Management Consulting Group Consulting Group Management Management Consulting Group PLC Annual report and accounts 2013 PLC Annual report and accounts 2013 Management Consulting Group plc provides management expertise, guidance and professional services to many of the world’s leading companies. MCG operates through two independently managed practices, Alexander Proudfoot and Kurt Salmon, which are leaders in their fields and operate globally. Alexander Proudfoot Kurt Salmon Alexander Proudfoot helps clients to better Kurt Salmon is a management consultancy execute their plans and strategies by business that partners with its clients to improving management effectiveness and drive strategies and solutions that make a embedding sustainable change, delivering lasting and meaningful impact, working from substantial improvements in operational its deep knowledge in industry verticals and performance and increased profitability. its functional expertise. Read more about Read more about Alexander Proudfoot Kurt Salmon P12 P08 “ Whilst the Group’s results for 2013 do not match those in the previous year, the second half performance was significantly better than the first half. We remain focused on improving the performance of Alexander Proudfoot and will invest in this business in 2014 to improve its longer term performance. Kurt Salmon has had a good start to the year, and we expect to see some underlying revenue growth and a continued slight improvement in operating margins in 2014. Overall, we remain focused on leveraging our core expertise and market-leading positions to deliver improved results.” Nick Stagg, Chief Executive Management Consulting Group PLC 01 Overview Our year in brief Contents Strategic report — Revenues of £257.3m (2012: £285.8m), approximately Overview 10% lower 01 / Our year in brief 02 / Chairman’s statement Strategic report — Underlying* operating profit of £21.2m (2012: £25.7m), with underlying operating profit margin slightly lower 04 / MCG: How we operate Governance at 8.2% (2012: 9.0%) 06 / Chief Executive’s review 08 / What’s driving change? Kurt Salmon 10 / Segmental review: Kurt Salmon — Profit from operations of £17.5m, down 4% (2012: £18.2m) 12 / What’s driving change? Alexander Proudfoot with improved margin on profit from operations – up at 14 / Segmental review: Alexander Proudfoot 6.8% (2012: 6.4%). Retained profit for the year of £9.1m 16 / Corporate social responsibility: Our people 17 / CSR: Our impact (2012: £10.4m restated) 19 / Financial review 23 / Principal risks and uncertainties Financials — Strong cash generation in the second half of the year Governance resulting in closing net debt of £39.8m (2012: £30.3m), 25 / Chairman’s introduction approximately 1.5x adjusted EBITDA** 26 / Board of Directors 28 / Corporate governance report 31 / Other disclosures — Underlying* EPS of 2.4p (2012: 3.2p restated); 32 / Report of the Audit and Risk Committee basic EPS 1.9p (2012: 2.1p restated) 35 / The Nominations Committee 36 / Report of the Remuneration Committee — Proposed final dividend of 0.595p per share. 53 / Directors’ responsibility statement Total dividend unchanged at 0.825p per share 54 / Independent auditor’s report (2012: 0.825p per share) Financials 58 / Group income statement * Throughout this statement the term “underlying” is defined as “before non-recurring items and amortisation 58 / Group statement of comprehensive income of acquired intangibles”. 59 / Group statement of changes in equity ** Adjusted EBITDA is adjusted operating profit, after adding back depreciation and amortisation and certain 60 / Group balance sheet other non-cash items including the cost of share awards. 61 / Group cash flow statement *** Results for 2012 have been restated for the impact of the amendment to IAS 19 Employee Benefits, which is 62 / Company balance sheet described further in note 2. 63 / Company statement of changes in equity 64 / Company cash flow statement 65 / Notes to the financial statements 104 / Contacts for investors and clients 105 / Company advisers Revenue (£m) Profit from operations (£m) 257.3 17.5 Chairman’s statement with Alan Barber 13 257.3 13 17.5 12 285.8 12 18.2 P 11 302.6 11 25.5 02 10 270.4 10 18.0 09 276.5 09 9.6 Chief Executive’s review with Nick Stagg Underlying operating profit (£m) Net debt (£m) P06 21.2 39.8 13 21.2 13 39.8 Financial review 12 25.7 12 30.3 with Chris Povey 11 28.3 11 28.2 10 23.3 10 54.4 P19 09 28.0 09 83.5 Annual report and accounts 2013 www.mcgplc.com 02 Management Consulting Group PLC Chairman’s statement with Alan Barber Highlights — Alexander Proudfoot’s revenues recovered strongly in the second half — Kurt Salmon’s underlying operating profit margin improved — The Group remains in a strong financial position — The Board is