TIDMNCC
RNS Number : 8785X
NCC Group PLC
03 September 2020
3 September 2020
NCC Group plc
Preliminary results for the year ended 31 May 2020
Resilience through uncertainty
NCC Group plc (LSE: NCC, "NCC Group" or "the Group"), an
independent global cyber security and resilience adviser, reports
its full year results for the 12 months to 31 May 2020 ("the full
year", "FY", "FY20", "the year").
Highlights (1)
Like-for-like
2020 2019 % change 2020
(Pre-IFRS (Pre-IFRS (Pre-IFRS (IFRS 16)
16) (2, 3) 16)(2) 16) (2) (2)
------------ ---------- -------------
Revenue (GBPm) 263.7 250.7 5.2% 263.7
Gross profit (GBPm) 104.4 101.8 2.6% 104.4
Gross margin (%) 39.6% 40.6% (1.0)% pts 39.6%
Adjusted (3) EBITDA (GBPm) 41.2 43.7 (5.7)% 45.4
Adjusted (3) EBITDA (%) 15.6% 17.4% (1.8)% pts 17.2%
Operating profit (GBPm) 20.9 19.5 7.2% 19.1
Adjusted (3) operating profit (GBPm) 31.1 33.7 (7.7)% 29.3
Adjusted (3) operating profit (%) 11.8% 13.4% (1.6)% pts 11.1%
Profit before taxation (GBPm) 19.1 17.8 7.3% 16.1
Adjusted (3) profit before taxation
(GBPm) 29.3 32.0 (8.4)% 26.3
Basic EPS (pence) 5.1p 4.9p 4.1% 4.2p
Adjusted basic EPS (pence) 8.1p 9.2p (12.0)% 7.2p
Net debt (3) (GBPm) (4.2) (20.2) 79.2% (42.4)
Cash conversion ratio 117.0% 109.6% 7.4% pts 120.5%
Dividend (pence) 3.15 3.15 - 3.15
------------------------------------- ------------ ---------- ------------- -----------
-- The long-term prospects for the cyber resilience market are excellent
-- The global cyber security services market was growing at c.
8-9% before the advent of Covid-19
-- The impact of the pandemic has accelerated the adoption of
cloud services by many firms and driven a significant increase in
home working, all of which introduces further cyber risk into the
operations of our customers and target market
-- Global online security breaches continue to rise at more than
20% per annum with reputational losses and financial losses
becoming more significant
-- Covid-19 has impacted demand but we foresee a strong growth
opportunity as the economy normalises
-- Our stability is underpinned by recurring high-margin
revenues and cash generation from our Software Resilience (Escrow)
division and, increasingly, from our Cyber Managed Detection &
Response (up 13.7% from GBP36.4m to GBP41.4m)
-- Our Cyber Professional Services are further protected by the
quality of our customer base ( 65 of the Fortune 500 (2019: 52) and
89 of FTSE 350 (2019: 82)), although some of our customers are
experiencing financial or logistical issues that impacted our FY20
sales order delivery by an estimated GBP15 million. We believe that
the choice to delay cyber work is building up a compliance debt
that will need to be addressed in the future and should drive
demand as the economy returns to normal
-- Our transformation continues and we are successfully navigating Covid-19 disruption
-- Our Mission, Vision and Values remain current and our
Securing Growth Together programme continues to transform our
business in order to fulfil our ambition to be the leading cyber
security resilience provider globally
-- We began an active response to Covid-19 in January 2020 when
we first saw operations in the Asia-Pacific region being affected.
Our two objectives through the pandemic were (a) to maintain a
strong balance sheet to position ourselves to capitalise on
opportunities in the future and (b) to preserve our technical
capability and capacity so that we can meet future growth
demands
-- Our full year performance demonstrates our resilience and
presents a strong platform for future growth:
-- Trading
-- Group revenue increased 5.2% to GBP263.7m (2019:
GBP250.7m)
-- Assurance revenue was up 6.3% to GBP226.2m (2019: GBP212.7m),
driven by a strong Managed Detection & Response (MDR)
performance (+13.7%) and good growth from the largest revenue
contributor, Technical Security Consulting (TSC) (+8.0%)
-- Software Resilience (Escrow) revenue decreased 1.3% to
GBP37.5m (2019: GBP38.0m) although momentum is building as H2
revenues were flat on H2 of the previous year and up compared to
H1
-- Our customer base remains robust and we support 65 Fortune
500 (2019: 52) and 89 FTSE 350 (2019: 82) customers; notable
business in the period was secured from customers including Zoom,
Google and Facebook
-- Gross margin was down slightly at 39.6% (2019: 40.6%) as a
consequence of our decision to maintain the sales and technical
capacity in which we have invested this year despite the impact of
Covid-19
-- Adjusted operating profit (3) was down 7.7% to GBP31.1m
(2019: GBP33.7m)
-- Covid-19
-- The Group was on course to meet expectations for FY20 until
the outbreak of Covid-19
-- We experienced an estimated GBP15m impact on FY20 sales order
delivery; we expect further impact on demand through 2021
-- We have not made any Covid-19 redundancies or furloughed any
colleagues
-- Cash
-- Strong cash discipline was maintained with c.117.0% cash
conversion (2, 3) (2019: 109.6%), including c. GBP3.4m benefit of
government tax deferral schemes
-- Net debt on a like-for-like basis (3) fell to GBP4.2m (2019:
GBP20.2m), including cash balances of GBP95.0m (2019: GBP34.9m)
following the full draw down of our revolving credit facility in
April 2020 to provide the Group with maximum cash flexibility
-- Outlook
-- We have successfully weathered the initial impact of Covid-19
and our experience of doing so gives us confidence that we should
be resilient, profitable and cash generative through any likely
aftershocks this financial year
-- Parts of our customer base have been impacted by uncertainty,
financial pressures or logistical issues. Consequently, we have
observed procurement cycles lengthen and become less predictable.
In some of the more affected sectors, including Leisure and
Entertainment, we expect some customers to postpone work for 12
months or more
-- The long-term growth prospects for the cyber resilience
market continue to be excellent as the connected environment and
society's dependence on that connected environment continue to
grow
Against this backdrop:
-- Our trading to date has been slightly ahead of the same
period last year, albeit last year was a soft comparator period and
the start of this year has been boosted by some exceptional M&A
support engagements
-- The range of outcomes for the full financial year remains
unusually broad and depends, in particular, on the speed and timing
with which our customers' buying patterns return to normal
-- In the medium-term, our financial objectives remain the same
as last year: to achieve double-digit revenue growth with margin
improvement in Assurance and to return Software Resilience (Escrow)
to sustainable growth
-- Owing to the resilience we have demonstrated as a Group and
the confidence we have in our continued profitability and cash
generation, we are recommending an unchanged final dividend of
3.15p (2019: 3.15p) per ordinary share
Adam Palser , Chief Executive Officer, commented:
"I am pleased with our trading performance for the year. Thanks
to the stunning way in which my NCC Group colleagues have risen to
the challenge we have weathered the impact of the Covid-19 pandemic
to date and emerged with a stronger balance sheet whilst preserving
the technical capability that makes NCC Group so distinctive.
The investment and progress we have made through our Securing
Growth Together transformation programme underpinned our recent
resilience and the Group is well placed to thrive when the economy
recovers.
I would like to thank all my colleagues for their continued
resilience and professionalism during these challenging times."
Analyst presentation briefing and Q & A session
A pre-recorded Analyst presentation briefing will be available
from the Group's website at 8am on 3 September 2020 via the
following link:
https://www.nccgroupplc.com/investor-relations/results-media/full-year-results-presentation-for-the-year-ended-31-may-2020/
A Q & A session for Analysts will be held at 9am on 3
September 2020.
EnquiriesNCC Group ( www.nccgroup.com ) +44 (0)161 209 5432
Adam Palser, CEO/ Tim Kowalski, CFO
Maitland AMO +44 (0)20 7379 5151
Sam Cartwright
About NCC Group plc
NCC Group exists to make the world safer and more secure. As the
leading independent global cyber security and resilience advisor,
NCC Group is trusted by over 15,000 clients worldwide to protect
their most critical assets from the ever-changing threat landscape.
With the company's knowledge, experience and global footprint, it
is best placed to help businesses identify, assess, mitigate and
respond to the evolving cyber risks they face. To support its
mission, NCC Group continually invests in research and innovation,
and is passionate about developing the next generation of cyber
scientists. With around 2,000 colleagues in 12 countries, NCC Group
has a significant market presence in North America, continental
Europe and the UK, and a rapidly growing footprint in Asia Pacific
with offices in Australia, Japan and Singapore.
Footnotes
1: References to the Group's results are to continuing
operations.
2: Following the adoption of IFRS 16 'Leases' with effect from 1
June 2019, the Group has adopted the accounting standard using the
modified retrospective approach to transition and has accordingly
not restated prior years, the results for the year ended 31 May
2020 are not directly comparable with those reported under the
previous applicable accounting standard IAS 17 'Leases'. On this
basis, to provide meaningful comparatives, the results for the year
ended 31 May 2020 have therefore also been presented under IAS 17
with the like-for like numbers shown on an IAS 17 basis ('Pre-IFRS
16'). This alternative performance measure (APM), will be presented
for one year until the comparatives also include the adoption of
IFRS 16.
3: See note 2 for an explanation of Alternative Performance
Measures ("APMs") and adjusting items, including a reconciliation
to statutory information.
4: Leverage is defined as the ratio of total Net Debt Pre-IFRS
16 to Adjusted EBITDA and Interest Cover is defined as the ratio of
Adjusted EBITDA to net finance charges (Pre-IFRS 16).
Cautionary note regarding forward-looking statement
This announcement includes statements that are forward-looking
in nature. Forward-looking statements involve known and unknown
risks, assumptions, uncertainties and other factors which may cause
the actual results, performance or achievements of the Group to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements. Except as required by the Listing Rules, Disclosure and
Transparency Rules and applicable law, the Group undertakes no
obligation to update, revise or change any forward-looking
statements to reflect events or developments occurring on or after
the date such statements are published.
Business review
We are all Zoom-bies and Teamsters now
The tumult and uncertainty of the Covid-19 pandemic have thrown
into sharp relief the importance of the connected, digital world
for society. Remote working has become the norm; firms across the
world have brought forward their plans to adopt cloud technology by
years in the space of a few months, and consequently the associated
cyber risks have proliferated.
In the near term, many of our customers are experiencing
uncertainty, financial pressures or logistical challenges owing to
the impact of the pandemic, which have, unsurprisingly, lowered
demand below the run rate we expected coming into this calendar
year. However, we believe that the long-term prospects for the
cyber resilience market are stronger than ever and, as and when the
economy returns to trend growth, we believe that firms like NCC
Group will benefit from the need for organisations to "pay down the
compliance debt" that has accumulated as connected systems are
mobilised in a hurry without the usual care and attention.
As in recent years, the cyber market is a dynamic and busy
place. Cyber threats are now so pervasive, complicated and rapidly
changing that "silver bullets" no longer exist (if they ever did).
Increasingly, it is the role of cyber services firms like NCC Group
to help our customers navigate through the complexity of cyber
risks. Our ability to quickly and efficiently build skills, tools
and capability through research enables us to remain at the
forefront of this exciting market without taking significant
risks.
Securing Growth Together (SGT): fulfilling our potential
Since my arrival in December 2017, my colleagues in NCC Group
have worked relentlessly to transform the business and achieve our
ambition to become the leading provider of cyber resilience
solutions globally.
It is a pleasing validation of our direction and purpose that,
despite the global upheavals that have occurred this year, our
destination is still relevant and we have made determined progress
towards it:
- Our mission is to make the world safer and more secure
- Our vision is to be the leading cyber security advisor
globally, trusted to protect and secure our customers' critical
assets and sought-after for our complete people-led,
technology-enabled cyber resilience solutions that enable our
customers to thrive
- Our three values are: Work Together; Be Brilliantly Creative; and Embrace Difference
Our vehicle for transforming the firm and achieving our vision
is the Securing Growth Together programme which, at its heart, can
be summarised as:
1. Connecting this global firm, creating one global way of
working and generating the information we need to run the business
in an agile and assertive way; and
2. Creating stronger relationships with our customers by
delivering a full suite of services and thus guiding them
throughout their journey to cyber resilience
The programme is run through five workstreams which have given
rise to the following highlights:
- The investment and progress we have made through the first two
years of SGT underpinned our resilience through these uncertain
times. In particular, we had the systems, communication and
collaboration tools that enabled us to work together as one firm
and transition seamlessly to remote working
- The number of large orders secured from clients has increased,
driven in particular by the strong increase in demand for Managed
Detection & Response services (Sales orders growth of 24.2%),
which helps to underpin our forward order book
- Our technical teams are larger, our retention is higher, and
we have completed more high-impact research than in previous
years
Thus, we begin this new financial year in stronger shape than we
have ever been before.
