REG - NCC Group PLC - Unaudited interim results - period ended 30/11/23
25/01/2024 07:00
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RNS Number : 8340A NCC Group PLC 25 January 2024
25 January
2024
NCC Group plc
Unaudited interim results for the period ended 30 November 2023
First half numbers in line with expectations and strategy transforming the
business at pace
NCC Group plc (LSE: NCC, "NCC Group" or "the Group"), a people-powered,
tech-enabled global cyber security and software escrow business, reports its
interim results for the six months to 30 November 2023 ("the half year", "HY",
"H1 2024", "the period").
Highlights
Overall performance in line
· H1 2024 traded in line with management's revenue, gross margin
and profitability expectations
· Adjusted Operating profit (1) amounted to £4.8m (H1 2023
restated (3): £12.9m) under new adjusted operating profit (1) measure.
Based on previous measure this would equate to £10.2m (H1 2023: £20.5m), as
expected
Cyber Security stabilised, Managed Services continued growth and gross margin
trajectory
· Technical Assurance Services (TAS) has stabilised as demonstrated
by H1 2024 revenue only declining by -4.7% as compared to the revenue
generated in H2 2023. As expected, TAS Revenue YoY on a constant currency
basis (1) has declined by -28.6% (-31.7% actual rates) following the
annualisation effect of challenges experienced in Q3 FY23
· Managed Services (MS) revenue has continued to grow strongly as
expected on a constant currency basis (1) by +17.3% (actual rates +15.4%)
· Consulting and Implementation (C&I) remains in line with the
prior period and an experienced leader has now been recruited for this
capability
· Digital Forensics and Incident Response (DFIR) experienced
constant currency growth of +32.8% (actual rates +32.8%), reflecting the
number of incident responses of Ransomware
· Following actions taken in Q1 2024 to address gross margin, TAS
utilisation has improved in Q2 2024 to c.76% as compared to c.60% Q1 FY24 and
Q4 FY23, contributing to an improvement in H1 2024 Cyber Security gross margin
percentage of +0.7% pts as compared to H2 2023
Escode revenue and profit continuing to grow
· Escode - the Group's software escrow business, delivered another
two consecutive quarters of year-on-year, with constant currency revenue YoY
growth (1) of +6.2% driven by increased verification revenues and contracted
price increases; this acceleration was aided by Q1 2023 comparator
· Client retention rate remains stable YoY at c.93% and consistent
with long term trends
Strategic progress and cost efficiencies realised
· The Group continues to attract top talent across the Group,
including in our new Manila office where we currently have 60 revenue
generating colleagues
· Delivery of £5m Group cost efficiencies within gross margin and
overheads for FY24 highlighted in September 2023
Confident outlook and current trading remains in line with expectations
· Whilst TAS, the largest part of our Cyber business, has less
forward visibility than other parts of our business due to the nature of the
service, our Q2 2024 revenue exit rate gives us confidence in H2 2024. This
will be supported by continued strong revenue growth in our Managed Services
capability
· We are confident in delivering low single digit revenue growth in
Escode in the second half as we continue to benefit from verification and
pricing opportunities and the Board has decided not to restart the strategic
review of Escode at this juncture
· The strategic actions including cost base efficiencies within
gross margin and overheads have been successfully implemented and the
performance in H1 2024 mean we are well placed to deliver on our full year
expectations
· The Group remains confident in our ability to achieve our
medium-term financial goals
Mike Maddison, Chief Executive Officer, commented:
"The Group delivered a first-half financial performance in line with
expectations while continuing to transform the business at pace. We are
emerging as a stronger, more resilient organisation, driven by our new
executive team and colleagues. I'm delighted to see Escode go from strength to
strength and in Cyber I'm confident we've turned a corner with the Technical
Assurance Services market stabilising. Importantly we continue to see
predicted demand increasing in other areas which are central to our strategy,
particularly Managed Services. Looking ahead, we are well placed for
sustainable long-term growth as we deliver on our purpose to create a more
secure digital future."
The following table summarises the Group's financial highlights after
considering the disclosure changes to adjusted items and measures (3).
Financial highlights Change at actual Change at constant currency (1)
H1 2024 H1 2023 rates
(restated) (3)
Revenue (£m) (1) 159.2 176.6 (9.9%) (6.7%)
Cyber Security - continuing (£m) 124.2 143.1 (13.2%) (10.2%)
Cyber Security - discontinued (£m) (2) 2.6 1.9 36.8% 36.8%
Escode (£m) 32.4 31.6 2.5% 6.2%
Gross margin (%) 37.9% 40.5% (2.6% pts)
Adjusted EBITDA (£m) (1, 3 ) 15.6 24.2 (35.5%)
Adjusted Operating profit (£m) (1, 3 ) 4.8 12.9 (62.8%)
Adjusted basic EPS (1, 3) (pence) 0.5p 2.5p (80.0%)
Net debt excluding lease liabilities (£m) (1) (48.3) (54.8) 6.5
Cash conversion (1, 3) (%) 89.1% 100.4% (11.3% pts)
Interim dividend (pence) 1.50 1.50 -
Footnotes:
1: Revenue at constant currency, Adjusted EBITDA, Adjusted Operating profit,
Adjusted basic EPS, Net debt excluding lease liabilities and cash conversion
are Alternative Performance Measures (APMs) and not IFRS measures. See Note 3
for an explanation of APMs and adjusting items, including a reconciliation to
statutory information.
2: Discontinued activities represent the non-core disposal of DetACT in
December 2023 that was classified as an asset held for sale at 30 November
2023.
3: After reconsidering FRC best practice guidance around the disclosure of
adjusting items and APM's, the Group have reduced the number of adjusted
measures and items. The Group now only has one adjusted item 'Individual
Significant Items'. Previous adjusted items of Amortisation of acquisition
intangibles and Share based payments are no longer disclosed as an adjusted
item. Accordingly, comparative numbers have been restated. For further
detail, please refer to the Financial Review and Note 3 for an explanation of
APMs and adjusting items, including a reconciliation to statutory information.
Contact information
Investor enquiries:
Yvonne Harley Tel: +44(0)7824 412405
Director of Investor Relations & Sustainability Email: Investor_Relations@nccgroup.com
(mailto:Investor_Relations@nccgroup.com)
Media enquiries:
H/Advisors Maitland Tel: +44(0)20 379 5151
Sam Cartwright/Genevieve Ryan Email: N (mailto:NCCGroup-maitland@h-advisors.global)
CCGroup-maitland@h-advisors.global
(mailto:NCCGroup-maitland@h-advisors.global)
Presentation of results - audio webcast and conference call details:
A briefing for investors and analysts will be held today at 09:00 GMT at the
offices of H/Advisors Maitland, 3 Pancras Square, London, N1C 4AG. To register
for the in-person event email NCCGroup-maitland@h-adivsors.global
(mailto:NCCGroup-maitland@h-adivsors.global)
Webcast registration:
https://www.lsegissuerservices.com/spark/NCCGroup/events/ed403766-51d2-4ab3-9b6e-dcffebfc7714
(https://www.lsegissuerservices.com/spark/NCCGroup/events/ed403766-51d2-4ab3-9b6e-dcffebfc7714)
. Audio only where verbal questions can be asked:
https://registrations.events/direct/LON53918
(https://registrations.events/direct/LON53918)
The slides for this presentation can be downloaded from NCC Group's website:
www.nccgoupplc.com (http://www.nccgoupplc.com) and a recording of the
presentation will be uploaded later today.
About NCC Group plc
NCC Group is a people-powered, tech-enabled global cyber security and software
escrow business.
Driven by a collective purpose to create a more secure digital future, c,
2,200 colleagues across Europe, North America, and Asia Pacific harness their
collective insight, intelligence, and innovation to deliver cyber resilience
solutions for both public and private sector clients globally.
With decades of experience and a rich heritage, NCC Group is committed to
developing sustainable solutions that continue to meet client's current and
future cyber security challenges.
Cautionary note regarding forward-looking statement
This announcement includes statements that are forward-looking in nature.
Forward-looking statements involve known and unknown risks, assumptions,
uncertainties, and other factors, which may cause the actual results,
performance, or achievements of the Group to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Except as required by the Listing Rules,
Disclosure and Transparency Rules and applicable law, the Group undertakes no
obligation to update, revise or change any forward-looking statements to
reflect events or developments occurring on or after the date such statements
are published.
Chief Executive Officer's business review
Our transformation
We have delivered a first-half financial performance in line with
expectations. A lot has changed in these six months, and positively our
business has been transforming at pace.
This transformation is being driven by a new executive team executing our Next
Chapter strategy. I am immensely proud to have brought in cyber leaders from
across the globe with deep industry expertise, energy and new perspectives -
like our Chief Technology Officer Sian John MBE, Chief Commercial Officer
Carolyn Heiken and Chief Operating Officer Kevin Brown.
Our ability to attract individuals of this calibre is one of many indicators
in H1 2024 that fills me with optimism as we move into the second half of the
year and look to the future. We've been through significant change, but we are
emerging as a stronger, more resilient organisation that can truly deliver on
its purpose to create a more secure digital future.
I'd like to thank every single NCC Group colleague for their commitment and
focus during this period. We are now seeing the impact of that collective
effort.
Clients searching for strategic value
In the first half of the year, we saw existing market trends remain broadly
unchanged. Clients are continuing to professionalise their buying habits in
relation to cyber services, with greater scrutiny and oversight during
procurement. Cyber is no longer a discretionary spend and clients are
prioritising strategic investments - which aligns with the end-to-end
capabilities we are building.
The demand for Technical Assurance Services - which sees us test
infrastructure and applications - has stabilised after a significant fall in
H2 2023 driven by the North American tech sector. We don't expect this to
rebound to previous levels, but demand is increasing considerably in other
areas that are central to our strategy. One area of opportunity is Managed
Services, where we monitor and manage a client's security infrastructure round
the clock. Now more than ever this is seen as a strategic requirement for
organisations, and we have a fantastic proposition that couples cutting-edge
technology with our insight, innovation, and intelligence.
This was driven by focusing on what our clients need - and in turn will
increase our annual recurring revenue line, making us a more resilient and
sustainable business. It's a prime example of our Next Chapter strategy in
action.
Strengthening our service portfolio
We've continued to build out our end-to-end capabilities, allowing us to
support clients across the whole of the cyber lifecycle.
In Consulting & Implementation we have made several important senior
hires. This is a key service line that embeds us deep within our clients'
businesses and uncovers further opportunities for us to create value. We've
spent time identifying and securing the right individuals and I'm confident
we'll see the benefits of this patience in H2 2024 and beyond.
In Digital Forensics and Incident Response (DFIR) we appointed a new senior
leader and are seeing strong demand reflecting the number of Ransomware
incidents. This is supported by insights our global threat intelligence team
identify through constant monitoring of the latest attacks and threats from
nation states, organised crime, and others.
We also executed in December 2023 a successful disposal of our standalone
fraud offering DetACT in the Netherlands for total gross consideration of
€9.0m (subject to working capital adjustment), with completion expected in
February 2024 following novation of contracts. The Group will continue to
look for opportunities for strategic M&A that accelerates our strategy.
Becoming a truly global business
Our Next Chapter strategy sees us move from a business operating
internationally to becoming a truly global organisation. In H1 2024 we made
significant progress in this area with the opening of our new office in
Manila, the Philippines, in Q2 2024.
This was not just the opening of an office in a fast-growing emerging market
with some of the best cyber talent globally, it was part of a significant
cultural shift within our business. From international to global; from silos
to complete integration. The opening of Manila - where we currently have 60
experts working at capacity and with plans to grow headcount for a further 20
by 31 May 2024 - happened alongside the creation of further universal
processes and technology platforms.
We are already seeing the benefits of this shift - with global resourcing
allowing us to put the right people on the right projects, regardless of
location. It means we deliver a better service to clients, as well as
improving margin through more effective utilisation and pricing.
H1 2024, saw us go through a lot of change in North America as we responded to
changing client demands. Colleagues showed incredible resilience to continue
delivering outstanding work for some of the most significant companies in the
world. With our newly appointed Chief Commercial Officer Carolyn Hieken,
located in the United States and showing great leadership, our offer to
clients will strengthen further.
Investing in our brand
The opportunity remains for us to better communicate our story - and ensure
all stakeholders understand why we are trusted by the most significant
organisations and governments globally to secure their environments.
