TIDMNCC
RNS Number : 9395N
NCC Group PLC
24 January 2019
NCC Group plc
Interim Results for the six months to 30 November 2018
First half results show solid revenue growth and gross margin
improvement at a time of operational transformation.
NCC Group plc (LSE: NCC, "NCC Group" or "the Group"), the
leading independent global cyber security and risk mitigation
expert, has reported its half year results for the six months to 30
November 2018 ('the Half', 'H1', 'the Period').
Operational and financial highlights
Continuing operations(1) H1 2019 H1 2018* Change
Revenue (GBPm) 126.0 116.8 8%
--------- ---------- ----------
Gross profit (GBPm) 50.6 46.2 10%
--------- ---------- ----------
Gross margin (%) 40.2% 39.6% 0.6% pts
--------- ---------- ----------
Adjusted(2) operating profit
(GBPm) 14.8 13.8 7%
--------- ---------- ----------
Operating profit (GBPm) 9.5 6.3 51%
--------- ---------- ----------
Basic EPS (p) 2.4 1.4 71%
--------- ---------- ----------
Net debt(3) (GBPm) (45.1) (44.4) -2%
--------- ---------- ----------
*Restated for the impact of IFRS 15 and prior year discontinued
activities
1 References to the Group's results, unless stated to the
contrary, are to continuing operations only and exclude the
performance of businesses sold or discontinued in the prior year
(principally Web Performance and Software Testing).
2 Adjusted operating profit excludes individually significant
items, share based payments, unwinding of discounts on deferred
consideration and amortisation of acquired intangible assets. This
is an Alternative Performance Measure (APM) for which a
reconciliation to the equivalent GAAP measure can be found in Note
2.
3 Net debt is defined as total borrowings less cash and cash
equivalents. As an APM, it is detailed in Note 2
-- Group revenue from continuing operations grew by 8%:
-- Assurance revenues grew by around 10% with:
-- US growth particularly strong at 20%
-- UK performance held back by softer demand in our Risk
Management and Governance ("RMG") business coupled with resource
shortages in our Technical Security Consulting business and planned
reduction of third party reselling sales
-- Europe & RoW reflects encouraging consulting growth in
FortConsult and APAC, although Fox-IT growth was lower. A new
multi-year strategic partnership contract with the Dutch MoD has
been signed post half-year end.
-- Escrow revenues were slightly down (-2%) but with encouraging
US growth (+11%) as we invest to expand in that market.
-- Gross margin % was slightly ahead of last year, with Escrow
margins falling (-3%), reflecting investment in international
growth, while Assurance margins were ahead (+2%), reflecting higher
utilisation and improved mix.
-- Adjusted operating profit from continuing operations of
GBP14.8m (12% margin) is ahead of last year's GBP13.8m (12%
margin):
-- the comparative period included onerous contract costs of
GBP1.1m which are not replicated in this year's figure
-- investment in Securing Growth Together
-- full impact of planned overhead increases from increased
headcount and our new Manchester head office.
-- Operating profit increased to GBP9.5m from GBP6.3m as a
result of lower levels of adjusting items, with Individually
Significant Items this half year of net GBPnil (H1 2018:
GBP2.6m).
-- Adjusted basic earnings per share 3.9p (H1 2018: 3.7p), Basic
earnings per share 2.4p (H1 2018: 1.4p).
-- Net cash flow from operations of GBP6.6m (H1 2018: GBP14.7m)
with the decline largely resulting from working capital impact of
short term increase in trade receivables, together with a reduction
in trade payables, which is expected to reverse by the year
end.
-- Interim dividend maintained at 1.5p per share (H1 2018: 1.5p).
Strategy progress update
-- Acceleration and expansion of the investment programme to
rationalise and replace our global systems infrastructure.
Programme now expected to cost an incremental GBP4m over the next
four years, the majority of which is non-cash as a result of legacy
system write offs in H2 2019.
-- Management team strengthened with new CFO, Managing Director
of UK Assurance & RoW and Interim Chief People Officer.
-- Expenses and Credit Control systems recently implemented in
UK and in process of being rolled out across other geographies.
-- Good progress on wider SGT transformation programme and 'One
Firm One Way' approach to support future scalability and
growth.
Outlook
-- Demand in our core Assurance markets remains strong, although
we saw a slower start to H2 in Assurance. We are focusing on
retention and recruitment to address this.
-- Growth in Escrow from US market supported by stability in the UK.
-- Adjusted EBIT margin growth by 2%pts in aggregate by the end of FY 2021.
-- We now expect to deliver full year adjusted EBIT of around GBP34m.
Adam Palser, CEO comments:
"This is an important year of change for NCC Group as we
implement our 'Securing Growth Together' strategy and transform the
business into a world-leading cyber security and risk mitigation
specialist. We are pleased with the progress we have made, with
continued growth in our core Assurance division and a particularly
strong performance in the US, the world's largest cyber market.
While profits from our Escrow division fell slightly, our
experience in the US has given us confidence that we can
re-energise the growth of this business.
We have assembled an excellent management team and are now
installing the systems and processes that will enable us to operate
as a unified global business, helping us to win more major
contracts and focus on recurring, higher margin work.
The new team is now focused on accessing the resources to enable
the group to fully capitalise on its growth potential, with
retention and recruitment a key priority. We expect to deliver full
year Adjusted EBIT of around GBP34m, while our longer term growth
prospects remain excellent."
The Group expects to report its full year results, for the year
ended 31 May 2019, on Thursday, 25 July 2019.
A briefing for analysts will be held today at 9am at the offices
of Maitland, 3 Pancras Square, London N1C 4AG. The briefing will
also be webcast live and can be accessed via the Group's
website.
24 January 2019
Enquiries:
Maitland/AMO
Neil Bennett/Al Loehnis +44 (0) 20 7379 5151
Business Review
Overview
NCC Group holds leading positions in growing cyber security and
risk markets around the world, in a sector which is becoming ever
larger and more relevant to organisations large and small. We have
a highly experienced and skilled workforce and are able to serve
our customers with a diverse range of services.
Strategy update
During the first half of the financial year, the global
leadership team of NCC Group came together to re-define the
mission, vision and values of the business and we are now in the
process of embedding these across the organisation.
Our transformation programme, Securing Growth Together, is our
vehicle for change and has made strong progress since its launch in
May 2018. Securing Growth Together has five workstreams:
- Lead the Market
- Win Business
- Deliver Excellence
- Support Growth
- Develop our People
Each workstream is led by a member of the Executive Team. The
scope of Securing Growth Together has grown to include the
replacement of our finance processes and systems. The overall cost
of the programme is projected to be around GBP18m over the next
three years, which is a net incremental cost of GBP4.3m beyond the
previously expected position, most of which is non-cash from legacy
systems' write off. As a result of the programme, we will instill
one way of operating across the firm, improve the way we work with
clients and reduce the number of systems in use as part of our
global platform from forty-eight to ten.
The increased scope of the programme will unify management
systems across the business, transforming our ability to manage NCC
Group efficiently and to compete on a global basis. As a result,
our target of improving Adjusted EBIT margin by 2%pts has been
extended by a year to 2021.
