TIDMNCC
RNS Number : 6460G
NCC Group PLC
25 July 2019
25 July 2019
NCC Group plc
Preliminary results for the year ended 31 May 2019
Robust global revenue growth, profitability and cash improvement
during first full year of
operational transformation
NCC Group plc (LSE: NCC, "NCC Group" or "the Group"), an
independent global cyber security and risk mitigation expert,
reports its full year results for the 12 months to 31 May 2019
("the full year", "FY", "the Period").
Financial highlights(1)
-- Revenue from continuing operations globally increased by 7.6%
to GBP250.7m (2018: GBP233.0m(2) )
o Assurance revenue increased by 9.7%, with North America and
Europe and RoW increasing by 23.4% and 12.9% respectively, while UK
declined by 1.1%
o Escrow revenue declined by 2.8% to GBP38.0m, with North
America increasing by 10.7% offset by a decline in the UK by
6.5%
-- Gross margin and adjusted operating profit margins(3) at
40.6% (2018: 41.2%) and 13.4% (2018: 13.2%) respectively
o Gross margin within Assurance increased by 0.6% pts to
34.6%
o Escrow gross margin decreased by 2.0% pts to 74.5%
-- Operating profit from continuing operations increased by
44.4% to GBP19.5m (2018: GBP13.5m(2) ), and adjusted operating
profit(3) increased by 9.4% to GBP33.7m (2018: GBP30.8m (2) , H1
FY19: GBP14.8m)
-- Profit before taxation increased by 52.1% to GBP17.8m (2018:
GBP11.7m (2) ), and adjusted profit before taxation(3) increased by
9.2% to GBP32.0m (2018: GBP29.3m(2) )
-- Statutory basic earnings per share from continuing operations
of 4.9p (2018: 4.4p(2) ), adjusted basic earnings per share from
continuing operations(3) increased by 12.2% to 9.2p (2018: 8.2p(2)
)
-- Net debt(3) reduced to GBP20.2m (2018: GBP27.8m, H1 FY19:
GBP45.1m), cash flow from operating activities before interest and
taxation increased by 21.3% to GBP47.9m (2018: GBP39.5m) and cash
conversion(3) increased to 109.6% (2018: 90.2%(2) , H1 FY19:
58.0%)
-- Total dividend maintained at 4.65p per share (2018: 4.65p)
with final dividend proposed of 3.15p per share (2018: 3.15p)
Operational highlights
-- Assurance division continues to achieve good revenue growth
(+9.7%) and global headcount in the technical teams is now at the
levels required to satisfy current demand
-- Escrow division revenues have decreased over the year
(-2.8%), with North America up 10.7%, but UK down 6.5%. However,
focused recruitment means sales teams enter the new financial year
at full strength
-- New Cloud-resilience Escrow-as-a-Service ("EaaS") offering,
aimed at the fast-growing cloud software market, launched during
spring 2019 with encouraging initial demand
-- Strong financial position with effective cash management
reducing net debt below prior-year to GBP20.2m, gearing equating to
8.7% (2018: 11.9%) and post year-end, a new GBP100m multi-currency
revolving credit facility obtained to June 2024 on similar terms to
previous facility
-- Comprehensive systems upgrade programme continues on time and within budget
Outlook
-- Regulatory pressure and high-profile breaches continue to
increase the strategic importance and value of cyber security in
our target markets
-- Three-year transformation, Securing Growth Together ("SGT"),
progressing on time and within budget to create the next version of
NCC Group
-- We look forward with confidence to a dynamic year and expect
full year trading to be in line with our expectations
1 References to the Group's results, unless stated to the
contrary, are to continuing operations only and exclude
discontinued activities.
2 See note 1 for further details on the restatement of
comparative information due to the retrospective application of
IFRS 15.
3 See note 2 for an explanation of Alternative Performance
Measures ("APMs") and adjusting items. See note 2 for a
reconciliation to statutory information.
4 Leverage is defined as the ratio of total Net Debt to Adjusted
EBITDA and Interest Cover is defined as the ratio of Adjusted
EBITDA to net finance charges.
Adam Palser, Chief Executive Officer, commented:
"This has been a pivotal year in NCC Group's transformation as
we lay the foundations to enable us to compete and win globally,
delivering on our mission to make the world safer and more
secure.
We have grown and strengthened our teams at all levels of the
organisation, improved our financial and operational management,
and with the accelerated deployment of our new systems the next
version of NCC Group is rapidly taking shape.
We look forward with confidence to a dynamic year where we
consolidate our global propositions, develop our new
cloud-resilience Escrow-as-a-Service offering, and improved
performance in all our core businesses and markets."
Cautionary note regarding forward-looking statements
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.
Analyst briefing
A briefing for analysts will be held today at 9am at the offices
of Maitland/AMO, 3 Pancras Square, London N1C 4AG. The briefing
will also be webcast live and can be accessed via the Group's
website or via the following:
https://www.investis-live.com/nccgroup/5cffb21f9add6d1100a07fb2/ytre.
Enquiries:NCC Group (www.nccgroup.trust) +44 (0)161 209 5432
Adam Palser, CEO
Tim Kowalski, CFO
Maitland/AMO +44 (0)20 7379 5151
Neil Bennett/Al Loehnis
Chief Executive Officer's review
A year of progress in results and transformation
Over the past 12 months, NCC Group has grown revenue, profit and
cash flow while making significant progress through its
transformation programme. Revenue on a continuing basis was up 7.6%
and adjusted operating profit(3) increased by 9.4%, while the Group
also delivered improved cash flow with cash conversion(3) of 109.6%
compared to 90.2%(2) in FY18. On a statutory basis, operating
profit increased by 44.4% to GBP19.5m (2018: GBP13.5m(2) ) and
profit before taxation increased 52.1% to GBP17.8m giving rise to a
basic adjusted EPS(3) and statutory EPS from continuing operations
of 9.2p (2018: 8.2p(2) ) and 4.9p (2018: 4.4p(2) )
respectively.
These results have been achieved alongside significant
transformation activity (described below) which is building a
strong platform for future scalable growth and margin
improvement.
I am particularly pleased with the progress made in the second
half in two critical areas for NCC Group. First, the improvement in
our cash management processes which has led to a sustainable
reduction in our working capital and a year-end net debt(3)
position of GBP20.2m (compared to GBP27.8m at the end of FY18 and
GBP45.1m at the end of H1 FY19). Second, after a first half in
which we were unable to resource all of our opportunities because
of skill shortages, we have rebuilt the capacity of our technical
cyber teams within the Assurance division. Headcount in our
Assurance technical delivery teams increased by 102 people across
the world to 1,047, which means that we are well positioned to
deliver further growth. Given the scarcity and demand for cyber
skills, our ability to attract sufficient specialists is a pleasing
endorsement of our progress towards being the employer of choice
for cyber talent.
Our Assurance business continues to operate in a growing and
dynamic market
Demand for cyber services continues to grow globally, driven
by:
1. The increasing number of connected devices and services;
2. The growing dependence of individuals, businesses and society on this connected environment;
3. The proliferation of threats and threat actors; and
4. The relentless increase in regulation and consequent costs of compliance failure.
Thanks to this growing global demand, the cyber market continues
to attract massive investment from system integrators, defence
companies, consulting firms and private equity or venture capital
technology and/or security firms. In this intensely competitive
market, NCC Group continues to demonstrate sustainable, profitable
growth and this is in no small part due to our world-leading and
cost-effective approach to research. Our talented employees
continue to discover key vulnerabilities in existing and new
technologies - from printers to blockchain - which allow us to
educate and protect our clients thereby monetising our
knowledge.
Across different geographies we observed variability in demand
growth: NCC Group grew 23.4% in North America, 12.9% across
continental Europe and Asia-Pacific but only 3.1% in the UK (after
taking into account a reduction of GBP3.6m in UK product sales,
which is a consequence of our deliberate move away from low-margin
re-selling).
We attribute the strong growth in North America partly to
growing demand from a thriving ecosystem of "technology producers"
for whom privacy and security are of existential importance, and
partly to the work we have done over the last 12 months to build a
powerful and empowered North American business.
Cross-region delivery in our technical security consulting teams
increased by 31% in support of sales growth around the world, which
evidences our maturing ability to deploy resources globally.
We intend to return all parts of our Assurance business to
double-digit growth in the year ahead, and a key success factor for
achieving this goal is attracting and retaining sufficient talent.
I am consequently pleased to report that attrition in our Technical
Security Consulting teams dropped from 24.9% in FY18 to 17.9% in
FY19. Overall, attrition in our Assurance business was 19.8% (FY18:
23.2%), driven in particular by attrition of 28.6% in our sales
teams, which was largely the consequence of more vigorous
performance management as we seek to upgrade our sales
capabilities.
While our current focus is on strengthening and growing our
organic operations we will take advantage of acquisition
opportunities that fit our target profile as and when they present
themselves.
Escrow a year of transition
Revenue in our Escrow business declined 2.8% over the course of
the financial year with a 6.5% decline in the UK outweighing an
encouraging 10.7% increase in North America.
Although our current Escrow business is dominated by on-premise
software solutions - and it is true to acknowledge that on-premise
software is declining as a proportion of the software market - we
observed that the renewal rates for our agreements remained
constant at 89.6%. During Q4 FY19, we secured our largest ever
on-premise contract win (GBP800k) with a major international bank
which, coupled with our strong North American growth, leads us to
believe that Escrow continues to be a good business for NCC Group.
We did, however, find the UK market challenging for Escrow this
year but, in line with our strategic priority to return the Escrow
division to growth, we increased our UK sales team to 44 people in
the second half of the year.
Beyond our existing on-premise software escrow solutions, we
believe that the need for business resilience is just as relevant -
if not more so - in the growing world of cloud services. Towards
the end of the financial year, we launched our Escrow-as-a-Service
cloud-resilience proposition and are encouraged by initial demand
and feedback from the market. Over the course of the coming year,
our intention is to prove that our EaaS product is a scaleable
high-margin offering which has the potential to match the market
penetration of our on-premise solutions. Investment in EaaS market
launch may dilute margin temporarily.
Overall, we continue to view the extensive client list and
recurring revenue streams of our Escrow division as important
assets for the Group and intend to return this business to growth
through:
1. Better sales operations, particularly in the UK;
2. International expansion in North America (in particular) and continental Europe; and
3. Developing new offerings that we can sell to our existing
client base - of which EaaS is the first.
Our transformation programme: Securing Growth Together ("SGT")
and the next version of NCC Group
May 2019 saw the first anniversary of our three-year
transformation programme, Securing Growth Together ("SGT").
SGT is the vehicle through which we are executing our strategy
and delivering on our priorities. We are making good progress and
have successfully achieved our year one milestones. Our SGT
programme will result in us having the information we need to run
the firm in an assertive and agile way globally and will provide a
stable platform for future growth and margin improvement.
