Marlowe Regulatory News (MRL)

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement via Regulatory Information Service, this inside information is now considered to be in the public domain.

3 December 2020

MARLOWE PLC

Half Year Results FY 2021

Marlowe plc ("Marlowe", the "Company" or the "Group"), the specialist services group focused on developing companies which assure safety and regulatory compliance, announces its unaudited results for the six-month period ended 30 September 2020 ("Interim Report").

Financial Highlights

- Resilient model: H1 revenue of £83.3 million up 7%, excluding impact of non-core activities disposed of in March 2020

- COVID-19 related site-access disruption, predominantly in Q1, resulted in an 8% like-for-like decline in revenues during the period; organic growth trajectory remains on track demonstrating the resilient and defensive nature of our platform for growth, with current run rate revenues in excess of £225 million

- Margin expansion: Adjusted EBITDA up 16% to £11.5 million with Group divisional adjusted EBITDA margin increasing from 12.3% to 14.8%

- Risk & Compliance adjusted EBITDA margin increased to 14.9% (H1 FY2020: 12.3%) and Water & Air to 14.6% (2020: 11.9%)

- Adjusted EPS down 5%, following short-term dilution of the oversubscribed placing in H1 to raise £40 million

- Strong free cash flow: Net cash generated from operating activities, before acquisition and restructuring costs, of £18.8 million (H1 FY2020: £3.2 million)

- Significantly improved operating cash conversion of 122% (FY2020: 83%), excluding any benefit of COVID-19 related deferrals of VAT and payroll taxes

- Strong balance sheet: Net debt (excluding IFRS 16 lease liabilities) at 30 September 2020 £1.6 million (2019: £19.6m)

- Further placing, post-period end, to raise an additional £30 million to fund acquisition of Ellis Whittam and provide additional resources to fund the Group's acquisition-led growth strategy

- Recent completion of refinancing, new three-year £70 million revolving credit facility and an additional accordion facility of £20 million

Operational Highlights

- Major acquisitions: Elogbooks, a leading provider of contractor management software and services, marking the next step in our strategy to deliver integrated technology and services to enhance the compliance, safety and upkeep of our clients' premises

- Post-period end acquisition of Ellis Whittam, transforms our scale and capabilities in Employment Law, HR Compliance and Health & Safety advisory

- Four additional acquisitions in H1 across Fire & Security, Water Hygiene, HR & Employment Law and Health & Safety. Two further Occupational Health acquisitions since the period end

- Strategic transformation: Our Group now spans growing and attractive UK regulatory compliance service and software sectors:

o We help businesses to look after the safety, health, wellbeing and compliance of their operations and employees across Health & Safety, HR, Employment Law & Occupational Health consulting, assurance & software services

o We help organisations to ensure their workplaces and business premises are safe, efficient and compliant across Health & Safety, Fire Safety, Water & Air Hygiene alongside our related digital proposition

- Non-discretionary compliance regulations: Despite some disruption due to site-access issues during Q1, continued underlying growth in recurring revenues during H1

- Expertise in Integration & Digital: Integration programmes across our divisions progressing to plan including the Quantum integration into William Martin and the Clearwater integration into WCS Group, which have both been executed successfully with significant synergies realised

- Meridian software developments and Elogbooks digital integrations proceeding to plan

- Significant, margin-enhancing (c.260 basis points), improvements in productivity and operational efficiency

- Following the completion of the Ellis Whittam acquisition, the integration of Law At Work and Ellis Whittam will now commence

Current trading and outlook

- Strong start to the second half with organic growth trajectory remaining on track

- Run-rate revenues in excess of £225 million with 83% recurring revenues 

- Positive structural trends across our markets with increased corporate and societal focus on health, safety, wellbeing and compliance 

- Strong pipeline of earnings-enhancing acquisitions to add further scale and breadth to our platform for growth

- COVID-19 is no longer having a material impact on our business with H2 performance expected to deliver in line with pre-COVID expectations

Commenting on the results Alex Dacre, Chief Executive, said:

"We are pleased to report both a resilient performance and significant strategic and operational progress in the first half.