We made great progress in H1 2024, with the rebrand of our software escrow
business to Escode, to be launched on 4 March 2024. The Escode team has
performed brilliantly, delivering five consecutive quarters of year-on-year
revenue growth - and the new brand identity has energised colleagues even
further. There will be plenty of marketing activity following the hard launch
of the Escode brand to customers in Q1 of this calendar year.
On the Cyber side of the business, we have significantly increased our market
profile with investment in large scale Cyber events such as Black Hat US,
Gartner's EMEA Risk and Security Summit and CyberCon in APAC, running aligned
C-Suite roundtable events to engage buyers. We've also increased investment in
relationship marketing aligned to verticals targeting C-Suite and senior
decision makers, along with events with partners such as Splunk and Tanium.
All while making progress on visibility of our 'people powered, tech-enabled
cyber security' value proposition. We will have more to say on this later in
the calendar year.
NCC Group and sustainability
Following completion of our first double-materiality assessment in FY23, we
published our inaugural Sustainability strategy, and new framework in H1 2024.
We have set realistic KPIs to continue to improve data, with a significant
focus on full Scope 1, 2 and 3 emissions as part of our ongoing commitment to
achieving Net Zero before 2050, working in partnership with Planet Mark.
An example of this commitment is the setting of a new standard for all future
NCC locations, with greater landlord engagement on their transition plans as a
requirement. This is evidenced by our new office in Manila. The office is
situated in the Seven/NEO building, which is a pilot project for the
International Finance Corporation's Building Resilience Index (BRI) programme.
The BRI aims to promote resilient and sustainable infrastructure development
in emerging markets and is currently being piloted in the Philippines.
Board composition
As previously announced, Chris Batterham, one of our independent non-executive
Directors stepped down from the Board after eight and a half years of service
on 30 November 2023. On behalf of the Board, I would like to thank Chris for
his commitment and work over this time.
Year-end change
The Board has changed the year end of the Group from 31 May to 30 September,
this is to drive greater efficiency in our corporate reporting and audit
process. As a result, the Group will announce H2 2024 results and the 12
months trading to 31 May 2024 on 1 August 2024. In addition, the 16 months
trading to 30 September 2024 will be announced in mid-December 2024. In due
course, the Group will provide appropriate pro forma information to aid
analyst modelling.
Confident outlook and current trading remains in line with expectations
· Whilst TAS, the largest part of our Cyber business, has less
forward visibility than other parts of our business due to the nature of the
service, our Q2 2024 revenue exit rate gives us confidence in H2 2024. This
will be supported by continued strong revenue growth in our Managed Services
capability
· We are confident in delivering low single digit revenue growth in
Escode in the second half as we continue to benefit from verification and
pricing opportunities and the Board has decided not to restart the strategic
review of Escode at this juncture
· The strategic actions including cost base efficiencies within
gross margin and overheads have been successfully implemented and the
performance in H1 2024 mean we are well placed to deliver on our full year
expectations
· The Group remains confident in our ability to achieve our
medium-term financial goals
Interim dividend
· Unchanged interim dividend of 1.50p (H1 2023: 1.50p) per ordinary
share declared, as the Board prioritises investment in the new strategy
Financial review
Highlights - FY24 financial framework
As we measure ourselves against our FY24 financial framework outlined in
September 2023, the key points to note are as follows:
· Sustainable revenue growth
o Returning Cyber Security to growth in H2 2024 - H1 2024 revenue ahead of
H2 2023 on both constant currency (1) (growth of 2.1%) and at actual rates
+0.6%
o Accelerating growth in our recurring Managed Services - H1 2024 revenue
increased by +17.3% at constant currency (15.4% at actual rates)
o Maintaining momentum of quarterly growth in Escode - now experienced five
consecutive quarters of revenue growth
· Improved gross margin
o Improved utilisation - Q2 FY24 TAS average utilisation of c.76%,
significantly higher than c.60% in Q1 FY24 and Q4 FY23
o Globalised technical resource footprint - we currently have 60 operational
technical consultants in our new office in Manila, with further investment
occurring in H2 2024
· Efficient cost base
o Delivering c.£5m efficiencies in FY24 within gross margin and overheads
in Cyber Security (annualised c.£10m from FY25) - reduction in cost of sales
by 6.0% (£6.3m) and administrative expenses (exc. Share based payments,
Depreciation and Amortisation and ISIs) decreased YoY by 1.8% (£0.8m) and
3.9% (£1.8m) compared to H2 2023
o Annualising Software Resilience efficiencies delivered in FY23 -
improvement in Adjusted EBITDA (1) during H1 FY24 to £14.7m, with further
investment required in H2 FY24 to unlock further efficiencies
· Balance sheet resilience
o Strong cash conversion - historic cash conversion consistently greater
than 85% target, with H1 2024 amounting to 89.1%
o Reducing debt - net debt effectively managed at H1 2024 to £48.3m, with
non-core disposal of DeTACT expected to generate c.€9m gross consideration
in Q3 2024
o Maintaining dividend - interim dividend maintained at 1.50p, as the Board
prioritises investment in the new strategy
Overview of financial performance
Revenue
Group revenues decreased by -6.7% on a constant currency basis (1) and at
-9.9% at actual rates, following challenges experienced within our Cyber
Security business in Q3 FY23.
In our Cyber Security business overall revenue declined by -9.6% on a constant
currency basis (1) and at -12.6% at actual rates. Our North American and UK
and APAC businesses declined on a constant currency basis (1) by -31.9% and
-0.5% respectively (-36.5% and -1.3% at actual rates). However, our EU
region increased +18.8% on a constant currency basis (1) (+17.4% at actual
rates) due to an increase in Managed Services, Digital Forensics and Incident
Response and other services.
As indicated in September 2023, we now manage our Cyber Security business
based on specific Cyber Security capabilities as well by geography. Namely,
these capabilities are:
o 'Technical Assurance Services' (TAS) which includes all types of
penetration testing
o 'Consulting and Implementation' (C&I) which includes consultancy
services across all industrial verticals
o 'Managed Services' (MS) which includes XDR
o Digital Forensics and Incident Response (DFIR) - these services are
dependent on the timing of incident responses
o 'Other services' that include our Fox-IT Crypto business and Global Cyber
Security Research.
DetACT has become discontinued during the period, following its disposal in
December 2023, as it was considered a non-core activity of the Group.
The following table summarises the performance of Cyber Security capabilities:
% Constant Currency (1) %
change H1 2023 £m change at constant currency (1)
at actual rates
H1 2024 H1 2023 H1 2024
£m £m £m
Technical Assurance Services (TAS) 56.6 82.9 (31.7%) 56.6 79.3 (28.6%)
Consulting and Implementation (C&I) 22.0 22.4 (1.8%) 22.0 21.8 0.9%
Managed Services (MS) 27.8 24.1 15.4% 27.8 23.7 17.3%
Digital Forensics and Incident Response (DFIR) 8.5 6.4 32.8% 8.5 6.4 32.8%
Other services 9.3 7.3 27.4% 9.3 7.1 31.0%
Total Cyber Security revenue - continuing 124.2 143.1 (13.2%) 124.2 138.3 (10.2%)
Discontinued 2.6 1.9 36.8% 2.6 1.9 36.8%
Total Cyber Security revenue 126.8 145.0 (12.6%) 126.8 140.2 (9.6%)
TAS declined by -28.6% (-31.7% at actual rates) due to challenges we
experienced in Q3 FY23, albeit revenue is now stabilising as demonstrated by
H1 2024 revenue only declining by -4.7% as compared to the revenue generated
in H2 2023 (-5.7% at actual rates). C&I increased slightly by +0.9% (-1.8%
at actual rates) with an experienced leader now recruited for this
capability. As expected, MS revenue increased by +17.3% (+15.4% at actual
rates) with Sales orders for the forthcoming years increased 91.3% from
£32.3m to £61.8m. DFIR increased by +32.8% reflecting the number of
incident responses of Ransomware.
In our Escode division, revenue increased by +6.2% at constant currency (1)
(+2.5% actual rates) with both contract and verification revenues providing
growth of c.6% at constant currency.
The following table summarises the Group's overall performance:
H1 2024
H1 2023 (restated) (3)
Cyber Escode Central and head office Continuing operations total Group Cyber Escode Central and head office Continuing operations total Group
Security
Security
£m £m £m £m
£m £m £m £m
£m
£m
Discontinued (2) £m Discontinued (2) £m
Revenue 124.2 32.4 - 156.6 2.6 159.2 143.1 31.6 - 174.7 1.9 176.6
Cost of sales (87.1) (10.0) - (97.1) (1.7) (98.8) (94.5) (9.3) - (103.8) (1.3) (105.1)
Gross profit 37.1 22.4 - 59.5 0.9 60.4 48.6 22.3 - 70.9 0.6 71.5
Gross margin % 29.9% 69.1% - 38.0% 34.6% 37.9% 34.0% 70.6% - 40.6% 31.6% 40.5%
Administrative expenses (33.8) (7.6) (2.5) (43.9) (0.1) (44.0) (34.8) (8.0) (1.9) (44.7) (0.1) (44.8)
Share-based payments (3) (0.1) (0.1) (0.5) (0.7) (0.1) (0.8) (1.2) (0.1) (1.1) (2.4) (0.1) (2.5)
Adjusted EBITDA (1, 3) 3.2 14.7 (3.0) 14.9 0.7 15.6 12.6 14.2 (3.0) 23.8 0.4 24.2
Depreciation and amortisation
(4.0) (0.4) (1.7) (6.1) (0.1) (6.2) (3.7) (0.2) (2.2) (6.1) (0.1) (6.2)
Amortisation of acquired intangibles (3)
(1.8) (2.8) - (4.6) - (4.6) (2.0) (3.1) - (5.1) - (5.1)
Adjusted Operating (loss)/ profit (1, 3)
(2.6) 11.5 (4.7) 4.2 0.6 4.8 6.9 10.9 (5.2) 12.6 0.3 12.9
Individually Significant Items (3)
(3.8) (0.2) - (4.0) (0.2) (4.2) - - - - - -
Operating (loss)/profit (6.4) 11.3 (4.7) 0.2 0.4 0.6 6.9 10.9 (5.2) 12.6 0.3 12.9
Operating margin % (5.2%) 34.9% n/a 0.1% 15.4% 0.4% 4.8% 34.5% n/a 7.2% 15.8% 7.3%
Finance costs (3.0) - (3.0) (2.6) - (2.6)
(Loss)/profit before taxation
(2.8) 0.4 (2.4) 10.0 0.3 10.3
Taxation 0.8 (0.1) 0.7 (2.6) (0.1) (2.7)
(Loss)/profit after taxation (2.0) 0.3 (1.7)
7.4 0.2 7.6
EPS
Basic EPS (0.6p) 0.1p (0.5p) 2.4p 0.1p 2.5p
Basic adjusted EPS (1, 3) 0.4p 0.1p 0.5p 2.4p 0.1p 2.5p
Footnotes:
1: Adjusted EBITDA and Adjusted basic EPS are Alternative Performance Measures
(APMs) and not IFRS measures. See Note 3 for an explanation of APMs and
adjusting items, including a reconciliation to statutory information.
2: Discontinued activities represent the non-core disposal of DetACT in
December 2023 that was classified as an asset held for sale at 30 November
2023.
3: After reconsidering FRC best practice guidance around the disclosure of
adjusting items and APM's, the Group have reduced the number of adjusted
measures and items. The Group now only has one adjusted item 'Individual
Significant Items'. Previous adjusted items of Amortisation of acquisition
intangibles and Share based payments are no longer disclosed as an adjusted
item. Accordingly, comparative numbers have been restated. For further
detail, please refer to the Financial Review and Note 3 for an explanation of
APMs and adjusting items, including a reconciliation to statutory information.
Gross profit decreased by 15.5% to £60.4m (H1 2023: £71.5m) with gross
margin percentage decreasing to 37.9% (H1 2023: 40.5%, H2 2023: 38.2%). The
2.6% pts gross margin (%) decrease is mainly due to lower utilisation within
Cyber Security in Q1 2024.
Administrative expenses have decreased by 1.8% to £44.0m (H1 2023 £44.8m).
This was mostly due to a decrease in people and training costs offset by
investments in new offices and foreign exchange. When comparing these
expenses to H2 2023, we have seen a reduction of 3.9% (£1.8m).
