TIDMNCC
RNS Number : 9350N
NCC Group PLC
04 February 2021
4 February 2021
NCC Group plc
Interim results for the six months ended 30 November 2020
Confident in the future
NCC Group plc (LSE : NCC, "NCC Group" or "the Group"), a leading
independent global cyber security and resilience adviser, reports
its half year results for the six months to 30 November 2020 ("the
half year", "H1 2021", "the period").
Highlights (1)
H1 2021 (2) H1 2020 (2) Change
Revenue (GBPm) 135.6 132.7 2.2%
Gross profit (GBPm) 54.4 52.0 4.6%
Gross margin (%) 40.1% 39.2% 0.9% ppts
EBITDA (3) (GBPm) 24.7 23.0 7.4%
EBITDA (3) (%) 18.2% 17.3% 0.9% ppts
Operating profit (GBPm) 12.0 10.5 14.3%
Operating profit (%) 8.8% 7.9% 0.9% ppts
Adjusted operating profit (3) 17.0 16.7 1.8%
Adjusted operating profit (3) (%) 12.5% 12.6% (0.1% ppts)
Profit before taxation (GBPm) 10.7 9.0 18.9%
Basic EPS (pence) 2.7p 2.4p 12.5%
Adjusted basic EPS (pence) (3) 4.1p 4.2p (2.4%)
Net cash/(debt)(Pre-IFRS 16) (3) 3.0 (20.8) +GBP23.8m
Net debt (3) (GBPm) (34.2) (51.4) +GBP17.2m
Cash conversion (3) 100.8% 86.5% 14.3 ppts
Interim dividend (pence) 1.5 1.5 -
---------------------------------- ----------- ----------- -----------
-- NCC Group has grown year-on-year
o Year-on-year increase in Group Revenue (2.2%), Gross Profit
(4.6%), Operating profit (14.3%) and Adjusted operating profit
(1.8%) despite Covid-19 disruption
-- Assurance revenue growth of 2.4%
-- Software Resilience revenue stabilised with growth of
0.5%
o H1 2021 net cash (Pre-IFRS 16) of GBP3.0m from a net debt
(Pre-IFRS 16) of GBP20.8m (H1 2020). Post IFRS 16, net debt amounts
to GBP34.2m (H1 2020: GBP51.4m)
o Acceleration of key service lines for the future
-- Managed Detection and Response ("MDR") revenues up 24.5% to
GBP23.4m, providing greater recurring income
-- Escrow as a Service ("EaaS"), our Cloud Escrow proposition,
had orders up 83.3% to GBP1.1m, with notable client wins including
BT and Barclays
o Major contract wins
-- Further successes with flagship clients including Bose,
Facebook and MARTA
-- EUR25 million contract won after close of H1 2021 to secure
university networks in the Netherlands
-- Cyber and software resilience macro trends are evolving as expected
o Continued excellent long-term market growth prospects
-- Market was growing at c.8-9% before Covid-19
-- Recent high-profile sophisticated attacks highlight threat
faced by all
-- Software and technology supply-chain resilience (both
on-premise and cloud) is vital
o Covid-19 disruption is temporarily holding cyber resilience
spend back from its full potential
o Spending decisions delayed in some customer segments, has
built up a "compliance debt" that must be paid down in the
future
-- Confident in the future with strong foundations
o Cash conversion (3) amounts to 100.8% (H1 2020: 86.5%)
o Our Securing Growth Together (SGT) Transformation investments
have created the systems and processes to support a scalable global
business although we have endured some cost and time overruns
latterly caused by the challenges of remote working
o We are broadening our portfolio of services and improving the
way we go to market by strategically investing c. GBP3.0 million in
H2 2021
Adam Palser , Chief Executive Officer, commented:
"I am delighted with our trading performance for the period. The
response of my NCC Group colleagues to the challenges caused by the
disruption of the pandemic, coupled with robust demand for our
services, has led to increased revenues, profitability and cash
against a comparator period that pre-dates Covid-19. Once again, I
would like to thank all my colleagues for their exceptional
contribution during these challenging times.
Cyber risks are greater today than they ever have been. The
rapid adoption of cloud technologies, coupled with spending
decisions being delayed in some customer segments, has built up a
"compliance debt" that must be paid down in the future. Therefore,
although ongoing disruption to some customer segments is still
holding cyber resilience spend back from its full potential, we
expect accelerated market growth in the future.
Full year trading is in line with our expectations, we are also
maintaining our interim dividend of 1.5p and our balance sheet
strength and trading resilience give us a foundation to invest in
organic and in-organic opportunities".
Analyst presentation briefing and Q & A session
A pre-recorded Analyst presentation briefing will be available
from the Group's website at 8am on 4 February 2021 via the
following link:
https://www.nccgroupplc.com/investor-relations/results-media/half-year-results-presentation-FY21
A Q & A session for Analysts will be held at 9am on 4
February 2021.
EnquiriesNCC Group ( www.nccgroup.com ) +44 (0)161 209 5432
Adam Palser, CEO/ Tim Kowalski, CFO
Maitland/AMO +44 (0)20 7379 5151
Sam Cartwright
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 14,000 customers 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 organisations assess, develop and manage their cyber
resilience posture.
To support its mission, NCC Group continually invests in
research and innovation, and is passionate about developing the
next generation of cyber scientists. With circa 2,000 colleagues in
12 countries, NCC Group has a significant market presence in North
America, Europe and the UK, and a rapidly growing footprint in Asia
Pacific with offices in Australia, Japan 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 results are now presented under this
accounting standard. Comparator information is also on the same
basis. The impact of IFRS 16 for H1 2021 on EBITDA (3) , Operating
profit, Profit before taxation, Profit for the year, Net
cash/(debt) (3) amounts to an increase of GBP2.9m (H1 2020:
GBP3.2m), decrease of GBP0.1m (H1 2020: increase of GBP0.2m),
decrease of GBP0.7m (H1 2020: GBP0.4m), decrease of GBP0.6m (H1
2020: GBP0.3m) and an increase in debt of GBP37.2m (H1 2020:
GBP30.6m) respectively.
3: See note 2 of the interim financial statements for an
explanation of Alternative Performance Measures (APMs),
historically disclosed adjusting items and revised presentation of
the consolidated income statement.
As discussed in the FY20 Annual Report and in accordance with
FRC guidelines, the Group no longer presents a consolidated income
statement showing adjusting items separately. In prior periods, the
Group disclosed adjusting items in H1 2020 of GBP6.2m relating to
Amortisation of acquisition intangibles (H1 2020: GBP4.4m) and
share based payments (H1 2020: GBP1.8m) as a separate column on the
face of the consolidated income statement. This is no longer
disclosed in this way to simplify the Group's results. However, as
the Group manages internally its performance at an adjusted
operating profit level (before Amortisation of acquisition
intangibles and share based payments), which management believe
better represents the underlying trading of the business, this
information is still disclosed as an APM within this interim
report. This APM is reconciled to statutory operating profit,
together with the consequently Adjusted basic EPS (before
Amortisation of acquisition intangibles, share based payments and
tax effect thereon) to statutory basic EPS.
The net cash/(debt) (Pre-IFRS 16) APM has been included to allow
stakeholders to transition from previous presentation prior to IFRS
16 to Net cash/(debt) post IFRS 16.
Cautionary note regarding forward-looking statement
This announcement includes statements that are forward-looking
in nature. Forward-looking statements involve known and unknown
risks, assumptions, uncertainties and other factors which may cause
the actual results, performance or achievements of the Group to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements. Except as required by the Listing Rules, Disclosure and
Transparency Rules and applicable law, the Group undertakes no
obligation to update, revise or change any forward-looking
statements to reflect events or developments occurring on or after
the date such statements are published.
Business review
Year-on-year growth in the teeth of a pandemic
The determined response of NCC Group teams around the world
enabled us to continue delivering high-value resilience solutions
to our global customer base despite the challenges of Covid-19 with
which we are all familiar. This continuity was supported by the
global operating approach that we have developed over the past
three years and underpinned by the robust and modern systems and
process platform that we have installed through our Securing Growth
Together transformation programme.
As a consequence, we delivered a year-on-year increase in H1
2020 Revenue, Gross profit and Operating profit.
Group revenues increased by 2.2% (H1 2020: 5.3%), with overall
positive momentum in North America and European Assurance held
slightly back by the UK and APAC region decreasing mainly due to
Covid-19. Software Resilience returned to slight growth with UK and
European revenues growing, offset by a North America decline owing
to lower on-premise testing mainly due to Covid-19.
Gross profit increased by 4.6% to GBP54.4m (H1 2020: GBP52.0m)
with gross margin percentage increasing to 40.1% (H1 2020: 39.2%).
The margin increase was largely due to higher utilisation through
flexible use of our global resource pool to match supply of skills
with demand, offset by a GBP1m provision taken in relation to an
European contract caused by Covid-19 disruption and some project
management challenges.
Operating profit increased 14.3% to GBP12.0m (H1 2020:
GBP10.5m). The Group manages internally its performance at an
adjusted operating profit (3) level, with adjusted operating profit
(3) increasing by 1.8% to GBP17.0m, this information is disclosed
below and reconciled to statutory operating profit:
H1 2021 H1 2020
Central Central
Software and head Software and head
Assurance Resilience office Group Assurance Resilience office Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ --------- ----------- --------- ------ --------- ----------- --------- ------
Revenue 117.1 18.5 - 135.6 114.3 18.4 - 132.7
Cost of sales (76.3) (4.9) - (81.2) (75.8) (4.9) - (80.7)
------------------ --------- ----------- --------- ------ --------- ----------- --------- ------
Gross profit 40.8 13.6 - 54.4 38.5 13.5 - 52.0
Gross margin % 34.8% 73.5% - 40.1% 33.7% 73.4% - 39.2%
Administrative
expenses (27.3) (5.6) (4.5) (37.4) (25.4) (5.4) (4.5) (35.3)
------------------ --------- ----------- --------- ------ --------- ----------- --------- ------
Adjusted operating
profit
(3) 13.5 8.0 (4.5) 17.0 13.1 8.1 (4.5) 16.7
Amortisation of
acquisition
intangibles (4.3) (4.4)
Share based
payments (0.7) (1.8)
------------------ --------- ----------- --------- ------ --------- ----------- --------- ------
Operating profit 12.0 10.5
------------------ --------- ----------- --------- ------ --------- ----------- --------- ------
Profit before taxation increased 18.9% to GBP10.7m (H1 2020:
GBP9.0m) and profit for the period increased 13.6% to GBP7.5m (H1
2020: GBP6.6m) giving rise to a basic EPS of 2.7p (H1 2020: 2.4p).
Adjusted basic EPS (3) amounts to 4.1p (H1 2020: 4.2p).