Highlights across our five SGT workstreams to date include:
-- Develop our People: Consistent global approaches to
induction, performance management and leadership have been defined
and are ready for FY20 launch. We undertook a Global Employee
Engagement survey with Best Companies that led us to identify a
number of activities including mentoring and management programmes
(currently in pilot) and "NCC Cares", our global wellness
initiative. During the year we have also strengthened our
leadership with the arrival of Tim Kowalski, Chief Financial
Officer, Ian Thomas as Managing Director of Assurance (UK and APAC)
and Colin Watt as Chief People Officer.
-- Lead the Market: Days invested in research increased globally
by 15% resulting in high-impact output across fields including
Enterprise Internet of Things ("IoT"), AI/Machine-learning, Smart
Cities and Connected Health.
-- Win Business: We launched Salesforce in our Assurance
division across Europe (including the UK) in June 2019 in
conjunction with our Gated Business Lifecycle ("GBL"). The GBL has
harmonised the way we go to market across the world, which prepares
us further for greater co-operation across geographies. We shall
complete the global roll-out in the first half of the next calendar
year.
-- Deliver Excellence: Performance was supported by increased
cross-region global resourcing as our scale allows us to capture
market share when others face more pressing delivery resource
constraints.
-- Support Growth: Seven out of nine of our future core systems
are now operational in at least one major region, with the
remainder due to roll out progressively over the next financial
year. Our Workday installation, which is the largest component,
remains on track and has delivered an additional benefit of
bringing teams across the world together to define a common way of
working across the Group.
Summary, operational priorities and outlook
In summary:
-- Robust revenue growth during first year of operational transformation
-- Adjusted operating profit margin(3) improved to 13.4% (2018:
13.2%(2) ) with strong cash conversion(3) and net debt(3) reduced
to GBP20.2m (2018: GBP27.8m). On a statutory basis operating profit
margin increased to 7.8% (2018: 5.8%)
Our operational priorities for FY20 include:
-- Assurance: continued double-digit growth and margin improvement
-- Escrow:
o Stabilise revenue this year and growth thereafter
o Accelerating the adoption of our new cloud-resilience (EaaS)
proposition
-- People: increasing our sales capability and effectiveness,
particularly in the UK (where we are rebuilding our sales team) and
North America (to support further growth)
Outlook:
-- Regulatory pressure and high-profile breaches continue to
increase the strategic importance and value of cyber security in
our target markets
-- Three-year transformation, Securing Growth Together ("SGT"),
progressing on time and within budget to create the next version of
NCC Group
-- We look forward with confidence to a dynamic year and expect
full year trading to be in line with our expectations
Chief Financial Officer's review
Financial information
2018
(restated(2)
2019 )
2019 Adjusting 2019 2018 Adjusting 2018
Adjusted(3) items(3) Statutory Adjusted(3) items (3) Statutory
GBPm GBPm GBPm GBPm GBPm GBPm
------------ ---------- ---------- ------------ -------------
Revenue 250.7 - 250.7 233.0 - 233.0
Cost of sales (148.9) - (148.9) (137.1) - (137.1)
Gross profit 101.8 - 101.8 95.9 - 95.9
Administration expenses (68.1) (14.2) (82.3) (65.1) (17.3) (82.4)
------------------------- ------------ ---------- ---------- ------------ ------------- ----------
Operating profit 33.7 (14.2) 19.5 30.8 (17.3) 13.5
Net finance costs (1.7) - (1.7) (1.5) (0.3) (1.8)
Profit before taxation 32.0 (14.2) 17.8 29.3 (17.6) 11.7
Taxation (6.5) 2.2 (4.3) (6.6) 7.1 0.5
------------------------- ------------ ---------- ---------- ------------ ------------- ----------
Profit from continuing
operations 25.5 (12.0) 13.5 22.7 (10.5) 12.2
Loss from discontinued
operations, net of tax - - - - (5.5) (5.5)
------------------------- ------------ ---------- ---------- ------------ ------------- ----------
Profit for the year 25.5 (12.0) 13.5 22.7 (16.0) 6.7
------------------------- ------------ ---------- ---------- ------------ ------------- ----------
Earnings per share:
Basic EPS - continuing 9.2 4.9 8.2 4.4
Diluted EPS - continuing 9.1 4.8 8.1 4.4
------------------------- ------------ ---------- ---------- ------------ ------------- ----------
2018
(restated
2019 (2) ) %
Continuing revenue GBPm GBPm change
----- ----------
Assurance 212.7 193.9 9.7%
Escrow 38.0 39.1 (2.8%)
Total - continuing operations 250.7 233.0 7.6%
------------------------------------------ ----- ---------- --------
2018
(restated
2019 (2) ) %
GBPm GBPm change
----- ----------
Operating profit 19.5 13.5 44.4%
Individually significant
items 3.6 7.6 (52.6%)
Share-based payments 1.7 0.3 466.7%
Amortisation of acquired
intangibles 9.0 9.4 (4.3%)
Profit on disposal of investments (0.1) - -
Adjusted operating profit(3) 33.7 30.8 9.4%
---------------------------------------------- ----- ---------- -------
2018
(restated
2019 (2) ) %
Adjusted operating profit(3) GBPm GBPm change
----- ----------
Assurance 22.6 16.5 37.0%
Escrow 19.0 21.9 (13.2%)
Central and head office (7.9) (7.6) 3.9%
-------------------------------------------------- ----- ---------- -------
Total - continuing operations 33.7 30.8 9.4%
-------------------------------------------------- ----- ---------- -------
Adjusted operating profit % margin(3)
- continuing operations 13.4% 13.2%
-------------------------------------------------- ----- ----------
Throughout this Chief Financial Officer's review, Alternative
Performance Measures ("APMs") are presented as well as statutory
measures and these measures are consistent with prior periods. This
presentation is also consistent with the way that financial
performance is measured by management, reported to the Board, is
the basis of financial measures for senior management's
compensation schemes and provides supplementary information that
assists the user to understand the financial performance, position
and trends of the Group.
For completeness, a reconciliation of Income Statement
Alternative Performance Measures(3) to statutory information is
shown below:
Profit Profit
2019 Gross Depreciation Operating before from continuing
Continuing Revenue profit EBITDA and amortisation profit taxation Taxation operations
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- ------ ----------------- --------- ---------- ----------
Adjusted 250.7 101.8 43.7 (10.0) 33.7 32.0 (6.5) 25.5
Individually
significant
items - - (3.6) - (3.6) (3.6) 0.5 (3.1)
Share-based payments - - (1.7) - (1.7) (1.7) (0.1) (1.8)
Amortisation of
acquired
intangibles - - - (9.0) (9.0) (9.0) 1.8 (7.2)
Profit on disposal
of
investments - - 0.1 - 0.1 0.1 - 0.1
-------------------- ------- ------- ------ ----------------- --------- ---------- ---------- ----------------
Statutory 250.7 101.8 38.5 (19.0) 19.5 17.8 (4.3) 13.5
-------------------- ------- ------- ------ ----------------- --------- ---------- ---------- ----------------
Profit Profit
2018 Gross Depreciation Operating before from continuing
Continuing Revenue profit EBITDA and amortisation profit taxation Taxation operations
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- ------ ----------------- --------- ---------- ----------
Adjusted 233.0 95.9 42.9 (12.1) 30.8 29.3 (6.6) 22.7
Individually
significant
items - - (7.6) - (7.6) (7.6) 1.5 (6.1)
Share-based payments - - (0.3) - (0.3) (0.3) 0.4 0.1
Amortisation of
acquired
intangibles - - - (9.4) (9.4) (9.4) 3.8 (5.6)
Unwind of discount
on
acquisition
consideration - - - - - (0.3) - (0.3)
R&D prior year tax
credits - - - - - - 1.4 1.4
-------------------- ------- ------- ------ ----------------- --------- ---------- ---------- ----------------
Statutory 233.0 95.9 35.0 (21.5) 13.5 11.7 0.5 12.2
-------------------- ------- ------- ------ ----------------- --------- ---------- ---------- ----------------
The Group has adopted a full retrospective approach to IFRS 15
"Revenue from Contracts with Customers" and therefore restated the
prior year to reflect the updated accounting policies and present a
relevant comparative. More details on the restatement are provided
in the notes to the consolidated financial statements.
Overview
We have delivered robust financial results during the first year
of our transformation.
Group revenue increased by 7.6% to GBP250.7m. Within this,
Assurance revenues increased by 9.7% to GBP212.7m (2018:
GBP193.9m(2) ). North America Assurance and Europe & RoW growth
were particularly encouraging at 23.4% and 12.9% respectively, with
UK Assurance (including product sales) declining by 1.1%. Escrow
revenue was 2.8% behind last year as the UK fell by 6.5%, although
North America saw growth of 10.7% as we continue to grow our
presence there.
Gross profit increased by 6.2% to GBP101.8m (2018: GBP95.9m(2) )
with margin percentage amounting to 40.6% (2018: 41.2%), with
Assurance margin percentage increasing to 34.6% (2018: 34.0%) and
Escrow declining to 74.5% (2018: 76.5%).
Administration expenses remained broadly flat at GBP82.3m,
principally as a result of investment in people and annualisation
of occupancy costs offset by process improvements through the SGT
programme, lower depreciation and amortisation and adjusting items.
Adjusting items decreased from GBP17.3m to GBP14.2m.
Adjusted operating profit from continuing operations(3)
increased by 9.4% to GBP33.7m (2018: GBP30.8m(2) ) and operating
profit increased by 44.4% to GBP19.5m (2018: GBP13.5m(2) ).
Adjusted depreciation and amortisation amounted to GBP10.0m (2018:
GBP12.1m) giving rise to Adjusted EBITDA(3) of GBP43.7m (2018
restated: GBP42.9m(2) ). Adjusted profit before taxation(3)
increased by 9.2% to GBP32.0m (2018: GBP29.3m(2) ). Statutory
profit before taxation increased by 52.1% to GBP17.8m. Adjusted EPS
and statutory EPS from continuing operations amounted to 9.2p
(2018: 8.2p(2) ) and 4.9p (2018: 4.4p(2) ) respectively.
We have also reduced net debt(3) to GBP20.2m from GBP27.8m (H1
FY19: GBP45.1m) after net acquisitions/disposal payments of GBP9.1m
(2018: net proceeds received of GBP6.1m) with gearing reducing to
8.7% (2018: 11.9%). In addition, we have further strengthened our
financial position by obtaining a new multi-currency revolving
credit facility post year end for GBP100m with a five-year term up
to June 2024 on similar terms. Committed headroom as at 31 May 2019
amounted to GBP42.7m (2018: GBP53.7m).
