TIDMNCC

RNS Number : 6576A

NCC Group PLC

23 January 2020

23 January 2020

NCC Group plc

Interim results for the six months ended 30 November 2019

Sales order momentum and continued growth during positive transformation; outlook remains unchanged

NCC Group plc (LSE: NCC, "NCC Group" or "the Group"), an independent global cyber security and risk mitigation expert, reports its half year results for the six months to 30 November 2019 ("the half year", "H1 2020", "the period").

Highlights (1)

 
                                                                               Like-for-like 
                                     H1 2020         H1 2020         H1 2019        % change 
                               (IFRS 16) (2)   (Pre-IFRS 16)   (Pre-IFRS 16)   (Pre-IFRS 16) 
                                                         (2)             (2)             (2) 
                             ---------------  --------------  -------------- 
Revenue (GBPm)                         132.7           132.7           126.0            5.3% 
Gross profit (GBPm)                     52.0            52.0            50.6            2.8% 
Gross margin (%)                       39.2%           39.2%           40.2%      (1.0% pts) 
Operating profit (GBPm)                 10.5            10.3             9.5            8.4% 
Adjusted (3) operating 
 profit (GBPm)                          16.7            16.5            14.8           11.5% 
Adjusted (3) operating 
 profit (%)                            12.6%           12.4%           11.7%        0.7% pts 
Profit before taxation 
 (GBPm)                                  9.0             9.4             8.7            8.0% 
Adjusted (3) profit before 
 taxation (GBPm)                        15.2            15.6            14.0           11.4% 
Basic EPS (pence)                       2.4p            2.5p            2.4p            4.2% 
Adjusted basic EPS (pence)              4.2p            4.3p            3.9p           10.3% 
Net debt (3) (GBPm)                   (47.8)          (20.8)          (45.1)           53.9% 
Cash conversion ratio                  80.2%           74.5%           58.0%       16.5% pts 
Interim dividend (pence)                 1.5             1.5             1.5               - 
---------------------------  ---------------  --------------  --------------  -------------- 
 
   --      Group revenue increasing by 5.3%: 
   --        Assurance increased by 6.7% 

-- Encouraging growth in North America and UK Assurance at 10.6% and 6.9% (H1 2019: 20.4% and 1.1%) respectively

-- Following slower first quarter, Q2 Assurance momentum and robust order book provides confidence of continued double-digit Assurance growth and margin improvement in H2 2020, after recently investing in sales and delivery capacity

   --       Escrow declined by 2.6% 
   --    Decline due to lower contract revenues and phasing of verification testing 

-- Renewal rates being maintained within our expected range, visibility on verification testing revenue and new cloud resilience proposition, will stabilise revenue in H2 2020

   --      Sales order momentum demonstrated by: 
   --      28.6% increase in sales orders to GBP149.2m compared to H1 2019 

-- Assurance Q2 2020 on Q1 2020 revenue growth of 12.0% compared to 4.4% from Q1 2019 to Q2 2019, with overall Q1 2020 to Q2 2020 revenue growth of 11.4%

   --      Significant Escrow revenue under contract and in pipeline, both on premise and cloud 

-- Adjusted operating profit on a like-for-like basis (3) increased 11.5% to GBP16.5m with margin improving by 0.7% pts to 12.4%:

-- Transformation programme starting to drive margin improvement towards overall increase target of 2.0% pts over the three year programme

-- Further improvement expected during H2 2020 through gross margin and well controlled overheads

-- Effective cash management in both divisions improving H1 2020 cash conversion and reducing net debt on a like-for-like basis (3) to GBP20.8m from GBP45.1m

-- Progress being made towards NCC Group's vision to become the leading cyber security adviser globally:

   --        Excellent Net Promoter Score of +50 

-- We continue to build people capability, in line with our ambition to become the global hub for cyber talent. We welcomed an additional net 59 people into our technical delivery teams in which voluntary attrition also fell to 7.0% within the first six months (H1 2019: 9.4%)

-- First phase of system implementation delivered on time, with incremental investment planned to drive enhanced benefits

Outlook

   --      Full year trading to be in line with expectations 

Adam Palser, Chief Executive Officer, commented:

"We are now at the mid-point of our three year transformation programme and while work remains to be done, we are on track and I am pleased with the progress we are making towards NCC Group's vision to become the leading cyber security adviser globally.

Our performance strengthened over the course of the period, and we enter the second half with positive momentum and a robust order book across our businesses. We remain excited by the Group's long term prospects and are confident in delivering full year performance in line with expectations."

Analyst briefing

A briefing for analysts will be held today at 9am at the offices of Maitland AMO, 3 Pancras Square, London N1C 4AG. The briefing will also be webcast live and can be accessed via the Group's website or via the following: https://www.investis-live.com/nccgroup/5d9db57ee51752100018a88c/osds

 
EnquiriesNCC Group (www.nccgroup.com)          +44 (0)161 209 5432 
 Adam Palser, CEO/ Tim Kowalski, CFO 
 Maitland AMO                          +44 (0)20 7379 5151 
 Al Loehnis 
 

About NCC Group plc

NCC Group exists to make the world safer and more secure.

As global experts in cyber security and risk mitigation, NCC Group is trusted by over 15,000 clients worldwide to protect their most critical assets from the ever-changing threat landscape.

With the company's knowledge, experience and global footprint, it is best placed to help businesses identify, assess, mitigate and respond to the evolving cyber risks they face.

To support its mission, NCC Group continually invests in research and innovation, and is passionate about developing the next generation of cyber scientists.

With over 1,800 colleagues in 12 countries, NCC Group has a significant market presence in North America, continental Europe and the UK, and a rapidly growing footprint in Asia Pacific with offices in Australia and Singapore.

Footnotes

1: References to the Group's results are to continuing operations.

2: Following the adoption of IFRS 16 'Leases' with effect from 1 June 2019, the Group has adopted the accounting standard using the modified retrospective approach to transition and has accordingly not restated prior periods, the results for the six months ended 30 November 2019 are not directly comparable with those reported under the previous applicable accounting standard IAS 17 'Leases'. On this basis, to provide meaningful comparatives, the results for the six months ended 30 November 2019 have therefore also been presented under IAS 17 with the like-for like numbers shown on an IAS 17 basis ('Pre-IFRS 16'). This alternative performance measure (APM), will be presented for one year until the comparatives also include the adoption of IFRS 16.

3: See note 2 for an explanation of Alternative Performance Measures ("APMs") and adjusting items. See note 2 for a reconciliation to statutory information.

4: Leverage is defined as the ratio of total Net Debt pre-IFRS 16 to Adjusted EBITDA and Interest Cover is defined as the ratio of Adjusted EBITDA to net finance charges (pre-IFRS 16).

Cautionary note regarding forward-looking statements

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.

Business review

Continued growth during positive transformation

NCC Group has continued to grow revenue, profit and cash flow while maintaining progress through its transformation programme. Revenue was up 5.3% and adjusted operating profit (3) increased by 11.5% over H1 2019, while the Group also delivered improved cash flow with cash conversion on a like-for-like basis (3) of 74.5% compared to 58.0% 2 in H1 FY19. On a statutory basis, operating profit increased by 10.5% to GBP10.5m (H1 2019: GBP9.5m (2) ) and profit before taxation increased 3.4% to GBP9.0m giving rise to a statutory EPS of 2.4p (H1 2019: 2.4p (2) ) and adjusted basic EPS (3) of 4.2p (H1 2019: 3.9p (2) ) respectively.

As we proceed through our second year of transformation, it is pleasing to see the increased visibility and control provided by our new systems and more professional ways of working being used by our teams to deliver business benefit. Our cash management processes are also generating sustainable cash conversion reducing net debt on a like-for-like basis (3) to GBP20.8m.

Our transformation programme: Securing Growth Together

In pursuit of our Mission "To make the world safer and more secure" and to underpin our Vision "To become the leading cyber security adviser globally", we launched our three-year transformation programme, entitled Securing Growth Together (SGT), in May 2018. The table below summarises the five workstreams that make up SGT, how we measure our progress and what we have achieved so far:

 
Workstream          Objective                   KPIs                    Progress 
Lead the Market     To maintain the             Research                Continued to be at the forefront 
                     NCC's leading position      days                    of the cyber security industry 
                     at the forefront            High-impact             with world leading cost-effective 
                     of understanding            presence:               research published on topics including 
                     cyber vulnerabilities       Tier 1 papers           Connected Health, Security in Quantum 
                     and threats - a             and conference          computing, IoT in the Enterprise 
                     key underpin of             talks                   and Smart Agriculture. 
                     our enduring, capex-light                           1,012 days of vulnerability research 
                     business model.                                     in H1 2020 (H1 2019: 807 days) 
                                                                         and 1,653 days of threat research. 
                                                                         23% growth in Tier 1 talks/papers 
                                                                         (H1 2019: 61), including 15 unique 
                                                                         research presentations at Black 
                                                                         Hat/DEFCON, picked up by more than 
                                                                         70 press outlets including Forbes, 
                                                                         the Wall Street Journal and Fox 
                                                                         Business. 
                                                                         All of this progress is an intrinsic 
                                                                         part of our business model which 
                                                                         continues to attract cyber talent, 
                                                                         build our brand reputation and 
                                                                         create future value. 
                    --------------------------  ----------------------  ---------------------------------------- 
Win Business        To improve margins          Revenue growth          28.6% increase in sales orders 
                     through greater             No. of orders           to GBP149.2m compared to H1 2019. 
                     visibility of pipeline      with a value            Assurance average order value and 
                     and recurring/repeat        greater than            number of orders over GBP250k increased 
                     revenues through            GBP250k                 by 29.5% and 53.5% respectively, 
                     building stronger           "Escrow-as-a-Service"   as we continue to focus on value 
                     relationships with          ("EaaS")                based selling. 
                     clients and delivering      orders                  MDR orders equate to GBP30.1m, 
                     value-based outcomes.                               as we develop and grow the proposition. 
                                                                         Day rate improved by 8.2% further 
                                                                         to premium work with leading global 
                                                                         telco company (H1 2019: 4.6%). 
                                                                         The Group is also working with 
                                                                         85 of FTSE 350 (FY 2019: 82) and 
                                                                         58 of Fortune 500 companies (FY 
                                                                         2019: 52). 
                                                                         Significant revenue under contract 
                                                                         within Escrow. New cloud resilience 
                                                                         proposition has achieved sale orders 
                                                                         of GBP0.7m since launch, with revenues 
                                                                         expected to be GBP0.5m to GBP0.7m 
                                                                         for full year. 
                    --------------------------  ----------------------  ---------------------------------------- 
Workstream          Objective                   KPIs                    Progress 
                    --------------------------  ----------------------  ---------------------------------------- 
Deliver Excellence  To create a global          Net Promoter            Excellent Net Promotor Score (+50), 
                     delivery capability         Score                   with our clients emphasising areas 
                     delivering consistent,                              of trust, ability to deliver on 
                     excellent impact                                    time, added value and clear thought 
                     to clients around                                   leadership coming through in results. 
                     the world.                                          Business Operation Boards (BOBs) 
                                                                         commenced to review end-to-end 
                                                                         process flows as we install our 
                                                                         systems, globalise our operations 
                                                                         and work smarter. 
                    --------------------------  ----------------------  ---------------------------------------- 
Support Growth      To improve management       Adjusted                Adjusted operating profit margin 
                     information, efficiency     operating               on a like-for-like basis has improved 
                     and underpin our            profit margin           by 0.7% pts to 12.4% with further 
                     intent to operate           %                       operational leverage opportunity 
                     as "One Firm, One           Free cashflow           arising, as we embed global processes 
                     Way" through installing                             and systems. 
                     global, modern,                                     Free cashflow increasing to GBP8.8m 
                     cloud-based systems                                 (H1 2019: GBP2.4m). 
                     and processes.                                      Now implemented Salesforce globally 
                                                                         following our European launch in 
                                                                         June 2019, providing the Group 
                                                                         with improved Global sales pipeline 
                                                                         visibility. 
                                                                         Workday Human Capital Management 
                                                                         (HCM) implemented globally on time 
                                                                         in November 2019 with UK payroll 
                                                                         processes now embedded into Workday 
                                                                         (Phase 1). The remainder of the 
                                                                         global programme remains on time 
                                                                         with incremental investment now 
                                                                         planned to drive enhanced benefits 
                                                                         in our asset management and scheduling 
                                                                         software integrations. Overall 
                                                                         spend over the 3 year period will 
                                                                         now equate to c.GBP21m compared 
                                                                         to GBP18.3m previously outlined. 
                    --------------------------  ----------------------  ---------------------------------------- 
 
