Good morning, everyone. Thank you very much for joining us, today. Obviously, it's our half-year results. Delighted you could get to join us as we go through the update. So usual format, the agenda for today on where we started from and where we're going, as it was a year since we launched our strategy.
I will then give you some of the highlights before I think the meat of the session this morning, which will be obviously around the numbers, which Guy will be focusing on. I'll then give a little bit of an update on our strategy, our next chapter strategy, as we did in previous updates, in a very similar format.
And then the summary and outlook, and of course, then opening the floor to questions, both within the room and virtually. So let me just start with a little bit of that sort of context and reset again. A year ago, we launched our strategy, and there was a context at that time, where NCC was very much a set of regional business, international by nature, but very much regionally organized.
That was important to remain close to clients, and had grown through that sort of acquisition strategy. So successful from that context. We have two businesses. We have a cyber business, and we have the escrow business. And it was really important when we looked at that, with there being an attempt to drive, obviously, those two together.
We've looked at them and recognized that they are very distinct businesses with different buyers and different buying cycles, so quite distinct businesses in their own right. Our cyber business is famous for our technical expertise. Absolutely, and I will say this, I believe we are absolutely world leaders in our technical assurance services. And we've been highly focused on research, very technical, a very technical set of colleagues.
When we looked at our strategy, we'd identified some market risks. We'd been incredibly successful working in the U.S. tech sector, but it had driven a degree of concentration. And we'd also, because of our deep technical heritage, been very focused on a single set of services and hadn't diversified and reacted to maybe evolution within the market.
I think we have to reflect that there was a bubble. There had been a COVID bubble and a post-COVID bubble of the market expanding as everybody went online, and we've been incredibly successful in operating in that environment. But it was something that obviously we subsequently saw, a reset and a readjustment. So we launched our strategy, and these will be familiar, and I'll keep referring back to these as we go through the elements of the strategy and what we've done and what we've implemented.
Our strategy is based around our four pillars, very much a focus on our clients, our capabilities, and diversifying those, building a stronger set of differentiated brands between our cyber offering and our escrow offering, and really operating as one global team so that we leverage the very best of our technical capabilities globally.
Underpinning all of that are two of our operating principles, which as we've developed, our strategy has become very, very apparent. We want to simplify our business, look for opportunities to optimize, but also have, at the heart of it, a view of being a sustainable, resilient business of the future, and sustainability is a core component of everything we do in terms of our implementation of the strategy.
In terms of where we are, in terms of our current performance, we've had a good H1. We're very much in line with expectations, and I think it's fair to say, and I'll hopefully highlight that as we go on, we are transforming the business at pace. I'd say overall, the performance is very much in line. Importantly, the cybersecurity business has stabilized, and we've seen very positive growth in terms of our Managed Services offering.
And we've got a far better focus on our gross margin, and importantly, our gross margin trajectory is continuing to improve. Escrow's performance has been strong, and we've continued to see both profit and revenue growth.
Our strategic focus and change program, we are making very good progress against, and the cost efficiencies that we identified, we've been able to realize ahead of schedule. Overall, we are confident in the outlook, and particularly, the current trading remains very much in line with the management team's expectations.
Our Technical Assurance Services revenue exit rate gives us confidence in our H2 numbers, and it's been very much supported by our overall growth in Managed Services. We continue to see and believe in low double-digit growth for our Escode business. That's the, the escrow business, Escode. Remember the brand from last year? And as I say, the cost-based efficiencies we've taken in were very well placed to deliver our full-year expectations. The group remains confident on our medium-term financial goals. As I say, we wanted to spend quite a lot of time in this session talking about some of those financial aspects, so I'll just hand over to Guy, if I may, for some of that further detail.
Thank you very much indeed, Mike, and good morning to you all. So before I go into the kind of normal detailed review of the numbers, I'd like to just remind everybody of the financial framework that we set out back in September. So these are the key financial levers that we'll need to see to make sure that we're delivering a resilient and compelling business, that we're able to continue investing for both our clients and our people and our investors in the coming years. These are the things that will help us more resilient and make sure that we're making profit on an ongoing basis...
At the end of this section, I'm gonna revisit how we're doing against each of the individual components of this, to give confidence around the fact that we've delivered a really good Q half one, as Mike's talked about, and we've entered half two in really good shape. I'm really pleased about that situation, that position that we are in.
If I go to our financial highlights first, I'm gonna come to more detail around revenue and gross margin and our net debt in the coming slides, so I won't dwell on those here. I would pick out our progress on our overheads, which are GBP 44 million for the first half of the year. That's a reduction of GBP 800,000 compared to the same period in the previous year, and it's GBP 1 million less than the second half of the last financial year.
Despite our investments into Manila, into some of our marketing areas, like our Escode rebrand, we have delivered those savings as a result of underlying simplification and improvements in the business, which is exceptionally reassuring and in line with what we spoke about in the summer.
If I go into our group income statement, so I'm gonna talk about this in two parts. So firstly, in terms of the numbers, so as in the RNS and in the presentation here on the left-hand side, you can see that the numbers, in terms of our revenue of GBP 159, dropping down to our adjusted profit after tax at GBP 1.4 million, they are as the numbers everyone would have expected to have seen and we communicated before Christmas, being in line with our expectation. So I'm pleased to say, no surprises. Two things to pick out.
