------
Current tax expense 131 - 131 951 - 951
------------------------------------- ------------ ------------ --------- ------------ ------------ ----------
Deferred tax
Current year (19) - (19) 3,204 6 3,210
Adjustment in respect of prior
years - - - 189 - 189
------------------------------------- ------------ ------------ --------- ------------ ------------ ----------
Deferred tax (credit)/expense (19) - (19) 3,393 6 3,399
------------------------------------- ------------ ------------ --------- ------------ ------------ ----------
Total income tax
Income tax expense on continuing
activities 112 - 112 4,344 6 4,350
------------------------------------- ------------ ------------ --------- ------------ ------------ ----------
The income tax expense for the year is based on the effective
United Kingdom statutory rate of corporation tax for the period of
19% (2017: 19.25%). Overseas tax is calculated at the rates
prevailing in the respective jurisdictions.
The tax charge for the year can be reconciled to the pre-tax
loss from continuing operations per the income statement as
follows:
2018 2017
------------------------------------- --------------------------------------
Before
Before non- Non-
non- Non- underlying underlying
underlying underlying items items Total
items items Total GBP'000 GBP'000 GBP'000
GBP'000 GBP'000 GBP'000 restated restated restated
---------------------------------- ------------ ------------ --------- ------------ ------------ ----------
Loss before tax from continuing
operations (4,792) (2,156) (6,948) (7,971) (17,337) (25,308)
---------------------------------- ------------ ------------ --------- ------------ ------------ ----------
Notional income tax credit at
the effective UK tax rate of
19.00% (2017: 20.0%) (910) (424) (1,334) (1,534) (3,337) (4,871)
Unrelieved current year tax
losses 1,925 266 2,191 2,688 262 2,950
Irrecoverable withholding tax 153 - 153 231 - 231
Effects of different tax rates
of subsidiaries operating in
other jurisdictions (293) - (293) (71) 1 (70)
Reassessment of deferred tax
recognition policy - - - 3,291 - 3,291
Profits offset by losses not
previously recognised (452) - (452) (746) - (746)
Other temporary differences
not previously recognised (573) - (573) (1,713) - (1,713)
Permanent differences 511 158 669 1,915 3,080 4,995
Relating to prior years (249) - (249) 283 - 283
---------------------------------- ------------ ------------ --------- ------------ ------------ ----------
Income tax expense on continuing
operations 112 - 112 4,344 6 4,350
---------------------------------- ------------ ------------ --------- ------------ ------------ ----------
Effective tax rate for the year (2%) (2%) (54%) (17%)
---------------------------------- ------------ ------------ --------- ------------ ------------ ----------
Permanent differences reflect tax adjustments for intercompany
transactions where taxable income in one territory is not mirrored
by a taxable deduction in the other territory, and other non-tax
deductible items such as client entertaining, fines and penalties,
and costs of a capital nature.
2018 2017
GBP'000 GBP'000
-------------------------------------------------------- --------- ---------
Tax credited to other comprehensive income
Deferred tax credits on actuarial and other movements
on post-employment benefits (6) (3,867)
-------------------------------------------------------- --------- ---------
Tax charged on items recognised in other comprehensive
income (6) (3,867)
-------------------------------------------------------- --------- ---------
10. Earnings per share
The calculation of the basic and diluted earnings per share is
based on the following data:
2018 2017
re-presented
-------------------------------------
All Continuing Discontinued
All Continuing Discontinued GBP'000 GBP'000 GBP'000
Earnings GBP'000 GBP'000 GBP'000 restated restated restated
------------------------------------ --------- ----------- ------------- ---------- ----------- -------------
Loss for the period (13,730) (7,060) (6,670) (31,019) (29,658) (1,361)
Add back: non-underlying items 2,156 2,156 - 1,070 672 398
Add back: non-underlying items
- impairment - - - 16,665 16,665 -
Adjustment for profit on disposals 5,287 - 5,287 - - -
Reduction in tax charge due
to add backs - - - (192) (192) -
------------------------------------ --------- ----------- ------------- ---------- ----------- -------------
Adjusted (loss)/profit for
the period (6,287) (4,904) (1,383) (13,476) (12,513) (963)
