UNAUDITED CONDENSED GROUP HALF YEARLY FINANCIALS

Six Months Ended

Six Months Ended

Period Movement

30 June 2019

30 June 2018

£'000

£'000

%

Restated1

Revenue

183,978

161,175

14.1%

Profit Before Tax

3,463

2,503

38.4%

Cash and Cash Equivalents

25,785

18,891

36.5%

Earnings per Share

27.0p

20.0p

35.1%

Proposed Dividends

9.0p

6.0p

50.0%

For further information:-

John Homer, Chief Executive

Daniel Taylor, Chief Financial Officer

01623 515008

nmcn PLC

As restated

6 months ended 30 June 2019

6 months ended 30 June 2018

Period movement

£'000

£'000

%

Revenue 

51,874

48,786

6.3%

Operating profit

588

4

13,365.2%

Operating profit margin

1.1%

0.0%

1.1%

Secured workload

118,000

89,000

32.6%

As restated

6 months ended 30 June 2019

6 months ended 30 June 2018

Period movement

£'000

£'000

%

Revenue 

132,104

112,389

17.5%

Operating profit

2,953

2,585

14.2%

Operating profit margin

2.2%

2.3%

(0.1%)

Secured workload

238,000

231,000

3.0%

Six Months Ended 30 June

Year Ended

2019

2018

31 December 2018

£'000

£'000

£'000

Restated1

Restated1

Revenue

183,978

161,175

340,450

Other operating income

610

291

1,277

184,588

161,466

341,727

Raw materials and consumables

(28,848)

(24,556)

(48,930)

Other external charges

(104,176)

(91,636)

(197,605)

Employee costs

(41,946)

(38,116)

(78,633)

Depreciation of property, plant and equipment

(2,611)

(2,258)

(4,677)

Other operating charges

(3,466)

(2,311)

(5,720)

Operating profit

3,541

2,589

6,162

Finance income

37

-

31

Finance costs

(115)

(86)

(185)

Profit before tax

3,463

2,503

6,008

Tax (Note 7)

(705)

(475)

(1,187)

Profit for the period

2,758

2,028

4,821

Other comprehensive income

-

-

-

Total comprehensive income for the period

2,758

2,028

4,821

Attributed to:-

Equity holders of the parent

2,758

2,028

4,821

2,758

2,028

4,821

Basic earnings per share (Note 6)

27.0p

20.0p

47.5p

Diluted earnings per share (Note 6)

26.3p

20.0p

45.0p

Dividend per share (Note 8)

9.0p

6.0p

18.0p

Share

Share-Based Payment

Merger

Capital Redemption

Retained

Capital

Reserve

Reserve

Reserve

Earnings

Total

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 1 January 2018 as previously reported

1,015

-

455

20

11,343

12,833

Adjustment on adoption of IFRS 16 (Note 3.5)

-

-

-

-

(21)

(21)

Balance at 1 January 2018 as restated

1,015

-

455

20

11,322

12,812

Profit and total comprehensive income for the period as restated (Note 3.5)

-

-

-

-

2,028

2,028

Dividends paid

-

-

-

-

(305)

(305)

Balance at 30 June 2018 as restated

1,015

-

455

20

13,045

14,535

Profit and total comprehensive income for the period as restated (Note 3.5)

-

-

-

-

2,793

2,793

Share-based payment expense

-

1,069

-

-

-

1,069

Share-based payment expense - deferred tax

-

381

-

-

-

381

Dividends paid

-

-

-

-

(609)

(609)

Balance at 31 December 2018 as restated (Note 3.5)

1,015

1,450

455

20

15,229

18,169

Profit and total comprehensive income for the period

-

-

-

-

2,758

2,758

Purchase of own shares (Note 11)

-

-

-

-

(164)

(164)

Exercise of share options

29

(697)

-

-

(977)

(1,645)

Share-based payment expense

-

521

-

-

-

521

Share-based payment expense - deferred tax

-

(236)