Firstly, there is GBP 4.2 million of ISIs. That includes GBP 3.8 million relating to reorganization costs across the organization this summer, and GBP 0.2 million also related to costs as we built towards our disposal of our DTACT business, which we announced just before Christmas.
Secondly, you will have seen in the announcement that we are making some changes to the way that we show our adjusted performance measures, and we've chosen to adopt FRC best practice guidelines, showing share-based payments above the line inside our EBITDA, and share-based payments and amortization of intangible assets above the line in terms of adjusted EBIT. Throughout the packs and the materials, we will continue to show these lines split out, so people continue to see full visibility of those numbers.
You can see a half-by-half comparator for half 1 in the information, and we're very happy to provide the full year split by the new, the full year for last year, split by the new measures, separately for people who wish to see that.
Those are the changes we've adopted to make, and we'll, we will talk about those measures on an ongoing basis. Now, if I take component parts of our profit performance then first, our group revenue bridge. Again, consistent with how we presented this in September. Overall, we saw a 17.4 million reduction in our revenue down to 159.2, as expected. We saw headwinds on our FX of 5.9 million across the two businesses.
We saw very strong underlying growth in our Escode business of 1.9, and Cyber reduced by 13.4 as a consequence of the annualization impact of the American TAS business. I'll come to give you the proof points of that in the coming slides. Okay? So going on to Cyber, and I'm gonna cover Cyber in two slides.
First of all, I'm gonna show you the revenue and profit performance by region here. Then secondly, I'm gonna talk about the performance broken down by the four capabilities that we said we'd start splitting our business out from now onwards in a second slide. Okay? So first of all, let's take our revenue by region. So some things to pick out here. So overall, North America declined in the first half by 3.1% compared to the second half of last year.
But overall, across the Group, H1 2024 was an increase compared to H2 of last year of 2.1% on a like-for-like constant currency basis, demonstrating the stabilization of the Cyber business, despite, from a half-to-half perspective, the year-on-year decline. I think what's important to pick out here on the bar charts is we continue to see the UK; we've seen the UK lift its performance from the second half of last year, which is very reassuring and partly driven by some excellent performance in managed services, which we'll come to in a minute.
And you can see here the stabilization in North America from second half last year to first half this year. There is a decline. We'd expect to see a decline from half to half because we do have an element of seasonality in our business.
Our many of our biggest months in the year are in the second half, particularly across February, March, April, and May. In terms of profit conversion, one of the which is absolutely one of the key levers in our margin, I want to report some really strong performance and progress in here. So we said we'd talk about our utilization in our Cyber business back in September, and these are the results.
So in the first quarter of the year, our utilization was around 60%. The second quarter was at 76%. That's a little bit of seasonality, but very much largely as a consequence of the action that we took during the summer period to rightsize our kind of resource levels.
75%-76% is absolutely the level of utilization we challenge ourselves to deliver, to ensure that we have a sustainable and ongoing profitable business. Very pleased with the exit rate. To bring to life what difference that utilization has made onto our margin, whilst our overall gross margin for the half was 30%, down year-on-year, that utilization helped the Q1 to Q2 gross margin lift by 14 percentage points.
Our exit run rate for Q2 on our gross margin was in the mid-30s, which absolutely where I'd expect to see it continue, and is in line with our financial framework. Very pleased about the progress there. A couple of other KPIs just to highlight here, which we said we would talk about. In the first half, we had 213 clients who've made...
Effectively, we've had revenue of over GBP 250,000 in the previous twelve months period. That's 76% of those clients, to give some people some scale, take multiple capabilities, so more than one of managed services, consulting, implementation, et cetera. The number of recurring clients we have over that cohort of clients who have taken over GBP 250,000 is 133.
Now, when I say recurring, that is people who have not just the one year, but have made three consecutive years of spending of GBP 250,000 or more on our cyber business. So I hope that gives some sense of the scale of stickability and quality of the client base we have and therefore the quality of service that we're providing to our clients and the great job that our teams are absolutely doing.
If I move forward, then, to talk about the capabilities. So you'll see on the left-hand side here, we have our four capabilities. There is an explanation in the bottom left-hand corner, which people see in their packs, of what the capabilities are. And they're split by the four, and we have some other services, which I'll touch on in a minute as well.
So technical assurance services, so that's, you know, our core, you know, I guess some of our core heritage, penetration testing work, red teaming work and so forth. We've seen that decline slightly half on half, but the 56.6 million is where we expected it to be, and it compares against a very strong first half of last year. So the first half of FY 2023 saw growth in that area of around about 17% in total.
It's a very strong comparator, but the important thing is we've seen stabilization, and that's on a month-by-month basis, is where we'd expect to see the business. Consulting and implementation was broadly flat year-on-year in the first half. We expect to see where that lift as we go through the second half, we've made some hires.
That's probably an area where we have been under-resourced the first half of the year, so there's some action to take there, but that will help lift our performance. Managed services is really the kind of the superstar, and has seen its performance lift by 17% year on year in the first half compared to the first half of the previous year, and it's just seen a half-on-half improvement.
We absolutely can expect to see this continue through the second half and, in fact, accelerate quite substantially further. This is obviously an area of the business which is much easier for us to forecast compared to technical assurance services, where we typically have an 8-week window where we can see what work dropping into our diary and then revenue.