Resilience through uncertainty
We first felt the impact of Covid-19 on our operations in the
Asia Pacific region in January, which, in some ways, provided a
helpful early warning. In February, and before the World Health
Organisation (WHO) declared Covid-19 a global pandemic, we had
developed our Covid management strategy and mobilised a crisis
management team that met daily (to start with) to steer us through
the challenge ahead.
From the outset, our objectives have been to "Survive &
Thrive": to maintain a strong Balance Sheet and to preserve our
technical capacity and capability so that investors can have
confidence in our enduring ability to generate value and to
position ourselves for the future upswing of the economy. Our
Covid-19 management strategy consisted of five themes:
- Anticipate and measure
- Be resilient
- Stay profitable
- Exploit any down time
- Prepare for the bounce back
The heart of "staying profitable" was, of course, to continue to
sell and deliver value to our customers. Inspiring examples of work
undertaken by my colleagues include:
- The deployment of our internal "Firebase" appliance,
originally developed as part of a UK research programme, across all
of our territories, which helped us to operate remotely, even for
our largest customers
- Introducing "SOC as a Service" to help customers experiencing
resource shortages and office closures which affected their own
Security Operations Centres
- Our global "Evolve to Remote" marketing campaign to aggregate
and promote those services which could be bought and delivered
remotely
I am pleased that this approach has enabled us to manage the
impact of the pandemic so far and we have not made any Covid-19
redundancies or furloughed any colleagues.
Our resilience has unquestionably been helped by the strength of
our customer base, which, in turn, is a validation of the quality
of our services. We now work for 65 of the Fortune 500 (2019: 52)
and 89 of FTSE 350 (2019: 82). It should be noted, however, that
some of our customers operating in more affected sectors
(including, for example, entertainment and leisure) have delayed or
cancelled work and are expected to do so for much of the coming
financial year.
NCC Group was on course to meet expectations for the year ended
31 May 2020 until the outbreak of Covid-19. The impact on FY20
sales order delivery amounted to an estimated GBP15m as demand
decreased due to the financial and logistical challenges that our
customers were facing. However, our seamless transition to remote
working, facilitated by the investments we have made through our
Securing Growth Together transformation programme, enabled us to
deliver a resilient performance whilst maintaining a strong balance
sheet and preserving our technical capacity and capability to meet
future demand.
Whilst the whole firm has moved to remote working, we have now
developed detailed specific working practices for a proportion of
our colleagues to return to our customers' offices safely when the
opportunity arises. Where appropriate we do expect to give our
people more opportunity to continue to work remotely and are taking
this moment to review our global property footprint and how we
employ that space effectively.
At the time of writing, the pandemic is not yet over and there
is still significant uncertainty in our customer base and the wider
world. However, I am delighted with the way my colleagues have
navigated the challenge so far in and have confidence in our
ability to continue to do so.
Playing a full part in society
From a social responsibility perspective, we provided unique
threat intelligence free of charge in the first few months of the
pandemic to national Computer Emergency Response Teams, hospitals
and national institutes of public health around the world, to help
them build cyber resilience and ensure they could focus on patient
care without distraction.
Beyond the advent of Covid-19, another momentous event, which
had a profound impact on the firm was the tragic death of George
Floyd. The anger and shock that swept across the world - felt not
just in our North American teams but throughout NCC Group -
inspired us to redouble our efforts to ensure we are an inclusive
and diverse organisation. Building on our existing plans we now
have global volunteers focused on supporting our four key areas:
gender, race and ethnicity, neurodiversity and LGBTQIA+. It is a
matter of personal importance to me that anyone can feel welcome in
NCC Group and enjoy the same opportunities for career
progression.
More broadly, this year has seen the development of our ESG
framework and a sustained focus on the wellbeing of all those who
work in NCC Group. Our Mental Health First Aid and awareness
programme are two of the more structured ways we have sought to
underpin our colleagues' wellbeing, above and beyond the plethora
of virtual quiz nights, 'meet the pets' sessions and other social
interactions that have sprung up over the course of the last twelve
months.
FY20 performance overview
Group revenues increased by 5.2%, representing more people,
skills, capabilities and customer impact than before. From a
divisional perspective, all Assurance regions experienced growth,
with the North America and Europe & APAC regions particularly
encouraging at 9.1% and 8.3% respectively, with the UK region
increasing by 2.9%. Software Resilience (Escrow) revenue decreased
1.3% to GBP37.5m (2019: GBP38.0m) although momentum is building as
H2 revenues were flat against H2 of the previous year and up
compared to H1. Gross margin reduced slightly to 39.6% (2019:
40.6%) because we built sales and technical capacity through the
year but suffered a dip in demand from Covid-19 in the second half
of the year. Adjusted EBITDA and operating profit (2) were down
5.7% to GBP41.2m (2019: GBP43.7m) and 7.7% to GBP31.1m (2019:
GBP33.7m) respectively, giving rise to an adjusted basic EPS (2, 3)
of 8.1p (2019: 9.2p). The Group delivered improved cash flow with
cash conversion (3) of 117.0% compared to 109.6% (2) in 2019,
resulting in a reduction in the Group's net debt on a like-for-like
basis to GBP4.2m (2019: GBP20.2m). On a statutory basis, after IFRS
16, operating profit decreased by 2.1% to GBP19.1m (2019: GBP19.5m
(2) ) and profit before taxation decreased 9.6% to GBP16.1m (2019:
GBP17.8m (2) ) giving rise to a statutory EPS of 4.2p (2019: 4.9p
(2) ).
Summary
Financial:
-- The group achieved revenue growth during the year despite the Covid-19 disruption
-- Effective cash management resulted in another excellent year
for cash conversion and reduced net debt on a like-for-like basis
(3) to GBP 4.2 m from GBP20.2m, after benefitting from certain
government tax deferral programmes that amounted to GBP4.6m
Operational:
-- We were resilient through uncertainty whilst maintaining a
strong balance sheet and preserving our technical capacity and
capability in order to meet future demand
-- Our recurring and long-term revenues from Software Resilience
and our Managed Detection and Response services have provided us
with some protection
-- Our Securing Growth Together transformation programme has
made strong progress with continued deployment of our global
systems infrastructure
Outlook:
-- We have successfully weathered the initial impact of Covid-19
and our experience of doing so gives us confidence that we should
be resilient, profitable and cash generative through any likely
aftershocks this financial year
-- Parts of our customer base have been impacted by uncertainty,
financial pressures or logistical issues. Consequently, we have
observed procurement cycles lengthen and become less predictable.
In some of the more affected sectors, including Leisure and
Entertainment, we expect some customers to postpone work for 12
months or more
-- The long-term growth prospects for the cyber resilience
market continue to be excellent as the connected environment and
society's dependence on that connected environment continue to
grow
Against this backdrop:
-- Our trading to date has been slightly ahead of the same
period last year, albeit last year was a soft comparator period and
the start of this year has been boosted by some exceptional M&A
support engagements
-- The range of outcomes for the full financial year remains
unusually broad and depends, in particular, on the speed and timing
with which our customers' buying patterns return to normal
-- In the medium-term, our financial objectives remain the same
as last year: to achieve double-digit revenue growth with margin
improvement in Assurance and to return Software Resilience (Escrow)
to sustainable growth
-- Owing to the resilience we have demonstrated as a Group and
the confidence we have in our continued profitability and cash
generation, we are recommending an unchanged final dividend of
3.15p (2019: 3.15p) per ordinary share
Financial review
Overview
We have continued to deliver good financial results despite the
impact of Covid-19, demonstrating resilience in our business model.
Group revenue increased by 5.2% to GBP263.7m (2019: GBP250.7m)
despite Covid-19 resulting in sales order delivery of approximately
GBP15m being delayed or cancelled. Within this, Assurance revenues
increased by 6.3% to GBP226.2m (2019: GBP212.7m). All Assurance
regions experienced growth, with the North America and Europe &
APAC regions particularly encouraging at 9.1% and 8.3%
respectively, with the UK region increasing by 2.9%. Software
Resilience (Escrow) revenue was 1.3% behind prior year as North
America and UK fell by 6.0% and 0.4% respectively.
Gross profit increased by 2.6% to GBP104.4m (2019: GBP101.8m)
with margin percentage decreasing to 39.6% (2019: 40.6%) due to our
continued investment in sales and technical capacity which we have
maintained during Covid-19 in order to meet expected strong demand
as we get beyond the current disrupted trading environment.
Assurance margin percentage decreased to 34.0% (2019: 34.6%) and
Software Resilience (Escrow) decreasing to 73.3% (2019: 74.5%).
Administrative expenses (excluding depreciation and amortisation
and adjusting items) have increased by GBP0.9m compared to the
prior year mainly due to continued investment in people, increased
license costs in relation to new systems implemented across the
Group and provisions for property costs, partially offset by the
net benefit of IFRS 16 (GBP4.2m). This gives rise to a reduction in
statutory operating profit of GBP19.1m (2019: GBP19.5m) and a
reduction in adjusted (3) operating profit on a like-for-like basis
of GBP31.1m (2019: GBP33.7m). Adjusted operating profit (3) after
the impact of IFRS 16 (-GBP1.8m) decreased by 13.1% to GBP29.3m
(2019: GBP33.7m). Adjusted depreciation and amortisation after the
impact of IFRS 16 (+GBP6.0m) amounted to GBP24.9m (2019: GBP19.0m)
giving rise to Adjusted EBITDA (3) of GBP45.4m (2019: GBP43.7m).
Adjusted profit before taxation (3) decreased by 17.8% to GBP26.3m
(2019: GBP32.0m). Statutory profit before taxation decreased by
9.6% to GBP16.1m (2019: GBP17.8m). Adjusted EPS and statutory EPS
after the impact of IFRS 16 (-GBP2.4m) amounted to 7.2p (2019:
9.2p) and 4.2p (2019: 4.9p) respectively.
Our balance sheet remains strong; we have continued to
demonstrate effective cash management and reduced net debt on a
like for like basis (3) to GBP4.2m from prior year levels of
GBP20.2m after capital expenditure of GBP13.2m (2019: GBP9.1m). Net
debt reduced on a like for like (3) basis to GBP4.2m, including
cash balances of GBP95.0m (2019: GBP34.9m) following the full draw
down of our revolving credit facility in April 2020 to provide the
Group with maximum cash flexibility. As at 31 May 2020, the Group
also had a timing benefit of c. GBP4.6m from certain government
taxation payment deferral schemes that are repayable in FY21. The
Group has a committed revolving credit facility of GBP100m which is
due for renewal in June 2024 following our refinancing in June
2019. Leverage remains in line with the prior year at 0.1x, with
sufficient headroom forecasted.