------------------------------------ --------- ----------- ------------- ---------- ----------- -------------
2018 2017
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 930 511
Effect of dilutive potential ordinary shares:
Restricted share plan 0 0
------------------------------------------------------------------ --------- ---------
Weighted average number of ordinary shares for the purposes
of diluted earnings per share 930 511
------------------------------------------------------------------ --------- ---------
2018 2017 re-presented
----------------------------------- -----------------------------------
All Continuing Discontinued All Continuing Discontinued
(Loss)/earnings per share Pence Pence Pence Pence Pence Pence
----------------------------------- ------- ----------- ------------- ------- ----------- -------------
Basic (loss)/profit per share
for the year attributable
to the owners of the Company (1.4) (0.7) (0.7) (6.1) (5.8) (0.3)
Diluted (loss)/profit per
share for the year attributable
to the owners of the Company (1.4) (0.7) (0.7) (6.1) (5.8) (0.3)
Basic (loss)/profit per share
- excluding non-underlying
items and amortisation of
acquired intangibles (0.6) (0.5) (0.1) (2.6) (2.4) (0.2)
Diluted (loss)/profit per
share - excluding non-underlying
items and amortisation of
acquired intangibles (0.6) (0.5) (0.1) (2.6) (2.4) (0.2)
----------------------------------- ------- ----------- ------------- ------- ----------- -------------
The average share price for the year ended 31 December 2018 was
3.4p (2017: 7.2p).
The weighted average number of the Company's ordinary shares
used in the calculation of diluted loss per share in 2018 includes
rights over 364,890 ordinary shares (2017: 364,890).
11. Notes to the cash flow statement
Group Company
-------------------- --------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- --------- --------- --------- ---------
Operating loss from continuing
operations (6,367) (25,788) (11,364) (13,228)
Operating loss from discontinued
operations (612) (251) - -
---------------------------------------- --------- --------- --------- ---------
Operating loss (6,979) (26,039) (11,364) (13,228)
Adjustments for:
Depreciation of property, plant
and equipment 126 273 30 105
Amortisation of intangible assets 114 223 - 6
Loss on disposal of fixed assets 117 - 55 -
Adjustment for the cost of share
awards 78 (87) 78 (87)
(Increase)/decrease in provisions (1,078) (2,598) 311 2,561
Goodwill impairment - 16,665 - -
Non-cash Intercompany debt forgiveness - - 8,048 (83,568)
Non-cash dividend - - - (14,669)
Impairment of investments - - - 110,020
Other non-cash items 58 1,045 74 1,148
---------------------------------------- --------- --------- --------- ---------
Operating cash flows before movements
in working capital (7,564) (10,518) (2,768) 2,288
(Increase)/decrease in receivables (2,141) 3,160 28 903
Decrease in payables (1,838) (6,739) (395) (1,832)
---------------------------------------- --------- --------- --------- ---------
Cash used in by operations (11,543) (14,097) (3,135) 1,359
Income taxes paid (287) (840) - -
Interest paid (37) (77) - -
---------------------------------------- --------- --------- --------- ---------
Net cash outflow from operating
activities (11,867) (15,014) (3,135) 1,359
---------------------------------------- --------- --------- --------- ---------
The Group had no financing liabilities arising from cash flow
activities in the year ended 31 December 2018.
Included within the 2018 Group cash balance of GBP17.3m and
Company cash balance of GBP13.1 is GBP4.2m (2017: GBP8.5m) of cash
which is not available for use by the Group. This represents cash
held in restricted bank accounts which is required to be retained
to support indemnity obligations to Wavestone, the acquirer of the
French and related operations of Kurt Salmon and in support of the
Kurt Salmon UK pension scheme, which became the PLC Company's
obligation following the sale of the Kurt Salmon retail and
consumer goods operations.
12. Discontinued operations and disposals
Discontinued operations comprise Brazilian operations and for
2017 discontinued operations also comprised residual transitional
service agreements and obligations including contingent liabilities
of the business that were sold in 2016. Costs relating to prior
year disposals incurred during 2018 have not been reclassed to
discontinued and are recognised in non-underlying expenses within
the Group income statement for continuing operations.
