NCC Group plc Annual Report 2021

In this context, we cherish our research-driven, people-centric and capex-light business model that enables us to stay at the leading edge of the dynamic cyber resilience market and create profitable, cash generative growth. Every year we enable talented individuals from our global teams to research the latest technologies, discover new system vulnerabilities and develop skills. In turn: • The subsequent education of our customers and monetisation of our knowledge allow NCC Group to maintain its world-leading position in this ever-evolving market • The opportunity to work with some of the best minds in the industry and to conduct research is part of our rounded colleague value proposition for technical specialists Although the pandemic has impacted all our colleagues and customers around the world, our business has demonstrated its resilience and remains committed to securing the future for all. of essential services they rely on in their daily lives • The threat is growing. Ransomware has now become endemic • Regulatory and legislative requirements are increasing. In response to all of the above, organisations have to comply with a growing set of mandated requirements if they wish to enter or continue operating in their respective markets. This includes proposed legislation by the UK government for consumer IoT manufacturers, US President Biden implementing software supply chain security measures by Executive Order, and global financial regulators updating their rules and guidance on technology, third party technology and cloud outsourcing arrangements The four secular growth drivers of resilience demands (as we refer to them) continue to strengthen: • The connected environment is growing. Every year, more devices are connected to the internet to share data or offer up the possibility of remote access, and the interdependencies between organisations across geographical boundaries increase in complexity too • Society’s reliance on the connected environment is greater than ever. The world is undergoing a digital transformation, accelerated by the pandemic. Our economies and wellbeing have never been more dependent on the safe and secure flow of data, and the continued resilience

Long-term market prospects are excellent

Development of the connected environment

Society’s dependence on the connected environment

Agility and pace

of the threat

Regulatory environment

For further detail, please refer to the Chief Financial Officer’s review and Note 34 to the consolidated Financial Statements. Profit before taxation increased 54.2% to £14.8m (2020: restated £9.6m 3 ) and profit for the year increased 56.3% to £10.0m (2020: restated £6.4m 3 ) giving rise to a basic EPS of 3.6p (2020: restated 2.3p 3 ). Adjusted basic EPS 2 amounts to 9.5p (2020: restated 7.6p 3 ). In 2021, our cash conversion 2 was 88.2% (2020: restated 102.9% 3 ). Net cash/(debt) (including lease liabilities) 2 amounts to £48.9m (2020: net debt £42.4m). A sustainable business model in a dynamic environment We are fortunate to work in a sector of growing opportunity. Naturally, this opportunity attracts significant investment from many organisations leading to healthy competition for customers and talent.

2 S ee Note 3 for an explanation of Alternative Performance Measures (APMs) and adjusting items. Further information is also contained within the Chief Financial Officer’s Review and the Glossary of terms on pages 187 and 188. 3 S ee Note 34 for an explanation of the prior year restatement recognised in relation to the adoption of the IFRIC agenda decision on cloud configuration and customisation costs in April 2021. The following additional information and reconciliation is noted in relation to Adjusted operating profit due to the adoption of the IFRIC agenda decision: 2021 £m 2020 £m Change

39.2

Adjusted operating profit (as noted above)

30.7

27.7%

(3.0)

Proforma amortisation charge in respect of certain cloud-based software arrangements (see explanation below)

(1.4)

(114.3%)

36.2

Adjusted operating profit less a proforma amortisation charge in respect of certain cloud-based software arrangements

29.3

23.5%

The proforma amortisation adjustment noted above represents an estimate of the amortisation that would have been recognised had the Group not changed its accounting policy in the current year following additional clarification on the accounting in relation to the configuration and customisation costs incurred in implementing Software-as-a-Service (SaaS) arrangements in the IFRIC agenda decision issued in April 2021. The proforma amortisation charge is estimated based on cloud configuration and customisation costs charged to the income statement in the year of £5.1m (2020: £7.9m). The Directors consider that Adjusted operating profit less a proforma amortisation charge in respect of certain cloud-based software arrangements is comparable to Adjusted operating profit previously reported.

NCC Group plc — Annual report and accounts for the year ended 31 May 2021

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