Notable areas of good progress to date include:
- the rollout of Expenses and Credit Control systems
- the scoping and commitment to an HR, Finance and Professional
Service Administration system (Workday) and a CRM system
(Salesforce)
The executive team has been further strengthened by:
- our new CFO (Tim Kowalski) from July 2018
- a new MD for UK Assurance (Ian Thomas) from December 2018
- an interim Chief People Officer (Colin Watt) from December 2018
The extensive rebuilding of our corporate teams (including our
finance, communications, marketing and HR teams) is largely
complete.
Group Revenue
Group revenue from continuing operations increased by 8% to
GBP126.0m (H1 2018: GBP116.8m). The main driver of this growth was
our US Assurance business, reflecting growth of 20% versus the
prior year.
There were no discontinued activities in the current period,
while in the prior year, the Web Performance and Software Testing
businesses were to be sold and hence were treated as discontinued
operations. A related element of this business was also
discontinued at the time of the disposal in Spring 2018 and the
results of all these businesses are therefore shown as discontinued
activities in the comparative period.
With the higher growth rates being achieved in the Assurance
division, its share of Group revenue has now risen to 85% (H1 2018:
84%). The Group continued to have minimal reliance on any one
customer or sector. Within Assurance the largest customer
represents approximately 4% of total Assurance revenue while the
largest customer in Escrow is around 1% of total Escrow
revenue.
Revenue performance is discussed further in each Operating
Segment's Business Performance review below.
Group margins and profitability
The Board and Executive management use a number of non-GAAP
measures (also known as Alternative Performance Measures or
'APM's') in the day-to-day management of the business. Further
details are provided in Note 2.
The Group delivered a Gross Margin of 40.2% in the period (H1
2018: 39.6%), with the overall improvement driven by improved
Assurance gross margin offset by a slight deterioration in
Escrow.
Gross profit increased as a result of the revenue growth and
overall margin improvement to deliver a GBP4.4m improvement to
GBP50.6m.
Group Administration Expenses on a continuing adjusted
activities basis increased by GBP3.4m to GBP35.8m, which was
principally as a result of the following factors:
-- Investments in training and process improvements through the
Securing Growth Together programme;
-- Increased senior management and back office support to match our scale and complexity;
-- Annualisation of occupancy costs resulting from the move to
the Group's Head office and other territorial expansion in the
prior year.
As a result, overall Group adjusted operating profit from
continuing operations of GBP14.8m was broadly in line with the
prior year (H1 2018: GBP13.8m) as the prior year included GBP1.1m
in respect of a loss making contract which was subsequently
provided for at year end May 2018 as an Individually Significant
Item within a contract provision. Current year costs in respect of
the contract have been allocated against that provision.
The Group's profit after tax for the period of GBP6.8m (H1 2018:
GBP3.8m) includes GBPnil from discontinued operations (H1 2018:
profit after tax GBP0.8m).
Individually significant items
Individually significant costs incurred during the Period and in
the prior year are set out in the table below:
H1 2019 H1 2018
GBPm GBPm
Individually significant items
Revisions to deferred and contingent consideration - 0.6
Restructuring costs - 1.1
Acquisition / market related costs - 0.2
Property related costs - 0.7
--------------------------------------------------- ----------- -------
Total individually significant items - 2.6
--------------------------------------------------- ----------- -------
Further detail in respect of the above items is provided in Note
5 within the financial section of this report.
In the second half, we expect a write off of around GBP4m in
relation to legacy systems as a result of Securing Growth
Together.
Taxation
The Group's adjusted effective tax rate for the period to 30
November 2018 is 22.9% (H1 2018 28.8%).
The decrease in the estimated effective tax rate from H1 2018 to
H1 2019 is a result of the lower US Federal corporate tax rate (35%
to 21%) that came into force for profits arising from 1 January
2018. As the relevant legislation was not enacted in the US until
22 December 2017, this was not applied to the calculation of the H1
2018 estimated effective tax rate.
The tax charge and effective tax rate for the 6 months to 30
November 2018 is based on the application of tax rates enacted as
of 30 November 2018 to full year forecast profits.
Earnings per share
Adjusted fully diluted earnings per share from continuing
operations was 3.8p (H1 2018: 3.6p) while basic earnings per share
was 2.4p (H1 2018: 1.4p). The calculation of adjusted EPS is set
out in Note 7.
Dividends
The Board is recommending an unchanged interim dividend of 1.5p
per ordinary share (H1 2018: 1.5p). The interim dividend is
expected to be paid on 28 February 2019 to shareholders on the
register at the close of business on 8 February 2019. The
ex-dividend date is 7 February 2019.
Cash
H1 2019 H1 2018
GBPm GBPm
Cash flow before changes in working
capital 20.3 18.5
Changes in working capital (8.7) (0.7)
Interest paid (0.9) (0.7)
Income taxes paid (4.1) (2.4)
------------------------------------ ------- -------
Net cash from operating activities 6.6 14.7
Net capital expenditure (3.3) (7.1)
Capitalised development costs (0.9) (1.4)
------------------------------------ ------- -------
Free cash flow 2.4 6.2
Acquisitions (9.9) (1.0)
Disposals 0.1 -
Dividends (8.7) (8.7)
Share issues 0.2 1.1
------------------------------------ ------- -------
Net cash flow before financing (15.9) (2.4)
Opening net debt (27.8) (43.7)
Foreign exchange impacts (1.4) 1.7
------------------------------------ ------- -------
Closing net debt (45.1) (44.4)
==================================== ======= =======
While overall net debt increased from 31 May 2018, May was a
seasonal low point as this half year included the Fox-IT deferred
consideration of GBP9.9m and the final dividend of GBP8.7m.
The Group generated GBP6.6m of net cash from operating
activities (H1 2018 GBP14.7m). Working capital deteriorated during
the period, owing to a reduction in trade payables, mainly arising
from the normalisation of payment terms, together with an increase
in trade receivables caused by the temporary impact of credit
control team turnover as a consequence of senior management change.
We expect this position to reverse in the second half as a result
of sales and finance team strengthening and the implementation of a
new credit control system.
Interest cash costs were in line with prior year. Cash tax paid
increased as the Group expects higher cash tax liabilities for the
full year in the US, with a reduction in availability of tax losses
and R&D tax credits from prior years, offset to some extent by
the lower US Federal tax rate effective 1 January 2018.
Accordingly, the US business now has corporate tax cash outflows
that are more representative of its current tax profile (rather
than affected by historic tax assets and more closely aligned to
its estimated effective tax rate).
Net capital expenditure was GBP3.3m (H1 2018: GBP7.1m), with the
prior year spend being predominantly due to the move of the Group's
head office to the Manchester XYZ building which incurred GBP3.9m
of costs in the prior period.
Financing facilities
The Group's facilities and covenants are summarised below:
-- Maximum facility of GBP100.6m (GBP20.6m amortising term loan
and GBP80m revolving credit facility) with a further additional
accordion facility of GBP50.0m; net debt is GBP45.1m (2018:
GBP44.4m).