The sale of the Brazilian entity was completed on 23 May 2018
for cash consideration of $80,000. The results of its operations
and the loss on disposal are reported as discontinued operations.
The comparatives for 2017 have been restated on the same basis in
relation to discontinued operations. The disposed entity was
presented in the geographical region of the Americas.
The loss after tax for Brazil for the year up to disposal date
was GBP1.4m (2017 GBP1.1m). The loss on disposal before the effect
of foreign exchange was GBP0.3m. The loss on disposal includes
GBP4.9m of cumulative historic foreign exchange losses which
crystallise on disposal and are therefore transferred from the
translation reserve. The results of the discontinued operations,
which have been included in the consolidated income statement
within the loss from discontinued operations line, were as
follows:
2018 2017
-------------------------------------------- --------------------------------------------
Kurt Kurt
Kurt Salmon Kurt Salmon
Salmon Consumer Salmon Consumer
Brazil France Group Total Brazil France Group Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ---------- --------- ---------- --------- ---------- --------- ---------- ---------
Revenue 446 - - 446 2,389 - - 2,389
Cost of sales (334) - - (334) (1,524) - - (1,524)
------------------------ ---------- --------- ---------- --------- ---------- --------- ---------- ---------
Gross profit 112 - - 112 865 - - 865
Administrative expenses
- underlying (724) - - (724) (1,693) - - (1,693)
------------------------ ---------- --------- ---------- --------- ---------- --------- ---------- ---------
Loss from operations
- adjusted (612) - - (612) (828) - - (828)
Administrative expenses
- non-underlying
other - - - - (147) (1,396) (1,143) (2,686)
Administrative expenses
- non underlying
credit - - - - - - 2,288 2,288
Total administrative
expenses (724) - - (724) (1,840) (1,396) 1,145 (2,091)
------------------------ ---------- --------- ---------- --------- ---------- --------- ---------- ---------
(Loss)/profit from
operations (612) - - (612) (975) (1,396) 1,145 (1,226)
Net finance cost - - - - - - -
------------------------ ---------- --------- ---------- --------- ---------- --------- ---------- ---------
(Loss)/Profit) before
tax (612) - - (612) (975) (1,396) 1,145 (1,226)
Attributable tax
expense (771) - - (771) (135) - - (135)
------------------------ ---------- --------- ---------- --------- ---------- --------- ---------- ---------
(Loss)/profit after
tax (1,383) - - (1,383) (1,110) (1,396) 1,145 (1,361)
Loss on disposal
of discontinued
operations (5,287) - - (5,287) - - - -
------------------------ ---------- --------- ---------- --------- ---------- --------- ---------- ---------
Net (loss)/profit
attributable to
discontinued
operations (6,670) - - (6,670) (1,110) (1,396) 1,145 (1,361)
------------------------ ---------- --------- ---------- --------- ---------- --------- ---------- ---------
In 2017, the French and related operations of Kurt Salmon
non-underlying expenses relate to a provision for future employee
related litigation claims arising post sale of this business to
Wavestone. The Kurt Salmon Consumer Group net non-underlying credit
relates to a release of surplus TSA onerous space and contract
provisions following the sublet of the legacy San Francisco office
(GBP2.3m) and charges relating to provision for tax claims arising
from the sale of the business to Accenture of net GBP0.3m and
GBP0.8m of provision relating to the continued administration of
the legacy Kurt Salmon UK defined benefit pension scheme.
Disposal of Subsidiary
The net assets of Proudfoot Brazil at the date of disposal were
as follows:
2018
GBP'000
----------------------------- --------
Property plant and equipment 7
Trade and other receivables 76
Cash 573
-------------------------------- --------
Total assets disposed 656
-------------------------------- --------
Trade and other payables (889)
Current tax liabilities (146)
-------------------------------- --------
Total liabilities disposed (1,035)
-------------------------------- --------
Net liabilities disposed (379)
Disposal expenses - net 735
FX on disposal 4,931
-------------------------------- --------
Loss on disposal 5,287
-------------------------------- --------
INDEPENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF MANAGEMENT
CONSULTING GROUP PLC ON THE PRELIMINARY ANNOUNCEMENT OF MANAGEMENT
CONSULTING GROUP PLC
As the independent auditor of Management Consulting Group Plc,
we are required by UK Listing Rule LR 9.7A.1(2)R to agree to the
publication of Management Consulting Group Plc's preliminary
announcement statement of annual results for the period ended 31
December 2018.
