TIDMNCC
RNS Number : 7557N
NCC Group PLC
27 September 2023
27 September 2023
NCC Group plc
Preliminary unaudited results for the year ended 31 May 2023
NCC Group plc (LSE : NCC, "NCC Group" or "the Group"), a leading
independent provider of global cyber security and resilience
services, reports its full year results for the 12 months to 31 May
2023 ( "the full year", "FY", "2023", "the year").
Highlights
Change at Change
actual at constant
Unaudited rates currency
2023 2022 (1)
----------- ------
Revenue (GBPm) (1) 335.1 314.8 6.4% 1.5%
Assurance (Cyber Security) (GBPm)
(1) 270.8 258.5 4.8% 0.1%
Software Resilience (GBPm) (1) 64.3 56.3 14.2% (2) 7.5% (2)
------------
Gross margin (%) 39.4% 42.1% (2.7% pts)
Adjusted operating profit (1) 28.8 48.1 (40.1%)
Operating profit 1.9 34.7 (94.5%)
(Loss)/profit before taxation (GBPm) (4.3) 31.0 n/m
Basic EPS (pence) (1.5p) 7.4p n/m
Adjusted basic EPS (1) (pence) 6.1p 10.8p (43.5%)
Net debt excluding lease liabilities
(1) 49.6 52.4 (5.3%)
Cash conversion (1) (%) 102.9% 101.9% 1.0% pts
Final Dividend 3.15p 3.15p -
----------------------------------------- ----------- ------ ----------
Footnotes:
1: Revenue at constant currency, Adjusted operating profit,
Adjusted basic EPS, Net debt excluding lease liabilities and cash
conversion are Alternative Performance Measures (APMs) and not IFRS
measures. See Note 3 for an explanation of APMs and adjusting
items, including a reconciliation to statutory information.
2: Excludes the impact of the fair value revenue adjustment on
2022 comparator (GBP4.4m). Following the acquisition of IPM in the
prior period, goodwill and intangible assets were recognised
amounting to GBP68.6m and GBP92.6m respectively. Management was
required to recognise all assets and liabilities at fair value,
giving rise to a fair value adjustment on the level of deferred
revenue acquired of GBP12.1m. This had resulted in a downward
adjustment to the book value of IPM's deferred revenues reflecting
the fair value of service still to be delivered. If the fair value
adjustment had not applied, revenue would be GBP4.4m higher for the
12 months ended 31 May 2022. On this basis, management disclose
unaudited proforma revenue information to show the consequential
impact on the Group and Software Resilience results for the year
ended 31 May 2023. See Note 3 for an explanation of unaudited
proforma Revenue. Unaudited proforma Revenue is an APM and not a
IFRS measure.
n/m: not meaningful
FY23 results
-- Assurance (Cyber Security) revenues in line with prior year at
constant currency (Actual rates: c.+5% growth) at GBP270.8m
o H1 growth was c.+11% at constant currency (1) (Actual rates: c.+18%).
H2 decline of c.-10% at constant currency (1) (Actual rates: c.-7%)
driven predominantly by reduction in spend by North American technology
clients and to a lesser extent by Global Professional Services
in the UK
o Global Professional Services H1 growth of c.+10% at constant currency
(1) (Actual rates: c.+19%), with full year decline of c. -3% at
constant currency (1) (Actual rates: c.+2% growth). H2 decline
of c. -16% at constant currency (1) (Actual rates: c. -13%)
o Global Managed Services H1 growth of c.+11% at constant currency
(1) (Actual rates: c.+13%), with full year growth of c.+12% at
constant currency (1) (Actual rates: c.+16% growth). H2 growth
of c. +14% at constant currency (1) (Actual rates: c. +18%)
-- Software Resilience (Escrow) showed unaudited proforma revenue
(2) decline of c.-0.5% at constant currency (1) , after considering
the prior year fair value revenue adjustment (GBP4.4m) (Actual
rates: c.+6% growth) to GBP64.3m, with:
o H1 decline of -1.6% at constant currency (1) (Actual rates: +6.8%)
however H2 growth of c.0.6% at constant currency (1) (Actual rates:
c.+5%)
o New leadership team (appointed in November 2022) starting to deliver
momentum, consistency in quarterly growth, price rises, and realisation
of efficiency contribution targeted at the time of the May 2022
operational review
-- Gross margin percentage decreased by 2.7% pts to 39.4% due to:
o Reduce revenue contribution from Global Professional Services
within Assurance (Cyber Security) and the consequential impact
on direct utilisation decreasing by -10% against a backdrop of
lower attrition
o Offset by an improvement in Software Resilience revenue contribution
-- Operating profit declined by 94.5% to GBP1.9m due to:
-- Reduced trading performance in Assurance (Cyber Security) offset
by an improvement in Software Resilience profitability which was
driven by improved operating efficiency, as targeted at the time
of the May 2022 operational review
-- Recognition of Individually Significant Items (SIs) of GBP14.7m
(of which GBP9.8m related to the impairment of North American
Goodwill within the Assurance (Cyber Security) business)
-- Loss before taxation of GBP4.3m after increased finance costs
of GBP2.5m due to an increase in borrowing following the IPM acquisition
and an increase in base interest rates . All of the above, resulted
in a Basic EPS of (1.5p) (2022: 7.4p) and Adjusted basic EPS (1)
of 6.1p (2022: 10.8p).
-- Continued strong cash conversion (1) of c. 103%. Net debt (excluding
leases) of c.GBP50m, leverage (excluding leases) of 1.4x. During
December 2022, we secured a new four-year GBP162.5m multi-currency
revolving credit facility
-- Final dividend of 3.15p maintained for FY23
FY24 current trading
-- Current trading in line with expectations with:
o Cost efficiencies across Assurance (Cyber Security) and corporate
functions already being realised
o Global Professional Services sales orders stabilised, no material
clients lost, however North America revenue performance experienced
in H2 FY23 is currently annualising through H1 FY24 giving rise
to YoY double digit Q1 revenue decline
o YoY double digit Q1 revenue growth in Global Managed Services
o YoY single digit Q1 revenue growth in Software Resilience against
a low comparator
Outlook
-- The Board expects FY24 to be a period of considerable change for
the Group, targeting a modest improvement in Group Adjusted Operating
profit (1) in both the Assurance (Cyber Security) and Software
Resilience businesses
In Assurance (Cyber Security):
o We expect low single digit revenue growth arising from stronger
performance in high value Managed Services, including XDR. This
will offset the annualisation of the sales declines in North American
and UK Professional Services experienced during H2 FY23.
o Identified various cost efficiencies across Assurance (Cyber Security)
and corporate functions as announced in the June 2023 trading
update and are on track to meet these.
In Software Resilience:
o We expect revenue growth in low single digits, underpinned by
sustainable actions successfully taken on pricing and sales execution.
The operating profit growth will be delivered net of in-year systems
investments that will realise newly identified contribution efficiencies
of c.GBP1m from FY25 onwards.
-- The Board is confident that continued execution of the strategy
will deliver double-digit revenue growth and mid-teens operating
profit margins from FY26 onwards
Strategy
-- Execution of the Next Chapter strategy progressing well following
key leadership appointments with deep industry recognised expertise
-- New global delivery and operations centre opened in Manila in
September 2023
-- New distinct brand for our Software Resilience business will roll
out early in 2024 and will be revealed at our FY23 results presentation
Mike Maddison , Chief Executive Officer, commented:
"While the market conditions we announced in our March Trading
Update have impacted our FY23 revenue performance and
profitability, we are confident about the medium-term growth
drivers for cyber security and that continued progress on strategic
actions will position the business to deliver greater growth and
profitability in the years ahead.
I am pleased to report that since the launch of our Next Chapter
strategy in February 2023, the Group has delivered foundational
components of strategic change to create a more agile and resilient
business, improve profitability and deliver shareholder value. I am
grateful to all my NCC Group colleagues for their unwavering
commitment and energy as we execute our plan to capitalise on the
enduring opportunities in our markets, particularly given the
material cost savings that we are realising in the business.
We have fortified our leadership team in key areas with
high-calibre individuals with deep cyber industry expertise,
accelerated the diversification of our client base across our
fastest growing sectors, launched our new global delivery and
operations centre in Manila and will reveal today a new distinct
brand for our Software Resilience business, which will give us a
clearer, simpler proposition with which to increase our presence in
this market".
Analyst presentation briefing and Q&A session:
A briefing for analysts will be held today at 9am via an
in-person meeting and a live webcast and conference call.
The in-person briefing will be held at The London Stock Exchange
- 10 Paternoster Square, London, EC4M 7LS. For those who wish to
attend the in-person briefing please contact
NCCGroup-maitland@h-advisors.global
To access the live webcast, please register in advance here:
https://www.lsegissuerservices.com/spark/NCCGroup/events/5dee2e8d-129d-4814-9d7e-0f9bf8faa483
To access the conference call, please register to receive unique
dial-in details here:
https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=7338729&linkSecurityString=12f453725d
A recording of the presentation will be made available later in
the day on the Investors section of NCC Group's website at
https://www.nccgroupplc.com/investor-relations/results-media/
Enquiries:NCC Group ( www.nccgroupplc.com ) +44 (0)7824 412 405
Yvonne Harley
H/Advisors Maitland +44 (0)20 7379 5151
Sam Cartwright NCCGroup-maitland@h-advisors.global
Alistair de Kare-Silver
About NCC Group plc:
NCC Group is a people-powered, tech--enabled global cyber
security and software escrow business.
Driven by a collective purpose to create a more secure digital
future, c2,000 colleagues across Europe, North America and Asia
Pacific harness their collective insight, intelligence and
innovation to deliver cyber resilience for over 14,000 clients
across the public and private sector globally.
With decades of experience and a rich heritage, NCC Group is
committed to developing sustainable solutions that continue to meet
clients' current and future cyber security challenges.
Cautionary note regarding forward-looking statement
This announcement includes statements that are forward-looking
in nature. Forward-looking statements involve known and unknown
risks, assumptions, uncertainties and other factors which may cause
the actual results, performance or achievements of the Group to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements. Except as required by the Listing Rules, Disclosure and
Transparency Rules and applicable law, the Group undertakes no
obligation to update, revise or change any forward-looking
statements to reflect events or developments occurring on or after
the date such statements are published.
Chief Executive Officer Review
An ever-changing market
There is only one certainty in our industry: change.
I have worked in this space since the 1990s when "computing
security" was a niche specialism. Today, Cyber Security is high on
the risk registers of every enterprise and government in the world,
and this industry will continue to change as Cyber Security becomes
even more fundamental to societies and economies. Our lives are
becoming more digitally connected each year, cyber criminals and
nation states are constantly innovating and improving their attack
capabilities, and AI and quantum computing have the potential to
cause paradigm shifts that will reverberate around the globe.
As a business we have to be alive to the pace of this change. If
we stand still, we will be left behind.
Our next chapter strategy is designed to address this challenge
head on, creating an organisation that gets ahead of its market
drivers with foundations that are fit for today and the future. It
is relentlessly focused on clients and our ability to address the
issues they face.
It sees us become even more globally integrated, while
confidently telling our story with an energised, simplified brand.
This is why - even against the backdrop of a challenging year - I
am so optimistic about where we are heading.
NCC Group exists to make the world safer and more secure. This
purpose remains unchanged. But the market has changed around us, so
as a business we must adapt.
A client-centric approach
When I joined NCC Group I was immediately struck by the breadth
and depth of our technical expertise. It is truly world class. Our
insight, innovation and intelligence are respected globally.
This expertise sits at our core. However, we have to unlock its
potential by harnessing it to create solutions that are designed
around the needs of our clients.
This starts with clarity around the markets we serve. It's why
our strategy sees us focus on our fastest growing sectors -
specifically those which are highly regulated and most exposed to
cyber risk, like financial services, industrials and technology. We
will build deeper relationships at the C-level within those
businesses to give us the opportunity to move beyond transactional
sales and into the position of trusted advisor. We have brilliant
individuals in our business who are already working at this level,
but we will invest in the right talent to enable scale.
With that in place, we can properly unlock the potential of our
expertise and be a true end-to-end Cyber Security services partner
that can deliver business outcomes.
In practice, this means rather than simply testing a client's
infrastructure annually, we'll also work with them to address the
security vulnerabilities we discover. Rather than providing a
one-off incident response to a client following a cyber-attack,
we'll provide consultancy and remediation after the event to enable
greater resilience - and then manage their Cyber Security
operations 24/7.
This is why we are making targeted investments into specific
capabilities - like building out our consulting team and enhancing
our Managed Services offering. It is all driven by our target
customers and their needs.
We will have all the constituent parts to continually create
these customer journeys. Our strategy sees us knit them together to
ensure consistent, consultative client relationships globally - all
powered by our unrivalled technical expertise.
True global delivery
As our industry continues to change, the way we deliver work is
changing too. A standard penetration test - the evaluation of
software or hardware to identify security vulnerabilities - is
carried out in a very different way now to how it was 15 years ago.
We are now more efficient, there is more automation, and we can
test on a much larger scale.
The need for us to continually adapt was underlined during the
pandemic. A significant amount of testing that previously took
place on site at secure client locations was being delivered
remotely. It showed that some low-level testing could be done in a
different way, and at a lower cost.
Fast forward to 2023 and the cost cutting across the industry,
and layoffs led by North American West Coast tech firms accelerated
this move and we felt this acutely. Clients still need this
service, but they want it delivered in a more cost-effective
way.
This shift has informed our strategic focus on global delivery
and flexible resourcing. We can get better at using capabilities in
our Dutch business for client work in New York or harnessing our UK
expertise for an Australian assignment. Our delivery has been too
local and rigid in the past.
It's been a driving factor in our decision to open in September
2023 an offshore delivery and operations centre. Some of the best
Cyber Security talent in the world is found in emerging markets -
I've seen that first hand throughout my career - and this
investment will mean we can harness that talent and complement it
with our existing colleagues to be more flexible to our clients'
needs.
We are trusted by governments and the most highly regulated
organisations to test and manage their security. There will always
be demand for in-market talent to work on sensitive, complex
programmes of work. Our new delivery and operations centre simply
means we can expand our capabilities and provide more value for our
clients.
Communicating with impact
We also have an opportunity to better tell our story and explain
the value we offer.
We provide counsel to governments around the world on high level
Cyber Security issues. We are handpicked by the most significant
businesses globally to protect their digital assets. We are trusted
by critical national infrastructure providers to secure their
systems and keep them running.
This trust has been created through our insight, intelligence
and innovation. It has taken years to build. It enables us to act
as a convenor of decision makers - on policy, regulation and the
macro forces affecting our collective ability to secure our digital
future.
This credibility and track record should form the core of our
messaging. We have a unique position in the market. As a client,
this is what you gain access to when you engage with us. Yet we
have been reluctant to talk about it.
We are going to seize this opportunity, with our new Chief
Marketing Officer bringing together our global marketing,
communications and public affairs team to deliver on this strategy.
It starts through the creation of distinct and relevant brands for
Cyber Security and Software Resilience, with clearer, simpler
propositions. From here we will focus on boosting our profile
through marketing programmes designed around the C-suite in our
target sectors. We will become more present, more active and bolder
in our marketing and communications.
Financial performance summary
It's been a challenging year for the Group with a decline in the
rate of revenue growth and overall profitability. Our revenue
performance and profitability suffered from the market dynamics
within Cyber Security. In particular, the Group experienced buying
decision delays and cancellations in the North American tech sector
and to a lesser extent in our UK market, effecting our Global
Professional Services revenue and overall gross profit performance.
These headwinds have further reinforced the need to accelerate the
implementation of our next chapter of the Group strategy.
Group revenues increased by +1.5% on a constant currency basis
(1) and +6.4% (2022: +16.4%) at actual rates. After considering the
prior year Software Resilience fair value revenue adjustment
(GBP4.4m) (2) , Group revenues were flat at constant currency (1)
(+4.8% at actual rates).
In our Cyber Security business, the Europe and UK and APAC
businesses grew on a constant currency basis (1) by +3.9% and +3.0%
respectively (+6.6% and +3.3% at actual rates), whereas our North
American business declined -4.9% on a constant currency basis (1)
(+5.5% at actual rates) following the decline in tech sector
spend.
Global Professional Services declined by -3.1% to GBP199.3m on a
constant currency basis (1) (+2.0% at actual rates) with delivered
day rates increasing by +7.5% (2022: +2.1%) and direct utilisation
decreasing by -10.0% pts. Global Managed Services (GMS) grew by
+12.4% to GBP67.8m (2022: +6.7%) on a constant currency basis (1)
(+15.7% at actual rates). New XDR service global sales orders for
the forthcoming years increased +72.5% from GBP11.6m in 2022 to
GBP20.0m in 2023.
In our Software Resilience business, following the completion of
the acquisition of IPM in June 2021, we experienced our first full
year of IPM contract renewals which contributed to overall growth
in the division of +7.5% on a constant currency basis (1) to
GBP64.3m (+14.2% at actual rates). However, considering the prior
year Software Resilience fair value revenue adjustment (GBP4.4m),
total Software Resilience revenue (on an unaudited pro forma basis
(2) ) decreased by -0.5% at constant currency (1) (+5.9% at actual
rates). Our Escrow-as-a-Service (EaaS), our cloud-based escrow
proposition, generated sales orders of GBP4.8m, an increase of 38%
compared to the prior year (2022: GBP3.4m). It's therefore pleasing
to see that our new leadership team (appointed in November 2022) is
starting to deliver momentum, consistency in quarterly growth,
price rises, and realisation of efficiency contribution targeted at
the time of the May 2022 operational review.