-- Liabilities for non-contingent, deferred acquisition
consideration are included in net debt for covenant purposes giving
banking net debt as at 30 November 2018 of GBP45.1m (H1 2018:
GBP54.3m), having paid GBP9.9m in respect of Fox-IT during the
period.
-- Leverage limit of 2.5 times Adjusted EBITDA; current leverage is 1.1 times.
-- Net interest (Adjusted EBITDA/Net interest) cover minimum 3.5
times; current ratio is 28 times.
The Group is operating within its banking facilities and
covenants. The terms and ratios above are specifically defined in
the Group's banking documents (in line with normal commercial
practice) and are materially similar to GAAP or the Group's
Alternative Performance Measures of the same name. The exception is
net debt which as described above includes unpaid deferred
consideration. These are commercially confidential documents and
hence further details of any immaterial differences are not
disclosed.
Principal risks and uncertainties
Risks are evaluated at a number of levels of the organisation,
commencing with those which link to the Group achieving its
strategic objectives. These risks are considered largely unchanged
from those outlined in the 2018 financial statements which were
business strategy and strategic change, availability of critical
information systems, staff capacity and capability, cyber risk and
quality of systems and processes.
The full detail of these risks, our approach to risk management,
associated mitigating controls and their potential impact is set
out in full in the Annual Report and Accounts for the year ended 31
May 2018.
Brexit
We continue our work to assess and, where possible, mitigate the
likely impact of the United Kingdom's exit from the European Union
("EU"). In light of recent political developments, the outcome
remains unclear, and therefore while it continues to take shape, we
are monitoring developments and developing contingency plans based
on potential outcomes.
To date, in overall terms while there could be global foreign
exchange and interest rate volatility, we have not determined that
Brexit will have a significant impact on our operations due to our
geographical spread, although we have recently seen some softening
of demand in the UK RMG business as companies adopt a "wait and
see" approach with their spending.
Assurance Division - Business Performance Review
Revenue performance
The global Assurance business, which now accounts for 85% (H1
2018 84%) of group revenues, delivered 10% organic growth. We are
presenting the business across three segments (UK, USA and Europe
& ROW) to simplify the understanding of performance. We
continue to retain the Fox IT and FortConsult brands in the Benelux
and Scandinavian markets respectively.
Assurance revenue analysis - by originating H1 2019 H1 2018* Change
country GBPm GBPm %
UK 44.8 44.3 1.1%
USA 37.7 31.3 20.4%
Europe & RoW 24.6 22.0 11.8%
-------------------------------------------- ------- -------- ------
Total Assurance revenue 107.1 97.6 9.7%
============================================ ======= ======== ======
*Restated for the impact of IFRS 15 and prior year discontinued
activities
US Assurance continues to deliver strong double-digit revenue
growth as the business builds on the blue chip customer base. We
continue to grow our market share and scale in this region. The
earn-out periods for the PSC and VSR businesses have been completed
post half-year and this will allow for better integration into the
core USA business.
The UK Assurance result moved forward despite softer demand in
the Risk Management and Governance ("RMG") group in the latter part
of Q2, a GBP2.5m reduction in third party sales, as well as
resource shortages in Technical Security Consulting. The UK
division supported growth in other territories with net
contributions of GBP2.2m (H1 2018: GBP1.2m) which pegged back UK
growth but reflects the growing global delivery capacity of our
services. The Group has a renewed focus on the significant sales
opportunities available in the market and is prioritising technical
consultant headcount growth through active management of retention
and recruitment.
Europe and RoW have performed well compared with prior year as a
result of strong growth from FortConsult and APAC. Subsequent to
the half year end, Fox-IT and the Dutch Ministry of Defence have
become strategic partners, with the purpose being to ensure the
longer term availability of specialist skills and engineering
capacity for cryptologic applications that are of strategic
importance to the Dutch Armed Forces. With this partnership the MoD
committed to invest EUR4.1m annually.
We continue to develop market leading expertise in sectors
including Transport, Hardware and Financial Services through
recruitment of high quality sector specialists and are focused on
continuing to develop our leading market position as cyber risk
advisor. The Risk Management and Governance service line which
focuses on Board or Strategic level cyber risk has shown good
growth in USA and we remain focused on leveraging this capability
in Europe and RoW.
Profitability analysis
Gross Profit H1 2019 H1 2018* Change
GBPm GBPm %
UK 14.3 13.4 6.7%
USA 13.9 10.6 31.1%
Europe & RoW 8.5 7.4 14.9%
Assurance GP 36.7 31.4 16.9%
============= =========== ======== ======
*Restated for the impact of IFRS 15 and prior year discontinued
activities
Our Gross Margin % increased in all geographies across the
division by 2.1% to 34.3%. This was the result of improved
utilisation rates, geography and average order value with the move
away from lower margin reselling of 3rd party products.
Escrow Division - Business Performance Review
Revenue performance
The Escrow division accounts for 15% of continuing Group
revenues (H1 2018: 16%). Escrow revenue for the half year fell
slightly by GBP0.3m to GBP18.9m (H1 2018: GBP19.2m), as strong
growth in the USA was offset by declines in the UK and
Europe/RoW.
Escrow revenue analysis - by originating H1 2019 H1 2018* Change
country GBPm GBPm %
UK 12.9 13.5 (4.4%)
USA 4.2 3.8 10.5%
Europe & RoW 1.8 1.9 (5.3%)
----------------------------------------- ------- -------- ------
Total Escrow revenue 18.9 19.2 (1.6%)
========================================= ======= ======== ======
*Restated for the impact of IFRS 15
Escrow revenues and growth can be further analysed as
follows:
Escrow services revenue H1 2019 H1 2018* Change
GBPm GBPm %
Escrow contracts 12.8 13.4 (4.5%)
Verification testing 5.6 5.2 7.7%
Other services 0.5 0.6 (16.7%)
------------------------ ------- -------- -------
Total Escrow revenue 18.9 19.2 (1.6%)
======================== ======= ======== =======
*Restated for the impact of IFRS 15
The UK revenue decline is partly due to continued net attrition
of on-premise agreements in a mature market and partly due to
operational challenges relating to turnover of sales staff, offset
by an increase in verification testing work.
The US has demonstrated strong growth fueled by our recent
investments and the changes in the US senior management team.
The decline in Europe and RoW is a consequence of previous under
investment which is being addressed by increased sales capacity and
a focused management structure.
Profitability analysis
Gross Profit H1 2019 H1 2018 Change
GBPm GBPm %
UK 9.7 10.7 (9.3%)
USA 2.8 2.7 3.7%
Europe and RoW 1.5 1.4 7.1%
Escrow GP 14.0 14.8 (5.4%)
=============== =========== ======= ======
Gross margin % has reduced to 74.1% (H12018: 77.1%) with US
margins lower at 66.7% as we seek to expand in that market.
On behalf of the Board
Adam Palser Tim Kowalski
Chief Executive Officer Chief Financial Officer
23 January 2019
Independent Review Report to NCC Group plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 November 2018 which comprises consolidated
income statement, consolidated statement of comprehensive income,
consolidated condensed statement of financial position,
consolidated condensed statement of cash flows, consolidated
condensed statement of changes in equity and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
November 2018 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the Disclosure Guidance and Transparency Rules (the DTR)
of the UK's Financial Conduct Authority (the UK FCA).