A loss of £1.7m for the period was recognised giving rise to a basic and
diluted EPS of (0.5p) (H1 2023: basic £2.5p and diluted 2.4p). Adjusted basic
EPS (1) amounted to 0.5p (H1 2023 restated (3): 2.5p).
On 30 November 2023, our cash conversion (1) was 89.1% (H1 2023 restated (3):
100.4%). Net debt excluding lease liabilities (1) amount to £48.3m (H1
2023: £54.8m).
Our Balance Sheet remains strong following our refinancing in December 2022.
Our facilities include a four-year £162.5m multi-currency revolving credit
facility and additional £75m uncommitted accordion option.
The Board is declaring an unchanged interim dividend of 1.50p per ordinary
share (H1 2023: 1.50p). This represents a dividend equal to that paid in the
prior period as the Board is conscious of the need to invest in the new
strategy.
Alternative Performance Measures (APMs)
Throughout this Financial Review, certain APMs are presented. The APMs used by
the Group are not defined terms under IFRS and may therefore not be comparable
with similarly titled measures reported by other companies. They are not
intended to be a substitute for, or superior to, IFRS measures. This
presentation is also consistent with the way that financial performance is
measured by management and reported to the Board, and the basis of financial
measures for senior management's compensation scheme and provides
supplementary information that assists the user in understanding the financial
performance, position and trends of the Group.
We believe these APMs provide readers with important additional information on
our business and this information is relevant for use by investors, securities
analysts and other interested parties as supplemental measures of future
potential performance. However, since statutory measures can differ
significantly from the APMs and may be assessed differently by the reader, we
encourage you to consider these figures together with statutory reporting
measures noted. Specifically, we would note that APMs may not be comparable
across different companies and that certain profit related APMs may exclude
recurring business transactions (e.g. acquisition related costs) that impact
financial performance and cash flows.
After reconsidering FRC best practice guidance around the disclosure of
adjusting items and APM's, the Group have reduced the number of adjusted
measures and items within the period. The Group now only has one adjusted
item 'Individual Significant Items'. Previous adjusted items of Amortisation
of acquisition intangibles and Share based payments are no longer disclosed as
an adjusted item. Accordingly, comparative numbers have been restated.
The following tables reconciles how these changes have affected the historic
measures of Adjusted EBITDA, Adjusted operating profit, Adjusted earnings,
Adjusted basic EPS and cash conversion which includes Adjusted EBITDA:
Adjusted measure H1 2024 H1 2023 Change
(restated) (2)
Adjusted EBITDA - previously (£m) 16.4 26.7 (10.3)
Share based payments (£m) (0.8) (2.5) 1.7
Adjusted EBITDA - revised (£m) 15.6 24.2 (8.6)
Adjusted Operating profit - previously (£m) 10.2 20.5 (10.3)
Share based payments (£m) (0.8) (2.5) 1.7
Amortisation of acquired intangibles (£m) (4.6) (5.1) 0.5
Adjusted Operating profit - revised (£m) 4.8 12.9 (8.1)
Adjusted earnings - previously (£m) 5.4 13.3 (7.9)
Share based payments (£m) (0.8) (2.5) 1.7
Amortisation of acquired intangibles (£m) (4.6) (5.1) 0.5
Tax effect of above items (£m) 1.4 1.9 (0.5)
Adjusted earnings - revised (£m) 1.4 7.6 (6.2)
Basic adjusted EPS - previously (pence) 1.7 4.3 (2.6)
Effect of share-based payments (pence) (1.5) (1.6) 0.1
Effect amortisation of acquired intangibles (pence) (0.2) (0.8) 0.6
Tax effect of above items (pence) 0.5 0.6 (0.1)
Basic adjusted EPS - revised (pence) 0.5 2.5 (2.0)
Cash conversion - previously (%) 84.8 91.0 (6.2)
Effect of share-based payments (%) 4.3 9.4 (5.1)
Cash conversion - revised (%) 89.1 100.4 (11.3)
The Group still manages internally its performance on an adjusted earnings
basis (before Individually Significant Items and tax effect thereon) which
management believes represents the underlying trading of the business; on this
basis adjusted EPS is still disclosed as an APM. This APM is reconciled to
statutory earnings and statutory basic EPS.
The Group now has the following APMs/non-statutory measures:
· Adjusted EBITDA (reconciled in Note 3)
· Adjusted operating profit (reconciled in Note 3)
· Adjusted basic EPS (pence) (reconciled in Note 7)
· Net debt excluding lease liabilities (reconciled in Note 3)
· Net debt (reconciled in Note 3)
· Cash conversion which includes Adjusted EBITDA (reconciled in
Note 3)
· Constant currency revenue (reconciled in Note 3)
Apart from the changes noted above, the above APM's are consistent with those
reported for the year ended 31 May 2023.
The Group also reports certain geographic regions and service capabilities on
a constant currency basis to reflect the underlying performance considering
constant foreign exchange rates period on period. This involves translating
comparative numbers to current period rates for comparability to enable a
growth factor to be calculated. As these measures are not statutory revenue
numbers, management considers these to be APMs; see Note 3 for further details
and certain reconciliations to statutory measures.
The Glossary of APM terms are also contained within Note 3, which provides
supplementary information that assists the user in understanding these
APMs/non-statutory measures.
Financial summary
Summary Income Statement:
£m H1 2024 H1 2023 % Change
Continuing and discontinued activities
(restated) (2)
Revenue 159.2 176.6 (9.9%)
Cost of sales (98.8) (105.1) (6.0%)
Gross profit 60.4 71.5 (15.5%)
Administrative expenses (44.0) (44.8) (1.8%)
Share based payments (2) (0.8) (2.5) (68.0%)
Adjusted EBITDA (1,2) 15.6 24.2 (35.5%)
Depreciation and amortisation (6.2) (6.2) -
Acquired intangible amortisation (2) (4.6) (5.1) (9.8%)
Adjusted Operating profit (1,2) 4.8 12.9 (62.8%)
Individually significant items (2) (4.2) - n/a
Operating profit 0.6 12.9 (95.3%)
Finance costs (3.0) (2.6) 15.4%
(Loss)/profit before taxation (2.4) 10.3 (123.3%)
Taxation 0.7 (2.7) 125.9%
(Loss)/profit for the period (1.7) 7.6 (122.4%)
EPS
Basic EPS (0.5p) 2.5p (120.0%)
Basic adjusted EPS (1,2) 0.5p 2.5p (80.0%)
Footnotes:
1: Adjusted EBITDA, Adjusted Operating profit and Adjusted basic EPS are
Alternative Performance Measures (APMs) and not IFRS measures. See Note 3 for
an explanation of APMs and adjusting items, including a reconciliation to
statutory information.
2: After reconsidering FRC best practice guidance around the disclosure of
adjusting items and APM's, the Group have reduced the number of adjusted
measures and items. The Group now only has one adjusted item 'Individual
Significant Items'. Previous adjusted items of Amortisation of acquisition
intangibles and Share based payments are no longer disclosed as an adjusted
item. Accordingly, comparative numbers have been restated. For further
detail, please refer to the Financial Review and Note 3 for an explanation of
APMs and adjusting items, including a reconciliation to statutory information.
Revenue summary:
% Constant Currency (1) H1 2023 %
change at actual rates £m change at constant currency (1)
H1 2024 H1 2023 H1 2024
£m £m £m
Cyber Security - continuing 124.2 143.1 (13.2%) 124.2 138.3 (10.2%)
Cyber Security - discontinued 2.6 1.9 36.8% 2.6 1.9 36.8%
Total Cyber Security revenue 126.8 145.0 (12.6%) 126.8 140.2 (9.6%)
Escode 32.4 31.6 2.5% 32.4 30.5 6.2%
Total revenue - continuing and discontinued 159.2 176.6 (9.9%) 159.2 170.7 (6.7%)
Cyber Security - discontinued (2.6) (1.9) (36.8%) (2.6) (1.9) (36.8%)
Total revenue - continuing 156.6 174.7 (10.4%) 156.6 168.8 (7.2%)
Divisional performance
Cyber Security
The Cyber Security division accounts for 79.6% of Group revenue (H1 2023:
82.1%) and 62.9% of Group gross profit (H1 2023: 68.8%).
Cyber Security revenue analysis - by originating country:
% Constant Currency (1) H1 2023 %
change at actual rates £m change at constant currency (1)
H1 2024 H1 2023 H1 2024
£m £m £m
UK & APAC 60.8 61.6 (1.3%) 60.8 61.1 (0.5%)
North America 37.6 59.2 (36.5%) 37.6 55.2 (31.9%)
Europe 28.4 24.2 17.4% 28.4 23.9 18.8%
Total Cyber Security revenue 126.8 145.0 (12.6%) 126.8 140.2 (9.6%)
Europe - discontinued (2.6) (1.9) (36.8%) (2.6) (1.9) (36.8%)
Total Cyber Security revenue - continuing 124.2 143.1 (13.2%) 124.2 138.3 (10.2%)
Cyber Security revenue - continuing decreased by -10.2% on a constant currency
basis (1) and at -13.2% at actual rates. UK & APAC decreased by -0.5% on a
constant currency basis (1) (-1.3% at actual rates). North America declined
by -31.9% on a constant currency basis (1) (-36.5% at actual rates), whilst
Europe experienced an increase of +18.8% on a constant currency basis (1)
(+17.4% at actual rates) due to an increase in Managed Services, Digital
Forensics and Incident Response and other services.
From a Cyber Security revenue trajectory perspective, the following table
compares H1 2024 performance to H2 2023 performance:
% Constant Currency (1) H2 2023 %
change at actual rates £m change at constant currency (1)
H1 2024 H2 2023 H1 2024
£m £m £m
UK & APAC 60.8 56.8 7.0% 60.8 56.6 7.4%
North America 37.6 40.1 (6.2%) 37.6 38.8 (3.1%)
Europe 28.4 29.2 (2.7%) 28.4 28.9 (1.7)%
Total Cyber Security revenue 126.8 126.1 0.5% 126.8 124.3 2.0%
Europe - discontinued (2.6) (2.7) 3.7% (2.6) (2.7) 3.7%
Total Cyber Security revenue - continuing 124.2 123.4 0.6% 124.2 121.6 2.1%
Following the implementation of our new strategy, Cyber Security revenue is
now analysed in more detail by type of service and capability:
% Constant Currency (1) %
change H1 2023 £m change at constant currency (1)
at actual rates
H1 2024 H1 2023 H1 2024
£m £m £m
Technical Assurance Services (TAS) 56.6 82.9 (31.7%) 56.6 79.3 (28.6%)
Consulting and Implementation (C&I) 22.0 22.4 (1.8%) 22.0 21.8 0.9%
Managed Services (MS) 27.8 24.1 15.4% 27.8 23.7 17.3%
Digital Forensics and Incident Response (DFIR) 8.5 6.4 32.8% 8.5 6.4 32.8%
Other services 9.3 7.3 27.4% 9.3 7.1 31.0%
Total Cyber Security revenue - continuing 124.2 143.1 (13.2%) 124.2 138.3 (10.2%)
Discontinued 2.6 1.9 36.8% 2.6 1.9 36.8%
Total Cyber Security revenue 126.8 145.0 (12.6%) 126.8 140.2 (9.6%)
TAS and MS now represents 44.6% and 21.9% of total Cyber Security revenue as
compared to H1 2023 of 57.2% and 16.6% respectively, demonstrating the change
in service mix to more annual recurring revenues. In addition, C&I has
further opportunities, and we will be investing specifically in this area.
Cyber Security gross profit is analysed as follows:
H1 2024 H1 2024 H1 2023 H1 2023
£m
£m % margin % margin % pts change
UK & APAC 22.3 36.7% 22.9 37.2% (0.5% pts)
North America 7.6 20.2% 16.6 28.0% (7.8% pts)
Europe 8.1 28.5% 9.7 40.1% (11.6% pts)
Cyber Security gross profit and % margin 38.0 30.0% 49.2 33.9% (3.9% pts)
Gross margins declined overall by -3.9% pts, driven by North America lower
utilisation in Q1 2024 and a decline in Europe. In Europe, the margin
decreased by 11.6% pts due to the recognition of historic project cost
compensation of £1.5m in H1 2023. Excluding this item, the margin would
have decreased 5.4% driven by inflationary pressures.
