12 Goodwill and intangible assets continued Pre-tax cash flow projections continued
For cost forecasts, the majority of which are people related, headcount changes are forecast for delivery and sales staff in order that there are sufficient resources to support the forecasted required revenue delivery capacity as well as to deliver against sales targets, while also factoring in payroll inflation expectations. Overhead costs are also forecast using a bottom-up process. Forecasts go through a detailed review process and are subject to challenge at each stage of review, including by the Executive Committee. Ultimately the forecasts are approved by the Board. Assumptions have then been applied for expected revenue, margin growth, overheads and Adjusted EBITDA ¹ for the subsequent two years from the end of 2025. Adjusted EBITDA ¹ is considered a proxy for operating cash flow before changes in working capital. Pre-tax cash flow projections also include assumptions on working capital and capital expenditure requirements for each CGU. These assumptions are based on management’s experience of growth and knowledge of the industry sectors, markets and the Group’s internal opportunities for growth and margin enhancement. The projections beyond five years into perpetuity use an estimated long-term growth rate. Management has taken into account the impact of Covid-19 in formulating the above assumptions, and the underlying uncertainty of Covid-19 has been reflected in the assumptions underpinning the cash flow forecasts for each CGU rather than the pre-tax discount rates used in the impairment test. Forecast working capital and capital expenditure included within the pre-tax cash flow projections are based on management’s expectations of future expenditure required to support the Group and current run rate requirements. The revenue % growth for the Assurance CGU is considered by management to be appropriate for the specific industry in which the CGU operates. Management has considered available external market data in determining the revenue growth rates over the five year forecast period. Long-term growth rates To forecast growth beyond the detailed cash flows into perpetuity, a long-term average growth rate ranging between 1.5% and 2.5% (2021: between 1.5 and 1.7%) has been used based on the specific geography of the CGU, as shown in the table below. This range represents management’s best estimate of a long-term annual growth rate aligned to an assessment of long-term GDP growth rates. A higher sector-specific growth rate would be a valid alternative estimate. A different set of assumptions may be more appropriate in future years dependent on changes in the macro-economic environment. These rates are not greater than the published International Monetary Fund average growth rates in gross domestic product for the next five year period in each relevant territory in which the CGUs operate.
Growth rate (%) 2022
Growth rate (%) 2021
2.2 2.5 1.5 2.2 2.5 n/a
UK Software Resilience
1.7 1.6 1.5 1.7 1.6 1.5
North America Software Resilience
Europe Software Resilience UK and APAC Assurance North America Assurance
Europe Assurance
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.
NCC Group plc — Annual report and accounts for the year ended 31 May 2022
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