NCC : Half Year Results

NCC Group plc (LSE: NCC, 'NCC Group' or 'the Group'), the independent global cyber security and risk mitigation expert, has reported its half year results for the six months to 30 November 2017 ('the Half', 'H1', 'the Period').

Operational and financial highlights

• GM% improved by 2.6% points from 36.8% to 39.4%:
  • Assurance GM% from continuing operations grew by 2.7% points to 32.3% through utilisation gains
  • Escrow GM% recovered by 4.9% points through better cost control and improved verification testing delivery processes
• Adjusted operating profit from continuing operations fell to £14.1m (2017: £16.2m) due largely to planned overhead increases committed in the prior year and adverse FX charges of £1.3m which more than offset GM gains
• Operating profit fell from £7.4m to £6.6m for the same reasons noted above
• Adjusted basic earnings per share 3.7p (2017: 4.7p), Basic earnings per share 1.4p (2017: earnings 2.0p)
• Improved net cash flow from operations of £14.7m (2017: 12.2m) driven by improving working capital management;
• Relocation to new Manchester HQ completed incurring £3.7m capital expenditure in the Period
• Interim dividend maintained at 1.5p per share

Strategy progress update

• Assurance division now reorganised along geographic lines.
• Changes to sales structures and go-to-market strategies in the new Target Operating Model will complete by Q4.
• Focus on realisation in professional services starting to yield some margin benefit.
• Benefit also delivered by selling more value-added specialist services for specific sectors such as our hardware and automotive practices.
• Initiatives underway in a group wide change programme designed to improve the effectiveness and efficiency of internal business processes such as resource scheduling and working capital management.
• Business disposals of Web Performance and Software Testing underway - expect completion in the second half of the current financial year.
• New CEO, Adam Palser, in post December 2017.

Outlook

• Demand in our core markets around cyber security and business continuity risk remains healthy with NCC Group first half growth rates continuing into the traditionally quiet third quarter.
• Cost headwinds are reducing as increases committed to in the prior year are now complete. Overheads will stabilise in H2 at the current run rate, adjusted for an extra quarter of Manchester HQ costs.
• In the second half, the combination of further gross margin gains and continuing organic revenue growth will offset remaining committed cost increases to deliver full year Adjusted operating profit in line with the Board's current expectations.

Chris Stone, Chairman, comments:

'Strong organic revenue growth in our core assurance businesses continues to drive positive momentum in the business. The combination with gross margin gains flowing from improved realisation has delivered a significant recovery from the low point of the second half of the prior year.

'Many of the projects and recruitment plans that were committed in the prior year to support growth are largely complete. Our opportunity now is to deliver operational leverage gains driven by further organic growth and gross margin improvements while controlling any further increase in overheads.

'Our customers continue to see significant value in our service offerings. We are starting to promote attractive business lines across the wider NCC Group network. The business remains well placed to take advantage of the continued growth and importance of independent cyber security and business risk mitigation markets.'

The Group expects to report its full year results, for the year ended 31 May 2018 on Tuesday, 17 July 2018.

A briefing for analysts will be held at 9am at the offices of Maitland, 13 King's Boulevard, King's Cross, London N1C 4BU. The briefing will also be webcast live and can be accessed via the Group's website.

(1) References to the Group's results, unless stated to the contrary, are to continuing operations only and exclude the performance of businesses being actively marketed for sale (Web Performance and Software Testing) as well as the Domain Services business that was sold in December 2016.

(2) GM% is the gross margin ratio and is defined as revenue less costs of sale (gross margin) divided by revenue

(3) Adjusted operating profit excludes individually significant items, share based payments, unwinding of discounts on deferred consideration and amortisation of acquired intangible assets.

(4) Organic results exclude the impact of acquisitions and re-translation effects of foreign exchange movements. Organic results also exclude the planned reduction in the re-sale of low margin third party product and services (an MSS business line acquired with Accumuli plc) following the Strategic Review.

(5) Cash conversion ratio is defined as net cash flow from operating activities divided by adjusted EBITDA.

NCC Group

Enquiries:

NCC Group (www.nccgroup.trust)

+44 (0)161 209 5432

Chris Stone, Chairman

Adam Palser, CEO

Brian Tenner, CFO

Maitland

+44 (0) 207 379 5151

Neil Bennett / Al Loehnis

Published date: 16 January 2018