TIDMMMC
RNS Number : 5436G
Management Consulting Group PLC
23 November 2015
23 November 2015
Management Consulting Group PLC ("MCG or "the Company")
Proposed disposal of certain operations of Kurt Salmon and
trading update
Highlights
-- MCG is in advanced discussions for the sale of certain
operations of Kurt Salmon, in France and other geographies, to
Solucom SA ("Solucom")
-- Following completion of a mandatory consultation with the
respective Works Councils of MCG and Solucom, the parties expect to
finalise negotiations and thereafter enter into a binding
agreement
-- The proposed disposal is expected to realise gross cash
proceeds of approximately GBP60 million, enabling the Group to
repay existing indebtedness
-- The proposed disposal represents an attractive value for
shareholders, the proposed gross consideration representing
approximately 80% of the Group's current market capitalisation
-- The transaction will rebalance the Group's portfolio in
geographic terms, reducing exposure to the French market and
refocusing MCG on growth opportunities in North America and
Asia
-- The remaining Kurt Salmon business will benefit from tight
focus on the retail and consumer goods industry vertical where it
is a market leader, together with the US healthcare business
-- The Disposal will not be earnings accretive
-- Accounting for the IFRS loss on sale will have a significant
negative impact on the Company's distributable reserves and
consequently, if the disposal proceeds, the Company will not be in
a position to pay the interim dividend of 0.23 pence per share
which was announced on 31 July 2015
-- MCG today also announces a trading update, reporting
deterioration in the outlook for Alexander Proudfoot for 2015 and
continuing positive progress in Kurt Salmon.
MCG today announces that it is in advanced discussions with
Solucom for the sale of certain operations of Kurt Salmon (the
"Target Business"), comprising the Kurt Salmon businesses in
France, Belgium, Luxembourg, Switzerland and Morocco, together with
certain related operations in the United States, to Solucom, for a
total proposed cash consideration of approximately EUR84 million
(equivalent to approximately GBP60 million) payable on completion
of the sale (the "Disposal").
The Kurt Salmon business retained by MCG will continue to serve
international retail and consumer goods clients on a global basis,
including through the established Kurt Salmon businesses in Germany
and the United Kingdom which are not part of the Target Business
subject to the proposed Disposal, alongside the operations in North
America and Asia. MCG will also retain the Kurt Salmon healthcare
practice based in the US.
As required under French law, a mandatory consultation is in
progress with the respective Works Councils of Kurt Salmon and
Solucom in relation to the Disposal (the "Works Council
Consultations"). Following completion of the Works Council
Consultations MCG and Solucom expect to finalise negotiations and
thereafter enter into a binding agreement. A further announcement
will be made in respect to this process in due course.
The Disposal, if entered into, is of sufficient size relative to
the Group to constitute a Class 1 transaction for MCG under the
Listing Rules and will therefore be conditional upon, amongst other
things, the passing of a resolution (the "Disposal Resolution")
approving the Disposal by Shareholders at a general meeting (the
"General Meeting"). The Disposal would also be conditional
upon:
(i) there having been no material adverse change in relation to
staff retention rates and current year forecast operating results
of the Target Business from the date of entering into definitive
agreements in relation to the Disposal; and
(ii) the French Anti-trust Authority (Autorité de la
Concurrence) approving the Disposal.
MCG will use the expected net proceeds of approximately EUR82
million (equivalent to approximately GBP58.5 million, after
estimated transaction costs of GBP1.5 million), to repay the
Group's net bank indebtedness under the Company's Revolving
Facility, which is expected to be approximately GBP50 million at
Completion, and will retain the remaining net proceeds for general
corporate purposes.
The purchase price is based on an agreed enterprise value for
the Target Business of EUR98.5 million. The proposed gross cash
proceeds of approximately EUR84 million (equivalent to
approximately GBP60 million), (which will be subject to
post-closing adjustments relating to amounts of debt, other debt
like items, the appropriate level of existing provisions, cash and
working capital at completion of the Disposal) represent
approximately 80% of the Group's market capitalisation. By
comparison, the revenue and profit before tax of the Target
Business for the year ended 31 December 2014 represented
approximately 40% of the Group's revenue and 38% of the Group's
profit before tax for that year. The Target Business had total
assets of GBP25.9 million (Group: GBP334.8 million) as at 30 June
2015 (unaudited) and generated profit before tax of GBP1.9 million
for the year ended 31 December 2014.