 
Workstream          Objective                 KPIs         Progress 
Develop our People  To be a global hub        Attrition    From a recruitment perspective, 
                     for cyber talent          rate         we are stabilising and building 
                     - underpinned by          Engagement   our people capability for the future. 
                     investment in our         score        Number of colleagues grew by 4.3% 
                     talent and organisation                to 1,895 with growth in all key 
                     to unlock our full                     locations, through both experienced 
                     potential and provide                  hires and via graduate/intern programmes. 
                     a positive colleague                   Of particular note, we have demonstrated 
                     experience like                        our continued ability to attract 
                     no other offered                       and retain sought-after talent 
                     in the industry.                       as we welcomed net 59 new people 
                                                            into our technical teams in which 
                                                            six month attrition also fell to 
                                                            7.0% in H1 (H1 2019: 9.4%). 
                                                            Global voluntary attrition increased 
                                                            to 9.3% (H1 2019: 8.4%) mainly 
                                                            owing to transformation and professionalisation 
                                                            in Sales and Corporate. 
                                                            We have recently completed our 
                                                            second employee engagement survey 
                                                            to enable focus and energy on the 
                                                            things our colleagues believe will 
                                                            create a great place to work and 
                                                            become an employer of choice. In 
                                                            doing so, we have retained our 
                                                            'One to watch' classification in 
                                                            the best companies survey, with 
                                                            a 'world class' response rate of 
                                                            over 80%. 
                                                            We have launched a number of internal 
                                                            initiatives including 'NCC Cares' 
                                                            (global wellness), Succession planning 
                                                            at Executive and Senior leadership 
                                                            level and a Manager Essentials 
                                                            trial for roll out in the second 
                                                            half. 
                                                            Global Job Families and people 
                                                            policies have been launched and 
                                                            a global approach to performance 
                                                            management is being rolled out 
                                                            in H2 2020 using Workday functionality. 
                                                            We have continued our collaboration 
                                                            with NCSC in the CyberFirst initiative 
                                                            - aimed at encouraging females 
                                                            to have a career in cyber and are 
                                                            now participating in 'One Million 
                                                            Mentors' within Manchester that 
                                                            aims to ensure that every young 
                                                            person has access to a trained 
                                                            mentor as they transition into 
                                                            adulthood. 
                                                            We also continue to be involved 
                                                            in various international Cyber 
                                                            events and security challenges. 
                                                            The leadership team continues to 
                                                            be strengthened with the appointment 
                                                            of a Global Sales and Marketing 
                                                            Director and a Global Escrow MD. 
                    ------------------------  -----------  ------------------------------------------------ 
 

During H1 2020, the majority of our transformation effort has gone into preparing and installing our new systems which is a major task for any company. We are pleased with the speed of our progress so far and, over the next six months, our intent is to substantially finish the installation of our new systems.

We then expect to refresh our transformation programme as we commence the final year with the intention to:

-- Lead the market: Developing offerings adjacent to our current portfolio in order to deliver greater value to our clients.

-- Win Business: Further progress our journey towards more repeat/recurring revenues through building better relationships with our clients.

-- Deliver Business: Refine and optimise our sales and delivery processes following the systems installation.

-- Support Growth: Continue to lean our organisation to become more efficient and improve margins.

-- Develop our People: Build on our new foundations to improve leadership, career development and performance with a view to becoming the global hub for cyber talent.

Cyber Assurance

Overall, our Assurance division is becoming a sustainably growing and increasingly profitable business.

The "diamond-core" of our Assurance division, Technical Security Consulting which gives NCC Group its distinctive world-leading knowledge of cyber vulnerability, grew by 15.0% and attracted a net new 59 people at the end of H1 2020 compared with 6 months previously. Our adjacent Risk Management Consulting services grew their profits, albeit off a lower revenue as we focused on a more selective set of business lines, and our Managed Detection and Response services grew at a slightly increased rate in H1 2020 compared to H1 2019 and, more importantly, saw a surge in orders which gives us great confidence in our ability to grow and compete in this space.

Software Resilience service (Escrow)

Although H1 2020 saw a further slight decline in Escrow revenue, we are engaged in a comprehensive transformation plan to return this division to sustainable growth, with actions including:

-- Repositioning our traditional software escrow service as part of a broader, sustainable software resilience service which addresses growth areas including:

   --      Installed software in IoT, transport and other connected systems 
   --      Cloud resilience through our EaaS offering 

-- Investment in senior management, sales leadership, channel and cloud specialists to support future growth

   --      Lean practice review of operations to support scalable growth 

We are pleased with the early success of our new cloud resilience proposition which was launched towards the end of FY19 and has achieved sales orders of GBP0.7m in H1 2020. Future growth in this area is expected as we embed this proposition and launch a channel partner programme in the second half, including developing strategic alliances with cloud hyper-scalers.

Summary

Financial:

-- Revenue and Adjusted operating profit (3) growth achieved during the midpoint of operational transformation

-- Effective cash management improving H1 2020 cash conversion and reducing net debt on a like-for-like basis (3) to GBP20.8m from GBP45.1m

Our operational priorities for H2 2020 are:

   --      Assurance: 
   --      continued revenue growth and margin improvement 
   --      further development of the global MDR proposition 
   --      Escrow: 
   --      reposition Escrow as a sustainable software resilience service 

-- stabilise contract revenue, deliver verification testing pipeline and accelerating the adoption of our new cloud-resilience proposition

   --      Corporate: 
   --      continue to build people capability 
   --      implement second phase of system improvements to enhance future margins 
   --      maintain well controlled overheads 

Outlook remains unchanged:

   --      Full year trading to be in line with expectations 

Financial review

IFRS 16

Following the adoption of IFRS 16 'Leases' with effect from 1 June 2019, the Group has adopted the accounting standard using the modified retrospective approach to transition and has accordingly not restated prior periods, consequently the results for the six months ended 30 November 2019 are not directly comparable with those reported under the previous applicable accounting standard IAS 17 'Leases'. On this basis, to provide meaningful comparatives, the results for the six months ended 30 November 2019 have therefore also been presented under IAS 17 with the like-for like numbers shown on an IAS 17 basis ('Pre-IFRS 16'). This alternative performance measure (APM), will be presented for one year until the comparatives also include the adoption of IFRS 16. The net impact of IFRS 16 is to increase statutory and adjusted operating profit by GBP0.2m and reduce statutory and adjusted profit before taxation by GBP0.4m. See note 2 for a detailed reconciliation of the pre-IFRS 16 performance and alternative performance measures to the equivalent IFRS measures.

Financial summary

Summary income statement:

 
GBPm                                                                              Like-for-like 
                                        H1 2020         H1 2020         H1 2019        % change 
                                  (IFRS 16) (2)   (Pre-IFRS 16)   (Pre-IFRS 16)   (Pre-IFRS 16) 
                                                            (2)             (2)             (2) 
                                ---------------  --------------  -------------- 
Revenue                                   132.7           132.7           126.0            5.3% 
Cost of sales                            (80.7)          (80.7)          (75.4)            7.0% 
------------------------------  ---------------  --------------  --------------  -------------- 
Gross profit                               52.0            52.0            50.6            2.8% 
Depreciation and amortisation             (8.1)           (5.1)           (5.2)          (1.9%) 
Other administration 
 expenses                                (27.2)          (30.4)          (30.6)          (0.7%) 
------------------------------  ---------------  --------------  --------------  -------------- 
Adjusted (3) operating 
 profit                                    16.7            16.5            14.8           11.5% 
Adjusting items                           (6.2)           (6.2)           (5.3)           17.0% 
------------------------------  ---------------  --------------  --------------  -------------- 
Statutory operating profit                 10.5            10.3             9.5            8.4% 
------------------------------  ---------------  --------------  --------------  -------------- 
 
 
GBPm                                                                          Like-for-like 
                                   H1 2020         H1 2020         H1 2019         % change 
                               (IFRS 16) 2   (Pre-IFRS 16)   (Pre-IFRS 16)    (Pre-IFRS 16) 
                                                         2               2                2 
                             -------------  --------------  -------------- 
Adjusted (3) profit before 
 taxation                             15.2            15.6            14.0            11.4% 
Adjusting items                      (6.2)           (6.2)           (5.3)            17.0% 
---------------------------  -------------  --------------  --------------  --------------- 
Profit before taxation                 9.0             9.4             8.7             8.0% 
---------------------------  -------------  --------------  --------------  --------------- 
 
 
GBPm                                                                       Like-for-like 
                                H1 2020         H1 2020         H1 2019         % change 
                            (IFRS 16) 2   (Pre-IFRS 16)   (Pre-IFRS 16)    (Pre-IFRS 16) 
                                                      2               2                2 
                          -------------  --------------  -------------- 
Adjusted (3) profit for 
 the year                          11.6            11.9            10.8            10.2% 
Adjusting items after 
 taxation                         (5.0)           (5.0)           (4.0)            25.0% 
------------------------  -------------  --------------  --------------  --------------- 
Profit for the year                 6.6             6.9             6.8             1.5% 
------------------------  -------------  --------------  --------------  --------------- 
 
Basic EPS 
Adjusted                           4.2p            4.3p            3.9p            10.3% 
Statutory                          2.4p            2.5p            2.4p             4.2% 
------------------------  -------------  --------------  --------------  --------------- 
 

Revenue summary:

 
GBPm                                                             Like-for-like 
                      H1 2020         H1 2020         H1 2019         % change 
                  (IFRS 16) 2   (Pre-IFRS 16)   (Pre-IFRS 16)    (Pre-IFRS 16) 
                                            2               2                2 
                -------------  --------------  -------------- 
Assurance               114.3           114.3           107.1             6.7% 
Escrow                   18.4            18.4            18.9           (2.6%) 
--------------  -------------  --------------  --------------  --------------- 
Total revenue           132.7           132.7           126.0             5.3% 
--------------  -------------  --------------  --------------  --------------- 
 

Adjusted operating profit (3) summary:

 
                                                                              Like-for-like 
                                   H1 2020         H1 2020         H1 2019         % change 
                               (IFRS 16) 2   (Pre-IFRS 16)   (Pre-IFRS 16)    (Pre-IFRS 16) 
                                                         2               2                2 
                             -------------  --------------  -------------- 
Statutory operating profit            10.5            10.3             9.5             8.4% 
Share-based payments                   1.8             1.8             0.9           100.0% 
Amortisation of acquired 
 intangibles                           4.4             4.4             4.5           (2.2%) 
Profit on disposal of 
 investments                             -               -           (0.1)         (100.0%) 
---------------------------  -------------  --------------  --------------  --------------- 
Adjusted operating profit 
 (3)                                  16.7            16.5            14.8            11.5% 
---------------------------  -------------  --------------  --------------  --------------- 
 
 
                                                                             Like-for-like 
 Adjusted operating profit 
  (3)                             H1 2020         H1 2020         H1 2019         % change 
                                            (Pre-IFRS 16)   (Pre-IFRS 16)    (Pre-IFRS 16) 
                              (IFRS 16) 2               2               2                2 
                             ------------  --------------  -------------- 
Assurance                            13.1            13.1            10.7            22.4% 
Escrow                                8.1             8.1             8.8           (8.0)% 
Central and head office             (4.5)           (4.7)           (4.7)                - 
---------------------------  ------------  --------------  --------------  --------------- 
Total adjusted operating 
 profit (3)                          16.7            16.5            14.8            11.5% 
---------------------------  ------------  --------------  --------------  --------------- 
 
Adjusted operating profit 
 margin % (3)                       12.6%           12.4%           11.7%         0.8% pts 
---------------------------  ------------  --------------  --------------  --------------- 
 
 

Alternative Performance Measures (APMs)

Throughout this Financial review, other APMs are presented as well as statutory measures and these measures are consistent with prior periods. This presentation is also consistent with the way that financial performance is measured by management, reported to the Board, is the basis of financial measures for senior management's compensation schemes and provides supplementary information that assists the user to understand the financial performance, position and trends of the Group.