Managed services, obviously, if you get a flip 3-year contract in place, you can very easily, much more easily forecast that forward. So that gives us more stability in the business. It gives us more confidence around our forecasting as well. Digital forensics and incident response, superb first half this year at GBP 8.5 million, that will continue to perform well as well.
Our other services includes three areas, so there's a small amount, element of research, and then we have two of our Dutch, Dutch businesses, which are our crypto business in the Netherlands, and the DTACT business, which you will see from the packs we've agreed the disposal of.
This is a non-strategic asset, but those are included in those numbers there. So overall, very pleased with the stabilization of TAS, and really happy about where utilization is. Our challenge now is to continue to maintain that at that level, to invest in the right areas, and utilize our global resource base to be able to do that. Globalizing our resources and the way that we manage those resources, as we have now done, is the lever to enable that to happen.
So if I now touch on Escode, so another super half for Escode. So overall revenue growth on a constant currency basis of 6.2%, aided in part due to a soft comparison in the prior year. That's now five consecutive halves of growth in that business. And the profit performance has grown by GBP 0.5 million off the back of that as well, as we continue to hold onto the efficiency gains which were made 12, 18 months ago.
What are the drivers of that between the two areas that we've always speak about in terms of contract growth and verification growth? So contracts is the income from those contracts we have on an ongoing basis. Verification is testing the code to make sure it still works. We're seeing growth in both areas.
More clients are taking verification services in terms of providing them with assurance, which is super, and from a contract point of view, there's two things driving the growth. The first is that we made price, some, you know, some price changes through last year, and we continued to do so, and they are reaping positive rewards. And we are also seeing the churn rate or retention stay very healthy level at 93.2%.
Our challenge is going to be how we increase our beneficiaries numbers, our client beneficiaries. That's the number of endpoint users of the service over time. But we're seeing really strong performance. We expect to see that continue into the second half. Great job done by the Escode team again. Net debt. Our overall net debt dropped by GBP 1.3 million.
Two things to note, the detail's there, and it's in the packs. We made our dividend payment for last year in December, so we'll drop into this half's, the second half of the year's cash flow. And the sale proceeds from our DTACT business of gross EUR 9 million before working capital adjustments will also come into the second half of this year.
It's, I guess, a small point, but it's worth noting that there is a small profit impact to us about the sale of that DTACT business in the second half, but we're not making any change to our outlook for the full year, so we will effectively, inherent within that, we have a kind of small upgrade. Okay, so that's debt. Let me just sort of revisit before we move on and kind of, summarize in front of it.
Where are we then against the component parts, again, of that financial framework that we set out? How are we doing, and what, what's our entry point to the second half of the year? So revenue growth. So cyber revenue growth in the second half, we are very confident about the visibility that we have in our managed services business in particular, and what we can see from our TAS business in the near- you know, the current quarter, means we're confident about returning that business to growth in the second half.
We're delivering acceleration in managed services, I've spoken about, and we're maintaining our momentum in Escode. So top line momentum absolutely continued, but we are not relying on the market becoming hot in making sure that we deliver a profit and sustainable business across the other measures.
So we'll continue. We have delivered improvements in utilization, and we will continue to invest in areas which are running hot and effectively bring people on board to do that, and also really bring to bear now on the globalization of our capabilities under Kevin Brown. So actions within that include the round deliveries.
We now have globalized scheduling, whereas we used to have individual market scheduling. That enables us to make the most of our capacity and our people globally, and also enable to make sure that we're feeding them fantastic work as well. In terms of our cost base, we're comfortable we'll deliver our GBP 5 million of efficiencies across cyber in both our overheads and our margin this year, and that will annualize out to 10 year. Escode is delivering against its previous commitments from a profit perspective as well.
Cash conversion, 8%-9% in the first half of the year, expect the second half of the year to be around the same levels. Our debt, we'd expect to see come down of the actions that we've taken and has done, and we will have seen we're maintaining our interim dividend at GBP 0.015 per share. So in summary, I'm very, very pleased with how we completed the first half, very pleased with our entry point into the second half.
Exceptionally grateful for all the work that our colleagues have done because it has, you know, it is been quite a bit of change, but delivered fantastic things for our clients, and that's really showing in how we're performing now, which is, which is fantastic. And I'm really looking forward to the second half. Thank you, Mike.
Thanks, Guy. So as usual, we... I just want to give you a little bit of an update on the actions we've taken in terms of the strategy. Guy's highlighted some of them, and also some of the areas that we're gonna focus on in H2 and beyond. Sorry, you've seen this slide before, so again, for consistency, we have the two businesses.
We have a clear set of strategic pillars where we focus all our efforts, and our ambition remains the same. And we have introduced the EBITDA measure into this slide. That is the, that is a change just for the consistency, and you can see from after some of the changes that Guy has discussed. So let me talk about our strategic pillars and actions we've taken.
Firstly, we obviously talk about clients. Clients are absolutely essential of everything we do. It's a mentality rather than just about fee-paying clients. It is about how we service teams internally. It's about how we engage with each other, but obviously, ultimately delivering an excellent client experience. And we said we'd focus around the growing sectors where we see the most opportunity, but also importantly, diversify our routes to market so that it isn't all about going direct, and about building a richer proposition for our clients.
So in terms of progress, I'm very pleased to say we have moved our North American business to a verticalized structure, with some focus on areas where we believe there is those opportunities to move away and reduce the concentration risk in our tech clients, whilst maintaining the focus on those strategic clients, which have remained strategic clients, even if their spending has reduced in the first part of last year. To give an example of that, we are starting to see some positive signs. We've recently had a significant contract win of about $15 million, which gives an indication that there are really some positive signs of spend returning.
