Accelerating growth
NCC Group plc (LSE: NCC, “NCC Group” or “the Group”), a leading independent global cyber security and resilience adviser, reports its interim results for the 6 months to 30 November 2021 (“the half year”, “HY”, “H1 2022”, “the period”).
Highlights
- Revenue grew +14.2% at constant currency 1 (+10.7% actual rates), driven materially by the acquisition of IPM.
- Revenues excluding the recent IPM acquisition grew +7.2% on a constancy currency 1 (+3.8% actual rates):
- Good revenue growth in Assurance of +8.8% at constant currency 1 (+5.2% actual rates).
- Software Resilience (exc. IPM) declined -3.3% at constant currency 1 (-4.9% actual rates); sales capability now back at full strength and expect return to growth in H2.
- IPM integration progressing to plan and business performing in line with expectations.
- Gross margin (%) increased 2.3% pts mainly due to the IPM acquisition, Assurance gross margin up +1.2% pts.
- Free cashflow prior to acquisition costs of £6.4m is £20.0m, compared to £15.1m in the prior period, delivering cash flow conversion before acquisition costs of 99.2%.
Good assurance revenue growth at improved gross margin
- Growth in all Assurance geographies despite FX headwinds.
- North America grew +8.9% at constant currency 1 (+2.3% actual rates).
- Europe grew +11.8% at constant currency 1 (+6.0% actual rates).
- UK & APAC grew +7.5% at constant currency 1 (+7.3% actual rates).
- Gross margin improved with increased utilisation, pricing and global resourcing offsetting increased costs
- Net increase of 152 technical heads (+12%) despite slight increase in annualised technical attrition from 17.0% last year to 21.6% this year.
- 37-fold increase on prior period in our key Sentinel and Remediation propositions to £5.5m in H1 2022
- Temporary slowdown in Global Managed Services (GMS) growth +6.8% at constant currency (+3.3% actual rates). We have the orders pipeline to drive a return to double digit growth in H2.
Software Resilience transformed by IPM acquisition
- Headline growth supercharged by $220m acquisition of IPM completed on 7 June 2021, transforming our global Software Resilience business.
- Software Resilience (exc. IPM) revenues declined -3.3% at constant currency (-4.9% actual rates).
- Gross margin (%) declined -1.8% pts following investment to enable Software Resilience to achieve sustainable revenue growth, partially offset by IPM’s higher gross margin percentage
- Escrow-as-a-Service sales orders grew a further 54% YoY to £1.2m
Outlook and interim dividend
- H2 2022 trading to date is currently in line with expectations following sales order momentum in December and January, with Software Resilience returning to revenue growth against H2 2021.
- The balance of H2 2022 requires further revenue acceleration, which we expect to occur as our global markets recover from pandemic disruption and for which we have recruited the global delivery capacity.
- Consequently, we anticipate a strong H2 2022 leading to our full-year outturn to be in line with management expectations.
- Unchanged interim dividend of 1.50p (H1 2021: 1.50p) per ordinary share, with dividend policy remaining under review.