For completeness, a reconciliation of Income Statement APMs (3) to statutory information is shown below:

 
 
 
H1 2020 (IFRS                                                                     Profit                        Profit 
16)                                                  Depreciation  Operating      before               from continuing 
Continuing        Revenue  Gross profit  EBITDA  and amortisation     profit    taxation    Taxation        operations 
operations           GBPm          GBPm    GBPm              GBPm       GBPm        GBPm        GBPm              GBPm 
                  -------  ------------  ------  ----------------  ---------  ----------  ---------- 
Adjusted            132.7          52.0    24.8             (8.1)       16.7        15.2       (3.6)              11.6 
Share-based 
 payments               -             -   (1.8)                 -      (1.8)       (1.8)         0.2             (1.6) 
Amortisation of 
 acquired 
 intangibles            -             -       -             (4.4)      (4.4)       (4.4)         1.0             (3.4) 
----------------  -------  ------------  ------  ----------------  ---------  ----------  ----------  ---------------- 
Statutory           132.7          52.0    23.0            (12.5)       10.5         9.0       (2.4)               6.6 
----------------  -------  ------------  ------  ----------------  ---------  ----------  ----------  ---------------- 
 
 
 
 
H1 2019 (Pre-IFRS                                                                   Profit                      Profit 
16)                                                    Depreciation  Operating      before             from continuing 
Continuing         Revenue  Gross profit  EBITDA   and amortisation     profit    taxation  Taxation        operations 
operations            GBPm          GBPm    GBPm               GBPm       GBPm        GBPm      GBPm              GBPm 
                   -------  ------------  ------  -----------------  ---------  ----------  -------- 
Adjusted             126.0          50.6    20.0              (5.2)       14.8        14.0     (3.2)              10.8 
Share-based 
 payments                -             -   (0.9)                  -      (0.9)       (0.9)       0.1             (0.8) 
Amortisation of 
 acquired 
 intangibles             -             -       -              (4.5)      (4.5)       (4.5)       0.8             (3.7) 
Profit on 
 disposal of 
 investments             -             -     0.1                  -        0.1         0.1         -               0.1 
R & D tax credits        -             -       -                  -          -           -       0.4               0.4 
-----------------  -------  ------------  ------  -----------------  ---------  ----------  --------  ---------------- 
Statutory            126.0          50.6    19.2              (9.7)        9.5         8.7     (1.9)               6.8 
-----------------  -------  ------------  ------  -----------------  ---------  ----------  --------  ---------------- 
 

Overview

We have continued to deliver robust financial results during our second year of transformation. Group revenue increased by 5.3% to GBP132.7m. Within this, Assurance revenues increased by 6.7% to GBP114.3m (H1 2019: GBP107.1m). All assurance regions experienced growth, with the North America and UK particularly encouraging at 10.6% and 6.9% respectively, with Europe & RoW UK increasing by 0.4%. Escrow revenue was 2.6% behind prior year as North America and UK fell by 7.1% and 2.3% respectively. On a constant currency basis, Group revenue increased by 4.2%, with Assurance revenues increasing by 5.5% (North America 7.2% increase) and Escrow revenues decreasing by 3.2% (North America 9.3% decrease).

Gross profit increased by 2.8% to GBP52.0m (H1 2019: GBP50.6m) with margin percentage amounting to 39.2% (H1 2019: 40.2%), with Assurance margin percentage decreasing to 33.7% (H1 2019: 34.3%) and Escrow remaining stable at 73.4% (H1 2019: 73.5%). The gross profit increase during the period includes investment in sales and technical capacity to support future growth. Gross margin is impacted by Escrow, and a slower Q1 2020 in Assurance at a time of continued increase in talent.

Administration expenses remain well controlled with continued investment in people offset by better management of discretionary spend, giving rise to a statutory operating profit and adjusted operating profit (3) on a like-for-like basis of GBP10.3m (H1 2019: GBP9.5m) and GBP16.5m (H1 2019: GBP14.8m) respectively. Adjusted operating profit (3) after the impact of IFRS 16 (+GBP0.2m) increased by 12.8% to GBP16.7m. Adjusted depreciation and amortisation amounted to GBP8.1m (H1 2019: GBP5.2m) giving rise to Adjusted EBITDA (3) of GBP24.8m (H1 2019: GBP20.0m). Adjusted profit before taxation (3) increased by 8.6% to GBP15.2m (H1 2019: GBP14.0m). Statutory profit before taxation increased by 3.4% to GBP9.0m. Adjusted EPS and statutory EPS after the impact of IFRS 16 (-GBP0.3m) amounted to 4.2p (H1 2019: 3.9p) and 2.4p (H1 2019: 2.4p) respectively.

We have continued to demonstrate effective cash management, reducing net debt (3) to GBP20.8m from prior period levels of GBP45.1m (FY19: GBP20.2m) after capital expenditure of GBP5.0m (H1 2019: GBP3.3m). Committed headroom as at 30 November 2019 amounted to GBP79.2m (H1 2019: GBP55.5m), following our refinancing on 10 June 2019.

Divisional performance

Divisional performance includes the allocation of certain central costs incurred on behalf of the divisions. Segmental information is disclosed below:

 
 
                              H1 2020 (IFRS 16)                         H1 2019 (Pre-IFRS 16) 
 
                                           Central                                       Central 
                                          and head                                      and head 
                      Assurance  Escrow     office   Group       Assurance     Escrow     office   Group 
                           GBPm    GBPm       GBPm    GBPm            GBPm       GBPm       GBPm    GBPm 
------------------  -----------  ------  ---------  ------  --------------  ---------  ---------  ------ 
Revenue                   114.3    18.4          -   132.7           107.1       18.9          -   126.0 
Cost of sales            (75.8)   (4.9)          -  (80.7)          (70.4)      (5.0)          -  (75.4) 
------------------  -----------  ------  ---------  ------  --------------  ---------  ---------  ------ 
Gross profit               38.5    13.5          -    52.0            36.7       13.9          -    50.6 
Gross margin %            33.7%   73.4%          -   39.2%           34.3%      73.5%          -   40.2% 
Administrative 
 expenses 
 (2)                     (25.4)   (5.4)      (4.5)  (35.3)          (26.0)      (5.1)      (4.7)  (35.8) 
------------------  -----------  ------  ---------  ------  --------------  ---------  ---------  ------ 
Adjusted operating 
 profit 
 (3)                       13.1     8.1      (4.5)    16.7            10.7        8.8      (4.7)    14.8 
Adjusted operating 
 profit 
 %                        11.5%   44.0%          -   12.6%           10.0%      46.6%          -   11.7% 
------------------  -----------  ------  ---------  ------  --------------  ---------  ---------  ------ 
 
 

Assurance

The Assurance division accounts for 86.1% of Group revenue (H1 2019: 85.0%) and 74.0% of Group gross profit (H1 2019: 72.5%).

Assurance revenue analysis - by originating country:

 
                             H1 2020     H1 2019 
                           (IFRS 16)   (Pre-IFRS   Reported 
                                             16)          % 
                                GBPm        GBPm     change 
------------------------  ----------  ----------  --------- 
UK                              47.9        44.8       6.9% 
North America                   41.7        37.7      10.6% 
Europe & RoW                    24.7        24.6       0.4% 
                                                  --------- 
Total Assurance revenue        114.3       107.1       6.7% 
------------------------  ----------  ----------  --------- 
 

As noted above, UK Assurance revenue in the period increased by 6.9% to GBP47.9m (H1 2019: GBP44.8m) following the introduction of a number of changes in H2 2019 amongst the management and sales teams.

In the period, North America has continued double digit revenue growth of 10.6% to GBP41.7m (H1 2019: GBP37.7m), with the region experiencing a strong second quarter following a slower first quarter.

Assurance Europe & RoW grew by 0.4% to GBP24.7m (H1 2019: GBP24.6m) with the business focused on developing new markets. During the period, the Group has opened a local office in Japan as part of RoW expansion and has commenced building strong local relationships. The Group will continue to pursue global opportunities when they arise.

Value based selling within our Assurance services remains a priority and this is demonstrated by average order values increasing by 29.5% during the period.

Assurance revenue analysed by type service/product line:

 
                                             H1 2020     H1 2019 
                                           (IFRS 16)   (Pre-IFRS   Reported 
                                                             16)          % 
                                                GBPm        GBPm     change 
--------------------------------------  ------------  ----------  --------- 
Technical Security Consulting ("TSC")           77.5        67.4      15.0% 
Risk Management Consulting ("RMC")              15.4        17.7    (13.0%) 
Managed Detection & Response ("MDR")            18.8        17.7       6.2% 
Product sales (own and third-party)              2.6         4.3    (39.5%) 
                                                                  --------- 
Total Assurance revenue                        114.3       107.1       6.7% 
--------------------------------------  ------------  ----------  --------- 
 

Technical Security Consulting, our core professional service, continued to grow by 15.0% to GBP77.5m

(H1 2019: GBP67.4m) as a result of continued strong growth in North America of 11.6% and a return to strong growth in UK of 19.4%.

Risk Management Consulting, a service that addresses the business risks of cyber, declined by 13.0% to GBP15.4m, with North America increasing by 3.2% offset by a decline of 10.6% and 76.9% in the UK and Europe & RoW respectively, as a more focused mix of services resulted in higher profitability.

Managed Detection & Response, a service line that provides operational cyber defence, scanning, simulation and SOC services, grew by 6.2% to GBP18.8m. Management are focused on continuing to develop opportunities within this market, as evidenced through our order book amounting to GBP30.1m.

The decrease of 39.5% in product sales is due to multi-year product deals in H1 2019 not yet due for renewal. Product sales now largely relate to high assurance products in Europe and RoW.

Assurance gross profit is analysed as follows:

 
                                   H1 2020     H1 2020     H1 2019     H1 2019 
                                 (IFRS 16)   (IFRS 16)   (Pre-IFRS   (Pre-IFRS 
                                                               16)         16)     Reported 
                                      GBPm    % margin        GBPm    % margin   pts change 
-----------------------  -----------------  ----------  ----------  ----------  ----------- 
UK                                    17.1       35.7%        14.3       31.9%      3.8 pts 
North America                         13.1       31.4%        13.9       36.9%    (5.5 pts) 
Europe & RoW                           8.3       33.6%         8.5       34.6%    (1.0 pts) 
                                                                                ----------- 
Assurance gross profit 
 and % margin                         38.5       33.7%        36.7       34.3%    (0.6 pts) 
-----------------------  -----------------  ----------  ----------  ----------  ----------- 
 

Gross margin declined by 0.6% pts as a result of continued investment in technical and sales colleagues with utilisation decreasing to 78.1% (H1 2019: 81.9%). The improvement in adjusted operating profit (3) (+22.4%) to GBP13.1m (H1 2019: GBP10.7m) was driven by revenue growth mitigated by ongoing investment in sales and technical talent, further to controlled overheads. Accordingly, adjusted operating profit (3) margin improved to 11.5% (H1 2019: 10.0%).

Escrow

The Escrow division accounts for 13.9% of Group revenues (H1 2019: 15.0%) and 26.0% of Group gross profit (H1 2019: 27.5%).

Escrow revenue analysis - by originating country:

 
                          H1 2020     H1 2019 
                        (IFRS 16)   (Pre-IFRS  Reported 
                                          16)         % 
                             GBPm        GBPm    change 
---------------------  ----------  ----------  -------- 
UK                           12.6        12.9    (2.3%) 
North America                 3.9         4.2    (7.1%) 
Europe & RoW                  1.9         1.8      5.6% 
---------------------  ----------  ----------  -------- 
Total Escrow revenue         18.4        18.9    (2.6%) 
---------------------  ----------  ----------  -------- 
 

UK and North America declined by 2.3% and 7.1% respectively due to a decline in renewal rates and verification testing phasing. Europe and RoW revenue increased by 5.6% as we increase our presence, following new sales headcount becoming effective.

Global renewal rates declined to 87% (H1 2019: 89%) however the sales teams have now been integrated under a new Global MD, with the focus now on stabilisation.