What is really pleasing about that, however, it's a very different construct of a contract in terms of it is a, an umbrella contract that allows the entity to be able to engage all of our entities with ourselves. And it also, really importantly, we won that as a result of being able to introduce our Manila colleagues as part of the delivery component. So we won that at scale and breadth as a result of having a different delivery model than we had historically. So that is pleasing to see those green shoots. I talked about the routes to market. We continue to build an alliance ecosystem and with partnerships.
Recently, we obviously talked about building a joint proposition with TransUnion, and recently we've just launched a partnership with Tanium, a leading software provider, which really underpins the whole concept of NCC Group as a people-powered but tech-enabled business.
And that is a really important thing, and so we have a joint go-to-market motion. And really, seeing even a proof of concept level, some very early stages and some very quick wins. So that's again, very positive. I talked about capabilities and again, having to diversify that as an evolution within the market. And Guy has highlighted how we now think of our business in those different capability areas, and we've spent an awful lot of time and focus building the teams around that. I'm very pleased.
If you look at the leadership that we now have within NCC Group, not only at the executive team level, but actually in terms of capability leaders, there is absolutely an immense amount of cyber expertise, whether that's Sian John, who has an MBE for service of the cybersecurity industry, Kevin Brown, who was our Chief Operating Officer, who ran BT's cyber business globally.
We've recently brought in a Chief Commercial Officer to lead on our go-to-market expertise, and Carolyn has over 30 years' experience in the North American cybersecurity market. So a phenomenal degree of capability that we brought in that leadership level. Below the executive level, as I say, we have leadership now on each of those capabilities who are deep experts. And Guy touched upon the growth in our digital forensics and incident response.
We have now a leader there who's a former partner from KPMG, who led the digital forensics practice in EMEA. And I think that is a major contribution for being able to broaden our digital forensics offering, cyber incident response, which I think has been very much responsible for the growth in that area.
We are seeing some really tremendous client impact very much at the heart of our purpose. And these are public knowledge, so it's, I'm not betraying any confidences. So we've been able to help, for example, the British Library and the Dutch Football Association in terms of responding to their cyber incidents. So great progress on that and more to do without a shadow of a doubt.
Very exciting, some great progress in recent months. Delivering as one global team, that has been an absolute core component of the change within NCC Group, which Guy touched upon. And, there are two components I'll highlight, that we've made progress on. Firstly, is the rollout of our global scheduling system to the U.S. and now to Manila.
That's Kantata. That's been executed. We now have a focus on in H2 of moving that and rolling that out to the rest of our teams globally. So very, a very important underpinning to changing our operating approach. And of course, Manila. I'm not a particularly effusive person, but I'm gonna change slightly on that.
I actually went to the opening last week, the inauguration of our offices in Manila, and I've got to say, if it's certainly a highlight for the last 18 months, if not a career highlight, actually. To see the quality to where we started from conception to board approval, probably about 10 months ago, to a phenomenal, frankly, phenomenal office in Manila with the quality of talent that we've seen, has just been mind-blowing.
So, that's it, a really real highlight. That team now is operational. We have 60 colleagues delivering, fee-earning delivery colleagues. They are utilized, supporting projects, and really, really great progress on that. And we're gonna continue to push on that area. But great, great progress.
I've got to say to Guy's point, a huge thank you to so many people within NCC for executing on that as quickly and efficiently as they did. Particularly, colleagues, seconded colleagues, who've gone from the UK or from the US, the technical training team, who have just been blown away, frankly, by the quality of talent that we've been able to identify in Manila.
Which is, when we put them through our training program, which we're very good at, the speed and ability that they've been able to adapt and learn that of what we expect as the NCC way, has just been as good as we've seen anywhere in the world. So, incredibly positive for that, and that's been a real highlight. I'll just touch upon differentiating brands.
We talked about the two Escode business and also our cyber business. We launched the Escode brand, and that is now rolling out, and we're taking that opportunity to reach out and engage with clients more broadly again, which is part of our growth strategy. So, that continues at pace.
And in terms of the broader cyber business, we've focused very heavily on engaging with industry analysts, as in the technology industry analysts, such as Forrester, IDC, et cetera. Which is something that NCC has never really done historically. And we're getting some really great traction in that area. I also mentioned two underpinning principles of how we're also focusing on the change within our business.
The first is around simplifying and optimizing the operational processes within the business. And Guy touched upon the sale of DTACT, our fraud prevention solution in the Netherlands, as a non-core. Great business, and we're delighted that we've been able to find a place for DTACT, which is great for colleagues, and is the future growth of that business. It allows us to focus on other areas. So a great progress there. We've also, in terms of simplifying the business, really focused on some of our internal aspects, which is, for example, in our Escode business, harmonizing our Salesforce instances, so that we have one instance, one view, one process around our sales and go-to market. So again, a great example of simplification.
In our cyber area, another example I would say is we have moved from effectively three technology structure stacks into a single tech stack for managed services. Again, simplifying that, creating one global business. So really good progress and but lots more to do, and a real area of focus as we go forward.
And finally, just underlining that sort of people-powered, tech-enabled business, we've really focused on ensuring that sustainability is the heart of everything we do. Not just sustainability from an environmental perspective, but which is really important, and our Manila office is t he first net zero building in Manila. So that was at the heart of our sort of selection process. But also, frankly, sustainability and resilience as a business.