-

-

-

(236)

Dividends paid

-

-

-

-

(1,214)

(1,214)

Balance at 30 June 2019

1,044

1,038

455

20

15,632

18,189

30 June

31 December

2019

2018

2018

£'000

£'000

£'000

Assets

Restated1

Restated1

Non-current assets

Property, plant and equipment

25,710

20,886

22,591

Investments in joint ventures

-

75

-

Deferred tax asset

739

890

902

26,449

21,851

23,493

Current assets

Inventories

1,855

1,539

1,791

Trade and other receivables

66,929

67,265

60,814

Cash and cash equivalents

25,785

18,891

33,353

94,569

87,695

95,958

Total assets

121,018

109,546

119,451

Equity and liabilities

Capital and reserves attributable to equity holders of the Parent

Share capital

1,044

1,015

1,015

Share-based payment reserve

1,038

-

1,450

Merger reserve

455

455

455

Capital redemption reserve

20

20

20

Retained earnings

15,632

13,045

15,229

Total equity

18,189

14,535

18,169

Liabilities

Non-current liabilities

Obligations under leases

6,119

2,579

3,016

Provisions

339

401

350

6,458

2,980

3,366

Current liabilities

Trade and other payables

91,444

87,811

93,140

Current income tax payable

810

312

157

Obligations under leases

4,117

3,908

4,619

96,371

92,031

97,916

Total liabilities

102,829

95,011

101,282

Total equity and liabilities

121,018

109,546

119,451

Six Months Ended 30 June

Year Ended

2019

2018

31 December

2018

£'000

£'000

£'000

Restated1

Restated1

Cash flows from operating activities

Operating profit

3,541

2,589

6,162

Adjustments for:

Depreciation of property, plant and equipment

2,611

2,258

4,677

Gain on disposal of property, plant and equipment

(203)

(293)

(574)

Equity-settled share-based payment transactions

521

-

1,069

Operating cash flows before movements in working capital

6,470

4,554

11,334

(Increase)/decrease in inventories

(64)

284

29

(Increase)/decrease in receivables

(1,747)

(11,607)

1,177

Increase in amounts owed by joint ventures

(4,368)

(2,036)

(8,364)

Decrease in reinstatement provision

(11)

(3)

(54)

(Decrease)/increase in payables

(3,370)

14,340

19,669

Cash (used in)/generated from operations

(3,090)

5,532

23,791

Income tax paid

(129)

-

(500)

Net cash (used in)/generated from operations

(3,219)

5,532

23,291

Cash flows from investing activities

Purchase of property, plant and equipment

(1,438)

(1,953)

(3,263)

Proceeds on disposal of property, plant and equipment

532

550

930

Investment in joint ventures

-

(75)

-

Interest received

37

-

31

Interest paid

-

(4)

(4)

Net cash used in investing activities

(869)

(1,482)

(2,306)

Cash flows from financing activities

Equity dividends paid

(1,214)

(305)

(914)

Purchase of own shares

(164)

-

-

Proceeds from exercise of share options

29

-

-

Repayments of obligations under leases

(2,016)

(1,778)

(3,543)

Interest payable under leases

(115)

(82)

(181)

Net cash used in financing activities

(3,480)

(2,165)

(4,638)

Net (decrease)/increase in cash and cash equivalents

(7,568)

1,885

16,347

Cash and cash equivalents at start of period

33,353

17,006

17,006

Cash and cash equivalents at end of period

25,785

18,891

33,353

1.

Basis of preparation

The unaudited condensed Group half-yearly financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, and have been prepared on the basis of International Financial Reporting Standards (IFRSs) as adopted by the European Union. They do not include all of the information required for full annual financial statements. These condensed consolidated half-yearly financial statements have not been subject to audit or review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 by the Company's auditor, do not comprise statutory accounts within the meaning of Section 435 of the Companies Act 2006, and should be read in conjunction with the Annual Report 2018. The comparative figures for the year ended 31 December 2018 are not the Group's statutory accounts for that financial year. Those accounts have been reported upon by the Group's auditor and delivered to the Registrar of Companies. The report of the auditor was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain statements under Section 435 and 498 (2) or (3) respectively of the Companies Act 2006.

