Ncc Regulatory News (NCC)

25 January 2024

NCC Group plc

Unaudited interim results for the period ended 30 November 2023

First half numbers in line with expectations and strategy transforming the business at pace

NCC Group plc (LSE: NCC, "NCC Group" or "the Group"), a people-powered, tech-enabled global cyber security and software escrow business, reports its interim results for the six months to 30 November 2023 ("the half year", "HY", "H1 2024", "the period").

Highlights

Overall performance in line

· H1 2024 traded in line with management's revenue, gross margin and profitability expectations

· Adjusted Operating profit 1 amounted to £4.8m (H1 2023 restated 3: £12.9m) under new adjusted operating profit 1 measure. Based on previous measure this would equate to £10.2m (H1 2023: £20.5m), as expected

Cyber Security stabilised, Managed Services continued growth and gross margin trajectory

· Technical Assurance Services (TAS) has stabilised as demonstrated by H1 2024 revenue only declining by -4.7% as compared to the revenue generated in H2 2023. As expected, TAS Revenue YoY on a constant currency basis 1 has declined by -28.6% (-31.7% actual rates) following the annualisation effect of challenges experienced in Q3 FY23

· Managed Services (MS) revenue has continued to grow strongly as expected on a constant currency basis 1 by +17.3% (actual rates +15.4%)

· Consulting and Implementation (C&I) remains in line with the prior period and an experienced leader has now been recruited for this capability

· Digital Forensics and Incident Response (DFIR) experienced constant currency growth of +32.8% (actual rates +32.8%), reflecting the number of incident responses of Ransomware

· Following actions taken in Q1 2024 to address gross margin, TAS utilisation has improved in Q2 2024 to c.76% as compared to c.60% Q1 FY24 and Q4 FY23, contributing to an improvement in H1 2024 Cyber Security gross margin percentage of +0.7% pts as compared to H2 2023

Escode revenue and profit continuing to grow

· Escode - the Group's software escrow business, delivered another two consecutive quarters of year-on-year, with constant currency revenue YoY growth 1 of +6.2% driven by increased verification revenues and contracted price increases; this acceleration was aided by Q1 2023 comparator 

· Client retention rate remains stable YoY at c.93% and consistent with long term trends

Strategic progress and cost efficiencies realised

· The Group continues to attract top talent across the Group, including in our new Manila office where we currently have 60 revenue generating colleagues

· Delivery of £5m Group cost efficiencies within gross margin and overheads for FY24 highlighted in September 2023

Confident outlook and current trading remains in line with expectations

· Whilst TAS, the largest part of our Cyber business, has less forward visibility than other parts of our business due to the nature of the service, our Q2 2024 revenue exit rate gives us confidence in H2 2024. This will be supported by continued strong revenue growth in our Managed Services capability

· We are confident in delivering low single digit revenue growth in Escode in the second half as we continue to benefit from verification and pricing opportunities and the Board has decided not to restart the strategic review of Escode at this juncture

· The strategic actions including cost base efficiencies within gross margin and overheads have been successfully implemented and the performance in H1 2024 mean we are well placed to deliver on our full year expectations

· The Group remains confident in our ability to achieve our medium-term financial goals

Mike Maddison, Chief Executive Officer, commented:

"The Group delivered a first-half financial performance in line with expectations while continuing to transform the business at pace. We are emerging as a stronger, more resilient organisation, driven by our new executive team and colleagues. I'm delighted to see Escode go from strength to strength and in Cyber I'm confident we've turned a corner with the Technical Assurance Services market stabilising. Importantly we continue to see predicted demand increasing in other areas which are central to our strategy, particularly Managed Services. Looking ahead, we are well placed for sustainable long-term growth as we deliver on our purpose to create a more secure digital future."

The following table summarises the Group's financial highlights after considering the disclosure changes to adjusted items and measures 3.

Footnotes: 1: Revenue at constant currency, Adjusted EBITDA, Adjusted Operating profit, Adjusted basic EPS, Net debt excluding lease liabilities and cash conversion are Alternative Performance Measures (APMs) and not IFRS measures. See Note 3 for an explanation of APMs and adjusting items, including a reconciliation to statutory information. 

2: Discontinued activities represent the non-core disposal of DetACT in December 2023 that was classified as an asset held for sale at 30 November 2023.