Gross profit decreased by -0.5% to GBP132.0m (2022: GBP132.6m)
with gross margin percentage decreasing to 39.4% (2022: 42.1%). The
2.7% pts gross margin (%) decrease was due to the revenue
performance of the Cyber Security business and the consequential
impact on direct utilisation decreasing by -10% against a backdrop
of lower attrition (15.5%).
Total administrative expenses have increased by 32.9% (GBP32.2m)
to GBP130.1m (2022: GBP97.9m). This was mostly due to an increase
in Individual Significant Items of GBP13.8m and an increase in
people and training costs arising from inflationary pressures and
further investment (including XDR set up) to support the business
of c.GBP6.5m. Other higher costs include an increase in non-client
travel and office costs (including the impact of our NCC
Conferences) of c.GBP5m, depreciation and amortisation (including
amortisation on acquisition intangibles) of c.GBP3m, marketing
c.GBP1m and foreign exchange c.GBP1m.
Footnotes:
1: Revenue at constant currency is an Alternative Performance
Measures (APMs) and not IFRS measures. See Note 3 for an
explanation of APMs and adjusting items, including a reconciliation
to statutory information.
2: See Note 3 for an explanation of unaudited proforma total
Revenue and a revenue adjustment of GBP4.4m to 2022 Revenue.
Unaudited proforma total Revenue is an APM and not a IFRS
measure.
Adjusting items to operating profit of GBP26.9m (2022: GBP13.4m)
consists of amortisation of acquired intangibles (GBP10.0m),
share-based payments (GBP2.2m) and Individually Significant Items
(GBP14.7m). The Group has recognised an overall operating profit of
GBP1.9m (2022: GBP34.7m), a decrease of -94.5%. As the Group
manages its performance internally at an Adjusted operating profit
(1) level, Adjusted operating profit (1) decreased by -40.1% to
GBP28.8m (2022: GBP48.1m). This information which shows a decline
in Cyber Security gross profit and overall profitability and an
improvement in Software Resilience gross profit and overall
profitability is disclosed below and reconciled to profit after
taxation:
Unaudited
2023 2022
Central Central
Cyber Software and head Cyber Software and head
Security Resilience office Group Security Resilience office Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Revenue 270.8 64.3 - 335.1 258.5 56.3 - 314.8
Cost of sales (184.7) (18.4) - (203.1) (166.2) (16.0) - (182.2)
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Gross profit 86.1 45.9 - 132.0 92.3 40.3 - 132.6
Gross margin % 31.8% 71.4% - 39.4% 35.7% 71.6% - 42.1%
Administrative
expenses
(2) (70.7) (14.7) (5.2) (90.6) (53.2) (17.5) (2.7) (73.4)
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Adjusted EBITDA (1) 15.4 31.2 (5.2) 41.4 39.1 22.8 (2.7) 59.2
Depreciation and
amortisation
(3) (8.5) (0.6) (3.5) (12.6) (7.2) (0.8) (3.1) (11.1)
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Adjusted Operating
profit (1) 6.9 30.6 (8.7) 28.8 31.9 22.0 (5.8) 48.1
Amortisation of
acquired
intangibles (1.2) (5.8) (3.0) (10.0) (0.9) (4.8) (2.9) (8.6)
Share-based payments (1.6) (0.1) (0.5) (2.2) (2.1) (0.3) (1.5) (3.9)
Individually
Significant
Items (12.3) (2.4) - (14.7) - (0.9) - (0.9)
Operating
(loss)/profit (8.2) 22.3 (12.2) 1.9 28.9 16.0 (10.2) 34.7
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Operating margin % (3.0%) 34.7% n/a 0.6% 11.2% 28.5% n/a 11.0%
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Finance costs (6.2) (3.7)
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
(Loss)/profit before
taxation (4.3) 31.0
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Taxation (0.3) (8.0)
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
(Loss)/profit after
taxation (4.6) 23.0
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
EPS
Basic EPS (1.5p) 7.4p
Adjusted basic EPS
(1) 6.1p 10.8p
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Footnotes:
1 Adjusted EBITDA, Adjusted operating profit and Adjusted basic
EPS are Alternative Performance Measures (APMs) and not IFRS
measures. See Note 3 for an explanation of APMs and adjusting
items.
2 Administrative expenses excludes depreciation and
amortisation, amortisation of acquired intangibles, Share-based
payments and individual significant items.
3 Depreciation and amortisation excludes amortisation of
acquired intangibles.
Individually Significant items (ISIs) incurred during the year
amounted to GBP14.7m. These items are represented mainly by an
impairment in Goodwill of GBP9.8m for the North American Assurance
business following the recent reduction in spend by technology
clients and GBP4.2m in relation to fundamental reorganisation costs
as we reshaped the Group to implement the next chapter of the
Group's strategy. The impairment of North American Goodwill has
been recognised based on the annual assessment of circumstances as
at 31 May 2023. ISIs also include costs associated with the
strategic review of our Software Resilience business (GBP3.0m) and
an impairment of Goodwill (GBP3m) relating to our Danish business
following its reorganisation. These were partially offset by a
profit on disposal of our DDI business (GBP4.7m).
Profit before taxation decreased -113.9% to a loss of GBP4.3m
(2022: profit of GBP31.0m) following the above revenue and gross
profit performance, increased ISIs (mainly the impairment of North
American Assurance Goodwill) and increased borrowing costs.
Consequently, profit after taxation decreased -120.0% to a loss of
GBP4.6m (2022: profit of GBP23.0m) giving rise to a basic EPS of
(1.5p) (2022: 7.4p); Adjusted basic EPS (1) amounts to 6.1p (2022:
10.8p).
At 31 May 2023, our cash conversion (1) was 102.9% (2022:
101.9%). Net debt (1) amounts to GBP79.6m (2022: GBP85.0m). Net
debt excluding lease liabilities (1) amounts to GBP49.6m (2022:
GBP52.4m). Total borrowings (including lease liabilities) offset by
cash and cash equivalents amounts to GBP79.6m (2022: GBP85.0m).
A global leader
We have faced a number of challenges this year. We've had to
make some difficult decisions to ensure we are set up to achieve
our purpose - to create a more secure digital future.
The reaction of our colleagues during this period has been
remarkable and I am very grateful. The resilience and commitment
they have shown in the circumstances has been inspiring. And it's
this resilience which provides the foundations for us to execute
our strategy and make NCC Group the global leader in Cyber Security
and Escrow services.
We will emerge as a more confident and sustainable business
built around the needs of our clients - one that is set up to adapt
to our ever-changing industry.
This confidence is already starting to emerge as our strategic
roadmap (Clients, Our capabilities, Global Delivery and
Differentiated brands) begins to yield tangible results. Our
relentless focus on being a global, agile and client focused
business led by my new leadership team with recognised deep cyber
industry experience, is resonating with our stakeholders. I'm
particularly proud of the efforts of a multi-disciplinary team, who
have enabled our new global operations and delivery centre in
Manila to launched in September 2023. Not only do we have a fully
staffed business ready to go, led by Saira Acuna, who previously
ran our sales and client experience team in the APAC region, but
we've also won work that we wouldn't previously have won as a
result.
This is just one example of the progress being made across the
strategy and if we continue to execute on what we said we would do
- the future is bright.
FY24 current trading
-- Current trading in line with expectations with:
o Cost efficiencies across Cyber Security and corporate functions
already being realised
o Global Professional Services sales orders stabilised, no material
clients lost, however North America revenue performance experienced
in H2 FY23 is currently annualising through H1 FY24 giving rise
to YoY double digit Q1 revenue decline
o YoY double digit Q1 revenue growth in Global Managed Services
o YoY single digit Q1 revenue growth in Software Resilience against
a low comparator
Outlook
-- The Board expects FY24 to be a period of considerable change for
the Group, targeting a modest improvement in Group Adjusted Operating
profit driven by both the Cyber Security and Software Resilience
businesses
In Cyber Security:
o We expect low single digit revenue growth driven by stronger performance
in high value Managed Services, including XDR. This will offset
the annualisation of the sales declines in North American Professional
Services and UK Professional Services experienced during H2 FY23.
o Identified various cost efficiencies across Assurance (Cyber Security)
and corporate functions as announced in the June 2023 trading
update and are on track to meet these.
In Software Resilience:
o We expect revenue growth in low single digits, underpinned by
sustainable actions successfully taken on pricing and sales execution.
The operating profit growth will be delivered net of in-year systems
investments that will realise newly identified contribution efficiencies
of c.GBP1m from FY25 onwards.
-- The Board is confident that continued execution of the strategy
will deliver double-digit revenue growth and mid-teens operating
profit margins from FY26 onwards
Strategy
-- Execution of the Next Chapter strategy progressing well following
key leadership appointments with deep industry recognised expertise
-- New global delivery and operations centre opened in Manila in
September 2023
-- New distinct brand for our Software Resilience business will roll
out early in 2024 and will be revealed at our FY23 results presentation
today
Financial review
Overview of financial performance
Unaudited
2023 2022
Central Central
Cyber Software and head Cyber Software and head
Security Resilience office Group Security Resilience office Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Revenue 270.8 64.3 - 335.1 258.5 56.3 - 314.8
Cost of sales (184.7) (18.4) - (203.1) (166.2) (16.0) - (182.2)
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Gross profit 86.1 45.9 - 132.0 92.3 40.3 - 132.6
Gross margin % 31.8% 71.4% - 39.4% 35.7% 71.6% - 42.1%
Administrative
expenses
(2) (70.7) (14.7) (5.2) (90.6) (53.2) (17.5) (2.7) (73.4)
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Adjusted EBITDA (1) 15.4 31.2 (5.2) 41.4 39.1 22.8 (2.7) 59.2
Depreciation and
amortisation
(3) (8.5) (0.6) (3.5) (12.6) (7.2) (0.8) (3.1) (11.1)
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Adjusted Operating
profit (1) 6.9 30.6 (8.7) 28.8 31.9 22.0 (5.8) 48.1
Amortisation of
acquired
intangibles (1.2) (5.8) (3.0) (10.0) (0.9) (4.8) (2.9) (8.6)
Share-based payments (1.6) (0.1) (0.5) (2.2) (2.1) (0.3) (1.5) (3.9)
Individually
Significant
Items (12.3) (2.4) - (14.7) - (0.9) - (0.9)
Operating
(loss)/profit (8.2) 22.3 (12.2) 1.9 28.9 16.0 (10.2) 34.7
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Operating margin % (3.0%) 34.7% n/a 0.6% 11.2% 28.5% n/a 11.0%
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Finance costs (6.2) (3.7)
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
(Loss)/profit before
taxation (4.3) 31.0
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Taxation (0.3) (8.0)
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
(Loss)/profit after
taxation (4.6) 23.0
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
EPS
Basic EPS (1.5p) 7.4p
Adjusted basic EPS
(1) 6.1p 10.8p
-------------------- --------- ---------- ----------- ------- --------- ---------- --------- -------
Footnotes:
1 Adjusted EBITDA, Adjusted operating profit and Adjusted basic
EPS are Alternative Performance Measures (APMs) and not IFRS
measures. See Note 3 for an explanation of APMs and adjusting
items.
2 Administrative expenses excludes depreciation and
amortisation, amortisation of acquired intangibles, Share-based
payments and individual significant items.
3 Depreciation and amortisation excludes amortisation of
acquired intangibles.
2023 has been a challenging year for the Group, as our expected
Revenue performance and consequently our gross profit and overall
profitability suffered from market volatility within Cyber Security
in H2 2023 after a strong H1 2023. In particular, the Group
experienced buying decision delays and cancellations in the North
American tech sector and to lesser extent our UK market for Global
Professional Services.
Encouragingly, no material clients have been lost, however this
sharp market correction had a direct impact on our revenue, direct
utilisation, gross profit and ultimately our profitability due to
the level of employee costs in the business and recognition of
Individually Significant items that mainly relate to the impairment
of North American Assurance Goodwill. These headwinds have further
reinforced the need to implement the next chapter of our Group
strategy and identify cost efficiencies across Cyber Security and
corporate functions, achieving FY24 savings and full annualised
contribution from FY25 onwards.
Turning back in detail to our FY23 performance, Group revenues
increased by +1.5% (2022: +17.9%) on a constant currency basis (1)
and at +6.4% (2022: +16.4%) at actual rates. After considering the
prior year Software Resilience fair value revenue adjustment
(GBP4.4m), Group revenues were flat at constant currency (1) (+5.1%
at actual rates).
In our Cyber Security business, the Europe, and UK and APAC
Cyber Security businesses grew on a constant currency basis (1) by
+3.9% and +3.0% respectively (+6.6% and +3.3% at actual rates).
Whereas our North American business declined -4.9% on a constant
currency basis (1) (+5.5% at actual rates) following the decline in
tech sector spend.
Global Professional Services declined by -3.1% to GBP199.3m on a
constant currency basis (1) (+2.0% at actual rates) with delivered
day rates increasing by +7.5% (2022: +2.1%) and direct utilisation
decreasing by -10.0% pts. Global Managed Services (GMS) grew by
+12.4% to GBP67.8m (2022: +6.7%) on a constant currency basis (1)
(+15.7% at actual rates). We experienced a n et decrease of -107
technical heads (2022: +271) and lower attrition of 15.5% (2022:
20.9%) compared to the level typical of our industry.
Global Managed Services (GMS) grew by +12.4% to GBP67.8m (2022:
+6.7%) on a constant currency basis (1) (+15.7% at actual rates).
New XDR service global sales orders for the forthcoming years
increased +72.5% from GBP11.6m in 2022 to GBP20.0m in 2023.
In our Software Resilience division, following the completion of
the acquisition of IPM in June 2021, we experienced our first full
year of IPM contract renewals, which contributed to overall growth
in the division of +7.5% on a constant currency basis (1) to
GBP64.3m (+14.2% at actual rates). However, considering the prior
year Software Resilience fair value revenue adjustment (GBP4.4m) to
these potential contract renewals, total Software Resilience
revenue decreased by -0.5% at constant currency (1) (+5.9% actual
rates). Escrow-as-a-Service (EaaS), our cloud escrow proposition,
generated sale orders of GBP4.7m, an increase of 38% compared to
the prior year (2022: +GBP3.4m).
Gross profit decreased by -0.5% to GBP132.0m (2022: GBP132.6m)
with gross margin percentage decreasing to 39.4% (2022: 42.1%). The
2.7% pts gross margin (%) decrease was due to the revenue
performance of the Cyber Security business and lower direct
utilisation (61.6%).
Total administrative expenses have increased by 32.9% (GBP32.2m)
to GBP130.1m (2022: GBP97.9m). This was mostly due to an increase
in Individual Significant Items of GBP13.8m and an increase in
people and training costs arising from inflationary pressures and
further investment (including XDR set up) to support the business
of c.GBP6.5m. Other higher costs include an increase in non-client
travel and office costs (including the impact of our NCC
Conferences) of c.GBP5m, depreciation and amortisation (including
amortisation on acquisition intangibles) of c.GBP3m, marketing
c.GBP1m and foreign exchange c.GBP1m.
Operating profit for the year has decreased by 94.5% to GBP1.9m
(2022: GBP34.7m) following the above decrease in gross profit
(GBP0.6m) and the increase in overheads noted above. Our
performance also incurred the indirect trading cost hosting our in
person global NCC Conferences in June 2022 for the first time since
2019, estimated to amount to a total direct and indirect impact of
c.GBP5m year-on-year, of which c.GBP2.3m related directly to the
conferences (non-client travel costs).
Individually Significant Items incurred during the year amounted
to GBP14.7m. These items are represented mainly by an impairment in
Goodwill of GBP9.8m for the North American Assurance business
following the recent reduction in spend by North American
technology clients and GBP4.2m in relation to fundamental
reorganisation costs as we reshape the Group to implement the next
chapter of the Group's strategy. The impairment of North American
Assurance Goodwill has been recognised based on the annual
assessment of circumstances as at 31 May 2023. ISIs also include
costs associated with the strategic review of our Software
Resilience business (GBP3.0m) and an impairment of Goodwill
(GBP3.0m) relating to our Danish business following its
reorganisation. These were partially offset by a profit on disposal
of our DDI business (GBP4.7m).
Profit before taxation decreased by 113.9% to a loss of GBP4.3m
(2022: profit of GBP31.0m) following the above revenue and gross
profit performance, recognition of ISIs and after an increase in
borrowing costs following the acquisition of IPM in June 2021. The
variable rate of interest cost increased due to the macro-economic
environment and the write off of existing arrangement fees
(GBP0.6m) following the scheduled refinance in December 2022.
Consequently, the profit for the year decreased by -120.0% to a
loss of GBP4.6m (2022: profit of GBP23.0m) resulting in a material
decrease in the basic EPS to (1.5p) and diluted EPS to (1.5p)
(2022: basic and diluted 7.4p). Adjusted basic EPS (1) amounted to
6.1p (2022: 10.8p).
On 31 May 2023, our cash conversion (1) was 102.9% (2022:
101.9%). Net debt excluding lease liabilities (1) amount to
GBP49.6m (2022: GBP52.4m). Total borrowings (including lease
liabilities) offset by cash and cash equivalents amounts to
GBP79.6m (2022: GBP85.0m).