That is a really, really key element that we're all incredibly focused upon. So hopefully, just some useful highlights. Let me just conclude in terms of outlook. Hopefully, as you can probably perceive, we are really transforming this business at pace. Very, very focused on execution.
We're confident now in our trading outlook, and I think the way Technical Assurance has exited Q2 gives us confidence for H2. Particularly, that is underpinned by our managed services business, but also some elements such as the incident response team. We remain focused on low single-digit revenue growth for Escode, and we expect that to continue through.
The cost efficiencies that we have focused on and taken also enhance the confidence we have in achieving our expectations for the full year. And with that, the group remains confident on the medium-term financial goals. With that, I'll conclude, and perhaps take any questions from the floor.
Thank you. Damindu Jayaweera from Peel Hunt. I know Guy, you don't wanna give kind of sub-segment guidance, but if you assume, because you're reiterating the revenue guidance and, you know, that's the second half weighting to the revenue, can I just kind of run you through what I am thinking, and you can just nod your head, right? So managed services, which was mentioned multiple times, seems to be really, really, really strong and given the visibility in that business, so there must be wins that you guys are aware of or has already been booked. So I am kind of thinking managed services in the second half can do 30%-50%, or let's call it 40%.
And obviously, TAS, you are talking about stabilizing, and I know there are a couple of big months to come, but we just don't know because you've just started your kind of vertical push. The, you know, U.S. is not. U.S. tech is not coming back, given all the layoff news out there. So we, if I assume that's stable, then I still got 30% of cyber business to go.
I just assume that the first half trends continue into the second half, especially in consulting. If I heard you right, Mike, there's a new leadership now in place there, which means in a place like consulting, you would have held back from hiring a lot more people. So I assume it was held back in H1 because not all the heads were there. That basically bridges me to a GBP 270-odd million plus revenue for the full year for cyber. Does that sound about right?
Yeah, I don't want to. You're right. I'm not going to start guiding on the individual parts, but just in terms of the messaging and the trends in those component parts, those things are, you know, those things are all true. We can absolutely see line of sight to substantive acceleration in the managed services business, which is fantastic.
TAS, as you saw, you know, expect TAS to be flat to slight to marginally up year-on-year, second half. But to your point, the visibility is only 6-8 weeks away in terms of what's actually in the diary, and therefore billable and turns into revenue. You're right in what you said in the other thing. So, without wanting to get into giving numbers out, you know, directionally, that's absolutely what we're seeing.
Just a second question. Well done on gross margin. It's amazing to see you guys focus on it and deliver on it. Could you just run us through some of the levers? I know you've already kind of touched on it. Just to kind of remind us why it could be even better in the second half.
Oh, wow, okay. There's... I get very excited when we talk about gross margin, because I think there's lots of opportunities to make sure that the work that we do and the efforts that our people make are, you know, properly rewarded back to us and to the business and to clients. So I, you know, improvements in gross margin is about being smarter, not about working harder. There is absolutely, you know, so the first lever is having a global resource, a truly global resource base, which we now have, which is better for clients. Clients want to be able to pick from. Mike talked about the $15 million deal that we've recently signed.
A key component part of that was being able to select from around the globe in terms of the skills that can then deliver that contract, and that is kind of really good for margin, right? Because we're being much more considered in how we price that. The second point is, as I alluded to that, by having that capacity, it means that we're being more sophisticated and disciplined in the way that we price work.
Absolutely.
Right? So, in its most blunt form, historically, we would have set salespeople a day rate in this business to go and achieve a day rate, rather than actually reviewing what the margin of something is and where the work, where the work's going to get delivered. So some of this is about working together. It's making connections to the organization.
That organizational change that Mike spoke about, Kevin and Carolyn's roles as leaders of capabilities and sales verticals really brings that to life. So that's a real confidence booster. So that, you know, those are, those are the main component parts. So I think we've just got a much more connected business, and it's really making a journey from being international to global in the way that it does things and consistent.
Um-
So, the only thing I would add in, and I'm delighted we've stopped having talks about day rates, which I know I was quite emotional about when I first joined. There is a cultural component to it, so to talking about it, and I think that is now starting to embed in the business. So, it is front and center to the mindset, so it is, it is quite a positive shift.
My last question is for you, Mike. Obviously, the go-to-market motion was one of the things you focused on, or not just the marketing side, but also the sales side, the verticalization, the C-suite.
Yeah.
Given what feels like, given the confidence you guys are showing, there must have been, there are wins. It feels like you guys are starting to win substantial contracts. Not a lot, but here and there. Could you maybe bring some to life without naming clients?
Yeah.
Where, how you sold multiple things or cross-sold or what's been different?
So I would... There are probably, so I think the one which is in the public domain, which is obviously TikTok. That is a key program of work, begins with, I think, a strong reputation. We were able to deploy a team that did some analysis and assessment, consulting and implementation-type work. That has then moved into strategy.
So that, again, multiple capabilities, as part of that. So I'd say that's, that's a great example. Another example I would highlight, and I can't give the client-... But working with a strategic consulting house, where we had a personal relationship. They were supporting a client who was going through a major security breach. The global consulting, or the strategic consulting house, did not have deep technical expertise, as you would probably imagine.
