NCC Group plc (NCC) Earnings Call Transcript

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, 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 businesses, 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 2 businesses. We have a Cyber business and we have the Escrow business. And it was really important when we looked at that, they were -- where there had been an attempt to drive obviously those 2 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, very technical -- a very technical set of colleagues. When we looked at our strategy, we'd identified some market risks. We've been incredibly successful working in the U.S. tech sector, but it had driven a degree of concentration. And we had also, because of our deep technical heritage, being very focused on a single set of services and hadn't diversified and reacted to maybe evolution within the market. And 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 4 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 2 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. So 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'll say overall performance is very much in line. Importantly, the Cyber Security 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. Escode's performance has been strong, and we continue to see both profit and revenue growth. And our strategic focus and change programme, 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 single-digit growth for our Escode business. That's the escrow business, Escode. Remember the brand from last year. And as I say, that cost base efficiencies we've taken were very well placed to deliver our full year expectations. So 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, to talk some of that in 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 of our clients and our people and our investors in the coming years. These are the things that will help us [ be ] more resilient and make sure that we're making profit on an ongoing basis. At the end of this section, I'm going to 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 half 1, as Mike talked about, and we've entered half 2 in really good shape. And I'm really pleased about that situation, that position that we are in. If I go to our financial highlights first. I'm going to 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 were 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. And 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 going to talk about this in 2 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 -- and this is GBP 159 million dropping down to our adjusted profit after tax of GBP 1.4 million -- they are 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. So firstly, there is GBP 4.2 million of ISI's. 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 build towards our disposal of our DetACT 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 that people continue to see full visibility of those numbers. And 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. So those are the changes we've adopted to make, and we will talk about those measures on an ongoing basis. Now if I take component parts of our profit performance then first, so our group revenue bridge. So again, consistent with how we presented this in September. So overall, we saw a GBP 17.4 million reduction in our revenue down to GBP 159.2 million, as expected. We saw headwinds on FX of GBP 5.9 million across the 2 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 Towers 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 going to cover Cyber in 2 slides. First, I'm going to show you the revenue and profit performance by region here. And then secondly, I'm going to talk about the performance broken down by the 4 capabilities that we said we would 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 group, half 1 2024 was an increase compared to half 2 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 despite the year-on-year decline. I think what's important to pick out here on the bar charts is we continue to see U.K. -- we've seen the U.K. 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 on many of our biggest months in the year 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'll 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. And the 75%, 76% is absolutely the level of utilization we challenge ourselves to deliver to ensure that we have a sustainable and ongoing profitable business. So very pleased with the exit rate. To bring to life what that -- 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. So our exit run rate for Q2 on our gross margin was in the mid-30s, which absolutely we weren't expecting to see it continue and is in line with our financial framework. So very pleased about the progress there. A couple of other KPIs just to highlight here which we said would talk about. So in the first half, we had 213 clients who've made -- who effectively -- we've had revenue of over 250,000 in the previous 12 months period. That's -- and 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 been taken over, 250,000, is 133. Now when I say recurring, that is people with not just the 1 year, but have made 3 consecutive years of spending of 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 4 capabilities. There is an explanation in the bottom left-hand corner, which people see in their packs of what the capabilities are. And they are split by the 4. And we have some other services, which I'll touch on in a minute as well. So Technical Assurance Services, that's 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 GBP 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 '23 saw growth in that area roundabout 17% in total. So 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 that lift as we go through the second half, where we've made some high. That's probably an area where we've 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 -- so continues to be the superstar and seeing 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 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 easy for us to forecast compared to Technical Assurance Services, where we typically have an 8-week window where we can see work dropping into our dairy and then revenue. Managed Services, obviously, if you get [ full ] 3-year contracts 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, super half first half this year, GBP 8.5 million. That will continue to perform well as well. Our Other Services includes 3 areas, so there's small elements of research. And then we have 2 of our Dutch businesses, which are our crypto business in the Netherlands and the DetACT business, which, as you will see from the packs, we've agreed the disposal of. This is a nonstrategic 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 comparator in the prior year. That's now 5 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 on to the efficiency gains which were made 12, 18 months ago. What are the drivers of that between the 2 areas that we've always speak about in terms of contract growth and verification growth? So contract is the income from those contracts we have on an ongoing basis. Verification is testing that -- testing the code to make sure it still works. We're seeing growth in both areas. So 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 2 of the things driving the growth. So the first is that we made some price changes through last year and we continue to do so, and they are reaping positive rewards. And we are also seeing the churn rates or retention stay at a very healthy level at 93.2%. Our challenge is going to be how we increase our beneficiaries' numbers, our client beneficiaries. That's a number of endpoint users of the service over time. But we're seeing really strong performance. We expect to see that continuing into the second half. So a great job done by the Escode team again. Net debt. So our overall net debt dropped by GBP 1.3 million. Two things to note, the details there, and it's in the pack. 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 DetACT 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 towards about the sale of that DetACT 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 I summarize in front of that, where are we then against the component parts again of that financial framework that we set out, how are we doing and 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 current quarter means we're confident about returning that business to growth in the second half. We're delivering acceleration in Managed Services, as I spoken about, and we're maintaining our momentum in Escode. So top line momentum absolutely continues. 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 deliveries. We now have globalized scheduling, whereas we used to have individual market schedule. And 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 to 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, 89% in the first half of the year. We expect the second half of the year to be at around the same levels. Our debt we'd expect to see it come down off the actions that we've taken, and has done. And you will see we're maintaining our interim dividend at GBP 0.015 per share. So in summary, I'm 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 been a 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 fantastic. And I'm really looking forward to the second half. Thank you, Mike.