Our Balance Sheet and facility headroom remains strong, during
December 2022 we secured a new four-year GBP162.5m multi-currency
revolving credit facility. This replaced our existing GBP100m
multi-currency revolving credit facility and the remaining $46.7m
of the original $70m term loan that was maturing in June 2024. The
new facility now matures in December 2026 and includes a GBP75m
uncommitted accordion option. In addition, we also secured an
increase to our leverage covenant from 2.5x to 3.0x with an
additional acquisition spike to 3.5x for the first twelve months of
any acquisition. The weighted average margin of the facility also
decreased and is payable on a ratchet mechanism above SONIA &
SOFR in the range of 1.00% to 2.25% depending on the level of the
Group's leverage. The average interest rate for the year was 4.54%
and is currently 6.27% following recent changes to base interest
rates .
The Board is declaring an unchanged final dividend of 3.15p per
ordinary share (2022: 3.15p). This represents a dividend equal to
that paid in the prior year as the Board is conscious of the need
to invest in new strategy and manage its net debt accordingly
following the challenging year.
Alternative Performance Measures (APMs)
Throughout this Financial Review, certain APMs are presented.
These APMs used by the Group are not defined terms under IFRS and
may therefore not be comparable with similarly titled measures
reported by other companies. They are not intended to be a
substitute for, or superior to, Generally Accepted Accounting
Practice (GAAP) measures. All APMs relate to the current year
results and comparative periods where provided.
This presentation is also consistent with the way that financial
performance is measured by management and reported to the Board,
and the basis of financial measures for senior management's
compensation schemes and provides supplementary information that
assists the user in understanding the financial performance,
position and trends of the Group. At all times, the Group aims to
ensure that the Annual Report and Accounts give a fair, balanced
and understandable view of the Group's performance, cash flows and
financial position. IAS 1 'Presentation of Financial Statements'
requires the separate presentation of items that are material in
nature or scale in order to allow the user of the accounts to
understand underlying business performance.
We believe these APMs provide readers with important additional
information on our business and this information is relevant for
use by investors, securities analysts and other interested parties
as supplemental measures of future potential performance. However,
since statutory measures can differ significantly from the APMs and
may be assessed differently by the reader we encourage you to
consider these figures together with statutory reporting measures
noted. Specifically, we would note that APMs may not be comparable
across different companies and that certain profit related APMs may
exclude recurring business transactions (e.g. acquisition related
costs and certain share-based payment charges) that impact
financial performance and cash flows.
As the Group manages internally its performance at an Adjusted
operating profit level (before Individually Significant Items,
amortisation of acquired intangibles and share-based payments),
which management believes represents the underlying trading of the
business; this information is still disclosed as an APM within this
Annual Report. This APM is reconciled to statutory operating
profit, together with the consequently Adjusted basic EPS (before
amortisation of acquisition intangibles, share-based payments and
Individually Significant Items and tax effect thereon) to statutory
basic EPS.
The Group has the following APMs/non-statutory measures:
-- Adjusted EBITDA (reconciled in Note 3)
-- Adjusted operating profit (reconciled in Note 3)
-- Adjusted basic EPS (pence) (reconciled in Note 11)
-- Net debt excluding lease liabilities (reconciled in Note 3)
-- Net debt (reconciled in Note 3)
-- Cash conversion which includes Adjusted EBITDA (reconciled in Note 3)
-- Constant currency revenue (reconciled in Note 3)
The above APMs are consistent with those reported for the year
ended 31 May 2022, except for the removal of Group revenue and
Software Resilience revenue excluding IPM acquisition which have
been removed now that the Group has comparable data following the
acquisition in June 2021.
The Group also reports certain geographic regions on a constant
currency basis to reflect the underlying performance considering
constant foreign exchange rates period on period. This involves
translating comparative numbers to current period rates for
comparability to enable a growth factor to be calculated. As these
measures are not statutory revenue numbers, management considers
these to be APMs.
Further detail is included within the Glossary of terms to the
Financial Statements that provides supplementary information that
assists the user in understanding these APMs/non-statutory
measures.
Financial summary
Summary Income Statement:
GBPm Unaudited
2023 2022 % Change
--------- -------
Revenue 335.1 314.8 6.4%
Cost of sales (203.1) (182.2) 11.5%
---------------------------------- --------- ------- --------
Gross profit 132.0 132.6 (0.5%)
Depreciation and amortisation (2) (12.6) (11.1) 13.5%
Administrative expenses (3) ( 90.6 ) (73.4) 23.4%
---------------------------------- --------- ------- --------
Adjusted operating profit (1) 28.8 48.1 (40.1%)
Individually significant items (14.7) (0.9) 1533.3%
Acquired intangible amortisation (10.0) (8.6) 16.3%
Share based payments (2.2) (3.9) (43.6%)
Operating profit 1.9 34.7 (94.5%)
Finance costs (6.2) (3.7) 67.6%
---------------------------------- --------- ------- --------
(Loss)/profit before taxation (4.3) 31.0 (113.9%)
---------------------------------- --------- ------- --------
Taxation (0.3) (8.0) (96.3%)
---------------------------------- --------- ------- --------
(Loss)/profit for the year (4.6) 23.0 (120.0%)
---------------------------------- --------- ------- --------
EPS
Basic EPS (1.5p) 7.4p (120.3%)
Adjusted Basic EPS (1) 6.1p 10.8p (43.5%)
---------------------------------- --------- ------- --------
Footnotes:
1 Adjusted operating profit and Adjusted basic EPS are
Alternative Performance Measures (APMs) and not IFRS measures. See
Note 3 for an explanation of APMs and adjusting items.
2 Depreciation and amortisation excludes acquired intangible
amortisation.
3 Administrative expenses excludes depreciation and
amortisation, amortisation of acquired intangibles, Share-based
payments and individual significant items.
Revenue summary:
% Constant %
Unaudited change Unaudited Currency change
2023 2022 at actual 2023 (1) 2022 at constant
GBPm GBPm rates GBPm GBPm currency
(1)
----------- ------ ---------- ----------- ---------
Cyber Security 270.8 258.5 4.8% 270.8 270.5 0.1%
Software Resilience 64.3 56.3 14.2% 64.3 59.8 7.5%
Total revenue 335.1 314.8 6.4% 335.1 330.3 1.5%
-------------------- ----------- ------ ---------- ----------- --------- ------------
After considering the prior year Software Resilience fair value
revenue adjustment (GBP4.4m), Software Resilience revenue decreased
by -0.5% at constant currency (1) (+5.9% actual rates). This gives
rise to total revenue increasing by +0.1% at constant currency (1)
(+5.1% actual rates).
Divisional performance
Cyber Security
The Cyber Security division accounts for 80.8% of Group revenue
(2022: 82.1%) and 65.2% of Group gross profit (2022: 69.6%).
Cyber Security revenue analysis - by originating country:
% Constant %
Unaudited change Unaudited Currency change
2023 2022 at actual 2023 (1) 2022 at constant
GBPm GBPm rates GBPm GBPm currency
(1)
----------------------------- ----------- ------ ----------- ----------- ---------- -------------
UK & APAC 118.4 114.6 3.3% 118.4 115.0 3.0%
North America 99.3 94.1 5.5% 99.3 104.4 (4.9%)
Europe 53.1 49.8 6.6% 53.1 51.1 3.9%
----------- ----------- ---------- -------------
Total Cyber Security revenue 270.8 258.5 4.8% 270.8 270.5 0.1%
----------------------------- ----------- ------ ----------- ----------- ---------- -------------
Cyber Security revenue increased by +0.1% on a constant currency
basis (1) and at +4.8% at actual rates. UK & APAC increased by
+3.0% on a constancy currency basis (1) (+3.3% at actual rates).
North America declined by -4.9% on a constant currency basis (1)
(increased +5.5% at actual rates) due to buying decision delays and
cancellations in the North American tech sector , while Europe
experienced an increase of +3.9% on a constant currency basis (1)
(+6.6% at actual rates).
Turning to the performance between each half of the financial
year, the following revenue analysis by originating country
demonstrates the growth in H1 2023 compared to a decline in H2 2023
following buying decision delays and cancellations in the North
American tech sector and the UK Market within Global Professional
Services.
Unaudited
% Constant %
change Currency change
Unaudited Unaudited at Unaudited (1) at constant
H1 2023 H1 2022 actual H1 2023 H1 2022 currency
GBPm GBPm rates GBPm GBPm (1)
----------------------------- --------- ----------- ------- ---------- --------- ------------
UK and APAC 61.6 54.6 12.8% 61.6 55.0 12.0%
North America 59.2 44.0 34.5% 59.2 51.0 16.1%
Europe 24.2 24.6 (1.6%) 24.2 24.9 (2.8%)
----------------------------- --------- ----------- ------- ---------- --------- ------------
Total Cyber Security revenue 145.0 123.2 17.7% 145.0 130.9 10.8%
----------------------------- --------- ----------- ------- ---------- --------- ------------
Unaudited %
% Constant change
change currency at
Unaudited Unaudited at Unaudited (1) constant
H2 2023 H2 2022 actual H2 2023 H2 2022 currency
GBPm GBPm rates GBPm GBPm (1)
----------------------------- ----------- ----------- ------- ----------- --------- ---------
UK and APAC 56.8 60.0 (5.3%) 56.8 60.0 (5.3%)
North America 40.1 50.1 (20.0%) 40.1 53.4 (24.9%)
Europe 28.9 25.2 14.7% 28.9 26.2 10.3%
----------------------------- ----------- ----------- ------- ----------- --------- ---------
Total Cyber Security revenue 125.8 135.3 (7.0%) 125.8 139.6 (9.9%)
----------------------------- ----------- ----------- ------- ----------- --------- ---------
Cyber Security revenue analysed by type of service/product
line:
Constant %
Currency
(1)
% 2022 (restated change at
*) constant
currency
(1)
Unaudited 2022 change Unaudited GBPm
2023 (restated at actual 2023
*) rates
GBPm GBPm GBPm
----------------------------- ------------ ------------ ---------------- ------------ --------------- ----------
Global Professional Services
(GPS) 199.3 195.4 2.0% 199.3 205.6 (3.1%)
Global Managed Services (GMS) 67.8 58.6 15.7% 67.8 60.3 12.4%
Product Sales (own and third
party) 3.7 4.5 (17.8%) 3.7 4.6 (19.6%)
---------------- ------------ --------------- ----------
Total Cyber Security revenue 270.8 258.5 4.8% 270.8 270.5 0.1%
----------------------------- ------------ ------------ ---------------- ------------ --------------- ----------
* Restated to present revenue by category to be consistent with
amounts reported to management. Revenue of GBP6.4m has been
re-presented within GMS rather than product sales.
Global Professional Services declined by -3.1% to GBP199.3m on a
constant currency basis (1) (+2.0% at actual rates) with delivered
day rates increasing by +7.5% and direct utilisation decreasing by
-10.0% pts. The decline was mainly due to buying decision delays
and cancellations in the North American tech sector and our UK
market.
Global Managed Services (GMS) grew by +12.4% to GBP67.8m on a
constant currency basis (1) (+15.7% at actual rates) with new XDR
service global sales orders for the forthcoming years increasing
72.5% YoY.
Turning to the performance between each half of the financial
year, the following revenue analysis by type of service/product
line demonstrates the growth in H1 2023 compared to a decline in H2
2023 following buying decision delays and cancellations in the
North American tech sector and the UK Market with Global
Professional Services.
Unaudited %
% Constant change
change Currency at
Unaudited Unaudited at Unaudited (1) constant
H1 2023 H1 2022 actual H1 2023 H1 2022 currency
GBPm GBPm rates GBPm GBPm (1)
------------------------------ --------- ----------- ------- ---------- --------- ---------
Global Professional Services
(GPS) 111.1 93.6 18.7% 111.1 100.6 10.4%
Global Managed Services (GMS) 32.2 28.4 13.4% 32.2 29.1 10.7%
Product Sales (own and third
party) 1.7 1.2 41.7% 1.7 1.2 41.7%
------------------------------ --------- ----------- ------- ---------- --------- ---------
Total Cyber Security revenue 145.0 123.2 17.7% 145.0 130.9 10.8%
------------------------------ --------- ----------- ------- ---------- --------- ---------
%
% UnauditedConstant change
change currency at
Unaudited Unaudited at Unaudited (1) constant
H2 2023 H2 2022 actual H2 2023 H2 2022 currency
GBPm GBPm rates GBPm GBPm (1)
------------------------------ ----------- ----------- ------- ----------- ----------------- ---------
Global Professional Services
(GPS) 88.2 101.8 (13.4%) 88.2 105.0 (16.0%)
Global Managed Services (GMS) 35.6 30.2 17.9% 35.6 31.2 14.1%
Product Sales (own and third
party) 2.0 3.3 (39.4%) 2.0 3.4 (41.2%)
------------------------------ ----------- ----------- ------- ----------- ----------------- ---------
Total Cyber Security revenue 125.8 135.3 (7.0%) 125.8 139.6 (9.9%)
------------------------------ ----------- ----------- ------- ----------- ----------------- ---------
Cyber Security gross profit is analysed as follows:
Unaudited 2023 2022 2022
2023 % margin GBPm % margin
GBPm % pts change
---------------------------- ----------------- ---------- ------ --------- -------------
UK & APAC 40.3 34.0% 46.4 40.5% (6.5% pts)
North America 26.1 26.3% 29.8 31.7% (5.4% pts)
Europe 19.7 37.1% 16.1 32.3% 4.8% pts
-------------
Cyber Security gross profit
and % margin 86.1 31.8% 92.3 35.7% (3.9% pts)
---------------------------- ----------------- ---------- ------ --------- -------------
Gross margins declined -3.9% pts following investment in
technical capacity, inflationary pressures, lower utilisation
combined with lower technical attrition.
Turning to the performance between each half of the financial
year, the following gross profit analysis by originating country
further demonstrates the performance between H1 2023 and H2 2023
compared to the corresponding periods in the prior year.
Unaudited Unaudited
H1 2023 H1 2023 H1 2022 H1 2022
GBPm % margin GBPm % margin % pts change
---------------------------- ----------------- ----------- --------- ---------- -------------
UK & APAC 22.9 37.2% 22.4 41.0% (3.8% pts)
North America 16.6 28.0% 14.1 32.0% (4.0% pts)
Europe 9.7 40.1% 7.9 32.1% 8.0% pts
-------------
Cyber Security gross profit
and % margin 49.2 33.9% 44.4 36.0% (2.1% pts)
---------------------------- ----------------- ----------- --------- ---------- -------------
Gross margins in Europe increased by 8.0% pts due to the
recognition of historic project cost compensation of GBP1.5m.
Excluding this one-off item, the margin would have increased
3.8%.
Unaudited Unaudited
H2 2023 H2 2023 H2 2022 H2 2022
GBPm % margin GBPm % margin % pts change
---------------------------- ----------------- ---------- --------- ---------- -------------
UK & APAC 17.4 30.6% 24.0 40.0% (9.4% pts)
North America 9.5 23.7% 15.7 31.3% (7.6% pts)
Europe 10.0 34.6% 8.2 32.5% 2.1% pts
-------------
Cyber Security gross profit
and % margin 36.9 29.3% 47.9 35.4% (6.1% pts)
---------------------------- ----------------- ---------- --------- ---------- -------------
Software Resilience
The Software Resilience division accounts for 19.2% of Group
revenues (2022: 17.9%) and 34.8% of Group gross profit (2022:
30.4%).
Software Resilience revenue analysis - by originating
country:
Constant %
Currency
(1)
Unaudited Unaudited 2022 change
at constant
currency
(1)
2023 2022 % 2023 GBPm
GBPm GBPm change at GBPm
actual rates
-------------------------- ----------- ------ --------------- ----------- ---------- --------------
UK 25.8 25.4 1.6% 25.8 25.4 1.6%
North America 34.5 26.8 28.7% 34.5 30.2 14.2%
Europe 4.0 4.1 (2.4%) 4.0 4.2 (4.8%)
-------------------------- ----------- ------ --------------- ----------- ---------- --------------
Total Software Resilience
revenue 64.3 56.3 14.2% 64.3 59.8 7.5%
-------------------------- ----------- ------ --------------- ----------- ---------- --------------
After considering the prior year Software Resilience fair value
revenue adjustment (GBP4.4m) (2) , Software Resilience revenue
decreased by -0.5% at constant currency (1) (+5.9% actual
rates).
Turning again to the performance between each half of the
financial year, the following revenue analysis by originating
country further demonstrates the performance between H1 2023 and H2
2023 compared to the corresponding periods in the prior year.