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in Note 1, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Mick Davies
for and on behalf of KPMG LLP
Chartered Accountants
1 St Peter's Square, Manchester, M2 3AE
23 January 2019
Condensed Consolidated Income Statement
for the six months ended 30 November 2018
Note H1 2019 H1 2019 H1 2019 H1 2018* H1 2018* H1 2018*
Total Adjustments Continuing Total Adjustments Continuing
Adjusted Adjusted
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue [3] 126.0 - 126.0 116.8 - 116.8
Cost of Sales (75.4) - (75.4) (70.6) - (70.6)
-------------------------------- ------- ----------- ---------- -------- ----------- ----------
Gross profit 50.6 - 50.6 46.2 - 46.2
Administration expenses (41.1) 5.3 (35.8) (39.9) 7.5 (32.4)
Analysed as:
General & admin costs (35.8) - (35.8) (32.4) - (32.4)
Profit on sale of
subsidiaries 0.1 (0.1) - - - -
Amortisation acquired
intangibles [9] (4.5) 4.5 - (4.9) 4.9 -
Individually significant
items [5] - - - (2.6) 2.6 -
Share based payments (0.9) 0.9 - - - -
-------------------------------- ------- ----------- ---------- -------- ----------- ----------
Operating profit [2] 9.5 5.3 14.8 6.3 7.5 13.8
Interest expense (0.8) - (0.8) (0.6) - (0.6)
Discount on acquisition
consideration - - - (0.2) 0.2 -
Net financing costs (0.8) - (0.8) (0.8) 0.2 (0.6)
-------------------------------- ------- ----------- ---------- -------- ----------- ----------
Profit before taxation 8.7 5.3 14.0 5.5 7.7 13.2
Taxation [6] (1.9) (1.3) (3.2) (2.5) (1.3) (3.8)
------------------------- ----- ------- ----------- ---------- -------- ----------- ----------
Profit from continuing
operations 6.8 4.0 10.8 3.0 6.4 9.4
Profit from discontinued
operation, net of
tax [4] - - - 0.8 (0.8) -
------------------------- ----- ------- ----------- ---------- -------- ----------- ----------
Profit for the period 6.8 4.0 10.8 3.8 5.6 9.4
Attributable to equity
holders of the parent
company 6.8 4.0 10.8 3.8 5.6 9.4
Continuing operations [7]
EPS
Basic EPS 2.4p - - 1.4p - -
Diluted Adjusted
EPS 3.8p - - 3.6p - -
*Restated for the impact of IFRS 15 and prior year discontinued
activities
Condensed Consolidated Statement of Comprehensive Income
for the six months ended 30 November 2018
H1 2019 H1 2018*
GBPm GBPm
----------------------------------------------- ------- --------
Profit for the period 6.8 3.8
----------------------------------------------- ------- --------
Items that may be reclassified subsequently to
profit or loss (net of tax)
Foreign exchange translation differences 2.7 (0.1)
----------------------------------------------- ------- --------
Total comprehensive income for the period, net
of tax 9.5 3.7
----------------------------------------------- ------- --------
Attributable to:
Equity holders of the parent 9.5 3.7
----------------------------------------------- ------- --------
*Restated for the impact of IFRS 15 and prior year discontinued
activities
Condensed Consolidated Balance Sheet
at 30 November 2018
Notes H1 2019 H1 2018* FY 2018*
GBPm GBPm GBPm
Non-current assets
Plant and equipment [10] 18.1 20.3 19.4
Intangible assets [9] 239.3 247.8 240.0
Investments 0.3 0.4 0.4
Deferred tax assets 1.5 4.1 4.5
---------------------------------------------- -------------- --------------- ---------------
Total non-current assets 259.2 272.6 264.3
---------------------------------------------- -------------- --------------- ---------------
Current assets
Trade and other receivables 73.8 63.0 67.5
Inventories 0.8 0.7 0.8
Cash and cash equivalents 15.5 13.4 21.2
Current tax receivable 0.3 - -
Assets held for sale - 17.8 -
-------------------------------------- ------ -------------- --------------- ---------------
Total current assets 90.4 94.9 89.5
---------------------------------------------- -------------- --------------- ---------------
Total assets 349.6 367.5 353.8
---------------------------------------------- -------------- --------------- ---------------
Current Liabilities
Trade and other payables 33.5 28.2 35.7
Provisions 1.2 0.8 2.6
Consideration payable on acquisitions [12] 1.7 12.0 11.9
Deferred revenue 31.0 30.9 30.6
Interest bearing loans [11] 5.0 5.0 -
Current tax payable - 3.7 1.3
Liabilities held for sale - 7.1 -
-------------------------------------- ------ -------------- --------------- ---------------
Total current liabilities 72.4 87.7 82.1
---------------------------------------------- -------------- --------------- ---------------
Non-current liabilities
Deferred tax liability 6.0 13.2 9.8
Provisions 7.1 5.4 6.3
Consideration payable on acquisitions [12] - 1.9 -
Interest bearing loans [11] 55.6 52.8 49.0
-------------------------------------- ------ -------------- --------------- ---------------
Total non-current liabilities 68.7 73.3 65.1
---------------------------------------------- -------------- --------------- ---------------
Net Assets 208.5 206.5 206.6
---------------------------------------------- -------------- --------------- ---------------
Equity
Issued capital 2.8 2.8 2.8
Share premium 149.7 148.9 149.5
Merger reserve 42.3 42.3 42.3
Retained earnings (15.4) (13.5) (14.4)
Currency translation reserve 29.1 26.0 26.4
---------------------------------------------- -------------- --------------- ---------------
Total equity attributable
to equity holders of the parent 208.5 206.5 206.6
---------------------------------------------- -------------- --------------- ---------------
*Restated for the impact of IFRS 15 and prior year discontinued
activities
These financial statements were approved by the Board of
Directors on 23 January 2019 and were signed on its behalf by:
Adam Palser Tim Kowalski
Chief Executive Officer Chief Financial Officer
Condensed Consolidated Cash Flow Statement
for the six months ended 30 November 2018
H1 2019 H1 2018*
GBPm GBPm
Profit for the period 6.8 3.8
Adjustments for:
Depreciation 3.0 3.2
Share based charges 0.9 (0.1)
Amortisation of intangible assets 6.7 8.0
Net financing costs 0.8 0.9
Exchange rate loss 0.1 0.2
Profit on disposal of subsidiaries 0.1 -
Income tax expense 1.9 2.5
Operating cash flows before movements
in working capital 20.3 18.5
Increase in trade and other receivables (4.1) (1.1)
Decrease in trade and other payables (4.6) 0.4
---------------------------------------------- ------- --------
Cash generated from operating activities 11.6 17.8
Interest paid (0.9) (0.7)
Income taxes paid (4.1) (2.4)
---------------------------------------------- ------- --------
Net cash generated from operating activities 6.6 14.7
---------------------------------------------- ------- --------
Investing activities
Purchase of plant and equipment (1.8) (6.0)
Capitalised development costs (0.9) (1.4)
Software expenditure (1.5) (1.1)
Deferred consideration paid (9.9) (1.0)
Proceeds from sale of subsidiaries 0.1 -
---------------------------------------------- ------- --------
Net cash used in investing activities (14.0) (9.5)
---------------------------------------------- ------- --------
Financing activities
Proceeds from the issue of ordinary share
capital 0.2 1.1
Draw down of borrowings 10.0 3.9
Equity dividends paid (8.7) (8.7)