Despite the challenges presented by COVID-19, we have continued to implement our strategy at pace. Our business model has demonstrated its defensive qualities and we made strong operational progress in the period, with significant margin expansion, the successful execution of integration programmes and enhanced cash generation. The acquisitions of the software platform Elogbooks, alongside six further bolt-ons, and the post-period-end acquisition of Ellis Whittam, mark a further step in our strategy of providing our clients with a comprehensive approach to their regulatory compliance needs.

Our Group has undergone a transformation, in scope, scale and quality of earnings since its formation - we are uniquely positioned to deliver a one-stop approach to our clients' health, safety and regulatory compliance needs; from software and digital applications, assurance and consultancy, through to the full implementation of recurring testing, inspection and compliance programmes.

Our organic growth trajectory remains on track. We have made a strong start to the second half and look forward to delivering further profitable growth."

CHIEF EXECUTIVE'S REVIEW

Strategic Model

The transformation in scope, scale and quality of earnings that Marlowe has undergone since its formation in 2016 has been extensive. Our activities now span the full UK regulatory compliance arena and we can deliver a comprehensive one-stop approach to our clients' health, safety and regulatory compliance needs; from software and digital applications, assurance and consultancy, through to the full implementation of recurring testing, inspection and compliance programmes to manage risk. We help in the region of 30,000 UK organisations to ensure their premises are safe, efficient and compliant whilst assuring the health, wellbeing and compliance of their operations and employees.

Our compliance software platforms are used by numerous UK organisations to manage their health and safety obligations and to assure the performance and compliance of their premises and supply chain. Our assurance business streams provide advice, consultancy, audit and assessments to assist clients in ensuring that they adhere to strict compliance obligations across health and safety, HR, employment law and occupational health. Our field-based compliance business lines implement recurring service programmes to ensure that our clients' premises are operating safely, efficiently and in compliance with numerous health and safety, water and air hygiene, and fire safety and security regulations.

Strong operational progress

Our financial year commenced in the week following the start of the first national lockdown across the UK. Our resilient performance through the first half of the year has demonstrated both the defensive nature of our business model and the agility of our platform for growth. We were particularly pleased with our operational and strategic progress in generating significant growth in profits, further underlying organic growth, margin expansion across both divisions and strong cash conversion following the successful delivery of our integration programmes, productivity and efficiency improvements and effective working capital management. Excluding the impact of the disposal of non-core activities in March 2020, we delivered revenue growth of 7% on the prior year, despite the access issues we faced due to the closure of businesses and sites during the first quarter of our financial year, which resulted in an 8% decline in like-for-like revenue. This revenue decline arose due to site access issues at temporarily closed sites which resulted in a backlog of available work, some of which we expect to contribute to revenues in later months of our financial year. The services that we provide are essential to our clients' operations and are invariably governed by regulations which require that they are delivered in order for our clients to operate compliantly and safely. This regulation and the essential nature of our services ensure that our business is well-insulated from economic cycles and positioned us favourably throughout the first half.

We now benefit from attractive scale and critical mass across our Group with run-rate revenues in excess of £225 million following the post-period end acquisition of Ellis Whittam, with either market leadership or top three market positions across each of our service lines. The quality of our revenues is high with c.83% recurring year-on-year. Our organic growth trajectory remains on track and we expect to continue delivering growth consistent with our targets in the high single digits. As a Group, we continue to focus on service level enhancements, the deployment of our proprietary software and technology, extending the duration of our client relationships, deepening those relationships to increase our clients' spend with us across multiple Group services and continuing to promote our broad range of safety and regulatory compliance capabilities to cross-sell additional services to our clients. We benefit from an intrinsic advantage in this regard in that we typically sell our services to similar people across our different service lines and most of our clients have a need for the majority of our services. The services we deliver are all underpinned by ever-evolving regulations with increasing enforcement burdens, and we continue to benefit from positive structural trends resulting from an increased corporate and societal focus on health, safety, wellbeing and compliance. We believe we are favourably positioned to continue to benefit from these trends.