Financial summary
Summary Income Statement:
GBPm Like-for-like
2020 2020 2019 % change
(IFRS 16)(2) (Pre-IFRS 16)(2) (Pre-IFRS 16)(2) (Pre-IFRS 16)(2)
-------------- ----------------- -----------------
Revenue 263.7 263.7 250.7 5.2%
Cost of sales (159.3) (159.3) (148.9) (7.0)%
------------------------------ -------------- ----------------- ----------------- -----------------
Gross profit 104.4 104.4 101.8 2.6%
Other administration
expenses (59.0) (63.2) (58.1) (8.8)%
------------------------------ -------------- ----------------- ----------------- -----------------
Adjusted (3) EBITDA 45.4 41.2 43.7 (5.7)%
Depreciation and amortisation (16.1) (10.1) (10.0) (1.0)%
------------------------------ -------------- ----------------- ----------------- -----------------
Adjusted (3) operating
profit 29.3 31.1 33.7 (7.7)%
Adjusting items (10.2) (10.2) (14.2) 28.2%
------------------------------ -------------- ----------------- ----------------- -----------------
Statutory operating profit 19.1 20.9 19.5 7.2%
------------------------------ -------------- ----------------- ----------------- -----------------
GBPm Like-for-like
2020 2020 2019 % change
(IFRS 16)(2) (Pre-IFRS 16)(2) (Pre-IFRS 16)(2) (Pre-IFRS 16)(2)
-------------- ----------------- -----------------
Adjusted (3) profit before
taxation 26.3 29.3 32.0 (8.4)%
Adjusting items (10.2) (10.2) (14.2) 28.2%
--------------------------- -------------- ----------------- ----------------- -----------------
Profit before taxation 16.1 19.1 17.8 7.3%
--------------------------- -------------- ----------------- ----------------- -----------------
GBPm Like-for-like
2020 2020 2019 % change
(IFRS 16)(2) (Pre-IFRS 16)(2) (Pre-IFRS 16)(2) (Pre-IFRS 16)(2)
-------------- ----------------- -----------------
Adjusted (3) profit for
the year 20.0 22.4 25.5 (12.2)%
Adjusting items after
taxation (8.3) (8.3) (12.0) 30.8%
------------------------ -------------- ----------------- ----------------- -----------------
Profit for the year 11.7 14.1 13.5 4.4%
------------------------ -------------- ----------------- ----------------- -----------------
Basic EPS
Adjusted 7.2p 8.1p 9.2p (12.0)%
Statutory 4.2p 5.1p 4.9p 4.1%
------------------------ -------------- ----------------- ----------------- -----------------
Revenue summary:
GBPm Like-for-like
2020 2020 2019 % change
(IFRS 16)(2) (Pre-IFRS 16)(2) (Pre-IFRS 16)(2) (Pre-IFRS 16)(2)
-------------- ----------------- -----------------
Assurance 226.2 226.2 212.7 6.3%
Software Resilience (Escrow) 37.5 37.5 38.0 (1.3)%
----------------------------- -------------- ----------------- ----------------- -----------------
Total revenue 263.7 263.7 250.7 5.2%
----------------------------- -------------- ----------------- ----------------- -----------------
Adjusted operating profit (3) summary:
Like-for-like
2020 2020 2019 % change
(IFRS 16)(2) (Pre-IFRS 16)(2) (Pre-IFRS 16)(2) (Pre-IFRS 16)(2)
-------------- ----------------- -----------------
Statutory operating profit 19.1 20.9 19.5 7.2%
Adjusting items 10.2 10.2 14.2 28.2%
Adjusted operating profit
(3) 29.3 31.1 33.7 (7.7)%
--------------------------- -------------- ----------------- ----------------- ------------------
Like-for-like
Adjusted operating profit
(3) 2020 2020 2019 % change
(IFRS 16)(2) (Pre-IFRS 16)(2) (Pre-IFRS 16)(2) (Pre-IFRS 16)(2)
------------- ----------------- -----------------
Assurance 22.3 22.0 22.6 (2.7)%
Software Resilience (Escrow) 16.9 17.9 19.0 (5.8)%
Central and head office (9.9) (8.8) (7.9) (11.4)%
----------------------------- ------------- ----------------- ----------------- -----------------
Total adjusted operating
profit (3) 29.3 31.1 33.7 (7.7)%
----------------------------- ------------- ----------------- ----------------- -----------------
Adjusted operating profit
margin % (3) 11.1% 11.8% 13.4% (1.6)% pts
----------------------------- ------------- ----------------- ----------------- -----------------
Basis of preparation
IFRS 16
Following the adoption of IFRS 16 'Leases' with effect from 1
June 2019, the Group has adopted the accounting standard using the
modified retrospective approach to transition and has accordingly
not restated prior years; consequently the results for the year
ended 31 May 2020 are not directly comparable with those reported
under the previous applicable accounting standard, IAS 17
'Leases'.
On this basis, to provide meaningful comparatives, the results
for the year ended 31 May 2020 have therefore also been presented
on a like-for-like IAS 17 basis ('Pre-IFRS 16'). This Alternative
Performance Measure (APM) will be presented for one year until the
comparatives also include the adoption of IFRS 16. The net impact
of IFRS 16 is to decrease statutory and adjusted operating profit
by GBP1.8m and reduce statutory and adjusted profit before taxation
by GBP3.0m.
Alternative Performance Measures (APMs)
Throughout this Financial Review, other APMs are presented as
well as statutory measures and these measures are consistent with
prior years. This presentation is also consistent with the way that
financial performance is measured by management, is 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 APMs (3)
to statutory information is shown below:
Profit Profit
2020 (IFRS 16) Depreciation Operating before from continuing
Continuing Revenue Gross profit EBITDA and amortisation profit taxation Taxation operations
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------------ ------ ---------------- --------- ---------- ----------
Adjusted 263.7 104.4 45.4 (16.1) 29.3 26.3 (6.3) 20.0
Share based
payments - - (1.4) - (1.4) (1.4) (0.2) (1.6)
Amortisation of
acquired
intangibles - - - (8.8) (8.8) (8.8) 2.1 (6.7)
Statutory 263.7 104.4 44.0 (24.9) 19.1 16.1 (4.4) 11.7
---------------- ------- ------------ ------ ---------------- --------- ---------- ---------- ----------------
2020 (Pre-IFRS Profit Profit
16) Depreciation Operating before from continuing
Continuing Revenue Gross profit EBITDA and amortisation profit taxation Taxation operations
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------------ ------ ---------------- --------- ---------- ----------
Adjusted 263.7 104.4 41.2 (10.1) 31.1 29.3 (6.9) 22.4
Share based
payments - - (1.4) - (1.4) (1.4) (0.2) (1.6)
Amortisation of
acquired
intangibles - - - (8.8) (8.8) (8.8) 2.1 (6.7)
Statutory 263.7 104.4 39.8 (18.9) 20.9 19.1 (5.0) 14.1
---------------- ------- ------------ ------ ---------------- --------- ---------- ---------- ----------------
2019 (Pre-IFRS Profit Profit
16) Depreciation Operating before from continuing
Continuing Revenue Gross 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
----------------- ------- ------------ ------ ----------------- --------- ---------- -------- ----------------
See Note 1 for a detailed reconciliation of the Pre-IFRS 16
performance and the Glossary of terms for APMs to the equivalent
IFRS measures.
During the year, management has reviewed the application of APMs
and have considered ongoing FRC and ESMA best practice guidance in
this area. Accordingly, management has concluded that for future
accounting periods, share based payments and amortisation of
acquired intangibles, which are currently presented as adjusting
items, should be included within underlying results. The decision
to adopt this presentation for future reporting periods rather than
in the current reporting period is because the implementation of
IFRS 16 in the year (which does not require the restatement of 2019
comparatives) means that the FY20 results are not on a
like-for-like basis with 2019, and management considers that it
would be very difficult to understand the true, underlying
performance of the Group if this presentational change to the
Income statement was made in the current reporting period. The
impact of this proposal in future reporting periods will be a
reduction in adjusted measures. To illustrate this, the income
statement for the year ended 31 May 2020 has been shown below under
the proposed basis:
GBPm
2020 2020
(IFRS 16) (IFRS 16)
Proposed basis As currently
reported Variance
---------------- -------------
Revenue 263.7 263.7 -
Cost of sales (159.3) (159.3) -
------------------------------ ---------------- ------------- --------
Gross profit 104.4 104.4 -
Administrative expenses:
Depreciation and amortisation (24.9) (16.1) (8.8)
Other administration expenses (60.4) (59.0) (1.4)
------------------------------ ---------------- ------------- --------
Total administrative expenses (85.3) (75.1) (10.2)
------------------------------ ---------------- ------------- --------
Adjusted (3) operating profit 19.1 29.3 (10.2)
Adjusting items - (10.2) 10.2
------------------------------ ---------------- ------------- --------
Statutory operating profit 19.1 19.1 -
------------------------------ ---------------- ------------- --------
Divisional performance
Divisional performance includes the allocation of certain
central costs incurred on behalf of the divisions. Segmental
information is disclosed below:
2020 (IFRS 16) 2019 (Pre-IFRS 16)
Software Central Software Central
Resilience and head Resilience and head
Assurance (Escrow) office Group Assurance (Escrow) office Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------- ---------- --------- ------- --------- ------------- --------- -------
Revenue 226.2 37.5 - 263.7 212.7 38.0 - 250.7
Cost of sales (149.3) (10.0) - (159.3) (139.2) (9.7) - (148.9)
--------------- --------- ---------- --------- ------- --------- ------------- --------- -------
Gross profit 76.9 27.5 - 104.4 73.5 28.3 - 101.8
Gross margin % 34.0% 73.3% - 39.6% 34.6% 74.5% - 40.6%
Administrative
expenses
(2) (43.9) (10.0) (5.1) (59.0) (45.4) (9.3) (3.4) (58.1)
--------------- --------- ---------- --------- ------- --------- ------------- --------- -------
Adjusted EBITDA
(3) 33.0 17.5 (5.1) 45.4 28.1 19.0 (3.4) 43.7
Depreciation
and
amortisation (10.7) (0.6) (4.8) (16.1) (5.5) - (4.5) (10.0)
--------------- --------- ---------- --------- ------- --------- ------------- --------- -------
Adjusted
operating
profit
(3) 22.3 16.9 (9.9) 29.3 22.6 19.0 (7.9) 33.7
Adjusted
operating
profit
% 9.9% 45.1% - 11.1% 10.6% 50.0% - 13.4%
--------------- --------- ---------- --------- ------- --------- ------------- --------- -------
Assurance
The Assurance division accounts for 85.8% of Group revenue
(2019: 84.8%) and 73.7% of Group gross profit (2019: 72.2%).
Assurance revenue analysis - by originating country:
2020 2019
(IFRS 16) (Pre-IFRS Reported
16) %
GBPm GBPm change
------------------------ ---------- ---------- ---------
UK 91.5 88.9 2.9%
North America 82.4 75.5 9.1%
Europe and APAC 52.3 48.3 8.3%
---------
Total Assurance revenue 226.2 212.7 6.3%
------------------------ ---------- ---------- ---------
As noted above, global Assurance revenue in the year increased
by 6.3% to GBP226.2m (2019: GBP212.7m) despite an estimated GBP15m
of sales order delivery being cancelled or delayed as a result of
Covid-19, without which the division would have achieved double
digit sales growth.
In the year, UK revenues increased by 2.9% to GBP91.5m (2019:
GBP88.9m) as sales growth flattened in the second half of the year
due to Covid-19. North America has continued strong revenue growth
of 9.1% to GBP82.4m (2019: GBP75.5m), with double digit growth up
to and including Q3 being curtailed by delays and cancellations due
to Covid-19.
Assurance Europe and APAC was impacted by a slow first quarter
but still achieved growth of 8.3% to GBP52.3m (2019: GBP48.3m).
Value-based selling within our Assurance services remains a
priority and this is demonstrated by average order values
increasing during the year.
Assurance revenue analysed by type service/product line:
2020 2019
(IFRS 16) (Pre-IFRS Reported
16) %
GBPm GBPm change
------------------------------------- ------------ ---------- ---------
Technical Security Consulting (TSC) 145.6 134.8 8.0%
Risk Management Consulting (RMC) 28.7 35.3 (18.7)%
Managed Detection and Response (MDR) 41.4 36.4 13.7%
Product sales (own and third party) 10.5 6.2 69.4%
---------
Total Assurance revenue 226.2 212.7 6.3%
------------------------------------- ------------ ---------- ---------
Technical Security Consulting, our core professional service,
continued to grow by 8.0% to GBP145.6m (2019: GBP134.8m) as a
result of continued strong growth supported by global resourcing
with varied timing of Covid-19 felt across geographies. Our global
average order value increased by 16.9% compared to 2019.
Risk Management Consulting, a service that addresses the
business risks of cyber, declined by 18.7% to GBP28.7m (2019:
GBP35.3m), with revenue falling across all regions. Work is
underway to clarify our offer and support our sales teams in order
to return this service line to growth.
Managed Detection and Response, a service line that provides
operational cyber defence and managed security services, grew by a
pleasing 13.7% to GBP41.4m (2019: GBP36.4m) with our order book
growing to GBP62.0m (2019: GBP49.9m). This service line scales with
less people-intensity than our professional services business lines
and MDR engagements tend to be contracted for a longer duration
which adds stability to our forward order book. Management believes
that our global platform is well-placed to help customers navigate
an environment of increasing threats and rising technology
requirements; we are therefore focused on continuing the rapid
growth of this service line.