The strength of NCC Group comes from the strength of its
people
We are a people-centric business and the Covid-19 pandemic has
impacted our colleagues around the world: from juggling childcare
and home schooling, to understandable worries brought about by the
pandemic and, illness or sadly bereavement.
I am proud therefore that throughout these past months our teams
have worked hard to provide mutual support with a particular focus
on mental health and wellbeing. We have over 40 trained Mental
Health First Aiders with more being trained this next half year.
Over 100 of our people managers have received training in mental
health awareness, and a full wellbeing programme for colleagues is
supplemented by employee assistance programmes in our local
geographies. All of these efforts continue to help our teams
through these difficult times and will provide a legacy of ongoing
benefit in the future.
In August we also launched our Inclusion and Diversity
engagement programme, to complement our HR-led inclusion and
diversity strategy, with a particular ambition to attract more
diverse candidates. This programme includes steering committees, an
internal platform (NCC Conversations) which creates space each
month for conversations around one of the four focus areas (Race
& Ethnicity, Gender, LGBTQIA+ and Neurodiversity), various
colleague events, and publication of internal/external stories
highlighting NCC Group's commitment to creating an environment
where all colleagues feel psychologically, emotionally and
physically safe to be authentic, and which is representative of the
world they live in.
From a resourcing perspective, global voluntary technical
attrition has continued to fall across the group to 6.8% from 9.3%
in H1 2020 with technical attrition amounting to 9.4% (H1 2020:
10.3%). In North America, we have experienced higher levels of
technical attrition where the technology sector has seen many large
companies hire security talent directly. In addition, the
prevalence of remote working now means that individuals can choose
to work for the large technology firms without having to move to,
for example, the west coast of the USA. However, the global
operating and resourcing model that we have developed has mitigated
the impact of this attrition (as evidenced by the 5,055 days of
cross-border delivery in H1 compared to 1,950 in the prior year
comparator period) and we have resumed recruiting and training new
talent at pre-pandemic levels.
In H1 2020 we also saw the investment in leadership, and our
talent and succession Workday tools, lead to an increased number of
internal promotions. This was complemented with some key external
hires including Inge Bryan, as European Managing Director, and our
new Director of Crypto, Harmen Dikkers. The value of extending our
Next Generation Manager programme to the whole of the UK and North
America business in H1 2020 was validated with the result of some
of our pilot cohort achieving the highest manager rating via the
Best Companies index. With our inaugural Manager Essentials
programme being established across the business, work has begun on
the next version along with a Leadership Essentials programme. A
"future world of working survey" was conducted in H1, seeking to
ensure we capture the opportunities that different ways of working
might present to attract new and diverse talent pools.
Stronger foundations from a successful ongoing
transformation
Our Securing Growth Together programme is the vehicle through
which we transform the business to realise our vision of being "the
leading cyber security advisor globally." Towards the end of this
financial year we will conclude the initial three-year phase in
which we have:
-- Enhanced our sales approach and commercial skills, to deepen
our customer relationships and offer solutions appropriate for
their business and risk appetite, including further cross selling
of our Assurance and Software resilience services
-- Built a global approach to resourcing and operating, so the
best person for the job is deployed each and every time, and we
deliver the same, high quality work, anywhere in the world
-- Created a robust and modern systems and process landscape to
support evidence-based decision-making, agility and further
growth.
We have encountered some overruns to our original timelines and
budget owing to some scope increases, the inevitable complexity of
projects of this kind and, in the last nine months, the challenges
of having to execute a global transformation programme remotely. As
a consequence our overall budget increased to GBP25 million from
our previously noted estimate of GBP23 million and we have one
material system left to install in the second half of this
financial year which will further improve our global resourcing and
project measurement.
One consequence of our programme has been strong and sustained
cash discipline which has yielded the balance sheet that we have
today. In H1 2021 our cash conversion (3) was 100.8% (H1 2020:
86.5%) and, prior to the impact of IFRS 16 leases, we saw a year on
year cash improvement of GBP23.8m leading to Net cash of GBP3m. Net
debt after the impact of IFRS 16 amounts to GBP34.2m (H1 2020:
GBP51.4m).
We are also maintaining our interim dividend of 1.5p per
ordinary share (H1 2020: 1.5p).
Positive macro-trends despite limited short-term disruption
The four drivers of cyber market growth that we have
consistently highlighted continue to drive the market forward:
-- The growth of the connected environment;
-- The dependence of individuals, businesses and society on this environment;
-- The increasing number and sophistication of threats; and
-- An ever-tightening landscape of legislation and regulation
with consequent rising costs of compliance failure.
Accelerated by the Covid-induced adoption of digital
transformation and cloud technologies, cyber risk is greater than
ever - as highlighted by recent high-profile and sophisticated
cyber-attacks.
Unsurprisingly, some of our customers are still experiencing
uncertainty, financial pressures or logistical challenges
attributable to the pandemic. As expected, this is causing some
examples of longer sales cycles, tighter scoping of engagements and
lower order values for the Group. However, in aggregate we have
demonstrated growth and strongly believe that cautious spending by
some customers on cyber is building up a "compliance debt" that
will have to be paid down in the future.
Confident in the future
The first half of this financial year has demonstrated our
ability to grow and develop despite the ongoing disruption from
Covid-19. We therefore have confidence to actively pursue the next
phase of our transformation during this current time of disruption.
We intend to invest further during the course of H2 2021 to ensure
NCC Group is in the best possible shape to thrive as normal
economic behaviour resumes and growth of the cyber market
accelerates.
Our mission, vision and values remain the same - but we are
pursuing them with renewed vigour, confidence and excitement:
-- Our mission is to make the world safer and more secure
-- Our vision is to be the leading cyber security advisor
globally, trusted to protect and secure our customers' critical
assets and sought-after for our complete people-led,
technology-enabled cyber resilience solutions that enable our
customers to thrive
-- Our three values are: Work Together; Be Brilliantly Creative; and Embrace Difference
Our medium term objectives remain the same:
-- For our shareholders
o Medium term target of double-digit revenue growth and margin
improvement for Assurance
o Return Software Resilience to sustainable growth
o Disciplined cash generation
-- For our customers
o Use our unique data, capability and insight to help customers
to meet their cyber resilience needs
-- For our people
o A global hub for cyber talent
o An inclusive environment where everyone feels safe to be
authentic and is representative of the diversity of the world in
which we live
To make our vision a reality and deliver long term sustainable
growth, the next phase of Securing Growth Together is all about
taking the next step towards becoming the complete provider of
cyber resilience solutions, particularly by:
-- Broadening our portfolio; and
-- Improving the way we go to market
so that we are best placed to respond to our customers ' demand
for evidence based cyber resilience, as a one-stop-shop for a
complete set of cyber and software resilience solutions around the
world.
Building on the strong foundations of a highly engaged and
diverse talent base and a global platform, we are evolving and
developing additional services and solutions across the cyber
lifecycle, and will promote and sell these to a global market.
H1 2021 has seen early successes for this programme as we
have:
-- secured c.GBP2m in UK remediation deals, helping our clients
to prioritise their cyber investments and improve their resilience,
by fixing the vulnerabilities and challenge we identify
-- generated c.25% growth in Managed Detection and Response
Services responding to evolving and complicated cyber threats
-- gained momentum in Escrow as a Service (EaaS) with orders 83%
ahead of prior year and a further pipeline of GBP1.2m
Over the next six months, we intend to invest c.GBP3 million to
continue strengthening our offering and expanding our customer
base, taking advantage of the opportunities in the market.
Specifically, we shall:
-- Grow Remediation into North America, Europe and APAC, and
scale our technical leadership and delivery to help even more
customers fix their issues and improve their cyber resilience
-- Upgrade and upscale our Managed Services offering, deploying
automation and advanced analytics and expanding our technology
suite
-- Drive our cloud resilience proposition to improve business
continuity in an ever more digitalised world
We believe these investments will further unlock future growth
as normal spending patterns return.
Summary and outlook
We are pleased with our progress through the first half of this
financial year: delivering year-on-year growth across all key
financial metrics and having created a robust foundation for
further growth. Although the pandemic is certainly not yet over and
there is still significant uncertainty in our customer base and the
wider world, we are confident in the future and intent on using
this time of market disruption to accelerate the transformation of
NCC Group. We will invest strategically in the forthcoming months
in those things that will make us the complete provider of cyber
resilience in order to support future growth.
Full year trading, after including our c.GBP3 million of growth
investments, is in line with our expectations. We are maintaining
our interim dividend of 1.5p and our balance sheet strength and
trading resilience give us a foundation to invest in organic and
in-organic opportunities.
Financial review
Overview
We have continued to deliver strong financial results despite
the impact of Covid-19, demonstrating resilience of our market,
business model and operations. During H2 2021, the Group will
strategically invest for the future.
Group revenues increased by 2.2% (H1 2020: 5.3%). In Assurance,
North America grew by 3.1% supported by its strong base of
technology clients and Europe grew by 11.0%, underpinned by its
strong government and managed services revenues. The UK and APAC
region decreased by 1.5% owing mainly to its exposure to a broader
set of customer sectors, some of which experienced more severe
Covid-19 impact. Software Resilience returned to slight growth with
revenues 0.5% ahead of H1 2020. The UK and European revenues grew
by 1.6% and 5.3% respectively, offset by North America which
declined by 5.1% owing to lower on-premise testing mainly due to
Covid-19.
Gross profit increased by 4.6% to GBP54.4m (H1 2020: GBP52.0m)
with margin percentage increasing to 40.1% (H1 2020: 39.2%) owing
to higher utilisation. Assurance margin percentage increased to
34.8% (H1 2020: 33.7%) and Software Resilience increased to 73.5%
(H1 2020: 73.4%). During the period, the group has recognised an
onerous contract provision of c.GBP1m in relation to an
underperforming European contract caused by Covid-19 disruption and
some project management challenges.
Administrative expenses have increased by GBP0.9m compared to
the prior period mainly owing to system license costs of GBP0.9m,
onerous property costs of GBP0.4m, and a foreign exchange charge of
GBP0.9m offset by the profit on disposal of an intangible asset of
GBP0.5m and a decrease in share based payment charges of
GBP1.1m.
Capitalised development costs during the period amounts to
GBP3.4m (H1 2020: GBP4.7m), such costs mainly represent work
completed on our SGT system programme.
Operating profit has increased by 14.3% to GBP12.0m (H1 2020:
GBP10.5m) and includes amortisation of intangible assets of GBP4.3m
(H1 2020: GBP4.4m) and share based payments of GBP0.7m (H1 2020:
GBP1.8m). Adjusted operating profit (3) increased by 1.8% to
GBP17.0m (H1 2020: GBP16.7m). EBITDA (3) increased by 7.4% to
GBP24.7m (H1 2020: GBP23.0m). Profit before taxation increased by
18.9% to GBP10.7m (H1 2020: GBP9.0m).