When comparing H1 2024 performance to H2 2023, the following table summarises
the gross margin trajectory, as the Group realigned its cost base in Q1 2024
and improved utilisation during Q2 2024:
H1 2024 H1 2024 H2 2023 H2 2023
£m
£m % margin % margin % pts change
UK & APAC 22.3 36.7% 17.4 30.6% 6.1% pts
North America 7.6 20.2% 9.5 23.7% (3.5% pts)
Europe 8.1 28.5% 10.0 34.2% (5.7% pts)
Cyber Security gross profit and % margin 38.0 30.0% 36.9 29.3% 0.7% pts
Escode
The Escode division accounts for 20.4% of Group revenues (H1 2023: 17.9%) and
37.1% of Group gross profit (H1 2023: 31.2%).
Escode revenue analysis - by originating country:
%
change at actual rates Constant Currency (1) %
H1 2023 change at constant currency (1)
H1 2024 H1 2023 H1 2024 £m
£m £m £m
UK 13.4 12.3 8.9% 13.4 12.3 8.9%
North America 16.9 17.3 (2.3%) 16.9 16.2 4.3%
Europe 2.1 2.0 5.0% 2.1 2.0 5.0%
Total Escode revenue 32.4 31.6 2.5% 32.4 30.5 6.2%
Escode revenues analysed by service line:
% Constant Currency (1) %
change at actual rates H1 2023 change at constant currency (1)
H1 2024 H1 2023 H1 2024 £m
£m £m £m
Escrow contracts 21.8 21.3 2.3% 21.8 20.5 6.3%
Verification services 10.6 10.3 2.9% 10.6 10.0 6.0%
Total Escode revenue 32.4 31.6 2.5% 32.4 30.5 6.2%
Gross margin is analysed as follows:
H1 2023 H1 2023 H1 2023 H1 2023
£m % margin £m % margin % pts change
UK 8.9 66.4% 8.4 68.3% (1.9% pts)
North America 12.1 71.6% 12.6 72.8% (1.2% pts)
Europe 1.4 66.7% 1.3 65.0% 1.7% pts
Escode gross profit and % margin 22.4 69.1% 22.3 70.6% (1.5% pts)
Escode gross profit decreased by -1.5% pts with UK and North America
decreasing by -1.9% pts and -1.2% pts respectively due to continued investment
to enable Escode to achieve sustainable revenue growth.
Individually Significant Items
During the period, the Group has incurred Individually Significant Items
(ISIs) of £4.2m (H1 2023: £Nil) represented by Re-organisation costs arising
from strategic actions of £3.8m, remaining costs associated with strategic
review of Escode of £0.2m and disposal costs of £0.2m incurred to date in
relation to the disposal of DetACT in December 2023. See note 5 for further
details.
Finance costs
Finance costs for the period were £3.0m compared to £2.6m in H1 2023 due to
an increase in borrowing costs following increases in base interest rates.
Finance costs include lease financing costs of £0.5m (H1 2023: £0.5m).
Taxation
The Group's effective statutory tax rate is 29.2% (H1 2023: 26.2%). The
increase in the tax rate from H1 2023 to H1 2024 is mainly due to an increase
in the UK standard rate of corporation tax. The Group's adjusted tax rate is
22.2% (H1 2023 restated (3): 26.2%).
Earnings per share (EPS)
H1 2024 H1 2023 (restated) (2)
Statutory
Basic EPS (0.5p) 2.5p
Diluted EPS (0.5p) 2.4p
Adjusted (1)
Basic EPS 0.5p 2.5p
Weighted average number of shares (million)
Basic 310.9 309.4
Diluted 312.1 313.1
Cash flow and net debt (1)
The table below summarises the Group's cash flow and net debt (1):
H1 2024 H1 2023
£m £m
Operating cash inflow before movements in working capital 13.0 24.8
Movement in working capital 0.9 (0.5)
Cash generated from operating activities before interest and taxation 13.9 24.3
Interest element of lease payments (0.5) (0.5)
Finance interest paid (2.1) (1.7)
Taxation paid (3.1) (3.5)
Net cash generated from operating activities 8.2 18.6
Purchase of property, plant and equipment (3.5) (1.6)
Software and development expenditure (1.6) (2.1)
Acquisition of trade and assets as part of a business combination (1.0) (1.0)
Sale proceeds from business disposal 2.0 -
Equity dividends paid - (9.8)
Repayment of lease liabilities (principal amount) (3.3) (3.8)
Purchase of own shares - (0.5)
Proceeds from the issue of ordinary share capital - 0.1
Net movement 0.8 (0.1)
Opening net debt (1) (49.6) (52.4)
Non-cash movements (release of deferred issue costs) (0.3) (0.2)
Foreign exchange movement 0.8 (2.1)
Closing net debt excluding lease liabilities (1) (48.3) (54.8)
Lease liabilities (34.8) (29.3)
Closing net debt (1) (83.1) (84.1)
Net debt (1) can be reconciled as follows:
H1 2024 H1 2023
£m £m
Cash and cash equivalents 17.5 44.5
Bank overdraft (4.3) (0.5)
Borrowings (net of deferred issue costs) (61.5) (98.8)
Net debt excluding lease liabilities (1) (48.3) (54.8)
Lease liabilities (34.8) (29.3)
Net debt (1) (83.1) (84.1)
The calculation of the cash conversion ratio (1) is set out below:
H1 2024 H1 2023 (restated) (2) % change/
£m £m % pts
Net operating cash flow before interest and taxation (A) 13.9 24.3 (42.8%)
Adjusted EBITDA (1, 2) (B) 15.6 24.2 (35.5%)
Cash conversion ratio (1, 2) (%) (A)/(B) 89.1% 100.4% (11.3% pts)
1: See Note 3 for an explanation of Alternative Performance Measures (APMs)
and adjusting items. Further information is also contained within the
Financial Review.
2: After reconsidering FRC best practice guidance around the disclosure of
adjusting items and APM's, the Group have reduced the number of adjusted
measures and items. The Group now only has one adjusted item 'Individual
Significant Items'. Previous adjusted items of Amortisation of acquisition
intangibles and Share based payments are no longer disclosed as an adjusted
item. Accordingly, comparative numbers have been restated. For further
detail, please refer to the Financial Review and Note 3 for an explanation of
APMs and adjusting items, including a reconciliation to statutory information.
Cash capital expenditure during the period was £5.1m (H1 2023: £3.7m) which
includes tangible asset expenditure of £3.5m (H1 2023: £1.6m) and
capitalised software and development costs of £1.6m (H1 2023: £2.1m). The
increase in capital expenditure was mainly due to the opening of our new
Manila office.
Acquisition of trade and assets as part of a business combination of £1.0m
relates to the further consideration payable in relation to the Adelard
acquisition. Sale proceeds from disposals represent part payment of
contingent consideration in relation to the disposal of the Group's DDI
business, with the remaining proceeds received in January 2024.
Dividends
Total dividends of £nil were paid in the period (H1 2023: £9.8m), with the
FY23 final dividend of £9.8m being paid in December 2023 following the AGM on
the 30 November 2023, this represented the final dividend for FY23 of 3.15p.
The Board is declaring an unchanged interim dividend of 1.50p per ordinary
share (H1 2023: 1.50p).
This represents a dividend equal to that paid in the prior period as the Board
is conscious of the need to invest in new strategy.
The interim dividend of approximately £4.7m will be paid on 15 March 2024, to
shareholders on the register at the close of business on 16 February 2024. The
ex-dividend date is 15 February 2024.
Principal risks and uncertainties
The Board has reconsidered the principal risks and uncertainties published at
the full year 2023. The following risks and uncertainties are those that the
Directors believe could have the most significant impact on the Group's
business and remain unchanged from the year end:
· Strategy - overarching strategic risk
o Ineffective execution of the Group's strategy
o Poor and/or ineffective change management mechanisms
o Over-reliance on market sector, service or client
· Cyber and information security
o Cyber attack
o Significant business systems failure
o Loss of client/colleague data
o Insufficient quality, integrity and availability of management information
· Innovation and service development
o Intellectual property theft or exposure
o Ineffective service management
o Failed service launch
· People and partners
o Insufficient workforce resilience
o Inability to retain/recruit colleagues to meet the resource needs of the
businesses
o Poor colleague health and wellbeing
· Market and competition
o Economic changes/volatility impact on revenue and profitability
o Unable to continue to meet the service and resource needs of our clients
o Lack of visibility in the marketplace
o Reliance on relationships with third parties
o International trade
· Brand and reputation
o Adverse publicity in news and social media
o Undertaking work with disreputable clients or in sanctioned/undesirable
jurisdictions
· Quality and delivery
o Service delivery does not achieve established quality standards
o Loss of internationally recognised quality and security standards
· Legal, regulatory compliance and governance
o Criminal and civil legal action resulting in fines and incarceration
o Inability to identify and adopt emerging regulations in a timely manner
Directors' responsibility statement
The responsibility statement below has been prepared in connection with the
Group's condensed interim financial statements for the period ended 30
November 2023. We confirm that to the best of our knowledge:
· The condensed set of consolidated interim financial statements
have been prepared in accordance with IAS 34 Interim Financial Reporting as
adopted for use in the UK.
· The interim management report includes a fair review of the
information required by:
· DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
· DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first six months
of the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
The Half Year Report is approved and authorised for issue on behalf of the
Board on 24 January 2024 by:
Mike Maddison Guy Ellis
Chief Executive Officer Chief Financial Officer
Consolidated income statement
For the period ended 30 November 2023
H1 2024 H1 2023
Notes Continuing Discontinued (1) Total Continuing Discontinued (1) Total
£m £m £m £m £m £m
Revenue 4 156.6 2.6 159.2 174.7 1.9 176.6
Cost of sales 4 (97.1) (1.7) (98.8) (103.8) (1.3) (105.1)
Gross profit 4 59.5 0.9 60.4 70.9 0.6 71.5
Administrative expenses
Individually Significant Items (4.0) (0.2) (4.2) - - -
Depreciation and amortisation (10.7) (0.1) (10.8) (11.2) (0.1) (11.3)
Credit losses recognised on financial assets (0.8) - (0.8) (0.9) - (0.9)
Other administrative expenses (43.8) (0.2) (44.0) (46.2) (0.2) (46.4)
Total administrative expenses (59.3) (0.5) (59.8) (58.3) (0.3) (58.6)
Operating profit 4 0.2 0.4 0.6 12.6 0.3 12.9
Finance costs (3.0) - (3.0) (2.6) - (2.6)
(Loss)/profit before taxation (2.8) 0.4 (2.4) 10.0 0.3 10.3
Taxation 0.8 (0.1) 0.7 (2.6) (0.1) (2.7)
(Loss)/profit for the period attributable to the owners of the Company (2.0) 0.3 (1.7) 7.4 0.2 7.6
Earnings per ordinary share 7
Basic EPS (0.6p) 0.1p (0.5p) 2.4p 0.1p 2.5p
Diluted EPS (0.6p) 0.1p (0.5p) 2.3p 0.1p 2.4p
Consolidated statement of comprehensive income
For the period ended 30 November 2023
H1 2024 H1 2023
£m £m
(Loss)/profit for the period attributable to the owners of the Company (1.7) 7.6
Other comprehensive (loss)/income
Items that may be reclassified subsequently to profit or loss (net of tax)
Foreign exchange translation differences (3.1) 9.8
Total other comprehensive (loss)/income (3.1) 9.8
Total comprehensive (loss)/income for the period (net of tax) attributable to (4.8) 17.4
the owners of the Company
1: Discontinued activities represent the non-core disposal of DetACT in
December 2023 that was classified as an asset held for sale at 30 November
2023.