The Board regularly reviews financial statements, cash balances and forecasts and the Directors confirm that they consider the Group has adequate resources to continue to operate for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the unaudited condensed Group half yearly financial statements.

This is the first set of the Group's financial statements where IFRS 16 Leases has been applied. Changes to significant accounting policies are described in Note 3.

2.

Use of judgements and estimates

The preparation of unaudited condensed Group half-yearly financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these unaudited condensed Group half-yearly financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2018.

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 31 December 2018.

3.1.

Changes in significant accounting policies and other restatements

Except as described below, the accounting policies adopted in the preparation of the unaudited condensed Group half-yearly financial statements to 30 June 2019 are consistent with the policies applied by the Group in its consolidated financial statements as at, and for the year ended 31 December 2018.

This is the first set of the Group's financial statements where IFRS 16 Leases has been applied. The impact on these condensed half-yearly financial statements and the changes to the Group's significant accounting policies, together with details of other restatements, are described in further detail below.

The Group has considered amendments to existing standards and interpretations that are effective for the year ending 31 December 2019 and is of the view that they have no impact on the unaudited condensed Group half-yearly accounts, except as noted below for IFRS 16.

3.2.

IFRS 16 Leases - overview

The Group has initially adopted IFRS 16 Leases from 1 January 2019 under the retrospective approach.

IFRS 16 replaces IAS 17 and provides a single lease accounting model, requiring lessees to recognise right of use assets and lease liabilities in the balance sheet for all applicable leases. Operating lease costs previously recognised within operating profit in the statement of comprehensive income have been replaced by depreciation and finance costs. The adoption of IFRS 16 under the retrospective approach has affected the comparative information presented in the Group's condensed half-yearly financial statements, representing an increase in gross assets and liabilities in the balance sheet and an increase in operating profit and finance costs in the statement of comprehensive income. The impact of the restatement on the prior period's results is shown in note 3.5.

3.3.

IFRS 16 Leases - changes in accounting policy

The details of the new significant accounting policy and the nature of the change to previous accounting policy in relation to the Group's adoption of IFRS 16 Leases is set out below.

Amended accounting policy

Nature of change in accounting policy

The Group assesses whether a contract is or contains a lease at inception of the contract.

A contract is or contains a lease if the contract includes the right to control the use of an identified asset for a period of time in exchange for consideration. Factors that are considered when making this assessment include: the Group's right to obtain substantially all the economic benefits from use of the asset; the Group's right to direct the use of the asset; and the supplier's right to substitute the asset.

The Group previously determined whether a contract was or contained a lease under IFRIC 4. In practice, all contracts that are classified as a lease under IFRS 16 were also previously classified as a lease under IFRIC 4 and vice versa.

The Group allocates the consideration in the contract to each lease component on the basis of relative stand-alone selling prices. For each lease component, the Group recognises a right of use asset and a lease liability at the lease commencement date.

Under IAS 17, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all the risks and rewards of ownership to the Group. Under IFRS 16, the majority of the Group's leases are recognised on the balance sheet as right of use assets and lease liabilities, including those arrangements previously classified as either finance leases or operating leases under IAS 17.

Lease liabilities are presented as "obligations under leases" in the balance sheet.

The lease liability is initially measured at the present value of future lease payments, discounted at the interest rate implicit in the lease. Where the implicit interest rate cannot be determined, the Group discounts the future lease payments using its incremental borrowing rate.

The lease liability is subsequently measured at amortised cost using the effective interest method.

Lease liabilities were only recognised under IAS 17 in respect of arrangements classified as finance leases. This distinction no longer exists under IFRS 16.