Basic and diluted EPS both amounted to 2.7p (H1 2020: basic
2.4p, diluted 2.3p). Adjusted basic EPS (3) amounts to 4.1p (H1
2020: 4.2p).
Our balance sheet remains strong; we have continued to
demonstrate effective cash management and are now cash positive
prior to the impact of IFRS 16 leases. Our balance sheet strength
can therefore fund organic and in-organic opportunities.
Net cash (Pre-IFRS 16) (3) amounts to GBP3m from a net debt
(Pre-IFRS 16) as at 31 May 2020 of GBP4.2m. Net debt after the
impact of IFRS 16 amounts to GBP34.2m (H1 2020: GBP51.4m). Net cash
includes cash balances of GBP101.1m (H1 2020: GBP33.8m) following
the full draw down of our revolving credit facility in April 2020
to provide the Group with maximum cash flexibility. As at 31 May
2020 and 30 November 2020, the Group had timing benefits of
c.GBP4.6m and c.GBP1.3m respectively from certain government
taxation payment deferral schemes that had been fully repaid by
January 2021.
As the Group demonstrated its resilience through H1, in January
2021, the Group has repaid GBP28m of the revolving credit facility
to reduce servicing costs with nil impact to Net cash. The Group
has a committed revolving credit facility of GBP100m which is due
for renewal in June 2024 following our refinancing in June
2019.
The Board is also declaring an unchanged interim dividend of
1.5p per ordinary share (H1 2020: 1.5p).
Financial summary
Summary Income Statement:
GBPm H1 2021 H1 2020 % change
------- -------
Revenue 135.6 132.7 2.2%
Cost of sales (81.2) (80.7) 0.6%
------------------------------ ------- ------- --------
Gross profit 54.4 52.0 4.6%
Depreciation and amortisation (12.7) (12.5) 1.6%
Other administration expenses (29.7) (29.0) 2.4%
------------------------------ ------- ------- --------
Operating profit 12.0 10.5 14.3%
------------------------------ ------- ------- --------
Net finance costs (1.3) (1.5) (13.3%)
------------------------------ ------- ------- --------
Profit before taxation 10.7 9.0 18.9%
------------------------------ ------- ------- --------
Taxation (3.2) (2.4) 33.3%
------------------------------ ------- ------- --------
Profit for the period 7.5 6.6 13.6%
------------------------------ ------- ------- --------
EPS
Basic 2.7p 2.4p 12.5%
Diluted 2.7p 2.3p 17.4%
------------------------------ ------- ------- --------
Revenue summary:
GBPm
Revenue H1 2021 H1 2020 % change
------- -------
Assurance 117.1 114.3 2.4%
Software Resilience 18.5 18.4 0.5%
-------------------- ------- ------- --------
Total revenue 135.6 132.7 2.2%
-------------------- ------- ------- --------
Operating profit summary:
GBPm
Operating profit H1 2021 H1 2020 % change
------- -------
Assurance 13.5 13.1 3.1%
Software Resilience 8.0 8.1 (1.2%)
Central and head office (4.5) (4.5) -
---------------------------------------- ------- ------- ----------
Adjusted operating profit (3) 17.0 16.7 1.8%
Amortisation of acquisition intangibles (4.3) (4.4) (2.3%)
Share based payments (0.7) (1.8) (61.1%)
---------------------------------------- ------- ------- ----------
Operating profit 12.0 10.5 14.3%
---------------------------------------- ------- ------- ----------
Operating profit margin % 8.8% 7.9% 0.9% ppts
---------------------------------------- ------- ------- ----------
3: See note 2 of the interim financial statements for an
explanation of Alternative Performance Measures (APMs),
historically disclosed adjusting items and revised presentation of
the consolidated income statement.
Basis of preparation
During the prior year, the Group adopted IFRS 16 'Leases'. The
date of the initial application of IFRS 16 for the Group was 1 June
2019. Therefore, all figures provided throughout this financial
review have been produced on a post-IFRS 16 basis. Comparator
information is also on the same basis. The impact of IFRS 16 on
EBITDA (3) , Operating profit, Profit before taxation, Profit for
the year, Net cash/(debt) amounts to an increase of GBP2.9m (H1
2020: GBP3.2m), decrease of GBP0.1m (H1 2020: increase of GBP0.2m),
decrease of GBP0.7m (H1 2020: GBP0.4m), decrease of GBP0.6m (H1
2020: GBP0.3m) and an increase in net debt of GBP37.2m (H1 2020:
GBP30.6m) respectively.
Alternative Performance Measures (APMs)
Throughout this financial review, certain APMs are presented. As
discussed in the FY20 Annual Report and in accordance with FRC
guidelines, the Group no longer presents a consolidated income
statement showing adjusting items separately. In prior periods, the
Group disclosed adjusting items in H1 2020 of GBP6.2m relating to
Amortisation of acquisition intangibles (H1 2020: GBP4.4m) and
share based payments (H1 2020: GBP1.8m) as a separate column on the
face of the consolidated income statement. This is no longer
disclosed in this way to simplify the Group's results. However, as
the Group manages internally its performance at an adjusted
operating profit level (before Amortisation of acquisition
intangibles and share based payments), which management believe
better represents the underlying trading of the business, this
information is still disclosed as an APM within this interim
report. This APM is reconciled to statutory operating profit,
together with the consequently Adjusted basic EPS (before
Amortisation of acquisition intangibles, share based payments and
tax effect thereon) to statutory basic EPS.
This change has removed the following adjusted measures from the
Group's narrative reporting and disclosures:
-- Adjusted EBITDA
-- Adjusted Profit before taxation
-- Adjusted Taxation
Following this revision to APMs, the Group has the following
APM's/non statutory measures:
-- EBITDA (reconciled in note 2)
-- Adjusted Operating profit (reconciled on pages 4, 9 and 10)
-- Adjusted basic EPS (pence) (reconciled in note 5)
-- Net cash/(debt) (Pre-IFRS 16) (reconciled in note 2)
-- Net debt (reconciled in note 2)
-- Cash Conversion (reconciled in note 2)
These measures provide supplementary information that assists
the user to understand the financial performance, position and
trends of the Group. Further detail is included within the glossary
of terms to these interim financial statements that provide
supplementary information that assists the user in understanding
these APMs/non statutory measures.
Divisional performance
Divisional performance includes the allocation of certain
central costs incurred on behalf of the divisions. Segmental
information is disclosed below:
H1 2021 H1 2020
Central Central
Software and head Software and head
Assurance Resilience office Group Assurance Resilience office Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ --------- ----------- --------- ------ --------- ----------- --------- ------
Revenue 117.1 18.5 - 135.6 114.3 18.4 - 132.7
Cost of sales (76.3) (4.9) - (81.2) (75.8) (4.9) - (80.7)
------------------ --------- ----------- --------- ------ --------- ----------- --------- ------
Gross profit 40.8 13.6 - 54.4 38.5 13.5 - 52.0
Gross margin % 34.8% 73.5% - 40.1% 33.7% 73.4% - 39.2%
Administrative
expenses (27.3) (5.6) (4.5) (37.4) (25.4) (5.4) (4.5) (35.3)
------------------ --------- ----------- --------- ------ --------- ----------- --------- ------
Adjusted operating
profit
(3) 13.5 8.0 (4.5) 17.0 13.1 8.1 (4.5) 16.7
Amortisation of
acquisition
intangibles (4.3) (4.4)
Share based
payments (0.7) (1.8)
------------------ --------- ----------- --------- ------ --------- ----------- --------- ------
Operating profit 12.0 10.5
------------------ --------- ----------- --------- ------ --------- ----------- --------- ------
3: See note 2 of the interim financial statements for an
explanation of Alternative Performance Measures (APMs),
historically disclosed adjusting items and revised presentation of
the consolidated income statement.
Share based payments decreased during the period, as it was
concluded that a number of historic schemes would not meet the
scheme performance criteria due to Covid-19 resulting in a lower
charge for the period.
Assurance
The Assurance division accounts for 86.4% of Group revenue (H1
2020: 86.1%) and 75.0% of Group gross profit (H1 2020: 74.0%).
Assurance revenue analysis - by originating country:
H1 2021 H1 2020 Reported
GBPm GBPm %
change
------------------------ ------- ------- ---------------
UK & APAC (4) 50.9 51.7 (1.5%)
North America 43.0 41.7 3.1%
Europe (4) 23.2 20.9 11.0%
---------------
Total Assurance revenue 117.1 114.3 2.4%
------------------------ ------- ------- ---------------
4: With the continuing growth and formation of a European
division we have changed geographical segments in line with how
this information is reported to the Board and managed today and
have restated prior year figures on a like for like basis. The APAC
division was previously included within the Segment Europe and
APAC. See notes to the interim financial statements for further
detail.
Assurance revenue increased by 2.4% despite lower rechargeable
travel expenses and the ongoing disruption of Covid-19. UK &
APAC decreased compared to other regions due to a broader exposure
to Covid-19, whilst North America improved by 3.1% due to the
increased spending from the technology sector and Europe increased
due to various contract wins. Our global average order value
decreased by 4.6% compared to H1 2020 demonstrating the short term
disruption of Covid-19.
Assurance revenue analysed by type of service/product line:
H1 2021 H1 2020 Reported
GBPm GBPm %
change
------------------------------------- ------------ ------- --------
Technical Security Consulting (TSC) 78.1 77.5 0.8%
Risk Management Consulting (RMC) 12.9 15.4 (16.2%)
Managed Detection and Response (MDR) 23.4 18.8 24.5%
Product Sales (own and third party) 2.7 2.6 3.8%
--------
Total Assurance revenue 117.1 114.3 2.4%
------------------------------------- ------------ ------- --------
Technical Security Consulting, our "diamond core" professional
service, grew by 0.8% to GBP78.1m (H1 2020: GBP77.5m) supported by
global resourcing with Covid-19 felt across all geographies. During
the period, the Group has secured GBP2m in UK remediation deals,
helping our clients to increase their cyber resilience.
Risk Management Consulting, a service that addresses the
business risks of cyber, declined by 16.2% to GBP12.9m (H1 2020:
GBP15.4m). Our onsite work continues to be affected by Covid-19.
Management have decided to combine TSC and RMC going forward as a
single professional service to provide a comprehensive service
offering addressing the business risks of cyber through to
remediation.
Managed Detection and Response, a service line that provides
operational cyber defence and managed security services, again grew
by 24.5% to GBP23.4m (H1 2020: GBP18.8m) providing recurring
revenue. Sales orders secured during the period amounted to
GBP27.0m compared to GBP30.1m in H1 2020 as a result of slower
procurement processes due to Covid-19.