Escrow revenues analysed by service line:

 
Escrow services revenue      H1 2020     H1 2019 
                           (IFRS 16)   (Pre-IFRS  Reported 
                                             16)         % 
                                GBPm        GBPm    change 
------------------------  ----------  ----------  -------- 
Escrow contracts                12.8        13.3    (3.8%) 
Verification services            5.6         5.6         - 
Total Escrow revenue            18.4        18.9    (2.6%) 
------------------------  ----------  ----------  -------- 
 

Gross margin is analysed as follows:

 
                                    H1 2020     H1 2020     H1 2019       H1 2019 
                                  (IFRS 16)   (IFRS 16)   (Pre-IFRS     (Pre-IFRS      Reported 
                                                                16)           16)             % 
                                       GBPm    % margin        GBPm      % margin    pts change 
------------------------  -----------------  ----------  ----------  ------------  ------------ 
UK                                      9.5       75.4%         9.6         74.4%      1.0% pts 
North America                           2.7       69.2%         2.8         66.7%      2.5% pts 
Europe & RoW                            1.3       68.4%         1.5         83.3%   (14.9% pts) 
                                                                                   ------------ 
Escrow gross profit and 
 % margin                              13.5       73.4%        13.9         73.5%    (0.1% pts) 
------------------------  -----------------  ----------  ----------  ------------  ------------ 
 

Escrow gross margin remained stable at 73.4% (H1 2019: 73.5%) with overheads increasing due to the impact of the transformation, giving rise to adjusted operating profit (3) of GBP8.1m (H1 2019: GBP8.8m).

Adjusting items (3)

Pre-tax adjusting items are set out below:

 
                                          H1 2020     H1 2019 
                                                    (Pre-IFRS 
                                        (IFRS 16)         16) 
                                             GBPm        GBPm 
-------------------------------------  ----------  ---------- 
Share-based payments                        (1.8)       (0.9) 
Amortisation of acquired intangibles        (4.4)       (4.5) 
Profit on disposal of investments               -         0.1 
Total pre-tax adjusting items               (6.2)       (5.3) 
-------------------------------------  ----------  ---------- 
 

During the period, the Group has incurred no Individually Significant Items ("ISIs") (H1 2019: Nil).

In relation to other adjusting items, share-based payments increased during the period, as new schemes have been issued to employees whilst in the prior period it was concluded that a number of historic schemes would not meet scheme performance criteria resulting in a reversal of historic charges.

In addition, amortisation of acquired intangibles relating to customer contracts and relationships amounted to GBP4.4m (H1 2019: GBP4.5m).

Net finance costs

On a like-for-like basis, statutory finance costs for the period were GBP0.9m compared to GBP0.8m in 2019. On an IFRS 16 basis, net finance costs also include lease interest costs of GBP0.6m, giving rise to total statutory finance costs of GBP1.5m.

Taxation

The Group's adjusted effective tax rate is 23.7% (H1 2019: 22.9%). On a statutory basis, the effective tax rate is 26.7% (H1 2019: 21.8%).

The effective tax rate remains above the UK standard rate of corporation tax of 19%, reflecting the origin of a reasonable proportion of Group profits in overseas territories with higher rates of tax than the UK. Statutory corporate tax rates within North America equate to approximately 29% (Federal and State combined) for the year to 31 May 2020.

The Group's longer term strategy for tax and treasury matters remains that of a low-risk appetite and any new strategies will operate inside this framework.

Earnings per share (EPS)

 
                           H1 2020     H1 2020     H1 2019 
                         (IFRS 16)   (Pre-IFRS   (Pre-IFRS 
                                           16)         16) 
                              GBPm        GBPm        GBPm 
----------------------  ----------  ----------  ---------- 
Statutory earnings 
Basic EPS                      2.4         2.5         2.4 
Diluted EPS                    2.3         2.4         2.4 
Adjusted earnings (3) 
Basic EPS                      4.2         4.3         3.9 
Diluted EPS                    4.1         4.2         3.8 
----------------------  ----------  ----------  ---------- 
 

On a like-for-like basis, basic adjusted EPS (3) was 4.3p (H1 2019: 3.9p) and on a statutory basis it was 2.5p (H1 2019: 2.4p).

Cash flow and net debt (3)

The table below summarises the Group's cash flow and net debt (3) :

 
                                                       H1 2020      H1 2020      H1 2019 
                                                                  (Pre-IFRS    (Pre-IFRS 
                                                     (IFRS 16)          16)          16) 
                                                          GBPm         GBPm         GBPm 
-------------------------------------------------  -----------  -----------  ----------- 
 Operating cash inflow before movements in 
  working capital                                         24.4         20.6         20.3 
 Increase in trade and other receivables                 (9.8)        (9.8)        (4.1) 
 Increase in inventories                                 (0.3)        (0.3)            - 
 Increase/(decrease) in trade and other payables           5.6          5.6        (4.6) 
-------------------------------------------------  -----------  -----------  ----------- 
 Cash generated from operating activities 
  before interest and taxation                            19.9         16.1         11.6 
 Finance interest paid                                   (0.8)        (0.8)        (0.9) 
 Taxation paid                                           (1.5)        (1.5)        (4.1) 
-------------------------------------------------  -----------  -----------  ----------- 
 Net cash generated from operating activities             17.6         13.8          6.6 
 Plant and equipment                                     (0.7)        (0.7)        (1.8) 
 Software and development                                (4.3)        (4.3)        (2.4) 
 Acquisitions                                                -            -        (9.9) 
 Net proceeds from business disposals (including 
  cash disposed)                                             -            -          0.1 
 Dividends paid                                          (8.8)        (8.8)        (8.7) 
 Repayment of lease liabilities                          (3.8)            -            - 
 Transaction costs related to borrowings                 (1.0)        (1.0)            - 
 Share issues                                                -            -          0.2 
-------------------------------------------------  -----------  -----------  ----------- 
 Net movement                                            (1.0)        (1.0)       (15.9) 
-------------------------------------------------  -----------  -----------  ----------- 
 Opening net debt (Pre-IFRS 16) (3)                     (20.2)       (20.2)       (27.8) 
-------------------------------------------------  -----------  -----------  ----------- 
 Foreign exchange                                          0.4          0.4        (1.4) 
-------------------------------------------------  -----------  -----------  ----------- 
 Closing net debt (Pre-IFRS 16) (3)                     (20.8)       (20.8)       (45.1) 
-------------------------------------------------  -----------  -----------  ----------- 
 Lease liabilities                                      (30.6) 
-------------------------------------------------  ----------- 
 Closing net debt (IFRS 16)                             (51.4) 
-------------------------------------------------  ----------- 
 

Net debt (3) can be reconciled as follows:

 
                                 H1 2020      H1 2019 
                               (IFRS 16)    (Pre-IFRS 
                                                  16) 
                                    GBPm         GBPm 
---------------------------  -----------  ----------- 
 Cash and cash equivalents          33.8         15.5 
 Borrowings                       (54.6)       (60.6) 
--------------------------- 
 Net debt (Pre IFRS 16)           (20.8)       (45.1) 
---------------------------  -----------  ----------- 
 Lease liabilities                (30.6) 
---------------------------  ----------- 
 Net debt (IFRS 16)               (51.4) 
---------------------------  ----------- 
 

On a reported basis, the Group generated GBP19.9m of cash from operating activities before interest and taxation (H1 2019: GBP11.6m), an increase of 71.6% (on a like-for-like basis, an increase of 38.8%). The Group measures how effectively adjusted EBITDA (3) is converted into actual cash flows using the cash conversion ratio (3) .

The calculation of the cash conversion ratio (3) is set out below:

 
                                             H1 2020      H1 2020      H1 2019 
                                                                                     Like-for-like 
                                                        (Pre-IFRS    (Pre-IFRS    change (Pre-IFRS 
                                           (IFRS 16)          16)          16)                 16) 
                                                GBPm         GBPm         GBPm                GBPm 
---------------------------------------  -----------  -----------  -----------  ------------------ 
 Net operating cash flow before 
  interest and taxation (A)                     19.9         16.1         11.6               38.8% 
 Adjusted EBITDA (3) (B)                        24.8         21.6         20.0                8.0% 
---------------------------------------  -----------  -----------  -----------  ------------------ 
 Cash conversion ratio (3) (%) (A)/(B)         80.2%        74.5%        58.0%           16.5% pts 
---------------------------------------  -----------  -----------  -----------  ------------------ 
 

The half year figure shows a much improved picture on cash performance compared to the prior half year, reflecting the effort put into improving our processes in the second half of FY20 across both payables and receivables. Working capital has increased since May 2019 due to an increase in receivables derived from Q2 2020 assurance sales momentum, offset by effective cash management on payables. Cash conversion (3) for FY20 is still expected to normalise and is targeted at c.85% over the medium term.

The decrease in tax paid is due to an overall tax debtor brought forward and timing of payments to be made on account for FY20.

Net capital cash expenditure during the period was GBP5.0m (H1 2019: GBP1.8m) which includes tangible expenditure of GBP0.7m (H1 2019: GBP1.8m) and capitalised software and development costs of GBP4.3m (H1 2019: GBP2.4m), which have increased due to the implementation costs of new systems as part of the SGT programme. SGT cash capital expenditure for the period amounted to GBP2.9m, with additional cash capital expenditure to be incurred during H2 2020 as we substantially finish the installation of our new systems.

Dividend

Dividends of GBP8.8m paid in the period (H1 2019: GBP8.7m) comprised the final dividend for 2019 of 3.15p.

The Board is recommending an unchanged interim dividend of 1.50p per ordinary share (H1 2019: 1.50p). This represents a dividend equal to that paid in the prior year as the Board is conscious of the need to invest in the SGT programme and other initiatives to support longer term growth. The dividend policy will therefore continue to remain under review.

The interim dividend will be paid on 6 March 2020, to shareholders on the register at the close of business on 7 February 2020. The ex-dividend date is 6 February 2020.

Financing facilities

The Group is financed through a combination of bank facilities, retained profits and equity.

As at 30 November 2019, the Group had committed bank facilities (revolving credit facility) of GBP100.0m (H1 2019: GBP100.6m), of which GBP54.6m (H1 2019: GBP60.6m) had been drawn under these facilities, leaving GBP45.4m (H1 2019: GBP40.0m) of undrawn facilities. These arrangements were agreed on 10 June 2019 and are due for renewal in June 2024. Under these arrangements the Group can also request an additional accordion facility to increase the total size of the revolving credit facility by up to GBP75m.

On our banking covenants, leverage (4) as at 30 November 2019 amounted to 0.5x (H1 2019: 1.1x) and net interest cover (4) amounted to 24.9x (H1 2019: 27.7x). The Group was in compliance with the terms of all its facilities, including the financial covenants, at 30 November 2019 and expects to remain in compliance with the terms going forward. The terms and ratios 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 excludes IFRS 16 lease liabilities.

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 review. Our financial position, cash and borrowing facilities are described within this financial review.

The Directors have reviewed the trading, cash flow forecasts and forecast covenants of the Group as part of their going concern assessment and have taken into account reasonable downside sensitivities (including a "no-deal" Brexit scenario) which reflect uncertainties in the current operating environment. The possible changes in trading performance show that the Group is able to operate within the level of the banking facilities and, as a consequence, the Directors believe that the Group is well placed to manage its business risks successfully. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for a period of at least 12 months. Accordingly, they continue to adopt the going concern basis of accounting in preparing the Group's condensed interim financial statements for the period ended 30 November 2019.

Principal risks and uncertainties

The Group is subject to risk factors both internal and external to its business, and has a well-established set of risk management procedures. The following risks and uncertainties are those that the Directors believe could have the most significant impact on the Group's business:

   --      Business strategy; 
   --      Management of strategic change; 
   --      Availability of critical systems; 
   --      Attracting and retaining appropriate staff capacity and capability; 
   --      Cyber risk (including GDPR); 
   --      Quality of management information systems and internal business processes; 
   --      Quality and security management systems; and 
   --      Brexit (as noted below). 

Brexit

Following recent UK political developments, we continue to plan for Brexit and we have a Brexit Steering Group that meets regularly. As our operations around the world include business entities based in continental Europe we believe NCC Group is structurally resilient to any disruption caused by Brexit. The main risks to our business from Brexit are:

   --      Any reduction in demand from an economic slowdown; and 

-- Real or perceived differences in data protection standards which impact our global ways of working.

Directors' responsibility statement

We confirm that to the best of our knowledge:

-- The condensed set of consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

   --      The interim management report includes a fair review of the information required by: 

o 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

o 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 23 January 2020 by:

 
Adam Palser              Tim Kowalski 
Chief Executive Officer  Chief Financial Officer 
 

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 2019 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 2019 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.