Alongside the delivery of consistent organic growth, our continued realisation of synergies and margin expansion through the effective integration of acquired businesses alongside operational improvement initiatives to improve productivity and operational efficiencies is key to our strategy to create shareholder value. H1 adjusted EBITDA increased 16% to £11.5 million with our Group adjusted EBITDA margin increasing 250 bps from 12.3% to 14.8%. Within Risk & Compliance our adjusted EBITDA margin increased 260 bps to 14.9% (H1 FY2020: 12.3%) as we continue to enhance efficiency and productivity and complete integration programmes such as the integration of Quantum Compliance into William Martin, and Deminos and Solve HR into Law At Work, all of which are now complete. This improvement can be seen in the 13% increase in average revenue per day per fee earner within our Fire Safety activities. This was achieved through the effective integration of acquired businesses and the efficiencies that we are able to deliver through the benefits of our operating platform and scale and the associated route density efficiencies that we are now able to achieve. Our scale and route density has been further enhanced by the acquisitions of FSE Fire Safety in the second half of FY2020 and Morgan Fire in September 2020. Within Water & Air, our adjusted EBITDA margin increased 270 bps to 14.6% (H1 FY2020: 11.9%), reflecting the synergies we have achieved from the successful integration of Clearwater into WCS Group, alongside a broad-based improvement in the effectiveness and productivity of our Water & Air operating model.

Group adjusted operating profit rose 8% to £7.4 million (H1 FY2020: £6.8 million), adjusted profit before tax increased 8% to £6.7 million (H1 FY2020: £6.2 million) and, following the oversubscribed placing to raise £40 million to fund the Elogbooks acquisition and to provide additional resources to continue to deliver our acquisition-led growth strategy, our adjusted earnings per share decreased by 5% to 10.7p (H1 FY2020: 11.3p). In addition to this placing, we completed a further placing to raise £30 million in October, the proceeds of which were used to fund the acquisition of Ellis Whittam and to provide additional resources for M&A. When combined with the debt facilities that we now have available to us following our recent refinancing, this provides significant further resources to support the Group's ongoing targeted acquisition strategy and convert our deep pipeline of further earnings-enhancing acquisition opportunities.

Further transformational growth delivered through acquisitions

In addition to these operational improvements, we made further strategic progress in both deepening and broadening our presence across our compliance service and software markets. The acquisition of Elogbooks in June marked the latest step in our strategy to deliver integrated technology and services to enhance the compliance, safety and upkeep of our clients' premises. Alongside Meridian, our existing software platform, the addition of Elogbooks enables us to offer our clients a complete technology-enabled contractor management, compliance and health & safety solution. The acquisition significantly expands the Group's digital capabilities and service offering in providing our clients with visibility and control over their service providers' performance and compliance. We see considerable scope to deploy Elogbooks' system and technology across our existing businesses to further enhance the health, safety and compliance of our customers. The business has traded strongly since acquisition and we have begun work integrating the functionality of Elogbooks with Meridian, our Health, Safety & Compliance software platform. Technology has increasingly become a central part of our future growth strategy, and a key service that we deliver to our clients. We currently employ in the region of 50 technology & software professionals who continually develop our software platforms to ensure that we remain at the forefront of the compliance software market. The deployment of our software significantly improves our clients' compliance standards and customer experience, whilst differentiating our proposition from much of our competition, creating high switching costs and delivering highly attractive financial returns for our shareholders.

The acquisition of Ellis Whittam, announced in October following the period-end, transforms our scale and capabilities in Employment Law, HR Compliance and Health & Safety advisory and significantly advances our strategy to provide our clients with a comprehensive one-stop approach to their health & safety and regulatory compliance needs. Ellis Whittam's subscription-based advisory services help employers across the UK remain compliant with evolving employment law and health and safety legislation. The business, which delivers subscription-based consultancy services, supported by software, operates in an attractive and underserved market where we see significant growth opportunities. 

Our growth in the HR, Employment Law & Health and Safety space in which Ellis Whittam operates is a clear example of the strength and dynamism of the Marlowe model: alongside the William Martin acquisition in December 2018, we acquired Nestor, a small business operating in this space. Quickly identifying the significant potential this market offered, the substantial synergy with our strategy and the highly attractive investment characteristics (a market growing at 9% a year, c. 90% subscription revenues, high margins and excellent cash conversion) we decided to look to build a business of scale. In December 2019, we acquired Law At Work ("LAW"), and subsequently acquired and integrated two further bolt-ons. The acquisition of Ellis Whittam ten months later now gives us considerable scale in the market and the planned merger of LAW and Ellis Whittam will create not only one of the leading players in this fast-growing sector, but also a platform for further considerable organic and acquisition-led growth.