Divisional performance
Divisional performance includes the allocation of certain
central costs incurred on behalf of the divisions. These increases
are due to the factors noted above. Segmental information is
disclosed below:
2019 2018(2)
Central Central
and head and head
Assurance Escrow office Group Assurance Escrow office Group
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- --------- ------ --------- ------- --------- ------- --------- -------
Revenue 212.7 38.0 - 250.7 193.9 39.1 - 233.0
Cost of sales (139.2) (9.7) - (148.9) (127.9) (9.2) - (137.1)
----------------------------- --------- ------ --------- ------- --------- ------- --------- -------
Gross profit 73.5 28.3 - 101.8 66.0 29.9 - 95.9
Gross margin % 34.6% 74.5% - 40.6% 34.0% 76.5% - 41.2%
General administrative
expenses(2) (50.9) (9.3) (7.9) (68.1) (49.5) (8.0) (7.6) (65.1)
----------------------------- --------- ------ --------- ------- --------- ------- --------- -------
Adjusted operating profit(3) 22.6 19.0 (7.9) 33.7 16.5 21.9 (7.6) 30.8
Adjusted operating profit
% 10.6% 50.0% - 13.4% 8.5% 56.0% - 13.2%
----------------------------- --------- ------ --------- ------- --------- ------- --------- -------
Assurance
The Assurance division accounts for 84.8% of continuing Group
revenue (2018: 83.2%).
Assurance revenue analysis - by originating 2018
country
2019 (restated (2) %
)
GBPm GBPm change
-------------------------------------------- ------ -------------- --------
UK 88.9 89.9 (1.1%)
North America 75.5 61.2 23.4%
Europe & RoW 48.3 42.8 12.9%
-------------------------------------------- ------ -------------- --------
Total Assurance revenue 212.7 193.9 9.7%
-------------------------------------------- ------ -------------- --------
As noted above, UK Assurance revenue in the year declined by
1.1% to GBP88.9m (2018: GBP89.9m(2) ) following a decline in
product sales and a number of changes amongst the management and
sales teams. After taking into account the reduction of GBP3.6m in
UK product sales (which is a consequence of our deliberate move
away from low-margin re-selling), UK revenue increased by 3.1%.
In the year, North America has grown by 23.4% to GBP75.5m (2018:
GBP61.2m(2) ) supported by continued penetration of the technology
market. The division continues to push for larger market share with
a focus on diversification of markets.
Assurance Europe & ROW grew by 12.9% to GBP48.3m (2018:
GBP42.8m(2) ) with the business now restructured under new
leadership into simpler organisation units.
Assurance revenue analysed by type service/product line:
2018
2019 (restated %
(2) )
GBPm GBPm change
-------------------------------------- ------------ ---------- --------
Technical Security Consulting ("TSC") 134.8 118.8 13.5%
Risk Management Consulting 35.3 32.5 8.6%
Managed Detection & Response ("MDR") 36.4 33.3 9.3%
Product sales (own and third-party) 6.2 9.3 (33.3%)
--------
Total 212.7 193.9 9.7%
-------------------------------------- ------------ ---------- --------
Technical Security Consulting, our core professional service
grew by 13.5% to GBP134.8m (2018: GBP118.8m(2) ) as a result of
strong growth worldwide, mainly driven by a 22.3% increase in North
America and a 17.3% increase in Europe & RoW. Performance was
supported by increased cross-region global resourcing as our scale
allows us to capture share when others face more pressing resource
constraints. Higher average order values supported by certain
contract wins also underpinned growth.
Risk management consulting, a service that addresses the
business risks of cyber, grew by 8.6% to GBP35.3m supported by
rapid growth of 30.1% in North America although the UK decreased by
2.4% due to a softer market, coupled with sales team attrition in
H2 further to the introduction of new leadership.
Managed Detection & Response, a service line that provides
operational cyber defence, scanning, simulation and SOC services,
grew by 9.3% to GBP36.4m as the business continued to increase
cross-region selling and delivery within a growth market. The Group
continues to co-ordinate its global assets from legacy
acquisitions, underpinned by closer collaboration between our
centres of excellence in Europe and the UK having set a single
product development roadmap and offering. The Group launched the
first managed service in North America during the year.
The reduction of 33.3% in product sales is a result of the
conscious decision to de-emphasise the sale of low margin
third-party products.
We continue to prioritise the importance of value-based selling
within our Assurance services as demonstrated by our increasing
average order value and expect this will have a positive impact in
the future. UK and North America average order values increased by
23% and 28% respectively.
Assurance gross profit is analysed as follows:
2018
2019 2019 (restated 2018 %
(2) )
GBPm % margin GBPm % margin change
--------------------------- ----------- ---------- ---------- ---------- --------
UK 31.0 34.9% 29.8 33.1% 4.0%
North America 25.3 33.5% 20.7 33.8% 22.2%
Europe & RoW 17.2 35.6% 15.5 36.2% 11.0%
--------
Assurance gross profit and
% margin 73.5 34.6% 66.0 34.0% 11.4%
--------------------------- ----------- ---------- ---------- ---------- --------
The growth in revenue and the improvement in gross profit
contributed to the improvement in adjusted operating profit(3)
(+37.0%) of GBP6.1m to GBP22.6m (2018: GBP16.5m(2) ). In addition,
adjusted operating profit(3) margin improved to 10.6% (2018:
8.5%).
Escrow
The Escrow division accounts for 15.2% of Group revenues (2018:
16.8%).
Escrow revenue analysis - by originating 2018
country
2019 (restated (2) %
)
GBPm GBPm change
----------------------------------------- ------ -------------- --------
UK 26.0 27.8 (6.5%)
North America 8.3 7.5 10.7%
Europe & RoW 3.7 3.8 (2.6%)
----------------------------------------- ------ -------------- --------
Total Escrow revenue 38.0 39.1 (2.8%)
----------------------------------------- ------ -------------- --------
Escrow revenues analysed by service line:
Escrow services revenue 2018 %
2019 (restated change
(2) )
GBPm GBPm
-------------------------------- ------ ----------- -------
Escrow contracts 26.5 27.9 (5.0%)
Verification and other services 11.5 11.2 2.7%
Total Escrow revenue 38.0 39.1 (2.8%)
-------------------------------- ------ ----------- -------
Escrow UK revenue was GBP26.0m (2018: GBP27.8m(2) ). Escrow UK
contract revenues were GBP18.2m (2018: GBP19.6m(2) ) while renewals
have remained at the same level as prior year with just under 90%
of all contracts renewed (2018: 89.6%). Underperformance was caused
by a weaker sales team not selling enough contracts. Verification
and other services decreased by GBP0.4m to GBP7.8m (2018:
GBP8.2m(2) ). We expect the UK to return to modest growth in the
medium term due to investments made in our sales capabilities,
capitalising on our market position. UK Escrow sales headcount
increased by approximately 50% to 44 people in the second half of
this financial year, as capability was rebuilt.
Escrow North America revenues increased by 10.7% to GBP8.3m
(2018: GBP7.5m(2) ). The North American business has benefited from
new appointments being made to the sales team, coupled with
secondments of experienced UK sales team members. We continue to
build our market share in North America underpinned by further
initiatives.
Escrow Europe & RoW revenues fell 2.6% to GBP3.7m (2018:
GBP3.8m(2) ). The European business continues to provide a foothold
from which to generate growth. Europe, like the North American
business unit in the current year, will have sales headcount
investment to drive enhanced market share and growth.
During the year, a review of the satellite office in Dubai was
carried out and while we do believe there are customer
opportunities in the region, we have decided any customers will be
serviced from our UK business going forward.
Escrow gross profit is analysed as follows:
2018 %
2019 2019 (restated(2) 2018 change
)
GBPm % margin GBPm % margin
-------------------- ----------- ---------- ------------- ---------- -------
UK 19.7 75.8% 21.9 78.8% (10.0%)
North America 5.7 68.7% 5.3 70.7% 7.5%
Europe & RoW 2.9 78.4% 2.7 71.1% 7.4%
-------
Escrow gross profit 28.3 74.5% 29.9 76.5% (5.4%)
-------------------- ----------- ---------- ------------- ---------- -------
The decline in gross margin percentage is due to higher direct
costs to support North American growth and challenges within the
UK. The decline in gross margin contributed to a decline in
adjusted operating profit(3) (-13.2%) of GBP2.9m to GBP19.0m (2018:
GBP21.9m(2) ). The adjusted operating profit(3) margin was also
impacted by increased investment in support colleagues to
professionalise the business resulting in a decline in adjusted
operating margin(3) to 50.0% (2018: 56.0%).
Adjusting items(3)
Pre-tax adjusting items are set out below:
2019 2018
GBPm GBPm
------------------------------------------------------ ----- ------
Individually Significant Items 3.6 7.6
Share-based payments 1.7 0.3
Amortisation of acquired intangibles 9.0 9.4
Unwinding of discounts on deferred consideration - 0.3
Profit on disposal of investments (0.1) -
Total pre-tax adjusting items - continuing operations 14.2 17.6
------------------------------------------------------ ----- ------
Individually Significant Items ("ISIs") are set out below:
2019 2018
GBPm GBPm
------------------------------------------------------ ----- ------
Securing Growth Together - legacy systems accelerated
amortisation (net of R&D tax credit) 3.8 -
Loss-making contract - 2.5
Revisions to deferred and contingent consideration (0.8) 0.6
Restructuring costs - 1.6
Onerous leases and other property-related costs 0.6 2.7
Market-related costs - 0.2
Total ISIs - continuing operations 3.6 7.6
------------------------------------------------------ ----- ------
During the year, certain legacy finance and CRM systems
amounting to GBP3.8m have incurred accelerated amortisation, as we
implement our comprehensive systems upgrade programme as part of
SGT.
Revisions to contingent consideration amounted to GBP0.8m credit
as we agreed our final payment in relation to the historic
acquisitions of Payment Software Company Inc. ("PSC") and Virtual
Security Research LLC ("VSR") in North America.
Onerous leases and other property-related costs relate to the
rationalisation of our property footprint.
Further details of prior year ISIs are provided within the notes
to the consolidated financial statements.
In relation to other adjusting items, share-based payments
increased during the year, as new schemes have been issued to
employees whilst in the prior year it was concluded that a number
of historic schemes would not meet scheme performance criteria
resulting in a reversal of historic charges.
In addition, amortisation of acquired intangibles relating to
customer contracts and relationships amounted to GBP9.0m (2018:
GBP9.4m).
Net finance costs
Statutory finance costs for the year were GBP1.7m compared to
GBP1.8m in 2018, with interest cost increasing by GBP0.2m due to an
average higher level of gross debt during the year and a rising US
base rate that has underpinned a higher cost of debt on US Dollar
denominated loans, offset by a reduction in the unwind of discount
on acquisition consideration of GBP0.3m.