The impact of uncertainties due to the UK exiting the European Union on our review

Uncertainties related to the effects of Brexit are relevant to understanding our review of the condensed financial statements. Brexit is one of the most significant economic events for the UK, and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown. An interim review cannot be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.

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 2020

Consolidated income statement

For the six months ended 30 November 2019

 
                                               H1 2020 (2)                     H1 2019 (2) 
                                     -------------------------------  ------------------------------ 
                                                                                Adjusting 
                                                Adjusting             Adjusted      items 
                                     Adjusted   items (2)  Statutory       (2)        (2)  Statutory 
                              Notes      GBPm        GBPm       GBPm      GBPm       GBPm       GBPm 
----------------------------  -----  --------  ----------  ---------  --------  ---------  --------- 
Continuing operations 
Revenue                         3       132.7           -      132.7     126.0          -      126.0 
Cost of sales                   3      (80.7)           -     (80.7)    (75.4)          -     (75.4) 
Gross profit                    3        52.0           -       52.0      50.6          -       50.6 
Administration expenses 
 (3)                            3      (35.3)       (6.2)     (41.5)    (35.8)      (5.3)     (41.1) 
----------------------------  -----  --------  ----------  ---------  --------  ---------  --------- 
Operating profit                3        16.7       (6.2)       10.5      14.8      (5.3)        9.5 
Net finance costs                       (1.5)           -      (1.5)     (0.8)          -      (0.8) 
----------------------------  -----  --------  ----------  ---------  --------  ---------  --------- 
Profit before taxation                   15.2       (6.2)        9.0      14.0      (5.3)        8.7 
Taxation                                (3.6)         1.2      (2.4)     (3.2)        1.3      (1.9) 
----------------------------  -----  --------  ----------  ---------  --------  ---------  --------- 
Profit for the period 
 attributable to the owners 
 of the Company                          11.6       (5.0)        6.6      10.8      (4.0)        6.8 
----------------------------  -----  --------  ----------  ---------  --------  ---------  --------- 
 
Earnings per share              5 
Basic EPS                                                       2.4p                            2.4p 
Diluted EPS                                                     2.3p                            2.4p 
----------------------------  -----  --------  ----------  ---------  --------  ---------  --------- 
 

Consolidated statement of comprehensive income

For the six months ended 30 November 2019

 
                                                                      H1 2020 
                                                                          (2)  H1 2019 
                                                                         GBPm     GBPm 
--------------------------------------------------------------------  -------  ------- 
Profit for the period attributable to the owners of the 
 Company                                                                  6.6      6.8 
--------------------------------------------------------------------  -------  ------- 
Other comprehensive income 
Items that may be reclassified subsequently to profit or 
 loss (net of tax) 
Foreign exchange translation differences                                (2.9)      2.7 
--------------------------------------------------------------------  -------  ------- 
Total comprehensive income for the period (net of tax) attributable 
 to the owners of the Company                                             3.7      9.5 
--------------------------------------------------------------------  -------  ------- 
 
 

Footnotes

1: References to the Group's results are to continuing operations.

2: See note 1 for further details on the application of IFRS 16 and no restatement of comparative information. The adoption of IFRS 16 in the 6 months to 30 November 2019 resulted in an increase in depreciation and amortisation of GBP3.0m and finance costs of GBP0.6m, with other administration expenses decreasing by GBP3.2m.

3: See note 2 for an explanation of Alternative Performance Measures ("APMs") and adjusting items. See note 2 for a reconciliation to statutory information.

4: Leverage is defined as the ratio of total Net Debt to Adjusted EBITDA and Interest Cover is defined as the ratio of Adjusted EBITDA to net finance charges (pre-IFRS 16).

Consolidated balance sheet

For the six months ended 30 November 2019

 
                                               H1 2020 (2)  H1 2019 (2)  FY 2019 (2) 
                                        Notes         GBPm         GBPm         GBPm 
--------------------------------------  -----  -----------  -----------  ----------- 
Non-current assets 
Goodwill                                             187.0        190.3        189.4 
Other intangible assets                               39.8         49.0         41.8 
Property, plant and equipment                         14.7         18.1         16.9 
Right-of-use assets                       6           21.7            -            - 
Investments                                            0.3          0.3          0.3 
Deferred tax assets                                    7.2          1.5          1.1 
Total non-current assets                             270.7        259.2        249.5 
--------------------------------------  -----  -----------  -----------  ----------- 
Current assets 
Inventories                                            1.0          0.8          0.7 
Trade and other receivables                           71.4         73.3         61.6 
Consideration receivable on disposals                    -          0.5            - 
Current tax receivable                                 1.1          0.3          0.6 
Cash and cash equivalents                             33.8         15.5         34.9 
Total current assets                                 107.3         90.4         97.8 
--------------------------------------  -----  -----------  -----------  ----------- 
Total assets                                         378.0        349.6        347.3 
--------------------------------------  -----  -----------  -----------  ----------- 
Current liabilities 
Trade and other payables                              37.6         33.5         31.6 
Borrowings                                               -          5.0          5.0 
Lease liabilities                         6            4.6            -            - 
Current tax payable                                    2.4            -            - 
Provisions                                             0.2          1.2          2.7 
Consideration on acquisitions                            -          1.7            - 
Deferred revenue                                      36.4         31.0         36.2 
Total current liabilities                             81.2         72.4         75.5 
--------------------------------------  -----  -----------  -----------  ----------- 
Non-current liabilities 
Borrowings                                7           54.6         55.6         50.1 
Lease liabilities                         6           26.0            -            - 
Deferred tax liability                                 9.8          6.0          5.4 
Provisions                                             0.9          7.1          5.5 
Total non-current liabilities                         91.3         68.7         61.0 
--------------------------------------  -----  -----------  -----------  ----------- 
Total liabilities                                    172.5        141.1        136.5 
--------------------------------------  -----  -----------  -----------  ----------- 
Net assets                                           205.5        208.5        210.8 
--------------------------------------  -----  -----------  -----------  ----------- 
 
Equity 
Issued capital                                         2.8          2.8          2.8 
Share premium                                        149.8        149.7        149.8 
Merger reserve                                        42.3         42.3         42.3 
Currency translation reserve                          25.0         29.1         27.9 
Retained earnings                                   (14.4)       (15.4)       (12.0) 
Total equity attributable to equity 
 holders of the parent                               205.5        208.5        210.8 
--------------------------------------  -----  -----------  -----------  ----------- 
 

These financial statements were approved by the Board of Directors on 23 January 2020 and were signed on its behalf by:

 
      Adam Palser              Tim Kowalski 
Chief Executive Officer  Chief Financial Officer 
 

Consolidated cash flow statement

For the six months ended 30 November 2019

 
                                                       H1 2020 (2)  H1 2019 (2) 
                                                              GBPm         GBPm 
----------------------------------------------------   -----------  ----------- 
Profit for the period                                          6.6          6.8 
Adjustments for: 
 Depreciation of property, plant and equipment                 3.3          3.0 
 Depreciation of right of use assets                           3.0            - 
 Share-based payments                                          1.8          0.9 
 Amortisation of acquired intangible assets                    4.4          4.5 
 Amortisation of internally developed intangible 
  assets and software                                          1.8          2.2 
 Net other financing costs                                     0.9          0.8 
 Lease financing costs                                         0.6            - 
 Foreign exchange                                              0.2          0.1 
 Profit on disposal of subsidiaries                              -          0.1 
 Research and development tax credits                        (0.2)            - 
 Income tax expense                                            2.4          1.9 
 Decrease in provisions                                      (0.4)            - 
Cash inflow for the period before changes in 
 working capital                                              24.4         20.3 
-----------------------------------------------------  -----------  ----------- 
Increase in trade and other receivables                      (9.8)        (4.1) 
Increase in inventories                                      (0.3)            - 
Increase/(decrease) in trade and other payables                5.6        (4.6) 
-----------------------------------------------------  -----------  ----------- 
Cash generated from operating activities before 
 interest and taxation                                        19.9         11.6 
Interest paid                                                (0.8)        (0.9) 
Taxation paid                                                (1.5)        (4.1) 
-----------------------------------------------------  -----------  ----------- 
Net cash generated from operating activities                  17.6          6.6 
Cash flows from investing activities 
Purchase of property, plant and equipment                    (0.7)        (1.8) 
Software and development expenditure                         (4.3)        (2.4) 
Acquisition of businesses                                        -        (9.9) 
Net proceeds from sale of subsidiaries and 
 investments                                                     -          0.1 
-----------------------------------------------------  -----------  ----------- 
Net cash used in investing activities                        (5.0)       (14.0) 
Cash flows from financing activities 
Proceeds from the issue of ordinary share capital                -          0.2 
Drawdown of borrowings                                           -         10.0 
Repayment of lease liabilities                               (3.8)            - 
Transaction costs related to borrowings                      (1.0)            - 
Equity dividends paid                                        (8.8)        (8.7) 
-----------------------------------------------------  -----------  ----------- 
Net cash (used)/generated from financing activities         (13.6)          1.5 
-----------------------------------------------------  -----------  ----------- 
Net decrease in cash and cash equivalents                    (1.0)        (5.9) 
-----------------------------------------------------  -----------  ----------- 
Cash and cash equivalents at beginning of period              34.9         21.2 
Effect of foreign currency exchange rate changes             (0.1)          0.2 
Cash and cash equivalents at end of period                    33.8         15.5 
-----------------------------------------------------  -----------  ----------- 
 

Reconciliation of net change in cash and cash equivalents to movement in net debt (2)

 
                                                       H1 2020 (2)  H1 2019 (2) 
                                                Notes         GBPm         GBPm 
----------------------------------------------  -----  -----------  ----------- 
Net decrease in cash and cash equivalents                    (1.0)        (5.9) 
Change in net debt resulting from cash flows                     -       (10.0) 
Effect of foreign currency on cash flows                     (0.1)          0.2 
Foreign currency translation differences on 
 borrowings                                                    0.5        (1.6) 
Change in net debt (2) during the period                     (0.6)       (17.3) 
----------------------------------------------  -----  -----------  ----------- 
Net debt (2) at start of period (Pre IFRS 16)               (20.2)       (27.8) 
----------------------------------------------  -----  -----------  ----------- 
Net debt (2) at end of period (Pre IFRS 16)                 (20.8)       (45.1) 
----------------------------------------------  -----  -----------  ----------- 
Lease liabilities                                 6         (30.6) 
----------------------------------------------  -----  ----------- 
Net debt (2) at end of period (IFRS 16)                     (51.4) 
----------------------------------------------  -----  ----------- 
 

Consolidated statement of changes in equity

For the six months ended 30 November 2019

 
                                                                                   Currency 
                                     Share    Share Premium    Merger Reserve   Translation    Retained 
                                   Capital                                          Reserve    Earnings 
                                                                                                           Total 
                                      GBPm             GBPm              GBPm          GBPm        GBPm     GBPm 
-------------------------------  ---------  ---------------  ----------------  ------------  ----------  ------- 
Balance at 1 June 2019 
 previously reported                   2.8            149.8              42.3          27.9      (12.0)    210.8 
-------------------------------  ---------  ---------------  ----------------  ------------  ----------  ------- 
Impact of change in accounting 
 policies in respect of 
 IFRS 16 (net of tax)                                                                             (2.0)    (2.0) 
Adjusted balance at 1 
 June 2019 (unaudited)                 2.8            149.8              42.3          27.9      (14.0)    208.8 
Profit for the period                    -                -                 -             -         6.6      6.6 
Foreign currency 
 translation differences                 -                -                 -         (2.9)           -    (2.9) 
-------------------------------  ---------  ---------------  ----------------  ------------  ----------  ------- 
Total comprehensive income 
 for the period                          -                -                 -         (2.9)         6.6      3.7 
-------------------------------  ---------  ---------------  ----------------  ------------  ----------  ------- 
Transactions with owners 
 recorded directly in equity 
Dividends to equity 
 Shareholders                            -                -                 -             -       (8.8)    (8.8) 
Share based payment 
 Transactions                            -                -                 -             -         1.8      1.8 
Total contributions by 
 and distributions to owners             -                -                 -             -       (7.0)    (7.0) 
-------------------------------  ---------  ---------------  ----------------  ------------  ----------  ------- 
Balance at 30 November 
 2019 (unaudited)                      2.8            149.8              42.3          25.0      (14.4)    205.5 
-------------------------------  ---------  ---------------  ----------------  ------------  ----------  ------- 
 