The increase of 69.4% in product sales is mainly due high
assurance products in Europe and APAC.
Assurance gross profit is analysed as follows:
2020 2020 2019 2019
(IFRS 16) (IFRS 16) (Pre-IFRS (Pre-IFRS
16) 16) Reported
GBPm % margin GBPm % margin ppts change
----------------------- ----------------- ---------- ---------- ---------- ------------
UK 33.5 36.6% 31.0 34.9% 1.7% pts
North America 25.9 31.4% 25.3 33.5% (2.1)% pts
Europe & APAC 17.5 33.5% 17.2 35.6% (2.1)% pts
------------
Assurance gross profit
and % margin 76.9 34.0% 73.5 34.6% (0.6)% pts
----------------------- ----------------- ---------- ---------- ---------- ------------
Gross margin declined by 0.6% pts as a result of continued
investment in technical and sales colleagues with utilisation
reducing to 71.2% (2019: 75.4%) as the Group preserved its
technical capacity. The reduction in adjusted operating profit (3)
of 1.3% to GBP22.3m (2019: GBP22.6m) was driven by the ongoing
investment in sales and technical talent. Accordingly, adjusted
operating profit (3) margin decreased to 9.9% (2019: 10.6%).
Software Resilience (Escrow)
The Software Resilience (Escrow) division accounts for 14.2% of
Group revenues (2019: 15.2%) and 26.3% of Group gross profit (2019:
27.8%).
Software Resilience (Escrow) revenue analysis - by originating
country:
2020 2019
(IFRS 16) (Pre-IFRS Reported
16) %
GBPm GBPm change
------------------------------------------- ---------- ---------- --------
UK 25.9 26.0 (0.4)%
North America 7.8 8.3 (6.0)%
Europe and APAC 3.8 3.7 2.7%
------------------------------------------- ---------- ---------- --------
Total Software Resilience (Escrow) revenue 37.5 38.0 (1.3)%
------------------------------------------- ---------- ---------- --------
Our overall performance gave rise to a flat H2 sales performance
demonstrating momentum, with our cloud proposition generating sales
orders of c. GBP1.2m and revenue of GBP0.5m (2019: GBP0.2m). Our
proposition continues to create opportunities, with increasing
demand materialising as clients seek to improve their
resilience.
Our UK operations grew in H2 2020 by 2.3%, which is our largest
element of our business, underpinning the return to sustainable
growth. North America declined by 6.0% due to the impact of
Covid-19 and also higher verification project revenues in FY19.
During the year, the Group launched its partner program to the
Independent Software Vendor (ISV) segment and co-developed with
Azure a digital vault to enable rapid global compliant escrow
services of multi-jurisdiction data.
Our global renewal rates declined to 87.0% (2019: 89.6%)
although this was within management expectations following the
integration of the sales teams under a new Global MD, with the
focus now on stabilisation.
Software Resilience (Escrow) revenues analysed by service
line:
Software Resilience (Escrow) services revenue 2020 2019
(IFRS 16) (Pre-IFRS Reported
16) %
GBPm GBPm change
---------------------------------------------- ---------- ---------- --------
Software Resilience (Escrow) contracts 25.8 26.5 (2.6)%
Verification services 11.7 11.5 1.7%
Total Software Resilience (Escrow) revenue 37.5 38.0 (1.3)%
---------------------------------------------- ---------- ---------- --------
Our contract revenue had negligible impact from Covid-19 with
the stabilised base growing by 1.6% from H1 2020 to H2 2020.
Verification services grew 1.7% to GBP11.7m despite lower volume in
North America. Significant verification revenue is under
contract.
Gross margin is analysed as follows:
2020 2020 2019 2019
(IFRS 16) (IFRS 16) (Pre-IFRS (Pre-IFRS Reported
16) 16) %
GBPm % margin GBPm % margin pts change
----------------------------- ----------------- ---------- ---------- ---------- ------------
UK 19.5 75.3% 19.7 75.8% (0.5)% pts
North America 5.3 67.9% 5.7 68.7% (0.8)% pts
Europe and APAC 2.7 71.1% 2.9 78.4% (7.3)% pts
------------
Software Resilience (Escrow)
gross profit and % margin 27.5 73.3% 28.3 74.5% (1.2)% pts
----------------------------- ----------------- ---------- ---------- ---------- ------------
Software Resilience (Escrow) gross margin decreased by 1.2%pts
to 73.3% (2019: 74.5%). Overheads have increased due to the
investment in sales and operational management to return the
division to growth, the first signs of which are apparent in the H2
performance, and depreciation and amortisation. These factors gave
rise to a reduced adjusted operating profit (3) of GBP16.9m (2019:
GBP19.0m).
Cash flow and net debt (3)
The table below summarises the Group's cash flow and net debt
(3) :
2020 2020 2019
(Pre-IFRS (Pre-IFRS
(IFRS 16) 16) 16)
GBPm GBPm GBPm
---------------------------------------------------- -------------------- -------------------- -----------
Operating cash inflow before movements in
working capital 46.7 40.2 41.3
(Increase)/decrease in trade and other receivables (11.0) (11.0) 6.0
(Increase)/decrease in inventories (0.2) (0.2) 0.1
Increase in trade and other payables 19.2 19.2 0.5
---------------------------------------------------- -------------------- -------------------- -----------
Cash generated from operating activities
before interest and taxation 54.7 48.2 47.9
Interest element of lease payments (1.2) - -
Finance interest paid (1.6) (1.6) (1.7)
Taxation paid (4.8) (4.8) (6.4)
---------------------------------------------------- -------------------- -------------------- -----------
Net cash generated from operating activities 47.1 41.8 39.8
Plant and equipment (2.8) (2.8) (3.0)
Software and development (10.4) (10.4) (6.1)
Acquisitions - - (10.9)
Net proceeds from business disposals (including
cash disposed) - - 1.8
Dividends paid (12.9) (12.9) (12.9)
Principal element of lease payments (5.3) - -
Share issues 1.1 1.1 0.3
---------------------------------------------------- -------------------- -------------------- -----------
Net movement 16.8 16.8 9.0
Opening net debt (Pre-IFRS 16) (3) (20.2) (20.2) (27.8)
Non cash movements (release of deferred issue
costs) (0.2) (0.2) -
Foreign exchange (0.6) (0.6) (1.4)
---------------------------------------------------- -------------------- -------------------- -----------
Closing net debt (Pre-IFRS 16) (3) (4.2) (4.2) (20.2)
---------------------------------------------------- -------------------- -------------------- -----------
Lease liabilities (38.2)
---------------------------------------------------- --------------------
Closing net debt (IFRS 16) (42.4)
---------------------------------------------------- --------------------
Free cashflow (net cash generated from operating
activities less capital expenditure) 33.9 28.6 30.7
---------------------------------------------------- -------------------- -------------------- -----------
Net debt (3) can be reconciled as follows:
2020 2019
(IFRS 16) (Pre-IFRS
16)
GBPm GBPm
----------------------------------------------------- ----------- -----------
Cash and cash equivalents 95.0 34.9
Borrowings (net of deferred issue costs of GBP0.8m) (99.2) (55.1)
-----------------------------------------------------
Net debt (Pre-IFRS 16) (4.2) (20.2)
----------------------------------------------------- ----------- -----------
Lease liabilities (38.2)
----------------------------------------------------- -----------
Net debt (IFRS 16) (42.4)
----------------------------------------------------- -----------
Net debt reduced on a like-for-like basis (3) to GBP4.2m,
including cash balances of GBP95.0m (2019: GBP34.9m) following the
full draw down of our revolving credit facility in April 2020 to
provide the Group with maximum cash flexibility.
On a reported basis, the Group generated GBP54.7m of cash from
operating activities before interest and taxation (2019: GBP47.9m),
an increase of 14.2% (on a like-for-like basis, an increase of
0.6%). 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:
2020 2020 2019
Like-for-like
(Pre-IFRS (Pre-IFRS change (Pre-IFRS
(IFRS 16) 16) 16) 16)
GBPm GBPm GBPm GBPm
--------------------------------------- ----------- ----------- ----------- ------------------
Net operating cash flow before
interest and taxation (A) 54.7 48.2 47.9 0.6%
Adjusted EBITDA (3) (B) 45.4 41.2 43.7 (5.7)%
--------------------------------------- ----------- ----------- ----------- ------------------
Cash conversion ratio (3) (%) (A)/(B) 120.5% 117.0% 109.6% 7.4% pts
--------------------------------------- ----------- ----------- ----------- ------------------
As at 31 May 2020, the Group had a timing benefit of GBP4.6m
from government payment deferral schemes, of which GBP3.4m related
to indirect taxes and GBP1.2m to corporation tax. If the benefit of
the GBP3.4m relating to indirect taxes is excluded from the above
calculations the cash conversion ratios on an IFRS 16 and pre-IFRS
16 basis would be 113.0% and 108.7% respectively. This timing
benefit will reverse in the year ending 31 May 2021.
During the year, the Group has improved its working capital
management, in particular trade and other payables is due to
effective cash management.
Cash conversion (3) for FY21 is still expected to normalise and
is targeted at c.85% over the medium term.
The decrease in tax paid is mainly due to the deferral of
GBP1.2m under government tax deferral schemes.
Net capital cash expenditure during the year was GBP13.2m (2019:
GBP9.1m) which includes tangible expenditure of GBP2.8m (2019:
GBP3.0m) and capitalised software and development costs of GBP10.4m
(2019: GBP6.1m), which have increased due to the implementation
costs of new systems as part of the SGT programme. Additional cash
capital expenditure will be incurred during 2021 as we finish the
installation of our new systems.
Adjusting items (3)
Pre-tax adjusting items are set out below:
2020 2019
(Pre-IFRS
(IFRS 16) 16)
GBPm GBPm
------------------------------------- ---------- ----------
Individually significant items - 3.6
Share based payments 1.4 1.7
Amortisation of acquired intangibles 8.8 9.0
Profit on disposal of investments - (0.1)
Total pre-tax adjusting items 10.2 14.2
------------------------------------- ---------- ----------
During the year, the Group has incurred no individually
significant items (ISIs) (2019: GBP3.6m).
As noted above and in accordance with FRC and ESMA guidance,
management have concluded that for future accounting periods, share
based payments and amortisation of acquired intangibles will be
reclassified under statutory performance, reducing the number of
adjusted measures.
Net finance costs
On a like-for-like basis, statutory finance costs for the year
were GBP1.8m compared to GBP1.7m in 2019. On an IFRS 16 basis, net
finance costs also include lease interest costs of GBP1.2m, giving
rise to total statutory finance costs of GBP3.0m (2019:
GBP1.7m).
Taxation
The Group's adjusted (2, 3) effective tax rate is 23.5% (2019:
20.3%). On a statutory basis, the effective tax rate is 27.3%
(2019: 24.2%).
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 29% (Federal and State
combined) for the year to 31 May 2020. During the year the Group
has recognised an additional provision of GBP0.8m against a
deferred tax asset in relation to US R&D tax credits.
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 this framework.
Earnings per share (EPS)
2020 2020 2019
(IFRS 16) (Pre-IFRS (Pre-IFRS
16) 16)
pence pence pence
---------------------- ---------- ---------- ----------
Statutory earnings
Basic EPS 4.2p 5.1p 4.9p
Diluted EPS 4.2p 5.0p 4.8p
Adjusted earnings (3)
Basic EPS 7.2p 8.1p 9.2p
Diluted EPS 7.1p 8.0p 9.1p
---------------------- ---------- ---------- ----------
On a like-for-like basis, pre-IFRS 16, basic adjusted EPS (3)
was 8.3p (2019: 9.2p) and on a statutory basis it was 5.1p (2019:
4.9p).
Dividends
Dividends of GBP12.9m paid in the year (2019: GBP12.9m)
comprised the final dividend for 2019 of 3.15p and the interim
dividend for 2020 of 1.50p.
Given the confidence we have in our continued profitability and
cash generation we are recommending an unchanged final dividend of
3.15p (2019: 3.15p) per ordinary share making a total for the year
of 4.65p ( 2019: 4.65p), with our dividend policy remaining under
review.