---------------------------------------------- ------- --------
Net cash generated / (used) in financing
activities 1.5 (3.7)
---------------------------------------------- ------- --------
Net (decrease) / increase in cash and
cash equivalents (5.9) 1.5
Cash and cash equivalents at beginning
of the period 21.2 12.3
Effect of foreign currency exchange rate
changes 0.2 (0.4)
---------------------------------------------- ------- --------
Cash and cash equivalents at end of period 15.5 13.4
---------------------------------------------- ------- --------
*Restated for the impact of IFRS 15
Reconciliation of net change in cash and cash equivalents to movement
in net debt
H1 2019 H1 2018*
GBPm GBPm
(Decrease)/ increase in cash and cash equivalents (5.9) 1.5
Change in net debt resulting from cashflows (10.0) (3.9)
Foreign currency translation differences
on cash and cash equivalents 0.2 (0.4)
Foreign currency translation differences
on borrowings (1.6) 2.1
------------------------------------------------------- -------- --------
Change in net debt during the period (17.3) (0.7)
------------------------------------------------------- -------- --------
Net debt at start of period (27.8) (43.7)
------------------------------------------------------- -------- --------
Net debt at end of period (45.1) (44.4)
------------------------------------------------------- -------- --------
Net debt comprises H1 2019 H1 2018*
GBPm GBPm
Cash and cash equivalents 15.5 13.4
Total borrowings (Note 11) (60.6) (57.8)
------------------------------------------------------- -------- --------
Net debt (45.1) (44.4)
------------------------------------------------------- -------- --------
*Restated for the impact of IFRS 15 and prior year discontinued
activities
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 November 2018
Share Share Premium Merger Currency Reserve Retained Total
Capital Reserve Translation for own Earnings
Reserve shares
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 June 2017 2.8 148.0 42.3 26.1 - (7.1) 212.1
Adjustment on application
of IFRS 15 - - - - - (1.4) (1.4)
----------------------------- -------- ------------- -------- ------------ -------- --------- -----
Restated balance 2.8 148.0 42.3 26.1 - (8.5) 210.7
----------------------------- -------- ------------- -------- ------------ -------- --------- -----
Profit for the period* - - - - - 3.8 3.8
Foreign currency translation
differences - - - (0.1) - - (0.1)
----------------------------- -------- ------------- -------- ------------ -------- --------- -----
Total comprehensive
income for the period - - - (0.1) - 3.8 3.7
----------------------------- -------- ------------- -------- ------------ -------- --------- -----
Transactions with owners
recorded directly in
equity
Dividends to equity
shareholders - - - - - (8.7) (8.7)
Share based payment
transactions - - - - - (0.1) (0.1)
Shares issued - 0.9 - - - - 0.9
Purchase of own shares - - - - - - -
----------------------------- -------- ------------- -------- ------------ -------- --------- -----
Total contributions
by and distributions
to owners - 0.9 - - - (8.8) (7.9)
----------------------------- -------- ------------- -------- ------------ -------- --------- -----
Balance at 30 November
2017 2.8 148.9 42.3 26.0 - (13.5) 206.5
----------------------------- -------- ------------- -------- ------------ -------- --------- -----
Share Capital Share Premium Merger Currency Reserve Retained Total
Reserve Translation for own Earnings
Reserve shares
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 June 2017 2.8 148.0 42.3 26.1 - (7.1) 212.1
Adjustment on application
of IFRS 15 - - - - - (1.4) (1.4)
-------------------------- ------------- ------------- -------- ------------ -------- --------- ------
Restated balance 2.8 148.0 42.3 26.1 - (8.5) 210.7
-------------------------- ------------- ------------- -------- ------------ -------- --------- ------
Profit for the year* - - - - - 6.7 6.7
Foreign currency
translation differences - - - 0.3 - - 0.3
-------------------------- ------------- ------------- -------- ------------ -------- --------- ------
Total comprehensive
income for the year - - - 0.3 - 6.7 7.0
-------------------------- ------------- ------------- -------- ------------ -------- --------- ------
Transactions with
owners recorded directly
in equity
Dividends to equity
shareholders - - - - - (12.8) (12.8)
Current and deferred
tax on share based
payments - - - - - 0.2 0.2
Shares issued - 1.5 - - - - 1.5
Total contributions
by and distributions
to owners - 1.5 - - - (12.6) (11.1)
-------------------------- ------------- ------------- -------- ------------ -------- --------- ------
Balance at 31 May
2018 2.8 149.5 42.3 26.4 - (14.4) 206.6
-------------------------- ------------- ------------- -------- ------------ -------- --------- ------
*Restated for the impact of IFRS 15
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 November 2018
Share Share Merger Currency Reserve Retained Total
Capital Premium Reserve Translation for own Earnings
Reserve shares
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 June 2018 2.8 149.5 42.3 26.4 - (14.4) 206.6
Profit for the period - - - - - 6.8 6.8
Foreign currency
translation differences - - - 2.7 - - 2.7
------------------------- -------- -------- -------- ------------ -------- --------- -----
Total comprehensive
income
for the period - - - 2.7 - 6.8 9.5
------------------------- -------- -------- -------- ------------ -------- --------- -----
Transactions with owners
recorded directly in
equity
Dividends to equity
Shareholders - - - - - (8.7) (8.7)
Share based payment
Transactions - - - - - 0.9 0.9
Shares issued - 0.2 - - - - 0.2
Total contributions
by and distributions
to owners - 0.2 - - - (7.8) (7.6)
------------------------- -------- -------- -------- ------------ -------- --------- -----
Balance at 30 November
2018 2.8 149.7 42.3 29.1 - (15.4) 208.5
------------------------- -------- -------- -------- ------------ -------- --------- -----
Notes
1. Accounting policies - basis of preparation
NCC Group plc ("the Company") is a company incorporated in the
UK.
The Group condensed half-year financial statements for the six
months ended 30 November 2018 have been prepared in accordance with
IAS 34, "Interim Financial Reporting" as adopted by the EU.
As required by the Disclosure Guidance and Transparency Rules of
the Financial Services Authority the financial information
contained in this report has been prepared using the accounting
policies and presentation that were applied in the company's
published consolidated financial statements for the year ended 31
May 2018, with the exception of those impacted by the adoption of
IFRS 9 and IFRS 15, which the Group has adopted with effect from 1
June 2018. They do not contain all the information required for
full annual financial statements and should be read in conjunction
with the annual financial statements for the year ended 31 May
2018.
The financial statements of the Group for the year ended 31 May
2018 are available from the Company's registered office, or from
the website www.nccgroup.com.
