Chief Financial Officer’s review continued
Cash flow and net debt 2 continued Net cash/(debt) 2 can be reconciled as follows:
However, on a statutory basis the Group will have to recognise acquisition fair value adjustments for the first year only in relation to deferred income, resulting in an expected consequential reduction to IPM numbers in relation to revenue and operating profit for the first year only.
2021 £m
2020 £m
116.5
Cash and cash equivalents
95.0
(33.2)
Borrowings (net of deferred issue costs)
(99.2)
Application of IFRIC agenda decisions and prior year restatement
Net cash/(debt) excluding lease liabilities 2
In April 2021, the IFRS Interpretations Committee (IFRIC) published an agenda decision on the clarification of accounting in relation to the configuration and customisation costs incurred in implementing Software-as-a-Service (SaaS) as follows: • Amounts paid to the cloud vendor for configuration and customisation that are not distinct from access to the cloud software are expensed over the SaaS contract term • In limited circumstances, other configuration and customisation costs incurred in implementing SaaS arrangements may give rise to an identifiable intangible asset, for example, where code is created that is controlled by the entity • In all other instances, configuration and customisation costs will be expensed as the customisation and configuration services are received Due to the nature of this agenda decision and the level of spend incurred in relation to the Group’s Securing Growth Together digital transformation programme, the Group’s accounting policy has been reviewed retrospectively to align with the IFRIC guidance recently issued in relation to SaaS costs previously capitalised. This has resulted in a prior year restatement to reflect costs previously capitalised as an expense when incurred and represents a non-cash adjustment. See Notes 1, 5, 12 and 34 to the Financial Statements for further details. Financing facilities The Group is financed through a combination of bank facilities, retained profits and equity. As at 31 May 2021, the Group had committed bank facilities (revolving credit facility) of £100m (2020: £100m), of which £33.8m (2020: £100m) was drawn down. These arrangements were agreed in June 2019 and are due for renewal in June 2024. Under these arrangements the Group can also request (seeking bank approval) an additional accordion facility to increase the total size of the revolving credit facility by up to £75m. On 12 May 2021, the Group entered into a new Term Loan Facility Agreement of $70m, to fund the US acquisition of the IPM Software Resilience business in early June 2021. The Term Facility is repaid in annual instalments of $23.3m on each of 10 June 2022 and 10 June 2023, with a final instalment of $23.4m payable on 10 June 2024. The Term Facility Agreement also contains financial covenants consistent with the revolving credit facility. On our banking covenants, leverage as at 31 May 2021 amounted to (1.8)x as we have become cash positive (2020: 0.1x) and net interest cover amounted to 35.0x (2020: 22.7x). The Group was in compliance with the terms of all its facilities, including the financial covenants, at 31 May 2021 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 practise) and are materially similar to GAAP with the exceptions being net debt excludes IFRS 16 lease liabilities and Adjusted EBITDA 2 excludes amortisation of acquisition intangibles, share-based payments and Individually Significant Items.
83.3
(4.2)
(34.4)
Lease liabilities
(38.2)
Net cash/(debt) 2
48.9
(42.4)
The calculation of the cash conversion ratio 2 is set out below:
2020 (restated) 3
2021 £m
£m % change
Net operating cash flow before interest and taxation (A)
46.3 52.5
46.8 (1.1%) 45.5 15.4%
Adjusted EBITDA 2 (B)
Cash conversion ratio 2 (%) (A)/(B)
88.2%
102.9% (14.7% pts)
Cash conversion remains above our medium target of c.85%, as we have maintained strong cash management through the global pandemic. The increase in tax paid is mainly due to the FY20 deferral of £1.2m under government tax deferral schemes now fully repaid. Net cash capital expenditure during the year was £4.3m (2020: restated £5.3m 3 ) which includes tangible expenditure of £2.7m (2020: £2.8m) and capitalised software and development costs of £2.1m (2020: restated £2.5m 3 ), which has been offset by proceeds from the disposal of an intangible asset for £0.5m. Additional cash capital expenditure will be incurred during 2022 as we finish the installation and improve our new systems. Acquisition costs paid prior to the shareholder approval on 1 June 2021 of the US acquisition of IPM amounted to £1.2m. During early FY22, further costs have been paid of c.£6.4m. Dividends Dividends of £13.0m paid in the year (2020: £12.9m) comprised the final dividend for FY20 of 3.15p and the interim dividend of 1.5p per ordinary share for FY21 (2020: 1.5p). The Board is declaring an unchanged final 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. The final dividend will be paid on 12 November 2021, to shareholders on the register at the close of business on 15 October 2021. The ex-dividend date is 14 October 2021. IPM acquisition and future statutory reporting As noted within the Business Review, prior to our ownership of IPM, the business generated revenues of c.£23m and operating profit of c.£15m for the 12 months ended 31 December 2020, with cash conversion of c.90%. It is expected that for NCC Group’s FY22 financial year, the business will report proforma numbers on a similar basis and that we will incur c.£2.5m of one-off integration costs.
38
NCC Group plc — Annual report and accounts for the year ended 31 May 2021
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