Taxation
The Group's adjusted effective tax rate is 20.3% (2018: 22.5%).
The movement in the Group's effective tax rate is mainly due to a
decrease in the US Federal corporate tax rate in the prior year.
The full year effect of US tax reform is now reflected in this
year.
The effective tax rate remains above the UK standard rate of
corporation tax of 19%, reflecting the origin of a reasonable
proportion of Group profits in overseas territories with higher
rates of tax than the UK. Statutory corporate tax rates within
North America equate to approximately 26% (Federal and State
combined) for the year to 31 May 2019.
The Group's longer term strategy for tax and treasury matters
remains that of a low-risk appetite and any new strategies will
operate inside those parameters.
Earnings per share (EPS)
2018
2019 (restated(2)
)
GBPm GBPm
------------------------------------ ------ --------------
Statutory earnings - continuing
Basic EPS 4.9 4.4
Diluted EPS 4.8 4.4
Statutory earnings - all operations
Basic EPS 4.9 2.4
Diluted EPS 4.8 2.4
Adjusted earnings - continuing(3)
Basic EPS 9.2 8.2
Diluted EPS 9.1 8.1
------------------------------------ ------ --------------
Basic adjusted EPS(3) from continuing operations was 9.2p (2018:
8.2p(2) ) and on a statutory basis it was 4.9p (2018: 4.4p(2) ).
The year-on-year increase in EPS reflects the increase in the
Group's profitability during the year.
Cash flow and net debt(3)
The table below summarises the Group's cash flow and net debt(3)
:
2018
2019 (restated
(2) )
GBPm GBPm
----------------------------------------------------- ---------- -----------
Operating cash inflow before movements in working
capital 41.3 39.8
Changes in working capital 6.6 (0.3)
----------------------------------------------------- ---------- -----------
Cash generated from operating activities before
interest and taxation 47.9 39.5
Interest paid (1.7) (1.8)
Taxation paid (6.4) (4.7)
----------------------------------------------------- ---------- -----------
Net cash generated from operating activities 39.8 33.0
Net capital expenditure (9.1) (12.7)
Acquisitions (10.9) (3.1)
Net proceeds from business disposals (including
cash disposed) 1.8 9.2
Dividends paid (12.9) (12.8)
Share issues 0.3 1.5
----------------------------------------------------- ---------- -----------
Net movement 9.0 15.1
----------------------------------------------------- ---------- -----------
Opening net debt(3) (27.8) (43.7)
----------------------------------------------------- ---------- -----------
Foreign exchange (1.4) 0.8
----------------------------------------------------- ---------- -----------
Closing net debt(3) (20.2) (27.8)
----------------------------------------------------- ---------- -----------
Net debt(3) can be reconciled as follows:
2019 2018
GBPm GBPm
------------------------------------------------ --------------- ---------------
Cash and cash equivalents 34.9 21.2
Borrowings (55.1) (49.0)
Net debt (20.2) (27.8)
------------------------------------------------ --------------- ---------------
The Group generated GBP47.9m of cash from operating activities
before interest and taxation (2018: GBP39.5m), an increase of
21.3%. The Group measures how effectively adjusted EBITDA(3) is
converted into actual cash flows using the cash conversion ratio(3)
. The calculation of the cash conversion ratio(3) is set out
below:
2018
2019 (restated (2)
)
Continuing and discontinued GBPm GBPm
--------------------------------------------- ------- ---------------
Net operating cash flow before interest and
taxation (A) 47.9 39.5
Adjusted EBITDA (3) (B) 43.7 43.8
--------------------------------------------- ------- ---------------
Cash conversion ratio (3) (%) (A)/(B) 109.6% 90.2%
--------------------------------------------- ------- ---------------
The full year figures show a much improved picture on cash
performance compared to the half year, reflecting the effort put
into improving our processes in the second half across both
payables and receivables. Cash conversion(3) for FY20 is expected
to normalise and is targeted at broadly 85%.
The increase in tax paid is mainly due to utilisation of North
American tax losses in the prior year.
Net capital expenditure was GBP9.1m (2018: GBP12.7m), and
includes tangible expenditure of GBP3.0m (2018: GBP7.7m, largely
relating to the new Manchester head office) and capitalised
software and development costs of GBP6.1m (2018: GBP5.0m), which
have increased due to the implementation costs of new systems as
part of the SGT programme.
Acquisition expenditure relates to the final payment of deferred
cash consideration in respect of Fox-IT of GBP9.9m (2018: GBP1.1m)
and contingent consideration of GBP1.0m (2018: GBP2.0m) in respect
of historic acquisitions of PSC and VSR. Net proceeds from business
disposals mainly related to deferred consideration receivable from
2017 disposals. In the prior year, the Group received GBP9.2m
mainly in relation to the sale of Web Performance and Software
Testing.
Dividend
Dividends of GBP12.9m paid in the year (2018: GBP12.8m)
comprised the final dividend for 2018 of 3.15p and the interim
dividend for 2019 of 1.50p.
The Board is recommending an unchanged final dividend of 3.15p
per ordinary share (2018: 3.15p), making a total for the year of
4.65p (2018: 4.65p). This represents a dividend equal to that paid
in the prior year as the Board is conscious of the need to invest
in the SGT programme and other initiatives to support longer term
growth. The dividend policy will therefore continue to remain under
review.
The final dividend will be paid on 4 October 2019, subject to
approval at the AGM on 25 September 2019, to shareholders on the
register at the close of business on 6 September 2019. The
ex-dividend date is 5 September 2019.
Financing facilities
The Group is financed through a combination of bank facilities,
retained profits and equity.
Prior to and during the year ended 31 May 2019, the Group funded
its strategic acquisitions and met its day-to-day working capital
requirements via a multi-currency revolving credit facility of
GBP80.0m, a GBP20.0m multi-currency term loan that amortised by
GBP2.5m every six months and an additional overdraft of GBP5m. As
at 31 May 2019, the Group had committed bank facilities of GBP97.8m
(2018: GBP102.7m), of which GBP55.1m (2018: GBP49.0m) had been
drawn under these facilities, leaving GBP42.7m (2018: GBP53.7m) of
undrawn facilities. These existing arrangements were agreed in
November 2015 and were due for renewal in November 2020.
On 10 June 2019, the Group renegotiated its existing term loan
and multi-currency revolving credit facilities into a new fully
revolving credit facility of GBP100m with a new five-year term up
to June 2024 on similar terms (pricing and covenants). Under the
new arrangements the Group can request an additional accordion
facility to increase the total size of the revolving credit
facility by up to GBP75m (previously GBP50m). In addition, the
Group has retained its existing overdraft of GBP5m. Arrangement
fees incurred will be amortised over the term accordingly. Historic
arrangements fees have been fully amortised.
On our banking covenants, leverage(4) as at 31 May 2019 amounted
to 0.5x (2018: 0.9x) and net interest cover(4) amounted to 24.6x
(2018: 28.3x). The Group was in compliance with the terms of all
its facilities, including the financial covenants, at 31 May 2019
and expects to remain in compliance with the terms going forward.
The terms and ratios are specifically defined in the Group's
banking documents (in line with normal commercial practice) and are
materially similar to GAAP or the Group's Alternative Performance
Measures of the same name. The exception is net debt which includes
unpaid deferred consideration. These are commercially confidential
documents and hence further details of any immaterial differences
are not disclosed.
Going concern
The Directors have acknowledged the "Guidance on Risk
Management, Internal Control and Related Financial and Business
Reporting", published in September 2014.
Our business activities, together with the factors likely to
affect our future development, performance and position are set out
in the Chief Executive Officer's Review. Our financial position,
cash and borrowing facilities are described within this Chief
Financial Officer's Review.
The Directors have reviewed the trading, cash flow forecasts and
forecast covenants of the Group as part of their going concern
assessment and have taken into account reasonable downside
sensitivities (including a "no-deal" Brexit scenario) which reflect
uncertainties in the current operating environment. The possible
changes in trading performance show that the Group is able to
operate within the level of the banking facilities and, as a
consequence, the Directors believe that the Group is well placed to
manage its business risks successfully. After making enquiries, the
Directors have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence
for a period of at least 12 months. Accordingly, they continue to
adopt the going concern basis of accounting in preparing the
financial statements.
Principal risks and uncertainties
The Group is subject to risk factors both internal and external
to its business, and has a well-established set of risk management
procedures. The following risks and uncertainties are those that
the Directors believe could have the most significant impact on the
Group's business:
-- Business strategy;
-- Management of strategic change;
-- Availability of critical systems;
-- Attracting and retaining appropriate staff capacity and capability;
-- Cyber risk (including GDPR);
-- Quality of management information systems and internal business processes;
-- Quality and security management systems; and
-- Brexit (as noted below).
Brexit
We continue to plan for Brexit and we have a Brexit Steering
Group that meets regularly. As our operations around the world
include business entities based in continental Europe we believe
NCC Group is structurally resilient to any disruption caused by
Brexit. The main risks to our business from Brexit are:
-- Any reduction in demand from an economic slowdown; and
-- Real or perceived differences in data protection standards
which impact our global ways of working.
Directors' responsibility statement
The responsibility statement below has been prepared in
connection with the Group's full Annual Report for the year ending
31 May 2019. Certain parts thereof are not included within this
announcement.
The Directors confirm to the best of their knowledge:
-- The Group financial statements, prepared in accordance with
the applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole.
-- The preliminary statement includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
-- The Annual Report, taken as a whole, is fair, balanced and
understandable, and provides the necessary information for
shareholders to assess the Group's position, performance, business
model and strategy.
The Annual Report was approved and authorised for issue on
behalf of the Board by Adam Palser, Chief Executive Officer and Tim
Kowalski, Chief Financial Officer on 24 July 2019.