Thanks, Guy. So as usual, I just want to give you a little bit of an update on the actions we've taken in terms of the strategy -- Guy has highlighted some of them -- and also some of the areas that we're going to focus on in H2 and beyond. So you've seen this slide before. So again, for consistency, we have the 2 businesses. We have a clear set of strategic pillars where we focus all of our efforts, and our ambition remains the same. And we have introduced the EBITDA measure into this slide -- 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 the center 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 focus around 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 -- with 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 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've talked about the routes to market. We continue to build an alliance ecosystem with partnerships. Recently, we obviously talked about building a proposition -- 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 in motion. And really -- and seeing even a proof of concept at 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 in the cybersecurity industry; Kevin Brown, who is our Chief Operating Officer, who run 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 of 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 or our deep experts. And Guy touched upon the growth in our Digital Forensics and Incident Response. We have now a leader there who was 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 we've -- and these are public knowledge, so it's -- I'm not portraying 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, but 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 2 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 in H2 of moving that and rolling that out to the rest of our teams globally. So a very important underpinning to changing our operating approach. And of course, Manila. I'm not a particularly effusive person, but I'm going to 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, certainly a highlight for the last 18 months if not a career highlight actually to see the -- 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 I'll -- that's 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 going to continue to push on that area. But great, great progress. And 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. And particularly colleagues, seconded colleagues who've gone from the U.K. or from the U.S., 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 of what we expect is the NCC way has just been as good as we've seen anywhere in the world. So incredibly positive for that and it has been a real highlight. I'll just touch upon differentiated brands. We talked about the 2, the 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 more -- the broader Cyber business, we focus 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 2 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 DetACT, our fraud prevention solution in the Netherlands as a noncore. Great business and we're delighted that we've been able to find a place for DetACT, which is great for colleagues and is the future growth of that business. And it allows us to focus on other areas. So a great progress there. We've also, in terms of simplified business, really focused on some of our internal aspects, which is, for example, in our Escode business, harmonizing our sales force 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 3 technology 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're really focused on ensuring that sustainability is at the heart of everything that we do, not just sustainability from an environmental perspective, which is really important. And our Manila office is the 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. And that is a 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 -- as you 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 continue -- 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.

Damindu Jayaweera from Peel Hunt. I know, Guy, you don't want to give kind of subsegment guidance. But if you assume -- because you are reiterating the revenue guidance and 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 many services in the second half can do 30% to 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 just added your kind of vertical push. U.S. is not -- U.S. tech is not coming back, the lay of 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?

Yes. I don't want to -- you're right. And I'm not going to start guiding on the individual parts of the business. In terms of the messaging and the trends in those component parts, 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 talk about -- I would expect TAS to be flat to slight -- to marginally up year-on-year second half. But to your point, the visibility is only 6 to 8 weeks away in terms of what's actually in the diary, and therefore, billable and turns into revenue. And you're right in what you said in the other things. So without wanting to get into giving numbers out directionally, that's absolutely what we're seeing.

And 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?

Okay. There's -- I get very excited when we talk about gross margin, because I think there's lots -- just want to make sure that the work that we do and the efforts that our people make are properly rewarded back towards into the business and to clients. So improvements in gross margin is about being smarter, not about working harder. There is absolutely -- so the first lever is having a global -- 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 deliver that contract. And that is candidly good for margin, right, because we're being much more considered in how we price that. The second point is, as I -- allied to that is, by having that capacity means that we're being more sophisticated and disciplined in the way that we price work, right? So in its most blunt form historically we would have set sales people 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 is going to get delivered. So some of this is about working together, it's making connection to the organization, that organizational change that Mike spoke about, Kevin and Carolyn's roles as leaders of capabilities and sales verticals really brings up to life. So that's a real confidence booster. So those are the main component parts. So I think we just got a much more connected business and is really making a journey from being international to global in the way that it does things and consistent.

