NCC Group plc Annual Report 2022

1 Accounting policies continued Going concern continued

The Group is required to comply with the same financial covenants on both banking facilities for leverage (net debt to Adjusted EBITDA 1 ) and interest cover (Adjusted EBITDA 1 to interest charge) that are tested bi-annually on 31 May and 30 November each year. As of 31 May 2022, leverage 1 amounted to 0.9x (2021: (1.8x) as cash positive prior to the acquisition) and net interest cover 1 amounted to 23.4x (2021: 35.0x) compared to a maximum of 3.0x and a minimum of 3.5x respectively. The terms and ratios are specifically defined in the Group’s banking documents (in line with normal commercial practice) and are materially similar to GAAP with the exceptions being net debt excludes IFRS 16 lease liabilities and Adjusted EBITDA 1 excludes amortisation of acquired intangibles, share-based payments and Individually Significant Items. The Group was in compliance with the terms of all its facilities during the year, including the financial covenants on 30 November 2021 and 31 May 2022, and, based on forecasts, expects to remain in compliance over the going concern period. In addition, the Group has not sought or is not planning to seek any waivers to its existing facilities. Although the Group has demonstrated resilience and consistent cash generation over the last few years, in a challenging environment, the continuing global macro-economic risks could have an effect on the Group’s future performance, particularly in relation to cost inflationary pressures. As a result the base case going concern assessment includes a level of inflationary cost increases together with continued day rate price rises to customers. The Group has not been significantly adversely impacted by the Ukraine conflict. The Directors have prepared a number of severe but plausible scenarios as follows: 1. T he performance of FY23 continues to be similar to that of FY22, including the impact on regional and international operations of the Group and a potential reduction in double-digit revenue growth to 9% growth and subsequent impact on margin. 2. F ailure of execution of the strategy and loss of key customers resulting in a reduction in revenue and a consequential impact on profitability and cash generation of £22.5m for the going concern period. 3. S oftware Resilience performance does not achieve expected revenue growth in all territories and experiences a 1% digit revenue decline. 4. F urther inflationary pressures up to 6% arise over the existing base case going concern assessment of 4% and certain day rate price rises to customers do not occur. These scenarios have been modelled individually in order to assess the Group’s ability to withstand specific challenges. The Directors do not believe it is plausible for all of the above downside scenarios to occur concurrently; however, they have modelled scenarios combining risks (3 and 4) and combining risks (1 and 4) because of the Group’s historical Software Resilience performance and current global economic uncertainty. The impact of these severe but plausible scenarios has been reviewed against the Group’s projected cash flow position, available committed bank facilities and compliance with financial covenants. These forecasts, including the severe but plausible downsides, show that the Group is able to operate within its available committed banking facilities, with no forecasted covenant breaches or requirement for facility waivers, 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. The Company controls these Group entities and therefore has the ability to direct the financial activities of the Group. Having reviewed the current trading performance, forecasts, 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 consolidated Financial Statements, which is determined as the going concern period. Accordingly, the Directors continue to adopt the going concern basis of accounting in preparing the Group’s Financial Statements for the period ended 31 May 2022. There are no post-Balance Sheet events which the Directors believe impact the going concern assessment. 1 S ee Note 3 for an explanation of Alternative Performance Measures (APMs) and adjusting items, including a reconciliation to statutory information. Further information is also contained within the Glossary of terms on pages 203 and 204. Business combinations Business combinations are accounted for by applying the acquisition method at the acquisition date, which is the date on which control is transferred to the Group. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Acquisitions The Group measures goodwill at the acquisition date as: • The fair value of the consideration transferred; plus • The recognised amount of any non-controlling interests in the acquiree; plus • If the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less • The fair value of the identifiable assets acquired, and liabilities assumed.

NCC Group plc — Annual report and accounts for the year ended 31 May 2022

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