Consolidated income statement
For the Year ended 31 May 2019
2019 2018 (Restated (1) )
--------------------------------- ---------------------------------
Adjusting Adjusting
Adjusted(2) items(2) Statutory Adjusted(2) items(2) Statutory
Notes GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----- ----------- --------- --------- ----------- --------- ---------
Continuing operations
Revenue 3 250.7 - 250.7 233.0 - 233.0
Cost of sales 3 (148.9) - (148.9) (137.1) - (137.1)
Gross profit 3 101.8 - 101.8 95.9 - 95.9
Administration expenses
(3) 3 (68.1) (14.2) (82.3) (65.1) (17.3) (82.4)
--------------------------------- ----- ----------- --------- --------- ----------- --------- ---------
Operating profit 3 33.7 (14.2) 19.5 30.8 (17.3) 13.5
Net finance costs (1.7) - (1.7) (1.5) (0.3) (1.8)
--------------------------------- ----- ----------- --------- --------- ----------- --------- ---------
Profit before taxation 32.0 (14.2) 17.8 29.3 (17.6) 11.7
Taxation (6.5) 2.2 (4.3) (6.6) 7.1 0.5
--------------------------------- ----- ----------- --------- --------- ----------- --------- ---------
Profit from continuing
operations 25.5 (12.0) 13.5 22.7 (10.5) 12.2
Loss from discontinued
operations, net of tax 4 - - - - (5.5) (5.5)
--------------------------------- ----- ----------- --------- --------- ----------- --------- ---------
Profit for the year attributable
to the owners of the
Company 25.5 (12.0) 13.5 22.7 (16.0) 6.7
--------------------------------- ----- ----------- --------- --------- ----------- --------- ---------
Earnings per share 7
Basic EPS - continuing 4.9p 4.4p
Diluted EPS - continuing 4.8p 4.4p
Basic EPS - discontinuing - (2.0)p
Diluted EPS - discontinuing - (2.0)p
Basic EPS - all operations 4.9p 2.4p
Diluted EPS - all operations 4.8p 2.4p
--------------------------------- ----- ----------- --------- --------- ----------- --------- ---------
Consolidated statement of comprehensive income
For the Year ended 31 May 2019
2018 (Restated
2019 (1) )
GBPm GBPm
------------------------------------------------------------------ ------ --------------
Profit for the year attributable to the owners of the Company 13.5 6.7
------------------------------------------------------------------ ------ --------------
Other comprehensive income
Items that may be reclassified subsequently to profit or
loss (net of tax)
Foreign exchange translation differences 1.5 0.3
------------------------------------------------------------------ ------ --------------
Total comprehensive income for the year (net of tax) attributable
to the owners of the Company 15.0 7.0
------------------------------------------------------------------ ------ --------------
Footnotes to the Financial Statements and notes to the Financial
Statements:
1 See note 1 for further details on the restatement of
comparative information due to the retrospective application of
IFRS 15.
2 See note 2 for an explanation of Alternative Performance
Measures (APMs) and adjusting items. See note 2 for a
reconciliation to statutory information.
3 Administrative expenses includes GBP0.4m (2018: GBP0.7m) of
credit losses on financial assets.
Consolidated balance sheet
At 31 May 2019
2018 (Restated(1)
2019 )
--------------------------------------
GBPm GBPm
-------------------------------------- ------ -----------------
Non-current assets
Goodwill 189.4 187.2
Other intangible assets 41.8 52.8
Property, plant and equipment 16.9 19.4
Investments 0.3 0.4
Deferred tax assets 1.1 4.5
Total non-current assets 249.5 264.3
---------------------------------------- ------ -----------------
Current assets
Inventories 0.7 0.8
Trade and other receivables 61.6 66.0
Consideration receivable on disposals - 1.5
Current tax receivable 0.6 -
Cash and cash equivalents 34.9 21.2
Total current assets 97.8 89.5
---------------------------------------- ------ -----------------
Total assets 347.3 353.8
---------------------------------------- ------ -----------------
Current liabilities
Trade and other payables 31.6 35.7
Borrowings 5.0 -
Current tax payable - 1.3
Provisions 2.7 2.6
Consideration on acquisitions - 11.9
Deferred revenue 36.2 30.6
Total current liabilities 75.5 82.1
---------------------------------------- ------ -----------------
Non-current liabilities
Borrowings 50.1 49.0
Deferred tax liability 5.4 9.8
Provisions 5.5 6.3
Total non-current liabilities 61.0 65.1
---------------------------------------- ------ -----------------
Total liabilities 136.5 147.2
---------------------------------------- ------ -----------------
Net assets 210.8 206.6
---------------------------------------- ------ -----------------
Equity
Issued capital 2.8 2.8
Share premium 149.8 149.5
Merger reserve 42.3 42.3
Retained earnings (12.0) (14.4)
Currency translation reserve 27.9 26.4
---------------------------------------- ------ -----------------
Total equity attributable to equity
holders of the parent 210.8 206.6
---------------------------------------- ------ -----------------
Consolidated cash flow statement
For the year ended 31 May 2019
2018 (Restated(1)
2019 )
GBPm GBPm
------------------------------------------------------- ------ -----------------
Profit for the year 13.5 6.7
Adjustments for:
Depreciation 5.6 6.5
Share-based payments 1.7 0.2
Amortisation of acquired intangible assets 9.0 9.4
Amortisation of internally developed intangible
assets and software 4.4 5.9
Net financing costs 1.7 1.8
Foreign exchange 0.2 -
Individually Significant Items (non-cash impact) 3.6 3.5
Profit on disposal of investments (0.1) -
Loss on disposal of subsidiaries - 6.4
Loss on sale of plant and equipment 0.2 -
Research and development tax credits (0.3) -
Income tax expense/(credit) 4.3 (0.6)
Decrease in provisions (2.5) -
-------------------------------------------------------- ------ -----------------
Cash inflow for the year before changes in working
capital 41.3 39.8
-------------------------------------------------------- ------ -----------------
Decrease/(increase) in trade and other receivables 6.0 (4.8)
Decrease in inventories 0.1 -
Increase in trade and other payables 0.5 4.5
-------------------------------------------------------- ------ -----------------
Cash generated from operating activities before
interest and taxation 47.9 39.5
Interest paid (1.7) (1.8)
Taxation paid (6.4) (4.7)
-------------------------------------------------------- ------ -----------------
Net cash generated from operating activities 39.8 33.0
Cash flows from investing activities
Purchase of property, plant and equipment (3.0) (7.7)
Software and development expenditure (6.1) (5.0)
Acquisition of businesses (10.9) (3.1)
Net proceeds from sale of subsidiaries and investments 1.8 9.9
Cash disposed of from sale of subsidiaries - (0.7)
-------------------------------------------------------- ------ -----------------
Net cash used in investing activities (18.2) (6.6)
Cash flows from financing activities
Proceeds from the issue of ordinary share capital 0.3 1.5
Drawdown of borrowings 13.0 7.5
Repayment of borrowings (8.6) (12.9)
Equity dividends paid (12.9) (12.8)
-------------------------------------------------------- ------ -----------------
Net cash used in financing activities (8.2) (16.7)
Net increase in cash and cash equivalents 13.4 9.7
-------------------------------------------------------- ------ -----------------
Cash and cash equivalents at beginning of year 21.2 12.3
Effect of foreign currency exchange rate changes 0.3 (0.8)
-------------------------------------------------------- ------ -----------------
Cash and cash equivalents at end of year 34.9 21.2
-------------------------------------------------------- ------ -----------------
Reconciliation of net change in cash and cash equivalents to
movement in net debt(2)
2019 2018
GBPm GBPm
------------------------------------------------------- ------ ------
Net increase in cash and cash equivalents 13.4 9.7
Change in net debt resulting from cash flows (4.4) 5.4
Effect of foreign currency on cash flows 0.3 (0.8)
Foreign currency translation differences on borrowings (1.7) 1.6
------------------------------------------------------- ------ ------
Change in net debt (2) during the year 7.6 15.9
------------------------------------------------------- ------ ------
Net debt (2) at start of year (27.8) (43.7)
------------------------------------------------------- ------ ------
Net debt (2) at end of year (20.2) (27.8)
------------------------------------------------------- ------ ------
Consolidated statement of changes in equity
For the year ended 31 May 2019
Issued Currency
share Share Merger translation
capital premium reserve reserve Retainedearnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- -------- -------- -------- ------------ ---------------- ------
Balance at 1 June 2017 previously
reported 2.8 148.0 42.3 26.1 (7.1) 212.1
Change in accounting policies
in respect of IFRS 15 (net of
tax) - - - - (1.4) (1.4)
----------------------------------------- -------- -------- -------- ------------ ---------------- ------
Balance at 1 June 2017 (restated(1)
) 2.8 148.0 42.3 26.1 (8.5) 210.7
----------------------------------------- -------- -------- -------- ------------ ---------------- ------
Profit for the year (restated(1)
) - - - - 6.7 6.7
Foreign currency translation
differences - - - 0.3 - 0.3
----------------------------------------- -------- -------- -------- ------------ ---------------- ------
Total comprehensive income for
the year (restated(1) ) - - - 0.3 6.7 7.0
----------------------------------------- -------- -------- -------- ------------ ---------------- ------
Transactions with owners recorded
directly in equity
Dividends to equity shareholders - - - - (12.8) (12.8)
Current and deferred tax on share-based
payments - - - - 0.2 0.2
Shares issued - 1.5 - - - 1.5
Total contributions by and distributions
to owners - 1.5 - - (12.6) (11.1)
----------------------------------------- -------- -------- -------- ------------ ---------------- ------
Balance at 31 May 2018 (restated(1)
) and 1June 2018 2.8 149.5 42.3 26.4 (14.4) 206.6
----------------------------------------- -------- -------- -------- ------------ ---------------- ------
Profit for the year - - - - 13.5 13.5
Foreign currency translation
differences - - - 1.5 - 1.5
----------------------------------------- -------- -------- -------- ------------ ---------------- ------
Total comprehensive income for
the year - - - 1.5 13.5 15.0
----------------------------------------- -------- -------- -------- ------------ ---------------- ------
Transactions with owners recorded
directly in equity
Dividends to equity shareholders - - - - (12.9) (12.9)
Share-based payments - - - - 1.7 1.7
Current and deferred tax on share-based
payments - - - - 0.1 0.1
Shares issued - 0.3 - - - 0.3
Total contributions by and distributions
to owners - 0.3 - - (11.1) (10.8)
----------------------------------------- -------- -------- -------- ------------ ---------------- ------
Balance at 31 May 2019 2.8 149.8 42.3 27.9 (12.0) 210.8
----------------------------------------- -------- -------- -------- ------------ ---------------- ------
Notes to the preliminary Financial Statements
1 Accounting policies
Basis of preparation
The financial information is derived from the Group's
consolidated financial statements for the year ended 31 May 2019,
which have been prepared on the going concern basis in accordance
with International Financial Reporting Standards (IFRS) as adopted
for use in the European Union, Article 4 of the IAS regulation and
those parts of the Companies Act 2006 (the Act) applicable to
companies reporting under IFRS. The financial statements have been
prepared on the historical cost basis, except for consideration
payable on acquisitions that is measured at fair value. The
financial statements are presented in Sterling (GBPm) because that
is the currency of the principal economic environment in which the
Group operates. The consolidated financial statements were approved
by the Directors on 24 July 2019.
The financial information does not constitute statutory accounts
within the meaning of section 435 of the Act or contain sufficient
information to comply with the disclosure requirements of IFRS.