Assurance gross profit is analysed as follows:
H1 2021 H1 2021 H1 2020 H1 2020 Reported
GBPm % margin GBPm % margin ppts change
----------------------- -------------- --------- ------- --------- ------------
UK & APAC (4) 19.8 38.9% 17.7 34.2% 4.7% ppts
North America 14.1 32.8% 13.1 31.4% 1.4% ppts
Europe (4) 6.9 29.7% 7.7 36.8% (7.1% ppts)
------------
Assurance gross profit
and % margin 40.8 34.8% 38.5 33.7% 1.1% ppts
----------------------- -------------- --------- ------- --------- ------------
Gross margin improved due to higher global resourcing and
utilisation through remote delivery offset in Europe by the
recognition of onerous contract provision of c.GBP1m in relation to
a contract caused by Covid-19 disruption and some project
management challenges.
Software Resilience
The Software Resilience division accounts for 13.6% of Group
revenues (H1 2020: 13.9%) and 25.0% of Group gross profit (H1 2020:
26.0%).
Software Resilience revenue analysis - by originating
country:
H1 2021 H1 2020 Reported
GBPm GBPm %
change
---------------------------------- ------- ------- --------
UK 12.8 12.6 1.6%
North America 3.7 3.9 (5.1%)
Europe 2.0 1.9 5.3%
---------------------------------- ------- ------- --------
Total Software Resilience revenue 18.5 18.4 0.5%
---------------------------------- ------- ------- --------
The UK has experienced growth of 1.6% building on the growth of
H2 2020, whilst North America decreased due to lower on-premise
testing (Covid-19). Europe, as a relatively new market continues to
progress positively. Renewal rates improved to 89.1% (H1 2020:
87.0%) and remain within our expected range.
Software Resilience revenues analysed by service line:
Software Resilience services revenue H1 2021 H1 2020 Reported
GBPm GBPm %
change
------------------------------------- ------- ------- --------
Software Resilience contracts 12.5 12.8 (2.3)%
Verification services 6.0 5.6 7.1%
Total Software Resilience revenue 18.5 18.4 0.5%
------------------------------------- ------- ------- --------
Our contract revenue had some impact from Covid-19. Verification
services grew 7.1% to GBP6.0m despite lower volume in North
America. Cloud proposition (EaaS) is gaining momentum.
Gross margin is analysed as follows:
H1 2021 H1 2021 H1 2020 H1 2020 Reported
%
GBPm % margin GBPm % margin ppts change
--------------------------------- -------------- --------- ----------- -------------- -------------------
UK 9.5 74.2% 9.5 75.4% (1.2% ppts)
North America 2.6 70.3% 2.7 69.2% 1.1% ppts
Europe 1.5 75.0% 1.3 68.4% 6.6% ppts
-------------------
Software Resilience gross profit
and % margin 13.6 73.5% 13.5 73.4% 0.1% ppts
--------------------------------- -------------- --------- ----------- -------------- -------------------
Gross profit was maintained and margin remained in line within
H1 2020 (0.1% ppts increase). However, during H2 2021 we expect to
start making investments in our channel proposition and cloud
infrastructure to underpin sustainable growth.
Individually significant items
During the period, the Group has incurred no individually
significant items ("ISIs") (H1 2020: Nil).
Net finance costs
Net finance costs for the period were GBP1.3m compared to
GBP1.5m in H1 2020. Net finance costs include lease financing costs
from IFRS 16 of GBP0.6m (H1 2020: GBP0.6m).
Taxation
The Group's effective tax rate is 29.9% (H1 2020: 26.7%).
The effective rate remains above the UK standard rate of
corporation tax, reflecting the origin of a reasonable proportion
of Group profits in overseas territories with higher tax rates than
the UK.
Earnings per share (EPS)
H1 2021 H1 2020
pence pence
------------- ------- -------
Statutory
Basic EPS 2.7 2.4
Diluted EPS 2.7 2.3
Adjusted (3)
Basic EPS 4.1 4.2
------------- ------- -------
Cash flow and net debt (3)
The table below summarises the Group's cash flow and net debt
(3) :
H1 2020
H1 2021 (5)
GBPm GBPm
------------------------------------------------- ------------------ --------
Operating cash inflow before movements in
working capital 26.4 24.4
Increase in trade and other receivables (0.3) (9.8)
Increase in inventories (0.1) (0.3)
(Decrease)/increase in trade and other payables (0.1) 5.6
-------------------------------------------------- ------------------ --------
Cash generated from operating activities
before interest and taxation 24.9 19.9
Interest element of lease payments (0.6) (0.6)
Finance interest paid (0.6) (0.8)
Taxation paid (4.7) (1.5)
-------------------------------------------------- ------------------ --------
Net cash generated from operating activities 19.0 17.0
Purchase of property, plant and equipment (1.1) (0.7)
Software and development expenditure (3.3) (4.3)
Proceeds on disposal of intangibles 0.5 -
Equity dividends paid (8.8) (8.8)
Repayment of lease liabilities (2.9) (3.2)
Transaction costs related to borrowings - (1.0)
Proceeds from the issue of ordinary share 1.4 -
capital
------------------------------------------------- ------------------ --------
Net movement 4.8 (1.0)
-------------------------------------------------- ------------------ --------
Opening net debt (4.2) (20.2)
-------------------------------------------------- ------------------ --------
Non cash movements (release of deferred issue (0.1) -
costs and lease financing costs)
Foreign exchange 2.5 0.4
-------------------------------------------------- ------------------ --------
Closing net cash/(debt) (Pre-IFRS 16) (3) 3.0 (20.8)
-------------------------------------------------- ------------------ --------
Lease liabilities (37.2) (30.6)
-------------------------------------------------- ------------------ --------
Closing net debt (3) (34.2) (51.4)
-------------------------------------------------- ------------------ --------
Net debt (3) can be reconciled as follows:
H1 2021 H1 2020
GBPm GBPm
------------------------------------------ -------- --------
Cash and cash equivalents 101.1 33.8
Borrowings (net of deferred issue costs) (98.1) (54.6)
------------------------------------------
Net debt (Pre-IFRS 16) (3) 3.0 (20.8)
------------------------------------------ -------- --------
Lease liabilities (37.2) (30.6)
------------------------------------------ -------- --------
Net debt (3) (34.2) (51.4)
------------------------------------------ -------- --------
The calculation of the cash conversion ratio (3) is set out below:
H1 2021 H1 2020
GBPm GBPm Change
----------------------------------------- -------- -------- -----------
Net operating cash flow before interest
and taxation (A) 24.9 19.9 25.1%
EBITDA (3) (B) 24.7 23.0 7.4%
----------------------------------------- -------- -------- -----------
Cash conversion ratio (3) (%) (A)/(B) 100.8% 86.5% 14.3% ppts
----------------------------------------- -------- -------- -----------
The half year figure shows an improved picture on cash
performance compared to the prior half year, reflecting the effort
put into improving our processes in previous periods. Cash
conversion (3) for H1 2021 is still expected to normalise and is
targeted at c.85% over the medium term.
The increase in tax paid is due to the deferral of GBP1.2m under
government tax deferral schemes and timing of payments made on
account for FY21. Net capital cash expenditure during the period
was GBP3.9m (H1 2020: GBP5.0m) which includes tangible expenditure
of GBP1.1m (H1 2020: GBP0.7m) and capitalised software and
development costs of GBP3.3m (H1 2020: GBP4.3m), which has been
offset by proceeds from the disposal of an intangible asset for
GBP0.5m. Additional cash capital expenditure will be incurred
during H2 2021 as we finish the installation of our new
systems.
Dividends
Dividends of GBP8.8m paid in the period (H1 2020: GBP8.8m)
comprised the final dividend for 2020 of 3.15p. The Board is
declaring an unchanged interim dividend of 1.5p per ordinary share
(H1 2020: 1.5p).
This represents a dividend equal to that paid in the prior year
as the Board is conscious of the need to invest in certain
initiatives to support longer term growth. The dividend policy will
therefore continue to remain under review.
The interim dividend will be paid on 5 March 2021, to
shareholders on the register at the close of business on 19
February 2021. The ex-dividend date is 18 February 2021.
Financing facilities
The Group is financed through a combination of bank facilities,
retained profits and equity. As at 30 November 2020, the Group had
committed bank facilities (revolving credit facility) of GBP100m
(H1 2020: GBP100m), of which GBP98.8m (H1 2020: GBP55.1m) had been
drawn under these facilities following the drawdown of our facility
in April 2020 to provide the Group with maximum cash flexibility.
These arrangements were agreed in June 2019 and are due for renewal
in June 2024. Under these arrangements the Group can also request
(seeking bank approval) an additional accordion facility to
increase the total size of the revolving credit facility by up to
GBP75m.
On our banking covenants, leverage (3) as at 30 November 2020
amounted to (0.1)x as we have become cash positive (FY 2020: 0.1x)
and net interest cover (3) amounted to 27.1x (FY 2020: 22.7x). The
Group was in compliance with the terms of all its facilities,
including the financial covenants, at 30 November 2020 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 with the exceptions being net debt excludes IFRS 16
lease liabilities and EBITDA (3) excludes amortisation of
acquisition intangibles and share based payments.
As the Group has now demonstrated its resilience, during January
2021, we have now repaid GBP28m of this revolving credit facility
to reduce servicing costs with nil impact to net cash.
Going concern
The Directors have acknowledged guidance published in relation
to Going concern assessments.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Business Review on pages 4 to 7 and Financial
Review on pages 8 to 17. The Group's financial position, cash and
borrowing facilities are also described within these sections.
The condensed interim financial statements have been prepared on
a going concern basis which the Directors consider to be
appropriate for the following reasons.
The Directors have prepared cash flow and covenant compliance
forecasts for the period to August 2022 which indicate that, taking
account of reasonably possible downsides and the anticipated impact
of Covid-19 on the operations and its financial resources, the
Group and Company will have sufficient funds to meet its
liabilities as they fall due for that period.
The Group is financed primarily by a GBP100m committed revolving
credit facility which matures in June 2024. The Group is required
to comply with financial covenants for leverage (net debt to EBITDA
(2) ) and interest cover (EBITDA (2) to interest charge) which are
tested bi-annually at 31 May and 30 November each year. In April
2020, the Group drew down the entire available funds of GBP100m
under this RCF facility in order to provide maximum cash
flexibility during the Covid-19 crisis. During January 2021, the
Group has now repaid GBP28m of this revolving credit facility to
reduce servicing costs with nil impact to net cash.
Although the Group has demonstrated resilience to the
challenging environment resulting from Covid-19, the Directors
acknowledge that the financial performance of the Group has been
adversely impacted since the commencement of the pandemic, and for
this reason the base case forecast for FY21 reflects the assumption
of a continued impact from Covid-19. The continuing macro-economic
risks and potential changes in government policies (on the severity
of enforced lockdowns worldwide), could have a continued effect on
the Group's performance. However, trading since the period end has
continued to demonstrate trading resilience, with full year trading
in line with our expectations.