Where an arrangement was treated as a finance lease under IAS 17, a liability was initially recognised equal to the value of the asset capitalised within property, plant and equipment (see below). The liability was subsequently measured at amortised cost using the effective interest method. There is no material difference between the amounts recognised as liabilities or as interest expense for such arrangements following the adoption of IFRS 16.

Lease payments associated with operating leases were recognised as an expense on a straight-line basis over the lease term, with no amounts being recognised on the balance sheet.

Right of use assets are presented in "property, plant and equipment" on the balance sheet.

The right of use asset is initially measured at cost, representing the initial amount of the lease liability adjusted for any up-front lease payments, direct costs incurred or lease incentives received.

The right of use asset is subsequently depreciated on a straight-line basis to the earlier of the end of the useful life of the right of use asset or the end of the lease term. The estimated useful lives of right of use assets are determined on the same basis as those of property, plant and equipment.

Assets were only recognised under IAS 17 in respect of arrangements classified as finance leases.

Where an arrangement was previously treated as a finance lease under IAS 17, an asset was recognised within property, plant and equipment at the fair value of the asset or, if lower, the present value of the minimum lease payments. The asset was subsequently depreciated on the same basis as other similar assets purchased by the Group without recourse to financing arrangements. Such assets are now presented as right of use assets within property, plant and equipment. There is no material difference between the amounts recognised as assets or as depreciation expense for such arrangements following the adoption of IFRS 16.

In addition, under IFRS 16 a right of use asset is now recognised within property, plant and equipment for assets under leases that were previously classified as operating leases under IAS 17, for which were lease payments were recognised as an expense on a straight-line basis over the lease term, with no amounts being recognised on the balance sheet.

No right of use asset or lease liability is recognised in respect of leases with terms of 12 months or less or in relation to low value assets. Lease payments associated with such leases are recognised as an expense on a straight-line basis over the lease term.

The treatment of short-term leases and leases for low-value assets is unchanged on adoption of IFRS 16 as all such leases were previously classified as operating leases under IAS 17.

3.4.

Other restatements

As disclosed in the consolidated financial statements for the year ended 31 December 2018, the Group made two restatements to its previously reported results, which were both in relation to reclassifications only. The restatements also applied to the six months ended 30 June 2018 as noted below. The restatements had no impact on total comprehensive income or the total equity of the Group.

The Company reclassified an asset that was jointly owned from within contract assets to property, plant and equipment due to the long-term nature of the asset concerned. The net book value, and hence total adjustment at 30 June 2018 was £0.8 million. The Company also reclassified items between contract assets and accruals, increasing both by £4.3 million to better reflect the nature and timing of the transactions involved. The restatements combined also increased revenue and the related costs by £0.3 million. The impact of the restatement on the prior period's results is shown in note 3.5.

3.5.

Impact of restatements on the condensed half-yearly financial statements

Impact on the condensed Group statements of comprehensive income

Six Months Ended 30 June 2018

Year Ended 31 December 2018

As Reported

Adjustments

Restated

As Reported

Adjustments

Restated

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Explanation of adjustment

Note 3.3

Note 3.4

Note 3.3

Note 3.4

Revenue

160,859

-

316

161,175

340,450

-

-

340,450

Other operating income

291

-

-

291

1,277

-

-

1,277

161,150

-

316

161,466

341,727

-

-

341,727

Raw materials and consumables

(24,509)

-

(47)

(24,556)

(48,930)

-

-

(48,930)

Other external charges

(91,636)

-

-

(91,636)

(197,605)

-

-

(197,605)

Employee costs

(38,116)

-

-

(38,116)

(78,633)

-

-

(78,633)

Depreciation of property, plant and equipment

(1,778)

(211)

(269)

(2,258)

(4,166)

(511)

-

(4,677)

Other operating charges

(2,543)

232

-

(2,311)

(6,282)

562

-

(5,720)