The comparative figures for the financial year ended 31 May 2018
are not the Company's statutory accounts for that financial year.
Those accounts, which were prepared under IFRS as adopted by the EU
("adopted IFRS"), have been reported on by the company's auditors
and delivered to the registrar of Companies. The report of the
auditors was (i) unqualified, (ii) did not include a reference to
any matters to which the auditors 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.
Presentation of figures
Certain figures contained in this announcement, including
financial information, have been subject to rounding adjustments.
Accordingly, in certain instances, the sum or percentage change of
the numbers contained in this announcement may not conform exactly
with the total figure given.
Significant accounting policies
New Standards
IFRS 9 has been applied since 1 June 2018 and there has been no
significant impact on adoption of this standard.
IFRS 15
IFRS 15 establishes a framework for determining whether, how
much and when revenue is recognised. It replaced IAS18 Revenue, and
IAS 11 Construction contracts, as well as their related
interpretations.
The Group has adopted IFRS 15 using the full retrospective
method (without practical expedients), with resulting adjustments
to the November 2017 and May 2018 financial statements. The
following table summarises the impact of the transition to IFRS
15.
Profit and loss
Central
Segmental analysis Escrow Assurance & Head Office Group
H1 2018 GBPm GBPm GBPm GBPm
--------------------------- ------- ---------- --------------- --------
Revenue 19.0 97.9 - 116.9
Adjustment on application
of IFRS 15 0.2 (0.3) - (0.1)
Restated balance 19.2 97.6 - 116.8
--------------------------- ------- ---------- --------------- --------
Nov 17 (as Adjustment on Restated
Balance Sheet reported) application of balance
H1 2018 GBPm IFRS 15 GBPm GBPm
------------------- ----------- ---------------- ---------
Deferred income (29.5) (1.4) (30.9)
Retained earnings 12.1 1.4 13.5
------------------- ----------- ---------------- ---------
May 18 (as Adjustment on Restated
Balance Sheet reported) application of balance
FY 2018 GBPm IFRS 15 GBPm GBPm
------------------- ----------- ---------------- ---------
Deferred income (29.0) (1.6) (30.6)
Retained earnings 12.8 1.6 14.4
------------------- ----------- ---------------- ---------
Following the application of IFRS 15 with effect from 1 June
2018 the group's revenue streams are impacted as follows:
- For Escrow the initial set up exercise is not considered to be
a distinct service and as a result this is now recognised with the
rest of the contract with revenue being recognised over time.
- In respect of Managed Services set-up fees charged in respect
of initial work and configuration of equipment to allow customers
to benefit from a monitoring contract are not considered to be a
distinct service and as a result this revenue is now recognised
over time with the fee for the monitoring activity.
In both cases performance obligations are considered to be
satisfied over time as the performance does not create an asset
with an alternative use to the group and the group has an
enforceable right to payment for performance completed to date.
IFRS 16 Leases
IFRS 16 Leases will be effective for the year ending 31 May 2020
onwards and the impact on the financial statements will be
significant to NCC Group plc, particularly from a balance sheet
perspective. IFRS 16 requires lessees to recognise a lease
liability reflecting future lease payments and a right-of-use asset
for all lease contracts. Therefore, the substantial majority of the
Group's operating lease commitments, principally building leases,
would be brought on to the balance sheet and amortised and
depreciated separately. There will be no impact on cash flows
although the presentation of the cash flow statement will change
significantly. Management is still quantifying the impact of this
new standard.
Going concern
The Group's activities, together with the factors likely to
affect its future development, performance and position are set out
in the business and divisional reviews.
The directors have reviewed the trading and cash flow forecasts
as part of their going concern assessment, together with the
current facilities (see Note 11), including reasonable downside
sensitivities which take into account the uncertainties in the
current operating environment.
Taking into account the above uncertainties and circumstances,
the directors formed a judgement that there is a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing the Group's
condensed half-year financial statements for the period ended 30
November 2018. The principal risks and uncertainties facing the
Group are set out on page 7.
Use of estimates and judgements
The preparation of the consolidated half-year financial
statements in conformity with IFRSs requires management to make
judgements, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from
these estimates.
In preparing the consolidated half-year financial statements,
the significant judgements made by management in applying the
Group's accounting policies and key sources of estimated
uncertainty were the same as those applied to the consolidated
financial statements for year ended 31 May 2018.
2. Alternative performance measures
The Board and Executive management use a number of alternative
performance measures (APMs) in their day-to-day management of the
business and in setting employee targets. The Group's primary
financial profitability measure used in guiding external
stakeholders and in internal management reviews is Adjusted
operating profit. It is management's view that Adjusted operating
profit is more closely aligned to the underlying performance of the
business. Adjusted EBITDA is also disclosed as this is used by some
stakeholders and in some other KPIs used in the business (such as
the Cash conversion ratio).
These APMs are not defined measures in IFRS and therefore these
measures may not be comparable with similar APMs in other
businesses. These APMs are not intended to be a replacement for, or
be superior to, IFRS measures.
The "Adjusted" alternative performance measures are arrived at
by excluding the impact of a number of Adjusting Items that the
Directors consider are not part of underlying business performance
for the reasons referred to below. The various adjusting items are
set out in the table below:
H1 2019 H1 2018
Adjustments GBPm GBPm
-------------------------------------------------- -------- --------
Amortisation of acquired intangible assets (Note
9) 4.5 4.9
Individually Significant Items (see Note 5) - 2.6
Discount unwind on acquisition consideration - 0.2
Share-based payments 0.9 -
Profit on disposal of subsidiaries (0.1) -
-------------------------------------------------- -------- --------
Adjustments to profit/(loss) before taxation 5.3 7.7
-------------------------------------------------- -------- --------
Rationale for adjusting items
At all times the Group aims to ensure that the Annual Report and
Accounts are fully compliant with International Financial Reporting
Standards and that they give a Fair Balanced and Understandable
view of the Group's performance, cash flows and financial position.
IAS 1, Presentation of Financial Statements, requires the separate
presentation of items that are material in nature or scale in order
to allow the user of the accounts to understand underlying business
performance. In management's opinion, the adjusting items below are
material items that require separate disclosure and adjustment to
allow the user of the accounts to understand the underlying
business performance. Adjusting items are reviewed by both the
Audit and the Remuneration Committees, each time they arise, to
ensure that they are appropriately categorised and disclosed and to
understand their impact on executive and senior management
incentive schemes which use Alternative Performance Measures when
setting and evaluating targets.
Amortisation of acquired intangibles is a non-cash accounting
charge driven by acquisition-based growth. An alternative view
could be that the charge should be included in underlying results
to reflect the "cost" of an acquisition in the Income Statement.
All things considered, including the similar treatment by
comparator companies, the Directors have concluded that this item
is validly disclosed as an adjusting item. The same logic applies
to the non-cash unwinding of discounts on deferred and contingent
acquisition consideration.
The Directors consider share-based payments to be a valid
adjusting item on the basis that fair values are volatile due to
movements in share price, which may not be reflective of the
underlying performance of the Group.
Individually Significant Items are considered separately in Note
5.
