Chief Executive Officer’s review continued
Sustainable growth for all of our stakeholders Every day we work for customers in pursuit of our mission: to make the world a safer and more secure place. This mission and the focus on our people are at the heart of our value proposition and how we do business. More broadly, our sustainability approach is focused on the recognised elements of environment, social and governance and our progress is outlined below: • Environment – Building on the new and successful ways of working created by the pandemic we are engaging in conversation with our customers to explore how we can work together to reduce the impact on the environment. In addition, as our office environments come back to life, we are investing in education programmes to reduce our physical impact – from flexible working and preventing unnecessary printing, to recycling. We have also developed our new working policies and therefore will continue to review our physical office requirements to ensure we only use what we need • Social – We continue to foster partnerships that support the development of future diverse cyber talent and encourage colleagues to give back to their local communities through schools, universities and charity partnerships, and the piloting of a giving back day in the UK. In addition, we continue to invest in developing not only our mental health first aid network and resources, but we are now looking to implement our broader wellbeing strategy, partnering again with This Can Happen. Through NCC Conversations we continue to encourage engagement from colleagues and our external stakeholders around our four focus areas of gender, LGBTQIA+, race and ethnicity and neurodiversity, adding accessibility in this coming year. These conversations alongside our performance management programme and career framework development help drive our performance culture, creating an environment where everyone is welcome and can be successful • Governance – We continue to strengthen our governance structures. We assess and consciously decide to work with customers who align with our own values and Code of Ethics. We are currently strengthening our Supplier Code of Conduct to ensure that we enter any supplier or partner relationship with a mutual understanding of each other’s code of ethics and general business policies. In addition, we remain committed to considering the interests of all our stakeholders when making decisions on the Group’s future strategy and priorities
Year on year growth led by Assurance Against this backdrop, Group revenues increased by 2.6% (2020: 5.2%). On a constant currency basis 2 , Group revenues increased by 3.6%. In our Assurance business, the North American and EU Assurance businesses grew by 6.5% and 5.9% respectively on a local currency basis 2 . Our UK and APAC region increased 3.9%, including a notable 9.6% in the second half as industries began to look forward to the easing of restrictions. In our Software Resilience division, we were delighted by the 83% increase in Escrow-as-a-Service orders which herald great promise for the future, but disappointed by an overall revenue decline of 2.4%. Attracting sufficient sales resource, retaining sales colleagues, delivering on-site work and maintaining sales momentum have all been more difficult in a fully remote working environment and we anticipate improvements in all of these factors in the next 12 months as we work to return Software Resilience to sustainable growth. Gross profit increased by 5.9% to £110.6m (2020: £104.4m) with gross margin percentage increasing to 40.9% (2020: 39.6%). The margin increase was significantly driven by the flourishing of our global resourcing engine where skilled resources from every part of our Group can now be deployed on high value engagements, smoothing out peaks and troughs of demand or skill shortages. The gross margin was, however, offset by a c.£2m provision taken in relation to existing long-term European contracts as a result of pandemic disruption, cost increases and project management challenges. Operating profit increased by 37.3% to £17.3m (2020: restated £12.6m 3 ) after the inclusion of transaction costs of £7.6m in relation to the $220m acquisition of Intellectual Property Management (IPM), the Software Resilience division of Iron Mountain and cloud configuration and customisation costs associated with the Group’s SGT transformation programme (£5.1m, 2020: restated £7.9m 3 ). The Group manages its performance internally at an Adjusted operating profit 2, 3 level, with Adjusted operating profit 2, 3 increasing by 27.7% to £39.2m albeit with the benefit of a temporary reduction in travel and office usage costs of c.£3m. This information is disclosed below and reconciled to statutory operating profit. During the year, the Group has incurred £12.7m of Individually Significant Items (ISIs) (2020: restated £7.9m 3 ). These items relate to the acquisition of the IPM business (£7.6m) and cloud configuration and customisation costs associated with the Group’s SGT transformation programme (£5.1m, 2020: restated £7.9m 3 ).
2021
2020 (restated) 3
Software Resilience £m
Central and head office £m
Software Resilience £m
Central and head office £m
Assurance £m
Group £m
Assurance £m
Group £m
Revenue
233.9
36.6
– 270.5 – (159.9) – 110.6 – 40.9%
226.2
37.5
–
263.7
(149.5)
(10.4)
Cost of sales
(149.3)
(10.0)
– (159.3)
Gross profit
84.4
26.2
76.9
27.5
–
104.4
36.1% 71.6%
Gross margin %
34.0% 73.3%
– 39.6%
General administration expenses allocated
(45.4)
(9.5)
(3.2)
(58.1)
(43.9)
(10.0)
(5.0)
(58.9)
39.0
16.7
(3.2) (3.2) (6.4)
52.5
Adjusted EBITDA 2
33.0
17.5
(5.0) (3.5) (8.5) (7.9) (8.8) (1.4)
45.5
(9.4)
(0.7)
(13.3)
Depreciation and amortisation Adjusted operating profit 2, 3 Individually Significant Items Amortisation of acquired intangibles
(10.7)
(0.6)
(14.8)
29.6
16.0
39.2
22.3
16.9
30.7
– – –
– – –
(12.7)
(12.7)
– – –
– – –
(7.9) (8.8) (1.4)
(6.4) (2.8)
(6.4) (2.8)
Share-based payments
Operating profit
29.6
16.0
(28.3)
17.3
22.3
16.9
(26.6)
12.6
10
NCC Group plc — Annual report and accounts for the year ended 31 May 2021
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