Operating profit

2,568

21

-

2,589

6,111

51

-

6,162

Finance income

-

-

-

-

31

-

-

31

Finance costs

(56)

(30)

-

(86)

(114)

(71)

-

(185)

Profit before tax

2,512

(9)

-

2,503

6,028

(20)

-

6,008

Tax

(477)

2

-

(475)

(1,191)

4

-

(1,187)

Profit for the period

2,035

(7)

-

2,028

4,837

(16)

-

4,821

Other comprehensive income

-

-

-

-

-

-

-

-

Total comprehensive income for the period

2,035

(7)

-

2,028

4,837

(16)

-

4,821

3.5.

Impact of restatements on the condensed half-yearly financial statements (continued)

Impact on the condensed Group balance sheets

As at 1 January 2018

As Reported

Adjustment

Restated

£'000

£'000

£'000

£'000

Explanation of adjustment

Note 3.3

Note 3.4

Assets

Non-current assets

Property, plant and equipment

18,174

1,409

-

19,583

Investments in joint ventures

-

-

-

-

Deferred tax asset

1,223

5

-

1,228

19,397

1,414

-

20,811

Current assets

Inventories

1,820

-

-

1,820

Trade and other receivables

53,627

-

-

53,627

Cash and cash equivalents

17,006

-

-

17,006

72,453

-

-

72,453

Total assets

91,850

1,414

-

93,264

Equity and liabilities

Capital and reserves attributable to equity holders of the Parent

Share capital

1,015

-

-

1,015

Share-based payment reserve

-

-

-

-

Merger reserve

455

-

-

455

Capital redemption reserve

20

-

-

20

Retained earnings

11,343

(21)

-

11,322

Total equity

12,833

(21)

-

12,812

Liabilities

Non-current liabilities

Obligations under leases

2,514

374

-

2,888

Provisions

404

-

-

404

2,918

374

-

3,292

Current liabilities

Trade and other payables

73,471

-

-

73,471

Current income tax payable

177

-

-

177

Obligations under leases

2,451

1,061

-

3,512

76,099

1,061

-

77,160

Total liabilities

79,017

1,435

-

80,452

Total equity and liabilities

91,850

1,414

-

93,264

3.5.

Impact of restatements on the condensed half-yearly financial statements (continued)

Impact on the condensed Group balance sheets

As at 30 June 2018

As at 31 December 2018

As Reported

Adjustment

Restated

As Reported

Adjustment

Restated

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Explanation of adjustment

Note 3.3

Note 3.4

Note 3.3

Note 3.4

Assets

Non-current assets

Property, plant and equipment

18,147

1,951

788

20,886

19,918

2,673

-

22,591

Investments in joint ventures

75

-

-

75

-

-

-

-

Deferred tax asset

883

7

-

890

893

9

-

902

19,105

1,958

788

21,851

20,811

2,682

-

23,493

Current assets

Inventories

1,539

-

-

1,539

1,791

-

-

1,791

Trade and other receivables

63,014

-

4,251

67,265

60,814

-

-

60,814

Cash and cash equivalents

18,891

-

-

18,891

33,353

-

-

33,353

83,444

-

4,251

87,695

95,958

-

-

95,958

Total assets

102,549

1,958

5,039

109,546

116,769

2,682

-

119,451

Equity and liabilities

Capital and reserves attributable to equity holders of the Parent

Share capital

1,015

-

-

1,015

1,015

-

-

1,015

Share-based payment reserve

-

-

-

-

1,450

-

-

1,450

Merger reserve

455

-

-

455

455

-

-

455

Capital redemption reserve

20

-

-

20

20

-

-

20

Retained earnings

13,073

(28)

-

13,045

15,266

(37)

-

15,229

Total equity

14,563

(28)

-

14,535

18,206

(37)