%
% Constant change
change Currency at
Unaudited at Unaudited (1) constant
H1 2023 H1 2022 actual H1 2023 H1 2022 currency
GBPm GBPm rates GBPm GBPm (1)
---------------------------------- --------- --------- ------- ---------- --------- ---------
UK 12.3 12.6 (2.4%) 12.3 12.7 (3.1%)
North America 17.3 12.3 40.7% 17.3 14.7 17.7%
Europe 2.0 2.0 - 2.0 2.0 -
---------------------------------- --------- --------- ------- ---------- --------- ---------
Total Software Resilience revenue 31.6 26.9 17.5% 31.6 29.4 7.5%
---------------------------------- --------- --------- ------- ---------- --------- ---------
%
% Constant change
change currency at
Unaudited at Unaudited (1) constant
H2 2023 H2 2022 actual H2 2023 H2 2022 currency
GBPm GBPm rates GBPm GBPm (1)
---------------------------------- ----------- --------- ------- ----------- --------- ---------
UK 13.5 12.8 5.5% 13.5 12.7 6.3%
North America 17.2 14.5 18.6% 17.2 15.5 11.0%
Europe 2.0 2.1 (4.8%) 2.0 2.2 (9.1%)
---------------------------------- ----------- --------- ------- ----------- --------- ---------
Total Software Resilience revenue 32.7 29.4 11.2% 32.7 30.4 7.6%
---------------------------------- ----------- --------- ------- ----------- --------- ---------
Software Resilience revenues analysed by service line:
%
Constant change
Currency at constant
(1) currency
(1)
Unaudited Unaudited 2022
On a statutory basis 2023 2022 % 2023 GBPm
GBPm GBPm change GBPm
at actual
rates
------------------------------ ----------- ------ ------------ ----------- ---------- --------------
Software Resilience contracts 42.8 38.1 12.3% 42.8 40.4 5.9%
Verification services 21.5 18.2 18.1% 21.5 19.4 10.8%
Total Software Resilience
revenue 64.3 56.3 14.2% 64.3 59.8 7.5%
------------------------------ ----------- ------ ------------ ----------- ---------- --------------
After considering the prior year Software Resilience fair value
revenue adjustment (2) (GBP4.4m), Software Resilience contracts
revenue on a like for like basis decreased by -4.9% at constant
currency (1) (+1.2% actual rates). Verification services increased
by +9.7% at constant currency (1) (+16.8% actual rates). The prior
year fair value adjustment in relation to deferred revenue of
GBP4.4m is no longer relevant to FY23 statutory results, as the
adjustment has unwound following the renewal of IPM contracts or
completion of verification services.
Gross margin is analysed as follows:
Unaudited2023 Unaudited
GBPm 2023 2022 2022
% margin GBPm % margin % pts change
------------------------------------ ----------------------- ----------- ----------- ------------ -------------
UK 18.2 70.5% 17.7 69.3% 1.2% pts
North America 25.0 72.5% 19.8 74.3% (1.8% pts)
Europe 2.7 67.5% 2.8 68.3% (0.8% pts)
-------------
Software Resilience gross profit and
% margin 45.9 71.4% 40.3 71.6% (0.2% pts)
---------------------------------------- ------------------- ----------- ----------- ------------ -------------
After considering the prior year Software Resilience fair value
revenue adjustment (GBP4.4m) (2) , Software Resilience gross profit
decreased by -2.2% pts due to continued investment to enable
Software Resilience to achieve sustainable revenue growth and
profitability.
Turning again to the performance between each half of the
financial year, the following gross profit analysis by originating
country further demonstrates the performance between H1 2023 and H2
2023 compared to the corresponding periods in the prior year.
UnauditedH1 Unaudited
2023
GBPm H1 2023 H1 2022 H1 2022
% margin GBPm % margin % pts change
------------------------------------ --------------------- ---------- ----------- ------------ --------------
UK 8.4 68.3% 9.0 71.4% (3.1% pts)
North America 12.6 72.8% 8.9 72.4% 0.4% pts
Europe 1.3 65.0% 1.4 70.0% (5.0% pts)
--------------
Software Resilience gross profit and
% margin 22.3 70.6% 19.3 71.7% 1.1% pts
---------------------------------------- ----------------- ---------- ----------- ------------ --------------
Unaudited Unaudited
H2 2023 H2 2023 H2 2022 H2 2022
GBPm % margin GBPm % margin % pts change
------------------------------------ ------------------- ----------- ----------- ------------ ------------------
UK 9.8 72.6% 8.6 67.2% 5.4% pts
North America 12.4 72.1% 11.0 75.9% (3.8% pts]
Europe 1.4 70.0% 1.4 66.7% 3.3% pts
------------------
Software Resilience gross profit and
% margin 23.6 72.2% 21.0 71.4% 0.8% pts
---------------------------------------- --------------- ----------- ----------- ------------ ------------------
Individually Significant Items
During the year, the Group has incurred GBP14.7m in individually
Significant Items (ISIs) (2022: GBP0.9m) as follows:
Unaudited
2023 2022
GBPm GBPm
--------------------------------------------------------------- ---------- -------
North America Cyber Security goodwill impairment 9.8 -
Re-organisation costs arising from strategic actions 4.2 -
Costs associated with strategic review of Software Resilience 3.0 -
business and other core and non-core assets
NCC Group A/S goodwill impairment 3.0 -
Profit on disposal of DDI business (4.7) -
IPM Software Resilience business deferred income adjustment (0.6) -
Costs directly attributable to the acquisition of IPM - 0.9
Total ISIs 14.7 0.9
--------------------------------------------------------------- ---------- -------
Individually Significant Items incurred during the year amounted
to GBP14.7m represented mainly by an impairment in Goodwill of
GBP9.8m for the NA Assurance business following the recent
reduction in spend by North American technology clients and GBP4.2m
in relation to fundamental reorganisation costs as we reshaped the
Group to implement the next chapter of the Group's strategy. Costs
associated with the strategic review of our Software Resilience
business (GBP3.0m) and an impairment of Goodwill (GBP3.0m) relating
to our Danish business following its reorganisation were partially
offset by a profit on disposal of our DDI business (GBP4.7m).
Finance costs
Finance costs for the period were GBP6.2m compared to GBP3.7m in
2022 due to an increase in borrowing following the IPM acquisition
and an increase in base interest rates. Finance costs include lease
financing costs from IFRS 16 of GBP1.1m (2022: GBP1.2m). Borrowing
costs also include the write off of existing arrangement fees
(GBP0.6m) following the refinance in December 2022 to a new
facility. The new facility entered in December 2022 incurred
arrangements fees of GBP1.7m that will be amortised over the new
facility maturing in December 2026. The average interest rate for
the year was 4.54% and is currently 6.27% following recent changes
to base interest rates . Average borrowings during the year
amounted to GBP87.1m.
Taxation
The Group's effective statutory tax rate is (7.0%) (2022:
25.8%). The decrease in tax rate from 2022 to 2023 is due to a
number of factors including the non-deductibility impact of
goodwill impairment. See note 6 for further details. The Group's
adjusted tax rate is 16.4% (2022: 24.5%). The decrease in the
adjusted tax rate from 2022 to 2023 is mainly due to a combination
of a provision release against the benefit of US R&D tax claims
and a prior year credit in relation to the tax treatment of the IPM
acquisition.
Unaudited
Earnings per share (EPS) 2023 2022
-------------------------------------------- ----------- ------
Statutory
Basic EPS (1.5p) 7.4p
Diluted EPS (1.5p) 7.4p
Adjusted (1)
Basic EPS 6.1p 10.8p
Weighted average number of shares (million)
Basic 310.4 309.5
Diluted 311.2 310.9
-------------------------------------------- ----------- ------
Cash flow and net debt (1)
The table below summarises the Group's cash flow and net debt
(1) :
Unaudited
2023 2022
GBPm GBPm
------------------------------------------------------- ------------ --------
Operating cash inflow before movements in working
capital 37.9 49.3
Decrease/(increase) in trade and other receivables 19.7 (1.8)
Decrease in inventories 0.1 0.2
(Decrease)/increase in trade and other payables (15.1) 12.6
------------------------------------------------------- ------------ --------
Cash generated from operating activities before
interest and taxation 42.6 60.3
Interest element of lease payments (1.1) (1.2)
Finance interest paid (4.0) (2.1)
Taxation paid (5.4) (2.2)
------------------------------------------------------- ------------ --------
Net cash generated from operating activities 32.1 54.8
Purchase of property, plant and equipment (3.9) (5.2)
Software and development expenditure (3.4) (3.0)
Sale proceeds of business disposal (DDI) 2.0 -
Acquisition of trade and assets as part of a business
combination (1.0) (153.0)
Equity dividends paid (14.5) (14.4)
Repayment of lease liabilities (principal amount) (6.1) (5.3)
Purchase of own shares (0.5) -
Proceeds from the issue of ordinary share capital 0.1 0.8
------------------------------------------------------- ------------ --------
Net movement 4.8 (125.3)
Opening net (debt)/cash (1) (52.4) 83.3
Non-cash movements (release of deferred issue costs) (0.8) (0.4)
Foreign exchange movement (1.2) (10.0)
------------------------------------------------------------- ------ --------
Closing net debt excluding lease liabilities (1) (49.6) (52.4)
------------------------------------------------------- ------------ --------
Lease liabilities (30.0) (32.6)
------------------------------------------------------- ------------ --------
Closing net debt (1) (79.6) (85.0)
------------------------------------------------------- ------------ --------
Net debt (1) can be reconciled as follows:
Unaudited
2023 2022
GBPm GBPm
------------------------------------------ ---------- --------
Cash and cash equivalents 34.1 73.2
Bank overdraft (1.8) -
Borrowings (net of deferred issue costs) (81.9) (125.6)
Net debt excluding lease liabilities (1) (49.6) (52.4)
------------------------------------------ ---------- --------
Lease liabilities (30.0) (32.6)
------------------------------------------ ---------- --------
Net debt (1) (79.6) (85.0)
------------------------------------------ ---------- --------
The calculation of the cash conversion ratio (1) is set out
below:
Unaudited
2023 2022 % change/
GBPm GBPm % pts
----------------------------------------- ---------- ------- ----------
Net operating cash flow before interest
and taxation (A) 42.6 60.3 (29.4%)
Adjusted EBITDA (1) (B) 41.4 59.2 (30,1%)
----------------------------------------- ---------- ------- ----------
Cash conversion ratio (1) (%) (A)/(B) 102.9% 101.9% 1.0% pts
----------------------------------------- ---------- ------- ----------
1 Net debt excluding lease liabilities, net debt and cash
conversion and Adjusted EBITDA are Alternative Performance Measures
(APMs) and not IFRS measures. See Note 3 for an explanation of APMs
and adjusting items.
The increase in tax paid is mainly due to the historic Spanish
tax payments (GBP2.0m) and the phasing of US tax payments.
Net cash capital expenditure during the period was GBP7.3m
(2022: GBP8.2m) which includes tangible asset expenditure of
GBP3.9m (2022: GBP5.2m) and capitalised software and development
costs of GBP3.4m (2022: GBP3.0m).
Acquisition of trade and assets as part of a business
combination of GBP1.0m relates to the further consideration payable
in relation to the Adelard acquisition that occurred on 20 April
2022 following novation of contracts in H1 2023.
On 31 December 2022, the Group disposed of its DDI business for
consideration of GBP5.8m, of which GBP2.0m was satisfied in cash
and the remaining GBP3.8m is contingent on novation of certain
customer contracts. GBP2m has been received post year end and it is
expected that the remaining proceeds will be received in FY24.
Borrowings
During December 2022 we secured a new four-year GBP162.5m
multi-currency revolving credit facility. This replaced our
existing GBP100m multi-currency revolving credit facility and the
remaining $46.7m of the original $70m term loan that was maturing
in June 2024. The new facility now matures in December 2026 and
includes an GBP75m uncommitted accordion option. In addition, we
also secured an increase to our leverage covenant from 2.5x to 3.0x
with an additional acquisition spike to 3.5x for the first twelve
months of any acquisition. The weighted average margin of the
facility also decreased and is payable on a ratchet mechanism above
SONIA & SOFR in the range of 1.00% to 2.25% depending on the
level of the Group's leverage. As noted above, the average interest
rate for the year was 4.54% and is currently 6.27% following recent
changes to base interest rates .
Dividends
Total dividends of GBP14.5m were paid in the year (2022:
GBP14.4m), which represented the final dividend for FY22 of 3.15p
and the interim dividend of 1.50 per ordinary share for FY23 (2022:
1.50p). The Board is declaring an unchanged final dividend of 3.15p
per ordinary share (2022: 3.15p).
This represents a dividend equal to that paid in the prior year
as the Board is conscious of the need to invest in new strategy and
manage its net debt accordingly following the challenging year.
The final dividend of approximately GBP10m will be paid on 8
December 2023, to shareholders on the register at the close of
business on 10 November 2023. The ex-dividend date is 9 November
2023.
Consolidated income statement
for the year ended 31 May 2023
Unaudited
2023 2022
Notes GBPm GBPm
--------------------------------------------------- ----- --------- -------
Revenue 4 335.1 314.8
Cost of sales 4 (203.1) (182.2)
--------------------------------------------------- ----- --------- -------
Gross profit 4 132.0 132.6
--------------------------------------------------- ----- --------- -------
Administrative expenses
Individually Significant Items 5 (14.7) (0.9)
Depreciation and amortisation (22.6) (19.7)
Credit losses recognised on financial assets 1.5 (0.6)
(Impairment)/reversal of impairment of non-current
assets (1.1) 0.1
Other administrative expenses (93.2) (76.8)
Total administrative expenses (130.1) (97.9)
--------------------------------------------------- ----- --------- -------
Operating profit 4 1.9 34.7
Finance costs (6.2) (3.7)
--------------------------------------------------- ----- --------- -------
(Loss)/profit before taxation (4.3) 31.0
Taxation 6 (0.3) (8.0)
--------------------------------------------------- ----- --------- -------
(Loss)/profit for the year attributable to owners
of the Company (4.6) 23.0
--------------------------------------------------- ----- --------- -------
Earnings per ordinary share 8
Basic EPS (1.5)p 7.4p
Diluted EPS (1.5)p 7.4p
--------------------------------------------------- ----- --------- -------
Consolidated statement of comprehensive income/(loss)
for the year ended 31 May 2023
Unaudited
2023 2022
GBPm GBPm
------------------------------------------------------------ --------- -----
(Loss)/profit for the year attributable to the owners of
the Company (4.6) 23.0
------------------------------------------------------------ --------- -----
Other comprehensive income/(loss)
Items that may be reclassified subsequently to profit or
loss (net of tax)
Cash flow hedges - effective portion of changes in fair
value - (0.1)
Foreign exchange translation differences 2.4 14.8
------------------------------------------------------------ --------- -----
Total other comprehensive income 2.4 14.7
------------------------------------------------------------ --------- -----
Total comprehensive (loss)/income for the year (net of tax)
attributable to the owners of the Company (2.2) 37.7
------------------------------------------------------------ --------- -----
Consolidated balance sheet
at 31 May 2023
Unaudited
31 May 31 May
2023 2022
Notes GBPm GBPm
--------------------------------------------------- ----- --------- -------
Non-current assets
Goodwill 9 255.8 266.1
Intangible assets 9 110.9 118.6
Property, plant and equipment 12.5 12.9
Right-of-use assets 18.6 22.0
Investments 0.3 0.3
Deferred tax asset 2.9 1.4
--------------------------------------------------- ----- --------- -------
Total non-current assets 401.0 421.3
--------------------------------------------------- ----- --------- -------
Current assets
Inventories 0.8 0.9
Trade and other receivables 58.1 77.7
Contingent consideration receivable 3.8 -
Derivative financial instruments - 0.2
Current tax receivable 3.6 3.1
Cash and cash equivalents 10 34.1 73.2
Total current assets 100.4 155.1
--------------------------------------------------- ----- --------- -------
Total assets 501.4 576.4
--------------------------------------------------- ----- --------- -------
Current liabilities
Trade and other payables 44.7 48.3
Bank overdraft 10 1.8 -
Borrowings 10 - 18.5
Lease liabilities 10 6.0 5.4
Current tax payable 4.2 7.4
Derivative financial instruments 0.6 -
Contingent consideration payable 1.0 1.9
Provisions 1.2 2.7
Contract liabilities - deferred revenue 51.6 61.7
--------------------------------------------------- ----- --------- -------
Total current liabilities 111.1 145.9
--------------------------------------------------- ----- --------- -------
Non-current liabilities
Borrowings 10 81.9 107.1
Lease liabilities 10 24.0 27.2
Deferred tax liabilities 1.4 1.6
Provisions 1.5 0.8
Contract liabilities - deferred revenue 3.3 0.6
--------------------------------------------------- ----- --------- -------
Total non-current liabilities 112.1 137.3
--------------------------------------------------- ----- --------- -------
Total liabilities 223.2 283.2
--------------------------------------------------- ----- --------- -------
Net assets 278.2 293.2
--------------------------------------------------- ----- --------- -------
Equity
Share capital 3.1 3.1
Share premium 224.1 224.0
Merger reserve 42.3 42.3
Currency translation reserve 37.5 35.1
Retained earnings (28.8) (11.3)
--------------------------------------------------- ----- --------- -------
Total equity attributable to equity holders of the
Parent 278.2 293.2
--------------------------------------------------- ----- --------- -------
Consolidated cash flow statement
for the year ended 31 May 2023
Unaudited
2023
2022
Notes GBPm GBPm
------------------------------------------------------------ ----- --------- -------
Cash flows from operating activities
(Loss)/profit for the year (4.6) 23.0
Adjustments for:
Depreciation of property, plant and equipment 4.5 3.9
Depreciation of right-of-use assets 5.7 5.4
Share-based payments 2.2 3.9
Cash settled share-based payments - (0.5)
Amortisation of customer contracts and relationships 9 10.0 8.6
Amortisation of software and development costs 9 2.4 1.8
Impairment of goodwill 9 12.8 -
Impairment of software costs 9 0.6 -
Impairment/(reversal of impairment) of right-of-use-assets 0.5 (0.1)
Lease financing costs 1.1 1.2
Other financing costs 5.1 2.5
Foreign exchange loss/(gain) 0.6 (0.6)
Acquisition of business - transaction costs - (7.3)
Disposal of business - transaction costs (0.1) -
ISIs (non-cash impact) 3.5 -
Profit on disposal of right-of-use assets (0.7) -
Profit on disposal of business (DDI) (4.7) -
Research and development UK tax credits (0.5) (1.0)
Research and development US tax credits (1.4) (1.1)
Income tax expense 1.7 9.1
(Decrease)/increase in provisions (0.8) 0.5
------------------------------------------------------------ ----- --------- -------
Cash inflow for the year before changes in working
capital 37.9 49.3
Decrease/(increase) in trade and other receivables 19.7 (1.8)
Decrease in inventories 0.1 0.2
(Decrease)/increase in trade and other payables (15.1) 12.6
------------------------------------------------------------ ----- --------- -------
Cash generated from operating activities before
interest and taxation 42.6 60.3
Interest element of lease payments (1.1) (1.2)
Other interest paid (4.0) (2.1)
Taxation paid (5.4) (2.2)
------------------------------------------------------------ ----- --------- -------
Net cash generated from operating activities 32.1 54.8
------------------------------------------------------------ ----- --------- -------
Cash flows from investing activities
Acquisition of trade and assets as part of business
combinations (1.0) (153.0)
Purchase of property, plant and equipment (3.9) (5.2)
Software and development expenditure (3.4) (3.0)
Sale proceeds of business disposal (DDI) 2.0 -
------------------------------------------------------------ ----- --------- -------
Net cash used in investing activities (6.3) (161.2)
------------------------------------------------------------ ----- --------- -------
Cash flows from financing activities
Proceeds from the issue of ordinary share capital 0.1 0.8
Purchase of own shares (0.5) -
Principal element of lease payments (6.1) (5.3)
Drawdown of borrowings (net of deferred issue costs) 70.8 120.7
Issue costs related to borrowings (1.5) (0.6)
Repayment of borrowings (115.6) (39.4)
Equity dividends paid 7 (14.5) (14.4)
------------------------------------------------------------ ----- --------- -------
Net cash (used in)/generated from financing activities (67.3) 61.8
------------------------------------------------------------ ----- --------- -------
Net decrease in cash and cash equivalents (41.5) (44.6)
Cash and cash equivalents at beginning of period 73.2 116.5
Effect of foreign currency exchange rate changes 0.6 1.3
------------------------------------------------------------ ----- --------- -------
Cash and cash equivalents at end of year 32.3 73.2
------------------------------------------------------------ ----- --------- -------
Reconciliation of net change in cash and cash equivalents to
movement in net (debt)/cash (1)
Unaudited
2023 2022
Notes GBPm GBPm
-------------------------------------------------------- ----- --------- -------
Net decrease in cash and cash equivalents (41.5) (44.6)
Change in net debt 1 resulting from cash flows (net
of deferred issue costs) 44.8 (81.3)
Interest incurred on borrowings 4.0 2.1
Interest paid on borrowings (4.0) (2.1)
Release of deferred issue costs (1.0) (0.4)
Issue costs related to borrowings (non-cash) 1.7 0.6
Effect of foreign currency on cash flows 0.6 1.3
Foreign currency translation differences on borrowings (1.8) (11.3)
-------------------------------------------------------- ----- --------- -------
Change in net cash/(debt) 1 during the year 2.8 (135.7)
Net (debt)/cash at start of year excluding lease
liabilities 1 (52.4) 83.3
-------------------------------------------------------- ----- --------- -------
Net debt (1) at end of year excluding lease liabilities
1 (49.6) (52.4)
Lease liabilities 10 (30.0) (32.6)
-------------------------------------------------------- ----- --------- -------
Net debt 1 at end of year 10 (79.6) (85.0)
-------------------------------------------------------- ----- --------- -------
Footnote:
1: See Note 3 for an explanation of Alternative Performance
Measures (APMs) and adjusting items. Further information is also
contained within the Financial Review and the Glossary of
terms.