They needed a partner. We were that partner. We were deployed to actually do the initial incident, and to get immediate visibility of the estate, we deployed a managed services. The strategic consulting house is no longer in, their job is finished. We are there with a recurring revenue stream now, as a result of that. So I would say those are two very positive examples of how we see the model could work.
If I can, I'd just like to go back and add a final point on that, the gross margin leavers point, in that now that we're database, it means our ability to respond to client demand is much more flexible and dynamic than it used to be able to be. Which would have resulted into, in a, if a client in the UK had said, "Sorry, I now suddenly want," I'll make a number up, "3,000 days worth of work," the UK will have had to go, "Well, how do I find 3,000 days of the capacity in the UK?" Now, we can effectively open that up globally.
So our ability to respond, and therefore the lack... We don't have to bet the farm, as it were, ahead of dope. We can be much more certain and considered in how we resource. And that's better for our people, and it's better for our clients.
Hi, morning, it's Andrew from Liberum. I've got a couple as well for me. Just on the, 'cause we were talking about scheduling there, just to sort of finish that off, in terms of the way in Europe, is it going live anytime soon? It's-
It will be done in H2.
H2, okay. Then if you look at the, where the fee earners are in the assurance business, obviously, you've quantified Manila, and you've talked about adding another 20 heads there. Just remind us, what's the sort of the, the mix at the moment-
Oh, of course.
... in terms of sort of onshore U.S., U.K. and nearshore? And then if you think about this, you know, I'm not asking for specific numbers, but if you think about this sort of strategically over the next-
That I want, I'd quote with confidence.
No, I... And ultimately, you know, we have 60 operational people. The numbers are comparatively small, so that they'll end up being quite volatile if we then start talking about them again. I think the key point is that resource base is really fungible, and we'll kind of resource fungibly, you know, globally. We don't have, it would be wrong to say we have a margin target for Manila, and the scope of the work and all the different capabilities being right. So that's very much what we're focused on. Do you know, do we think we can accelerate quickly in terms of, you know, as and when growth is there, putting more work into all of our into all of our markets and capabilities? Yeah.
About the proportionality of where the resources are, it's. It will depend. Each service will be slightly different, and ultimately, our clients will determine what they require in terms of the resource mix for the work. So for example, we do work within the public sector, which has a set of national security requirements. We will never be able to use a delivery model other than UK-based resources for that.
Understood, understood. And then secondly, Mike, you mentioned the $15 million win. Can you describe that please?
So historically, we've for that particular client, we've engaged with each of their individual entities on a one-to-one basis, so each contract will have been with each individual entity. This is the first time they've done it with a supplier, which is to put in place an umbrella contract that allows all of their entities to engage with us. So it just simplifies the approach of which they can access our resources.
Um, and-
Yeah.
Okay. Then just finally, one for Guy, just very briefly, in terms of the GBP 10 million of cost out, Guy, can you just give us a sense of how much some of that's in COGS, some of it's in admin. What's the mix, roughly?
Yeah, so again, I'd rather not get into giving kind of detailed reconciliations, Andrew, because it becomes quite hard to then work through in terms of the annualization. I think the thing that, you know, we can say is that, you know, we knocked GBP 1 million out of the central- though on some things I can say, we knocked GBP 1 million out of central overhead investments in our strategic areas and GBP 1.2 million of Forex losses.
So you can, you can infer, you know, an overhead benefit into the half. You know, there is... I think there's op- you know, there's opportunity substantially, you know, there's opportunity to continue to do one. We'll continue to seek further efficiencies out of the business over time. So it, you know, it is absolutely a mix of both things.
Thanks.
Revenue disclosures there. Should we read anything into that extra disclosure? Should we assume that they're all core parts of the business for you, or are some less core than others within the side of the business?
So the reasons for wanting to break out those areas are really important to be able to service our clients in the way we want to, to have that mix of services and capabilities. So those are the, that's the framework with which we will build the business going forward.
And then just another one, just on the managed services component of that. Managed services tends to be quite recurring. The revenue recognition tends to be quite slow over time. Arithmetically, it's normally quite difficult to see step changes in revenue, given the revenue recognition that can give us some sightline-
Absolutely
... to what the second half might look like.
Yeah, I don't, I don't want to do that now. I think what we'll take away actually, just look at whether we—we didn't talk about recurring revenue being one of the KPIs we speak about back in September. I really don't want to sit here and start giving it now. I think it's something we should be looking at, right? And I, and I probably would like to think we could start giving guidance on that, but I'm not, I'm not going to make that commitment.
... and then just H1's back to a normalized level. But in the second half, you're still probably gonna be below your medium-term margin ambitions for that business. What gets us back to the teens EBITDA profile?
Sure.
Is that operational leverage from here, or is it more gross margin?
Yeah, so this is operational. I think the, the gross margin, I expect, will be, you know, up than operational leverage as we grow the business, in terms of delivering the, the mid-teens EBITDA percentage that we're talking about.
All right.
All right, thank you. Damith very kindly asked two of my questions much more eloquently than I would have done, so thank you for that. You can send me a note, please, later. Thank you. Just, usual question from me on strategy, Escode, 12 months ago, you said some things about it-
Yeah.
We all got quite excited. It sounds to me like there's been a bit of a shift in how you see it. Is that fair, or, I mean, are you more wedded to it than you were 12 months ago?