Statutory financial statements for 2018 have been delivered to the
Registrar of Companies, and those for 2019 will be delivered in due
course. The Company's auditors, KPMG LLP, have given an unqualified
report on the consolidated financial statements for the year ended
31 May 2019, which did not include reference to any matters to
which the auditors drew attention without qualifying their report
and did not contain any statement under section 498 of the
Companies Act 2006. Subject to approval by the Company's
shareholders, the consolidated financial statements will be filed
with the Registrar of Companies following the Company's Annual
General Meeting on 25 September 2019.
Brexit
Management has reviewed the potential impact of Brexit on the
financial statements. As the Groups' operations around the world
include business entities based in continental Europe management
believe the Group is structurally resilient to any disruption
caused by Brexit. The main risks to the Group from Brexit are any
reduction in demand from an economic slowdown and real or perceived
differences in data protection standards which impact our global
ways of working. On this basis, management have concluded that the
impact should be limited, this includes any impact on the IFRS 9
Expected Credit Loss model. Management also note no changes to this
assessment from a post balance sheet event perspective.
Application of significant new EU - endorsed accounting standard
- IFRS 9 "Financial Instruments"
The Group has adopted IFRS 9. The application of IFRS 9's
impairment requirements as at 1 June 2017 resulted in an
reallocation of the existing impairment provision between ageing
classifications only.
Application of significant new EU - endorsed accounting standard
- IFRS 15 "Revenue from contracts with customers"
Background and adoption
IFRS 15 impacts the amount, timing and recognition of revenue
and certain associated costs, as well as related disclosures.
The Group has implemented IFRS 15 in the current year and has
applied the fully retrospective approach meaning the comparative
year has been restated and there has been a one-off cumulative
debit to retained earnings relating to transition at 1 June 2017 of
GBP1.4m (net of tax).
IFRS 15 requires the Group to apportion revenue earned from
contracts with customers to performance obligations the Group has
with its customers.
This is done through applying a five-step model defined in the
standard:
-- Identify the contract with the customer.
-- Identify the performance obligations in the contract.
-- Determine the transaction price.
-- Allocate the transaction price to the performance obligations in the contract.
-- Recognise revenue when (or as) the entity satisfies a performance obligation.
In addition to the changes to revenue recognition described
above, IFRS 15 also provides guidance in relation to certain costs
incurred obtaining a contract or fulfilling the contract with the
customer, requiring such costs to be deferred over time.
The Group put in place a team to assess the impact of IFRS 15 to
determine appropriate accounting policies, and implement
appropriate systems and processes so as to be able to calculate
opening adjustments and maintain ongoing IFRS 15 compliant
financial records/disclosures. Assessment was also given to other
matters, such as implications for employee remuneration, tax,
forecasting and covenant compliance.
Key changes in accounting policy
The key effects of the application of IFRS 15 are as
follows:
-- For Escrow, the initial set-up exercise is not considered to
be a distinct service, and as a result, these fees are now
recognised with the rest of the contract with revenue being
recognised over time.
-- For Assurance, set-up fees charged in respect of initial work
and configuration of equipment to allow customers to benefit from a
monitoring contract are not considered to be a distinct service and
as a result this revenue is now recognised over time with the
revenue for the monitoring activity.
In both cases performance obligations are considered to be
satisfied over time as the performance does not create an asset
with an alternative use to the Group and the Group has an
enforceable right to payment for performance completed to date.
The above key effects have given rise to a restatement of
Deferred revenue as outlined below, with no restatements to accrued
income.
Practical expedients
The Group has applied the following practical expedients on the
application of IFRS 15:
Area Qualitative assessment of the impact
Completed contracts have not been Significant benefit in application
restated that begin and end within due to the high number of contracts
the same annual reporting period. within the Group.
-------------------------------------------
Completed contracts that have variable Incident response contracts are variable
consideration have used the transaction in duration due to the unknown emerging
price at the date of the contract cyber risk. On this basis, the expedient
was completed rather than estimating simplifies the application of IFRS
variable consideration amounts in 15.
the comparative reporting periods.
-------------------------------------------
For all reporting periods before the Significant benefit in application
transition date, the Group has not due to the high number of contracts
disclosed the amount of the transaction within the Group.
price allocated to the remaining performance
obligations and an explanation of
when the Group expects to recognise
that amount of revenue.
-------------------------------------------
Cost to obtain a contract that lasts Significant benefit in application
less than one year has been expensed due to the high number of contracts
immediately. within the Group.
-------------------------------------------
Contracts with similar terms and features Significant benefit in application
have been treated on a portfolio basis due to the large range of small contracts
as opposed to individual assessment. with identical terms and conditions.
-------------------------------------------
Significant financing component within Limited relevance due to the nature
contracts. of contracts.
-------------------------------------------
Consolidated income statement financial impact
Central
& Head
Segmental analysis Escrow Assurance Office Group
2018 GBPm GBPm GBPm GBPm
------------------------------------------- ------ --------- ------- -------
Revenue:
Revenue previously reported 38.8 194.4 - 233.2
Adjustment on application of IFRS 15 0.3 (0.5) - (0.2)
------------------------------------------- ------ --------- ------- -------
Revenue restated 39.1 193.9 - 233.0
------------------------------------------- ------ --------- ------- -------
Adjusted operating profit:
Adjusted operating profit(2) previously
reported 21.6 17.0 (7.6) 31.0
Adjustment on application of IFRS 15 0.3 (0.5) - (0.2)
------------------------------------------- ------ --------- ------- -------
Adjusted operating profit(2) restated 21.9 16.5 (7.6) 30.8
------------------------------------------- ------ --------- ------- -------
Operating profit:
Operating profit previously reported 13.7
Adjustment on application of IFRS 15 (0.2)
------------------------------------------- ------ --------- ------- -------
Operating profit restated 13.5
------------------------------------------- ------ --------- ------- -------
Profit before taxation:
Profit before taxation previously reported 11.9
Adjustment on application of IFRS 15 (0.2)
------------------------------------------- ------ --------- ------- -------
Profit before taxation restated 11.7
------------------------------------------- ------ --------- ------- -------
Profit for the year attributable to the
owners of the Company:
Profit for the year previously reported 6.9
Adjustment on application of IFRS 15 (0.2)
------------------------------------------- ------ --------- ------- -------
Profit for the year restated 6.7
------------------------------------------- ------ --------- ------- -------
Consolidated statement of comprehensive income financial
impact
2018
-------------------------------------
Adjustment
on application
Previously of IFRS Restated
reported 15 balance
GBPm GBPm GBPm
------------------------------------------------ ---------- --------------- --------
Total comprehensive income for the year (net of
tax) attributable to the owners of the Company 7.2 (0.2) 7.0
------------------------------------------------ ---------- --------------- --------
Earnings per Share financial impact
2018
-------------------------------------
Adjustment
on application
Previously of IFRS Restated
reported 15 balance
------------------------------------------------- ---------- --------------- --------
Statutory profit from - continuing operations
(GBPm) 12.4 (0.2) 12.2
Statutory profit from - all operations (GBPm) 6.9 (0.2) 6.7
Adjusted(2) profit from continuing operations
(GBPm) 22.9 (0.2) 22.7
------------------------------------------------- ---------- --------------- --------
Basic weighted average number of shares in issue
(m) 277.0 - 277.0
Dilutive effect of share options (m) 2.3 - 2.3
------------------------------------------------- ---------- --------------- --------
Dilutive weighted average shares in issue (m) 279.3 - 279.3
------------------------------------------------- ---------- --------------- --------
2018
-------------------------------------
Adjustment
on application
Previously of IFRS Restated
reported 15 balance
pence pence pence
---------------------------------- ---------- --------------- --------
Basic earnings per ordinary share
Statutory - continuing operations 4.5 (0.1) 4.4
Statutory - all operations 2.5 (0.1) 2.4
Adjusted(2) 8.3 (0.1) 8.2
---------------------------------- ---------- --------------- --------
2018
-------------------------------------
Adjustment
on application
Previously of IFRS Restated
reported 15 balance
pence pence pence
------------------------------------ ---------- --------------- --------
Diluted earnings per ordinary share
Statutory - continuing operations 4.4 - 4.4
Statutory - all operations 2.5 (0.1) 2.4
Adjusted (2) 8.2 (0.1) 8.1
------------------------------------ ---------- --------------- --------
Consolidated cash flow statement financial impact
2018
-------------------------------------
Adjustment
on application
Previously of IFRS Restated
reported 15 balance
GBPm GBPm GBPm
-------------------------------------------------- ---------- --------------- --------
Profit for the year 6.9 (0.2) 6.7
-------------------------------------------------- ---------- --------------- --------
Operating cash inflow before movements in working
capital 40.0 (0.2) 39.8
-------------------------------------------------- ---------- --------------- --------
Increase in trade and other receivables (5.0) 0.2 (4.8)
-------------------------------------------------- ---------- --------------- --------
Cash generated from operating activities before
interest and taxation 39.5 - 39.5
-------------------------------------------------- ---------- --------------- --------
Consolidated balance sheet financial impact
May 2017 Restated
Adjustment
on application
of IFRS
(as reported) 15 balance
2017 GBPm GBPm GBPm
------------------ --------------- --------------- --------
Deferred revenue (35.6) (1.4) (37.0)
------------------ --------------- --------------- --------
Net assets 212.1 (1.4) 210.7
------------------ --------------- --------------- --------
Retained earnings 7.1 1.4 8.5
------------------ --------------- --------------- --------
May 2018 Restated
Adjustment
on application
of IFRS
(as reported) 15 balance
2018 GBPm GBPm GBPm
------------------ --------------- --------------- --------
Deferred revenue (29.0) (1.6) (30.6)
------------------ --------------- --------------- --------
Net assets 208.2 (1.6) 206.6
------------------ --------------- --------------- --------
Retained earnings 12.8 1.6 14.4
------------------ --------------- --------------- --------
Future accounting developments - IFRS 16 Leases
Transition approach
The Group will adopt this standard for the year ending 31 May
2020 under a modified retrospective approach.
The Group has a variety of operating leases within the
consolidated financial statements. The accounting for operating
leases in particular will change when IFRS 16 is implemented.
Structure and status of IFRS 16 implementation project
The Group commenced an implementation project during the year
ended 31 May 2019, whereby management performed a feasibility
impact of the proposed standard.
Following this feasibility review, management has implemented
specific governance around the project culminating in the
development of an in-house central depositary platform for
leases.
The platform and its control environment will continue to be
developed as the Group transitions to IFRS 16 during the year
ending 31 May 2020.
