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
IR PPUCAGUPUPGP
(END) Dow Jones Newswires
January 23, 2020 02:00 ET (07:00 GMT)
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