Very, very fair question. I think there is something within... there is a huge component in terms of timing. We're very clear now how we see these business operating, so we do not see the, if you like, the operational leverage of bringing them together. So we're very clear in terms of operationally, how we run those.
There is a component, there is an element, and I think I said rather flippantly, we have a lot on. The fact is, there's a serious component to that. The management team are incredibly busy, very focused on what they're doing. So we need to execute on what we need to do to get the cyber business where we want it to be. And there is then a timing issue.
And Escode is doing very well, and so if we were to make a decision to do something, it has to be the right time, and to drive the right level of value for shareholders. So timing is a crucial component of that. Is there anything you wanna add, guys?
No, no, nothing else to add.
Thank you. Just a second, sort of unrelated question. In terms of incident response-
Mm.
Quite a lot of the software companies are pushing automation into that space. How is that affecting you? I mean, I'm a bull of automation, increasing the amount of work. Is that sort of on your line of-
Yeah, so we are-
thought?
We do absolutely use tools within the incident response. However, I would say you need to have a degree of intellectual curiosity to do the investigation. Yes, tools can provide the data. You do need to do the interrogation. You also then need to advise the organization how to respond. You can't automatically respond to a cyber breach. What is the right communication plans?
What are the right ways of remediating the vulnerabilities that may have been used to actually break into an organization? So, we see it as helping clients when they most need it, those moments that matter, and that's why it's. I think there'll be a significant people component to that. And as we're seeing, increasingly, we're sort of expanding the offering, seeing that there are more opportunities, actually. So it remains a key entry point where we actually start supporting clients.
Thank you. I had a question for you, again, on Escode, if I may. Just on the number of client beneficiaries that you've got, it's down a few %, year-over-year. Could you just talk us through how H2 went, sort of?
Yeah, so that-
Yeah.
That's consistent with the kind of long-term trend. It's probably worth it, doing my best to explain what client beneficiaries are and what that means, because it's not quite clients. The way that we contract in on escrow contracts is different from the way we contract, obviously, in terms of cyber.
So Microsoft may well have a piece of software, and they may have 10 endpoint users who take our services. So it's the 10 who are the client beneficiaries in that number of the 43,000, whatever it was we spoke about before. So that's what a client beneficiary is. There has been a kind of long-term trend in a, you know, reduction around that level.
So the second half, the first half of this year was consistent, sort of consistent, slightly lower, if that, than that. That is, that 3% reduction, 80% of those reductions is a consequence of those pieces of software becoming redundant. So it's not clients choosing to do something different. It's effectively the, the changes in the way that the software market works, if that makes sense.
So there is a, there is a, a challenge for us to find ways of winning more support. Candidly, businesses tend to have less software, software systems than they used to have. Where they might... You know, your business X may have had 15 different sets of software inside. It might only have 5 now. There is... It's hard, and this is hard to measure.
This is a little bit of a kind of narrative rather than something I can give very exact data points on. There is a narrative in reduction of as people consolidate systems down, there will be less beneficiaries. But that's, so that's why kind of pricing's important, verification levels are important, but also going out and winning work and making the most of geographical opportunities. There is absolutely opportunity to grow the Escode business.
Absolutely.
It's not that, you know, while it is, you know, you go back nearly two years now, an amalgamation of, of the NCC and the IPM business, which are now trying to get the world—they were the world number one and number two at the time. So we're very strong market leaders, but there's still more market to go after. And, you know, Andrew and the team are very focused on growing our, you know, growing our customer base. So that, you know, we see opportunity in that, but that's the dynamic that's been at play, if that hopefully brings that to life a little bit.
Thank you, and within that, the cloud escrow product, how's that playing out?
I haven't got those numbers to hand, actually, right now.
No.
I think, you know, I probably... Can I revert back on that?
Yeah, of course. Yeah. Thank you.
Any more questions?
We have a few written questions coming in via the Spotlight platform. The first is from Tintin Stormont from Numis. He has three questions. I'll read them out one by one. The first is: Medium term, how do you expect the mix of revenues in cyber to look from a capability perspective?
So we expect growth in all areas to continue. And really important, we continue to invest in all those, 'cause they, as I mentioned before, having that full suite of services is fundamentally important. We do see the mix changing over time. I think you've probably picked up, we see considerable growth opportunities in managed services.
The ARR is an important component of our revenue going forward, but also consulting. And I didn't mention, but obviously there are a couple of areas where we are really focused on growing in the next half with some senior leadership. And actually, we have already hired some of the talent, Damith, to touch on your point.
So that we see as a proportion of our overall revenue, significantly growing. Probably less significant growth in DFIR, just because it is such a specialist area with a very high touch point with the client. So we do see the revenue mix changing over time.
And it's, it's probably worth overlaying on top of that, is that the organic, you know, what we've been reporting on has been organic growth, right?
Exactly.
So we expect to see those organic growth rates, you know, the differential levels of... We expect growth in all areas, but there'll be differential levels of growth, that will naturally change our mix. There will be, you know, we hope to also take M&A opportunity as and when they arise-
Yeah
... to grow ourselves in some of those capabilities where we contain substantial market opportunity-
Yeah
and expand our overall capabilities as well. So that, that will then hopefully sort of help step change that, but we don't have a target in mind.
Yeah.
Great. Thank you. The second question is: in technical assurance, do you expect to make headway in building a longer visibility than 8 weeks over time? If yes, what would drive that?