3: After reconsidering FRC best practice guidance around the disclosure of adjusting items and APM's, the Group have reduced the number of adjusted measures and items. The Group now only has one adjusted item 'Individual Significant Items'. Previous adjusted items of Amortisation of acquisition intangibles and Share based payments are no longer disclosed as an adjusted item. Accordingly, comparative numbers have been restated. For further detail, please refer to the Financial Review and Note 3 for an explanation of APMs and adjusting items, including a reconciliation to statutory information.

Contact informationInvestor enquiries:

Media enquiries:

Presentation of results - audio webcast and conference call details: A briefing for investors and analysts will be held today at 09:00 GMT at the offices of H/Advisors Maitland, 3 Pancras Square, London, N1C 4AG. To register for the in-person event email NCCGroup-maitland@h-adivsors.global

Webcast registration: https://www.lsegissuerservices.com/spark/NCCGroup/events/ed403766-51d2-4ab3-9b6e-dcffebfc7714. Audio only where verbal questions can be asked: https://registrations.events/direct/LON53918

The slides for this presentation can be downloaded from NCC Group's website: www.nccgoupplc.com and a recording of the presentation will be uploaded later today.

About NCC Group plcNCC Group is a people-powered, tech-enabled global cyber security and software escrow business.

Driven by a collective purpose to create a more secure digital future, c, 2,200 colleagues across Europe, North America, and Asia Pacific harness their collective insight, intelligence, and innovation to deliver cyber resilience solutions for both public and private sector clients globally.

With decades of experience and a rich heritage, NCC Group is committed to developing sustainable solutions that continue to meet client's current and future cyber security challenges.

Cautionary note regarding forward-looking statementThis 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.

Chief Executive Officer's business review

Our transformation

We have delivered a first-half financial performance in line with expectations. A lot has changed in these six months, and positively our business has been transforming at pace.

This transformation is being driven by a new executive team executing our Next Chapter strategy. I am immensely proud to have brought in cyber leaders from across the globe with deep industry expertise, energy and new perspectives - like our Chief Technology Officer Sian John MBE, Chief Commercial Officer Carolyn Heiken and Chief Operating Officer Kevin Brown.

Our ability to attract individuals of this calibre is one of many indicators in H1 2024 that fills me with optimism as we move into the second half of the year and look to the future. We've been through significant change, but we are emerging as a stronger, more resilient organisation that can truly deliver on its purpose to create a more secure digital future.

I'd like to thank every single NCC Group colleague for their commitment and focus during this period. We are now seeing the impact of that collective effort.

Clients searching for strategic value

In the first half of the year, we saw existing market trends remain broadly unchanged. Clients are continuing to professionalise their buying habits in relation to cyber services, with greater scrutiny and oversight during procurement. Cyber is no longer a discretionary spend and clients are prioritising strategic investments - which aligns with the end-to-end capabilities we are building.

The demand for Technical Assurance Services - which sees us test infrastructure and applications - has stabilised after a significant fall in H2 2023 driven by the North American tech sector. We don't expect this to rebound to previous levels, but demand is increasing considerably in other areas that are central to our strategy. One area of opportunity is Managed Services, where we monitor and manage a client's security infrastructure round the clock. Now more than ever this is seen as a strategic requirement for organisations, and we have a fantastic proposition that couples cutting-edge technology with our insight, innovation, and intelligence.

This was driven by focusing on what our clients need - and in turn will increase our annual recurring revenue line, making us a more resilient and sustainable business. It's a prime example of our Next Chapter strategy in action.

Strengthening our service portfolio

We've continued to build out our end-to-end capabilities, allowing us to support clients across the whole of the cyber lifecycle.

In Consulting & Implementation we have made several important senior hires. This is a key service line that embeds us deep within our clients' businesses and uncovers further opportunities for us to create value. We've spent time identifying and securing the right individuals and I'm confident we'll see the benefits of this patience in H2 2024 and beyond.

In Digital Forensics and Incident Response (DFIR) we appointed a new senior leader and are seeing strong demand reflecting the number of Ransomware incidents. This is supported by insights our global threat intelligence team identify through constant monitoring of the latest attacks and threats from nation states, organised crime, and others.