So the only thing I'd add in -- and I'm delighted we've stopped having talked about day rates, which I know I was quite emotional about when I first joined. There is a cultural component to it. So 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 quite a positive shift.

And my last question is for you, Mike. Obviously, the go-to-market motion was one of the things you focused on 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, where how you sold multiple things or what's 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 a really important managed services contract, which again supports exactly where we're trying to go from the strategy. So that -- again, multiple capabilities is part of that. So 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 -- 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 response component, DFIR. We then did a design, which was the consulting, the change programme. And to get the immediate visibility of the estate, we deployed 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 2 very positive examples of how we see the model could work.

If I can, I like to go back and add a final point on the gross margin levers point in that. Now that we don't run the Cyber businesses 4 regions and we have a globalized capability base, it means our ability to respond to client demand is much more flexible and dynamic than it used to be able to be, which we would have resulted into -- if a client in the U.K. had said, "So I now suddenly want" -- I'll make a number up -- "3,000 days of the work, "the U.K. will have go, "Oh, how do I find 3,000 days of the capacity in the U.K?" 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 work coming in and knowing that the work is coming in, in the hope that there ends up being demand later. It means that we don't -- we can be much more certain and -- so they're not considered in how we resource. And that's better for our people and it's better for our clients.

It's Andrew from Liberum. I've got a couple as well for me. Just on the -- because we're talking about scheduling there, just to sort of finish that off in terms of the rollout of Kantata. Obviously, you're live in North America. What was the sitrep in the U.K. and Europe? Is it going live anytime soon?

It will be done in H2.

H2. Okay. And 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. Could you just remind us, what's the sort of the mix at the moment in terms of sort of onshore U.S., U.K. and nearshore? And then if you think about this -- I'm not asking for specific numbers. But if you think about this sort of strategically over the next 2 to 3 years, where could it go?

I don't have the numbers that I want -- I could quote with confidence.

No. And ultimately, we have 60 operational people. The numbers are comparatively small. So 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 on globally. We don't have -- it will be wrong to say we have a margin target for Manila work and a margin target for U.K. All this is about winning work in the round and the overall contract and the scope of the work and all the different capabilities being right. So that's very much what we're focused on. Do we think we can accelerate quickly in terms of as and when growth is there putting more work into all of our markets and capabilities? Yes, we can.

I would also just add it, I think it's got to be client led, the client requirement. It's not so much about the proportionality of where the resources are. It will depend -- each service will be slightly different. And ultimately, our clients will determine the -- what they require in terms of the resource mixed 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 U.K.-based resources for that.

Understood. And then secondly, Mike, you mentioned the $15 million win. You described it as an umbrella.

Yes.

Sort of relationship, it so maybe you could 7elaborate a little.

So historically, we've -- for that particular client, we have engaged with each of their individual entities on a one-to-one basis. So each contract will have been with each individual entity. What -- 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 at which they can access our resources.

And is it just assurance or is it broader than that?

It's technical assurance services still.

Okay. And 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?

Yes. So again, I'd rather not get into giving kind of detailed reconciliation, Andrew, so it becomes quite hard to then work through in terms of the annualization. I think the thing that we can say is that we're not 1 million out of the central. There on some things I can't say. We knocked a million out to the central overhead from half 2 to half 1. That was in spite of around about 2.6 million of investments in our strategic areas and 1.2 of ForEx losses. So you can infer an overhead benefit into the half. There is -- I think there's opportunity substantially. There's opportunity to continue to do and we'll continue to seek further efficiencies out of the business over time. So it is absolutely a mix of both things.

Yeah. Just a couple of questions from me. Firstly, on the Cyber division, it's nice to see the extra 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 some less core than others within the Cyber business?

So the reasons for wanting to break out those areas, we want to be a full suite Cyber services company. And it is really important to be able to service our clients in the way we want 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 profile. Is there some kind of annualized run rate that you can give us that can give us some sight line in the second half might look like?

Yes, I don't want to do that now. I think we'll take away actually just look at whether we didn't talk about recurring revenue being one of the KPIs we speak about back in September. We're able to sit here and start giving it now. I think it's something we should be looking at. And I probably would like to think we could start giving guidance on that, but I'm not going to make that commitment.

And then lastly, you spoke about the sharp recovery in utilization. It sounds like certainly TAS is back to a normalized level but in the second half you're still probably going to be below your medium-term margin ambitions for that business. What gets us back to a teens EBITDA profile, is that operational leverage from here or is it more operational margin?

Yeah. I think the gross margin, I expect will be, you know, second half will be in line with what we want from sustainable business in the 36, 37 range. I think there is then an operational leverage as we grow the business in terms of delivering the mid-teens EBITDA percentage that we're talking about.