The preliminary statement of annual results for the period ended
31 December 2018 includes summary financial statements, related
disclosures required by the Listing Rules, Chairman's Statement,
and financial and operational overview. We are not required to
agree to the publication of the trading statement and overview from
management.
The directors of Management Consulting Group Plc are responsible
for the preparation, presentation and publication of the
preliminary statement of annual results in accordance with the UK
Listing Rules.
We are responsible for agreeing to the publication of the
preliminary statement of annual results, having regard to the
Financial Reporting Council's Bulletin "The Auditor's Association
with Preliminary Announcements made in accordance with UK Listing
Rules".
Status of our audit of the financial statements
Our audit of the annual financial statements of Management
Consulting Group Plc is complete and we signed our auditor's report
on 14 March 2019. Our auditor's report is not modified and contains
no emphasis of matter paragraph.
Our audit report on the full financial statements sets out the
following key audit matters which had the greatest effect on our
overall audit strategy; the allocation of resources in our audit;
and directing the efforts of the engagement team, together with how
our audit responded to those key audit matters and the key
observations arising from our work:
Going Concern
Key Audit Matter Description
Management is required to assess the ability of the Group to
continue as a going concern for the foreseeable future. Management
is also required to provide information to stakeholders about the
economic and financial viability of the Group and to help
demonstrate the directors' stewardship and governance of the
company in that respect. At the time that the 2017 Financial
Statements were issued, management's forecasts for the business
contained a number of assumptions upon which there were material
uncertainties which cast significant doubt about the entity's
ability to continue as a going concern.
At 31 December 2018, the Group had shown improved results with
an increase in activity and revenue at the end of 2018 and evidence
of continued growth in the early part of 2019. During the course of
2018 the Group also raised GBP8.6 million (net of issue costs) from
the issue of new shares in July 2018. At 31 December 2018 the Group
had GBP17.3m of cash, including GBP4.2m of restricted cash. Net
cash outflows from operating activities in 2018 was GBP12.0m.
Under management's 'base case' forecast, refer to Note 2 in the
annual report (Note 3 in the Preliminary Announcement), and under
management's sensitised forecast, revenue was forecast to grow.
Under both scenarios, the Group has sufficient headroom up to
December 2020.
How the scope of our audit responded to the key audit matter
We have reviewed and challenged the key assumptions made by
management in the cash flow forecasts, particularly in respect of
revenue growth, which we considered to be optimistic and
necessitating further downward sensitivity.
The procedures performed included:
-- Challenging the Board's approved forecasts and obtained
sensitised versions of that forecast which include a number of
reasonably possible down-side scenarios. Those down-side scenarios
do not cover every conceivable eventuality and assume a level of
stabilisation of the business compared with historic
performance;
-- Review of the documentation in connection with the release of
the escrow funds and the letter of intent in connection with the
fund raising;
-- Assessing the design and implementation of controls around
management's forecasting processes;
-- Considering the arithmetic accuracy of and key principles
underlying the forecasts presented to the Board;
-- Considering and evaluating the key assumptions within
management's forecasts, with particular focus on assessment of
forecasts against historical forecasting accuracy as well as the
potential impact of the uncertainty created by Brexit on the
forecasted revenue.
While we noted the evidence of improved performances in Quarter
4 2018 and Quarter 1, to date, 2019, we also considered that the
reversal in revenue decline was only recent and therefore may not
necessarily be indicative of a longer term trend. The longer term
average revenue decline over the previous four years (excluding
disposed operation) averaged 13.5%. Given this historical trend we
performed additional sensitivities, modelling scenarios in
which:
-- revenue remains flat in 2019 and 2020; and
-- revenue continues to decline at the long term average of 13.5% per annum.
In both cases, we considered reasonable mitigating actions
management could undertake, including:
-- reduction in sales related headcount; and
-- reduction in discretionary marketing spend, bonuses and other costs.
