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NCC Group plc (LSE: NCC, “NCC Group” or “the Group”), a leading independent provider of global cyber security and resilience services, reports its full year results for the 12 months to 31 May 2023 (“the full year”, “FY”, “2023”, “the year”).
FY23 results
- Assurance (Cyber Security) revenues in line with prior year at constant currency (Actual rates: c.+5%
growth) at £270.8m- H1 growth was c.+11% at constant currency 1 (Actual rates: c.+18%). H2 decline of c.-10% at
constant currency 1 (Actual rates: c.-7%) driven predominantly by reduction in spend by North
American technology clients and to a lesser extent by Global Professional Services in the UK - Global Professional Services H1 growth of c.+10% at constant currency 1 (Actual rates: c.+19%),
with full year decline of c. -3% at constant currency 1 (Actual rates: c.+2% growth). H2 decline
of c. -16% at constant currency 1 (Actual rates: c. -13%) - Global Managed Services H1 growth of c.+11% at constant currency 1 (Actual rates: c.+13%),
with full year growth of c.+12% at constant currency 1 (Actual rates: c.+16% growth). H2 growth
of c. +14% at constant currency 1 (Actual rates: c. +18%)
- H1 growth was c.+11% at constant currency 1 (Actual rates: c.+18%). H2 decline of c.-10% at
- Software Resilience (Escrow) showed unaudited proforma revenue 2 decline of c.-0.5% at constant currency 1, after considering the prior year fair value revenue adjustment (£4.4m) (Actual rates: c.+6% growth) to £64.3m, with:
- H1 decline of -1.6% at constant currency 1 (Actual rates: +6.8%) however H2 growth of c.0.6%
at constant currency 1 (Actual rates: c.+5%) - New leadership team (appointed in November 2022) starting to deliver momentum, consistency in quarterly growth, price rises, and realisation of efficiency contribution targeted at the time of the May 2022 operational review
- H1 decline of -1.6% at constant currency 1 (Actual rates: +6.8%) however H2 growth of c.0.6%
- Gross margin percentage decreased by 2.7% pts to 39.4% due to:
- Reduce revenue contribution from Global Professional Services within Assurance (Cyber
Security) and the consequential impact on direct utilisation decreasing by -10% against a
backdrop of lower attrition - Offset by an improvement in Software Resilience revenue contribution
- Reduce revenue contribution from Global Professional Services within Assurance (Cyber
- Operating profit declined by 94.5% to £1.9m due to:
- Reduced trading performance in Assurance (Cyber Security) offset by an improvement in Software
Resilience profitability which was driven by improved operating efficiency, as targeted at the time
of the May 2022 operational review - Recognition of Individually Significant Items (SIs) of £14.7m (of which £9.8m related to the
impairment of North American Goodwill within the Assurance (Cyber Security) business)
- Reduced trading performance in Assurance (Cyber Security) offset by an improvement in Software
- Loss before taxation of £4.3m after increased finance costs of £2.5m due to an increase in borrowing
following the IPM acquisition and an increase in base interest rates. All of the above, resulted in a Basic
EPS of (1.5p) (2022: 7.4p) and Adjusted basic EPS 1 of 6.1p (2022: 10.8p). - Continued strong cash conversion 1 of c. 103%. Net debt (excluding leases) of c.£50m, leverage
(excluding leases) of 1.4x. During December 2022, we secured a new four-year £162.5m multi-currency
revolving credit facility - Final dividend of 3.15p maintained for FY23
FY24 current trading
- Current trading in line with expectations with:
- Cost efficiencies across Assurance (Cyber Security) and corporate functions already being realised
- Global Professional Services sales orders stabilised, no material clients lost, however North America revenue performance experienced in H2 FY23 is currently annualising through H1 FY24 giving rise to YoY double digit Q1 revenue decline
- YoY double digit Q1 revenue growth in Global Managed Services
- YoY single digit Q1 revenue growth in Software Resilience against a low comparator
- Cost efficiencies across Assurance (Cyber Security) and corporate functions already being realised
Outlook
- The Board expects FY24 to be a period of considerable change for the Group, targeting a modest improvement in Group Adjusted Operating profit 1 in both the Assurance (Cyber Security) and Software Resilience businesses
- In Assurance (Cyber Security):
- We expect low single digit revenue growth arising from stronger performance in high value Managed Services, including XDR. This will offset the annualisation of the sales declines in North American and UK Professional Services experienced during H2 FY23.
- Identified various cost efficiencies across Assurance (Cyber Security) and corporate functions as announced in the June 2023 trading update and are on track to meet these.
- In Software Resilience
- We expect revenue growth in low single digits, underpinned by sustainable actions successfully taken on pricing and sales execution. The operating profit growth will be delivered net of inyear systems investments that will realise newly identified contribution efficiencies of c.£1m from FY25 onwards.
- The Board is confident that continued execution of the strategy will deliver double-digit revenue growth and mid-teens operating profit margins from FY26 onwards
Strategy
- Execution of the Next Chapter strategy progressing well following key leadership appointments with deep industry recognised expertise
- New global delivery and operations centre opened in Manila in September 2023
- New distinct brand for our Software Resilience business will roll out early in 2024 and will be revealed at our FY23 results presentation
Mike Maddison, Chief Executive Officer, commented:“While the market conditions we announced in our March Trading Update have impacted our FY23 revenue performance and profitability, we are confident about the medium-term growth drivers for cyber security and that continued progress on strategic actions will position the business to deliver greater growth and profitability in the years ahead.
I am pleased to report that since the launch of our Next Chapter strategy in February 2023, the Group has delivered foundational components of strategic change to create a more agile and resilient business, improve profitability and deliver shareholder value. I am grateful to all my NCC Group colleagues for their unwavering commitment and energy as we execute our plan to capitalise on the enduring opportunities in our markets, particularly given the material cost savings that we are realising in the business.
We have fortified our leadership team in key areas with high-calibre individuals with deep cyber industry expertise, accelerated the diversification of our client base across our fastest growing sectors, launched our new global delivery and operations centre in Manila and will reveal today a new distinct brand for our Software Resilience business, which will give us a clearer, simpler proposition with which to increase our presence in this market”.
Analyst presentation briefing and Q & A session:
A briefing for analysts will be held today at 9am at The London Stock Exchange – 10 Paternoster Square, London, EC4M 7LS. The briefing can also be viewed online via the following link (pre registration required): https://www.lsegissuerservices...
Enquiries:
NCC Group (www.nccgroupplc.com) +44 (0)7824 412 405
Yvonne Harley
H/Advisors Maitland +44 (0)20 7379 5151
Sam Cartwright