The Directors have prepared a number of severe but plausible
scenarios, which are based on the financial impact of the Group's
principal risks and uncertainties (as set out below) as
follows:
1. Reduction in trading performance due to a further UK
government enforced national lockdown until end of March 2021 with
a gradual easing of restrictions through to the end of July
2021
2. Reduction in cash collection due to the impact of Covid-19
3. Further reduction in trading performance in a specific
European region due to the impact of Covid-19 until August 2022
4. Reduction in trading performance derived from Brexit cross
border service delivery administrative restrictions
5. Combined scenario of scenarios 2, 3 and 4
6. Reduction in growth globally until the end of the calendar year (2021)
7. Loss of key customers/execution of strategy
8. Potential data breach and consequential effect (including potential fine)
These scenarios have been modelled individually and also in
combination in order to assess the Group's ability to withstand
multiple challenges, although the Directors do not believe a
scenario combining all these risks to be plausible. The impact of
these sensitivities has been reviewed against the Group's projected
cash flow position, available bank facilities and compliance with
financial covenants. Should these occur, mitigating actions would
be required to ensure that the Group remains liquid and financially
viable, which may include a reduction of planned capital
expenditure, headcount reduction, freezing pay and recruitment and
not paying a dividend to shareholders. All of the mitigating
actions are within the Directors' control. These forecasts,
including the severe but plausible downsides when certain
mitigating actions are included, show that the Group is able to
operate within its available banking facilities, with no forecasted
covenant breaches and that the Group will have sufficient funds to
meets its liabilities as they fall due for that period.
Having reviewed the current performance, forecasts, debt
servicing requirements, total facilities and risks, the Directors
are confident that the Company and the Group have sufficient funds
to continue to meet their liabilities as they fall due for a period
of at least 12 months from the date of approval of these financial
statements. Accordingly, they continue to adopt the going concern
basis of accounting in preparing the Group's interim financial
statements for the period ended 30 November 2020.
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
On 31 December 2020, the United Kingdom departed the European
Union. The United Kingdom entered into a UK-EU Trade and
Cooperation Agreement from 1 January 2021.
NCC Group and its subsidiaries have continually planned for and
have now assessed the outcome of the new trade agreement through
its Brexit Steering Group. This assessment highlighted a number of
areas of potential risk for which management have implemented
mitigation actions. The areas of potential risk and mitigating
actions are noted as follows:
-- Access to market for goods and services - pre-emptive ordering and purchasing strategies
-- Access to talent and cross border service delivery - limited
travel in current environment supported by external advice to
ensure boarder requirements are met
-- Free flow of data - standard contractual clauses and
processor to processor agreements in place together with strategic
data storage
-- Commercial Law - appropriate review of legal contract clauses
-- Cybersecurity regulation/other regulatory requirements -
continuous monitoring and procedures in place to adapt to any
change
Additional macro-economic risks are also evident as follows:
-- Any reduction in demand from an economic slowdown; and
-- Real or perceived issues with customer engagement between countries and the Group
As the Group's operations around the world include business
entities based in continental Europe management believe NCC Group
is structurally resilient to any future disruptions caused by the
adoption of the UK-EU Trade and Cooperation Agreement.
Climate change
While the move to remote working has the potential to reduce our
office environment footprint, the global pandemic is enabling us to
discuss with our customers and colleagues on how we operate in the
future and the positive impact this can have on climate action.
Owing to the size and nature of the Group, an external
environmental audit is not required and the current impact on our
profitability and Balance sheet is not considered material. This
area will be assessed as the Group grows in conjunction with any
new legislative developments.
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 results are now presented under this
accounting standard. Comparator information is also on the same
basis. The impact of IFRS 16 on EBITDA (3) , Operating profit,
Profit before taxation, Profit for the year, Net cash/(debt)
amounts to an increase of GBP2.9m (H1 2020: GBP3.2m), decrease of
GBP0.1m (H1 2020: increase GBP0.2m), decrease of GBP0.7m (H1 2020:
GBP0.4m), decrease of GBP0.6m (H1 2020: GBP0.3m) and an increase in
debt of GBP37.2m (H1 2020: GBP30.6m) respectively.
3: See note 2 of the interim financial statements for an
explanation of Alternative Performance Measures (APMs),
historically disclosed adjusting items and revised presentation of
the consolidated income statement.
As discussed in the FY20 Annual Report and in accordance with
FRC guidelines, the Group no longer presents a consolidated income
statement showing adjusting items separately. In prior periods, the
Group disclosed adjusting items in H1 2020 of GBP6.2m related to
Amortisation of acquisition intangibles (H1 2020: GBP4.4m) and
share based payments (H1 2020: GBP1.8m) as a separate column on the
face of the consolidated income statement. This is no longer
disclosed in this way to simplify the Group's results. However, as
the Group manages internally its performance at an adjusted
operating profit level (before Amortisation of acquisition
intangibles and share based payments), which management believe
better represents the underlying trading of the business, this
information is still disclosed as an APM within this interim
report. This APM is reconciled to statutory operating profit,
together with the consequently Adjusted basic EPS (before
Amortisation of acquisition intangibles, share based payments and
tax effect thereon) to statutory basic EPS.
The net cash/(debt) (Pre-IFRS 16) APM has been included to allow
stakeholders to transition from previous presentation prior to IFRS
16 to Net cash/(debt) post IFRS 16.
The terms and ratios relating to covenants are specifically
defined in the Group's banking documents (in line with normal
commercial practice) and are materially similar to GAAP with the
exceptions being net debt excludes IFRS 16 lease liabilities and
EBITDA (3) excludes amortisation of acquisition intangibles and
share based payments.
4: With the continuing growth and formation of a European
division we have changed geographical segments in line with how
this information is reported to the Board and managed today and
have restated prior year figures on a like for like basis. The APAC
division was previously included within the Segment Europe and
APAC. See notes to the interim financial statements for further
detail.
5: The cash flow has been represented in H1 2020 to disclose
interest element of lease payments of GBP0.6m separately from the
repayment of lease liabilities.
Directors' responsibility statement
The responsibility statement below has been prepared in
connection with the Group's condensed interim financial statements
for the period ended 30 November 2020.
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
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union;
-- 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 4 February 2021 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 interim results statement for the
six months ended 30 November 2020 which comprises consolidated
income statement, consolidated statement of comprehensive income,
consolidated statement of financial position, consolidated
statement of cash flows, consolidated 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 2020 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European Union
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 interim
results statement and consider whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the latest annual financial statements
of the group were prepared in accordance with International
Financial Reporting Standards as adopted by the EU and the next
annual financial statements will be prepared in accordance with
International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006. The
directors are responsible for preparing the condensed set of
financial statements included in the half-yearly financial report
in accordance with IAS 34 adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
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.
Frances Simpson
for and on behalf of KPMG LLP
Chartered Accountants
1 Sovereign Square,
Sovereign Street
Leeds
LS1 4DA
4 February 2021
Consolidated income statement (1)
For the six months ended 30 November 2020
H1 2021 H1 2020
Notes GBPm GBPm
------------------------------------------ ----- ------- -------
Revenue 3 135.6 132.7
Cost of sales 3 (81.2) (80.7)
Gross profit 3 54.4 52.0
Administrative expenses 3
Depreciation and amortisation (12.7) (12.5)
Other administrative expenses (29.7) (29.0)
-------
Total administrative expenses (42.4) (41.5)
Operating profit 3 12.0 10.5
Net finance costs (1.3) (1.5)
------------------------------------------ ----- ------- -------
Profit before taxation 10.7 9.0
Taxation (3.2) (2.4)
------------------------------------------ ----- ------- -------
Profit for the period attributable to the
owners of the Company 7.5 6.6
------------------------------------------ ----- ------- -------
Earnings per ordinary share 5
Basic EPS 2.7p 2.4p
Diluted EPS 2.7p 2.3p
------------------------------------------ ----- ------- -------
Consolidated statement of comprehensive income
For the six months ended 30 November 2020
H1 2021 H1 2020
GBPm GBPm
-------------------------------------------------------------------- ------- -------
Profit for the period attributable to the owners of the
Company 7.5 6.6
-------------------------------------------------------------------- ------- -------
Other comprehensive income
Items that may be reclassified subsequently to profit or
loss (net of tax)
Foreign exchange translation differences (4.4) (2.9)
-------------------------------------------------------------------- ------- -------
Total comprehensive income for the period (net of tax) attributable
to the owners of the Company 3.1 3.7
-------------------------------------------------------------------- ------- -------
Footnotes
1: References to the Group's results are to continuing
operations.
2: See note 2 of the interim financial statements for an
explanation of Alternative Performance Measures (APMs),
historically disclosed adjusting items and revised presentation of
the consolidated income statement.
3: The cash flow has been represented in H1 2020 to disclose
interest element of lease payments of GBP0.6m separately from the
repayment of lease liabilities.