|
H1 2022 |
H1 2021 (restated) 2 |
|
Change at actual rates |
Change at constant currency |
Revenue (£m) 1 |
150.1 |
135.6 |
|
10.7% |
14.2% |
Revenue excluding IPM acquisition (£m) 1 |
140.8 |
135.6 |
|
3.8% |
7.2% |
Gross profit (£m) |
63.7 |
54.4 |
|
17.1% |
|
Gross margin (%) |
42.4% |
40.1% |
|
2.3% pts |
|
Operating profit 2 (£m) |
10.1 |
11.0 |
|
(8.2%) |
|
Operating profit margin 2 (%) |
6.7% |
8.1% |
|
(1.4% pts) |
|
Adjusted EBITDA 1 (£m) |
26.1 |
25.4 |
|
2.8% |
|
Adjusted EBITDA margin 1 (%) |
17.4% |
18.7% |
|
(1.3% pts) |
|
Adjusted operating profit 1, 2 (£m) |
20.2 |
18.3 |
|
10.4% |
|
Adjusted operating profit margin 1, 2 (%) |
13.5% |
13.5% |
|
- |
|
Profit before taxation 2 (£m) |
8.4 |
9.7 |
|
(13.4%) |
|
Basic EPS 2 (pence) |
1.9p |
2.4p |
|
(20.8%) |
|
Adjusted basic EPS 1, 2 (pence) |
4.4p |
4.5p |
|
(2.2%) |
|
Net (debt)/cash excluding lease liabilities 1, 3 (£m) |
(74.2) |
3.0 |
|
(£77.2m) |
|
Net debt 1 (£m) |
(106.4) |
(34.2) |
|
(£72.2m) |
|
Cash conversion 2 (%) |
74.7% |
89.0% |
|
(14.3% pts) |
|
Interim dividend (pence) |
1.50 |
1.50 |
|
- |
|
Footnotes
1: See Note 3 for an explanation of Alternative Performance Measures (APMs) and adjusting items. Further information is also contained within the Financial Review and the Glossary of terms.
2: See Note 12 for an explanation of the prior period restatement recognised in relation to the adoption of the IFRIC agenda decision on cloud configuration and customisation costs in April 2021.
3: Net (debt)/cash excluding lease liabilities 1 has been shown as an APM to provide a measure consistent with bank covenant calculations and to provide stakeholders with a key performance indicator that is monitored by Analysts.
Basis of preparation and comparative period
These condensed interim financial statements for the 6 months to 30 November 2021 represents results and statutory measures prepared in accordance with IFRSs as adopted for use in the UK. When comparing with the prior year, these results should be considered in conjunction with the following:
- Adoption of the IFRIC agenda decision on cloud configuration and customisation costs in April 2021: Resulting in the recognition of a prior period restatement, with costs (£2.3m) classified as individual significant items for the period ended 30 November 2020, whereas expensed as other administrative expenses for the period ended 30 November 2021(£1.9m) as from 1 June 2021, they are no longer considered part of the Group’s Securing Growth Together digital transformation programme. Cloud configuration and customisation costs were included within Individually Significant items as these costs related to material spend previously capitalised in relation to the Group’s Securing Growth Together digital transformation programme that had to be expensed following the adoption of the IFRIC agenda decision.
- Acquisition of IPM, with effect from 1 June 2021: Resulting in six months of trading performance for the period ended 30 November 2021 including a downward fair value adjustment (£2.7m) to reflect the level of deferred revenue acquired at the time of the acquisition.
The above factors give rise to a lack of direct comparability. However, we encourage you to consider these factors together with statutory reporting measures noted above. For further detail, see the financial review section within these condensed interim financial statements.
Adam Palser, Chief Executive Officer, said: “The strength of NCC Group stems from the quality of our people. I am delighted that, in these times of unprecedented demand for cyber and IT talent, we have significantly increased our technical headcount, produced more impactful research than ever before and delivered more value for our customers.
As a result, the strong underlying growth from our Assurance business, coupled with the successful integration and positive trading of the IPM business acquired in June 2021, led to an excellent financial performance with double-digit revenue growth in the first half. We are particularly encouraged by the strong Assurance gross margin performance in the half, as it demonstrates our ability to use utilisation, pricing and global resourcing as levers to manage our way through the higher costs we expect to incur as we compete for talent.
Accelerated digitisation, the rapid growth and sophistication of ransomware attacks and the implications of the largescale adoption of hybrid and remote working globally continue to provide fertile growth opportunities for our comprehensive cyber resilience services. With more software being deployed than ever before by a growing ecosystem of dynamic software companies, we continue to see great promise for our Software Resilience portfolio.
We enter the second half of our financial year with a pipeline of opportunities and talent that leads us to expect further growth in the impact we have to our customers, the experiences we provide our people and, of course, our financial metrics”.