Consolidated statement of changes in equity
for the year ended 31 May 2023
Currency
Share Share Hedging Merger translation Retained
capital premium reserve reserve reserve earnings Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ----- -------- -------- -------- -------- ------------ --------- ------
Balance at 1 June 2021 3.1 223.2 (0.8) 42.3 20.3 (21.9) 266.2
-------------------------------------- ----- -------- -------- -------- -------- ------------ --------- ------
Profit for the year - - - - - 23.0 23.0
Other comprehensive expense for
the year - - (0.1) - - - (0.1)
Foreign currency translation
differences - - - - 14.8 - 14.8
-------------------------------------- ----- -------- -------- -------- -------- ------------ --------- ------
Total comprehensive (expense)/income
for the year - - (0.1) - 14.8 23.0 37.7
-------------------------------------- ----- -------- -------- -------- -------- ------------ --------- ------
Transactions with owners recorded
directly in equity
Dividends to equity shareholders 7 - - - - - (14.4) (14.4)
Transfer hedging reserve to retained
earnings - - 0.9 - - (0.9) -
Share-based payments - - - - - 3.2 3.2
Tax on share-based payments - - - - - (0.3) (0.3)
Shares issued - 0.8 - - - - 0.8
-------------------------------------- ----- -------- -------- -------- -------- ------------ --------- ------
Total contributions by and
distributions
to owners - 0.8 0.9 - - (12.4) (10.7)
-------------------------------------- ----- -------- -------- -------- -------- ------------ --------- ------
Balance at 31 May 2022 3.1 224.0 - 42.3 35.1 (11.3) 293.2
-------------------------------------- ----- -------- -------- -------- -------- ------------ --------- ------
Loss for the year - - - - - (4.6) (4.6)
Foreign currency translation
differences - - - - 2.4 - 2.4
-------------------------------------- ----- -------- -------- -------- -------- ------------ --------- ------
Total comprehensive income/(loss)
for the year - - - - 2.4 (4.6) (2.2)
-------------------------------------- ----- -------- -------- -------- -------- ------------ --------- ------
Transactions with owners recorded
directly in equity
Dividends to equity shareholders 7 - - - - - (14.5) (14.5)
Share-based payments - - - - - 2.2 2.2
Tax on share-based payments - - - - - (0.1) (0.1)
Purchase of own shares - - - - - (0.5) (0.5)
Shares issued - 0.1 - - - - 0.1
-------------------------------------- ----- -------- -------- -------- -------- ------------ --------- ------
Total contributions by and
distributions
to owners - 0.1 - - - (12.9) (12.8)
-------------------------------------- ----- -------- -------- -------- -------- ------------ --------- ------
Balance at 31 May 2023 (Unaudited) 3.1 224.1 - 42.3 37.5 (28.8) 278.2
-------------------------------------- ----- -------- -------- -------- -------- ------------ --------- ------
Notes to the unaudited condensed consolidated financial
statements
1 Accounting policies
Basis of preparation
NCC Group plc (the 'Company') is a public company incorporated
in the UK, with its registered office at XYZ Building, 2 Hardman
Boulevard, Manchester M3 3AQ. The Group Financial Statements
consolidate those of the Company and its subsidiaries (together
referred to as the 'Group'). The principal activity of the Group is
the provision of independent advice and services to customers
through the supply of cyber security and Software Resilience
services.
The condensed financial statements have been prepared on the
historical cost basis, except for consideration payable on
acquisitions that is measured at fair value at the date of the
acquisition. The condensed financial statements are presented in
Sterling (GBPm) because that is the currency of the principal
economic environment in which the Company operates. The financial
information is derived from the Group's consolidated financial
statements for the year ended 31 May 2023, which have been prepared
on the going concern basis in accordance with UK-adopted
international accounting standards ("UK-adopted IFRS").
The financial information set out above does not constitute the
Company's statutory accounts for the year ended 31 May 2023 and 31
May 2022. The financial information for the year ended 31 May 2022
is derived from the statutory accounts for the year ended 31 May
2022 which have been delivered to the registrar of companies. The
auditor has reported on the 31 May 2022 accounts; their report was
(i) unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
section 498 (2) or (3) of the Companies Act 2006. The statutory
accounts for the year ended 31 May 2023 will be finalised on the
basis of the financial information presented by the Directors in
this preliminary announcement and will be delivered to the
registrar of companies in due course.
As required by the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority the condensed set of financial
statements has been prepared applying the accounting policies and
presentation that were applied in the company's published
consolidated financial statements for the year ended 31 May 2022,
which were prepared in accordance with IFRSs as adopted for use in
the UK. They do not contain all the information required for full
financial statements.
Climate change
The Directors have reviewed the potential impact of Climate
change and the Task Force on Climate-Related Financial Disclosures
(TCFD) on the consolidated Financial Statements. Our overall
exposure to physical and transitional climate change is considered
low due to the nature of the business and cyber resilience
industry.
Going concern
The Directors have acknowledged guidance published in relation
to going concern assessments. The Group's business activities,
together with the factors likely to affect its future development,
performance and position, are set out in the Business Review and
Financial Review. The Group's financial position, cash and
borrowing facilities are also described within these sections.
The Financial Statements have been prepared on a going concern
basis which the Directors consider to be appropriate for the
following reasons.
The Directors have prepared cash flow and covenant compliance
forecasts for the 12-month period ending 30 September 2024 which
indicate that, taking account of severe but plausible downsides on
the operations of the Group and its financial resources, the Group
and Company will have sufficient funds to meet their liabilities as
they fall due for that period.
The going concern period is required to cover a period of at
least 12 months from the date of approval of the Financial
Statements and the Directors still consider this 12-month period to
be an appropriate assessment period due to the Group's financial
position and trading performance and that its borrowing facilities
do not expire until December 2026. The Directors have considered
whether there are any significant events beyond the 12-month period
which would suggest this period should be longer but have not
identified any such conditions or events.
The Group is financed primarily by a GBP162.5m multi-currency
revolving credit facility maturing in December 2026. Under these
banking arrangements, the Group can also request (seeking bank
approval) an additional accordion facility to increase the total
size of the revolving credit facility by up to GBP75m. This
accordion facility has not been considered in the Group's going
concern assessment as it requires bank approval and is therefore
uncommitted as at the date of approval of these consolidated
financial statements
As of 31 May 2023, net debt (excluding lease liabilities) (1)
amounted to GBP49.6m which comprised cash of GBP34.1m, a bank
overdraft of GBP1.8m, a drawn revolving credit facility of GBP83.4m
had been drawn under these facilities, leaving GBP79.1m (2022:
GBP28.7m) of undrawn facilities, excluding the uncommitted
accordion facility of GBP75.0m. Unamortised arrangement fees of
GBP1.5m have been offset against the amounts drawn down, resulting
in a carrying value of borrowings at 31 May 2023 of GBP81.9m. The
Group's day-to-day working capital requirements are met through
existing cash resources, the revolving credit facility and receipts
from its continuing business activities.
The Group is required to comply with financial covenants for
leverage (net debt to Adjusted EBITDA (1) ) and interest cover
(Adjusted EBITDA (1) to interest charge) that are tested
bi-annually on 31 May and 30 November each year. As of 31 May 2023,
leverage (1) amounted to 1.4x and net interest cover (1) amounted
to 6.7 compared to a maximum of 3.0x and a minimum of 3.5x
respectively. The terms and ratios are specifically defined in the
Group's banking documents (in line with normal commercial practice)
and are materially similar to amounts noted in these financial
statements with the exceptions being net debt excludes IFRS 16
lease liabilities and Adjusted EBITDA (1) . The Group was in
compliance with the terms of all its facilities during the year,
including the financial covenants on 31 May 2023, and based on
forecasts, expects to remain in compliance over the going concern
period. In addition, the Group has not sought or is not planning to
seek any waivers to its existing facilities.
It's been a challenging year for the Group with a decline in the
rate of revenue growth and overall profitability. The Group's
revenue performance and profitability suffered from market
volatility within Cyber Security(1) . In particular, the Group
experienced buying decision delays and cancellations in the North
American tech sector and our UK market. These headwinds have
further reinforced the need to accelerate the implementation of our
next chapter of the Group strategy following its communication in
February 2023. This strategy requires a level of additional
investment in 2024. Despite the above, the Group has maintained
consistent cash generation during the year.
Following the year end, the Group has engaged in additional
generating cost efficiencies across Cyber Security (1) and
corporate functions which is resulting in the implementation of a
fundamental reorganisation generating further savings compared to
the prior year. As a result of all of the above, the base case
going concern assessment has been prepared on the basis that market
volatility within Cyber Security(1) partially continues with
overall profitability remaining similar to 2023.
With this context, the Directors have prepared a number of
severe but plausible scenarios to the base cash going concern
assessment as follows:
a) No recovery from FY23 Q4 Cyber Security (1) trading
performance - GBP6.4m reduction profit before tax
b) b) Loss of key customers - GBP4.2m reduction in profit before tax
c) Shortfall in forecast cost savings - annualised GBP3.2m reduction in profit before tax
d) Further inflationary pressures continue, worse and more
prolonged than expected (wages, energy and interest) - GBP5.6m
reduction in profit before tax
e) Combination of Scenario a and d - GBP10.8m reduction in profit before tax
These scenarios have been modelled individually in order to
assess the Group's ability to withstand specific challenges. The
Directors do not believe it is plausible for all of the above
downside scenarios to occur concurrently; however, they have
modelled scenarios combining risks (a and d). The impact of these
severe but plausible scenarios has been reviewed against the
Group's projected cash flow position, available committed bank
facilities and compliance with financial covenants. These
forecasts, including the severe but plausible downsides, show that
the Group is able to operate within its available committed banking
facilities, with no forecasted covenant breaches or requirement for
facility waivers, and that the Group will have sufficient funds to
meet its liabilities as they fall due for that period.
From a Company perspective, the Company places reliance on other
Group trading entities for financial support. The Company controls
these Group entities and therefore has the ability to direct the
financial activities of the Group. Having reviewed the current
trading performance, forecasts, debt servicing requirements, total
facilities and risks, the Directors are confident that the Company
and the Group will have sufficient funds to continue to meet their
liabilities as they fall due for a period of at least 12 months
from the date of approval of these consolidated Financial
Statements, which is determined as the going concern period.
Accordingly, the Directors continue to adopt the going concern
basis of accounting in preparing the Group's Financial Statements
for the period ended 31 May 2023.
There are no post-Balance Sheet events which the Directors
believe will negatively impact the going concern assessment
Individually Significant Items
Individually Significant Items are identified as those items or
projects that based on their size and nature and/or incidence are
assessed to warrant separate disclosure to provide supplementary
information to support the understanding of the Group's financial
performance. Where a project spans reporting period(s) the total
project size and nature are considered in totality. Individually
Significant Items typically comprise costs/profits/losses on
material acquisitions/disposals/business exits, fundamental
reorganisation/restructuring programmes and other significant
one-off events. Individually Significant Items are considered to
require separate presentation in the notes to the Financial
Statements in order to fairly present the financial performance of
the Group.
2. Critical accounting judgements and key sources of estimation
uncertainty
The preparation of Financial Statements requires management to
exercise judgement in applying the Group's accounting policies.
Different judgements would have the potential to change the
reported outcome of an accounting transaction or Statement of
Financial Position. It also requires the use of estimates that
affect the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates. Estimates
and underlying assumptions are reviewed on an ongoing basis, with
changes recognised in the period in which the estimates are revised
and in any future periods affected. The table below shows those
areas of critical accounting judgements and estimates that the
Directors consider material and that could reasonably change
significantly in the next year.
Accounting Accounting
Accounting area judgement? estimate?
------------------------------------------------------ ----------- ----------
Impairment of goodwill No Yes
Valuation of separately identifiable intangible assets
(prior year) No Yes
------------------------------------------------------ ----------- ----------
2.1 Critical accounting judgements
No critical accounting judgements have been made in applying
accounting policies that have the most significant effects on the
amounts recognised in the consolidated Financial Statements.
2.2 Key sources of estimation uncertainty
Information about estimation uncertainties that have a
significant risk of resulting in a material adjustment to the
carrying values of assets and liabilities within the next financial
year is addressed below.
Whilst every effort is made to ensure that such estimates and
assumptions are reasonable, by their nature they are uncertain, and
as such changes in estimates and assumptions may have a material
impact. Estimates and assumptions used in the preparation of the
Financial Statements are continually reviewed and revised as
necessary at each reporting date.
The Directors have considered the impact of climate change on
the following estimation uncertainties. Due to nature of the
climate change impact on the Group, no material impact has been
identified.
Impairment of goodwill
The Group has significant balances relating to goodwill at 31
May 2023 as a result of acquisitions of businesses in previous
years. The carrying value of goodwill at 31 May 2023 is GBP255.8m
(2022: GBP266.1m). Goodwill balances are tested annually for
impairment. The Group allocated goodwill to cash-generating units
("CGUs") which represent the lowest level of asset groupings that
generate separately identifiable cash inflows that are not
dependent on other CGUs.
For the year ended 31 May 2023, tests for impairment are based
on the calculation of a fair value less costs to sell ("FVLCTS")
which has been used to establish the recoverable amount of the CGU.
The FVLCTS valuation has been calculated by assessing the value of
each standalone CGU calculated using an Adjusted EBITDA (1)
multiple based on estimated sustainable earnings adjusted for
specific items where relevant. Estimated sustainable earnings has
been determined considering past experience and includes
expectations based on a market participant view of sustainable
performance of the business based on market volatility and
uncertainty as at 31 May 2023.