Consolidated balance sheet
For the six months ended 30 November 2020
H1 2021 H1 2020 FY 2020
Notes GBPm GBPm GBPm
-------------------------------------------- ----- ------- ------- -------
Non-current assets
Goodwill 188.7 187.0 193.1
Other intangible assets 34.9 39.8 39.2
Property, plant and equipment 12.3 14.7 13.9
Right-of-use assets 6 26.2 21.7 28.7
Investments 0.3 0.3 0.3
Deferred tax asset 0.4 7.2 0.5
Total non-current assets 262.8 270.7 275.7
-------------------------------------------- ----- ------- ------- -------
Current assets
Inventories 1.0 1.0 0.9
Trade and other receivables 73.5 71.4 73.2
Current tax receivable 2.1 1.1 0.6
Cash and cash equivalents 101.1 33.8 95.0
-------
Total current assets 177.7 107.3 169.7
-------------------------------------------- ----- ------- ------- -------
Total assets 440.5 378.0 445.4
-------------------------------------------- ----- ------- ------- -------
Current liabilities
Trade and other payables 45.6 37.6 46.4
Lease liabilities 6 5.3 4.6 5.3
Current tax payable 1.0 2.4 -
Provisions 8 2.6 0.2 2.0
Deferred revenue 38.0 36.4 39.5
-------
Total current liabilities 92.5 81.2 93.2
-------------------------------------------- ----- ------- ------- -------
Non-current liabilities
Borrowings 7 98.1 54.6 99.2
Lease liabilities 6 31.9 26.0 32.9
Deferred tax liability 2.2 9.8 2.9
Provisions 8 0.3 0.9 1.7
Deferred revenue 5.0 - 1.4
Total non-current liabilities 137.5 91.3 138.1
-------------------------------------------- ----- ------- ------- -------
Total liabilities 230.0 172.5 231.3
-------------------------------------------- ----- ------- -------
Net assets 210.5 205.5 214.1
-------------------------------------------- ----- ------- ------- -------
Equity
Issued capital 2.8 2.8 2.8
Share premium 152.3 149.8 150.9
Merger reserve 42.3 42.3 42.3
Currency translation reserve 27.5 25.0 31.9
Retained earnings (14.4) (14.4) (13.8)
Total equity attributable to equity holders
of the parent 210.5 205.5 214.1
-------------------------------------------- ----- ------- ------- -------
These financial statements were approved by the Board of
Directors on 4 February 2021 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 2020
H1 2020
H1 2021 (3)
Cash flow from operating activities Notes GBPm GBPm
----------------------------------------------------- ----- ------- -------
Profit for the period 7.5 6.6
Adjustments for:
Depreciation of property, plant and equipment 2.4 3.3
Depreciation of right of use assets 3.0 3.0
Share-based payments 0.7 1.8
Amortisation of acquired intangible assets 4.3 4.4
Amortisation of internally developed intangible
assets and software 3.0 1.8
Net other financing costs 0.7 0.9
Lease financing costs 0.6 0.6
Foreign exchange 1.1 0.2
Research and development tax credits (0.2) (0.2)
Profit on disposal of intangibles (0.5) -
Income tax expense 3.2 2.4
Increase/(decrease) in provisions 0.6 (0.4)
Cash inflow for the period before changes in
working capital 26.4 24.4
----------------------------------------------------- ----- ------- -------
Increase in trade and other receivables (0.3) (9.8)
Increase in inventories (0.1) (0.3)
(Decrease)/increase in trade and other payables (1.1) 5.6
----------------------------------------------------- ----- ------- -------
Cash generated from operating activities before
interest and taxation 24.9 19.9
Interest element of lease payments (0.6) (0.6)
Interest paid (0.6) (0.8)
Taxation paid (4.7) (1.5)
----------------------------------------------------- ----- ------- -------
Net cash generated from operating activities 19.0 17.0
Cash flows from investing activities
Purchase of property, plant and equipment (1.1) (0.7)
Software and development expenditure (3.3) (4.3)
Profit on disposal of intangibles 0.5 -
Net cash used in investing activities (3.9) (5.0)
Cash flows from financing activities
Proceeds from the issue of ordinary share capital 1.4 -
Drawdown of borrowings 3.0 -
Repayment of lease liabilities (2.9) (3.2)
Transaction costs related to borrowings - (1.0)
Equity dividends paid 4 (8.8) (8.8)
----------------------------------------------------- ----- ------- -------
Net cash used from financing activities (7.3) (13.0)
----------------------------------------------------- ----- ------- -------
Net increase/(decrease) in cash and cash equivalents 7.8 (1.0)
----------------------------------------------------- ----- ------- -------
Cash and cash equivalents at beginning of period 95.0 34.9
Effect of foreign currency exchange rate changes (1.7) (0.1)
Cash and cash equivalents at end of period 101.1 33.8
----------------------------------------------------- ----- ------- -------
Reconciliation of net change in cash and cash equivalents to
movement in net debt (2)
H1 2021 H1 2020
Notes GBPm GBPm
----------------------------------------------------- ----- ------- -------
Net increase/(decrease) in cash and cash equivalents 7.8 (1.0)
Change in net debt resulting from cash flows (3.0) -
Effect of foreign currency on cash flows (1.7) (0.1)
Non-cash movement (release of deferred issue
costs) (0.1) -
Foreign currency translation differences on
borrowings 4.2 0.5
Change in net debt (2) during the period 7.2 (0.6)
----------------------------------------------------- ----- ------- -------
Net debt (2) at start of period (Pre-IFRS16) (4.2) (20.2)
----------------------------------------------------- ----- ------- -------
Net cash/(debt) (2) at end of period (Pre-IFRS16) 3.0 (20.8)
----------------------------------------------------- ----- ------- -------
Lease liabilities 6 (37.2) (30.6)
----------------------------------------------------- ----- ------- -------
Net debt (2) at end of period (34.2) (51.4)
----------------------------------------------------- ----- ------- -------
Consolidated statement of changes in equity
For the six months ended 30 November 2020
Currency
Share Share Premium Merger Reserve Translation Retained
Capital Reserve Earnings
Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- --------------- ---------------- ------------ ---------- -------
Balance at 1 June 2020 2.8 150.9 42.3 31.9 (13.8) 214.1
--------------------------------- --------- --------------- ---------------- ------------ ---------- -------
Profit for the period - - - - 7.5 7.5
Foreign currency
translation differences - - - (4.4) - (4.4)
--------------------------------- --------- --------------- ---------------- ------------ ---------- -------
Total comprehensive income
for the period - - - (4.4) 7.5 3.1
--------------------------------- --------- --------------- ---------------- ------------ ---------- -------
Transactions with owners
recorded directly in equity
Dividends to equity shareholders - - - - (8.8) (8.8)
Share based payments - - - - 0.7 0.7
Shares issued - 1.4 - - - 1.4
Total contributions by and
distributions to owners - 1.4 - - (8.1) (6.7)
--------------------------------- --------- --------------- ---------------- ------------ ---------- -------
Balance at 30 November 2020
(unaudited) 2.8 152.3 42.3 27.5 (14.4) 210.5
--------------------------------- --------- --------------- ---------------- ------------ ---------- -------
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 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 payments
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
----------------------------- --------- --------------- ---------------- ------------ ---------- -------
Adjusted balance at 1
June 2019 2.8 149.8 42.3 27.9 (14.0) 208.8
----------------------------- --------- --------------- ---------------- ------------ ---------- -------
Profit for the period - - - - 11.7 11.7
Foreign currency
translation differences - - - 4.0 - 4.0
----------------------------- --------- --------------- ---------------- ------------ ---------- -------
Total comprehensive income
for the period - - - 4.0 11.7 15.7
----------------------------- --------- --------------- ---------------- ------------ ---------- -------
Transactions with owners
recorded directly in equity
Dividends to equity
Shareholders - - - - (12.9) (12.9)
Share based payments - - - - 1.4 1.4
Shares issued - 1.1 - - - 1.1
Total contributions by
and distributions to owners - 1.1 - - (11.5) (10.4)
----------------------------- --------- --------------- ---------------- ------------ ---------- -------
Balance at 31 May 2020 2.8 150.9 42.3 31.9 (13.8) 214.1
----------------------------- --------- --------------- ---------------- ------------ ---------- -------
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 cyber assurance and
software resilience services.
The Groups' unaudited condensed interim financial statements for
the six months ended 30 November 2020, have been prepared on the
going concern basis in accordance with IAS 34 'Interim Financial
Reporting' adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union. The condensed interim financial
statements have been prepared on the historical cost basis. The
condensed interim financial statements are presented in Sterling
(GBPm) because that is the currency of the principal economic
environment in which the Company operates. The unaudited condensed
interim financial statements were approved by the Directors on 4
February 2021.
The annual financial statements of the group for the year ended
31 May 2021 will be prepared in accordance with International
Financial Reporting Standards (IFRSs) adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006.
As required by the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority the condensed set of financial
statements has been prepared applying the accounting policies and
presentation that were applied in the company's published
consolidated financial statements for the year ended 31 May 2020,
which were prepared in accordance with IFRSs as adopted by the EU.
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 2020.
The financial statements of the Group for the year ended 31 May
2020 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 2020
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 2020,
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
On 31 December 2020, the United Kingdom departed the European
Union. The United Kingdom entered into a UK-EU Trade and
Cooperation Agreement from 1 January 2021.
NCC Group and its subsidiaries have continually planned for and
have now assessed the outcome of the new trade agreement through
its Brexit Steering Group. This assessment highlighted a number of
areas of potential risk, which management have implemented
mitigation actions to reduce any potential impact of Brexit.
In addition, as the Group's operations around the world include
business entities based in continental Europe management believe
NCC Group is structurally resilient to any future disruptions
caused by the adoption of the UK-EU Trade and Cooperation
Agreement.
Management has reviewed the potential impact of Brexit on the
financial statements and have concluded that the impact should be
limited, however have applied sensitivity modelling to its Going
Concern assessment in relation to cross border service delivery and
assessment of its IFRS 9 Expected Credit Loss model.
Covid-19
Management has reviewed the potential impact of Covid-19 on the
financial statements. Accordingly, consideration has been given to
the impact on the IFRS 9 Expected Credit Loss model, IFRS 15
collectability assessments on contract inception, IFRS 16 lease
term assessments (no material impact on lease term assessment), the
impairment review and the Going Concern and viability
assessments.
Impairment review
Since the impact of Covid-19 on the economic environment in
which the Group operates is deemed to be an external indicator of
potential impairment, under IAS 36 the Group is required to
undertake impairment testing. Therefore, each of the Group's CGUs
have been tested on a consistent basis as described in the Group's
annual report and accounts for the year ended 31 May 2020 (except
for a change in certain defined CGUs noted below), by comparing the
pre-tax cash flows from internal forecasts from the Group's three
year strategic plan, which have been extrapolated by a further two
years using average annual growth rates ranging between 2.0%-14.5%,
followed by longer term growth rates into perpetuity ranging
between 1.9%-2.5%. This exercise has suggested that there has been
no impairment in any CGU as at 30 November 2020.
Sensitivity analysis
Sensitivity analysis has been performed in respect of certain
scenarios where management considers a reasonably possible change
in key assumptions could occur. The outcome of this analysis
indicated that there is headroom in most CGUs except, as in the
prior year, for Fox-IT. Management has considered the short and
long-term impact of Covid-19 on the challenging growth targets for
this CGU and believes a reasonably possible change in the key
assumptions of a 0.9% ppts (31 May 2020: 0.7% ppts) reduction in
the revenue CAGR or a 2.3% ppts (31 May 2020: 2.5% ppts) increase
in the discount rate would lead to a break-even position.
Changes in CGUs
During the period the group revised two of its CGUs as
follows:
VSR
On 1 June 2020 VSR was merged into NCC Group Security Services
Incorporated which forms part of the North America Assurance CGU,
and following this merger VSR no longer exists as a standalone
entity. VSR continues to be included within the North America
Segment. From this date, the VSR business no longer generates
independent cash flows since its resources are now pooled with the
remainder of the US Assurance technical delivery teams and its
support functions are delivered by the shared US Assurance
functions. Furthermore, VSR is no longer reported separately from
the rest of the US business. On the basis of the above, management
has concluded that the VSR business is no longer a standalone CGU
and has been subsumed into the North America Assurance CGU.
PSC
During the period, the Group ceased measuring and forecasting
the performance of the business which now forms part of the North
America Assurance Segment. On the basis of the above, management
has concluded that the PSC business is no longer a standalone CGU
as its not capable of generating independent cash flows and has
been subsumed into the North America Assurance CGU.