Since the beginning of the year, we have made several further bolt-on acquisitions:

- Fire safety specialist, Morgan Fire Protection

- Water hygiene specialist, Rainbow Water

- Occupational Health consultancies, Black & Banton, Wrightway Health and Caritas

- HR & Employment Law consultancy, Deminos

Our pipeline of earnings-enhancing acquisition opportunities remains strong and M&A continues to be a fundamental component of our strategy. We expect to continue to execute at a pace in the second half of the financial year.

Looking ahead

Looking to the future, with run rate revenues now in excess of £225 million and broad capabilities across the UK regulatory compliance arena, we are uniquely positioned to work with our clients across their risk management and compliance needs. We can help businesses to look after the safety, health, wellbeing and compliance of their operations and employees across Health & Safety, HR, Employment Law & Occupational Health consulting, assurance & software service. In addition, we help organisations to ensure their workplaces and business premises are safe, efficient and compliant across Health & Safety, Fire Safety, Water & Air Hygiene alongside our related digital proposition. This blend of technology, consultancy and assurance services is compelling and highly attractive to our client base.

We remain focused on continuing to deepen our leading positions across our markets through further strong organic and fast paced acquisition-led growth. Alongside this, we will continue to deliver the operational and technological improvements, and the associated margin expansion, that are key to our model.

INCOME STATEMENT

Revenue for the period ended 30 September 2020 was £83.3 million (H1 FY2020: £87.4 million). Excluding the impact of the disposal of non-core activities in March 2020 that contributed revenue of £9.6 million in H1 FY2020, revenue increased 7% in the period. This reflects the contribution from acquisitions offset by the COVID-19 related site-access issues that impacted revenue, in particular during the first quarter.

Our key measures of profitability for the Group are adjusted EBITDA and adjusted operating profit. The adjusted EBITDA for the period was £11.5 million (H1 FY2020: £9.9 million) and adjusted operating profit was £7.4 million (H1 FY2020: £6.8 million). On a statutory basis, profit before tax from continuing operations was £0.6 million (H1 FY2020: £0.3 million).

Due to the nature of acquisition and other costs in relation to each acquisition and the non-cash element of certain charges, the Directors believe that adjusted EBITDA and adjusted measures of operating profit, profit before tax and earnings per share provide shareholders with a useful representation of the underlying earnings derived from the Group's businesses and a more comparable view of the period-on-period underlying financial performance of the Group.

A reconciliation between the statutory profit and the adjusted performance measures noted above is shown below:

STATEMENT OF FINANCIAL POSITION

Net assets at 30 September 2020 were £138.2 million (31 March 2020: £96.7 million) reflecting the proceeds of the £40 million share placing in June and July 2020.

Net debt at 30 September 2020, including inter alia £15.6 million of lease liabilities as a result of the adoption of IFRS 16, was £17.2 million. Net debt at 30 September 2020, excluding IFRS 16 lease liabilities, was £1.6m (31 March 2020: £32.3 million). Following the period end, the Group entered into a new enlarged, three-year £70 million revolving credit facility with an additional accordion facility of £20 million, providing further resources to support the Group's ongoing targeted acquisition strategy.

CASH FLOW

The net cash inflow from operating activities before acquisition and restructuring costs in the period was £18.8 million (H1 FY2020: £3.2 million). This includes a working capital inflow of £8.8 million (H1 FY2020: outflow £6.2 million) reflecting the continued focus on working capital management in addition to the Government's COVID-19 initiative permitting the deferral of VAT and payroll taxes.

Cash conversion (being the ratio of cash generated from operations, excluding IFRS 16 and any acquisition related flows, to adjusted operating profit) adjusting for the COVID-19 related deferrals of VAT and payroll taxes, was 122% (FY2020: 83%). Working capital continues to be well managed with net working capital as a percentage of revenue and debtor days both improving compared with the position as at 31 March 2020.

NON-IFRS MEASURES

The Interim Report includes measures which are not defined by generally accepted accounting principles such as IFRS. We believe this information, along with comparable IFRS measures, is useful as it provides investors with a basis for measuring the operating performance of the Group on a comparable basis. The Board and our managers use these financial measures to evaluate our operating performance. Non-IFRS financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with IFRS. Similarly, non-IFRS measures as reported by us may not be comparable with similar measures reported by other companies. For further information on the reconciliation between IFRS and non-IFRS measures refer to Note 2 and 4 of the Notes to the Consolidated Interim Report.