The final dividend will be paid on 6 November 2020, subject to
approval at the AGM on 20 October 2020, to shareholders on the
register at the close of business on 9 October 2020. The
ex-dividend date is 8 October 2020.
Financing facilities
The Group is financed through a combination of bank facilities,
retained profits and equity.
As at 31 May 2020, the Group had committed bank facilities
(revolving credit facility) of GBP100.0m (2019: GBP97.8m), of which
GBP100.0m (2019: GBP55.1m) had been drawn under these facilities
following the full drawn down of our facility in April 2020 to
provide the Group with maximum cash flexibility. These arrangements
were agreed in June 2019 and are due for renewal in June 2024.
Under these arrangements the Group can also request an additional
accordion facility to increase the total size of the revolving
credit facility by up to GBP75m.
On our banking covenants, leverage (4) as at 31 May 2020
amounted to 0.1x (2019: 0.5x) and net interest cover (4) amounted
to 22.7x (2019: 24.6x). The Group was in compliance with the terms
of all its facilities, including the financial covenants, at 31 May
2020 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 excludes IFRS 16 lease liabilities.
Going concern
The Group's activities, together with the factors likely to
affect its future development, performance and position, are set
out in the business review. Our financial position, cash and
borrowing facilities are described within this Financial
Review.
The Directors have acknowledged "Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting",
published in September 2014, and also the Covid-19 Thematic Review
published by the Financial Reporting Council in July 2020.
The Financial Statements have been prepared on a going concern
basis which the Directors consider to be appropriate for the
following reasons.
The Directors have prepared cash flow and covenant compliance
forecasts to the period to the end of September 2021 which indicate
that, taking account of reasonably possible downsides and the
anticipated impact of Covid-19 on the operations and its financial
resources, the Group and Company will have sufficient funds to meet
its liabilities as they fall due for that period.
The Group is financed primarily by a GBP100m revolving credit
facility, further details of which are disclosed in Note 7 to the
Condensed Financial Statements. The Group is required to comply
with financial covenants for leverage (net debt to Adjusted EBITDA
(3) ) and interest cover (Adjusted EBITDA (3) to interest charge)
which are tested bi-annually at 31 May and 30 November each year.
In April 2020, the Group drew down the entire available funds of
GBP100m under this RCF facility in order to provide maximum cash
flexibility during the Covid-19 crisis.
Although the Group has demonstrated resilience to the
challenging environment resulting from Covid-19, the Directors
acknowledge that the financial performance of the Group was
adversely impacted during the last quarter of the year ended 31 May
2020, and for this reason the base case budget for FY21 reflects
the assumption of a continued impact from Covid-19 on Group
revenues up until November 2020 at a similar level to that
experienced in the last quarter of FY20.
The Directors have prepared a number of severe but potentially
plausible scenarios, which are based on the financial impact of the
Group's principal risks and uncertainties as follows:
-- Loss of revenue from June 2020 resulting from the ineffective
execution of the business strategy
-- Loss of revenue from June 2020 arising from the failure of
critical systems, failure, leading to inability to provide services
to customers
-- A fine of 4% of revenue and additional loss of revenue
arising from the failure to maintain control over
commercial/customer data
-- A further Covid-19 impact representing a further decline in
revenues over and above the impact already reflected in the base
case budget
These scenarios have been modelled individually and also in
combination in order to assess the Group's ability to withstand
multiple challenges, although the Directors do not believe a
scenario combining these risks to be plausible. The impact of these
sensitivities has been reviewed against the Group's projected cash
flow position, available bank facilities and compliance with
financial covenants. Should these occur, mitigating actions would
be required to ensure that the Group remains liquid and financially
viable, which include a reduction of planned capital expenditure,
headcount reduction, freezing pay and recruitment and not paying a
dividend to shareholders. All mitigating actions are within the
Directors' control. These forecasts, including the severe but
plausible downsides when the mitigating actions are included, show
that the Group is able to operate within the level of the banking
facilities, with no forecasted covenant breaches and that the Group
will have sufficient funds to meets its liabilities as they fall
due for that period.
Having reviewed the current performance, forecasts, debt
servicing requirements, total facilities and risks, the Directors
are confident that the Company and the Group have sufficient funds
to continue to meet their liabilities as they fall due for a period
of at least 12 months from the date of approval of these financial
statements. Accordingly, they continue to adopt the going concern
basis of accounting in preparing the Group's financial statements
for the year ended 31 May 2020.
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
-- Global pandemic - Covid-19
-- Availability of critical information systems
-- Attracting and retaining appropriate staff capacity and capability
-- Cyber risk (including data protection)
-- Quality of management information systems and internal business processes
-- Quality and security management systems
-- Brexit (as noted below)
Brexit
The United Kingdom formally departed the European Union and
became a third country on the basis of the ratified Withdrawal
Agreement on 31 January 2020. Until the end of the transition
period on 31 December 2020, current rules and regulations continue
to apply while the UK and the EU negotiate their future
relationship.
Until a future UK-EU trade agreement is agreed, there is
continuing uncertainty for businesses operating in the UK and
across borders. This will likely continue until the end of the
transition period on 31 December 2020.
NCC Group and its subsidiaries continue their planning through
their Brexit Steering Group, which meets regularly. As the Group's
operations around the world include business entities based in
continental Europe we believe NCC Group is structurally resilient
to any future disruptions caused by the next phase of Brexit. The
main risks to the UK business are:
-- Any reduction in demand from an economic slowdown
-- Real or perceived differences in data protection standards,
and possibly additional rules and regulations, which impact the
Group's 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 ended
31 May 2020. Certain parts thereof are not included within this
announcement.
We confirm that to the best of our knowledge:
-- The 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 is approved and authorised for issue on behalf
of the Board on 3 September 2020 by:
Adam Palser Tim Kowalski
Chief Executive Officer Chief Financial Officer
Consolidated income statement
For the year ended 31 May 2020
2020 (2) 2019 (2)
------------------------------- ------------------------------
Adjusting
Adjusted Adjusting Adjusted items
(3) items (3) Statutory (3) (3) Statutory
Notes GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----- -------- ---------- --------- -------- --------- ---------
Revenue 3 263.7 - 263.7 250.7 - 250.7
Cost of sales 3 (159.3) - (159.3) (148.9) - (148.9)
Gross profit 3 104.4 - 104.4 101.8 - 101.8
Administrative expenses
(3) 3
Depreciation and amortisation (16.1) (8.8) (24.9) (10.0) (9.0) (19.0)
Other administrative
expenses (59.0) (1.4) (60.4) (58.1) (5.2) (63.3)
--------------------------------- ----- -------- ---------- --------- -------- --------- ---------
Total administrative
expenses (75.1) (10.2) (85.3) (68.1) (14.2) (82.3)
--------------------------------- ----- -------- ---------- --------- -------- --------- ---------
Operating profit 3 29.3 (10.2) 19.1 33.7 (14.2) 19.5
Net finance costs (3.0) - (3.0) (1.7) - (1.7)
--------------------------------- ----- -------- ---------- --------- -------- --------- ---------
Profit before taxation 26.3 (10.2) 16.1 32.0 (14.2) 17.8
Taxation (6.3) 1.9 (4.4) (6.5) 2.2 (4.3)
--------------------------------- ----- -------- ---------- --------- -------- --------- ---------
Profit for the year attributable
to the owners of the
Company 20.0 (8.3) 11.7 25.5 (12.0) 13.5
--------------------------------- ----- -------- ---------- --------- -------- --------- ---------
Earnings per ordinary
share 5
Basic EPS 4.2p 4.9p
Diluted EPS 4.2p 4.8p
--------------------------------- ----- -------- ---------- --------- -------- --------- ---------
Consolidated statement of comprehensive income
For the year ended 31 May 2020
2020 (2) 2019 (2)
GBPm GBPm
------------------------------------------------------------------ -------- --------
Profit for the year attributable to the owners of the Company 11.7 13.5
------------------------------------------------------------------ -------- --------
Other comprehensive income
Items that may be reclassified subsequently to profit or
loss (net of tax)
Foreign exchange translation differences 4.0 1.5
------------------------------------------------------------------ -------- --------
Total comprehensive income for the year (net of tax) attributable
to the owners of the Company 15.7 15.0
------------------------------------------------------------------ -------- --------
Footnotes
1: References to the Group's results are to continuing
operations.
2: See note 1 for further details on the application of IFRS 16
and no restatement of comparative information. The adoption of IFRS
16 in the year ended 31 May 2020 resulted in an increase in
depreciation and amortisation of GBP6.0m and finance costs of
GBP1.2m, with other administration expenses decreasing by
GBP4.2m.
3: See note 2 for an explanation of Alternative Performance
Measures ("APMs") and adjusting items, including 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 (Pre-IFRS 16).
Consolidated balance sheet
For the year ended 31 May 2020
2020 (2) 2019 (2)
Notes GBPm GBPm
-------------------------------------------- ----- -------- --------
Non-current assets
Goodwill 193.1 189.4
Other intangible assets 39.2 41.8
Property, plant and equipment 13.9 16.9
Right-of-use assets 6 28.7 -
Investments 0.3 0.3
Deferred tax asset 0.5 1.1
Total non-current assets 275.7 249.5
-------------------------------------------- ----- -------- --------
Current assets
Inventories 0.9 0.7
Trade and other receivables 73.2 61.6
Current tax receivable 0.6 0.6
Cash and cash equivalents 95.0 34.9
Total current assets 169.7 97.8
-------------------------------------------- ----- -------- --------
Total assets 445.4 347.3
-------------------------------------------- ----- -------- --------
Current liabilities
Trade and other payables 46.4 31.6
Borrowings 7 - 5.0
Lease liabilities 6 5.3 -
Provisions 2.0 2.7
Contract liabilities - deferred revenue 39.5 36.2
Total current liabilities 93.2 75.5
-------------------------------------------- ----- -------- --------
Non-current liabilities
Borrowings 7 99.2 50.1
Lease liabilities 6 32.9 -
Deferred tax liability 2.9 5.4
Provisions 1.7 5.5
Contract liabilities - deferred revenue 1.4 -
Total non-current liabilities 138.1 61.0
-------------------------------------------- ----- -------- --------
Total liabilities 231.3 136.5
-------------------------------------------- ----- -------- --------
Net assets 214.1 210.8
-------------------------------------------- ----- -------- --------
Equity
Issued capital 2.8 2.8
Share premium 150.9 149.8
Merger reserve 42.3 42.3
Currency translation reserve 31.9 27.9
Retained earnings (13.8) (12.0)
Total equity attributable to equity holders
of the parent 214.1 210.8
-------------------------------------------- ----- -------- --------
These financial statements were approved by the Board of
Directors on 3 September 2020 and were signed on its behalf by:
Adam Palser Tim Kowalski
Chief Executive Officer Chief Financial Officer
Consolidated cash flow statement
For the year ended 31 May 2020
2020 (2) 2019 (2)
Cashflow from operating activities Notes GBPm GBPm
---------------------------------------------------- ----- -------- --------
Profit for the year 11.7 13.5
Adjustments for:
Depreciation of property, plant and equipment 5.8 5.6
Depreciation of right of use assets 6.0 -
Share-based payments 1.4 1.7
Amortisation of acquired intangible assets 8.8 9.0
Amortisation of internally developed intangible
assets and software 4.4 4.4
Impairment of right of use assets 1.1 -
Lease financing costs 1.2 -
Net other financing costs 1.8 1.7
Foreign exchange - 0.2
Individually Significant Items (non-cash impact) - 3.6
Profit on disposal of investments - (0.1)
Profit on disposal of right of use assets (0.1) -
Loss on sale of plant and equipment - 0.2
Research and development tax credits (0.6) (0.3)
Income tax expense 4.4 4.3
Decrease in provisions 0.8 (2.5)
Cash inflow for the year before changes in
working capital 46.7 41.3
---------------------------------------------------- ----- -------- --------
(Increase)/decrease in trade and other receivables (11.0) 6.0
(Increase)/decrease in inventories (0.2) 0.1
Increase in trade and other payables 19.2 0.5
---------------------------------------------------- ----- -------- --------
Cash generated from operating activities before
interest and taxation 54.7 47.9
Interest element of lease payments (1.2) -
Other interest paid (1.6) (1.7)
Taxation paid (4.8) (6.4)
---------------------------------------------------- ----- -------- --------
Net cash generated from operating activities 47.1 39.8
Cash flows from investing activities
Purchase of property, plant and equipment (2.8) (3.0)
Software and development expenditure (10.4) (6.1)
Acquisition of businesses - (10.9)
Net proceeds from sale of subsidiaries and
investments - 1.8
---------------------------------------------------- ----- -------- --------
Net cash used in investing activities (13.2) (18.2)