Segments
During the period, management have amended its segment
disclosure to reflect the way the performance of the business is
reported to the Board and managed. The performance of the APAC
region was previously included within Europe and APAC. For the
period ended 30 November 2020, the APAC region is now included
together with the UK segment until it becomes such a size to be
managed separately. In addition, with the continuing growth and
formation of a European division we have changed geographical
segments line with how this information is reported to the Board
and managed today and have restated prior year figures on a like
for like basis.
Individually significant items
During the period, the Group has incurred no individually
significant items ("ISIs") (H1 2020: Nil). However in previous
years the Group has categorised certain items as ISIs on the basis
of accounting judgment. These historic judgments have regard to the
Group's approach to materiality. Some items are deemed material
because of scale, some because of their nature or frequency of
occurrence, and others through a combination of both. These
judgments can be significant not only in changing the Group's
results but can also have a significant impact on senior management
and executive reward which in some cases are linked to results as
opposed to GAAP results.
Estimation uncertainties
As noted within the FY20 Annual Report, some aspects of the
Group's revenue is derived from relatively long-term
contracts. On this basis, estimation uncertainty has been disclosed in relation to one contract:
-- An onerous provision recognised during the year ended 31 May
2020 of GBP0.2m has been increased during the period to GBP1.2m
(see Note 8). Management prepares projections, which require
significant estimates of both revenue and cost recognition. Revenue
is recognised based on the input method of IFRS 15 in relation to
labour hours and therefore management has to estimate the number of
hours still required to complete the long-term projects and labour
cost to complete.
Due to the level of estimation, sensitivity analysis on what is
regarded a severe but plausible scenario for this contract is
provided below:
-- A 25% increase in total labour hours to the project would
give rise to a further provision of up to GBP0.7m.
Tax uncertainties
The tax expense reported for the current period and prior period
are affected by certain positions taken by management where there
may be uncertainty. The most significant source of uncertainty
arises from claims for US R&D tax credits relating to
historical periods. Uncertainty arises as a result of a degree of
uncertainty concerning interpretation of US legislation and because
the statute of limitations has not expired. The aggregate net tax
benefit to the income statement in prior periods relating to the US
R&D tax credits is GBP4.3m. The deferred tax asset relating to
the US R&D tax credits is GBP0.8m, although due to the
uncertainty we have made a full provision of GBP0.8m against this
asset in H2 FY20. This provision remains for the period ended 30
November 2020.
New and amended accounting standards
No new accounting standards have been applied during the period
that have had a material impact on the condensed interim financial
statements.
Going concern
The Directors have acknowledged guidance published in relation
to Going concern assessments.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Business Review on pages 4 to 7 and Financial
Review on pages 8 to 17. The Group's financial position, cash and
borrowing facilities are also described within these sections.
The condensed interim financial statements have been prepared on
a going concern basis which the Directors consider to be
appropriate for the following reasons.
The Directors have prepared cash flow and covenant compliance
forecasts for the period to August 2022 which indicate that, taking
account of reasonably possible downsides and the anticipated impact
of Covid-19 on the operations and its financial resources, the
Group and Company will have sufficient funds to meet its
liabilities as they fall due for that period.
The Group is financed primarily by a GBP100m committed revolving
credit facility which matures in June 2024. The Group is required
to comply with financial covenants for leverage (net debt to EBITDA
2 ) and interest cover (EBITDA 2 to interest charge) which are
tested bi-annually at 31 May and 30 November each year. In April
2020, the Group drew down the entire available funds of GBP100m
under this RCF facility in order to provide maximum cash
flexibility during the Covid-19 crisis. During January 2021, the
Group has now repaid GBP28m of this revolving credit facility to
reduce servicing costs with nil impact to net cash.
Although the Group has demonstrated resilience to the
challenging environment resulting from Covid-19, the Directors
acknowledge that the financial performance of the Group has been
adversely impacted since the commencement of the pandemic, and for
this reason the base case forecast for FY21 reflects the assumption
of a continued impact from Covid-19. The continuing macro-economic
risks and potential changes in government policies (on the severity
of enforced lockdowns worldwide), could have a continued effect on
the Group's performance. However, trading since the period end has
continued to demonstrate trading resilience, with full year trading
in line with our expectations.
The Directors have prepared a number of severe but plausible
scenarios, which are based on the financial impact of the Group's
principal risks and uncertainties (as set out below) as
follows:
1. Reduction in trading performance due to a further UK
government enforced national lockdown until end of March 2021 with
a gradual easing of restrictions through to the end of July
2021
2. Reduction in cash collection due to the impact of Covid-19
3. Further reduction in trading performance in a specific
European region due to the impact of Covid-19 until August 2022
4. Reduction in trading performance derived from Brexit cross
border service delivery administrative restrictions
5. Combined scenario of scenarios 2, 3 and 4
6. Reduction in growth globally until the end of the calendar year (2021)
7. Loss of key customers/execution of strategy
8. Potential data breach and consequential effect (including potential fine)
These scenarios have been modelled individually and also in
combination in order to assess the Group's ability to withstand
multiple challenges, although the Directors do not believe a
scenario combining all these risks to be plausible. The impact of
these sensitivities has been reviewed against the Group's projected
cash flow position, available bank facilities and compliance with
financial covenants. Should these occur, mitigating actions would
be required to ensure that the Group remains liquid and financially
viable, which may include a reduction of planned capital
expenditure, headcount reduction, freezing pay and recruitment and
not paying a dividend to shareholders. All of the mitigating
actions are within the Directors' control. These forecasts,
including the severe but plausible downsides when certain
mitigating actions are included, show that the Group is able to
operate within its available banking facilities, with no forecasted
covenant breaches and that the Group will have sufficient funds to
meets its liabilities as they fall due for that period.
Having reviewed the current performance, forecasts, debt
servicing requirements, total facilities and risks, the Directors
are confident that the Company and the Group have sufficient funds
to continue to meet their liabilities as they fall due for a period
of at least 12 months from the date of approval of these financial
statements. Accordingly, they continue to adopt the going concern
basis of accounting in preparing the Group's interim financial
statements for the period ended 30 November 2020.
2 Alternative Performance Measures (APMs), historically
disclosed adjusting items and revised presentation of the
consolidated income statement.
Throughout these interim financial statements, certain APMs are
presented. As discussed in the FY20 Annual Report and in accordance
with FRC guidelines, the Group no longer presents a consolidated
income statement showing adjusting items separately. In prior
periods, the Group disclosed adjusting items in H1 2020 of GBP6.2m
relating to Amortisation of acquisition intangibles (H1 2020:
GBP4.4m) and share based payments (H1 2020: GBP1.8m) as a separate
column on the face of the consolidated income statement. This is no
longer disclosed in this way to simplify the Group's results.
However, as the Group manages internally its performance at an
adjusted operating profit level (before Amortisation of acquisition
intangibles and share based payments), which management believe
better represents the underlying trading of the business, this
information is still disclosed as an APM within this interim
report. This APM is reconciled to statutory operating profit,
together with the consequently Adjusted basic EPS (before
Amortisation of acquisition intangibles, share based payments and
tax effect thereon) to statutory basic EPS.
This change has removed the following adjusted measures from the
Group's narrative reporting and disclosures:
-- Adjusted EBITDA
-- Adjusted Profit before taxation
-- Adjusted Taxation
Following this revision to APMs, the Group has the following
APM's/non statutory measures:
-- EBITDA (reconciled below)
-- Adjusted Operating profit (reconciled on pages 4, 9 and 10)
-- Adjusted basic EPS (pence) (reconciled in note 5)
-- Net cash/(debt) (Pre-IFRS 16) (reconciled below)
-- Net debt (reconciled below)
-- Cash Conversion (reconciled below)
These measures provide supplementary information that assists
the user to understand the financial performance, position and
trends of the Group. Further detail is included within the glossary
of terms to these interim financial statements that provide
supplementary information that assists the user in understanding
theses APMs/non statutory measures.
Net debt
Net debt (2) is set out below:
H1 2021 H1 2020
GBPm GBPm
------------------------------------------ -------- --------
Cash and cash equivalents 101.1 33.8
Borrowings (net of deferred issue costs) (98.1) (54.6)
Net cash/(debt) (2) (Pre-IFRS 16) 3.0 (20.8)
------------------------------------------ -------- --------
Lease liabilities (37.2) (30.6)
------------------------------------------ -------- --------
Net debt (2) (34.2) (51.4)
------------------------------------------ -------- --------
Cash conversion ratio
The calculation of the cash conversion ratio (2) is set out
below:
H1 2021 H1 2020
GBPm GBPm % change
----------------------------------------- -------- -------- -----------
Net operating cash flow before interest
and taxation (A) 24.9 19.9 25.1%
EBITDA (2) (B) 24.7 23.0 7.4%
----------------------------------------- -------- -------- -----------
Cash conversion ratio (2) (%) (A)/(B) 100.8% 86.5% 14.3% ppts
----------------------------------------- -------- -------- -----------
EBITDA
The calculation of EBITDA is set out below:
H1 2021 H1 2020
GBPm GBPm
------------------------------------------------- -------- --------
Operating profit 12.0 10.5
Depreciation of property, plant and equipment 2.4 3.3
Depreciation of right of use assets 3.0 3.0
Amortisation of acquired intangible assets 4.3 4.4
Amortisation of internally developed intangible
assets and software 3.0 1.8
------------------------------------------------- -------- --------
EBITDA 24.7 23.0
------------------------------------------------- -------- --------
3 Segmental information
Segmental analysis H1 2021
Central
Software and
Assurance resilience head office Group
GBPm GBPm GBPm GBPm
------------------------------------------ --------- ----------- ------------ ------
Revenue 117.1 18.5 - 135.6
Cost of sales (76.3) (4.9) - (81.2)
------------------------------------------ --------- ----------- ------------ ------
Gross profit 40.8 13.6 - 54.4
Gross margin % 34.8% 73.5% - 40.1%
General administration expenses allocated (27.3) (5.6) (4.5) (37.4)
------------------------------------------ --------- ----------- ------------ ------
Adjusted operating profit (2) 13.5 8.0 (4.5) 17.0
------------------------------------------ --------- ----------- ------------ ------
Amortisation of acquisition intangibles (4.3)
------------------------------------------ --------- ----------- ------------ ------
Share based payments (0.7)
------------------------------------------ --------- ----------- ------------ ------
Operating profit 12.0
------------------------------------------ --------- ----------- ------------ ------
Segmental analysis H1 2020
Central
Software and
Assurance resilience 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 (25.4) (5.4) (4.5) (35.3)
------------------------------------------ --------- ----------- ------------ ------
Adjusted operating profit (2) 13.1 8.1 (4.5) 16.7
------------------------------------------ --------- ----------- ------------ ------
Amortisation of acquisition intangibles (4.4)
------------------------------------------ --------- ----------- ------------ ------
Share based payments (1.8)
------------------------------------------ --------- ----------- ------------ ------
Operating profit 10.5
------------------------------------------ --------- ----------- ------------ ------
H1 2021 H1 2020
Revenue by originating country GBPm GBPm
----------------------------------------------------- ------- -------
UK & APAC (3) 63.7 64.3
North America 46.7 45.6
Europe (3) 25.2 22.8
Total revenue 135.6 132.7
----------------------------------------------------- ------- -------
H1 2021 H1 2020
Revenue by category GBPm GBPm
----------------------------------------------------- ------- -------
Services 132.9 130.1
Products 2.7 2.6
Total revenue 135.6 132.7
----------------------------------------------------- ------- -------
H1 2021 H1 2020
Timing of revenue recognition GBPm GBPm
----------------------------------------------------- ------- -------
Services and products transferred over time 35.7 31.5
Services and products transferred at a point in time 99.9 101.2
----------------------------------------------------- ------- -------
Total revenue 135.6 132.7
----------------------------------------------------- ------- -------
Revenue is disaggregated by primary geographical market as
follows:
Software H1 2021 Software H1 2020
GBPm Assurance Resilience Total Assurance Resilience Total
--------- ----------- ------- --------- -----------
UK & APAC (3) 50.9 12.8 63.7 51.7 12.6 64.3
North America 43.0 3.7 46.7 41.7 3.9 45.6
Europe (3) 23.2 2.0 25.2 20.9 1.9 22.8
Statutory 117.1 18.5 135.6 114.3 18.4 132.7
-------------- --------- ----------- ------- --------- ----------- -------
Footnote
3: During the period, management have amended its segment
disclosure to reflect the way the performance of the business is
reported to the Board and managed. The performance of the APAC
region was previously included within Europe and APAC. For the
period ended 30 November 2020, the APAC region is now included
together with the UK segment until it becomes such a size to be
managed separately. In addition, with the continuing growth and
formation of a European division we have changed geographical
segments line with how this information is reported to the Board
and managed today and have restated prior year figures on a like
for like basis.