PEOPLE

We welcome into the Group our new colleagues from the businesses recently acquired. The Group has rapidly increased in scale since its formation and now employs over 2,500 people, including highly qualified teams of consultants, auditors, risk assessors, technicians, engineers and employment lawyers who deliver our services supported by experts across office-based support functions around the country. During a very testing period, the health, safety and wellbeing of all our employees has remained our top priority and we have put in place appropriate safety protocols across the Group. I am extremely proud of the collective efforts of all our colleagues during this period. The Group's businesses deliver services that are, in the main, provided by people and as we build our businesses into market leaders we are relying on these people to continue to demonstrate the drive, expertise and passion that have been evident during the period. The strength of these results reflects their contribution, and I would like to thank our entire team for their hard work and dedication.

We launched an HMRC approved Save As You Earn scheme (the "2020 SAYE Scheme") during the period. Under the 2020 SAYE Scheme, which was made available to all Marlowe employees, a total of 617 employees applied to participate in the scheme. We are delighted that so many Marlowe employees have the opportunity to become shareholders in the Company and have the benefit of access to the 2020 SAYE Scheme.

OUTLOOK

Our Group has undergone a transformation, in scope, scale and quality of earnings since its formation - we are uniquely positioned to deliver a comprehensive one-stop approach to our clients' health, safety and regulatory compliance needs; from software and digital applications, assurance and consultancy, through to the full implementation of recurring testing, inspection and compliance programmes.

Our organic growth trajectory remains on track. We have made a strong start to the second half and look forward to delivering further profitable growth.

Alex Dacre

Chief Executive 3 December 2020

Independent review report to Marlowe plc

Introduction

We have been engaged by the company to review the financial information in the half-yearly financial report for the six months ended 30 September 2020 which comprises the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Financial Position, the Consolidated Statement of Cashflows and the related explanatory notes. We have read the other information contained in the half yearly financial report which comprises only the Chief Executive's Review and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The AIM rules of the London Stock Exchange require that the accounting policies and presentation applied to the financial information in the half-yearly financial report are consistent with those which will be adopted in the annual accounts having regard to the accounting standards applicable for such accounts.

As disclosed in Note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The financial information in the half-yearly financial report has been prepared in accordance with the basis of preparation in Note 1.

Our responsibility

Our responsibility is to express to the company a conclusion on the financial information in the half-yearly financial report based on our review.

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 United Kingdom. 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. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

The impact of macro-economic uncertainties on our review

Our review of the condensed set of financial statements in the half-yearly financial report requires us to obtain an understanding of all relevant uncertainties, including those arising as a consequence of the effects of macro-economic uncertainties such as Covid-19 and Brexit. Such reviews assess and challenge the reasonableness of estimates made by the directors and the related disclosures and the appropriateness of the going concern basis of preparation of the financial statements. All of these depend on assessments of the future economic environment and the group's future prospects and performance.

Covid-19 and Brexit are amongst the most significant economic events currently faced by the UK, and at the date of this report their effects are subject to unprecedented levels of uncertainty, with the full range of possible outcomes and their impacts unknown. We applied a standardised firm-wide approach in response to these uncertainties when assessing the group's future prospects and performance. However, no review of interim financial information should be expected to predict the unknowable factors or all possible future implications for the group associated with these particular events.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the financial information in the half-yearly financial report for the six months ended 30 September 2020 is not prepared, in all material respects, in accordance with the basis of accounting described in Note 1.

Use of our report

This report is made solely to the company in accordance with guidance contained in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the company those matters we are required to state to it in a review 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 conclusion we have formed.

Grant Thornton UK LLP

Statutory Auditor, Chartered Accountants

London

3 December 2020

*See Note 1 for details of a prior period presentational restatement

*See Note 1 for details of a prior period presentational restatement

Notes to the Consolidated Interim Report

For the six months ended 30 September 2020

1 Basis of preparation

Basis of preparation

The consolidated interim financial information of the Group for the six months ended 30 September 2020 was approved by the Board of Directors and authorised for issue on 3 December 2020. The disclosed figures are not statutory accounts in terms of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2020, on which the auditors gave an audit report which was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006, have been filed with the Registrar of Companies. The annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.

