Management Consulting : Half-year results

20 September 2019

Management Consulting Group PLC

Interim Results

Management Consulting Group PLC ("MCG" or the "Group"), the global professional services group, today announces its results for the half-year ended 30 June 2019.

Key points

• Encouraging progress on the transformation strategy to return the business to growth and profitability over the medium term.
• Reported revenues of £17.3m - up 25% year-on-year (H1 2018 : £13.8m).
• Underlying** operating loss of £2.1m - an improvement on H1 2018. (H1 2018 : loss £2.8m).
• Retained loss for the half-year of £2.6m (H1 2018 restated*: £10.8).
• Loss from continuing operations for the half-year of £2.6m (H1 2018 restated*: £4.6m).
• Strategic investments in partnerships and private equity have delivered some first contract wins in the period.

Nick Stagg, Chief Executive, commented:

"Revenues for the first half of 2019 are well ahead of the same period in 2018 and also the second half of 2018. This, and a significantly increased level of contract wins in the period, are encouraging and demonstrate the strategic investments to be delivering the anticipated upsides. We have substantially cut costs in the last 18 months and have re-invested part of the savings in new resources at Proudfoot. Although the business is still trading at a loss, we are confident that the strength of the Proudfoot brand as a transformation leader across attractive verticals will deliver further operational and financial improvements".

For further information please contact:

Nick Stagg

Chairman and Chief Executive

020 7710 5000

* refer to note 2

** refer to note 2 for definition

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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 Regulations

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 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 at the date of this announcement.

The forward looking information included in the 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.

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Chairman and Chief Executive's Statement

The continued investment in Proudfoot's transformation strategy remained the focus for the first six months of 2019. The leadership team completed the recruitment of the United States business development and sales teams, and good progress has been made on the transformation in the first six months of the year, resulting in growing revenues year-on-year. In particular, our strategic investments in technology partnerships; our private equity practice; and building the Proudfoot brand within our target sectors are delivering the anticipated upsides and demonstrate the potential of our offering. The significant cost savings made over the last 18 months have been partially re-invested in the transformation plan.

The Group cash position of £14.4m as at 30 June 2019 compares to £17.3m as at FY2018, which includes £4.1m of cash retained to support certain contingent creditors of the Group (FY2018: £4.2m).

Overall, the results of the first half of the year show encouraging progress on the transformation strategy to return the business to growth and profitability over the medium term.

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Proudfoot

In the first half of 2019 the Group reported revenues of £17.3m - up 25% year-on-year. Additionally, the Group won signed orders and contracts during the period of £17.0m, compared to £11.4m in the corresponding period last year, an increase of 49%. Natural Resources, particularly in the EMEA regions, along with European Industrials, continue to provide the foundation for revenues in Proudfoot. The introduction of Maintenance & Repair Operations ("MRO") in the US, as per the firm's 2018-2020 strategy, has developed from start-up to now generating revenues in the period, demonstrating the Proudfoot brand's ability to extend into new verticals and providing revenue diversification.

There has been a continuing focus on investment in talent during the period and the transformation of the Proudfoot team globally, across leadership, sales and marketing, delivery and support functions.

Proudfoot's other 2019 strategic investments included:

• Identifying partnership opportunities with technology firms
• Developing the Private Equity practice; and
• Building the Proudfoot brand within target sectors

The recent client win of a major Digital Transformation programme in partnership with one of the world's largest technology providers, provides strong support for the partnership approach and this is being replicated via various other technology partnerships now in place globally. Similarly, there have been some first wins with private equity backed firms providing evidence of the success of this strategy. Proudfoot's positioning with The Future of Mining brand and focus on delivery of 'hard results through soft power' through our 'The Future of Business is (still) People' campaign, has also opened up new revenue sources.

Whilst these strategic initiatives have negatively impacted profit in H1 2019, the investment underpins Proudfoot's medium term strategy to be the transformation leader achieving measurable results through people. The increased revenue and booked business in the period reinforces the Board's positive outlook for the Proudfoot business and the infrastructure now in place is expected to deliver further growth and an improved financial performance.

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Group Financial Review

The commentary below on the results to 30 June 2019 reflects the Proudfoot business, with the 2018 comparative numbers being restated for the change in treatment of cash following adoption of IFRS 9 in 2018.

Proudfoot's reported revenue for the first half of 2019 was £17.3m, 25% higher than the same period in 2018 (H1 2018: £13.8m) and 19% higher than the preceding six months (H2 2018: £14.5m). The Group reported an underlying operating loss of £2.1m in the first half of 2019 compared with restated losses of £2.8 for the first half of 2018 and £1.4m for the second half of 2018.

Proudfoot operates as a single business and it generates revenues and deploys resources globally. Revenues in North America reflected the ongoing turnaround strategy with new management changes implemented. First half revenues grew to £6.2m (H1 2018: £4.2m). Europe also grew its revenue to £10.3m for the period compared with £8.0m in the corresponding period in 2018. Asia and Africa revenues decreased from £1.7m in H1 2018 to £0.8m in H1 2019 reflecting a lack of Natural Resource work in Africa and uneven workflows in our relatively small Asia business.

Global headcount was 164 at 30 June 2019, up from 154 at 31 December 2018, reflecting the recruitment of additional business development staff.

Underlying operating loss from continuing operations

The underlying operating loss of £2.1m for the period was £0.7m lower than H1 2018 (H1 2018: £2.8m) and £0.7m

higher compared to the previous 6 months (H2 2018: £1.4m). This reflects the cost saving initiatives that were completed in 2018, reflected in the reducing half on half losses in 2018. This is offset partially by investment in the first half of the current year in expanding the business development and sales teams in Proudfoot.

The £0.1m credit (H1 2018 restated: charge £1.7m) of non-underlying expense relates to a release of severance accruals offset with a small severance charge for restructuring in the period.

There were no discontinued operations in H1 2019.

Interest

The net interest expense was £0.4m (H1 2018: £0.3m). In accordance with IAS 19, the reported net interest charge

for H1 2019 includes an imputed charge in relation to defined benefit pensions of £0.4m (H1 2018: £0.3m).

Taxation

The tax charge on operations was £0.2m (H1 2018: tax credit £0.1m). The tax charge for the half year reflects project specific withholding taxes and the tax charges in taxable non-UK jurisdictions where there are no losses available to mitigate the charges (£0.2m) offset by adjustments to prior year balances (£0.0m).

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