The reconciliation of Adjusted operating profit and Adjusted
EBITDA to reported profit or loss before tax is shown below:
H1 2019 H1 2018*
GBPm GBPm
Continuing operations adjusted EBITDA 20.0 19.6
Depreciation of property plant and equipment (3.0) (3.0)
Amortisation internally developed intangible
assets (2.2) (2.8)
---------------------------------------------- -------- ---------
Continuing operations adjusted operating
profit (EBIT) 14.8 13.8
Individually significant items - (2.6)
Amortisation acquired intangible assets (4.5) (4.9)
Profit on sale of subsidiaries 0.1 -
Share based payments (0.9) -
---------------------------------------------- -------- ---------
Continuing operations operating profit
(EBIT) 9.5 6.3
---------------------------------------------- -------- ---------
*Restated for the impact of IFRS 15 and prior year discontinued
activities
The calculation of Adjusted EPS follows the same logic shown
above in respect of Adjusted EBITDA and Adjusted operating profit
but also includes the impact of taxation and any one-off taxation
items.
Cash conversion ratio
The cash conversion ratio is a measure of how effectively
Adjusted operating profit (as detailed above) is 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 tax (which is disclosed on the face of the cash flow
statement) divided by Adjusted EBITDA (which is one of the Group's
APM described above). The cash conversion ratio is used by many
comparable companies in our sector and hence is disclosed to show
the quality of cash generation and also to allow comparison to
other similar companies.
H1 2019 H1 2018*
Net cash generated from operating activities
(A) 6.6 14.7
Adjusted EBITDA (B) - continuing & discontinued
operations 20.0 20.3
------------------------------------------------ ------- --------
Cash conversion ratio (A/B) 33% 72%
------------------------------------------------ ------- --------
*The adjusted EBITDA figure presented includes GBP0.7m from
discontinued operations. Refer to Note 4 for more detail.
Net debt
Net debt is defined as total borrowings less cash and cash
equivalents. Both of these amounts are shown in the Statement of
Financial Position. This APM is used to convey the overall net
indebtedness of the Group and to assess the Group's overall
gearing.
H1 2019 H1 2018 FY 2018
GBPm GBPm GBPm
Cash and cash equivalents 15.5 13.4 21.2
Interest bearing loans (60.6) (57.8) (49.0)
-------------------------- ------- --------- -------
Net Debt (45.1) (44.4) (27.8)
-------------------------- ------- --------- -------
Net debt, when compared to available borrowing facilities, also
gives an indication of available financial resources to fund
potential future investments.
3. Segmental information
The Group is organised into the following two (H1 2018: two)
reportable segments, Escrow and Assurance. The two reporting
segments provide distinct types of service while 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", who is considered to be the Board of
Directors of NCC Group. 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 homogenous commercial and strategic market environments.
Performance is measured based on reporting segment profit, which
comprises reporting segment operating profit excluding amortisation
of acquired intangible assets, share-based payment charges and
Individually Significant Items. Interest and tax are not allocated
to business segments and there are no intra-segment sales.
Central &
Escrow Assurance Head Office Group
Segmental analysis H1 2019 GBPm GBPm GBPm GBPm
--------------------------- ------ --------- ------------ ------
Revenue 18.9 107.1 - 126.0
Cost of sales (5.0) (70.4) - (75.4)
--------------------------- ------ --------- ------------ ------
Gross profit 13.9 36.7 - 50.6
Gross profit % 74% 34% - 40%
G&A before adjusting items (2.0) (16.5) (17.3) (35.8)
Central cost reallocation (3.1) (9.5) 12.6 -
--------------------------- ------ --------- ------------ ------
Adjusted operating profit 8.8 10.7 (4.7) 14.8
Adjusting items (Note 2) - - (5.3) (5.3)
--------------------------- ------ --------- ------------ ------
Operating profit 8.8 10.7 (10.0) 9.5
--------------------------- ------ --------- ------------ ------
Central &
Escrow Assurance Head Office Group
Segmental analysis H1 2018* GBPm GBPm GBPm GBPm
---------------------------- ------ --------- ------------ ------
Revenue 19.2 97.6 - 116.8
Cost of sales (4.4) (66.2) - (70.6)
---------------------------- ------ --------- ------------ ------
Gross profit 14.8 31.4 - 46.2
Gross profit % 77% 32% - 40%
G&A before adjusting items (2.1) (17.4) (12.9) (32.4)
Central cost reallocation (2.4) (7.6) 10.0 -
---------------------------- ------ --------- ------------ ------
Adjusted operating profit** 10.3 6.4 (2.9) 13.8
Adjusting items (Note 2) - (0.5) (7.0) (7.5)
---------------------------- ------ --------- ------------ ------
Operating profit** 10.3 5.9 (9.9) 6.3
---------------------------- ------ --------- ------------ ------
*Restated for the impact of IFRS 15 and prior year discontinued
activities
** The segmental figures above for central cost allocations have
been restated to be on the same basis as the current year
allocation to give a more accurate picture of the underlying result
and movement between years. The reallocation rationale was
explained in our Annual Report on page 29.
There are no customer contracts which account for more than 10%
of segment revenue.
H1 2019 H1 2018*
Revenue by geographical destination GBPm GBPm
UK 45.5 49.6
US 46.1 37.1
Europe and RoW 34.4 30.1
----------------------------------------- ------- --------
Total revenue from continuing operations 126.0 116.8
Revenue from discontinued operations - 13.2
----------------------------------------- ------- --------
Total revenue 126.0 130.0
----------------------------------------- ------- --------
The detail provided above is on a destination basis whereas the
information provided in the Performance Reviews is on an
originating seller basis.
H1 2019 H1 2018*
Revenue by category GBPm GBPm
Sale of goods 4.1 5.8
Revenue from services 121.9 111.0
---------------------- ------- --------
Total revenue 126.0 116.8
---------------------- ------- --------
*Restated for the impact of IFRS 15 and prior year discontinued
activities
Operating profit and adjusted operating profit is considered
further in Note 2.
4. Discontinued operations
The tables below provide an analysis of discontinued operations'
revenue, EBITDA and profit before tax as these are considered to be
the most relevant to understanding underlying business
performance.
H1 2019 H1 2018
Profit of discontinued operations GBPm GBPm
------------------------------------------------------ ------- -------
Revenue - 13.2
Cost of sales - (10.6)
------------------------------------------------------ ------- -------
Gross profit - 2.6
General administrative expenses - (1.8)
Share-based payments - 0.1
------------------------------------------------------ ------- -------
Operating profit - 0.9
(Loss)/gain on sale of discontinued operations before - -
tax
------------------------------------------------------ ------- -------
Profit on discontinued operations before tax - 0.9
Taxation - (0.1)
------------------------------------------------------ ------- -------
Profit on discontinued operations after tax - 0.8
------------------------------------------------------ ------- -------
H1 2019 H1 2018
Effect of discontinued operations on assets and liabilities* GBPm GBPm
------------------------------------------------------------- ------- -------
Intangible assets - 16.0
Plant and equipment - 0.2
Trade and other receivables - 5.0
Deferred tax - (0.4)
Trade and other payables - (4.3)
Deferred Revenue - (2.7)
------------------------------------------------------------- ------- -------
Net assets - 13.8
------------------------------------------------------------- ------- -------
H1 2019 H1 2018
Cash flows from (used in) discontinued operations* GBPm GBPm
--------------------------------------------------- ------- -------
Net cash from/(used) in operating activities - 1.0
Net cash from/(used) in investing activities - (0.4)
Net cash flows for the year - 0.6
--------------------------------------------------- ------- -------
* Comprising Web Performance, Software Testing and a related
element which was also discontinued at the time of the disposal in
H2 2018 with net assets of GBP3.1m.