We also executed in December 2023 a successful disposal of our standalone fraud offering DetACT in the Netherlands for total gross consideration of ?9.0m (subject to working capital adjustment), with completion expected in February 2024 following novation of contracts. The Group will continue to look for opportunities for strategic M&A that accelerates our strategy.

Becoming a truly global business

Our Next Chapter strategy sees us move from a business operating internationally to becoming a truly global organisation. In H1 2024 we made significant progress in this area with the opening of our new office in Manila, the Philippines, in Q2 2024.

This was not just the opening of an office in a fast-growing emerging market with some of the best cyber talent globally, it was part of a significant cultural shift within our business. From international to global; from silos to complete integration. The opening of Manila - where we currently have 60 experts working at capacity and with plans to grow headcount for a further 20 by 31 May 2024 - happened alongside the creation of further universal processes and technology platforms.

We are already seeing the benefits of this shift - with global resourcing allowing us to put the right people on the right projects, regardless of location. It means we deliver a better service to clients, as well as improving margin through more effective utilisation and pricing.

H1 2024, saw us go through a lot of change in North America as we responded to changing client demands. Colleagues showed incredible resilience to continue delivering outstanding work for some of the most significant companies in the world. With our newly appointed Chief Commercial Officer Carolyn Hieken, located in the United States and showing great leadership, our offer to clients will strengthen further.

Investing in our brand

The opportunity remains for us to better communicate our story - and ensure all stakeholders understand why we are trusted by the most significant organisations and governments globally to secure their environments.

We made great progress in H1 2024, with the rebrand of our software escrow business to Escode, to be launched on 4 March 2024. The Escode team has performed brilliantly, delivering five consecutive quarters of year-on-year revenue growth - and the new brand identity has energised colleagues even further. There will be plenty of marketing activity following the hard launch of the Escode brand to customers in Q1 of this calendar year.

On the Cyber side of the business, we have significantly increased our market profile with investment in large scale Cyber events such as Black Hat US, Gartner's EMEA Risk and Security Summit and CyberCon in APAC, running aligned C-Suite roundtable events to engage buyers. We've also increased investment in relationship marketing aligned to verticals targeting C-Suite and senior decision makers, along with events with partners such as Splunk and Tanium. All while making progress on visibility of our 'people powered, tech-enabled cyber security' value proposition. We will have more to say on this later in the calendar year.

NCC Group and sustainability

Following completion of our first double-materiality assessment in FY23, we published our inaugural Sustainability strategy, and new framework in H1 2024. We have set realistic KPIs to continue to improve data, with a significant focus on full Scope 1, 2 and 3 emissions as part of our ongoing commitment to achieving Net Zero before 2050, working in partnership with Planet Mark.

An example of this commitment is the setting of a new standard for all future NCC locations, with greater landlord engagement on their transition plans as a requirement. This is evidenced by our new office in Manila. The office is situated in the Seven/NEO building, which is a pilot project for the International Finance Corporation's Building Resilience Index (BRI) programme. The BRI aims to promote resilient and sustainable infrastructure development in emerging markets and is currently being piloted in the Philippines.

Board composition

As previously announced, Chris Batterham, one of our independent non-executive Directors stepped down from the Board after eight and a half years of service on 30 November 2023. On behalf of the Board, I would like to thank Chris for his commitment and work over this time.

Year-end change

The Board has changed the year end of the Group from 31 May to 30 September, this is to drive greater efficiency in our corporate reporting and audit process. As a result, the Group will announce H2 2024 results and the 12 months trading to 31 May 2024 on 1 August 2024. In addition, the 16 months trading to 30 September 2024 will be announced in mid-December 2024. In due course, the Group will provide appropriate pro forma information to aid analyst modelling.

Confident outlook and current trading remains in line with expectations

· Whilst TAS, the largest part of our Cyber business, has less forward visibility than other parts of our business due to the nature of the service, our Q2 2024 revenue exit rate gives us confidence in H2 2024. This will be supported by continued strong revenue growth in our Managed Services capability

· We are confident in delivering low single digit revenue growth in Escode in the second half as we continue to benefit from verification and pricing opportunities and the Board has decided not to restart the strategic review of Escode at this juncture

· The strategic actions including cost base efficiencies within gross margin and overheads have been successfully implemented and the performance in H1 2024 mean we are well placed to deliver on our full year expectations

· The Group remains confident in our ability to achieve our medium-term financial goals