 
                                                                                     Currency 
                                       Share    Share Premium    Merger Reserve   Translation    Retained 
                                     Capital                                          Reserve    Earnings 
                                                                                                             Total 
                                        GBPm             GBPm              GBPm          GBPm        GBPm     GBPm 
---------------------------------  ---------  ---------------  ----------------  ------------  ----------  ------- 
Balance at 1 June 2018 
 (unaudited)                             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 (unaudited)                        2.8            149.7              42.3          29.1      (15.4)    208.5 
---------------------------------  ---------  ---------------  ----------------  ------------  ----------  ------- 
 
 
                                                                                     Currency 
                                       Share    Share Premium    Merger Reserve   Translation    Retained 
                                     Capital                                          Reserve    Earnings    Total 
                                        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 year                        -                -                 -             -        13.5     13.5 
Foreign currency translation 
 differences                               -                -                 -           1.5           -      1.5 
---------------------------------  ---------  ---------------  ----------------  ------------  ----------  ------- 
Total comprehensive income 
 for the year                              -                -                 -           1.5        13.5     15.0 
---------------------------------  ---------  ---------------  ----------------  ------------  ----------  ------- 
Transactions with owners 
 recorded directly in equity 
Dividends to equity shareholders           -                -                 -             -      (12.9)   (12.9) 
Share based payments                       -                -                 -             -         1.7      1.7 
Current and deferred tax 
 on share based payments                   -                -                 -             -         0.1      0.1 
Shares issued                              -              0.3                 -             -           -      0.3 
Total contributions by 
 and distributions to owners               -              0.3                 -             -      (11.1)   (10.8) 
---------------------------------  ---------  ---------------  ----------------  ------------  ----------  ------- 
Balance at 31 May 2019                   2.8            149.8              42.3          27.9      (12.0)    210.8 
---------------------------------  ---------  ---------------  ----------------  ------------  ----------  ------- 
 

Notes to the unaudited condensed interim 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 escrow and cyber assurance services.

The Groups' unaudited condensed interim financial statements for the six months ended 30 November 2019, have been prepared on the going concern basis in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union, Article 4 of the IAS regulation, those parts of the Companies Act 2006 (the Act) applicable to companies reporting under IFRS and IAS 34 'Interim Financial Reporting' as adopted by the EU. The condensed interim 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 financial statements are presented in Sterling (GBPm) because that is the currency of the principal economic environment in which the Group operates. The unaudited condensed interim financial statements were approved by the Directors on 23 January 2020.

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 2019, with the exception of those impacted by the adoption of IFRS 16 which the Group has adopted with effect from 1 June 2019, with comparatives remaining under IAS 17 'Leases'. 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 2019.

The financial statements of the Group for the year ended 31 May 2019 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 2019 have been delivered to the Registrar of Companies. The Company's auditors, KPMG LLP, have given an unqualified report on the consolidated financial statements for the year ended 31 May 2019, which did not include reference to any matters to which the auditors drew attention without qualifying their report and did not contain any statement under section 498 of the Companies Act 2006.

Brexit

Management has reviewed the potential impact of Brexit on the financial statements. As the Groups' operations around the world include business entities based in continental Europe management believe the Group is structurally resilient to any disruption caused by Brexit. The main risks to the Group from Brexit are any reduction in demand from an economic slowdown and real or perceived differences in data protection standards which impact our global ways of working. On this basis, management have concluded that the impact should be limited, this includes any impact on the IFRS 9 Expected Credit Loss model.

Application of significant new EU - endorsed accounting standard - IFRS 16 "Leases"

Background and adoption

During the period, the Group has adopted IFRS 16 'Leases'. The date of the initial application of IFRS 16 for the Group is 1 June 2019. The Group has adopted the accounting standard using the modified retrospective approach to transition and has accordingly not restated prior periods. The results for the six months ended 30 November 2019 are not directly comparable with those reported under the previous applicable accounting standard IAS 17 'Leases' and IFRIC 4 'Determining whether an arrangement contains a lease'. On this basis, to provide meaningful comparatives, the results for the six months ended 30 November 2019 have therefore also been presented under IAS 17 with the "like-for like" numbers shown on an IAS 17 basis (Pre-IFRS 16). This alternative performance measure (APM), will be presented for one year until the comparatives also include the adoption of IFRS 16.

In applying the modified retrospective approach the Group has valued right-of-use assets on a lease by lease basis using the approach that IFRS 16 had always been applied but using the incremental borrowing rate at the date of the application.

Implications of IFRS 16 adoption

The implications of IFRS 16 adoption are noted as follows:

-- a number of lease contracts previously disclosed under IAS 17 within the financial statements, that gave rise to recurring expenses within operating expenses, have been recognised on the balance sheet as a "right of use asset" for the period ended 30 November 2019;

-- a corresponding lease liability (current and non-current) reflecting the Group's commitment to pay consideration to third parties under these contracts has also been recognised, increasing the Group's net debt although the net cash flow profile remains the same for the Group;

-- the Group has depreciated the right of use asset through the Income Statement over the shorter of the assets' useful lives and the assessed lease term;

-- the Group has recognised interest on the liability using the Group's incremental borrowing rate. Interest has been charged to finance costs; and

-- the profile of the overall expense in profit and loss has now changed, as the interest expense will be more front-loaded compared to a straight-line operating lease rental expense under IAS 17.

Specifically, management had to conclude on whether a contract is or contains a lease, with the following being considered:

-- whether there is an identified asset that the Group has the right to obtain substantially all the economic benefits from;

   --      whether the Group has the right to direct how and for what purpose the asset is used; 

-- whether the Group has the right to operate the asset without the supplier having the right to change those operating instructions; and

-- whether the Group has designed the asset in a way that predetermines how and for what purpose the asset will be used.

In addition, management has also considered other salient factors in the assessment of the standard such as:

-- the length of assessed lease term taking into account the non-cancellable period of the lease including periods covered by an option to extend or an option to terminate if the Group is reasonably certain to exercise either option; and

-- the applicability of interest rate implicit in the lease or the Group's incremental borrowing rate.

Following the above assessment, management has concluded that the following items that were previously classified as operating leases under IAS 17 have been recognised in the financial statements using the new requirements of IFRS 16:

   --      certain properties; 
   --      equipment leases; and 
   --      motor vehicles. 

The Group does not lease any server equipment in relation to the provision of Escrow services or have embedded leases within Assurance service contracts.

Exemptions and practical expedients applied

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

-- the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;

   --      reliance on previous assessments on whether leases are onerous; 

-- the accounting for operating leases with a remaining lease term of less than 12 months as at 1 June 2019 as short-term leases;

-- right-of-use assets and liabilities for leases of low value assets (e.g. IT equipment) have not been recognised;

-- the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and

-- the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the group relied on its assessment made applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease.

Transition elections

The Group have offset the previously recognised onerous leases immediately before transition as opposed to performing an impairment review under IAS 36.

Impact on covenants and cash flows

The Group renegotiated its banking facilities in June 2019. The debt covenants on the Group's borrowing facilities have been unaffected by the application of IFRS 16 as the covenant calculations are based on the accounting principles in place prior to 1 January 2019. The IFRS 16 changes have not impacted the interest paid by the Group for its banking facilities. The overall net cash flow for the Group is also unaffected by IFRS 16, however the cash flows in the consolidated cash flow statement are now split between a principal portion and a finance portion, which are both presented under financing activities, previously under IAS 17 the operating lease payments were presented as operating cash flows.

New Accounting policies under IFRS 16

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether:

-- the contract involves use of the identified asset, this may be specified explicitly or implicitly and should be physically distinct or represent substantially all of the capacity or a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified;

-- the Group has the right to obtain substantially all of the economic benefits from use of the asset and throughout the period of use; and

-- the Group has the right to direct the use of the asset. The group has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where all the decisions about how and for what purpose the asset is used are predetermined, the Group has the right to direct the use of the asset if either:

   o   the Group has the right to operate the asset; or 

o the Group designed the asset in a way that predetermines how and for what purpose it will be used.

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted until the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate of 3.3% as the discount rate.

The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group's estimate of the amount expected to be payable, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in the income statement if the carrying amount of the right-of-use asset has been reduced to zero. As noted above, the Group has elected not to recognise right-of-use assets and lease liabilities for short term leases that have a lease term of 12 months or less and leases of low value assets, including certain IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

This policy is now applied to contracts entered into, or changed, on or after 1 June 2019.

Significant judgements

Lease term

The lease term is a key judgement into calculating the lease liability under IFRS 16. Management consider it appropriate to initially set a lease term equal to the contractual term of the lease. However, management then subsequently reviewed the level of certainty of renewing the lease or activating a break-clause if this is contained within a lease, with the assessed lease term reflecting this judgement.

Summary of financial impact on condensed financial statements

The application of this standard has had a significant impact on the Group's condensed Financial Statements for the period ended 30 November 2019 as follows:

Consolidated income statement financial impact:

 
                                                H1 2020                                          H1 2020 
                                                         Rent and 
                                                          finance                              (Pre-IFRS 
                                              (IFRS 16)     costs   Depreciation   Taxation          16) 
Statutory                            Notes         GBPm      GBPm           GBPm       GBPm         GBPm 
-----------------------------------  -----  -----------  --------  -------------  ---------  ----------- 
Revenue                                           132.7         -              -          -        132.7 
Cost of sales                                    (80.7)         -              -          -       (80.7) 
Gross profit                                       52.0         -              -          -         52.0 
Depreciation and amortisation                    (12.5)         -            3.0          -        (9.5) 
Other administration expenses 
 (3)                                             (29.0)     (3.2)              -          -       (32.2) 
-----------------------------------  -----  -----------  --------  -------------  ---------  ----------- 
Operating profit                                   10.5     (3.2)            3.0          -         10.3 
Net finance costs                                 (1.5)       0.6              -          -        (0.9) 
-----------------------------------  -----  -----------  --------  -------------  ---------  ----------- 
Profit before taxation                              9.0     (2.6)            3.0          -          9.4 
Taxation                                          (2.4)         -              -      (0.1)        (2.5) 
-----------------------------------  -----  -----------  --------  -------------  ---------  ----------- 
Profit for the period attributable 
 to the owners of the Company                       6.6     (2.6)            3.0      (0.1)          6.9 
-----------------------------------  -----  -----------  --------  -------------  ---------  ----------- 
 
Earnings per share                   5 
Basic EPS                                           2.4                                              2.5 
Diluted EPS                                         2.3                                              2.4 
-----------------------------------  -----  -----------  --------  -------------  ---------  ----------- 
 

Consolidated statement of comprehensive income financial impact:

 
                                                  H1 2020                       H1 2020 
                                                                Adjustment 
                                                            on application 
                                                    (IFRS          of IFRS    (Pre-IFRS 
                                                      16)               16          16) 
                                                     GBPm             GBPm         GBPm 
------------------------------------------------  -------  ---------------  ----------- 
Total comprehensive income for the year (net of 
 tax) attributable to the owners of the Company       3.7              0.3          4.0 
------------------------------------------------  -------  ---------------  ----------- 
 

During the period ended 30 November 2019, the following charges arising from lease arrangements were recognised in the consolidated income statement:

 
                                                             H1 2020 
                                                                GBPm 
-----------------------------------------------------------  ------- 
Depreciation of right of use assets                              3.0 
Finance costs - interest on lease liabilities                    0.6 
Impairment of right of use assets due to lease termination       2.6 
Release of lease liability due to lease termination            (2.7) 
Income from sub-leases                                             - 
Expenses relating to short-term leases                           0.4 
-----------------------------------------------------------  ------- 
 

Consolidated balance sheet on transition

 
 