Implications of IFRS 16
Following a detailed review by management of the implications of
IFRS 16, the following can be noted:
-- a number of lease contracts currently disclosed within the
financial statements, which currently give rise to recurring
expenses within operating expenses, will be recognised on the
balance sheet as a "right of use asset" for the year ending 31 May
2020;
-- a corresponding lease liability (current and non-current)
reflecting the Group's commitment to pay consideration to third
parties under these contracts will also be recognised, increasing
the Group's net debt although the net cash flow profile remains the
same for the Group;
-- the Group will depreciate the right of use assets through the
Income Statement over the shorter of the assets' useful lives and
the assessed lease term;
-- the Group will recognise interest on the liability using the
rate of interest implicit in the lease or, if the interest rate
implicit in the lease cannot be determined, the Group's incremental
borrowing rate as adjusted for a specific risk adjustment. Interest
will be charged to finance costs; and
-- the profile of the overall expense in profit and loss will
change as the interest expense will be more front-loaded compared
to a straight-line operating lease rental expense.
Specifically, for management to conclude on whether a contract
contains a lease, the following has been considered:
-- whether there is an identified asset that the Group has the
right to obtain substantially all the economic benefits from;
-- whether the Group has the right to direct how and for what purpose the asset is used;
-- whether the Group has the right to operate the asset without
the supplier having the right to change those operating
instructions; and
-- whether the Group has designed the asset in a way that
predetermines how and for what purpose the asset will be used.
In addition, management has also considered other salient
factors in the assessment of the standard such as:
-- the length of assessed lease term taking into account the
non-cancellable period of the lease including periods covered by an
option to extend or an option to terminate if the Group is
reasonably certain to exercise either option; and
-- the applicability of interest rate implicit in the lease or
the Group's incremental borrowing rate, as adjusted for a specific
risk adjustment.
Following the above assessment, management has concluded that
the following items that are currently classified as operating
leases will be recognised in the financial statements using the new
requirements:
-- certain properties;
-- equipment leases, including printers; and
-- motor vehicles.
The Group does not lease any server equipment in relation to the
provision of Escrow services.
Exemptions and practical expedients to be applied and taken
Management has reviewed available exemptions contained within
IFRS 16 and concluded not to apply the low value or short-life
exemptions. In addition, the Group plans to offset the onerous
leases under IAS 37 immediately before transition as opposed to
performing an impairment review under IAS 36.
Indicative financial impact
At 31 May 2019, the Group had approximately GBP36m of
non-cancellable operating lease commitments. It is expected that
the application of this standard will have a significant impact on
the Group's Financial Statements.
Indicatively, the changes can be summarised as having the
following effect on the opening consolidated financial position as
at 1 June 2019:
-- Assets and liabilities will increase by GBP29.0m to GBP31.0m
primarily reflecting the rental property portfolio of the
Group;
-- Assets will be offset by an onerous lease provision of approximately GBP4m; and
-- EBITDA will increase in year one by GBP5.0m to GBP7.0m
reflecting the reclassification of rental payments to interest and
depreciation charges. Net profit is unaffected over the lifetime of
a lease.
Deferred taxation will arise on the transition adjustment at 1
June 2019 of GBP0.5m to GBP1.0m and a movement of GBP0.2m to
GBP0.5m during the year ended 31 May 2020, giving rise to a net
deferred tax asset of GBP0.7m to GBP1.5m as at 31 May 2020.
The Group has recently renegotiated its banking facilities. The
debt covenants on the Group's borrowing facilities will be
unaffected by the application of IFRS 16 as the covenant
calculations are based on the accounting principles in place prior
to 1 January 2019. The IFRS 16 changes are not expected to impact
the interest paid by the Group for its banking facilities. The
overall net cash flow for the Group will be unaffected by IFRS 16
other than operating cash outflows (excluding interest costs)
relating to leases being reclassified as financing outflows.
Interest costs relating to the lease will be disclosed within
interest paid.
2 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, reported to the Board, 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.
The APMs were the same as those that applied to the audited
consolidated financial statements for the year ended 31 May 2018
and the unaudited interim financial statements for the period ended
30 November 2018. See below for reconciliation of adjusted
information to Statutory information and refer to the Glossary for
comprehensive descriptions of all APMs, including their relevance
in providing supplementary information that assists the user to
understand better the financial performance, position and trends of
the Group.
Performance is based on adjusted operating profit (2) , defined
as operating profit or loss before adjusting items, as presented to
the CODM.
Adjusting items are:
-- Individually significant items;
-- Share based payments;
-- Amortisation of acquired intangibles;
-- Profit on disposal of investment;
-- Unwind on discount on acquisition consideration; and
-- Historic R&D prior year tax credits.
Reconciliation of adjusted information to Statutory
information
The following table includes details of adjusting items and
reconciles adjusted information to Statutory information for
continuing operations:
Year ended Profit Profit
31 May 2019 - Gross Depreciation Operating before from continuing
continuing Revenue profit EBITDA and amortisation profit taxation Taxation operations
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------- ------- ------ ----------------- --------- --------- ---------- ----------------
Adjusted 250.7 101.8 43.7 (10.0) 33.7 32.0 (6.5) 25.5
Individually
Significant
Items (note 5) - - (3.6) - (3.6) (3.6) 0.5 (3.1)
Share-based payments - - (1.7) - (1.7) (1.7) (0.1) (1.8)
Amortisation of
acquired
intangibles - - - (9.0) (9.0) (9.0) 1.8 (7.2)
Profit on disposal of
investment - - 0.1 - 0.1 0.1 - 0.1
--------------------- ------- ------- ------ ----------------- --------- --------- ---------- ----------------
Statutory 250.7 101.8 38.5 (19.0) 19.5 17.8 (4.3) 13.5
--------------------- ------- ------- ------ ----------------- --------- --------- ---------- ----------------
Year ended
31 May 2018 -
continuing Profit Profit
operations Gross Depreciation Operating before from continuing
(restated(1) Revenue profit EBITDA and amortisation profit taxation Taxation operations
) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------- ------- ------ ----------------- --------- --------- ---------- ----------------
Adjusted 233.0 95.9 42.9 (12.1) 30.8 29.3 (6.6) 22.7
Individually
Significant
Items (note 5) - - (7.6) - (7.6) (7.6) 1.5 (6.1)
Share-based payments - - (0.3) - (0.3) (0.3) 0.4 0.1
Amortisation of
acquired
intangibles - - - (9.4) (9.4) (9.4) 3.8 (5.6)
Unwind of discount on
acquisition
consideration - - - - - (0.3) - (0.3)
R&D prior-year tax
credits - - - - - - 1.4 1.4
--------------------- ------- ------- ------ ----------------- --------- --------- ---------- ----------------
Statutory 233.0 95.9 35.0 (21.5) 13.5 11.7 0.5 12.2
--------------------- ------- ------- ------ ----------------- --------- --------- ---------- ----------------
Amortisation of acquired intangibles represents amortisation of
customer contracts and relationships arising from acquisitions.
R&D prior-year tax credits relate to a significant historic
R&D tax claim in North America which was recognised in
2018.
During the year ended 31 May 2019, cash adjusting items were
GBPnil (2018: GBP1.8m).
Net debt(2)
Net debt(2) is set out below:
2019 2018
GBPm GBPm
-------------------------- ------ ------
Cash and cash equivalents 34.9 21.2
Borrowings (55.1) (49.0)
-------------------------- ------ ------
Net Debt (2) (20.2) (27.8)
-------------------------- ------ ------
Cash conversion ratio(2)
The calculation of the cash conversion ratio (2) is set out
below:
2019 2018
Continuing and discontinued GBPm GBPm
--------------------------------------------------------- ------ -----
Cash generated from operating activities before interest
and taxation (A) 47.9 39.5
Adjusted EBITDA(2) (B) 43.7 43.8
--------------------------------------------------------- ------ -----
Cash conversion ratio (2) (%) (A)/(B) 109.6% 90.2%
--------------------------------------------------------- ------ -----
3 Segmental information
The Group is organised into the following two (2018: two)
reportable segments: Escrow and Assurance. 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", who 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 homogenous commercial and strategic market environments.
Performance is measured based on reporting segment profit, which
comprises adjusted operating profit(2) . Interest and tax are not
allocated to business segments and there are no intra-segment
sales.
Segmental analysis 2019
Central
&
Escrow Assurance Head Office Group
GBPm GBPm GBPm GBPm
------------------------------------------ ------ --------- ------------ -------
Revenue 38.0 212.7 - 250.7
Cost of sales (9.7) (139.2) - (148.9)
------------------------------------------ ------ --------- ------------ -------
Gross profit 28.3 73.5 - 101.8
Gross margin % 74.5% 34.6% - 40.6%
General administration expenses allocated
(2) (9.3) (50.9) (7.9) (68.1)
------------------------------------------ ------ --------- ------------ -------
Adjusted operating profit(2) 19.0 22.6 (7.9) 33.7
------------------------------------------ ------ --------- ------------ -------
Adjusting items(2) (14.2)
------------------------------------------ ------ --------- ------------ -------
Operating profit 19.5
------------------------------------------ ------ --------- ------------ -------
Segmental analysis 2018
Central
&
Escrow Assurance Head Office Group
(Restated(1)) GBPm GBPm GBPm GBPm
------------------------------------------ ------ --------- ------------ -------
Revenue 39.1 193.9 - 233.0
Cost of sales (9.2) (127.9) - (137.1)
------------------------------------------ ------ --------- ------------ -------
Gross profit 29.9 66.0 - 95.9
Gross margin % 76.5% 34.0% - 41.2%
General administration expenses allocated
(2) (8.0) (49.5) (7.6) (65.1)
------------------------------------------ ------ --------- ------------ -------
Adjusted operating profit(2) 21.9 16.5 (7.6) 30.8
------------------------------------------ ------ --------- ------------ -------
Adjusting items(2) (17.3)
------------------------------------------ ------ --------- ------------ -------
Operating profit 13.5
------------------------------------------ ------ --------- ------------ -------
4 Discontinued operations
In the prior financial year, the Group sold Web Performance and
Software Testing, both part of the Assurance division but not
aligned to the core cyber security activities of the division. The
tables below provide an analysis of these discontinued
operations.