4 Dividends
H1 2021 H1 2020
------------------------------------------------------- ------- -------
Dividends paid and recognised in the period (GBPm) 8.8 8.8
------------------------------------------------------- ------- -------
Dividends per share proposed but not recognised in the
period (pence) 1.5p 1.5p
------------------------------------------------------- ------- -------
5 Earnings per ordinary share (EPS)
Earnings per ordinary share are shown below:
H1 2021 H1 2020
GBPm GBPm
------------------------------------------------- ---------- ----------
Statutory earnings 7.5 6.6
-------------------------------------------------- ---------- ----------
Number Number
of shares of shares
m m
------------------------------------------------- ---------- ----------
Basic weighted average number of shares in issue 279.5 277.8
-------------------------------------------------- ---------- ----------
Dilutive effect of share options 1.6 4.5
-------------------------------------------------- ---------- ----------
Diluted weighted average shares in issue 281.1 282.3
-------------------------------------------------- ---------- ----------
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 2021 H1 2020
pence pence
---------------------------- ------- -------
Earnings per ordinary share
Basic 2.7 2.4
Diluted 2.7 2.3
----------------------------- ------- -------
Adjusted basic EPS (3) is reconciled as follows:
H1 2021 H1 2020
GBPm GBPm
---------------------------------------- ------- -------
Statutory earnings (A) 7.5 6.6
----------------------------------------- ------- -------
Amortisation of acquisition intangibles 4.3 4.4
Share based payments 0.7 1.8
Tax effect of above items (1.1) (1.2)
----------------------------------------- ------- -------
Adjusted earnings (B) 11.4 11.6
----------------------------------------- ------- -------
Number Number
of shares of shares
m m
------------------------------------------------- ---------- ----------
Basic weighted average number of shares in issue
(C) 279.5 277.8
-------------------------------------------------- ---------- ----------
H1 2021 H1 2020
pence pence
---------------------------------- ------- -------
Basic earnings per ordinary share
Statutory (A/C) 2.7 2.4
Adjusted (2) (B/C) 4.1 4.2
----------------------------------- ------- -------
6 Right-of-use assets and lease liabilities
The Group's right-of-use assets can be further analysed as
follows:
H1 2021
GBPm
--------------------------------- -------
As at 1 June 2020 28.7
--------------------------------- -------
Additions 1.9
Reclassification from provisions (1.4)
Depreciation (3.0)
As at 30 November 2020 26.2
--------------------------------- -------
The Group's outstanding lease liabilities can be further
analysed as follows:
H1 2021
GBPm
------------------------------- -------
As at 1 June 2020 38.2
------------------------------- -------
Additions 1.9
Interest expense 0.6
Repayment of lease liabilities (3.5)
As at 30 November 2020 37.2
------------------------------- -------
The ageing of the lease liabilities as at 30 November 2020 are
as follows:
H1 2021
GBPm
------------------------ -------
Less than one year 5.3
One to two years 4.9
Two to five years 11.6
Greater than five years 15.4
Total lease liabilities 37.2
------------------------ -------
7 Borrowings
Borrowings (excluding lease liabilities) are analysed as
follows:
H1 2021 H1 2020
GBPm GBPm
------------------------------------------------- ------- -------
Non-current liabilities
Revolving credit facility (net of deferred issue
costs) 98.1 54.6
Total borrowings (excluding lease liabilities) 98.1 54.6
-------------------------------------------------- ------- -------
8 Provisions
Provisions are analysed as follows:
Onerous
Loss-making property Other provisions
contract costs GBPm Total
GBPm GBPm GBPm
---------------------------------------- ----------- --------- -------------------- -------
Balance at 1 June 2020 0.2 2.9 0.6 3.7
Reclassification to Right-of-use-assets - (1.4) - (1.4)
Provisions arising in the period 1.0 0.4 - 1.4
Utilised in the period - (0.4) (0.4) (0.8)
Balance at 30 November 2020 1.2 1.5 0.2 2.9
----------------------------------------- ----------- --------- -------------------- -------
H1 2021 H1 2020 FY 2020
GBPm GBPm GBPm
------------------------ ------- ------- -------
Current liabilities 2.6 0.2 2.0
Non-current liabilities 0.3 0.9 1.7
Total 2.9 1.1 3.7
------------------------- ------- ------- -------
The reclassification to Right-of-use-assets relates to lease
incentives and onerous lease provisions arising on the
implementation of IFRS16.
The loss-making contract represents the estimated remaining net
lifetime loss on a long-term development and supply contract.
During the period, the provision has been increased due to the
impact of Covid-19 and some project management challenges. The
contract is now not expected to be completed until FY22 (previously
FY21).
The onerous property provision of GBP2.9m at 30 November 2020
includes GBP2.5m of non-rental costs relating to the onerous
properties including rates, service charges and insurance, and also
the estimated costs of disposing or terminating these leases which
includes rent incentives, renovation costs and letting fees.
The provision at 30 November 2020 also includes estimated
dilapidations liabilities of GBP0.4m relating to the Group's leased
premises. Both of these provisions are expected to be unwound over
the period of the relevant leases (2021-2034) and accordingly have
been split between current and non-current liabilities.
Other provisions include the utilisation during the period of
GBP0.4m, leaving GBP0.2m relating to other reorganisation costs to
which the Group was committed at the balance sheet date that are
expected to unwind over the next twelve months.
Glossary of terms - Alternative Performance Measures (APMs)
APMs provide supplementary information that assists the user in
understanding the underlying trading results. See note 2 for
further detail of changes to APM's during the period.
APM Closest Adjustments Reference Definition, purpose and
equivalent to reconcile for reconciliation considerations
IFRS measure to IFRS measure made by the Directors
Income statement measures:
Adjusted Operating Operating Pages 4, Represents operating
operating profit profit or 9 and 10 profit before
profit (EBIT) or loss loss before amortisation of acquired
amortisation intangibles,
of acquired share based payments and
intangibles, Individually
share based Significant Items.
payments and This measure is to allow
Individually the
Significant user to understand the
Items 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.
The Directors consider
amortisation
of acquired intangibles
is a
non-cash accounting
charge inherently
linked to losses
associated with
historical acquisitions
of businesses.
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.
Individually Significant
Items
are items that are
considered
unusual by nature or
scale, and
are of such significance
that
separate disclosure is
relevant
to understanding the
Group's
financial performance and
therefore
requires separate
presentation
in the Financial
Statements in
order to fairly present
the financial
performance of the Group.
------------------ --------------------- -------------------- --------------------------
Adjusted Statutory Statutory Note 5 Represents basic EPS
basic EPS basic basic EPS before amortisation
EPS before amortisation of acquired intangibles,
of acquired share
intangibles, based payments,
share based Individually
payments, Significant Items and the
Individually tax
Significant effect thereon.
Items and This measure is to allow
the tax effect the
thereon 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.
See further details above
in
relation to amortisation
of acquired
intangibles and share
based payments.
------------------ --------------------- -------------------- --------------------------
Earnings Operating Operating Note 2 Represents operating
before interest, profit profit or profit before
tax, depreciation or loss loss, before depreciation and
and amortization depreciation amortisation.
(EBITDA) and amortisation, EBITDA is disclosed as
net finance this is
costs and a measure widely used by
taxation various
stakeholders.
------------------ --------------------- -------------------- --------------------------
APM Closest equivalent Reference Definition, purpose and
IFRS measure for reconciliation considerations
made by the Directors
----------------------------------------- -------------------- --------------------------
Balance Sheet measures:
Net cash/(debt)(Pre-IFRS Total borrowings (excluding Note 2 Represents total
16) lease liabilities) borrowings (excluding
offset by cash and lease liabilities) offset
cash equivalents by
cash 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 cash/(debt), when
compared
to available borrowing
facilities,
also gives an indication
of available
financial resources to
fund potential
future business
investment decisions
and/or potential
acquisitions.
----------------------------------------- -------------------- --------------------------
Net debt Total borrowings (including Note 2 Represents total
lease liabilities) borrowings (including
offset by cash and lease liabilities) offset
cash equivalents by
cash 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 % of Note 2 The cash conversion ratio
ratio % of net net cash flow is
cash flow from operating a measure of how
from operating activities effectively
activities before interest operating profit is
before and tax divided converted
interest by EBITDA into cash and effectively
and tax highlights
divided both non-cash accounting
by Operating items
profit within operating profit
and also
movements in working
capital.
It is calculated as net
cash
flow from operating
activities
before interest and
taxation
(as disclosed on the face
of
the Cash Flow Statement)
divided
by 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.
---------------- ----------------------- -------------------- --------------------------
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