-

18,169

Liabilities

Non-current liabilities

Obligations under leases

2,122

457

-

2,579

2,329

687

-

3,016

Provisions

401

-

-

401

350

-

-

350

2,523

457

-

2,980

2,679

687

-

3,366

Current liabilities

Trade and other payables

82,772

-

5,039

87,811

93,140

-

-

93,140

Current income tax payable

312

-

-

312

157

-

-

157

Obligations under leases

2,379

1,529

-

3,908

2,587

2,032

-

4,619

85,463

1,529

5,039

92,031

95,884

2,032

-

97,916

Total liabilities

87,986

1,986

5,039

95,011

98,563

2,719

-

101,282

Total equity and liabilities

102,549

1,958

5,039

109,546

116,769

2,682

-

119,451

3.5.

Impact of restatements on the condensed half-yearly financial statements (continued)

Impact on the condensed Group statements of cash flows

Six Months Ended 30 June 2018

Year Ended 31 December 2018

As Reported

Adjustment

Restated

As Reported

Adjustment

Restated

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Explanation of adjustment

Note 3.3

Note 3.4

Note 3.3

Note 3.4

Cash flows from operating activities

Operating profit

2,568

21

-

2,589

6,111

51

-

6,162

Adjustments for:

Depreciation of PPE1

1,778

211

269

2,258

4,166

511

-

4,677

Gain on disposal of PPE

(293)

-

-

(293)

(574)

-

-

(574)

Share-based payment expense

-

-

-

-

1,069

-

-

1,069

Operating cash flows before movements in working capital

4,053

232

269

4,554

10,772

562

-

11,334

Decrease in inventories

284

-

-

284

29

-

-

29

(Increase)/decrease in receivables

(11,044)

-

(563)

(11,607)

1,177

-

-

1,177

Increase in amounts owed by joint ventures

(2,036)

-

-

(2,036)

(8,364)

-

-

(8,364)

Decrease in reinstatement provision

(3)

-

-

(3)

(54)

-

-

(54)

Increase in payables

14,046

-

294

14,340

19,669

-

-

19,669

Cash generated from operations

5,300

232

-

5,532

23,229

562

-

23,791

Income tax paid

-

-

-

-

(500)

-

-

(500)

Net cash generated from operations

5,300

232

-

5,532

22,729

562

-

23,291

Cash flows from investing activities

Purchase of PPE

(1,953)

-

-

(1,953)

(3,263)

-

-

(3,263)

Proceeds on disposal of PPE

550

-

-

550

930

-

-

930

Investment in joint ventures

(75)

-

-

(75)

-

-

-

-

Interest received

-

-

-

-

31

-

-

31

Interest paid

(4)

-

-

(4)

(4)

-

-

(4)

Net cash used in investing activities

(1,482)

-

-

(1,482)

(2,306)

-

-

(2,306)

Cash flows from financing activities

Equity dividends paid

(305)

-

-

(305)

(914)

-

-

(914)

Repayments of obligations under leases

(1,576)

(202)

-

(1,778)

(3,052)

(491)

-

(3,543)

Interest payable under leases

(52)

(30)

-

(82)

(110)

(71)

-

(181)

Net cash used in financing activities

(1,933)

(232)

-

(2,165)

(4,076)

(562)

-

(4,638)

Net increase in cash and cash equivalents

1,885

-

-

1,885

16,347

-

-

16,347

Cash and cash equivalents at beginning of period

17,006

-

-

17,006

17,006

-

-

17,006

Cash and cash equivalents at end of period

18,891

-

-

18,891

33,353

-

-

33,353

4.

Segment reporting

The Board reviews the Group's operational performance via two segments: the Water segment and the Built Environment segment.

Segment revenue and profit

Six Months Ended 30 June 2019

Built Environment

Water

Total

£'000

£'000

£'000

Revenue

51,874

132,104

183,978

Result before corporate expenses

4,197

9,669

13,866

Corporate expenses

(3,609)

(6,716)

(10,325)

Operating profit

588

2,953

3,541

Finance income