2019 2018
Loss of discontinued operations GBPm GBPm
-------------------------------- ----- ------
Revenue - 21.5
Cost of sales - (17.2)
-------------------------------- ----- ------
Gross profit - 4.3
General administrative expenses - (3.6)
Share-based payments - 0.1
-------------------------------- ----- ------
Operating profit - 0.8
-------------------------------- ----- ------
2019 2018
Loss of discontinued operations GBPm GBPm
------------------------------------------------------- ------- -------
Loss on sale of discontinued operations before tax - (6.4)
------------------------------------------------------- -------- ----------
Loss on discontinued operations before tax - (5.6)
Taxation - 0.1
------------------------------------------------------- -------- ----------
Loss on discontinued operations after tax - (5.5)
------------------------------------------------------- -------- ----------
2019 2018
Effect of discontinued operations on assets and liabilities GBPm GBPm
-------------------------------------------------------------- ----- ------
Intangible assets - 6.2
Plant and equipment - 0.5
Trade and other receivables - 4.5
Cash and cash equivalents - 0.7
Trade and other payables - (5.8)
-------------------------------------------------------------- ----- ------
Net assets - 6.1
-------------------------------------------------------------- ----- ------
2019 2018
Summary of loss on disposal of subsidiary GBPm GBPm
------------------------------------------ ----- ------
Consideration received or receivable:
Cash consideration - 11.3
Carrying amount of net assets disposed of - (6.1)
Elimination of goodwill - (10.2)
Professional fees and other costs - (1.4)
------------------------------------------ ----- ------
Loss on disposal before taxation - (6.4)
Taxation - -
------------------------------------------ ----- ------
Loss on disposal after taxation - (6.4)
------------------------------------------ ----- ------
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 2).
2019 2018
Individually Significant Items (ISIs) GBPm GBPm
------------------------------------------------------ ----- -----
SGT - legacy systems accelerated amortisation (net of
R&D tax credit) (3.8) -
Loss-making contract - (2.5)
Revisions to deferred and contingent consideration 0.8 (0.6)
Restructuring costs - (1.6)
Onerous leases and other property-related costs (0.6) (2.7)
Market-related costs - (0.2)
------------------------------------------------------ ----- -----
Total ISIs - continuing operations (3.6) (7.6)
------------------------------------------------------ ----- -----
SGT - legacy systems accelerated amortisation
As part of the transformation projects underway across the
Group, the Group has accelerated amortisation on legacy systems in
advance of new systems coming into effect. The charge is a large,
one-off transaction which will not be repeated in coming years, and
therefore, was deemed to be an ISI. The charge is net of an R&D
tax credit.
Loss-making contract
In the prior year, a loss-making contract was identified by
management, whereby it was considered that significant additional
effort would be required to satisfy the contractual commitments
that has led the contract to be loss making over its lifetime. The
Group has a very small number of long-term contracts and hence this
is a very unusual occurrence for the Group. It was therefore
deemed, both in terms of its unusual nature and size that it should
be treated as an ISI.
Revisions to deferred and contingent consideration
The revisions to deferred and contingent consideration represent
changes to amounts payable by the Group on the purchase of overseas
subsidiaries, as well as foreign exchange differences on that
consideration. Due to the size of the movement and that there was
no connection to the underlying performance of the business, this
has been treated as an ISI.
Restructuring costs
Restructuring costs arose due to a prior-year Strategic Review
and hence are treated as an ISI given the one-off nature of the
Strategic Review and the level of the costs incurred.
Onerous leases and other property-related costs
Following a review of the UK property portfolio and capacity
requirements, management have identified three onerous property
leases. The amount provided for represents the forecasted
discounted net cash flows.
In the prior year, onerous property leases arose on a vacant
property and an unused floor in the Manchester head office. In the
current year, the Directors have decided to vacate another floor in
the head office.
In addition, in the prior year, costs included dual running
costs of the Manchester head office, prior to occupancy.
These costs are treated as an ISI because they arise in
connection with unoccupied properties and this is not considered to
be part of the underlying performance of the business.
Market-related costs
Market-related costs in the prior year were in respect of the
shareholder circular and exercise to remediate a number of invalid
dividends. This exercise completed successfully at the September
EGM. The correction of invalid dividends being paid in the prior
year by means of a shareholder circular is a highly unusual
occurrence and hence while small in scale was deemed not to form
part of the underlying business performance.
6 Dividends
2019 2018
GBPm GBPm
------------------------------------------------------- ----- -----
Dividends paid and recognised in the year 12.9 12.8
------------------------------------------------------- ----- -----
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 2019 of
3.15p per ordinary share on approximately 277.8m ordinary shares
(approximately GBP8.8m) was approved by the Board on 24 July 2019
and will be recommended to shareholders at the AGM on 25 September
2019. The dividend has not been included as a liability as at 31
May 2019. The payment of this dividend will not have any tax
consequences for the Group.
7 Earnings per ordinary share (EPS)
Earnings per ordinary share are shown on a Statutory and a
Adjusted (2) basis to assist in the understanding of the
performance of the Group.
2018
(Restated
2019 (1))
GBPm GBPm
------------------------------------------------------- ----- ----------
Statutory earnings - continuing operations 13.5 12.2
------------------------------------------------------- ----- ----------
Statutory earnings - all operations 13.5 6.7
------------------------------------------------------- ----- ----------
Adjusted(2) profit from continuing operations (note 2) 25.5 22.7
------------------------------------------------------- ----- ----------
Number Number
of shares of shares
m m
------------------------------------------------- ---------- ----------
Basic weighted average number of shares in issue 277.8 277.0
Dilutive effect of share options 1.5 2.3
------------------------------------------------- ---------- ----------
Diluted weighted average shares in issue 279.3 279.3
------------------------------------------------- ---------- ----------
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.
2018
(Restated
2019 (1))
pence pence
---------------------------------- ------ ----------
Basic earnings per ordinary share
Statutory - continuing operations 4.9 4.4
Statutory - all operations 4.9 2.4
Adjusted(2) 9.2 8.2
---------------------------------- ------ ----------
2018
2019 (Restated(1))
pence pence
------------------------------------ ------ --------------
Diluted earnings per ordinary share
Statutory - continuing operations 4.8 4.4
Statutory - all operations 4.8 2.4
Adjusted(2) 9.1 8.1
------------------------------------ ------ --------------
8 Related party transactions
The Group's key management personnel comprise the Directors of
the Group. There were no other related party transactions during
the year.
9 Post balance sheet events
As at 31 May 2019, the Group had committed bank facilities of
GBP97.8m (2018: GBP102.7m), of which GBP55.1m (2018: GBP49.0m) had
been drawn under these facilities, leaving GBP42.7m (2018:
GBP53.7m) of undrawn facilities. These existing arrangements were
agreed in November 2015 and were due for renewal in November
2020.
On 10 June 2019, the Group renegotiated its existing term loan
and multi-currency revolving credit facilities into a new fully
revolving credit facility of GBP100m with a new five-year term up
to June 2024 on similar terms (pricing and covenants). Under the
new arrangements, the Group can request an additional accordion
facility to increase the total size of the revolving credit
facility by up to GBP75m (previously GBP50m). In addition, the
Group has retained its existing overdraft of GBP5m. Arrangement
fees incurred will be amortised over the term accordingly.
Historical arrangements fees have been fully amortised.
There were no other post balance sheet events.
Glossary of terms - Alternative performance measures
APMs are the way that financial performance is measured by
management, reported to the Board, the basis of financial measures
for senior management's compensation schemes and provides
supplementary information that assists the user in understanding
the underlying trading results.
APM Closest Adjustments Note reference Definition, purpose and
equivalent to reconcile for reconciliation considerations
IFRS measure to IFRS made by the Directors
measure
Income statement measure - continuing operations:
Adjusted Operating Operating 2 Represents operating profit before
operating profit profit adjusting items to assist in the
profit (EBIT) or loss or loss understanding of the Group's
before performance.
adjusting Adjusting items represent
items amortisation
Adjusting of acquired intangibles, discount
items represent unwind on acquisition
amortisation consideration,
of acquired profit on the disposal of
intangibles, investments,
discount individually significant items,
unwind and share-based payments.
on acquisition The Directors consider
consideration, amortisation
profit of acquired intangibles is a
on the non-cash
disposal accounting charge inherently
of investments, linked
individually to losses associated with
significant historical
items and acquisitions of businesses in
share-based accordance with the Group's
payments adjusting
items accounting policy. This
APMs purpose 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. An
alternative
view could be that the charge
should be included in underlying
results to reflect the "cost"
of an acquisition in the Income
Statement. All things considered,
including the similar treatment
by comparator companies, the
Directors
have concluded that this item
is an adjusting item. The same
principles apply to non-cash
unwind
of discounts on deferred and
contingent
acquisition consideration and
the profit on the disposal of
investments.
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.
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.
------------------ ------------------- ------------------- -----------------------------------
EBITDA Operating Operating 2 Represents operating profit before
profit profit depreciation and amortisation.
or loss or loss, EBITDA is disclosed as this is
before a measure widely used by various
depreciation stakeholders.
and amortisation,
net finance
costs and
taxation
------------------ ------------------- ------------------- -----------------------------------
APM Closest Adjustments Note reference Definition, purpose and
equivalent to reconcile for reconciliation considerations
IFRS measure to IFRS made by the Directors
measure
------------------ ------------------- ------------------- -----------------------------------
Adjusted Operating Operating 2 Represents operating profit before
earnings profit profit adjusting items, depreciation
before interest, or loss or loss and amortisation to assist in
tax, depreciation before the understanding of the Group's
and amortisation adjusting performance.
(EBITDA) items, Adjusted EBITDA is disclosed as
depreciation this is a measure widely used
and amortisation, by various stakeholders and used
net finance by the Group to measure the cash
costs and conversion ratio noted below.
taxation
------------------ ------------------- ------------------- -----------------------------------
Adjusted Profit Profit 2 Represents profit before taxation
Profit before before before before adjusting items and
taxation taxation taxation provides
before supplementary information on the
adjusting Group's profitability before
items taxation.
------------------ ------------------- ------------------- -----------------------------------
Adjusted Basic Basic EPS 7 Represents Basic EPS excluding
basic EPS EPS excluding adjusting items and provides
adjusting supplementary
items information that assists the user
in understanding the underlying
trading results.
------------------ ------------------- ------------------- -----------------------------------
Balance sheet measure
Net debt Total borrowings 2 Represents total borrowings offset
offset by cash and by cash and cash equivalents.
cash equivalents It is a useful measure of the
progress in generating cash,
strengthening
of the Group balance sheet
position,
overall net indebtedness and
gearing.
Net 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 % 2 The cash conversion ratio is a
ratio % of net of net cash measure of how effectively
cash flow flow from Adjusted
from operating operating operating profit (as detailed
activities activities above) is converted into cash
before before interest and effectively highlights both
interest and tax non-cash accounting items within
and tax dividend operating profit and also
dividend by adjusted movements
by Operating EBITDA in working capital. It is
profit calculated
as Net cash flow from operating
activities before interest and
taxation (as disclosed on the
face of the cash flow statement)
divided by adjusted 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.
---------------- --------------------- ------------------- -----------------------------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SESEDLFUSESW
(END) Dow Jones Newswires
July 25, 2019 02:02 ET (06:02 GMT)
Ncc (LSE:NCC)
Gráfica de Acción Histórica
De Feb 2024 a Mar 2024
Ncc (LSE:NCC)
Gráfica de Acción Histórica
De Mar 2023 a Mar 2024