Consolidated balance sheet
For the period ended 30 November 2023
Notes
30 30 31
November November May
2023 2022 2023
£m £m £m
Non-current assets
Goodwill 247.3 272.0 255.8
Intangible assets 102.1 120.2 110.9
Property, plant and equipment 13.9 12.5 12.5
Right-of-use assets 23.3 19.6 18.6
Investments 0.3 0.3 0.3
Deferred tax asset 3.0 1.2 2.9
Total non-current assets 389.9 425.8 401.0
Current assets
Inventories 0.8 1.0 0.8
Trade and other receivables 76.3 77.2 58.1
Contingent consideration receivable 1.8 - 3.8
Current tax receivable 3.8 2.5 3.6
Cash and cash equivalents 17.5 44.5 34.1
Assets classified as held for sale 8 9.2 2.2 -
Total current assets 109.4 127.4 100.4
Total assets 499.3 553.2 501.4
Current liabilities
Trade and other payables 45.6 53.8 44.7
Bank overdraft 4.3 0.5 1.8
Borrowings - 19.5 -
Lease liabilities 7.0 4.5 6.0
Current tax payable 0.6 5.7 4.2
Derivative financial instruments 0.3 0.4 0.6
Contingent consideration payable - 1.0 1.0
Dividends payable 9.8 - -
Provisions 1.4 1.7 1.2
Contract liabilities - deferred revenue 66.3 53.3 51.6
Liabilities classified as held for sale 8 2.0 1.1 -
Total current liabilities 137.3 141.5 111.1
Non-current liabilities
Borrowings 61.5 79.3 81.9
Lease liabilities 27.8 24.8 24.0
Deferred tax liabilities 1.3 1.5 1.4
Provisions 1.2 0.9 1.5
Contract liabilities - deferred revenue 5.8 2.3 3.3
Total non-current liabilities 97.6 108.8 112.1
Total liabilities 234.9 250.3 223.2
Net assets 264.4 302.9 278.2
Equity
Share capital 3.1 3.1 3.1
Share premium 224.1 224.1 224.1
Merger reserve 42.3 42.3 42.3
Currency translation reserve 34.4 44.9 37.5
Retained earnings (39.5) (11.5) (28.8)
Total equity attributable to equity holders of the parent 264.4 302.9 278.2
These financial statements were approved and authorised for issue by the Board
of Directors on 24 January 2024 and were signed on its behalf by:
Mike Maddison Guy Ellis
Chief Executive
Officer
Chief Financial Officer
Consolidated cash flow statement
For the period ended 30 November 2023
Cash flow from operating activities Notes H1 2024 H1 2023
£m £m
(Loss)/profit for the period (1.7) 7.6
Adjustments for:
Depreciation of property, plant and equipment 2.1 2.2
Depreciation of right of use assets 2.9 3.0
Share-based payments 0.8 2.5
Amortisation of customer contracts and relationships 4.6 5.1
Amortisation of software and development costs 1.3 1.0
Impairment of right-of-use assets 0.5 -
Lease financing costs 0.5 0.5
Other financing costs 2.3 2.0
Foreign exchange loss/(gain) 0.6 (0.6)
Individually significant items (non-cash impact) 0.2 -
Termination of leases (0.1) (0.1)
Research and development UK tax credits (0.2) (0.2)
Research and development US tax credits - (0.1)
Income tax expense (0.7) 2.8
Decrease in provisions (0.1) (0.9)
Cash inflow for the period before changes in working capital 13.0 24.8
(Increase)/decrease in trade and other receivables (18.9) 1.0
Increase in inventories - (0.1)
Increase/(decrease) in trade and other payables 19.8 (1.4)
Cash generated from operating activities before interest and taxation 13.9 24.3
Interest element of lease payments (0.5) (0.5)
Other interest paid (2.1) (1.7)
Taxation paid (3.1) (3.5)
Net cash generated from operating activities 8.2 18.6
Cash flows from investing activities
Acquisition of trade and assets as part of a business combination (1.0) (1.0)
Purchase of property, plant and equipment (3.5) (1.6)
Software and development expenditure (1.6) (2.1)
Sales proceeds of business disposal 2.0 -
Net cash used in investing activities (4.1) (4.7)
Cash flows from financing activities
Proceeds from the issue of ordinary share capital - 0.1
Purchase of own shares - (0.5)
Principal element of lease payments (3.3) (3.8)
Drawdown of borrowings (net of deferred issue costs) 19.0 -
Repayment of borrowings (38.5) (31.2)
Equity dividends paid 6 - (9.8)
Net cash generated used in financing activities (22.8) (45.2)
Net decrease in cash and cash equivalents (inc. bank overdraft) (18.7) (31.3)
Cash and cash equivalents (inc. bank overdraft) at beginning of period 32.3 73.2
Effect of foreign currency exchange rate changes (0.4) 2.1
Cash and cash equivalents (inc. bank overdraft) at end of the period 13.2 44.0
Reconciliation of net change in cash and cash equivalents to movement in net
debt (1)
H1 2024 H1 2023
£m £m
Net decrease in cash and cash equivalents (inc. bank overdraft) (18.7) (31.3)
Change in net debt (1) resulting from cash flows (net of deferred issue costs) 19.5 31.2
Interest incurred on borrowings 2.1 1.7
Interest paid on borrowings (2.1) (1.7)
Release of deferred issue costs (0.3) (0.2)
Effect of foreign currency on cash flows (0.4) 2.1
Foreign currency translation differences on borrowings 1.2 (4.2)
Change in net debt (1) during the period 1.3 (2.4)
Net debt (1) at start of period excluding lease liabilities (49.6) (52.4)
Net debt (1) at end of period excluding lease liabilities (48.3) (54.8)
Lease liabilities (34.8) (29.3)
Net debt (1) at end of period (83.1) (84.1)
1: Net debt is an Alternative Performance Measures (APMs) and not an IFRS
measure. See Note 3 for an explanation of APMs and adjusting items, including
a reconciliation to statutory information.
Consolidated statement of changes in equity
For the period ended 30 November 2023
Currency Translation Reserve
Share Share Premium Hedging reserve Merger Reserve Retained Earnings
Capital Total
£m £m £m £m £m £m £m
Balance at 1 June 2023 3.1 224.1 - 42.3 37.5 (28.8) 278.2
Loss for the period - - - - - (1.7) (1.7)
Other comprehensive loss for the period - - - - (3.1) - (3.1)
Total comprehensive income - - - - (3.1) (1.7) (4.8)
for the period
Transactions with owners recorded directly in equity
Dividends to equity shareholders - - - - - (9.8) (9.8)
Share-based payments - - - - - 0.8 0.8
Total contributions by and distributions to owners - - - - - (9.0) (9.0)
Balance at 30 November 2023 3.1 224.1 - 42.3 34.4 (39.5) 264.4
Currency Translation Reserve
Share Share Premium Hedging reserve Merger Reserve Retained Earnings
Capital Total
£m £m £m £m £m £m £m
Balance at 1 June 2022 3.1 224.0 - 42.3 35.1 (11.3) 293.2
Profit for the period - - - - - 7.6 7.6
Other comprehensive income for the period - - - - 9.8 - 9.8
Total comprehensive income - - - - 9.8 7.6 17.4
for the period
Transactions with owners recorded directly in equity
Dividends to equity shareholders - - - - - (9.8) (9.8)
Share-based payments - - - - - 2.5 2.5
Purchase of own shares - - - - - (0.5) (0.5)
Shares issued - 0.1 - - - - 0.1
Total contributions by and distributions to owners - 0.1 - - - (7.8) (7.7)
Balance at 30 November 2022 3.1 224.1 - 42.3 44.9 (11.5) 302.9
Currency Translation Reserve
Share Share Premium Hedging reserve Merger Reserve Retained Earnings
Capital Total
£m £m £m £m £m £m £m
Balance at 1 June 2022 3.1 224.0 - 42.3 35.1 (11.3) 293.2
Loss for the year - - - - - (4.6) (4.6)
Other comprehensive income - - - - 2.4 - 2.4
Total comprehensive income - - - - 2.4 (4.6) (2.2)
for the year
Transactions with owners recorded directly in equity
Dividends to equity shareholders - - - - - (14.5) (14.5)
Share-based payments - - - - - 2.2 2.2
Tax on share-based payments - - - - - (0.1) (0.1)
Purchase of own shares - - - - - (0.5) (0.5)
Shares issued - 0.1 - - - - 0.1
Total contributions by and distributions to owners - 0.1 - - - (12.9) (12.8)
Balance at 31 May 2023 3.1 224.1 - 42.3 37.5 (28.8) 278.2
Notes to the unaudited condensed interim consolidated financial statements
1 Accounting policies
Basis of preparation
NCC Group plc (the Company) is a company incorporated in the UK, with its
registered office at XYZ Building, 2 Hardman Boulevard, Manchester, M3 3AQ.
The Groups' unaudited condensed interim financial statements consolidated
those of the Company and its subsidiaries (together referred to as the Group).
The principal activity of the Group is the provision of independent advice and
services to customers through the supply of Cyber Security and Escode
services.
The Groups' unaudited condensed interim consolidated financial statements for
the six months ended 30 November 2023 (H1 2024), have been prepared on the
going concern basis in accordance with IAS 34 'Interim Financial Reporting' as
adopted for use in the UK. The unaudited condensed interim consolidated
financial statements have been prepared on the historical cost basis, except
for consideration payable on acquisitions that is measured at fair value. The
condensed interim consolidated financial statements are presented in Pound
Sterling (£m) because that is the currency of the principal economic
environment in which the Company operates. The unaudited condensed interim
consolidated financial statements were approved by the Directors on 24 January
2024 and were not independently reviewed by the Group's auditors.
Following the change in year end from May to September 2024, the consolidated
financial statements of the Group for the 16-month period ended 30 September
2024 will be prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted for use in the UK and in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006.
As required by the Disclosure Guidance and Transparency Rules of the Financial
Conduct Authority the condensed set of interim financial statements has been
prepared applying the accounting policies and presentation that were applied
in the company's published consolidated financial statements for the year
ended 31 May 2023, which were prepared in accordance with IFRSs as adopted for
use in the UK. They do not contain all the information required for full
financial statements and should be read in conjunction with the annual
financial statements for the year ended 31 May 2023.
The financial statements of the Group for the year ended 31 May 2023 are
available from the Company's registered office, or from the website
www.nccgroup.com (http://www.nccgroup.com) .
The comparative figures for the financial year ended 31 May 2023 are not the
company's statutory accounts for that financial year but are derived from
those accounts. Those accounts have been reported on by the company's auditor
and delivered to the registrar of companies. The report of the auditor was (i)
unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report, and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
Climate change
The Directors have reviewed the potential impact of Climate change and the
TCFD on the condensed interim financial statements. Our overall exposure to
physical and transitional climate change is considered low due to the nature
of the business and cyber resilience industry.
Going concern
The Directors have acknowledged guidance published in relation to going
concern assessments. The Group's business activities, together with the
factors likely to affect its future development, performance and position, are
set out in the Business Review and Financial Review. The Group's financial
position, cash and borrowing facilities are also described within these
sections.
The condensed interim consolidated Financial Statements have been prepared on
a going concern basis which the Directors consider to be appropriate for the
following reasons.
The Directors have prepared cash flow and covenant compliance forecasts for
the period ending 31 January 2025 which indicate that, taking account of
severe but plausible downsides on the operations of the Group and its
financial resources, the Group and Company will have sufficient funds to meet
their liabilities as they fall due for that period.
The going concern period is required to cover a period of at least 12 months
from the date of approval of the Financial Statements and the Directors still
consider this 12-month period to be an appropriate assessment period due to
the Group's financial position and trading performance and that its borrowing
facilities do not expire until December 2026. The Directors have considered
whether there are any significant events beyond the 12-month period which
would suggest this period should be longer but have not identified any such
conditions or events.
The Group is financed primarily by a £162.5m multi-currency revolving credit
facility maturing in December 2026. Under these banking arrangements, the
Group can also request (seeking bank approval) an additional accordion
facility to increase the total size of the revolving credit facility by up to
£75m. This accordion facility has not been considered in the Group's going
concern assessment as it requires bank approval and is therefore uncommitted
as at the date of approval of these condensed interim Financial Statements.
As of 30 November 2023, net debt (excluding lease liabilities) (1) amounted to
£48.3m which comprised cash of £17.5m, a bank overdraft of £4.3m, a drawn
revolving credit facility of £61.5m had been drawn under these facilities,
leaving £101.0m of undrawn facilities, excluding the uncommitted accordion
facility of £75.0m. The Group's day-to-day working capital requirements are
met through existing cash resources, the revolving credit facility and
receipts from its continuing business activities.