 
                                         FY 2019                                                      FY 2019 
                                                      Right-of-use            Onerous 
                                                            assets         leases and 
                                       (Pre-IFRS   and liabilities   lease incentives 
                                             16)     on transition             offset   Taxation    (IFRS 16) 
                                            GBPm              GBPm               GBPm       GBPm         GBPm 
------------------------------  ---  -----------  ----------------  -----------------  ---------  ----------- 
Non-current assets 
Goodwill                                   189.4                 -                  -          -        189.4 
Other intangible assets                     41.8                 -                  -          -         41.8 
Property, plant and equipment               16.9                 -                  -          -         16.9 
Right-of-use assets                            -              33.2              (6.7)          -         26.5 
Investments                                  0.3                 -                  -          -          0.3 
Deferred tax assets                          1.1                 -                  -        7.1          8.2 
Total non-current assets                   249.5              33.2              (6.7)        7.1        283.1 
-----------------------------------  -----------  ----------------  -----------------  ---------  ----------- 
Current assets 
Inventories                                  0.7                 -                  -          -          0.7 
Trade and other receivables                 61.6                 -                  -          -         61.6 
Consideration receivable                       -                 -                  -          -            - 
 on disposals 
Current tax receivable                       0.6                 -                  -          -          0.6 
Cash and cash equivalents                   34.9                 -                  -          -         34.9 
Total current assets                        97.8                 -                  -          -         97.8 
-----------------------------------  -----------  ----------------  -----------------  ---------  ----------- 
Total assets                               347.3              33.2              (6.7)        7.1        380.9 
-----------------------------------  -----------  ----------------  -----------------  ---------  ----------- 
Current liabilities 
Trade and other payables                    31.6                 -                  -          -         31.6 
Borrowings                                   5.0                 -                  -          -          5.0 
Lease liabilities                              -               5.2                  -          -          5.2 
Provisions                                   2.7                 -              (2.5)          -          0.2 
Deferred revenue                            36.2                 -                  -          -         36.2 
Total current liabilities                   75.5               5.2              (2.5)          -         78.2 
-----------------------------------  -----------  ----------------  -----------------  ---------  ----------- 
Non-current liabilities 
Borrowings                                  50.1                 -                  -          -         50.1 
Lease liabilities                              -              30.5                  -          -         30.5 
Deferred tax liability                       5.4                 -                  -        6.6         12.0 
Provisions                                   5.5                 -              (4.2)          -          1.3 
Total non-current liabilities               61.0              30.5              (4.2)        6.6         93.9 
-----------------------------------  -----------  ----------------  -----------------  ---------  ----------- 
Total liabilities                          136.5              35.7              (6.7)        6.6        172.1 
-----------------------------------  -----------  ----------------  -----------------  ---------  ----------- 
Net assets                                 210.8             (2.5)                  -        0.5        208.8 
-----------------------------------  -----------  ----------------  -----------------  ---------  ----------- 
 
 
Equity 
Issued capital                               2.8                 -                  -          -          2.8 
Share premium                              149.8                 -                  -          -        149.8 
Merger reserve                              42.3                 -                  -          -         42.3 
Retained earnings                         (12.0)             (2.5)                  -        0.5       (14.0) 
Currency translation reserve                27.9                 -                  -          -         27.9 
-----------------------------------  -----------  ----------------  -----------------  ---------  ----------- 
Total equity attributable 
 to equity holders of the 
 parent                                    210.8             (2.5)                  -        0.5        208.8 
-----------------------------------  -----------  ----------------  -----------------  ---------  ----------- 
 

At 31 May 2019, the Group had GBP35.6m of non-cancellable operating lease commitments. The difference between the operating lease commitments disclosed in the Group consolidated financial statements for the year ended 31 May 2019 and the lease liabilities recognised on the date of transition can be explained as follows:

 
                                                                    H1 2020 
                                                                       GBPm 
------------------------------------------------------------------  ------- 
Undiscounted future minimum lease payments under operating leases 
 at 31 May 2019                                                        35.6 
Short term leases                                                     (1.4) 
Change in contractual lease terms                                       7.7 
Impact of discounting                                                 (6.2) 
IFRS 16 lease liability recognised at 1 June 2019                      35.7 
------------------------------------------------------------------  ------- 
 

Change in contractual lease terms relate to lease extensions of certain properties and other rent adjustments.

Of the lease liability of GBP35.7m recognised at 1 June 2019, GBP33.8m related to property leases and GBP1.9m relating to other leases.

2 Alternative Performance Measures (APMs) and adjusting items

The consolidated financial statements include APMs as well as statutory measures. These 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, Generally Accepted Accounting Practice (GAAP) measures. All APMs relate to the current year results and comparative periods where provided. This presentation is also consistent with the way that financial performance is measured by management, reported to the Board, the basis of financial measures for senior management's compensation schemes and provides supplementary information that assists the user in understanding the financial performance, position and trends of the Group. At all times the Group aims to ensure that the Consolidated financial statements 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.

The APMs were the same as those that applied to the audited consolidated financial statements for the year ended 31 May 2019. See below for reconciliation of adjusted information to statutory information and refer to the Glossary for comprehensive descriptions of all APMs, including their relevance in providing supplementary information that assists the user to understand better the financial performance, position and trends of the Group. Performance is based on adjusted operating profit (3) , defined as operating profit or loss before adjusting items, as presented to the CODM.

Adjusting items during the period are:

   --       Share-based payments; 
   --       Amortisation of acquired intangibles; 
   --       Profit on disposal of investment; and 
   --       R&D tax credit 

Reconciliation of adjusted information to Statutory information

The following table includes details of adjusting items and reconciles adjusted information to statutory information:

 
                                                                                    Profit                  Profit 
                                    Gross               Depreciation  Operating     before                 for the 
 Six months ended        Revenue   profit  EBITDA   and amortisation     profit   taxation    Taxation      period 
  30 November 2020          GBPm     GBPm    GBPm               GBPm       GBPm       GBPm        GBPm        GBPm 
 ----------------------  -------  -------  ------  -----------------  ---------  ---------  ----------  ---------- 
Adjusted                   132.7     52.0    24.8              (8.1)       16.7       15.2       (3.6)      11.6 
Share-based payments           -        -   (1.8)                  -      (1.8)      (1.8)         0.2     (1.6) 
Amortisation of 
acquired intangibles           -        -       -              (4.4)      (4.4)      (4.4)         1.0     (3.4) 
Statutory                  132.7     52.0    23.0             (12.5)       10.5        9.0       (2.4)       6.6 
-----------------------  -------  -------  ------  -----------------  ---------  ---------  ----------  -------- 
                                                                                    Profit                Profit 
                                    Gross               Depreciation  Operating     before               for the 
Six months ended         Revenue   profit  EBITDA   and amortisation     profit   taxation    Taxation    period 
 30 November 2019           GBPm     GBPm    GBPm               GBPm       GBPm       GBPm        GBPm      GBPm 
-----------------------  -------  -------  ------  -----------------  ---------  ---------  ----------  -------- 
Adjusted                   126.0     50.6    20.0              (5.2)       14.8       14.0       (3.2)      10.8 
Share-based payments           -        -   (0.9)                  -      (0.9)      (0.9)         0.1     (0.8) 
Amortisation of 
acquired intangibles           -        -       -              (4.5)      (4.5)      (4.5)         0.8     (3.7) 
Profit on disposal 
 of investment                 -        -     0.1                  -        0.1        0.1           -       0.1 
R&D tax credits                -        -       -                  -          -          -         0.4       0.4 
-----------------------  -------  -------  ------  -----------------  ---------  ---------  ----------  -------- 
Statutory                  126.0     50.6    19.2              (9.7)        9.5        8.7       (1.9)       6.8 
-----------------------  -------  -------  ------  -----------------  ---------  ---------  ----------  -------- 
 
 

Amortisation of acquired intangibles represents amortisation of customer contracts and relationships arising from acquisitions.

Net debt

Net debt (3) can be reconciled as follows:

 
                                 H1 2020      H1 2019 
                               (IFRS 16)    (Pre-IFRS 
                                                  16) 
                                    GBPm         GBPm 
---------------------------  -----------  ----------- 
 Cash and cash equivalents          33.8         15.5 
 Borrowings                       (54.6)       (60.6) 
 Net debt (Pre IFRS 16)           (20.8)       (45.1) 
---------------------------  -----------  ----------- 
 Lease liabilities                (30.6) 
---------------------------  ----------- 
 Net debt (IFRS 16)               (51.4) 
---------------------------  ----------- 
 

Cash conversion ratio

The calculation of the cash conversion ratio (3) is set out below:

 
                                                H1 2020      H1 2020      H1 2019 
                                                  (IFRS    (Pre-IFRS    (Pre-IFRS 
                                                    16)          16)          16) 
                                                   GBPm         GBPm         GBPm 
---------------------------------------------  --------  -----------  ----------- 
 Net operating cash flow before interest and 
  taxation (A)                                     19.9         16.1         11.6 
 Adjusted EBITDA (3) (B)                           24.8         21.6         20.0 
---------------------------------------------  --------  -----------  ----------- 
 Cash conversion ratio (3) (%) (A)/(B)            80.2%        74.5%        58.0% 
---------------------------------------------  --------  -----------  ----------- 
 

3 Segmental information

The Group is organised into the following two (H1 2019: two) reportable segments: Assurance and Escrow. 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", who 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 homogenous commercial and strategic market environments. Performance is measured based on reporting segment profit, which comprises adjusted operating profit (3) . Interest and tax are not allocated to business segments.

During the period, the Group has adopted IFRS 16 'Leases'. The date of the initial application of IFRS 16 for the Group is 1 June 2019. The Group has adopted the accounting standard using the modified retrospective approach to transition and has accordingly not restated prior periods, consequently the results for the six months ended 30 November 2019 are not directly comparable with those reported under the previous applicable accounting standard IAS 17 'Leases' and IFRIC 4 'Determining whether an arrangement contains a lease'. On this basis, to provide meaningful comparatives, the segmental results below for the six months ended 30 November 2019 have therefore also been presented under IAS 17 with the like-for like numbers shown on an IAS 17 basis (Pre-IFRS 16), as this is the basis on which the CODM allocates resources and assesses performance.

Segmental analysis H1 2020

 
                                                                    Central 
                                                                          & 
                                            Assurance  Escrow   Head Office   Group 
                                                 GBPm    GBPm          GBPm    GBPm 
------------------------------------------  ---------  ------  ------------  ------ 
Revenue                                         114.3    18.4             -   132.7 
Cost of sales                                  (75.8)   (4.9)             -  (80.7) 
------------------------------------------  ---------  ------  ------------  ------ 
Gross profit                                     38.5    13.5             -    52.0 
Gross margin %                                  33.7%   73.4%             -   39.2% 
General administration expenses allocated 
 (2)                                           (25.4)   (5.4)         (4.7)  (35.5) 
------------------------------------------  ---------  ------  ------------  ------ 
Adjusted operating profit (2)                    13.1     8.1         (4.7)    16.5 
------------------------------------------  ---------  ------  ------------  ------ 
Adjusting items (2)                                                           (6.2) 
------------------------------------------  ---------  ------  ------------  ------ 
Operating profit (pre-IFRS 16)                                                 10.3 
------------------------------------------  ---------  ------  ------------  ------ 
Impact of IFRS 16                                                               0.2 
------------------------------------------  ---------  ------  ------------  ------ 
Operating profit                                                               10.5 
------------------------------------------  ---------  ------  ------------  ------ 
 

Segmental analysis H1 2019

 
                                                                    Central 
                                                                          & 
                                            Assurance  Escrow   Head Office   Group 
                                                 GBPm    GBPm          GBPm    GBPm 
------------------------------------------  ---------  ------  ------------  ------ 
Revenue                                         107.1    18.9             -   126.0 
Cost of sales                                  (70.4)   (5.0)             -  (75.4) 
------------------------------------------  ---------  ------  ------------  ------ 
Gross profit                                     36.7    13.9             -    50.6 
Gross margin %                                  34.3%   73.5%             -   40.2% 
General administration expenses allocated 
 (2)                                           (26.0)   (5.1)         (4.7)  (35.8) 
------------------------------------------  ---------  ------  ------------  ------ 
Adjusted operating profit (2)                    10.7     8.8         (4.7)    14.8 
------------------------------------------  ---------  ------  ------------  ------ 
Adjusting items (2)                                                           (5.3) 
------------------------------------------  ---------  ------  ------------  ------ 
Operating profit                                                                9.5 
------------------------------------------  ---------  ------  ------------  ------ 
 

Revenue is disaggregated by primary geographical market and by category as follows:

 
                                   H1 2020  H1 2019 
  Revenue by originating country      GBPm     GBPm 
---------------------------------  -------  ------- 
UK                                    60.5     57.7 
North America                         45.6     41.9 
Europe & RoW                          26.6     26.4 
Total revenue                        132.7    126.0 
---------------------------------  -------  ------- 
                                   H1 2020  H1 2019 
  Revenue by category                 GBPm     GBPm 
---------------------------------  -------  ------- 
Services                             130.1    121.7 
Products                               2.6      4.3 
Total revenue                        132.7    126.0 
---------------------------------  -------  ------- 
 

4 Dividends

 
                                                         H1 2020  H1 2019 
-------------------------------------------------------  -------  ------- 
Dividends paid and recognised in the period (GBPm)           8.8      8.7 
-------------------------------------------------------  -------  ------- 
Dividends per share proposed but not recognised in the 
 period (pence)                                             1.50     1.50 
-------------------------------------------------------  -------  ------- 
 

The interim dividend for the period ended 30 November 2019 of 1.50p per ordinary share on approximately 277.8m ordinary shares (approximately GBP4.2m) was approved by the Board on 23 January 2020. The dividend has not been included as a liability as at 30 November 2019. The payment of this dividend will not have any tax consequences for the Group.