Cash flows from financing activities
Proceeds from the issue of ordinary share capital 1.1 0.3
Principal element of lease payments (5.3) -
Drawdown of borrowings 44.3 13.0
Issue costs related to borrowings (1.0) -
Repayment of borrowings - (8.6)
Equity dividends paid 4 (12.9) (12.9)
---------------------------------------------------- ----- -------- --------
Net cash generated/(used) from financing activities 26.2 (8.2)
---------------------------------------------------- ----- -------- --------
Net increase in cash and cash equivalents 60.1 13.4
---------------------------------------------------- ----- -------- --------
Cash and cash equivalents at beginning of year 34.9 21.2
Effect of foreign currency exchange rate changes - 0.3
Cash and cash equivalents at end of year 95.0 34.9
---------------------------------------------------- ----- -------- --------
Reconciliation of net change in cash and cash equivalents to
movement in net debt (2)
2020 (2) 2019 (2)
Notes GBPm GBPm
---------------------------------------------- ----- -------- --------
Net increase in cash and cash equivalents 60.1 13.4
Change in net debt resulting from cash flows
(net of deferred issue costs) (43.3) (4.4)
Non-cash movements (release of deferred issue
costs) (0.2) -
Effect of foreign currency on cash flows - 0.3
Foreign currency translation differences on
borrowings (0.6) (1.7)
Change in net debt (2) during the year 16.0 7.6
---------------------------------------------- ----- -------- --------
Net debt (2) at start of year (Pre IFRS 16) (20.2) (27.8)
---------------------------------------------- ----- -------- --------
Net debt (2) at end of year (Pre IFRS 16) (4.2) (20.2)
---------------------------------------------- ----- -------- --------
Lease liabilities 6 (38.2)
---------------------------------------------- ----- --------
Net debt (2) at end of year (IFRS 16) (42.4)
---------------------------------------------- ----- --------
Consolidated statement of changes in equity
For the year ended 31 May 2020
Currency
Share Share Premium Merger Reserve Translation Retained
Capital Reserve Earnings
Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- --------------- ---------------- ------------ ---------- -------
Balance at 1 June 2019 2.8 149.8 42.3 27.9 (12.0) 210.8
--------------------------------- --------- --------------- ---------------- ------------ ---------- -------
Impact of change in accounting
policies in respect of IFRS
16 (net of tax) (note 1) - - - - (2.0) (2.0)
Adjusted balance at 1 June
2020 2.8 149.8 42.3 27.9 (14.0) 208.8
Profit for the year - - - - 11.7 11.7
Foreign currency
translation differences - - - 4.0 - 4.0
--------------------------------- --------- --------------- ---------------- ------------ ---------- -------
Total comprehensive income
for the year - - - 4.0 11.7 15.7
--------------------------------- --------- --------------- ---------------- ------------ ---------- -------
Transactions with owners
recorded directly in equity
Dividends to equity shareholders - - - - (12.9) (12.9)
Share based payments - - - - 1.4 1.4
Shares issued - 1.1 - - - 1.1
Total contributions by and
distributions to owners - 1.1 - - (11.5) (10.4)
--------------------------------- --------- --------------- ---------------- ------------ ---------- -------
Balance at 31 May 2020 2.8 150.9 42.3 31.9 (13.8) 214.1
--------------------------------- --------- --------------- ---------------- ------------ ---------- -------
Currency
Share Share Premium Merger Reserve Translation Retained
Capital Reserve Earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- --------------- ---------------- ------------ ---------- -------
Balance at 1 June 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 unaudited condensed interim Financial
Statements
1 Accounting policies
Basis of preparation
NCC Group plc (the Company) is a company incorporated in the UK,
with its registered office at XYZ Building, 2 Hardman Boulevard,
Manchester, M3 3AQ. The principal activity of the Group is the
provision of independent global cyber security and resilience
services.
The financial information is derived from the Group's
consolidated financial statements for the year ended 31 May 2020,
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 3 September 2020.
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 May 2020 or 31
May 2019. The financial information for 2019 is derived from the
statutory accounts for 2019 which have been delivered to the
registrar of companies. The auditor has reported on the 2019
accounts; their report was (i) unqualified, (ii) did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006. The statutory accounts for 2020 will be finalised on the
basis of the financial information presented by the directors in
this preliminary announcement and will be delivered to the
registrar of companies in due course.
As required by the Disclosure Guidance and Transparency Rules of
the Financial Services Authority the financial information
contained in this report has been prepared using the accounting
policies and presentation that were applied in the company's
published consolidated financial statements for the year ended 31
May 2019, with the exception of those impacted by the adoption of
IFRS 16 which the Group has adopted with effect from 1 June 2019,
with comparatives remaining under IAS 17 'Leases'. They do not
contain all the information required for full financial statements
and should be read in conjunction with the annual financial
statements for the year ended 31 May 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 notes no changes to
this assessment from a post Balance Sheet event perspective.
Covid-19
Management has reviewed the potential impact of Covid-19 on the
financial statements. Accordingly, consideration has been given to
the impact on the IFRS 9 expected credit loss model, IFRS 15
collectability assessments, IFRS 16 lease term assessments, the
annual impairment review and the Going Concern and viability
assessments.
Application of significant new EU endorsed accounting standard -
IFRS 16 'Leases'
Background and adoption
During the year, the Group adopted IFRS 16 'Leases'. The date of
the initial application of IFRS 16 for the Group is 1 June 2019.
The Group has adopted the accounting standard using the modified
retrospective approach to transition and has accordingly not
restated prior periods. The results for the year ended 31 May 2020
are not directly comparable with those reported under the previous
applicable accounting standard IAS 17 'Leases' and IFRIC 4
'Determining Whether an Arrangement Contains a Lease'. On this
basis, to provide meaningful comparatives, the results for the year
ended 31 May 2020 have therefore also been presented under IAS 17
with the "like-for like" numbers shown on an IAS 17 basis (pre-IFRS
16). This Alternative Performance Measure (APM), will be presented
for one year until the comparatives also include the adoption of
IFRS 16.
In applying the modified retrospective approach the Group has
valued right-of-use assets on a lease by lease basis using the
approach that IFRS 16 had always been applied but using the
incremental borrowing rate at the date of the application.
Implications of IFRS 16 adoption
The implications of IFRS 16 adoption are noted as follows:
-- A number of lease contracts previously disclosed under IAS 17
within the Financial Statements, which gave rise to recurring
expenses within operating expenses, have been recognised on the
Balance Sheet as a "right-of-use asset" for the year ended 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 has also been recognised, increasing
the Group's net debt although the net cash flow profile remains the
same for the Group.
-- The Group has depreciated the right-of-use asset through the
Income Statement over the shorter of the assets' useful lives and
the assessed lease term.
-- The Group has recognised interest on the liability using the
Group's incremental borrowing rate. Interest has been charged to
finance costs.
-- The profile of the overall expense in profit and loss has now
changed, as the interest expense will be more front-loaded compared
to a straight-line operating lease rental expense under IAS 17.
Specifically, management had to conclude on whether a contract
is or contains a lease at the date of transition, with the
following being 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.
-- 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.
-- The applicability of interest rate implicit in the lease or
the Group's incremental borrowing rate.
Following the above assessment, management has concluded that
the following items that were previously classified as operating
leases under IAS 17 have been recognised in the Financial
Statements using the new requirements of IFRS 16:
-- Certain properties
-- Equipment leases
-- Motor vehicles
The Group does not lease any server equipment in relation to the
provision of Software resilience services or have embedded leases
within Assurance service contracts.
Exemptions and practical expedients applied
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- The use of a single discount rate to a portfolio of leases
with reasonably similar characteristics
-- Reliance on previous assessments on whether leases are onerous
-- The accounting for operating leases with a remaining lease
term of less than 12 months as at 1 June 2019 as short-term
leases
-- Right-of-use assets and liabilities for leases of low value
assets (e.g. IT equipment) have not been recognised
-- The exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application
-- The use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease
Transition elections
The Group has offset the previously recognised onerous leases
immediately before transition as opposed to performing an
impairment review under IAS 36.
Impact on covenants and cash flows
The Group renegotiated its banking facilities in June 2019. The
debt covenants on the Group's borrowing facilities have been
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 have not impacted the
interest paid by the Group for its banking facilities. The overall
net cash flow for the Group is also unaffected by IFRS 16, however
the cash flows in the Consolidated Cash Flow Statement are now
split between a principal portion and a finance portion, which are
both presented under financing activities. Previously under IAS 17
the operating lease payments were presented as operating cash
flows.
New accounting policies under IFRS 16
At inception of a contract, the Group assesses whether a
contract is, or contains, a lease. A contract is, or contains, a
lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration. To assess whether a contract conveys the right to
control the use of an identified asset, the Group assesses
whether:
-- The contract involves use of the identified asset; this may
be specified explicitly or implicitly and should be physically
distinct or represent substantially all of the capacity or a
physically distinct asset. If the supplier has a substantive
substitution right, then the asset is not identified.
-- The Group has the right to obtain substantially all of the
economic benefits from use of the asset and throughout the period
of use.
-- The Group has the right to direct the use of the asset. The
Group has this right when it has the decision-making rights that
are most relevant to changing how and for what purpose the asset is
used. In rare cases where all the decisions about how and for what
purpose the asset is used are predetermined, the Group has the
right to direct the use of the asset if either:
o the Group has the right to operate the asset.
o the Group designed the asset in a way that predetermines how
and for what purpose it will be used.
The Group recognises a right-of-use asset and a lease liability
at the lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease
liability adjusted for any lease payments made at or before the
commencement date, and an estimate of costs to dismantle and remove
the underlying asset or to restore the underlying asset or the site
on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the earlier of
the end of the useful life of the right-of-use asset or the end of
lease term. The estimated useful lives of right-of-use assets are
determined on the same basis as those of property, plant and
equipment. In addition, the right-of-use asset is periodically
reduced by impairment losses, if any, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate. The Group has used its incremental borrowing rate
of 3.3% as the discount rate for the calculation of the lease
liabilities on the transition to IFRS 16.
The lease liability is measured at amortised cost using the
effective interest method. It is remeasured when there is a change
in future lease payments arising from a change in an index or rate,
if there is a change in the Group's estimate of the amount expected
to be payable, or if the Group changes its assessment of whether it
will exercise a purchase, extension or termination option.
When the lease liability is remeasured in this way, a
corresponding adjustment is made to the carrying amount of the
right-of-use asset, or is recorded in the Income Statement if the
carrying amount of the right-of-use asset has been reduced to zero.
As noted above, the Group has elected not to recognise right-of-use
assets and lease liabilities for short-term leases that have a
lease term of 12 months or less and leases of low value assets,
including certain IT equipment. The Group recognises the lease
payments associated with these leases as an expense on a
straight-line basis over the lease term.
This policy is now applied to contracts entered into, or
changed, on or after 1 June 2019.
Other judgements
Lease term
The lease term is a key judgement into calculating the lease
liability under IFRS 16. Management considers it appropriate to
initially set a lease term equal to the contractual term of the
lease. The lease term is reassessed only in specific circumstances,
for example where management makes the decision to renew a lease or
exercise a break clause. Similarly, the group has a number of
leases which contain an option to extend the term of these lease,
in these circumstances the extension period is only taken into
account in assessing the lease term if management considers it
highly likely that the option to extend the lease will be
exercised.