The sustainable earnings figures used in this calculation
include key assumptions regarding sustainable revenues and costs
for the business. If the assumptions and estimates used in this
valuation prove to be incorrect, the carrying value of goodwill may
be overstated.
The two CGUs which are most sensitive to reasonably possible
changes in sustainable earnings are US Cyber Security (1) and
Europe Cyber Security (1) . A description of such estimates and
reasonably possible sensitivities is provided in note 9.
3 Alternative Performance Measures (APMs) and adjusting
items
The consolidated Financial Statements include APMs as well as
statutory measures. These APMs used by the Group are not defined
terms under IFRS and may therefore not be comparable with similarly
titled measures reported by other companies. They are not intended
to be a substitute for, or superior to, Generally Accepted
Accounting Practice (GAAP) measures. All APMs relate to the current
year results and comparative periods where provided.
This presentation is also consistent with the way that financial
performance is measured by management and reported to the Board,
and the basis of financial measures for senior management's
compensation schemes and provides supplementary information that
assists the user in understanding the financial performance,
position and trends of the Group. At all times, the Group aims to
ensure that the Annual Report and Accounts gives a fair, balanced
and understandable view of the Group's performance, cash flows and
financial position. IAS 1 'Presentation of Financial Statements'
requires the separate presentation of items that are material in
nature or scale in order to allow the user of the accounts to
understand underlying business performance.
We believe these APMs provide readers with important additional
information on our business and this information is relevant for
use by investors, securities analysts and other interested parties
as supplemental measures of future potential performance. However,
since statutory measures can differ significantly from the APMs and
may be assessed differently by the reader we encourage you to
consider these figures together with statutory reporting measures
noted. Specifically, we would note that APMs may not be comparable
across different companies and that certain profit related APMs may
exclude recurring business transactions (e.g. acquisition related
costs and certain share-based payment charges) that impact
financial performance and cash flows.
As the Group manages internally its performance at an Adjusted
operating profit level (before Individually Significant Items,
amortisation of acquired intangibles and share-based payments),
which management believes represents the underlying trading of the
business. this information is still disclosed as an APM within this
Annual Report. This APM is reconciled to statutory operating
profit, together with the consequently Adjusted basic EPS (before
amortisation of acquisition intangibles, share-based payments and
Individually Significant Items and tax effect thereon) to statutory
basic EPS.
The Group has the following APMs/non-statutory measures:
Closest Adjustments to Definition, purpose and
equivalent reconcile to IFRS Note reference considerations
APM IFRS measure measure for reconciliation made by the Directors
-------------------- ------------------- --------------------- ------------------- -------------------------------
Income Statement measures:
----------------------------------------------------------------------------------------------------------------------
Constant Revenue Retranslation 3 The Group also reports certain
currency growth rates of comparative geographic regions on a
revenue at actual numbers at current constant
growth rates of year exchange currency basis to reflect the
rates currency rates to provide underlying performance
exchange constant currency considering
constant foreign exchange rates
year on year. This involves
translating
comparative numbers to current
year rates for comparability
to enable a growth factor to
be calculated.
-------------------- ------------------- --------------------- ------------------- -------------------------------
Adjusted Operating Operating profit 3 Represents operating profit
operating profit or or loss before before
profit loss amortisation of amortisation of acquired
acquired intangibles, intangibles,
share-based payments share-based payments and
and Individually Individually
Significant Items Significant Items.
This measure is to allow the
user to understand the Group's
underlying financial
performance
as measured by management,
reported
to the Board and used as a
financial
measure in senior management's
compensation schemes.
The Directors consider
amortisation
of acquired intangibles is a
non-cash accounting charge
inherently
linked to losses associated
with
historical acquisitions of
businesses.
The Directors consider
share-based
payments to be an adjusting
item
on the basis that fair values
are volatile due to movements
in share price, which may not
be reflective of the underlying
performance of the Group.
Individually Significant Items
are items that are considered
unusual by nature or scale and
are of such significance that
separate disclosure is relevant
to understanding the Group's
financial performance and
therefore
requires separate presentation
in the Financial Statements in
order to fairly present the
financial
performance of the Group.
-------------------- ------------------- --------------------- ------------------- -------------------------------
Adjusted Operating Operating profit 3 Represents operating profit
earnings profit or or loss, before before
before loss adjusting items, adjusting items, depreciation
interest, depreciation and and amortisation to assist in
tax, depreciation amortisation, the understanding of the
and amortisation finance costs Group's
(Adjusted and taxation performance.
EBITDA) Adjusted EBITDA is disclosed
as this is a measure widely
used
by various stakeholders and
used
by the Group to measure the
cash
conversion ratio.
-------------------- ------------------- --------------------- ------------------- -------------------------------
Adjusted Statutory Statutory basic 8 Represents basic EPS before
basic EPS basic EPS EPS before amortisation
amortisation of acquired intangibles,
of acquired share-based
intangibles, payments and Individually
share-based payments, Significant
Individually Items.
Significant This measure is to allow the
Items and the user to understand the Group's
tax effect thereon underlying financial
performance
as measured by management,
reported
to the Board and used as a
financial
measure in senior management's
compensation schemes.
See further details above in
relation to amortisation of
acquired
intangibles and share-based
payments.
-------------------- ------------------- --------------------- ------------------- -------------------------------
Balance Sheet measures:
----------------------------------------- --------------------- ------------------- -----------------------------
Net cash/(debt) Total borrowings 3 Represents total borrowings
excluding (excluding (excluding
lease lease liabilities) lease liabilities) offset by
liabilities offset by cash and cash equivalents. It
cash and is a useful measure of the
cash equivalents progress
in generating cash,
strengthening
of the Group Balance Sheet
position,
overall net indebtedness and
gearing on a like-for-like
basis.
Net cash/(debt), when
compared
to available borrowing
facilities,
also gives an indication of
available
financial resources to fund
potential
future business investment
decisions
and/or potential
acquisitions.
-------------------- ------------------- --------------------- ------------------- -----------------------------
Net cash/(debt) Total borrowings 3 Represents total borrowings
(including (including
lease liabilities) lease liabilities) offset by
offset by cash and cash equivalents. It
cash and is a useful measure of the
cash equivalents progress
in generating cash,
strengthening
of the Group Balance Sheet
position,
overall net indebtedness and
gearing including lease
liabilities.
Net cash/(debt), when
compared
to available borrowing
facilities,
also gives an indication of
available
financial resources to fund
potential
future business investment
decisions
and/or potential
acquisitions.
-------------------- ------------------- --------------------- ------------------- -----------------------------
Cash flow measure:
--------------------------------------------------------------------------------------------------------------------
Cash conversion Ratio % Ratio % of net 3 The cash conversion ratio is
ratio of net cash cash flow from a measure of how effectively
flow from operating activities operating profit is converted
operating before interest into cash and effectively
activities and tax divided highlights
before interest by EBITDA both non-cash accounting
and tax items
divided within operating profit and
by operating also
profit movements in working capital.
It is calculated as net cash
flow from operating
activities
before interest and taxation
(as disclosed on the face of
the Cash Flow Statement)
divided
by EBITDA for continued and
discontinued
activities.
The cash conversion ratio is
a measure widely used by
various
stakeholders and hence is
disclosed
to show the quality of cash
generation
and also to allow comparison
to other similar companies.
------------------ ------------------- --------------------- ------------------- -----------------------------
The above APMs are consistent with those reported for the year
ended 31 May 2022, except for the removal of the Group revenue and
Software Resilience revenue excluding IPM acquisition, which have
been removed now that the Group has comparable data following the
acquisition in June 2021.
Adjusted EBITDA and Adjusted operating profit
The calculation of Adjusted EBITDA and Adjusted operating profit
is set out below:
Unaudited
2023 2022
GBPm GBPm
--------------------------------------------------------------- --------- ------
Operating profit 1.9 34.7
Depreciation of property, plant and equipment 4.5 3.9
Depreciation of right-of-use assets 5.7 5.4
Amortisation of customer contracts and relationships (acquired
intangibles) 10.0 8.6
Amortisation of software and development costs 2.4 1.8
Individually Significant Items (Note 5) 14.7 0.9
Share-based payments charge 2.2 3.9
--------------------------------------------------------------- --------- ------
Adjusted EBITDA 41.4 59.2
Depreciation and amortisation (excluding amortisation charged
on acquired intangibles) (12.6) (11.1)
--------------------------------------------------------------- --------- ------
Adjusted operating profit 28.8 48.1
--------------------------------------------------------------- --------- ------
Net (debt)/cash
The calculation of net debt excluding lease liabilities and net
debt is set out below:
Unaudited
2023 2022
GBPm GBPm
------------------------------------- --------- --------
Cash and cash equivalents (Note 10) 34.1 73.2
Bank overdraft (Note 10) (1.8) -
Borrowings (Note 10) (81.9) (125.6)
------------------------------------- --------- --------
Net debt excluding lease liabilities (49.6) (52.4)
Lease liabilities (30.0) (32.6)
------------------------------------- --------- --------
Net debt (79.6) (85.0)
------------------------------------- --------- --------
Cash conversion ratio
The calculation of the cash conversion ratio is set out
below:
Unaudited
2023 2022
GBPm GBPm
--------------------------------------------------------- --------- ------
Cash generated from operating activities before interest
and taxation (A) 42.6 60.3
Adjusted EBITDA (B) 41.4 59.2
--------------------------------------------------------- --------- ------
Cash conversion ratio (%) (A)/(B) 102.9% 101.9%
--------------------------------------------------------- --------- ------
Constant currency revenue
The following tables show how constant currency revenue growth
has been calculated and reconciled to statutory actual rate
growth.
Group
Revenue:
% Constant
Unaudited change Unaudited currency %
Revenue Revenue at Revenue revenue change
2023 2022 actual 2023 2022 at constant
Revenue: GBPm GBPm rates GBPm GBPm currency
-------------- --------- --------- ------- --------- --------- ------------
Total revenue 335.1 314.8 6.4% 335.1 330.3 1.5%
-------------- --------- --------- ------- --------- --------- ------------
Following the acquisition of IPM in the prior period, goodwill
and intangible assets were recognised amounting to GBP68.6m and
GBP92.6m respectively. Management was required to recognise all
assets and liabilities at fair value, giving rise to a fair value
adjustment on the level of deferred revenue acquired of GBP12.1m.
This had resulted in a downward adjustment to the book value of
IPM's deferred revenues reflecting the fair value of service still
to be delivered. If the fair value adjustment had not applied,
revenue would be GBP4.4m higher for the 12 months ended 31 May
2022.
On this basis, management has set out below unaudited proforma
information to show the consequential impact on the Group results
for the year ended 31 May 2023. Unaudited proforma total revenue is
not a statutory measure.
Constant
Unaudited Unaudited currency %
Revenue Revenue % Revenue revenue change at
2023 2022 (1) change at 2023 2022 (*) constant
GBPm GBPm actual rates GBPm GBPm currency
--------------------------------- --------- --------- ------------- --------- --------- ----------
Total revenue 335.1 314.8 6.4% 335.1 330.3 1.5%
Software Resilience revenue
adjustment - 4.4 n/a - 4.8 n/a
--------------------------------- --------- --------- ------------- --------- --------- ----------
Unaudited proforma total revenue 335.1 319.2 5.0% 335.1 335.1 -
--------------------------------- --------- --------- ------------- --------- --------- ----------
* 2022 revenue is not a statutory measure and includes the
Software Resilience revenue adjustment.
Cyber Security (1)
Cyber Security (1) revenue analysis - by originating
country:
Constant
Unaudited Unaudited currency %
Revenue Revenue % Revenue revenue change at
2023 2022 change at 2023 2022 constant
GBPm GBPm actual rates GBPm GBPm currency
-------------------------------- --------- --------- ------------- --------- --------- ----------
UK and APAC 118.4 114.6 3.3% 118.4 115.0 3.0%
North America 99.3 94.1 5.5% 99.3 104.4 (4.9%)
Europe 53.1 49.8 6.6% 53.1 51.1 3.9%
-------------------------------- --------- --------- ------------- --------- --------- ----------
Total Cyber Security(1) revenue 270.8 258.5 4.8% 270.8 270.5 0.1%
-------------------------------- --------- --------- ------------- --------- --------- ----------
Constant
Unaudited Unaudited currency %
Revenue Revenue % Revenue revenue change at
H1 2023 H1 2022 change at H1 2023 H1 2022 constant
GBPm GBPm actual rates GBPm GBPm currency
-------------------------------- --------- --------- ------------- --------- --------- ----------
UK and APAC 61.6 54.6 12.8% 61.6 55.0 12.0%
North America 59.2 44.0 34.5% 59.2 51.0 16.1%
Europe 24.2 24.6 (1.6%) 24.2 24.9 (2.8%)
-------------------------------- --------- --------- ------------- --------- --------- ----------
Total Cyber Security(1) revenue 145.0 123.2 17.7% 145.0 130.9 10.8%
-------------------------------- --------- --------- ------------- --------- --------- ----------
Constant
Unaudited Unaudited currency %
Revenue Revenue % Revenue revenue change at
H2 2023 H2 2022 change at H2 2023 H2 2022 constant
GBPm GBPm actual rates GBPm GBPm currency
-------------------------------- --------- --------- ------------- --------- --------- ----------
UK and APAC 56.8 60.0 (5.3%) 56.8 60.0 (5.3%)
North America 40.1 50.1 (20.0%) 40.1 53.4 (24.9%)
Europe 28.9 25.2 14.7% 28.9 26.2 10.3%
-------------------------------- --------- --------- ------------- --------- --------- ----------
Total Cyber Security(1) revenue 125.8 135.3 (7.0%) 125.8 139.6 (9.9%)
-------------------------------- --------- --------- ------------- --------- --------- ----------
Cyber Security (1) revenue analysed by type of service/product
line:
Constant
Unaudited Restated* Unaudited currency %
Revenue Revenue % Revenue revenue change at
2023 2022 change at 2023 2022* constant
GBPm GBPm actual rates GBPm GBPm currency
-------------------------------- --------- ----------- ------------- --------- --------- ----------
Global Professional Services
(GPS) 199.3 195.4 2.0% 199.3 205.6 (3.1%)
Global Managed Services (GMS) 67.8 58.6 15.7% 67.8 60.3 12.4%
Product sales (own and third
party) 3.7 4.5 (17.8%) 3.7 4.6 (19.6%)
-------------------------------- --------- ----------- ------------- --------- --------- ----------
Total Cyber Security(1) revenue 270.8 258.5 4.8% 270.8 270.5 0.1%
-------------------------------- --------- ----------- ------------- --------- --------- ----------
* Restated to present revenue by category to be consistent with
amounts reported to management. Revenue of GBP6.4m has been
represented within GPS rather than product sales.