Interim dividend

· Unchanged interim dividend of 1.50p (H1 2023: 1.50p) per ordinary share declared, as the Board prioritises investment in the new strategy

Financial review

Highlights - FY24 financial framework

As we measure ourselves against our FY24 financial framework outlined in September 2023, the key points to note are as follows:

· Sustainable revenue growth

o  Returning Cyber Security to growth in H2 2024 - H1 2024 revenue ahead of H2 2023 on both constant currency 1 (growth of 2.1%) and at actual rates +0.6%

o  Accelerating growth in our recurring Managed Services - H1 2024 revenue increased by +17.3% at constant currency (15.4% at actual rates)

o  Maintaining momentum of quarterly growth in Escode - now experienced five consecutive quarters of revenue growth

· Improved gross margin

o  Improved utilisation - Q2 FY24 TAS average utilisation of c.76%, significantly higher than c.60% in Q1 FY24 and Q4 FY23

o  Globalised technical resource footprint - we currently have 60 operational technical consultants in our new office in Manila, with further investment occurring in H2 2024

· Efficient cost base

o  Delivering c.£5m efficiencies in FY24 within gross margin and overheads in Cyber Security (annualised c.£10m from FY25) - reduction in cost of sales by 6.0% (£6.3m) and administrative expenses (exc. Share based payments, Depreciation and Amortisation and ISIs) decreased YoY by 1.8% (£0.8m) and 3.9% (£1.8m) compared to H2 2023

o  Annualising Software Resilience efficiencies delivered in FY23 - improvement in Adjusted EBITDA 1 during H1 FY24 to £14.7m, with further investment required in H2 FY24 to unlock further efficiencies

· Balance sheet resilience

o  Strong cash conversion - historic cash conversion consistently greater than 85% target, with H1 2024 amounting to 89.1%

o  Reducing debt - net debt effectively managed at H1 2024 to £48.3m, with non-core disposal of DeTACT expected to generate c.?9m gross consideration in Q3 2024

o  Maintaining dividend - interim dividend maintained at 1.50p, as the Board prioritises investment in the new strategy

Overview of financial performance

Revenue Group revenues decreased by -6.7% on a constant currency basis 1 and at -9.9% at actual rates, following challenges experienced within our Cyber Security business in Q3 FY23.

In our Cyber Security business overall revenue declined by -9.6% on a constant currency basis 1 and at -12.6% at actual rates. Our North American and UK and APAC businesses declined on a constant currency basis 1 by -31.9% and -0.5% respectively (-36.5% and -1.3% at actual rates).  However, our EU region increased +18.8% on a constant currency basis 1 (+17.4% at actual rates) due to an increase in Managed Services, Digital Forensics and Incident Response and other services. 

As indicated in September 2023, we now manage our Cyber Security business based on specific Cyber Security capabilities as well by geography. Namely, these capabilities are:

o  'Technical Assurance Services' (TAS) which includes all types of penetration testing

o  'Consulting and Implementation' (C&I) which includes consultancy services across all industrial verticals

o  'Managed Services' (MS) which includes XDR

o  Digital Forensics and Incident Response (DFIR) - these services are dependent on the timing of incident responses

o  'Other services' that include our Fox-IT Crypto business and Global Cyber Security Research. 

DetACT has become discontinued during the period, following its disposal in December 2023, as it was considered a non-core activity of the Group.

The following table summarises the performance of Cyber Security capabilities:

TAS declined by -28.6% (-31.7% at actual rates) due to challenges we experienced in Q3 FY23, albeit revenue is now stabilising as demonstrated by H1 2024 revenue only declining by -4.7% as compared to the revenue generated in H2 2023 (-5.7% at actual rates). C&I increased slightly by +0.9% (-1.8% at actual rates) with an experienced leader now recruited for this capability. As expected, MS revenue increased by +17.3% (+15.4% at actual rates) with Sales orders for the forthcoming years increased 91.3% from £32.3m to £61.8m. DFIR increased by +32.8% reflecting the number of incident responses of Ransomware.

In our Escode division, revenue increased by +6.2% at constant currency 1 (+2.5% actual rates) with both contract and verification revenues providing growth of c.6% at constant currency.