Summary of financial impact on consolidated Financial
Statements
The application of this standard has had a significant impact on
the Group's consolidated Financial Statements for the year ended 31
May 2020 as follows:
Consolidated Income Statement financial impact:
ROU asset
2020 impairment 2020
Rent and GBPm
finance (Pre-IFRS
(IFRS 16) costs Depreciation Taxation 16)
Statutory Notes GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ----- ----------- -------- ---------- ------------- --------- -----------
Revenue 263.7 - - - - 263.7
Cost of sales (159.3) - - - - (159.3)
Gross profit 104.4 - - - - 104.4
Administrative expenses:
* Depreciation and amortisation (24.9) - - 6.0 - (18.9)
* Other administrative expenses (60.4) (5.3) 1.1 - - (64.6)
-------------------------------------- ----- ----------- -------- ---------- ------------- --------- -----------
Total administrative
expenses (85.3) (5.3) 1.1 6.0 - (83.5)
-------------------------------------- ----- ----------- -------- ---------- ------------- --------- -----------
Operating profit 19.1 (5.3) 1.1 6.0 - 20.9
Net finance costs (3.0) 1.2 - - - (1.8)
-------------------------------------- ----- ----------- -------- ---------- ------------- --------- -----------
Profit before taxation 16.1 (4.1) 1.1 6.0 - 19.1
Taxation (4.4) - - - (0.6) (5.0)
-------------------------------------- ----- ----------- -------- ---------- ------------- --------- -----------
Profit for the year
attributable to the
owners of the Company 11.7 (4.1) 1.1 6.0 (0.6) 14.1
-------------------------------------- ----- ----------- -------- ---------- ------------- --------- -----------
Earnings per share 5
Basic EPS 4.2p 5.1p
Diluted EPS 4.2p 5.0p
-------------------------------------- ----- ----------- -------- ---------- ------------- --------- -----------
Consolidated Statement of Comprehensive Income financial
impact:
2020 2020
Adjustment
on application
(IFRS of IFRS (Pre-IFRS
16) 16 16)
GBPm GBPm GBPm
------------------------------------------------ ------- --------------- -----------
Total comprehensive income for the year (net of
tax) attributable to the owners of the Company 15.7 2.4 18.1
------------------------------------------------ ------- --------------- -----------
During the year ended 31 May 2020, the following charges arising
from lease arrangements were recognised in the Consolidated Income
Statement:
2020
GBPm
---------------------------------------------- -----
Depreciation of right-of-use assets 6.0
Finance costs - interest on lease liabilities 1.2
Profit on disposal of right-of-use assets (0.1)
Impairment of right-of-use assets 1.1
---------------------------------------------- -----
Consolidated Balance Sheet on transition
2019 2019
Right-of-use Onerous
assets leases and
(Pre-IFRS and liabilities lease incentives
16) on transition offset Taxation (IFRS 16)
GBPm GBPm GBPm GBPm GBPm
-------------------------------- --- ----------- ---------------- ----------------- --------- -----------
Non-current assets
Goodwill 189.4 - - - 189.4
Other intangible assets 41.8 - - - 41.8
Property, plant and equipment 16.9 - - - 16.9
Right-of-use assets - 33.2 (6.7) - 26.5
Investments 0.3 - - - 0.3
Deferred tax assets 1.1 - - 0.5 1.6
Total non-current assets 249.5 33.2 (6.7) 0.5 276.5
------------------------------------- ----------- ---------------- ----------------- --------- -----------
Current assets
Inventories 0.7 - - - 0.7
Trade and other receivables 61.6 - - - 61.6
Current tax receivable 0.6 - - - 0.6
Cash and cash equivalents 34.9 - - - 34.9
Total current assets 97.8 - - - 97.8
------------------------------------- ----------- ---------------- ----------------- --------- -----------
Total assets 347.3 33.2 (6.7) 0.5 374.3
------------------------------------- ----------- ---------------- ----------------- --------- -----------
Current liabilities
Trade and other payables 31.6 - - - 31.6
Borrowings 5.0 - - - 5.0
Lease liabilities - 5.2 - - 5.2
Provisions 2.7 - (2.5) - 0.2
Contract liabilities - deferred
revenue 36.2 - - - 36.2
Total current liabilities 75.5 5.2 (2.5) - 78.2
------------------------------------- ----------- ---------------- ----------------- --------- -----------
Non-current liabilities
Borrowings 50.1 - - - 50.1
Lease liabilities - 30.5 - - 30.5
Deferred tax liability 5.4 - - - 5.4
Provisions 5.5 - (4.2) - 1.3
Total non-current liabilities 61.0 30.5 (4.2) - 87.3
------------------------------------- ----------- ---------------- ----------------- --------- -----------
Total liabilities 136.5 35.7 (6.7) - 165.5
------------------------------------- ----------- ---------------- ----------------- --------- -----------
Net assets 210.8 (2.5) - 0.5 208.8
------------------------------------- ----------- ---------------- ----------------- --------- -----------
Equity
Issued capital 2.8 - - - 2.8
Share premium 149.8 - - - 149.8
Merger reserve 42.3 - - - 42.3
Currency translation reserve 27.9 - - - 27.9
Retained earnings (12.0) (2.5) - 0.5 (14.0)
Total equity attributable
to equity holders of the
parent 210.8 (2.5) - 0.5 208.8
------------------------------------- ----------- ---------------- ----------------- --------- -----------
At 31 May 2019, the Group had GBP35.6m of non-cancellable
operating lease commitments. The difference between the operating
lease commitments disclosed in the Group consolidated Financial
Statements for the year ended 31 May 2019 and the lease liabilities
recognised on the date of transition can be explained as
follows:
2020
GBPm
------------------------------------------------------------------ -----
Undiscounted future minimum lease payments under operating leases
at 31 May 2019 35.6
Short-term leases (1.4)
Increase in minimum lease commitments 6.1
Impact of discounting (6.2)
Other 1.6
IFRS 16 lease liability recognised at 1 June 2019 35.7
------------------------------------------------------------------ -----
The increase in minimum lease commitments relates to leases
where the minimum lease payments disclosed at 31 May 2019 were
calculated by reference to break clauses, but under IFRS 16 have
been calculated using the lease termination date.
Of the lease liability of GBP35.7m recognised at 1 June 2019,
GBP33.6m related to property leases and GBP2.1m relating to other
leases.
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 years where provided. This
presentation is also consistent with the way that financial
performance is measured by management and reported to the Board,
and the basis of financial measures for senior management's
compensation schemes, and provides supplementary information that
assists the user in understanding the financial performance,
position and trends of the Group. At all times, the Group aims to
ensure that the Consolidated financial statements 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.
See below for a 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 EBITDA and adjusted operating
profit (3.)
Adjusting items during the year and prior year are:
-- Individually significant items
-- Share based payments
-- Amortisation of acquisition intangibles
-- Profit on disposal of investment
Reconciliation of adjusted information to statutory
information
The following table includes details of adjusting items and
reconciles adjusted information to statutory information:
Profit Profit
Year ended Gross Depreciation Operating before for the
31 May 2020 (IFRS Revenue profit EBITDA and amortisation profit taxation Taxation year
16) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------- ------- ------ ----------------- --------- --------- ---------- ----------
Adjusted 263.7 104.4 45.4 (16.1) 29.3 26.3 (6.3) 20.0
Share based payments - - (1.4) - (1.4) (1.4) (0.2) (1.6)
Amortisation of
acquired intangibles - - - (8.8) (8.8) (8.8) 2.1 (6.7)
Statutory 263.7 104.4 44.0 (24.9) 19.1 16.1 (4.4) 11.7
----------------------- ------- ------- ------ ----------------- --------- --------- ---------- --------
Profit
Gross Depreciation Operating Profit before for
020 (Pre-IFRS 16) Revenue profit EBITDA and amortisation profit taxation Taxation the year
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------- ------- ------ ----------------- --------- --------------- ---------- ---------
Adjusted 263.7 104.4 41.2 (10.1) 31.1 29.3 (6.9) 22.4
Share based payments - - (1.4) - (1.4) (1.4) (0.2) (1.6)
Amortisation of
acquired intangibles - - - (8.8) (8.8) (8.8) 2.1 (6.7)
---------------------- ------- ------- ------ ----------------- --------- --------------- ---------- ---------
Statutory 263.7 104.4 39.8 (18.9) 20.9 19.1 (5.0) 14.1
---------------------- ------- ------- ------ ----------------- --------- --------------- ---------- ---------
Year ended Gross Operating
Profit Profit
Depreciation before for the
31 May 2019 Revenue profit EBITDA and amortisation profit taxation Taxation year
(Pre-IFRS 16) 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 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
------------------------- ------- ------- ------ ----------------- --------- --------- --------- --------
During the year, management has reviewed the application of
APM's and have considered ongoing FRC and ESMA best practice
guidance in this area. Accordingly, management has concluded that
for future accounting periods, share based payments and
amortisation of acquired intangibles, which are currently presented
as adjusting items, should be included within underlying results.
The decision to adopt this presentation for future reporting
periods rather than in the current reporting period is because the
implementation of IFRS 16 in the year (which does not require the
restatement of 2019 comparatives) means that the FY20 results are
not on a like-for-like basis with 2019, and management considers
that it would be very difficult to understand the true, underlying
performance of the Group if this presentational change to the
income statement was made in the current reporting period. The
impact of this proposal in future reporting periods will be a
reduction in adjusted measures. To illustrate this, the income
statement for the year ended 31 May 2020 has been shown below under
the proposed basis:
GBPm
2020 2020
(IFRS 16) (IFRS 16)
Proposed basis As currently
reported Variance
---------------- -------------
Revenue 263.7 263.7 -
Cost of sales (159.3) (159.3) -
------------------------------ ---------------- ------------- --------
Gross profit 104.4 104.4 -
Administrative expenses:
Depreciation and amortisation (24.9) (16.1) (8.8)
Other administration expenses (60.4) (59.0) (1.4)
------------------------------ ---------------- ------------- --------
Total administrative expenses (85.3) (75.1) (10.2)
------------------------------ ---------------- ------------- --------
Adjusted (3) operating profit 19.1 29.3 (10.2)
Adjusting items - (10.2) 10.2
------------------------------ ---------------- ------------- --------
Statutory operating profit 19.1 19.1 -
------------------------------ ---------------- ------------- --------
Net debt
Net debt (3) is set out below:
2019
2020 (Pre-IFRS
16)
GBPm GBPm
----------------------------------------------------- ------- -----------
Cash and cash equivalents 95.0 34.9
Borrowings (net of deferred issue costs of GBP0.8m) (99.2) (55.1)
Net debt (3) (Pre-IFRS 16) (4.2) (20.2)
----------------------------------------------------- ------- -----------
Lease liabilities (38.2)
----------------------------------------------------- -------
Net debt (3) (IFRS 16) (42.4)
----------------------------------------------------- -------
Cash conversion ratio
The calculation of the cash conversion ratio (3) is set out
below:
2020 2020 2019
(IFRS (Pre-IFRS (Pre-IFRS
16) 16) 16)
GBPm GBPm GBPm
--------------------------------------------- ------- ----------- -----------
Net operating cash flow before interest and
taxation (A) 54.7 48.2 47.9
Adjusted EBITDA (3) (B) 45.4 41.2 43.7
--------------------------------------------- ------- ----------- -----------
Cash conversion ratio (3) (%) (A)/(B) 120.5% 117.0% 109.6%
--------------------------------------------- ------- ----------- -----------
As at 31 May 2020, the Group had a timing benefit of GBP4.6m
from government payment deferral schemes, of which GBP3.4m related
to indirect taxes, and GBP1.2m to corporation tax. If the benefit
of the GBP3.4m relating to indirect taxes is excluded from the
above calculations the cash conversion ratios on an IFRS 16 and
pre-IFRS 16 basis would be 113.0% and 108.7% respectively. This
timing benefit will reverse in the year ending 31 May 2021.
3 Segmental information
The Group is organised into the following two (2019: two)
reportable segments: Assurance and Software resilience. The two
reporting segments provide distinct types of service. Within each
of the reporting segments the operating segments provide a
homogeneous group of services. The operating segments are grouped
into the reporting segments on the basis of how they are reported
to the chief operating decision maker (CODM) for the purposes of
IFRS 8 "Operating Segments", which is considered to be the Board of
Directors of NCC Group plc. Operating segments are aggregated into
the two reportable segments based on the types and delivery methods
of services they provide, common management structures, and their
relatively homogenous commercial and strategic market environments.
Performance is measured based on reporting segment profit, which
comprises adjusted operating profit (3) . Interest and tax are not
allocated to business segments and there are no intra-segment
sales.
As disclosed in note 2, due to the adoption of IFRS 16 'Leases'
during the year, the results for the year ended 31 May 2020 are not
directly comparable with the previous year. On this basis, to
provide meaningful comparatives, the segmental results below for
the year ended 31 May 2020 have therefore also been presented under
IAS 17 with the like-for like numbers shown on an IAS 17 basis
(Pre-IFRS 16), as this is the basis on which the CODM allocates
resources and assesses performance.