The Group is required to comply with financial covenants for leverage (net
debt to Adjusted EBITDA (1)) and interest cover (Adjusted EBITDA (1) to
interest charge) that are tested bi-annually on 31 May and 30 November each
year. As of 30 November 2023, leverage (1) amounted to 1.9x and net interest
cover (1) amounted to 4.2x compared to a maximum of 3.0x and a minimum of 3.5x
respectively. The terms and ratios are specifically defined in the Group's
banking documents (in line with normal commercial practice) and are materially
similar to amounts noted in these financial statements with the exceptions
being net debt excludes IFRS 16 lease liabilities and Adjusted EBITDA (1)
excludes share based payments and IFRS 16. The Group was in compliance with
the terms of all its facilities during the period, including the financial
covenants on 30 November 2023, and based on forecasts, expects to remain in
compliance over the going concern period. In addition, the Group has not
sought or is not planning to seek any waivers to its financial covenants noted
above.
In Q3 2023, the Group experienced a challenging period with a decline in the
rate of revenue growth and overall profitability. The Group's revenue
performance and profitability suffered from market volatility within Cyber
Security (1). In particular, the Group experienced buying decision delays and
cancellations in the North American tech sector and our UK market. These
headwinds have further reinforced the need to accelerate the implementation of
our next chapter of the Group strategy following its communication in February
2023. This strategy requires a level of additional investment in 2024. Despite
the above, the Group has maintained consistent cash generation during the
period.
Following 31 May 2023, the Group engaged in additional generating cost
efficiencies across Cyber Security (1) and corporate functions which is
resulting in the implementation of a fundamental reorganisation generating
further savings compared to the periods. As a result of all of the above, the
base case going concern assessment has been prepared on the basis that market
volatility within Cyber Security (1) partially continues with overall
profitability remaining similar to 2023.
With this context, the Directors have prepared a number of severe but
plausible scenarios to the base cash going concern assessment as follows:
(a) Future performance consistent with Q4 FY23 Cyber Security (1)
trading performance, particular in North America
(b) Loss of key customers
(c) Shortfall in forecast cost savings
(d) Further inflationary pressures continue, worse and more
prolonged than expected (wages, energy and interest)
(e) Combination of Scenarios (a) and (d) above
These scenarios have been modelled individually in order to assess the Group's
ability to withstand specific challenges. The Directors do not believe it is
plausible for all of the above downside scenarios to occur concurrently;
however, they have modelled scenarios combining risks (a and d). The impact of
these severe but plausible scenarios has been reviewed against the Group's
projected cash flow position, available committed bank facilities and
compliance with financial covenants. These forecasts, including the severe but
plausible downsides, show that the Group is able to operate within its
available committed banking facilities, with no forecasted covenant breaches
or requirement for facility waivers, and that the Group will have sufficient
funds to meet its liabilities as they fall due for that period.
Having reviewed the current trading performance, forecasts, debt servicing
requirements, total facilities and risks, the Directors are confident that the
Group will have sufficient funds to continue to meet their liabilities as they
fall due for a period of at least 12 months from the date of approval of these
condensed interim consolidated Financial Statements, which is determined as
the going concern period. Accordingly, the Directors continue to adopt the
going concern basis of accounting in preparing the Group's condensed interim
consolidated Financial Statements for the period ended 30 November 2023.
There are no post-Balance Sheet events which the Directors believe will
negatively impact the going concern assessment.
Individually Significant Items
Individually Significant Items are identified as those items or projects that
based on their size and nature and/or incidence are assessed to warrant
separate disclosure to provide supplementary information to support the
understanding of the Group's financial performance. Where a project spans
reporting period(s) the total project size and nature are considered in
totality. Individually Significant Items typically comprise
costs/profits/losses on material acquisitions/disposals/business exits,
fundamental reorganisation/restructuring programmes and other significant
one-off events. Individually Significant Items are considered to require
separate presentation in the notes to the Financial Statements in order to
fairly present the financial performance of the Group.
Impairment review
The Group's policy is to test non-financial assets for impairment annually, or
if events or changes in circumstances indicate that the carrying amount of
these assets may not be recoverable. The Group has considered whether there
have been any indicators of impairment during the 6 months ended 30 November
2023, which would require an impairment review to be performed. The Group has
considered indicators of impairment with regard to several factors, including
those outlined in IAS 36 'Impairment of assets'. Based upon this review, the
Group has concluded that there are no such indicators of impairment as at 30
November 2023.
As part of this review, management has reviewed the key assumptions underlying
the valuation process performed during the annual impairment test at 31 May
2023. Indicators include assessment of the performance of the Group's Cash
Generating Units (CGUs) by comparing forecasts used at 31 May 2023 with their
latest forecast, expected future performance and recovery of Cyber Security
profitability and whether fair value less costs to sell calculations using an
appropriate level of sustainable earnings and a multiple applied to adjusted
EBITDA (1). For further detail on sensitivity analysis performed as at 31
May 2023, please see the 31 May 2023 Annual Report.
Prior year restatement
H1 2023 cost of sales has been restated to reclassify £0.8m from
administrative expenses to cost of sales to be consistent with internal
reporting classification of costs. The impact of this re-statement is to
increase cost of sales from £104.3m to £150.1m and decrease administrative
expenses from £59.4m to £58.6m. There is no impact on overall profit for
the period. These costs relate to the Escode operating segment.
2. Critical accounting judgements and key sources of estimation uncertainty
The preparation of condensed interim Financial Statements requires management
to exercise judgement in applying the Group's accounting policies. Different
judgements would have the potential to change the reported outcome of an
accounting transaction or Statement of Financial Position. It also requires
the use of estimates that affect the reported amounts of assets, liabilities,
income and expenses. Actual results may differ from these estimates. Estimates
and underlying assumptions are reviewed on an ongoing basis, with changes
recognised in the period in which the estimates are revised and in any future
periods affected.
2.1 Critical accounting judgements
No critical accounting judgements have been made in applying accounting
policies that have the most significant effects on the amounts recognised in
the condensed interim consolidated Financial Statements.
2.2 Key sources of estimation uncertainty
Information about estimation uncertainties that have a significant risk of
resulting in a material adjustment to the carrying values of assets and
liabilities is addressed below.
While every effort is made to ensure that such estimates and assumptions are
reasonable, by their nature they are uncertain, and as such changes in
estimates and assumptions may have a material impact.
Impairment of goodwill
The Group has significant balances relating to goodwill at 30 November 2023 as
a result of acquisitions of businesses in previous years. The carrying value
of goodwill at 30 November 2023 is £247.3m (2022: £272.0m). Goodwill
balances are tested annually for impairment. The Group allocates goodwill to
cash-generating units (CGUs) which represent the lowest level of asset
groupings that generate separately identifiable cash inflows that are not
dependent on other CGUs.
For the annual impairment review for the year ended 31 May 2023, tests for
impairment were based on the calculation of a fair value less costs to sell
(FVLCTS) which was been used to establish the recoverable amount of the CGU.
The FVLCTS valuation was calculated by assessing the value of each standalone
CGU calculated using an Adjusted EBITDA (1) multiple based on estimated
sustainable earnings adjusted for specific items where relevant. Estimated
sustainable earnings was determined taking into account past experience and
includes expectations based on a market participant view of sustainable
performance of the business based on market volatility and uncertainty as at
31 May 2023.
The sustainable earnings figures used in this calculation include key
assumptions regarding sustainable revenues and costs for the business. If the
assumptions and estimates used in this valuation prove to be incorrect, the
carrying value of goodwill may be overstated.
The two CGUs which are most sensitive to reasonably possible changes in
sustainable earnings are US Cyber Security and Europe Cyber Security. A
description of such estimates and reasonably possible sensitivities is
provided in the 31 May 2023 Annual report.
3 Alternative Performance Measures (APMs) and adjusting items
The condensed interim consolidated financial statements include APMs as well
as statutory measures. The APMs used by the Group are not defined terms under
IFRS and may therefore not be comparable with similarly titled measures
reported by other companies. They are not intended to be a substitute for, or
superior to, IFRS measures. This presentation is also consistent with the way
that financial performance is measured by management and reported to the
Board, and the basis of financial measures for senior management's
compensation scheme and provides supplementary information that assists the
user in understanding the financial performance, position and trends of the
Group.
We believe these APMs provide readers with important additional information on
our business and this information is relevant for use by investors, securities
analysts and other interested parties as supplemental measures of future
potential performance. However, since statutory measures can differ
significantly from the APMs and may be assessed differently by the reader, we
encourage you to consider these figures together with statutory reporting
measures noted. Specifically, we would note that APMs may not be comparable
across different companies and that certain profit related APMs may exclude
recurring business transactions (e.g. acquisition related costs) that impact
financial performance and cash flows.
After reconsidering FRC best practice guidance around the disclosure of
adjusting items and APM's, the Group have reduced the number of adjusted
measures and items within the period. The Group now only has one adjusted
item 'Individual Significant Items'. Previous adjusted items of Amortisation
of acquisition intangibles and Share based payments are no longer disclosed as
an adjusted item. Accordingly, comparative numbers have been restated.
The following tables reconciles how these changes have affected the historic
measures of Adjusted EBITDA, Adjusted operating profit, Adjusted earnings,
Adjusted basic EPS and cash conversion which includes Adjusted EBITDA:
Adjusted measure H1 2024 H1 2023 Change
(restated) (2)
Adjusted EBITDA - previously (£m) 16.4 26.7 (10.3)
Share based payments (£m) (0.8) (2.5) 1.7
Adjusted EBITDA - revised (£m) 15.6 24.2 (8.6)
Adjusted Operating profit - previously (£m) 10.2 20.5 (10.3)
Share based payments (£m) (0.8) (2.5) 1.7
Amortisation of acquired intangibles (£m) (4.6) (5.1) 0.5
Adjusted Operating profit - revised (£m) 4.8 12.9 (8.1)
Adjusted earnings - previously (£m) 5.4 13.3 (7.9)
Share based payments (£m) (0.8) (2.5) 1.7
Amortisation of acquired intangibles (£m) (4.6) (5.1) 0.5
Tax effect of above items (£m) 1.4 1.9 (0.5)
Adjusted earnings - revised (£m) 1.4 7.6 (6.2)
Basic adjusted EPS - previously (pence) 1.7 4.3 (2.6)
Effect of share-based payments (pence) (1.5) (1.6) 0.1
Effect amortisation of acquired intangibles (pence) (0.2) (0.8) 0.6
Tax effect of above items (pence) 0.5 0.6 (0.1)
Basic adjusted EPS - revised (pence) 0.5 2.5 (2.0)
Cash conversion - previously (%) 84.8 91.0 (6.2)
Effect of share-based payments (%) 4.3 9.4 (5.1)
Cash conversion - revised (%) 89.1 100.4 (11.3)
The Group still manages internally its performance on an adjusted earnings
basis (before Individually Significant Items and tax effect thereon) which
management believes represents the underlying trading of the business; on this
basis adjusted EPS is still disclosed as an APM. This APM is reconciled to
statutory earnings and statutory basic EPS.
The Group now has the following APMs/non-statutory measures:
· Adjusted EBITDA (reconciled in Note 3)
· Adjusted operating profit (reconciled in Note 3)
· Adjusted basic EPS (pence) (reconciled in Note 7)
· Net debt excluding lease liabilities (reconciled in Note 3)
· Net debt (reconciled in Note 3)
· Cash conversion which includes Adjusted EBITDA (reconciled in
Note 3)
· Constant currency revenue (reconciled in Note 3)
Apart from the changes noted above, the above APM's are consistent with those
reported for the year ended 31 May 2023.
The Group also reports certain geographic regions and service capabilities on
a constant currency basis to reflect the underlying performance considering
constant foreign exchange rates period on period. This involves translating
comparative numbers to current period rates for comparability to enable a
growth factor to be calculated. As these measures are not statutory revenue
numbers, management considers these to be APMs,
See below for further details on APM's/non-statutory measures:
Income Statement measures:
APM Closest equivalent IFRS measure Adjustments to reconcile to IFRS measure Note reference for reconciliation Definition, purpose and considerations
made by the Directors
Constant currency revenue Revenue growth rates at actual rates of currency exchange Retranslation of comparative numbers at current year exchange rates to provide 3 The Group also reports certain geographic regions and service capabilities on
growth rates constant currency a constant currency basis to reflect the underlying performance considering
constant foreign exchange rates year on year. This involves translating
comparative numbers to current year rates for comparability to enable a growth
factor to be calculated.