So, this a single view of scheduling is really, really critical to that. And so that single global review of our resources and also pipeline, so from a sales operations perspective, that's part of our sort of simplification approach, so that's key. I'd say the other element of it is around the commercial constructs, so ensuring that we have the right client engagement model. So I talked about the contracts that we win, to make sure that we have a very clear visibility of what client needs are, when over what period of time. So it's part of an evolution of that area.
It's worth mentioning that some of the short-term rapid flexibility of that is a strength to us as a business. So it's very important to be able to respond to clients quickly, and actually, it is stuff that we—that can fill our schedules and gaps in our schedules—
Yeah
... in a very actually margin-intensified-
Very profitable
... intensified, being able to flexibly respond to short-term client demands. So, you know, we shouldn't want to not do that. It's great business. It's just harder to forecast.
It is, and I think, again, if we play to the strengths of NCC Group, having that deep capability and global capability is why clients come to us for that type of work, because they know they can get great work from our teams.
Thank you. Her third question is Escode, on average, what pricing increases did you put through last year, and what should we expect on an ongoing basis, on a percentage basis?
So I think I've kind of... It depended a little bit contract by contract, because in the nature of that overall beneficiary base, of course, you've got some very different kind of client profiles. So the average can be a little bit... I wouldn't want to kind of be misinterpreted.
Yeah.
It kind of, so it would range from between, I think Andrew would say to somewhere between 5% and 8%.
Yeah.
But it depended on the client and the, you know, and the circumstance on that client and the negotiations around verification, because, again, it's about, it's about selling a whole service rather than just the, the contract. In terms of, you know, how far do we see we can push that? We, you know, that's difficult to answer right now.
Clearly, you know, there is, you know, we continue to work on our pricing. We continue to look to price in a, in a better way, and we're monitoring our kind of elasticity from that point of view and make sure we respond to that. Because it's not, you know, it's, it's ultimately, it's about having more clients and those clients spending more money.
Thank you. Our next question comes from Julian Yates, from Investec. Please, can you comment more on the divisional leads? Have you filled all required roles? How are the hires bedding down, and what are the risks around the numerous staff changes, considering it's a people-based business, and how is this being managed?
So the executive team is in place. They've all been appointed. In terms of the impact, I think they've brought a degree of energy and focus and expertise, and I touched upon the experience they've got in the industry. So they have already brought a degree of focus and energy to the level of transformation we're trying to drive, which has been really good.
They're directly reported... If I talk about the capabilities, we have appointed the majority of the new capability leads. I don't wanna sort of jump ahead of myself, but there will be a couple of announcements coming up in very short order on and the last two areas which we are looking to build out.
So we are pretty much there across the board. And, as I say, just the level of capability step-up has been phenomenal, actually within the business, which I'm really pleased about that. As I say, it's brought energy, and we're obviously working very closely with our sort of talent teams to bring in the right level of change management. But there is a level of disruption, but I think generally the approach across the business, seeing where we're trying to go, what the opportunity is for this business, I think has been very well received.
Thank you. The next two questions come from Martin O'Sullivan, from Shore Capital. His first question is: Are you confident about returning the North America cyber business to year-over-year growth in the second half? And if so, what capabilities will drive that?
So we are confident in seeing a switch. Now, clearly, there are market dynamics within North America at the moment, but we are very confident about the trajectory. I would say we still remain predominantly a technical assurance business in North America, which again is great.
That's a fantastic opportunity. It's a huge market that we're just scratching. So we see that as the, if you like, the predominant driver, but we're also building out both the consulting component and also managed services. So the opportunity is significant in North America. I think it's predominantly technical assurance because we've obviously got the bench strength and the knowledge and the expertise and the credibility in that market.
In terms of areas of growth and how we see it happening, the strategic accounts that we've got remain a huge focus for us. We shouldn't be embarrassed about being phenomenally well-represented in North American tech. They're a great set of clients. They've just been buying differently in recent months.
That said, there is a huge opportunity, as far as we're concerned, in the other verticals in North America, hence the reason we started to make those changes in terms of focus. We've brought in new resources. We've changed the alignment of our sales teams to really go after areas where we've not really focused on historically. And we've seen some green shoots.
So there was a, there's a fantastic win that we've recently had in the retail sector. Historically, is not one we would've ever focused on. Interestingly, and you, you'll be aware of the sort of the issues in the game, online gaming sector in North America. We've seen a lot of interest and a pickup in that as a domain, likewise, in the utility sector. And again, it is a very fragmented market by state in North America around utilities, and we've had significant success identifying new logos in state utilities. So that's where we see the opportunity to diversify.
Thank you. His second question is: Apologies if I missed it, but can I check the full year outlook for cyber is unchanged, namely, low single-digit revenue growth for the full year, as per the previous guidance from September?
Yes.
Great, thank you. We'll now hand over to the conference call lines to check whether there are any questions. Operator-
Thank you. The participants may continue to submit questions in written format via the webcast page by using the Ask a Question button. If you are dialed into the call and would like to ask a question, please signal by pressing star one on your telephone keypad to raise your hand and join the queue. Again, please press star one to ask a question via the phone lines. As there are no questions on the phone, I would now hand back over to management to address any further written questions.
Thank you. There are no further questions in.
That's excellent. Well, thank you very much, everybody, for joining us this morning, and looking forward to seeing you at the next, at the end-of-year results. Thank you very much.
Thank you.