Key Observations
Under both the additional sensitivity scenarios, the Group's
forecast unrestricted cash remains positive throughout the
period.
We are therefore satisfied that directors' use of the going
concern assumption is appropriate.
Revenue recognition and the adoption of IFRS 15
Key audit matter description
We consider the risk specifically relates to the cut-off and
valuation of revenue manifesting as the valuation of contract
assets (previously accrued income) and contract liabilities
(previously deferred income) on ongoing projects at year end.
Please refer to the Audit and Risk committee's assessment on this
matter in the annual report and Note 2 of the Annual Report for the
accounting policies relating to revenue recognition. Due to the
high level of judgement involved, we consider this to be the
presumed fraud risk relating to revenue as required by
International Standards on Auditing.
Revenue recognised relating to ongoing projects as at 31
December 2018 amounted to GBP3.4 million (2017: GBP8.3 million) out
of the total contract value of those ongoing projects of GBP4.9
million (2017: GBP12.3 million). Contract assets at 31 December are
GBP0.4 million (2017: GBP0.0 million) and contract liabilities are
GBP0.2 million (2017: GBP0.8 million), whilst total revenue for the
year amounted to GBP28.3 million (GBP32.7 million). Recognition of
revenue based on stage of completion of ongoing projects requires
management judgement and is susceptible to error or
manipulation.
We also note the introduction of IFRS 15 for 2018, which in
management's view does not have a material impact on the Group.
This was identified as an area of audit focus as opposed to a
significant risk.
How the scope of our audit responded to the key audit matter
We performed procedures to evaluate the design and
implementation of the internal controls operating over the revenue
business cycles. We noted that there were limited segregation of
duties in the finance over postings to revenue. We therefore did
not take a controls reliance approach and performed a fully
substantive audit over revenue.
We performed specific substantive procedures on a sample of open
and closed contracts at year-end to evaluate whether that revenue
had been correctly recognised according to the stage of completion,
and that the calculated stage of completion was accurate.
We have also reviewed management's conclusions on IFRS 15,
including the consideration of the 'Five step model' in respect of
contracts under the group's normal terms of business together with
identified 'non-standard' contracts, and assess whether with
management's conclusion that this does not have a material impact
on the Group.
Key observations
We conclude that the cut off and valuation of revenue recognised
in the current year is appropriate and not materially misstated. We
also concur with management that IFRS 15 does not have a material
impact on the recognition of revenue.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we did not provide a separate opinion on these
matters.
Procedures performed to agree to the preliminary announcement of
annual results
In order to agree to the publication of the preliminary
announcement of annual results of Management Consulting Group Plc
we carried out the following procedures:
(a) checked that the figures in the preliminary announcement
covering the full year have been accurately extracted from the
audited or draft financial statements and reflect the presentation
to be adopted in the audited financial statements;
(b) considered whether the information (including the management
commentary) is consistent with other expected contents of the
annual report;
(c) considered whether the financial information in the
preliminary announcement is misstated;
(d) considered whether the preliminary announcement includes a
statement by directors as required by section 435 of CA 2006 and
whether the preliminary announcement includes the minimum
information required by UKLA Listing Rule 9.7A.1;
(e) where the preliminary announcement includes alternative
performance measures ("APMs"), considered whether appropriate
prominence is given to statutory financial information and
whether:
-- the use, relevance and reliability of APMs has been explained;
-- the APMs used have been clearly defined, and have been given
meaningful labels reflecting their content and basis of
calculation;
-- the APMs have been reconciled to the most directly
reconcilable line item, subtotal or total presented in the
financial statements of the corresponding period; and
-- comparatives have been included, and where the basis of
calculation has changed over time this is explained.
(f) read the management commentary, any other narrative
disclosures and any final interim period figures and considered
whether they are fair, balanced and understandable.
Use of our report
Our liability for this report, and for our full audit report on
the financial statements is to the company's members as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's 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 and the company's members as a body,
for our audit work, for our audit report or this report, or for the
opinions we have formed.
Peter Saunders (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
14 March 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GGUQWWUPBPWC
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