The following table summarises the Group's overall performance:

Footnotes: 1: Adjusted EBITDA and Adjusted basic EPS are Alternative Performance Measures (APMs) and not IFRS measures. See Note 3 for an explanation of APMs and adjusting items, including a reconciliation to statutory information. 

2: Discontinued activities represent the non-core disposal of DetACT in December 2023 that was classified as an asset held for sale at 30 November 2023.

3: After reconsidering FRC best practice guidance around the disclosure of adjusting items and APM's, the Group have reduced the number of adjusted measures and items. The Group now only has one adjusted item 'Individual Significant Items'. Previous adjusted items of Amortisation of acquisition intangibles and Share based payments are no longer disclosed as an adjusted item. Accordingly, comparative numbers have been restated. For further detail, please refer to the Financial Review and Note 3 for an explanation of APMs and adjusting items, including a reconciliation to statutory information.

Gross profit decreased by 15.5% to £60.4m (H1 2023: £71.5m) with gross margin percentage decreasing to 37.9% (H1 2023: 40.5%, H2 2023: 38.2%). The 2.6% pts gross margin (%) decrease is mainly due to lower utilisation within Cyber Security in Q1 2024.

Administrative expenses have decreased by 1.8% to £44.0m (H1 2023 £44.8m). This was mostly due to a decrease in people and training costs offset by investments in new offices and foreign exchange. When comparing these expenses to H2 2023, we have seen a reduction of 3.9% (£1.8m).

A loss of £1.7m for the period was recognised giving rise to a basic and diluted EPS of (0.5p) (H1 2023: basic £2.5p and diluted 2.4p). Adjusted basic EPS 1 amounted to 0.5p (H1 2023 restated 3: 2.5p).

On 30 November 2023, our cash conversion 1 was 89.1% (H1 2023 restated 3: 100.4%). Net debt excluding lease liabilities 1 amount to £48.3m (H1 2023: £54.8m). 

Our Balance Sheet remains strong following our refinancing in December 2022. Our facilities include a four-year £162.5m multi-currency revolving credit facility and additional £75m uncommitted accordion option.

The Board is declaring an unchanged interim dividend of 1.50p per ordinary share (H1 2023: 1.50p). This represents a dividend equal to that paid in the prior period as the Board is conscious of the need to invest in the new strategy.

Alternative Performance Measures (APMs)

Throughout this Financial Review, certain APMs are presented. The APMs used by the Group are not defined terms under IFRS and may therefore not be comparable with similarly titled measures reported by other companies. They are not intended to be a substitute for, or superior to, IFRS measures. This presentation is also consistent with the way that financial performance is measured by management and reported to the Board, and the basis of financial measures for senior management's compensation scheme and provides supplementary information that assists the user in understanding the financial performance, position and trends of the Group.

We believe these APMs provide readers with important additional information on our business and this information is relevant for use by investors, securities analysts and other interested parties as supplemental measures of future potential performance. However, since statutory measures can differ significantly from the APMs and may be assessed differently by the reader, we encourage you to consider these figures together with statutory reporting measures noted. Specifically, we would note that APMs may not be comparable across different companies and that certain profit related APMs may exclude recurring business transactions (e.g. acquisition related costs) that impact financial performance and cash flows.

After reconsidering FRC best practice guidance around the disclosure of adjusting items and APM's, the Group have reduced the number of adjusted measures and items within the period. The Group now only has one adjusted item 'Individual Significant Items'. Previous adjusted items of Amortisation of acquisition intangibles and Share based payments are no longer disclosed as an adjusted item. Accordingly, comparative numbers have been restated.

The following tables reconciles how these changes have affected the historic measures of Adjusted EBITDA, Adjusted operating profit, Adjusted earnings, Adjusted basic EPS and cash conversion which includes Adjusted EBITDA:

The Group still manages internally its performance on an adjusted earnings basis (before Individually Significant Items and tax effect thereon) which management believes represents the underlying trading of the business; on this basis adjusted EPS is still disclosed as an APM. This APM is reconciled to statutory earnings and statutory basic EPS.

The Group now has the following APMs/non-statutory measures:

· Adjusted EBITDA (reconciled in Note 3)

· Adjusted operating profit (reconciled in Note 3)

· Adjusted basic EPS (pence) (reconciled in Note 7)

· Net debt excluding lease liabilities (reconciled in Note 3)

· Net debt (reconciled in Note 3)

· Cash conversion which includes Adjusted EBITDA (reconciled in Note 3)

· Constant currency revenue (reconciled in Note 3)

Apart from the changes noted above, the above APM's are consistent with those reported for the year ended 31 May 2023.