Constant
Unaudited Unaudited currency %
Revenue Revenue % Revenue revenue change at
H1 2023 H1 2022 change at H1 2023 H1 2022 constant
GBPm GBPm actual rates GBPm GBPm currency
-------------------------------- --------- --------- ------------- --------- --------- ----------
Global Professional Services
(GPS) 111.1 93.6 18.7% 111.1 100.6 10.4%
Global Managed Services (GMS) 32.2 28.4 13.4% 32.2 29.1 10.7%
Product sales (own and third
party) 1.7 1.2 41.7% 1.7 1.2 41.7%
-------------------------------- --------- --------- ------------- --------- --------- ----------
Total Cyber Security(1) revenue 145.0 123.2 17.7% 145.0 130.9 10.8%
-------------------------------- --------- --------- ------------- --------- --------- ----------
Constant
Unaudited Unaudited currency %
Revenue Revenue % Revenue revenue change at
H2 2023 H2 2022 change at H2 2023 H2 2022 constant
GBPm GBPm actual rates GBPm GBPm currency
-------------------------------- --------- --------- ------------- --------- --------- ----------
Global Professional Services
(GPS) 88.2 101.8 (13.4%) 88.2 105.0 (16.0%)
Global Managed Services (GMS) 35.6 30.2 17.9% 35.6 31.2 14.1%
Product sales (own and third
party) 2.0 3.3 (39.4%) 2.0 3.4 (41.2%)
-------------------------------- --------- --------- ------------- --------- --------- ----------
Total Cyber Security(1) revenue 125.8 135.3 (7.0%) 125.8 139.6 (9.9%)
-------------------------------- --------- --------- ------------- --------- --------- ----------
Software Resilience
Software Resilience revenue analysis - by originating
country:
Constant
Unaudited Unaudited currency %
Revenue Revenue % Revenue revenue change at
2023 2022 change at 2023 2022 constant
GBPm GBPm actual rates GBPm GBPm currency
-------------------------- --------- --------- ------------- --------- --------- ----------
UK 25.8 25.4 1.6% 25.8 25.4 1.6%
North America 34.5 26.8 28.7% 34.5 30.2 14.2%
Europe 4.0 4.1 (2.4%) 4.0 4.2 (4.8%)
-------------------------- --------- --------- ------------- --------- --------- ----------
Total Software Resilience
revenue 64.3 56.3 14.2% 64.3 59.8 7.5%
-------------------------- --------- --------- ------------- --------- --------- ----------
Constant
Unaudited Unaudited currency %
Revenue Revenue % Revenue revenue change at
H1 2023 H1 2022 change at H1 2023 H1 2022 constant
GBPm GBPm actual rates GBPm GBPm currency
-------------------------- --------- --------- ------------- --------- --------- ----------
UK 12.3 12.6 (2.4%) 12.3 12.7 (3.1%)
North America 17.3 12.3 40.7% 17.3 14.7 17.7%
Europe 2.0 2.0 - 2.0 2.0 -
-------------------------- --------- --------- ------------- --------- --------- ----------
Total Software Resilience
revenue 31.6 26.9 17.5% 31.6 29.4 7.5%
-------------------------- --------- --------- ------------- --------- --------- ----------
Constant
Unaudited Unaudited currency %
Revenue Revenue % Revenue revenue change at
H2 2023 H2 2022 change at H2 2023 H2 2022 constant
GBPm GBPm actual rates GBPm GBPm currency
-------------------------- --------- --------- ------------- --------- --------- ----------
UK 13.5 12.8 5.5% 13.5 12.7 6.3%
North America 17.2 14.5 18.6% 17.2 15.5 11.0%
Europe 2.0 2.1 (4.8%) 2.0 2.2 (9.1%)
-------------------------- --------- --------- ------------- --------- --------- ----------
Total Software Resilience
revenue 32.7 29.4 11.2% 32.7 30.4 7.6%
-------------------------- --------- --------- ------------- --------- --------- ----------
Software Resilience revenues analysed by service line:
% Constant
Unaudited change Unaudited currency %
Revenue Revenue at Revenue revenue change at
2023 2022 actual 2023 2022 constant
GBPm GBPm rates GBPm GBPm currency
------------------------------ --------- --------- ------------- --------- --------- ----------
Software Resilience contracts 42.8 38.1 12.3% 42.8 40.4 5.9%
Verification services 21.5 18.2 18.1% 21.5 19.4 10.8%
------------------------------ --------- --------- ------------- --------- --------- ----------
Total Software Resilience
revenue 64.3 56.3 14.2% 64.3 59.8 7.5%
------------------------------ --------- --------- ------------- --------- --------- ----------
Constant
Unaudited Unaudited currency %
Revenue Revenue % Revenue revenue change at
H1 2023 H1 2022 change at H1 2023 H1 2022 constant
GBPm GBPm actual rates GBPm GBPm currency
------------------------------ --------- --------- ------------- --------- --------- ----------
Software Resilience contracts 21.3 18.7 13.9% 21.3 20.6 3.4%
Verification services 10.3 8.2 25.6% 10.3 8.8 17.0%
------------------------------ --------- --------- ------------- --------- --------- ----------
Total Software Resilience
revenue 31.6 26.9 17.5% 31.6 29.4 7.5%
------------------------------ --------- --------- ------------- --------- --------- ----------
Constant
Unaudited Unaudited currency %
Revenue Revenue % Revenue revenue change at
H2 2023 H2 2022 change at H2 2023 H2 2022 constant
GBPm GBPm actual rates GBPm GBPm currency
------------------------------ --------- --------- ------------- --------- --------- ----------
Software Resilience contracts 21.5 19.4 10.8% 21.5 19.8 8.6%
Verification services 11.2 10.0 12.0% 11.2 10.6 5.7%
------------------------------ --------- --------- ------------- --------- --------- ----------
Total Software Resilience
revenue 32.7 29.4 11.2% 32.7 30.4 7.6%
------------------------------ --------- --------- ------------- --------- --------- ----------
Software Resilience unaudited proforma total revenue
Following the acquisition of IPM in the prior period, goodwill
and intangible assets were recognised amounting to GBP68.6m and
GBP92.6m respectively. Management was required to recognise all
assets and liabilities at fair value, giving rise to a fair value
adjustment on the level of deferred revenue acquired of GBP12.1m.
This had resulted in a downward adjustment to the book value of
IPM's deferred revenues reflecting the fair value of service still
to be delivered. If the fair value adjustment had not applied,
revenue would be GBP4.4m higher for the 12 months ended 31 May
2022.
On this basis, management has set out below unaudited proforma
information to show the consequential impact on the Group results
for the year ended 31 May 2023. Software Resilience unaudited
proforma total revenue is not a statutory measure.
% Constant %
Unaudited change Unaudited currency change
Revenue Revenue at Revenue revenue at
2023 2022 (1) actual 2023 2022 (1) constant
GBPm GBPm rates GBPm GBPm currency
------------------------------ --------- --------- ------- --------- --------- ---------
Software Resilience contracts 42.8 42.3 1.2% 42.8 45.0 (4.9%)
Verification services 21.5 18.4 16.8% 21.5 19.6 9.7%
------------------------------ --------- --------- ------- --------- --------- ---------
Software Resilience unaudited
proforma total revenue 64.3 60.7 5.9% 64.3 64.6 (0.5%)
------------------------------ --------- --------- ------- --------- --------- ---------
1: 2022 revenue is not a statutory measure and includes the
Software Resilience revenue adjustment.
4 Segmental information
The Group is organised into the following two (2022: two)
reportable segments: Cyber Security(2) and Software Resilience. The
two reporting segments provide distinct types of service. Within
each of the reporting segments the operating segments provide a
homogeneous group of services. The operating segments are grouped
into the reporting segments on the basis of how they are reported
to the chief operating decision maker (CODM) for the purposes of
IFRS 8 'Operating Segments', which is considered to be the Board of
Directors of NCC Group plc.
Operating segments are aggregated into the two reportable
segments based on the types and delivery methods of services they
provide, common management structures, and their relatively
homogeneous commercial and strategic market environments.
Performance is measured based on reporting segment profit, which
comprises Adjusted operating profit ([1]) and adjusting items are
not allocated to business segments. Interest and tax are also not
allocated to business segments and there are no intra-segment
sales.
Central
and
Software head
Cyber Security(2) Resilience office Group
Segmental analysis 2023 (unaudited) GBPm GBPm GBPm GBPm
------------------------------------------ ----------------- ----------- -------- ---------
Revenue 270.8 64.3 - 335.1
Cost of sales (184.7) (18.4) - (203.1)
------------------------------------------ ----------------- ----------- -------- ---------
Gross profit 86.1 45.9 - 132.0
Gross margin % 31.8% 71.4% 39.4%
General administrative expenses allocated (70.7) (14.7) (5.2) (90.6)
------------------------------------------ ----------------- ----------- -------- ---------
Adjusted EBITDA 1 15.4 31.2 (5.2) 41.4
Depreciation and amortisation (8.5) (0.6) (3.5) (12.6)
------------------------------------------ ----------------- ----------- -------- ---------
Adjusted operating profit 1 6.9 30.6 (8.7) 28.8
Individually Significant Items (Note 5) (12.3) (2.4) - (14.7)
Amortisation of acquired intangibles (1.2) (5.8) (3.0) (10.0)
Share-based payments (1.6) (0.1) (0.5) (2.2)
------------------------------------------ ----------------- ----------- -------- ---------
Operating profit (8.2) 22.3 (12.2) 1.9
Finance costs (6.2)
------------------------------------------ ----------------- ----------- -------- ---------
Loss before taxation (4.3)
Taxation (0.3)
------------------------------------------ ----------------- ----------- -------- ---------
Loss for the year (4.6)
------------------------------------------ ----------------- ----------- -------- ---------
Central
Cyber Security Software and
(2) Resilience head office Group
Segmental analysis 2022 GBPm GBPm GBPm GBPm
------------------------------------------ -------------- ----------- ------------ --------
Revenue 258.5 56.3 - 314.8
Cost of sales (166.2) (16.0) - (182.2)
------------------------------------------ -------------- ----------- ------------ --------
Gross profit 92.3 40.3 - 132.6
Gross margin % 35.7% 71.6% - 42.1%
General administrative expenses allocated (53.2) (17.5) (2.7) (73.4)
------------------------------------------ -------------- ----------- ------------ --------
Adjusted EBITDA (1) 39.1 22.8 (2.7) 59.2
Depreciation and amortisation (7.2) (0.8) (3.1) (11.1)
------------------------------------------ -------------- ----------- ------------ --------
Adjusted operating profit 1 31.9 22.0 (5.8) 48.1
Individually Significant Items (Note 5) - (0.9) - (0.9)
Amortisation of acquired intangibles (0.9) (4.8) (2.9) (8.6)
Share-based payments (2.1) (0.3) (1.5) (3.9)
------------------------------------------ -------------- ----------- ------------ --------
Operating profit/(loss) 28.9 16.0 (10.2) 34.7
Finance costs (3.7)
------------------------------------------ -------------- ----------- ------------ --------
Profit before taxation 31.0
Taxation (8.0)
------------------------------------------ -------------- ----------- ------------ --------
Profit for the year 23.0
------------------------------------------ -------------- ----------- ------------ --------
Footnote:
1: See Note 3 for an explanation of Alternative Performance
Measures (APMs) and adjusting items. Further information is also
contained within the Financial Review and the Glossary of
terms.
Revenue is disaggregated by primary geographical market, by
category and by timing of revenue recognition as follows:
Unaudited
Cyber Software 2023 Cyber Security Software 2022
Security(1) Resilience Total (1) Resilience Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------ ----------- --------- -------------- ----------- ------
Revenue by originating country
UK 106.6 25.8 132.4 103.9 25.4 129.3
APAC 11.8 - 11.8 10.7 - 10.7
North America 99.3 34.5 133.8 94.1 26.8 120.9
Europe 53.1 4.0 57.1 49.8 4.1 53.9
------------------------------- ------------ ----------- --------- -------------- ----------- ------
Total revenue 270.8 64.3 335.1 258.5 56.3 314.8
------------------------------- ------------ ----------- --------- -------------- ----------- ------
Unaudited Restated
Cyber Software 2023 Cyber Security Software 2022
Security(1) Resilience Total (1) * Resilience Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ------------ ----------- --------- --------------- ----------- ------
Revenue by category
Services 267.1 64.3 331.4 254.0 56.3 310.3
Products 3.7 - 3.7 4.5 - 4.5
-------------------- ------------ ----------- --------- --------------- ----------- ------
Total revenue 270.8 64.3 335.1 258.5 56.3 314.8
-------------------- ------------ ----------- --------- --------------- ----------- ------
* Restated to present revenue by category to be consistent with
amounts reported to management. Revenue of GBP6.4m has been
restated within services rather than product sales.
Unaudited Restated
Cyber Software 2023 Cyber Security Software 2022
Security(1) Resilience Total (1) * Resilience Total
Timing of revenue recognition GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------------ ----------- --------- --------------- ----------- ------
Services and products transferred
over time 252.9 42.8 295.7 242.4 37.6 280.0
Services and products transferred
at a point in time 17.9 21.5 39.4 16.1 18.7 34.8
---------------------------------- ------------ ----------- --------- --------------- ----------- ------
Total revenue 270.8 64.3 335.1 258.5 56.3 314.8
---------------------------------- ------------ ----------- --------- --------------- ----------- ------
*Restated to present revenue by category to be consistent with
amounts reported to management. Revenue of GBP192.8m has restated
within services and products transferred over time rather than
within services and products transferred at a point in time in the
Cyber Security (1) division consistent with the accounting policy
applied.
5 Individually Significant Items
The Group separately identifies items as Individually
Significant Items. Each of these is considered by the Directors to
be sufficiently unusual in terms of nature or scale so as not to
form part of the underlying performance of the business. They are
therefore separately identified and excluded from adjusted results
(as explained in Note 1).
Unaudited 2022
2023
Reference GBPm GBPm
---------------------------------------------------- ----------- ---------- -----
North America Cyber Security goodwill impairment a 9.8 -
Fundamental re-organisation costs b 4.2
Costs associated with strategic review of Software c 3.0 -
Resilience business
NCC Group A/S goodwill impairment d 3.0 -
IPM Software Resilience business deferred income e (0.6) -
adjustment
Profit on disposal of DDI business f (4.7) -
Costs directly attributable to the acquisition
of IPM Software Resilience business g - 0.9
Total ISIs 14.7 0.9
----------------------------------------------------------------- ---------- -----
(a) North America Cyber Security goodwill impairment
Following the annual impairment review of Goodwill, an
impairment has been recognised amounting to GBP9.8m. For further
details, please see note 9. Such costs meet the Group's policy for
ISIs as this is a significant one-off event.
(b) Fundamental re-organisation costs
In order to implement the next chapter of the Group's strategy
to enhance future growth, certain strategic actions are required
including reshaping the Group global delivery and operational
model. This reshaping is considered a fundamental reorganisation
and restructuring programme (meeting the Group's policy for ISIs)
that will span reporting periods and the total project size and
nature are considered in totality. The programme commencement was
accelerated following the Group experiencing specific market
conditions that validated the rationale of the next chapter of the
Group's strategy. The programme has three phases as follows:
-- Phase 1 (March-April 2023) - initial reduction in global
delivery and operational headcount; -c.7% reduction of the Group's
global headcount
-- Phase 2 (June-September 2023) - a further reduction in global
delivery, operational and corporate functions headcount prior to
opening our off-shore operations and delivery centre in Manila
-- Phase 3 (October 2023-May 2025) - finalisation of the Group's operating model
Phases 2-3 are being implemented by the Group with the
assistance of a third party to ensure the Group complete the
fundamental reorganisation efficiently.
Costs of GBP4.2m (2022: GBPnil) and cash outflow of GBP3.4m
(2022: GBPnil) have been incurred in relation to the implementation
of this re-organisation and are made up of severance costs,
associated taxes and professional fees for advisory and legal
services. It is expected that costs will be incurred for the years
ending 31 May 2024 and 2025 and the Group will have to exercise
judgement in assessing whether the restructuring items should be
classified as ISI, this will involve considering the nature of the
item, cause of occurrence and scale of the impact of those items on
the reported performance and after considering the original
reorganisation programme principles and plans.
(c) Costs associated with strategic review of Software Resilience business
During February 2023, the Group announced its ongoing strategic
review of the Software Resilience business and of other core and
non-core assets. During the year ended 31 May 2023, professional
fees totalling GBP3.0m (2022: GBPnil) mainly in respect of advisory
services have been incurred. Such costs meet the Group's policy for
ISIs as they have been incurred as part of the wider
re-structuring/re-organisation activities that are ongoing within
the Group. The Group has now stopped the strategic review of the
Software Resilience business, which will be revisited by the Board
when considered appropriate.
(d) NCC Group A/S goodwill impairment
On 1 June 2022, the Group made the decision to re-organise its
Danish business (NCC Group A/S) which had previously been a part of
the Europe Cyber Security(1) CGU. Following that re-organisation,
the cash inflows associated with the Danish business are separately
identifiable and therefore the carrying value of the CGU assets has
been assessed separately for impairment at 31 May 2023. The charge
of GBP3.0m (2022: GBPnil) represents the impairment of goodwill
associated with the Danish business following completion of that
review. Such costs meet the Group's policy for ISIs as this is a
significant one-off event.
(e) IPM Software Resilience business deferred income adjustment
This represents an adjustment to the opening deferred income
balance in respect of the IPM acquisition in June 2021. During
FY23, opening deferred income balances on verification tests
totalling GBP0.6m have been identified for which the work has not
been performed and the statute of limitations has now expired. As
the period of hindsight for adjusting goodwill has now expired
management has released these amounts to the income statement.
Given the nature of this release which would typically have been
adjusted to goodwill it is considered to meet the definition of an
individually significant item and has been classified as such.
(f) Profit on disposal of DDI business
On 31 December 2022, the Group disposed of its DDI business for
cash consideration of GBP5.8m. The profit of GBP4.7m (2022: GBPnil)
is directly attributable to the disposal of the DDI business. Such
profits meet the Group's policy for ISIs as the proceeds represent
a material profit on disposal.
(g) Costs directly attributable to the acquisition of the IPM Software Resilience business
These costs are directly attributable to the material
acquisition of the IPM Software Resilience business during the year
ended 31 May 2022 and are therefore considered to meet the Group's
policy for ISIs. The nature of the costs includes legal,
accountancy, due diligence and other advisory services. The total
costs amount to GBP8.5m, of which GBPnil has been charged to the
Income Statement in the year ended 31 May 2023 (2022: GBP0.9m,
2021: GBP7.6m). Of the total costs of GBP8.5m incurred, the Group
saw a cash outflow of GBPnil in the year ended 31 May 2023 (2022:
GBP7.3m, 2021: GBP1.2m). The difference between the cash outflow
and the costs charged to the Income Statement relates to GBP6.4m of
costs relating to services performed in the year ended 31 May 2021
but for which the cash outflow did not occur until the year ended
31 May 2022 in line with supplier payment terms.
6. Tax
Reconciliation of effective tax rate
Unaudited
2023 2022
GBPm GBPm
-------------------------------------------------------- --------- -----
(Loss)/profit before taxation (4.3) 31.0
-------------------------------------------------------- --------- -----
Current tax using the UK effective corporation tax rate
of 20% (2022: 19%) (0.9) 5.9
Effects of:
Items not deductible/(assessable) for tax purposes 2.6 0.5
Adjustment to tax charge in respect of prior periods (1.1) 0.1
Impact of prior year US R&D tax credits (1.4) (1.1)
Impact of current year US R&D tax credits (0.3) (0.2)
Differences between overseas tax rates 1.0 1.7
Movements in temporary differences not recognised 0.6 1.2
Movement in tax rate (0.2) (0.1)
-------------------------------------------------------- --------- -----
Total tax expense 0.3 8.0
-------------------------------------------------------- --------- -----
Tax uncertainties
The tax expense reported for the current year and prior year is
affected by certain positions taken by management where there may
be uncertainty. The most significant source of uncertainty arises
from claims for US R&D tax credits relating to the current and
previous periods. Uncertainty relates to the interpretation of US
legislation applicable to periods where the statute of limitations
has not expired. For the periods ended 31 May 2017 to 31 May 2023,
the aggregate net current tax benefit taken to the Income Statement
relating to US R&D tax credits is GBP5.6m (2022: GBP4.0m). As
at 31 May 2023, the gross deferred tax asset relating to US R&D
tax credits is GBP1.4m (2022: GBP0.5m) although due to uncertainty
a partial provision of GBP0.8m (2022: GBP0.3m) has been made
against this asset. The gross cumulative amount of US R&D tax
credits amounts to GBP10.4m (2022: GBP9.3m) and the net cumulative
amount is GBP6.2m (2022: GBP5.1m). The cumulative provision of
GBP4.2m comprises a deferred tax element (GBP0.8m) relating to tax
credits as yet unutilised against US tax and a current tax element
(GBP3.4m) relating to utilised tax
credits. The latter provision will unwind as the statute of
limitation windows expire for claims made in respective periods.
