Chief Financial Officer’s review
Strong financial performance Total administrative expenses (including Individually Significant Items) have increased by £1.5m compared to the adjusted prior year figure mainly owing to a tighter control of overheads, a reduction on travel and office costs of c.£3m, a profit arising on disposal of an intangible asset of £0.5m and a reduction in amortisation of intangibles of £2.4m, offset by increased system licence costs of £1.3m, a foreign exchange charge of £1.5m, an increase in a share-based payment charge of £1.4m and an increase in Individually Significant Items of £4.8m.
Following the adoption of the IFRIC agenda decision on cloud configuration and customisation costs, capitalised software and development costs during the year amounted to £2.3m (2020: restated £2.3m 3 ), with all cloud configuration and customisation costs now being expensed as incurred. Further details on the application of IFRIC agenda decision and prior year restatement are included later in this review. Operating profit has increased by 37.3% to £17.3m (2020: restated £12.6m 3 ) following the inclusion of Individually Significant Items of £12.7m (2020: restated £7.9m 3 ) in relation to the IPM US Acquisition (£7.6m) and cloud configuration and customisation costs associated with the Group’s SGT transformation programme (£5.1m, 2020: restated £7.9m 3 ). Operating profit also includes amortisation of acquired intangible assets of £6.4m (2020: £8.8m) and share-based payments of £2.8m (2020: £1.4m). Adjusted operating profit 2, 3 increased by 27.7% to £39.2m (2020: restated £30.7m 3 ). Adjusted EBITDA 2 increased by 15.4% to £52.5m (2020: £45.5m). Profit before taxation increased by 54.2% to £14.8m (2020: restated £9.6m 3 ) following the inclusion of Individually Significant Items noted above. Basis EPS amounted to 3.6p and diluted EPS amounted to 3.5p (2020: restated basic and diluted 2.3p 3 ). Adjusted basic EPS 2 amounts to 9.5p (2020: restated 7.6p 3 ). During the year, we secured the acquisition of the IPM business and following shareholder approval on 1 June we completed the transaction for $220m, subject to a normalised working capital adjustment. On this basis, the results of the IPM business will be consolidated from 1 June 2021. The acquisition was funded through an equity placing in May (£70.2m) combined with a new three year $70m term loan, existing cash balances and our revolving credit facility. Our Balance Sheet remains strong; we have continued to demonstrate effective cash management with cash conversion 2 of 88.2% and are now cash positive. Our Balance Sheet strength can therefore continue to fund organic and inorganic opportunities. The Board is also declaring an unchanged interim dividend of 3.15p per ordinary share (2020: 3.15p). This represents a dividend equal to that paid in the prior year as the Board is conscious of the need to invest in initiatives to support longer-term growth and service debt profile following the recent acquisition. The dividend policy will therefore continue to remain under review.
Tim Kowalski Chief Financial Officer
Our Balance Sheet strength can continue to fund organic and inorganic opportunities.
Overview 1 We have delivered another period of good financial results, demonstrating our resilience during a global pandemic. During 2022, the Group will continue to strategically invest for the future with the expectation of higher revenue growth accompanied by increased global costs from inflationary pressures as well as a resumption in travel and office usage. Group revenues increased by 2.6%. On a constant currency basis 2 , Group revenues increased by 3.6% due to the strengthening of Sterling against the US Dollar. In Assurance, the North American and EU Assurance businesses grew by 6.5% and 5.9% respectively on a local currency basis 3 . Our UK and APAC region increased 3.9%, supported by growth in MDR and the launch of the Remediation service. Disappointingly, Software Resilience declined by 2.4%. This decline was mainly a result of execution challenges in a remote environment together with retaining sales colleagues and attracting sufficient sales resource to enable a return to contract growth. Gross profit increased by 5.9% to £110.6m (2020: £104.4m) with margin percentage increasing to 40.9% (2020: 39.6%) mainly owing to higher global resourcing and utilisation offset by a c.£2m provision taken in relation to long-term European contracts as a result of pandemic disruption, cost increases and project management challenges. Assurance margin percentage increased to 36.1% (2020: 34.0%) and Software Resilience decreased to 71.6% (2020: 73.3%) due to execution challenges.
1 R eferences for the Group’s results are for continuing operations. 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.
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NCC Group plc — Annual report and accounts for the year ended 31 May 2021
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