The Group also reports certain geographic regions and service capabilities on a constant currency basis to reflect the underlying performance considering constant foreign exchange rates period on period. This involves translating comparative numbers to current period rates for comparability to enable a growth factor to be calculated. As these measures are not statutory revenue numbers, management considers these to be APMs; see Note 3 for further details and certain reconciliations to statutory measures.

The Glossary of APM terms are also contained within Note 3, which provides supplementary information that assists the user in understanding these APMs/non-statutory measures.

Financial summary

Summary Income Statement:

Footnotes: 1: Adjusted EBITDA, Adjusted Operating profit and Adjusted basic EPS are Alternative Performance Measures (APMs) and not IFRS measures. See Note 3 for an explanation of APMs and adjusting items, including a reconciliation to statutory information. 

2: After reconsidering FRC best practice guidance around the disclosure of adjusting items and APM's, the Group have reduced the number of adjusted measures and items. The Group now only has one adjusted item 'Individual Significant Items'. Previous adjusted items of Amortisation of acquisition intangibles and Share based payments are no longer disclosed as an adjusted item. Accordingly, comparative numbers have been restated. For further detail, please refer to the Financial Review and Note 3 for an explanation of APMs and adjusting items, including a reconciliation to statutory information.

Revenue summary:

Divisional performance

Cyber Security

The Cyber Security division accounts for 79.6% of Group revenue (H1 2023: 82.1%) and 62.9% of Group gross profit (H1 2023: 68.8%).

Cyber Security revenue analysis - by originating country:

Cyber Security revenue - continuing decreased by -10.2% on a constant currency basis 1 and at -13.2% at actual rates. UK & APAC decreased by -0.5% on a constant currency basis 1 (-1.3% at actual rates). North America declined by -31.9% on a constant currency basis 1 (-36.5% at actual rates), whilst Europe experienced an increase of +18.8% on a constant currency basis 1 (+17.4% at actual rates) due to an increase in Managed Services, Digital Forensics and Incident Response and other services. 

From a Cyber Security revenue trajectory perspective, the following table compares H1 2024 performance to H2 2023 performance:

Following the implementation of our new strategy, Cyber Security revenue is now analysed in more detail by type of service and capability:

TAS and MS now represents 44.6% and 21.9% of total Cyber Security revenue as compared to H1 2023 of 57.2% and 16.6% respectively, demonstrating the change in service mix to more annual recurring revenues. In addition, C&I has further opportunities, and we will be investing specifically in this area.

Cyber Security gross profit is analysed as follows:

Gross margins declined overall by -3.9% pts, driven by North America lower utilisation in Q1 2024 and a decline in Europe. In Europe, the margin decreased by 11.6% pts due to the recognition of historic project cost compensation of £1.5m in H1 2023. Excluding this item, the margin would have decreased 5.4% driven by inflationary pressures.

When comparing H1 2024 performance to H2 2023, the following table summarises the gross margin trajectory, as the Group realigned its cost base in Q1 2024 and improved utilisation during Q2 2024:

Escode

The Escode division accounts for 20.4% of Group revenues (H1 2023: 17.9%) and 37.1% of Group gross profit (H1 2023: 31.2%).

Escode revenue analysis - by originating country:

Escode revenues analysed by service line:

Gross margin is analysed as follows:

Escode gross profit decreased by -1.5% pts with UK and North America decreasing by -1.9% pts and -1.2% pts respectively due to continued investment to enable Escode to achieve sustainable revenue growth. 

Individually Significant Items

During the period, the Group has incurred Individually Significant Items (ISIs) of £4.2m (H1 2023: £Nil) represented by Re-organisation costs arising from strategic actions of £3.8m, remaining costs associated with strategic review of Escode of £0.2m and disposal costs of £0.2m incurred to date in relation to the disposal of DetACT in December 2023. See note 5 for further details.

Finance costs

Finance costs for the period were £3.0m compared to £2.6m in H1 2023 due to an increase in borrowing costs following increases in base interest rates. Finance costs include lease financing costs of £0.5m (H1 2023: £0.5m). 

