Going concern The Directors have acknowledged guidance published in relation to going concern assessments. The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the Business Review and Financial Review. The Group’s financial position, cash and borrowing facilities are also described within these sections. 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 for the 12 month period ending September 2022 which indicate that, taking account of severe but plausible downsides and the anticipated impact of Covid-19 on the operations of the Group and its financial resources, the Group and Company will have sufficient funds to meet their liabilities as they fall due for that period. The Group is financed primarily by a £100m committed revolving credit facility that matures in June 2024. The Group is required to comply with financial covenants for leverage (net debt to Adjusted EBITDA 2 ) and interest cover (Adjusted EBITDA 2 to interest charge) that are tested bi-annually at 31 May and 30 November each year. As at 31 May 2021, the Group had drawn down £33.8m for working capital requirements. Subsequent to the year end and shareholder approval on 1 June, the Group acquired on 7 June the IPM business for $220m; the US acquisition was funded through an equity placing in May of £70.2m (net proceeds) combined with a new three year $70m term loan, existing cash balances and our existing revolving credit facility. The impact of the acquisition on the Group’s financial performance, covenants and business model has therefore been considered within this going concern assessment. As at 2 June 2021, following the acquisition of the IPM business, the Group had drawn down £75.5m of its revolving credit facility and was due to incur further transaction costs of £6.4m. As at 31 August 2021, cash, net debt (excluding lease liabilities) 2 and headroom amounted to £43.6m, £74.7m and £80.5m respectively. Although the Group has demonstrated resilience to the challenging environment resulting from Covid-19, the Directors acknowledge that the financial performance of the Group has been adversely impacted to a certain degree since the commencement of the pandemic, and for this reason the base case forecast for 2021 reflects this assessment. The continuing macro-economic risks and potential changes in government policies (on the severity of enforced lockdowns worldwide) could have a continued effect on the Group’s performance. However, trading throughout the pandemic has demonstrated resilience.
The Directors have prepared a number of severe but plausible scenarios as follows: 1. T he performance of FY22 continues to be similar to that of 2021, including the impact on regional and international operations of the Group and a potential reduction in growth. 2. A n additional impact of Covid-19 during a two month period from January to February 2022 which coincides with a similar economic pandemic pattern as 2021. 3. P otential impact of customers’ inability to pay during a specified period. 4. F ailure of execution of the strategy, loss of key customers and a number of acquisition related risks crystallising (for example increased customer churn, integration and cash collection issues). 5. S oftware Resilience performance does not return to growth and the Assurance business experiences similar impact of Covid-19 on its performance as 2021. 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 all 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. In the instance that a combination of the above scenarios arise, mitigating actions would be required to ensure that the Group remains liquid and financially viable, which might include a reduction of planned capital expenditure, freezing pay and recruitment and not paying a dividend to shareholders. All of the mitigating actions are within the Directors’ control. These forecasts, including the severe but plausible downsides, show that the Group is able to operate within its available banking facilities, with no forecasted covenant breaches, and that the Group will have sufficient funds to meet its liabilities as they fall due for that period. From a Company perspective, the Company places reliance on other Group trading entities for financial support. Having reviewed the current trading performance, forecasts, other Group trading entities’ financial support, debt servicing requirements, total facilities and risks, the Directors are confident that the Company and the Group will 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 2021. Brexit The Group’s operations based in Continental Europe have so far proven structurally resilient to any significant disruption caused by Brexit. The main risks to the Group from Brexit continue to be any reduction in demand from an economic slowdown as well as real or perceived differences in data protection standards which impact our global ways of working.
Tim Kowalski Chief Financial Officer 14 September 2021
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.
NCC Group plc — Annual report and accounts for the year ended 31 May 2021
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