Interim Results for the six months to 30 November 2018

NCC Group plc (LSE: NCC, “NCC Group” or “the Group”), the leading independent global cyber security and risk mitigation expert, has reported its half year results for the six months to 30 November 2018 (‘the Half’, ‘H1’, ‘the Period’).

Operational and financial highlights

• Group revenue from continuing operations grew by 8%:

  - Assurance revenues grew by around 10% with:

   - US growth particularly strong at 20%
   - UK performance held back by softer demand in our Risk Management and Governance (“RMG”) business coupled with resource shortages in our Technical Security Consulting business and planned reduction of third party reselling sales
   - Europe & RoW reflects encouraging consulting growth in FortConsult and APAC, although Fox-IT growth was lower. A new multi-year strategic partnership contract with the Dutch MoD has been signed post half-year end.

  - Escrow revenues were slightly down (-2%) but with encouraging US growth (+11%) as we invest to expand in that market.

• Gross margin % was slightly ahead of last year, with Escrow margins falling (-3%), reflecting investment in international growth, while Assurance margins were ahead (+2%), reflecting higher utilisation and improved mix.
• Adjusted operating profit from continuing operations of £14.8m (12% margin) is ahead of last year’s £13.8m (12% margin):
  - the comparative period included onerous contract costs of £1.1m which are not replicated in this year’s figure
  - investment in Securing Growth Together
  - full impact of planned overhead increases from increased headcount and our new Manchester head office.

1 References to the Group’s results, unless stated to the contrary, are to continuing operations only and exclude the performance of businesses sold or discontinued in the prior year (principally Web Performance and Software Testing).

2 Adjusted operating profit excludes individually significant items, share based payments, unwinding of discounts on deferred consideration and amortisation of acquired intangible assets. This is an Alternative Performance Measure (APM) for which a reconciliation to the equivalent GAAP measure can be found in Note 2.

3 Net debt is defined as total borrowings less cash and cash equivalents. As an APM, it is detailed in Note 2

Operating profit increased to £9.5m from £6.3m as a result of lower levels of adjusting items, with Individually Significant Items this half year of net £nil (H1 2018: £2.6m).

• Adjusted basic earnings per share 3.9p (H1 2018: 3.7p), Basic earnings per share 2.4p (H1 2018: 1.4p).
• Net cash flow from operations of £6.6m (H1 2018: £14.7m) with the decline largely resulting from working capital impact of short term increase in trade receivables, together with a reduction in trade payables, which is expected to reverse by the year end.
• Interim dividend maintained at 1.5p per share (H1 2018: 1.5p).

Strategy progress update

• Acceleration and expansion of the investment programme to rationalise and replace our global systems infrastructure. Programme now expected to cost an incremental £4m over the next four years, the majority of which is non-cash as a result of legacy system write offs in H2 2019.
• Management team strengthened with new CFO, Managing Director of UK Assurance & RoW and Interim Chief People Officer.
• Expenses and Credit Control systems recently implemented in UK and in process of being rolled out across other geographies.
• Good progress on wider SGT transformation programme and ‘One Firm One Way’ approach to support future scalability and growth.

Outlook

• Demand in our core Assurance markets remains strong, although we saw a slower start to H2 in Assurance. We are focusing on retention and recruitment to address this.
• Growth in Escrow from US market supported by stability in the UK.
• Adjusted EBIT margin growth by 2%pts in aggregate by the end of FY 2021.
• We now expect to deliver full year adjusted EBIT of around £34m.

Adam Palser, CEO comments:

“This is an important year of change for NCC Group as we implement our ‘Securing Growth Together’ strategy and transform the business into a world-leading cyber security and risk mitigation specialist. We are pleased with the progress we have made, with continued growth in our core Assurance division and a particularly strong performance in the US, the world’s largest cyber market. While profits from our Escrow division fell slightly, our experience in the US has given us confidence that we can re-energise the growth of this business.

We have assembled an excellent management team and are now installing the systems and processes that will enable us to operate as a unified global business, helping us to win more major contracts and focus on recurring, higher margin work.

The new team is now focused on accessing the resources to enable the group to fully capitalise on its growth potential, with retention and recruitment a key priority. We expect to deliver full year Adjusted EBIT of around £34m, while our longer term growth prospects remain excellent.”

The Group expects to report its full year results, for the year ended 31 May 2019, on Thursday, 25 July 2019.

A briefing for analysts will be held today at 9am at the offices of Maitland, 3 Pancras Square, London N1C 4AG. The briefing will also be webcast live and can be accessed via the Group’s website.

To read the release in full, please click here

Enquiries:

Maitland

Neil Bennett/Al Loehnis +44 (0) 20 7379 5151