The comparative figures for the financial year ended 31 March 2020 and the six months ended 30 September 2019 are consistent with the Group's annual financial statements and interim financial statements respectively.

Going concern

Based on the Group's cash flow forecasts and projections, the Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. While the Group has seen some disruption from COVID-19, the impact has been manageable and, given the regulations that govern the requirement for its essential services, the business model has demonstrated resilience. In the event of further disruption to the business in the future as a result of COVID-19 the Directors are confident additional cost reduction and cash preservation measures could be utilised in conjunction with the Group's existing debt facility to reduce costs and preserve cash. They continue to adopt the going concern basis of accounting in preparing these interim financial statements.

Accounting policies

This interim report has been prepared on a basis consistent with the accounting policies expected to be applied for the year ending 31 March 2021.

There were no new relevant Standards or Interpretations to be adopted for the six months ended 30 September 2020.

All other accounting policies and methods of computation applied are consistent with those applied for the year ended 31 March 2020.

Critical accounting estimates and judgements continue to be applied to the identification of separable intangibles on acquisition and rate of customer attrition, acquisition and other costs, valuation of separable intangibles on acquisition, impairment of non-financial assets, impairment of trade receivables and recoverability of amounts due from contract assets.

Retrospective adjustment of comparative statement of financial position

An additional £1.4m of goodwill has been recognised in the statement of financial position as at 31 March 2020 as further assessments have been made to the provisional fair values of acquisitions made in the prior year, of which £1.3m relates to a revaluation of contingent consideration payable in respect of the acquisition of Law At Work following a reassessment of performance targets.

Re-presentation of comparative consolidated statement of comprehensive income

2 Segmental information

The Group is organised into two main operating segments, Risk Management & Compliance ("Risk & Compliance") and Water Treatment & Air Quality ("Water & Air"). Services per segment operate as described in the Chief Executive's review. The key profit measures are adjusted operating profit and adjusted EBITDA and are shown before acquisition and restructuring costs, amortisation of acquisition intangibles, share-based payments and profit on disposal of non-core businesses. The vast majority of trading of the Group is undertaken within the United Kingdom. Segment assets include intangibles, property, plant and equipment, inventories, receivables and operating cash. Central assets include deferred tax and head office assets. Segment liabilities comprise operating liabilities. Central liabilities include deferred tax, corporate borrowings and head office liabilities. Capital expenditure comprises additions to computer software, property, plant and equipment and includes additions resulting from acquisitions through business combinations. Segment assets and liabilities are allocated between segments on an actual basis.

REVENUE

The revenue from external customers was derived from the Group's principal activities primarily in the UK (where the Company is domiciled) as follows:

Reconciliation of segment adjusted operating profit to adjusted EBITDA

The above tables reconcile segment adjusted operating profit/(loss), which excludes separately disclosed acquisition and other costs, to the standard profit measure under International Financial Reporting Standards (Operating Profit). This is the Group's Alternative Profit Measure used when discussing the performance of the Group. The Directors believe that adjusted EBITDA and operating profit is the most appropriate approach for ascertaining the underlying trading performance and trends as it reflects the measures used internally by senior management for all discussions of performance and also reflects the starting profit measure when calculating the Group's banking covenants.

Adjusted EBITDA is not defined by IFRS and therefore may not be comparable with other companies' adjusted operating profit measures. It is not intended to be a substitute, or superior to, IFRS measurements of profit.

3 Tax

The underlying tax charge is based on the expected effective tax rate (19%) for the year ending 31 March 2021 applied to taxable trading profits for the period.

4 Earnings per ordinary share

Basic earnings per share have been calculated on the profit after tax for the period and the weighted average number of ordinary shares in issue during the period.

The Directors believe that adjusted basic earnings per share provide a more appropriate representation of the underlying earnings derived from the Group's business. The adjusted items are shown in the table below:

The adjusted earnings per share, based on weighted average number of shares in issue during the period, is calculated below:

5 Dividends

The Company has not declared any dividends in respect of the current or prior period.

6 Intangible assets