Segmental analysis 2020
Software Central
resilience and
Assurance (Escrow) head office Group
GBPm GBPm GBPm GBPm
------------------------------------------ --------- ----------- ------------ -------
Revenue 226.2 37.5 - 263.7
Cost of sales (149.3) (10.0) - (159.3)
------------------------------------------ --------- ----------- ------------ -------
Gross profit 76.9 27.5 - 104.4
Gross margin % 34.0% 73.3% - 39.6%
General administration expenses allocated
(2) (43.9) (10.0) (5.1) (59.0)
------------------------------------------ --------- ----------- ------------ -------
Adjusted EBITDA 33.0 17.5 (5.1) 45.4
Depreciation and amortisation (10.7) (0.6) (4.8) (16.1)
------------------------------------------ --------- ----------- ------------ -------
Adjusted operating profit (3) 22.3 16.9 (9.9) 29.3
------------------------------------------ --------- ----------- ------------ -------
Adjusting items (3) (10.2)
------------------------------------------ --------- ----------- ------------ -------
Operating profit 19.1
------------------------------------------ --------- ----------- ------------ -------
Impact of IFRS 16 1.8
------------------------------------------ --------- ----------- ------------ -------
Operating profit (Pre-IFRS 16) 20.9
------------------------------------------ --------- ----------- ------------ -------
Segmental analysis 2019
Software Central
resilience and
Assurance (Escrow) head office Group
(Pre-IFRS 16) GBPm GBPm GBPm GBPm
------------------------------------------ --------- ----------- ------------ -------
Revenue 212.7 38.0 - 250.7
Cost of sales (139.2) (9.7) - (148.9)
------------------------------------------ --------- ----------- ------------ -------
Gross profit 73.5 28.3 - 101.8
Gross margin % 34.6% 74.5% - 40.6%
General administration expenses allocated
(2) (45.4) (9.3) (3.4) (58.1)
------------------------------------------ --------- ----------- ------------ -------
Adjusted EBITDA 28.1 19.0 (3.4) 43.7
Depreciation and amortisation (5.5) - (4.5) (10.0)
------------------------------------------ --------- ----------- ------------ -------
Adjusted operating profit (2) 22.6 19.0 (7.9) 33.7
------------------------------------------ --------- ----------- ------------ -------
Adjusting items (2) (14.2)
------------------------------------------ --------- ----------- ------------ -------
Operating profit 19.5
------------------------------------------ --------- ----------- ------------ -------
Revenue is disaggregated by primary geographical market as
follows:
Software Software
Resilience 2020 Resilience 2019
GBPm Assurance (Escrow) Total Assurance (Escrow) Total
--------- ----------- ------ --------- -----------
UK 91.5 25.9 117.4 88.9 26.0 114.9
North America 82.4 7.8 90.2 75.5 8.3 83.8
Europe & APAC 52.3 3.8 56.1 48.3 3.7 52.0
Statutory 226.2 37.5 263.7 212.7 38.0 250.7
-------------- --------- ----------- ------ --------- ----------- ------
4 Dividends
2020 2019
------------------------------------------------------- ----- -----
Dividends paid and recognised in the year (GBPm) 12.9 12.9
------------------------------------------------------- ----- -----
Dividends per share proposed but not recognised in the
year (pence) 3.15p 3.15p
------------------------------------------------------- ----- -----
The proposed final dividend for the year ended 31 May 2020 of
3.15p per ordinary share on approximately 277.8m ordinary shares
(approximately GBP8.8m) was approved by the Board on 3 September
2020 and will be recommended to shareholders at the AGM on 20
October 2020. The dividend has not been included as a liability as
at 31 May 2020. The payment of this dividend will not have any tax
consequences for the Group.
5 Earnings per ordinary share (EPS)
Earnings per ordinary share are shown on a statutory and an
adjusted (2) basis to assist in the understanding of the
performance of the Group.
2020 2020 2019
(Pre-IFRS (Pre-IFRS
(IFRS 16) 16) 16)
GBPm GBPm GBPm
------------------------------------------------- ---------- ---------- ----------
Statutory earnings 11.7 14.1 13.5
------------------------------------------------- ---------- ---------- ----------
Adjusted (2) earnings (note 2) 20.0 22.4 25.5
------------------------------------------------- ---------- ---------- ----------
Number Number Number
of shares of shares of shares
m m m
------------------------------------------------- ---------- ---------- ----------
Basic weighted average number of shares in issue 278.0 278.0 277.8
------------------------------------------------- ---------- ---------- ----------
Dilutive effect of share options 2.5 2.5 1.5
------------------------------------------------- ---------- ---------- ----------
Diluted weighted average shares in issue 280.5 280.5 279.3
------------------------------------------------- ---------- ---------- ----------
For the purposes of calculating the dilutive effect of share
options, the average market value is based on quoted market prices
for the year during which the options are outstanding.
2020 2020 2019
(IFRS 16) (Pre-IFRS (Pre-IFRS
16) 16)
pence pence pence
-------------------------------------- ---------- ---------- -----------
Basic earnings per ordinary share
Statutory 4.2 5.1 4.9
Adjusted (2) 7.2 8.1 9.2
-------------------------------------- ---------- ---------- -----------
2020 2020
(IFRS 16) (Pre-IFRS
16) 2019
pence pence pence
-------------------------------------- ---------- ---------- -----------
Diluted earnings per ordinary share
Statutory 4.2 5.0 4.8
Adjusted (2) 7.1 8.0 9.1
-------------------------------------- ---------- ---------- -----------
6 Right-of-use assets and Lease liabilities
The Group's right-of-use asset can be further analysed as
follows:
2020
(IFRS 16)
GBPm
---------------------------------------------------- -----------
As at 1 June 2019 -
Initial recognition on adoption of IFRS 16 (note 1) 26.5
Additions 12.1
Disposals (2.8)
Impairment of right-of-use assets (1.1)
Depreciation (6.0)
As at 31 May 2020 28.7
---------------------------------------------------- -----------
The Group's outstanding lease liabilities can be further
analysed as follows:
2020
(IFRS 16)
GBPm
---------------------------------------------------- -----------
As at 1 June 2019 -
Initial recognition on adoption of IFRS 16 (note 1) 35.7
Additions 10.7
Disposals (2.9)
Interest expense 1.2
Repayment of lease liabilities (6.5)
As at 31 May 2020 38.2
---------------------------------------------------- -----------
The ageing of the lease liabilities as at 31 May 2020 are as
follows:
2020
(IFRS 16)
GBPm
------------------------ -----------
Less than one year 5.3
Two to five years 15.7
Greater than five years 17.2
Total lease liabilities 38.2
------------------------ -----------
7 Borrowings
In June 2019, the Group renegotiated its previous 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). The
interest payable on drawn down funds ranges from 0.9% to 2.0% above
LIBOR subject to the Group's leverage and interest cover ratios (4)
. 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. The Group is required to comply
with financial covenants for leverage (net debt to Adjusted (3)
EBITDA) and interest cover (Adjusted (3) EBITDA to interest charge)
which are tested bi-annually at 31 May and 30 November each year.
Arrangement fees incurred of GBP1.0m are being amortised over the
term. Since the new facility is on broadly similar pricing terms to
the previous facility, the refinancing has been accounted for as a
non-substantial modification.
Borrowings (excluding lease liabilities) are analysed as
follows:
2019
(Pre-IFRS
2020 16)
GBPm GBPm
------------------------------------------------- --- ----- -----------
Current liabilities
Secured and interest-bearing bank loan - 5.0
Non-current liabilities
Revolving credit facility (net of deferred issue
costs of GBP0.8m) 99.2 23.5
Secured and interest-bearing bank loan - 26.6
Total borrowings (excluding lease liabilities) 99.2 55.1
------------------------------------------------------ ----- -----------
Glossary of terms - Alternative Performance Measures (APMs)
APMs are the way that financial performance is measured by
management and reported to the Board, and the basis of financial
measures for senior management's compensation schemes, and provide
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 measures:
Adjusted Operating Operating 2 Represents operating profit
operating profit profit or before
profit (EBIT) or loss loss before adjusting items to assist in
adjusting the
items understanding of the Group's
Adjusting performance.
items represent Adjusting items represent
amortisation amortisation
of acquired of acquired intangibles,
intangibles, profit
profit on on the disposal of
the disposal investments,
of investments, share based payments and
share based Individually
payments Significant Items.
and Individually The Directors consider
Significant amortisation
Items of acquired intangibles is a
non-cash
accounting charge inherently
linked
to losses associated with
historical
acquisitions of businesses in
accordance with the Group's
adjusting
items accounting policy. This
APM's 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 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.
See note 2 for proposed
changes
to adjusting items in
forthcoming
reporting periods.
------------------ --------------------- -------------------- ------------------------------
APM Closest Adjustments Note reference Definition, purpose and
equivalent to reconcile for reconciliation considerations
IFRS measure to IFRS made by the Directors
measure
------------------ --------------------- -------------------- ------------------------------
Earnings Operating Operating 2 Represents operating profit
before interest, profit profit or before
tax, depreciation or loss loss, before depreciation and
and amortization depreciation amortisation.
(EBITDA) and amortisation, EBITDA is disclosed as this
net finance is
costs and a measure widely used by
taxation various
stakeholders.
------------------ --------------------- -------------------- ------------------------------
Adjusted Operating Operating 2 Represents operating profit
earnings profit profit or before
before interest, or loss loss before adjusting items, depreciation
tax, depreciation adjusting and amortisation to assist in
and amortisation items, depreciation the understanding of the
(EBITDA) and amortisation, Group's
net finance performance.
costs and Adjusted EBITDA is disclosed
taxation as
this is a measure widely used
by various stakeholders and
used
by the Group to measure the
cash
conversion ratio noted below.
------------------ --------------------- -------------------- ------------------------------
Adjusted Profit Profit before 2 Represents profit before
profit before before taxation taxation
taxation taxation before adjusting before adjusting items and
items provides
supplementary information on
the
Group's profitability before
taxation.
------------------ --------------------- -------------------- ------------------------------
Adjusted Basic Basic EPS 5 Represents basic EPS
basic EPS EPS excluding excluding
adjusting adjusting items and provides
items supplementary
information that assists the
user
in understanding the
underlying
trading results.
------------------ --------------------- -------------------- ------------------------------
Balance Sheet measures:
Net debt Total borrowings 2 Represents total borrowings
(Pre-IFRS (excluding lease (excluding
16) - like-for-like liabilities) offset lease liabilities) offset by
basis by cash and cash cash
equivalents and 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
on a like-for-like basis.
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.
----------------------------------------- -------------------- ------------------------------
Net debt Total borrowings 2 Represents total borrowings
(including lease (including
liabilities) offset lease liabilities) offset by
by cash and cash cash
equivalents and 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
ratio (Pre-IFRS % of net of net cash a
16) cash flow flow from measure of how effectively
from operating operating adjusted
activities activities operating profit (as detailed
before before interest above) is converted into cash
interest and tax and effectively highlights
and tax divided both
divided by adjusted non-cash accounting items
by Operating EBITDA within
profit operating profit and also
movements
in working capital. It is
calculated
as net cash flow from
operating
activities before interest
and
taxation (as disclosed on the
face of the Cash Flow
Statement)
divided by 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.
---------------- ----------------------- -------------------- ------------------------------
Like-for-like measures During the year, the Group has
adopted IFRS 16 'Leases'. The
date of the initial application
of IFRS 16 for the Group is 1
June 2019. The Group has adopted
the accounting standard using
the modified retrospective approach
to transition and has accordingly
not restated prior years, consequently
the results for the year ended
31 May 2019 are not directly comparable
with those reported under the
previous applicable accounting
standard IAS 17 'Leases' and IFRIC
4 'Determining whether an arrangement
contains a lease'.
On this basis, to provide meaningful
comparatives, the results for
the year ended 31 May 2020 have
therefore also been presented
under IAS 17 with the "like-for-like"
numbers shown on an IAS 17 basis
(Pre-IFRS 16). This alternative
performance measure (APM), will
be presented for one year until
the comparatives also include
the adoption of IFRS 16.
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END
FR UUUKRRRUKRAR
(END) Dow Jones Newswires
September 03, 2020 02:00 ET (06:00 GMT)
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