The Disposal is expected to generate a one-off IFRS loss on sale
of approximately GBP50 million, principally as a result of the
write-off of goodwill held in the consolidated balance sheet of the
Group which is allocated to the Target Business. The accounting
impact of this IFRS loss will have a significant negative impact on
the Company's distributable reserves and consequently, if the
disposal proceeds, the Company will not be in a position to pay the
interim dividend of 0.23 pence per share, which was announced on 31
July 2015 and was expected to be paid on 6 January 2016. The
Company will review the position after completion of the Disposal
and it is likely that it will, as soon as reasonably practicable,
seek to implement a reconstruction of reserves to enable dividend
payments to be resumed. The Board will consider future dividends
once this process is complete.
Trading update
The Board issued a trading update with its Interim Results
statement on 31 July 2015, noting that Alexander Proudfoot was
likely to deliver weaker third quarter revenues and that the
outcome for the year as a whole for that business remained
uncertain and would depend on the rate of order input in the coming
months. Alexander Proudfoot's performance in the third quarter, as
expected, was disappointing, including in the North American
operations which had performed well in the first half. The order
intake in the last four months has been weak and the Board does not
now expect a significant improvement in performance over the rest
of 2015. It is clear that reduced demand from natural resources'
clients has contributed to this weakness, with revenues from this
sector so far this year being approximately 40% lower than the same
time last year. Action is being taken to accelerate change in the
underperforming operations, in Europe and Africa in particular,
which will involve some restructuring initiatives. However, the
outlook for Alexander Proudfoot for 2015 as a whole has
deteriorated from the position set out in the Interim Results
statement and the Board currently expects that Alexander Proudfoot
will deliver second half revenues in 2015 which are significantly
lower than those in the first half of the year, and an operating
loss for the year as a whole.
In the Interim Statement the Group reported net indebtedness of
GBP41.7 million at 30 June 2015. As a result of result of weakness
in Alexander Proudfoot the level of net indebtedness is currently
higher than the half year position.
As noted in the Interim Statement, Kurt Salmon's North American
business, focused on the US retail and consumer goods practice,
reported slightly lower year on year revenues and operating profit
margins in the first half, and this continued into the third
quarter. Nevertheless we continue to see healthy demand from US
retail sector clients and the Board expects that the broadly
positive underlying trends in the Kurt Salmon business will
continue to apply over the remainder of the financial year and into
2016. In the other geographies which form part of the Kurt Salmon
business that will retained by MCG, the retail and consumer goods
and healthcare practices have performed in line with
expectations.
In relation to the Target Business, Kurt Salmon delivered an
improved performance in its French business in the first half of
2015 and this positive trend has continued. The signs of improved
confidence in the French market that were evident in the first half
have continued to drive demand for Kurt Salmon's consulting
services and we expect this positive momentum to continue during
the remainder of 2015 and into 2016. In the other geographies which
form the rest of the Target Business, performance has been in line
with our expectations.
Alan Barber, Chairman of MCG, commented:
"The proposed disposal will significantly reduce Group
indebtedness and create a business with a more balanced portfolio
in geographic terms, focused on growth markets. The recent
performance of Alexander Proudfoot has been disappointing, but the
proposed disposal will enable the Group to continue to build a firm
growth platform to support its recovery. The retained Kurt Salmon
business will benefit from a tight focus on two industry verticals
where the business has a strong position. We believe that the
proposed transaction is firmly in shareholders' interests and will
position MCG to concentrate its effort and resources on the
businesses which are being retained."
Enquiries:
For further information please contact:
MCG Tel: +44 20 7710 5000
Nick Stagg, Chief Executive
Chris Povey, Group Finance Director
FTI Consulting Tel: +44 20 3727 1000
Ben Atwell
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