Adjusted operating Operating profit or loss Operating profit or loss before Individually Significant Items 3 Represents operating profit before Individually Significant Items (the only
profit
adjusting item).
(Previously: Operating profit or loss before amortisation of acquired
intangibles, share-based payments and Individually Significant Items) This measure is to allow the user to understand the Group's underlying
financial performance as measured by management.
Individually Significant Items are items that are considered unusual by nature
or scale and are of such significance that separate disclosure is relevant to
understanding the Group's financial performance and therefore requires
separate presentation in the Financial Statements in order to fairly present
the financial performance of the Group.
Adjusted earnings Operating profit or loss Operating profit or loss, before adjusting item, depreciation and 3 Represents operating profit before adjusting item, depreciation and
before interest, tax, depreciation and amortisation (Adjusted EBITDA) amortisation, finance costs and taxation amortisation to assist in the understanding of the Group's performance.
Adjusted EBITDA is disclosed as this is a measure widely used by various
stakeholders and used by the Group to measure the cash conversion ratio.
APM Closest equivalent IFRS measure Adjustments to reconcile to IFRS measure Note reference for reconciliation Definition, purpose and considerations
made by the Directors
Adjusted Statutory basic EPS Statutory basic EPS before Individually Significant Items and the tax effect 7 Represents basic EPS before amortisation of acquired intangibles, share-based
basic EPS thereon payments and Individually Significant Items.
(Previously: before amortisation of acquired intangibles, share-based This measure is to allow the user to understand the Group's underlying
payments, Individually Significant Items and the tax effect thereon) financial performance as measured by management, reported to the Board and
used as a financial measure in senior management's compensation schemes.
See further details above in relation to amortisation of acquired intangibles
and share-based payments.
Balance Sheet measures:
APM Closest equivalent IFRS measure Adjustments to reconcile to IFRS measure Note reference for reconciliation Definition, purpose and considerations
made by the Directors
Net debt excluding lease Total borrowings (excluding lease liabilities) offset by cash and cash 3 Represents total borrowings (excluding lease liabilities) offset by cash and
liabilities equivalents cash equivalents. It is a useful measure of the progress in generating cash,
strengthening of the Group Balance Sheet position, overall net indebtedness
and gearing on a like-for-like basis.
Net debt, when compared to available borrowing facilities, also gives an
indication of available financial resources to fund potential future business
investment decisions and/or potential acquisitions.
Net debt Total borrowings (including lease liabilities) offset by cash and cash 3 Represents total borrowings (including lease liabilities) offset by cash and
equivalents cash equivalents. It is a useful measure of the progress in generating cash,
strengthening of the Group Balance Sheet position, overall net indebtedness
and gearing including lease liabilities.
Net debt, when compared to available borrowing facilities, also gives an
indication of available financial resources to fund potential future business
investment decisions and/or potential acquisitions.
Cash flow measure:
Cash conversion ratio Ratio % of net cash flow from operating activities before interest and tax Ratio % of net cash flow from operating activities before interest and tax 3 The cash conversion ratio is a measure of how effectively operating profit is
divided by operating profit divided by Adjusted EBITDA converted into cash and effectively highlights both non-cash accounting items
within operating profit and also movements in working capital.
It is calculated as net cash flow from operating activities before interest
and taxation (as disclosed on the face of the Cash Flow Statement) divided by
adjusted EBITDA for continued and discontinued activities.
The cash conversion ratio is a measure widely used by various stakeholders and
hence is disclosed to show the quality of cash generation and also to allow
comparison to other similar companies.
Reconciliations for certain APMs are below:
Adjusted EBITDA (1)
Following the changes noted above to the number of adjusting items, the
revised calculation of Adjusted EBITDA (1) is set out below:
H1 2024 H1 2023 (restated) (2) £m
£m
Operating profit (including share-based payments of £0.8m (H1 2023: £2.5m)) 0.6 12.9
Depreciation and amortisation 6.2 6.2
Amortisation of acquired intangibles 4.6 5.1
Individually Significant Items (Note 5) 4.2 -
Adjusted EBITDA 15.6 24.2
Depreciation and amortisation and amortisation charge on acquired intangibles (10.8) (11.3)
Adjusted operating profit - revised 4.8 12.9
Previously this adjusted measure would have been calculated as follows:
H1 2024 H1 2023
£m £m
Operating profit 0.6 12.9
Depreciation and amortisation 6.2 6.2
Amortisation of acquired intangibles 4.6 5.1
Individually Significant Items (Note 5) 4.2 -
Share-based payments charge 0.8 2.5
Adjusted EBITDA - previously 16.4 26.7
Depreciation and amortisation (excluding amortisation charge on acquired (6.2) (6.2)
intangibles of £4.6m (H1 2023: £5.1m))
Adjusted operating profit - previously 10.2 20.5
Net debt (1) can be reconciled as follows:
H1 2024 H1 2023
£m £m
Cash and cash equivalents 17.5 44.5
Bank overdraft (4.3) (0.5)
Borrowings (net of deferred issue costs) (61.5) (98.8)
Net debt excluding lease liabilities (1) (48.3) (54.8)
Lease liabilities (34.8) (29.3)
Net debt (1) (83.1) (84.1)
The calculation of the cash conversion ratio (1) is set out below:
H1 2024 H1 2023 (restated) (2) % change/
£m £m % pts
Net operating cash flow before interest and taxation (A) 13.9 24.3 (42.8%)
Adjusted EBITDA (1, 2) (B) 15.6 24.2 (35.5%)
Cash conversion ratio (1, 2) (%) (A)/(B) 89.1% 100.4% (11.3% pts)
1: See above for an explanation of Alternative Performance Measures (APMs) and
adjusting items. Further information is also contained within the Financial
Review.
2: After reconsidering FRC best practice guidance around the disclosure of
adjusting items and APM's, the Group have reduced the number of adjusted
measures and items. The Group now only has one adjusted item 'Individual
Significant Items'. Previous adjusted items of Amortisation of acquisition
intangibles and Share based payments are no longer disclosed as an adjusted
item. Accordingly, comparative numbers have been restated. For further
detail, please refer to the Financial Review and above for an explanation of
APMs and adjusting items, including a reconciliation to statutory information.
Constant currency revenue growth
The following tables show how constant currency revenue growth has been
calculated and reconciled to statutory actual rate growth.
Group
% Constant Currency (1) H1 2023 %
change at actual rates £m change at constant currency (1)
H1 2024 H1 2023 H1 2024
£m £m £m
Cyber Security - continuing 124.2 143.1 (13.2%) 124.2 138.3 (10.2%)
Cyber Security - discontinued 2.6 1.9 36.8% 2.6 1.9 36.8%
Total Cyber Security revenue 126.8 145.0 (12.6%) 126.8 140.2 (9.6%)
Escode 32.4 31.6 2.5% 32.4 30.5 6.2%
Total revenue - continuing and discontinued 159.2 176.6 (9.9%) 159.2 170.7 (6.7%)
Cyber Security - discontinued (2.6) (1.9) 36.8% (2.6) (1.9) 36.8%
Total revenue - continuing 156.6 174.7 (10.4%) 156.6 168.8 (7.2%)
Cyber Security
Cyber Security revenue analysis - by originating country:
% Constant Currency (1) H1 2023 %
change at actual rates £m change at constant currency (1)
H1 2024 H1 2023 H1 2024
£m £m £m
UK & APAC 60.8 61.6 (1.3%) 60.8 61.1 (0.5%)
North America 37.6 59.2 (36.5%) 37.6 55.2 (31.9%)
Europe 28.4 24.2 17.4% 28.4 23.9 18.8%
Total Cyber Security revenue 126.8 145.0 (12.6%) 126.8 140.2 (9.6%)
Europe - discontinued (2.6) (1.9) 36.8% (2.6) (1.9) 36.8%
Total Cyber Security revenue - continuing 124.2 143.1 (13.2%) 124.2 138.3 (10.2%)
The following table compares H1 2024 performance to H2 2023 performance:
% Constant Currency (1) H2 2023 %
change at actual rates £m change at constant currency (1)
H1 2024 H2 2023 H1 2024
£m £m £m
UK & APAC 60.8 56.8 7.0% 60.8 56.6 7.4%
North America 37.6 40.1 (6.2%) 37.6 38.8 (3.1%)
Europe 28.4 29.2 (2.7%) 28.4 28.9 (1.7)%
Total Cyber Security revenue 126.8 126.1 0.5% 126.8 124.3 2.0%
Europe - discontinued (2.6) (2.7) 3.7% (2.6) (2.7) 3.7%
Total Cyber Security revenue - continuing 124.2 123.4 0.6% 124.2 121.6 2.1%
Cyber Security revenue analysed by type of type of service and capability:
% Constant Currency (1) %
change H1 2023 £m change at constant currency (1)
at actual rates
H1 2024 H1 2023 H1 2024
£m £m £m
Technical Assurance Services (TAS) 56.6 82.9 (31.7%) 56.6 79.3 (28.6%)
Consulting and Implementation (C&I) 22.0 22.4 (1.8%) 22.0 21.8 0.9%
Managed Services (MS) 27.8 24.1 15.4% 27.8 23.7 17.3%
Digital Forensics and Incident Response (DFIR) 8.5 6.4 32.8% 8.5 6.4 32.8%
Other services 9.3 7.3 27.4% 9.3 7.1 31.0%
Total Cyber Security revenue - continuing 124.2 143.1 (13.2%) 124.2 138.3 (10.2%)
Discontinued 2.6 1.9 36.8% 2.6 1.9 36.8%
Total Cyber Security revenue 126.8 145.0 (12.6%) 126.8 140.2 (9.6%)
Escode
Escode revenue analysis - by originating country:
%
change at actual rates Constant Currency (1) %
H1 2023 change at constant currency (1)
H1 2024 H1 2023 H1 2024 £m
£m £m £m
UK 13.4 12.3 8.9% 13.4 12.3 8.9%
North America 16.9 17.3 (2.3%) 16.9 16.2 4.3%
Europe 2.1 2.0 5.0% 2.1 2.0 5.0%
Total Escode revenue 32.4 31.6 2.5% 32.4 30.5 6.2%
Escode revenues analysed by service line:
% Constant Currency (1) %
change at actual rates H1 2023 change at constant currency (1)
H1 2024 H1 2023 H1 2024 £m
£m £m £m
Escrow contracts 21.8 21.3 2.3% 21.8 20.5 6.3%
Verification services 10.6 10.3 2.9% 10.6 10.0 6.0%
Total Escode revenue 32.4 31.6 2.5% 32.4 30.5 6.2%
4 Segmental information
The Group is organised into the following two (H1 2023: two) reportable
segments: Cyber Security and Escode (previously known as Software Resilience).
The two reporting segments provide distinct types of service. Within each of
the reporting segments the operating segments provide a homogeneous group of
services. The operating segments are grouped into the reporting segments on
the basis of how they are reported to the chief operating decision maker
(CODM) for the purposes of IFRS 8 'Operating Segments', which is considered to
be the Board of Directors of NCC Group plc.
Operating segments are aggregated into the two reportable segments based on
the types and delivery methods of services they provide, common management
structures, and their relatively homogeneous commercial and strategic market
environments. Performance is measured based on reporting segment profit, which
comprises Adjusted operating profit 1. Interest and tax are not allocated to
business segments and there are no intra-segment sales.