Taxation The Group's effective statutory tax rate is 29.2% (H1 2023: 26.2%). The increase in the tax rate from H1 2023 to H1 2024 is mainly due to an increase in the UK standard rate of corporation tax. The Group's adjusted tax rate is 22.2% (H1 2023 restated 3: 26.2%).

Cash flow and net debt 1The table below summarises the Group's cash flow and net debt 1:

Net debt 1 can be reconciled as follows:

The calculation of the cash conversion ratio 1 is set out below:

1: See Note 3 for an explanation of Alternative Performance Measures (APMs) and adjusting items. Further information is also contained within the Financial Review.

2: After reconsidering FRC best practice guidance around the disclosure of adjusting items and APM's, the Group have reduced the number of adjusted measures and items. The Group now only has one adjusted item 'Individual Significant Items'. Previous adjusted items of Amortisation of acquisition intangibles and Share based payments are no longer disclosed as an adjusted item. Accordingly, comparative numbers have been restated. For further detail, please refer to the Financial Review and Note 3 for an explanation of APMs and adjusting items, including a reconciliation to statutory information.

Cash capital expenditure during the period was £5.1m (H1 2023: £3.7m) which includes tangible asset expenditure of £3.5m (H1 2023: £1.6m) and capitalised software and development costs of £1.6m (H1 2023: £2.1m). The increase in capital expenditure was mainly due to the opening of our new Manila office.

Acquisition of trade and assets as part of a business combination of £1.0m relates to the further consideration payable in relation to the Adelard acquisition. Sale proceeds from disposals represent part payment of contingent consideration in relation to the disposal of the Group's DDI business, with the remaining proceeds received in January 2024.

Dividends Total dividends of £nil were paid in the period (H1 2023: £9.8m), with the FY23 final dividend of £9.8m being paid in December 2023 following the AGM on the 30 November 2023, this represented the final dividend for FY23 of 3.15p. The Board is declaring an unchanged interim dividend of 1.50p per ordinary share (H1 2023: 1.50p).

This represents a dividend equal to that paid in the prior period as the Board is conscious of the need to invest in new strategy.

The interim dividend of approximately £4.7m will be paid on 15 March 2024, to shareholders on the register at the close of business on 16 February 2024. The ex-dividend date is 15 February 2024.

Principal risks and uncertainties

The Board has reconsidered the principal risks and uncertainties published at the full year 2023. The following risks and uncertainties are those that the Directors believe could have the most significant impact on the Group's business and remain unchanged from the year end:

· Strategy - overarching strategic risk

o  Ineffective execution of the Group's strategy

o  Poor and/or ineffective change management mechanisms

o  Over-reliance on market sector, service or client

· Cyber and information security

o  Cyber attack

o  Significant business systems failure

o  Loss of client/colleague data

o  Insufficient quality, integrity and availability of management information

· Innovation and service development

o  Intellectual property theft or exposure

o  Ineffective service management

o  Failed service launch

· People and partners

o  Insufficient workforce resilience

o  Inability to retain/recruit colleagues to meet the resource needs of the businesses

o  Poor colleague health and wellbeing

· Market and competition

o  Economic changes/volatility impact on revenue and profitability

o  Unable to continue to meet the service and resource needs of our clients

o  Lack of visibility in the marketplace

o  Reliance on relationships with third parties

o  International trade

· Brand and reputation

o  Adverse publicity in news and social media

o  Undertaking work with disreputable clients or in sanctioned/undesirable jurisdictions

· Quality and delivery

o  Service delivery does not achieve established quality standards

o  Loss of internationally recognised quality and security standards

· Legal, regulatory compliance and governance

o  Criminal and civil legal action resulting in fines and incarceration

o  Inability to identify and adopt emerging regulations in a timely manner

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 2023. We confirm that to the best of our knowledge:

· The condensed set of consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK.

· The interim management report includes a fair review of the information required by:

· 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

· 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 24 January 2024 by:

Consolidated income statement

For the period ended 30 November 2023

Consolidated statement of comprehensive income

For the period ended 30 November 2023

1:  Discontinued activities represent the non-core disposal of DetACT in December 2023 that was classified as an asset held for sale at 30 November 2023.

Consolidated balance sheet

For the period ended 30 November 2023