5. Individually significant items
The Group separately identifies those items which in
management's judgement, need to be disclosed by virtue of their
nature, size or incidence in order for the user to obtain a proper
understanding of the underlying performance of the business.
H1 2019 H1 2018
GBPm GBPm
Acquisition / market related costs - 0.2
Revisions to deferred and contingent consideration - 0.6
Property relocation costs - 0.7
Restructuring costs - 1.1
--------------------------------------------------- ------- -------
Total - 2.6
--------------------------------------------------- ------- -------
Current period
Revisions to deferred and contingent consideration were in
respect of FX movements and legal fees of GBP0.4m offset by a
reduction in the estimate of contingent consideration payable of
GBP0.4m, resulting in GBPnil.
Prior period
Market related costs were in respect of the shareholder circular
and exercise to remediate a number of invalid dividends. This
exercise completed successfully at the September 2017 EGM.
Revisions to deferred and contingent consideration were in respect
of FX movements as no adjustments to expected payments were made in
the period. Property relocation costs were a continuation of dual
running costs that started in the prior year and finished during H1
2018. Restructuring costs included a number of items related to the
Strategic Review and some subsequent implementation steps:
completion of the Strategic Review itself; designing the new Target
Operating Model (TOM); Implementing the associated change program;
and senior management re-organisation costs resulting from the
TOM.
6. Taxation
The Group tax charge is based on the estimated annual effective
rate and for the half year is calculated at 22.9% (attributable to
adjusted profits and continuing operations) (H1 2018 28.8%) and
applied to the profit before tax for the period. The decrease in
the estimated effective tax rate from H1 2018 to H1 2019 is a
result of the lower US Federal corporate tax rate (35% to 21%) that
came into force for profits arising from 1 January 2018. As the
relevant legislation was not enacted in the US until 22 December
2017, this was not applied to the calculation of the H1 2018
estimated effective tax rate.
The estimated effective tax rate applicable to the adjustments
to profit (GBP1.3m (23.5%); H1 2018 GBP1.3m (22.0%)) is a result of
adjustments for a) the impact of acquisition-related costs in the
US for FY2018 and b) the expected impact of previously unrecognised
prior year R&D tax credits that are likely to be utilised in
the US in FY2019.
7. Earnings per share
The calculation of continuing earnings per share is based on the
following:
H1 2019 H1 2018
Profit used in the EPS calculation GBPm GBPm
------------------------------------------------------ ------- -------
Profit after tax for the period used for earnings per
share 6.8 3.8
Amortisation of acquired intangible assets 4.5 4.9
Individually significant items (Note 5) - 2.6
Unwinding of discount on acquisition consideration - 0.2
Share based payments 0.9 -
Profit on sale of subsidiary (0.1) -
Tax arising on the above items (1.3) (1.3)
------------------------------------------------------ ------- -------
Adjusted profit used for adjusted earnings per share 10.8 10.2
Results of discontinued operations - (0.8)
------------------------------------------------------ ------- -------
Adjusted profit used for adjusted earnings per share
for continuing operations 10.8 9.4
------------------------------------------------------ ------- -------
H1 2019 H1 2018
Number of shares used in the EPS calculation m m
--------------------------------------------------- ------------ -------
Basic weighted average number of shares in issue 277.8 277.2
Dilutive effect of share options 3.2 2.8
--------------------------------------------------- ------------ -------
Diluted weighted average number of shares in issue 281.0 280.0
--------------------------------------------------- ------------ -------
H1 2019 H1 2018
Earnings per share (EPS) pence pence
------------------------------------- ------- -------
Basic EPS from continuing operations 2.4 1.1
Basic EPS 2.4 1.4
Adjusted Basic EPS 3.9 3.7
Diluted Basic 2.4 1.4
Diluted Adjusted EPS 3.8 3.6
------------------------------------- ------- -------
8. Dividends
H1 2019 H1 2018
pence pence
Dividends per share paid and recognised in the period 3.15 3.15
Dividends per share proposed but not recognised in
the period 1.50 1.50
------------------------------------------------------ ------- -------
GBPm GBPm
Dividends paid and recognised in the period 8.7 8.7
Dividends proposed but not recognised in the period 4.1 4.1
------------------------------------------------------ ------- -------
9. Intangible assets
Additions to internally developed intangible assets and software
during the period amounted to GBP2.4m (H1 2018 GBP2.1m). The
associated amortisation charge for the period was GBP2.2m (H1 2018
GBP2.8m) for the Group's continuing operations.
There were no additions to acquired customer contracts and
relationships or goodwill during the period (H1 2018 GBPnil). The
associated amortisation charge for the period was GBP4.5m (H1 2018
GBP4.9m) for the Group's continuing operations.
10. Plant and equipment
Additions to plant and equipment during the period amounted to
GBP1.8m (H1 2018: GBP6.0m) and the depreciation charged in the
period amounted to GBP3.0m (H1 2018: GBP3.1m) for the Group's
continuing operations.
11. Interest bearing loans
H1 2019 H1 2018 FY 2018
GBPm GBPm GBPm
Secured bank loan 60.6 57.8 49.0
------------------ ------- ------- -------
Analysed as:
Current 5.0 5.0 5.0
Non-current 55.6 52.8 44.0
------------------ ------- ------- -------
Total 60.6 57.8 49.0
------------------ ------- ------- -------
As of 30 November 2018, the Group has a multi-currency revolving
credit facility of GBP80m (H1 2018: GBP80m) and a GBP20.6m
multi-currency term loan (H1 2018: GBP25.3m).
12. Deferred and contingent consideration
H1 2019 H1 2018 FY 2018
GBPm GBPm GBPm
Deferred consideration - Fox-IT - 9.9 9.9
Contingent consideration - PSC &
VSR 1.7 4.0 2.0
Total 1.7 13.9 11.9
--------------------------------- ------- ------- -------
The deferred consideration in respect of Fox-IT was paid during
the period. Contingent consideration in respect of PSC and VSR is
payable in H2 after completion of the earnout period.
Responsibility statement of the Directors in respect of the half
year report
We confirm that to the best of our knowledge:
- The condensed set of consolidated financial statements has
been prepared in accordance with IAS 34, "Interim Financial
Reporting" as adopted by the EU;
- The half-year management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of the 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
(b) 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.
Adam Palser Tim Kowalski
Chief Executive Officer Chief Financial Officer
On behalf of the Board 23 January 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR UOVKRKAAAUAR
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January 24, 2019 02:00 ET (07:00 GMT)
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