proposing to maintain the dividend at 0.825p per share Alan Barber, Chairman “ The performance of the Group’s businesses in 2013 was adversely affected by a poor first half in Alexander Proudfoot and the continued impact of market weakness on the Kurt Salmon operations in France. We saw a much improved performance overall in the second half of the year, which has provided a more encouraging start to 2014.” The performance of the Group’s businesses in 2013 was adversely As announced on 5 March, Luiz Carvalho has stepped down as CEO affected by a poor first half in Alexander Proudfoot and the continued of Alexander Proudfoot and as a director of MCG. I would like to impact of market weakness on the Kurt Salmon operations in France. thank Luiz for his valuable contribution as CEO of Alexander Proudfoot We saw a much improved performance overall in the second half and as a director of MCG over many years. Nick Stagg will now of the year, which has provided a more encouraging start to 2014. take on the role of CEO of Alexander Proudfoot on an interim basis in addition to his Group CEO role. Whilst Nick is fulfilling the In Kurt Salmon we have worked hard to protect our margins and Alexander Proudfoot role I will increase my day to day involvement profitability to mitigate the effects of market weakness in France, with the Group, supporting Nick and the executive management where Kurt Salmon has its largest and most broadly based practice. team. It remains my intention, as announced on 13 December 2013, Our French business remains a market leader and is well positioned to step down as Chairman of MCG at the end of 2014. to benefit as conditions in the country improve. In other European markets, in North America and in Asia, Kurt Salmon has continued The Group remains in a strong financial position and our net to make progress. I am pleased that we improved our margin in indebtedness at the end of 2013 of £39.8m was approximately Kurt Salmon despite lower revenues, a reflection of the actions 1.5 times adjusted EBITDA. We will continue to focus on promoting taken in the last two years to focus on the profitability of our core profitable growth in the business to benefit our shareholders. practices, as well as the market strength of the Kurt Salmon brand, The Board is proposing to maintain the dividend for the full year the quality of our offering to clients, and the capabilities and dedication at 0.825 pence per share. of our people. Although it is still early, the first weeks of the new Kurt Salmon and Alexander Proudfoot deliver work of the highest quality financial year have shown promise across the Kurt Salmon business. to their clients. We continue to work to develop our businesses After a weak first half, Alexander Proudfoot’s revenues recovered through investment and recruitment in those sectors and geographies strongly in the second half, up more than 40% on the previous six where there are good prospects for profitable growth. months, but the results for the year as a whole did not match those If we continue to maintain and grow our client base, whilst reported in 2012. Alexander Proudfoot has had a weak start to 2014, sustaining and improving the quality of our offering, we will deliver and although the pipeline of prospects is encouraging, and taking value to our shareholders and provide satisfying opportunities for into account currency headwinds, we have a cautious view on the our people. outlook for the business at this stage of the year. The volatility seen in Alexander Proudfoot over the course of 2013 has been a feature in previous years, and will remain an issue for the business whilst it is based on the sale and delivery of a relatively small number of discrete large scale projects in any given year. Proudfoot has Alan Barber a unique and compelling offering and the Board has concluded Chairman that development and investment are now required to provide it 6 March 2014 with a firm platform for profitable growth in the future. We expect these initiatives to have some negative impact on the profitability of the Alexander Proudfoot business during 2014, but over time they should help to build a more stable and predictable revenue base and drive top-line growth. www.mcgplc.com Annual report and accounts 2013 Management Consulting Group PLC 03 Overview Strategic report Strategic report Kurt Salmon and Alexander Proudfoot deliver work of the highest quality to their clients. If we continue to maintain and Governance grow our client base, whilst sustaining and improving the quality of our offering, we will deliver value to our shareholders and provide satisfying opportunities for our people. Financials Featured in the strategic report: We will exploit the platform 04 / MCG: How we operate provided by our existing