Segmental analysis H1 2024 Cyber Security Escode Central and Continuing activities Total Group
£m
£m £m head office £m
£m
Discontinued (2)
£m
Revenue 124.2 32.4 - 156.6 2.6 159.2
Cost of sales (87.1) (10.0) - (97.1) (1.7) (98.8)
Gross profit 37.1 22.4 - 59.5 0.9 60.4
Gross margin % 29.9% 69.1% - 38.0% 34.6% 37.9%
Administrative expenses (33.8) (7.6) (2.5) (43.9) (0.1) (44.0)
Share-based payments (0.1) (0.1) (0.5) (0.7) (0.1) (0.8)
Adjusted EBITDA (1) 3.2 14.7 (3.0) 14.9 0.7 15.6
Depreciation and amortisation (4.0) (0.4) (1.7) (6.1) (0.1) (6.2)
Amortisation of acquired intangibles (1.8) (2.8) - (4.6) - (4.6)
Adjusted Operating (loss)/profit (1) (2.6) 11.5 (4.7) 4.2 0.6 4.8
Individually Significant Items (Note 5) (3.8) (0.2) - (4.0) (0.2) (4.2)
Operating (loss)/profit (6.4) 11.3 (4.7) 0.2 0.4 0.6
Finance costs (3.0) - (3.0)
(Loss)/profit before taxation (2.8) 0.4 (2.4)
Taxation 0.8 (0.1) 0.7
(Loss)/profit for the period (2.0) 0.3 (1.7)
Segmental analysis H1 2023 Cyber Security Escode Central and Continuing activities Total Group
£m
£m £m head office £m
£m
Discontinued (2)
£m
Revenue 143.1 31.6 - 174.7 1.9 176.6
Cost of sales (94.5) (9.3) - (103.8) (1.3) (105.1)
Gross profit 48.6 22.3 - 70.9 0.6 71.5
Gross margin % 34.0% 70.6% - 40.6% 31.6% 40.5%
Administrative expenses (34.8) (8.0) (1.9) (44.7) (0.1) (44.8)
Share-based payments (1.2) (0.1) (1.1) (2.4) (0.1) (2.5)
Adjusted EBITDA (1) 12.6 14.2 (3.0) 23.8 0.4 24.2
Depreciation and amortisation (3.7) (0.2) (2.2) (6.1) (0.1) (6.2)
Amortisation of acquired intangibles (2.0) (3.1) - (5.1) - (5.1)
Adjusted Operating profit (1) 6.9 10.9 (5.2) 12.6 0.3 12.9
Individually Significant Items (Note 5) - - - - - -
Operating profit 6.9 10.9 (5.2) 12.6 0.3 12.9
Finance costs (2.6) - (2.6)
Profit before taxation 10.0 0.3 10.3
Taxation (2.6) (0.1) (2.7)
Profit for the period 7.4 0.2 7.6
1: Adjusted EBITDA and Adjusted Operating profit are Alternative Performance
Measures (APMs) and not IFRS measures. See Note 3 for an explanation of APMs
and adjusting items, including a reconciliation to statutory information.
2: Discontinued activities represent the non-core disposal of DetACT in
December 2023 that was classified as an asset held for sale at 30 November
2023. See note 8 for further information.
Revenue is disaggregated by primary geographical market, by category and
timing of revenue recognition as follows:
Revenue by originating country Cyber Security Escode H1 2024 Cyber Security Escode H1 2023
Total Total
£m £m £m £m £m £m
UK & APAC 60.8 13.4 74.2 61.6 12.3 73.9
North America 37.6 16.9 54.5 59.2 17.3 76.5
Europe 28.4 2.1 30.5 24.2 2.0 26.2
Total revenue 126.8 32.4 159.2 145.0 31.6 176.6
Europe - discontinued (2.6) - (2.6) (1.9) - (1.9)
Total revenue - continuing 124.2 32.4 156.6 143.1 31.6 174.7
Revenue by category Cyber Security Escode H1 2024 Cyber Security Escode H1 2023
Total Total
£m £m £m £m £m £m
Services 124.5 32.4 156.9 143.3 31.6 174.9
Products 2.3 - 2.3 1.7 - 1.7
Total revenue 126.8 32.4 159.2 145.0 31.6 176.6
( )
Timing of revenue recognition Cyber Security Escode H1 2024 Cyber Security Escode H1 2023
Total Total
£m £m £m £m £m £m
Services and products transferred over time 118.8 21.8 140.6 136.3 21.3 157.6
Services and products transferred at a point in time 8.0 10.6 18.6 8.7 10.3 19.0
Total revenue 126.8 32.4 159.2 145.0 31.6 176.6
5. Individually Significant Items
The Group separately identifies items as Individually Significant Items
(ISIs). Each of these is considered by the Directors to be sufficiently
unusual in terms of nature or scale so as not to form part of the underlying
performance of the business. They are therefore separately identified and
excluded from adjusted results (as explained in Note 1).
Reference H1 2023 H1 2023 £m
£m
Fundamental reorganisation costs a 3.8 -
Costs associated with strategic review of Escode business b 0.2 -
Costs directly attributable to the disposal of DetACT business c 0.2 -
Total ISIs 4.2 -
(a) Fundamental reorganisation costs
In order to implement the next chapter of the Group's strategy to enhance
future growth, certain strategic actions are required including reshaping the
Group global delivery and operational model. This reshaping is considered a
fundamental reorganisation and restructuring programme (meeting the Group's
policy for ISIs) that will span reporting periods and the total project size
and nature are considered in totality. The programme commencement was
accelerated following the Group experiencing specific market conditions that
validated the rationale of the next chapter of the Group's strategy. The
programme has three phases as follows:
· Phase 1 (March - April 2023) - initial reduction in global
delivery and operational headcount; -c.7% reduction of the Group's global
headcount
· Phase 2 (June - September 2023) - a further reduction in global
delivery, operational and corporate functions headcount prior to opening our
off-shore operations and delivery centre in Manila
· Phase 3 (October 2023 - May 2025) - finalisation of the Group's
operating model
Costs incurred during the period mainly represent Phase 2 of this
restructuring programme.
(b) Costs associated with strategic review of Escode business
During February 2023, the Group announced its ongoing strategic review of the
Software Resilience business and of other core and non-core assets. During the
year ended 31 May 2023, professional fees totalling £3.0m (2022: £nil)
mainly in respect of advisory services had been incurred. Such costs meet the
Group's policy for ISIs as they have been incurred as part of the wider
re-structuring/re-organisation activities that are ongoing within the Group.
The Group stopped the strategic review of the business in Q1 2024 and
remaining costs of £0.2m have been incurred in this period. The Board has
decided not to restart the strategic review of Escode, at this juncture.
(c) Costs directly attributable to the disposal of DetACT business
During the period, the Group has been in the process of disposing of its
DetACT business. The Group have disposed of the business in December 2023
(see note 8). The costs incurred up to 30 November 2023 that are directly
attributed the disposal have been recognised as an ISI. The directly
attributable costs and the resultant assets/liabilities and disposal proceeds
will be recognised as an ISI in H2 2024 in accordance with the Group's ISIs
policy.
6. Dividends
H1 2024 H1 2023
Dividends recognised in the period (£m) 9.8 9.8
Dividends per share proposed but not recognised in the period (pence) 1.50p 1.50p
Total dividends of £nil were paid in the period (H1 2023: £9.8m), with the
FY23 final dividend of £9.8m being paid in December 2023 following the AGM
(and shareholder approval of the dividend) on the 30 November 2023, this
represented the final dividend for FY23 of 3.15p. On the basis of
shareholder approval of the final dividend on the 30 November 2023, the
dividend has been recognised within H1 2024.
The Board is declaring an unchanged interim dividend of 1.50p per ordinary
share (H1 2023: 1.50p). This represents a dividend equal to that paid in the
prior period as the Board is conscious of the need to invest in new strategy.
The interim dividend of approximately £4.7m will be paid on 15 March 2024, to
shareholders on the register at the close of business on 16 February 2024. The
ex-dividend date is 15 February 2024.
7. Earnings per ordinary share (EPS)
Earnings per ordinary share are shown below:
H1 2024 H1 2023
£m £m
Statutory earnings (A) (1.7) 7.6
Statutory earnings - continuing activities (E) (2.0) 7.4
Statutory earnings - discontinued activities (F) 0.3 0.2
Number Number
of shares of shares
m m
Weighted average number of shares in issue 311.6 310.4
Less: Weighted Average Holdings by Group ESOT (0.7) (1.0)
Basic weighted average number of shares in issue (C) 310.9 309.4
Dilutive effect of share options 1.2 3.7
Diluted weighted average shares in issue (D) 312.1 313.1
For the purposes of calculating the dilutive effect of share options, the
average market value is based on quoted market prices for the period during
which the options are outstanding.
Group H1 2024 H1 2023
pence pence
Earnings per ordinary share
Basic (A/C) (0.5) 2.5
Diluted (A/D) (0.5) 2.4
Continuing activities H1 2024 H1 2023
pence pence
Earnings per ordinary share
Basic (E/C) (0.6) 2.4
Diluted (E/D) (0.6) 2.3
Discontinued activities H1 2024 H1 2023
pence pence
Earnings per ordinary share
Basic (F/C) 0.1 0.1
Diluted (F/D) 0.1 0.1
Adjusted basic EPS (1) is reconciled as follows:
H1 2024 H1 2023 (restated) (3)
£m £m
Statutory earnings (A) (1.7) 7.6
Individually Significant items (Note 5) (3) 4.2 -
Tax effect of above items (3) (1.1) -
Adjusted earnings (B) (3) 1.4 7.6
Adjusted earnings - continuing (G) 1.0 7.4
Adjusted earnings - discontinued (H) 0.4 0.2
Group H1 2024 H1 2023
pence (restated) (3)
pence
Adjusted earnings per ordinary share (1)
Basic (B/C) 0.5 2.5
Diluted (B/D) 0.4 2.4
Continuing activities H1 2024 H1 2023
pence pence
Adjusted earnings per ordinary share (1)
Basic (G/C) 0.4 2.4
Diluted (G/D) 0.3 2.3
Discontinued activities (2) H1 2024 H1 2023
pence pence
Adjusted earnings per ordinary share (1)
Basic (H/C) 0.1 0.1
Diluted (H/D) 0.1 0.1
1: Adjusted EPS is an Alternative Performance Measures (APMs) and not IFRS
measures. See Note 3 for an explanation of APMs and adjusting items.
2: Discontinued activities represent the non-core disposal of DetACT in
December 2023 that was classified as an asset held for sale at 30 November
2023.
3: After reconsidering FRC best practice guidance around the disclosure of
adjusting items and APM's, the Group have reduced the number of adjusted
measures and items. The Group now only has one adjusted item 'Individual
Significant Items'. Previous adjusted items of Amortisation of acquisition
intangibles and Share based payments are no longer disclosed as an adjusted
item. Accordingly, comparative numbers have been restated. For further
detail, please refer to the Financial Review and Note 3 for an explanation of
APMs and adjusting items, including a reconciliation to statutory information.
8 Asset held for sale, discontinued activities and post balance sheet event
Current year disclosures
Under IFRS 5, when certain conditions are met, a disposal group is classified
as held for sale.
During November 2023, the Group were finalising the strategic disposal of
DetACT. DetACT is a non-core offering within NCC's European Cyber Security
division serving European financial service clients.
On 20 December 2023, the Group signed as asset purchase agreement to dispose
of DetACT for a total gross consideration of €9.0m to DataExpert BV, which
is subject to a potential net working capital adjustment and the novation of
certain contracts. It expected that contract novations will be fully
completed in the forthcoming weeks and the transaction will be used to pay
down net debt of the Group. The disposal also involves a Transactional
Services Agreement to allow an efficient transition of the business to
DataExpert BV.
On this basis, at 30 November 2023, the sale of this business was considered
highly probable. Due to size of the business, the Group has also classified
its activities as discontinued, restating comparatives accordingly.
Values of the major provisional classes of assets and liabilities classified
as held for sale at 30 November 2023 for the DetACT business, are as follows:
H1 2024
£m
Assets classified as held for sale:
Goodwill 6.5
Intangible Assets 2.2
Trade and other receivables 0.5
Total assets classified as held for sale 9.2
Liabilities associated with assets classified as held for sale:
Trade and other payables (0.5)
Contract liabilities - deferred revenue (1.4)
Deferred tax (0.1)
Total liabilities associated with assets classified as held for sale (2.0)
Prior year disclosures
In November 2022, the Group signed Heads of Terms for the disposal of its
business for the delivery of managed and professional services in relation to
DDI solutions within the Assurance business unit ("DDI business"). At 30
November 2022, the sale of this business was considered highly probable.
Values of the major classes of assets and liabilities classified as held for
sale at 30 November 2022 for the DDI business, are as follows:
H1 2023
£m
Assets classified as held for sale
Goodwill 1.4
Trade and other receivables 0.8
Total assets classified as held for sale 2.2
Liabilities associated with assets classified as held for sale
Trade and other payables (1.1)
Total liabilities associated with assets classified as held for sale (1.1)
On 31 December 2022, the Group disposed of its DDI business for cash
consideration of £5.8m. Of this amount, £3.8m is contingent on the novation
of certain customer contracts. Provisional net assets of £1.2m were disposed
of subject to fair value assessment including finalisation of a working
capital adjustment.
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