5 Earnings per ordinary share (EPS)

Earnings per ordinary share are shown on a statutory and an adjusted (2) basis to assist in the understanding of the performance of the Group.

 
                                                      H1 2020     H1 2020     H1 2019 
                                                                (Pre-IFRS   (Pre-IFRS 
                                                    (IFRS 16)         16)         16) 
                                                         GBPm        GBPm        GBPm 
-------------------------------------------------  ----------  ----------  ---------- 
Statutory earnings                                        6.6         6.9         6.8 
-------------------------------------------------  ----------  ----------  ---------- 
Adjusted (2) earnings (note 2)                           11.6        11.9        10.8 
-------------------------------------------------  ----------  ----------  ---------- 
                                                       Number      Number      Number 
                                                    of shares   of shares   of shares 
                                                            m           m           m 
-------------------------------------------------  ----------  ----------  ---------- 
Basic weighted average number of shares in issue        277.8       277.8       277.8 
-------------------------------------------------  ----------  ----------  ---------- 
Dilutive effect of share options                          4.5         4.5         3.2 
-------------------------------------------------  ----------  ----------  ---------- 
Diluted weighted average shares in issue                282.3       282.3       281.0 
-------------------------------------------------  ----------  ----------  ---------- 
 

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.

 
                                       H1 2020     H1 2020 
                                     (IFRS 16)   (Pre-IFRS 
                                                       16)  H1 2019 
                                         pence       pence    pence 
----------------------------------  ----------  ----------  ------- 
Basic earnings per ordinary share 
Statutory                                  2.4         2.5      2.4 
Adjusted (2)                               4.2         4.3      3.9 
----------------------------------  ----------  ----------  ------- 
 
 
                                         H1 2020     H1 2020 
                                       (IFRS 16)   (Pre-IFRS 
                                                         16)  H1 2019 
                                           pence       pence    pence 
------------------------------------  ----------  ----------  ------- 
Diluted earnings per ordinary share 
Statutory                                    2.3         2.4      2.4 
Adjusted (2)                                 4.1         4.2      3.8 
------------------------------------  ----------  ----------  ------- 
 

6 Right of use assets and Lease liabilities

The Group's Right of use asset can be further analysed as follows:

 
                                                                 H1 2020 
                                                               (IFRS 16) 
                                                                    GBPm 
-----------------------------------------------------------  ----------- 
As at 1 June 2019                                                   26.5 
Additions                                                            0.8 
Impairment of right of use assets due to lease termination         (2.6) 
Depreciation                                                       (3.0) 
As at 30 November 2019                                              21.7 
-----------------------------------------------------------  ----------- 
 

The Group's outstanding lease liabilities can be further analysed as follows:

 
                                                          H1 2020 
                                                        (IFRS 16) 
                                                             GBPm 
----------------------------------------------------  ----------- 
As at 1 June 2019                                            35.7 
Additions                                                     0.8 
Interest expense                                              0.6 
Release of lease liability due to lease termination         (2.7) 
Repayment of lease liabilities                              (3.8) 
As at 30 November 2019                                       30.6 
----------------------------------------------------  ----------- 
 

The ageing of the lease liabilities are as follows:

 
                              H1 2020 
                            (IFRS 16) 
                                 GBPm 
------------------------  ----------- 
Less than one year                4.6 
One to two years                  3.5 
Two to five years                 5.4 
Greater than five years          17.1 
Total lease liabilities          30.6 
------------------------  ----------- 
 

7 Borrowings

On 10 June 2019, the Group renegotiated its existing term loan and multi-currency revolving credit facilities into a new fully revolving credit facility of GBP100m with a new five-year term up to June 2024 on similar terms (pricing and covenants). Under the new arrangements the Group can also access an accordion facility to increase the total size of the revolving credit facility by up to GBP75m (previously GBP50m). Arrangement fees incurred will be amortised over the term accordingly. Historic arrangements fees have been fully amortised.

Borrowings are analysed as follows:

 
                                                             H1 2019      FY 2019 
                                                           (Pre-IFRS    (Pre-IFRS 
                                                 H1 2020         16)          16) 
                                                    GBPm        GBPm         GBPm 
-----------------------------------------------  -------  ----------  ----------- 
Current liabilities 
Secured and interest-bearing bank loan                 -         5.0          5.0 
Non-current liabilities 
Revolving credit facility                           54.6        40.0         23.5 
Secured and interest-bearing bank loan                 -        15.6         26.6 
Total borrowings (excluding lease liabilities)      54.6        60.6         55.1 
-----------------------------------------------  -------  ----------  ----------- 
 

Glossary of terms - Alternative performance measures

APMs are the way that financial performance is measured by management, reported to the Board, the basis of financial measures for senior management's compensation schemes and provides supplementary information that assists the user in understanding the underlying trading results.

 
 APM                    Closest             Adjustments            Note reference        Definition, purpose and 
                         equivalent          to reconcile           for reconciliation   considerations 
                         IFRS measure        to IFRS                                     made by the Directors 
                                             measure 
 Income statement measures: 
 Adjusted               Operating           Operating              2                     Represents operating profit 
  operating              profit              profit or                                   before 
  profit (EBIT)          or loss             loss before                                 adjusting items to assist in 
                                             adjusting                                   the 
                                             items                                       understanding of the Group's 
                                             Adjusting                                   performance. 
                                             items represent                             Adjusting items represent 
                                             amortisation                                amortisation 
                                             of acquired                                 of acquired intangibles, 
                                             intangibles,                                discount 
                                             discount                                    unwind on acquisition 
                                             unwind on                                   consideration, 
                                             acquisition                                 profit on the disposal of 
                                             consideration,                              investments, 
                                             profit on                                   individually significant 
                                             the disposal                                items, 
                                             of investments,                             and share-based payments. 
                                             individually                                The Directors consider 
                                             significant                                 amortisation 
                                             items and                                   of acquired intangibles is a 
                                             share-based                                 non-cash 
                                             payments                                    accounting charge inherently 
                                                                                         linked 
                                                                                         to losses associated with 
                                                                                         historical 
                                                                                         acquisitions of businesses in 
                                                                                         accordance with the Group's 
                                                                                         adjusting 
                                                                                         items accounting policy. This 
                                                                                         APMs purpose is to allow the 
                                                                                         user 
                                                                                         to understand the Group's 
                                                                                         underlying 
                                                                                         financial performance as 
                                                                                         measured 
                                                                                         by management, reported to 
                                                                                         the 
                                                                                         Board and used as a financial 
                                                                                         measure in senior 
                                                                                         management's 
                                                                                         compensation schemes. 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 an adjusting item. The 
                                                                                         same 
                                                                                         principles apply to non-cash 
                                                                                         unwind 
                                                                                         of discounts on deferred and 
                                                                                         contingent 
                                                                                         acquisition consideration and 
                                                                                         the profit on the disposal of 
                                                                                         investments. 
                                                                                         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. 
                                                                                         The Directors consider 
                                                                                         share-based 
                                                                                         payments to be an 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. 
                       ------------------  ---------------------  --------------------  ------------------------------ 
 APM                    Closest             Adjustments            Note reference        Definition, purpose and 
                         equivalent          to reconcile           for reconciliation   considerations 
                         IFRS measure        to IFRS                                     made by the Directors 
                                             measure 
                       ------------------  ---------------------  --------------------  ------------------------------ 
 EBITDA                 Operating           Operating              2                     Represents operating profit 
                         profit              profit or                                   before 
                         or loss             loss, before                                depreciation and 
                                             depreciation                                amortisation. 
                                             and amortisation,                           EBITDA is disclosed as this 
                                             net finance                                 is 
                                             costs and                                   a measure widely used by 
                                             taxation                                    various 
                                                                                         stakeholders. 
                       ------------------  ---------------------  --------------------  ------------------------------ 
 Adjusted               Operating           Operating              2                     Represents operating profit 
  earnings               profit              profit or                                   before 
  before interest,       or loss             loss before                                 adjusting items, depreciation 
  tax, depreciation                          adjusting                                   and amortisation to assist in 
  and amortisation                           items, depreciation                         the understanding of the 
  (EBITDA)                                   and amortisation,                           Group's 
                                             net finance                                 performance. 
                                             costs and                                   Adjusted EBITDA is disclosed 
                                             taxation                                    as 
                                                                                         this is a measure widely used 
                                                                                         by various stakeholders and 
                                                                                         used 
                                                                                         by the Group to measure the 
                                                                                         cash 
                                                                                         conversion ratio noted below. 
                       ------------------  ---------------------  --------------------  ------------------------------ 
 Adjusted               Profit              Profit before          2                     Represents profit before 
  profit before          before              taxation                                    taxation 
  taxation               taxation            before adjusting                            before adjusting items and 
                                             items                                       provides 
                                                                                         supplementary information on 
                                                                                         the 
                                                                                         Group's profitability before 
                                                                                         taxation. 
                       ------------------  ---------------------  --------------------  ------------------------------ 
 Adjusted               Basic               Basic EPS              5                     Represents Basic EPS 
  basic EPS              EPS                 excluding                                   excluding 
                                             adjusting                                   adjusting items and provides 
                                             items                                       supplementary 
                                                                                         information that assists the 
                                                                                         user 
                                                                                         in understanding the 
                                                                                         underlying 
                                                                                         trading results. 
                       ------------------  ---------------------  --------------------  ------------------------------ 
 Balance sheet measures: 
 Net debt               Total borrowings                           2                     Represents total borrowings 
  (pre-IFRS              (excluding lease                                                (excluding 
  16) - like-for-like    liabilities) offset                                             lease liabilities) offset by 
  basis                  by cash and cash                                                cash 
                         equivalents                                                     and 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                           2                     Represents total borrowings 
                         (including lease                                                (including 
                         liabilities) offset                                             lease liabilities) offset by 
                         by cash and cash                                                cash 
                         equivalents                                                     and 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. 
                                                                                         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 %                  2                     The cash conversion ratio is 
  ratio (pre             % of net          of net cash                                   a 
  IFRS 16)               cash flow         flow from                                     measure of how effectively 
                         from operating    operating                                     adjusted 
                         activities        activities                                    operating profit (as detailed 
                         before            before interest                               above) is converted into cash 
                         interest          and tax                                       and effectively highlights 
                         and tax           divided                                       both 
                         divided           by adjusted                                   non-cash accounting items 
                         by Operating      EBITDA                                        within 
                         profit                                                          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. 
                       ----------------  -----------------------  --------------------  ------------------------------ 
 
 
 
 Like-for-like measures   During the period, the Group has 
                           adopted IFRS 16 'Leases'. The 
                           date of the initial application 
                           of IFRS 16 for the Group is 1 
                           June 2019. The Group has adopted 
                           the accounting standard using 
                           the modified retrospective approach 
                           to transition and has accordingly 
                           not restated prior periods, consequently 
                           the results for the six months 
                           ended 30 November 2019 are not 
                           directly comparable with those 
                           reported under the previous applicable 
                           accounting standard IAS 17 'Leases' 
                           and IFRIC 4 'Determining whether 
                           an arrangement contains a lease'. 
                           On this basis, to provide meaningful 
                           comparatives, the results for 
                           the six months ended 30 November 
                           2019 have therefore also been 
                           presented under IAS 17 with the 
                           "like-for-like" numbers shown 
                           on an IAS 17 basis (Pre-IFRS 16). 
                           This alternative performance measure 
                           (APM), will be presented for one 
                           year until the comparatives also 
                           include the adoption of IFRS 16. 
 

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

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January 23, 2020 02:00 ET (07:00 GMT)

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