The provision relating to utilised tax credits of GBP3.4m is
expected to unwind as follows: FY24: GBP1.2m, FY25: GBP1.0m, FY26:
GBP0.4m and FY27: GBP0.8m.
7. Dividends
Unaudited
2023 2022
GBPm GBPm
---------------------------------------------------- --------- -----
Dividends paid and recognised in the year 14.5 14.4
Dividends per share paid and recognised in the year 4.65p 4.65p
Dividends per share proposed but not recognised in
the year 3.15p 3.15p
---------------------------------------------------- --------- -----
The proposed final dividend for the year ended 31 May 2023 of
3.15p per ordinary share (approximately GBP9.8m) was recommended by
the Board on 11 September 2023 and will be paid on 8 December 2023,
to shareholders on the register at the close of business on 10
November 2023. The ex-dividend date is 9 November 2023. The
dividend will be recommended to shareholders at the AGM on 30
November 2023. The dividend has not been included as a liability as
at 31 May 2023. The payment of this dividend will not have any tax
consequences for the Group.
8. Earnings per ordinary share (EPS)
Earnings per ordinary share are shown on a statutory and an
adjusted basis to assist in the understanding of the performance of
the Group.
Unaudited
2023 2022
GBPm GBPm
----------------------- --------- -----
Statutory earnings (A) (4.6) 23.0
------------------------- --------- -----
Number Number
of shares of shares
m m
----------------------------------------------------- ---------- ----------
Weighted average number of shares in issue 311.1 309.5
Less: weighted average holdings by Group ESOT (0.7) -
----------------------------------------------------- ---------- ----------
Basic weighted average number of shares in issue (C) 310.4 309.5
Dilutive effect of share options 0.8 1.4
----------------------------------------------------- ---------- ----------
Diluted weighted average shares in issue (D) 311.2 310.9
----------------------------------------------------- ---------- ----------
For the purposes of calculating the dilutive effect of share
options, the average market value is based on quoted market prices
for the period during which the options are outstanding.
Unaudited
2023 2022
Pence Pence
---------------------------- ---------- ------
Earnings per ordinary share
Basic (A/C) (1.5) 7.4
Diluted (A/D) (1.5) 7.4
---------------------------- ---------- ------
Adjusted basic EPS 1 is reconciled as follows:
Unaudited
2023 2022
GBPm GBPm
-------------------------------------------- --------- ------
Statutory earnings (A) (4.6) 23.0
Amortisation of acquired intangibles 10.0 8.6
Share-based payments 2.2 3.9
Individually Significant Items (see Note 5) 14.7 0.9
Tax effect of above items (3.4) (2.9)
-------------------------------------------- --------- ------
Adjusted earnings (B) 18.9 33.5
-------------------------------------------- --------- ------
Unaudited
2023 2022
Pence Pence
------------------------------------- --------- ------
Adjusted earnings per ordinary share
Basic (B/C) 6.1 10.8
Diluted (B/D) 6.1 10.8
------------------------------------- --------- ------
9. Goodwill and intangible assets
Goodwill Software Development Customer Intangibles Total
costs contracts sub-total
and relationships
----------------------------
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- --------- ------------ ------------------- ------------ --------
Cost:
At 1 June 2021 238.9 14.5 11.7 73.1 99.3 338.2
Additions - 1.6 1.3 - 2.9 2.9
On acquisition 69.7 2.5 - 91.4 93.9 163.6
Effects of movements
in exchange rates 13.5 0.1 (0.1) 12.3 12.3 25.8
------------------- ------------ --------
At 31 May 2022 322.1 18.7 12.9 176.8 208.4 530.5
---------------------------- --------- --------- ------------ ------------------- ------------ --------
Additions - 2.5 0.9 - 3.4 3.4
Disposals (1.0) - - - - (1.0)
Effects of movements
in exchange rates 3.5 - - 2.4 2.4 5.9
---------------------------- --------- --------- ------------ ------------------- ------------ --------
At 31 May 2023 (unaudited) 324.6 21.2 13.8 179.2 214.2 538.8
---------------------------- --------- --------- ------------ ------------------- ------------ --------
Accumulated amortisation
and impairment:
At 1 June 2021 (56.0) (11.8) (9.0) (57.5) (78.3) (134.3)
Charge for year - (0.9) (0.9) (8.6) (10.4) (10.4)
Effects of movements
in exchange rates - - 0.1 (1.2) (1.1) (1.1)
------------------- ------------ --------
At 31 May 2022 (56.0) (12.7) (9.8) (67.3) (89.8) (145.8)
---------------------------- --------- --------- ------------ ------------------- ------------ --------
Charge for year - (1.2) (1.2) (10.0) (12.4) (12.4)
Impairment (12.8) (0.6) - - (0.6) (13.4)
Effects of movements
in exchange rates - - (0.1) (0.4) (0.5) (0.5)
---------------------------- --------- --------- ------------ ------------------- ------------ --------
At 31 May 2023 (unaudited) (68.8) (14.5) (11.1) (77.7) (103.3) (172.1)
---------------------------- --------- --------- ------------ ------------------- ------------ --------
Net book value:
At 31 May 2022 266.1 6.0 3.1 109.5 118.6 384.7
---------------------------- --------- --------- ------------ ------------------- ------------ --------
At 31 May 2023 (unaudited) 255.8 6.7 2.7 101.5 110.9 366.7
---------------------------- --------- --------- ------------ ------------------- ------------ --------
Development costs are capitalised in accordance with IAS 38
development criteria. For this reason, these are not regarded as
realised losses.
The impairment of software of GBP0.6m relates to a specific
asset under development which was no longer deemed to be
economically viable and therefore development was ceased.
Cash generating units (CGUs)
Goodwill and intangible assets are allocated to CGUs in order to
be assessed for potential impairment. CGUs are defined by
accounting standards as the lowest level of asset groupings that
generate separately identifiable cash inflows that are not
dependent on other CGUs.
On 1 June 2022, the Group made the decision to re-organise its
Danish business (NCC Group A/S) which had previously been a part of
the Europe Cyber Security(1) CGU. Following that re-organisation,
the cash inflows associated with the Danish business are separately
identifiable and therefore the carrying value of the CGU assets
have been assessed separately for impairment at 31 May 2023.
The IPM business was acquired on 1 June 2021, since this date
the IPM business has been integrated into the wider North America
Software Resilience CGU such that the cash inflows relating to this
business are no longer separately identifiable.
The CGUs and the allocation of goodwill to those CGUs are shown
below:
Unaudited
Goodwill Goodwill
2023 2022
Cash generating units GBPm GBPm
---------------------------------- --------- --------
UK Software Resilience 22.9 22.9
North America Software Resilience 87.2 8.5
IPM Software Resilience - 76.9
Europe Software Resilience 7.4 7.3
---------------------------------- --------- --------
Total Software Resilience 117.5 115.6
---------------------------------- --------- --------
UK and APAC Cyber Security(1) 44.3 45.4
North America Cyber Security(1) 31.6 39.9
Europe Cyber Security(1) 62.4 65.2
NCC Group A/S - -
---------------------------------- --------- --------
Total Cyber Security(1) 138.3 150.5
---------------------------------- --------- --------
Total Group 255.8 266.1
---------------------------------- --------- --------
Impairment review
Goodwill is tested for impairment annually at the level of the
CGU to which it is allocated.
For the year ended 31 May 2022, the recoverable amount of all
CGUs concerned was measured on a value in use basis (VIU), with the
exception of the Europe Cyber Security(1) CGU and the IPM Software
Resilience CGU, which were measured on a fair value less costs to
sell (FVLCTS) basis. For the year ended 31 May 2023, the
recoverable amount of all CGUs was measured on a fair value less
costs to sell basis.
Capitalised development and software costs are included in the
CGU asset bases when performing the impairment review. Capitalised
development projects and software intangible assets are also
considered, on an asset-by-asset basis, for impairment where there
are indicators of impairment.
The Directors have considered the impact of climate change on
this review, with no material impact identified.
Fair value less costs to sell
For the year ended 31 May 2023, the recoverable amount of all
CGUs has been determined on a fair value less costs to sell basis
for the purposes of the impairment review.
The valuation under FVLCTS is expected to exceed the valuation
under VIU because uncommitted restructurings and resulting
operating efficiencies are not considered within in a VIU valuation
in line with the requirements of IAS 36.
The FVLCTS valuation has been calculated by assessing the value
of each standalone CGU calculated using an Adjusted EBITDA 1
multiple based on estimated sustainable earnings adjusted for
specific items where relevant. Estimated sustainable earnings has
been determined considering past experience and includes
expectations based on a market participant view of sustainable
performance of the business based on market volatility and
uncertainty as at 31 May 2023. The sustainable earnings input is a
level 3 measurement; level 3 measurements are inputs which are
normally unobservable to market participants.
The Group incurs certain overhead costs in respect of support
services provided centrally to the CGUs. Such support services
include Finance, Human Resources, Legal, Information Technology and
additional central management support in respect of stewardship and
governance. In calculating sustainable earnings these overhead
costs have been allocated to the CGUs based on the extent to which
each CGU has benefitted from the services provided. Commonly this
is driven by time spent by the relevant central department in
supporting the CGU, informed by headcount or where possible
specific cost allocations have been made. During the year, this
allocation has been refined to ensure the allocation is
representative of the business operating model.
The Adjusted EBITDA 1 multiple used in the calculations is based
on an independent third-party assessment of the implied enterprise
value of each CGU based on a population of comparable companies as
at 31 May 2023. The estimated cost to sell was based on other
recent transactions that the Group has undertaken.
Impairment
During March 2023, the Group gave a trading update that market
volatility had materially increased significantly impacting on
cyber security revenue and profitability, particularly in the North
American technology sector. The key factors were:
-- b uying decision delays and cancellations exacerbated by
North America tech sector client layoffs.
-- turmoil in the Banking sector following the failure of
Silicon Valley Bank further knocking market confidence leading to
reduced appetite to spend on technology projects across
sectors.
-- Interest rate increases in the US creating further inflationary challenges for clients.
The board has assessed the recoverable amount of the North
America Cyber Security(1) CGU based on its FVLCTS at 31 May 2023 as
described above. Based on that assessment, the carrying amount of
this CGU exceeded its recoverable amount and therefore an
impairment loss of GBP9.8m has been recognised reducing the value
of goodwill allocated to this CGU to GBP31.6m. This amount has been
recognised as an individually significant item (see Note 5). The
impairment charge recognised has resulted in a reduction in the
carrying value of goodwill only.
On 1 June 2022, the Group made the decision to re-organise its
Danish business (NCC Group A/S) which had previously been a part of
the Europe Cyber Security (1) CGU. Following this re-organisation,
management has estimated the recoverable amount of the NCC Group
A/S CGU based on its FVLCTS at 31 May 2023 as described above.
Based on that estimate an impairment loss of GBP3.0m has been
recognised reducing the value of Goodwill allocated to this CGU to
GBPnil. This amount has been recognised as an individually
significant item (see Note 5). The impairment charge recognised has
resulted in a reduction in the carrying value of goodwill only.
The Board has assessed the recoverable amount of the Europe
Cyber Security(1) CGU based on its FVLCTS at 31 May 2023 as
described above. Based on that assessment the Board is satisfied
that the recoverable amount exceeds the carrying value of assets
allocated to that CGU. However, there are reasonably possible
changes to certain key inputs that could give rise to an
impairment. Please see sensitivity analysis below.
Sensitivity analysis
The key inputs used in the FVLCTS calculation are the Adjusted
EBITDA (1) used and the multiple applied to that sustainable
earnings. Specifically, the key assumptions to the Adjusted EBITDA
(1) are considered to be the expected revenue and costs that have
been used to calculate sustainable earnings.
The table below shows the sensitivity of headroom to reasonably
possible changes in the key assumptions, after the GBP9.8m
impairment in the North America Cyber Security (1) CGU during
FY23.
Sensitivities: impact on carrying value
----------------------------- -------------
Headroom Decrease in revenue Increase in all
CGU of 10% (2) costs of 5%
------------- ---------------------- -----------------
GBPm GBPm GBPm
------------- ---------------------- -----------------
North America Cyber Security
(4) - (21.7) (26.5)
------------- ---------------------- -----------------
Europe Cyber Security 13.4 (9.9) (14.3)
------------- ---------------------- -----------------
(2 While holding gross margin percentage at a fixed rate.)
(3 Sensitivities shown for North America Cyber Security are in
addition to the GBP9.8m impairment recognised in the year ended 31
May 2023.)
(4 Formerly Assurance)
If revenue included in sustainable earnings for North America
Cyber Security (1) increased by 5%, whilst holding the gross margin
percentage at a fixed rate then there would be no impairment
associated with this CGU.
With respect to the NCC Group A/S CGU, there is no reasonably
possible scenario that would support a carrying value of goodwill
greater than GBPnil.
No other reasonably possibly changes in key inputs including the
multiple could give rise to an impairment or further material
impairment to any CGUs.
In the prior year, for the Europe Cyber Security(1) CGU and the
IPM Software Resilience CGU there were no reasonably possible
change in key inputs that could give rise to an impairment to any
CGUs.
10 Loans and borrowings
Unaudited
2023 2022
GBPm GBPm
--------------------------------------------------------- --------- -------
Non-current
Variable rate:
Revolving credit facility (81.9) (70.5)
Bank term loan - (36.6)
--------------------------------------------------------- --------- -------
(81.9) (107.1)
--------------------------------------------------------- --------- -------
Current
Variable rate:
Bank term loan - (18.5)
--------------------------------------------------------- --------- -------
Total loans and borrowings (excluding lease liabilities) (81.9) (125.6)
--------------------------------------------------------- --------- -------
Cash 34.1 73.2
Bank overdraft (1.8) -
--------------------------------------------------------- --------- -------
Net (debt)/cash (excluding lease liabilities) 1 (49.6) (52.4)
--------------------------------------------------------- --------- -------
Non-current
Lease liabilities (24.0) (27.2)
Current
Lease liabilities (6.0) (5.4)
--------------------------------------------------------- --------- -------
Net (debt)/cash 1 (79.6) (85.0)
--------------------------------------------------------- --------- -------
In December 2022, the Group entered into a new four year
GBP162.5m multi-currency revolving credit facility replacing our
existing GBP100m multi-currency revolving credit facility and the
remaining $46.7m of the original $70m term loan that was maturing
in June 2024. Key terms of the new facility are:
-- GBP162.5m multi-currency revolving credit facility maturing in December 2026;
-- Additional GBP75m uncommitted accordion option;
-- Increase to leverage covenant from 2.5x to 3.0x with an
additional acquisition spike to 3.5x for the first 12 months of any
acquisition; and
-- Weighted average interest rate of the facility is lower and
payable on a ratchet mechanism, with a margin payable above SONIA
and SOFR in the range of 1.00% to 2.25% depending on the level of
the Group's leverage. The weighted average interest rate is 5.92%
as at 31 May 2023.
-- The new facility is considered an extinguishment of the
previous RCF and Term Loan Facility Agreement and therefore
remaining arrangement fees of GBP0.6m have been charged to the
Income Statement during the year ended 31 May 2023. New arrangement
fees of GBP1.7m will be amortised over the new four-year term to
December 2026. Arrangement fees of GBP0.4m (2022: GBP0.4m) have
been charged to the Income Statement in the year ended 31 May
2023.
-- Certain subsidiaries of the Group act as guarantors to the
new facility to provide coverage based on aggregate EBITDA (1) and
gross assets.
As at 31 May 2023, the Group had committed bank facilities of
GBP162.5m (2022: GBP155.1m), of which GBP83.4m (2022: GBP126.4m)
had been drawn under these facilities, leaving GBP79.1m (2022:
GBP28.7m) of undrawn facilities. Unamortised arrangement fees of
GBP1.5m (2022: GBP0.8m) have been offset against the amounts drawn
down, resulting in a carrying value of borrowings at 31 May 2023 of
GBP81.9m (2022: GBP125.6m). The fair value of borrowings is not
materially different to its amortised cost.
Footnote:
1: See Note 3 for an explanation of Alternative Performance
Measures (APMs) and adjusting items. Further information is also
contained within the Financial Review and the Glossary of
terms.
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END
FR LFMJTMTITTAJ
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September 27, 2023 02:00 ET (06:00 GMT)
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