Full Year Results for the year ended 31 May 2019 25 July 2019 - PowerPoint PPT Presentation

Full Year Results for the year ended 31 May 2019 25 July 2019

Agenda Adam Palser Overview CEO Tim Kowalski Financial review CFO Adam Palser Business review CEO Q&A Appendix 2

Overview Profits : H2 EBIT up 11% to £18.9m (H2 2018*: £17.0m) Cash : Improved working capital processes have led to net debt reducing to £20.2m (FY18: £27.8m) People : Successful programme of recruitment and retention • Assurance: Technical teams fully resourced for growth; Strong operational focus now on sales effectiveness after H2 attrition as we progress in upgrade our capability • Escrow: Team restructured and sales team now fully H2 resourced for the new year with a 30% increase in people from HY19 Systems : Salesforce, our new CRM system, launched in the UK and Europe; 7 out of the 9 remaining new systems are now operational as we complete the first year of our Securing Growth Together transformation * 2018 excludes prior year discontinued items and is adjusted for the impact of IFRS 15 3

Overview • Robust global revenue growth, good profitability and excellent cash generation during first full year of operational transformation through our Securing Growth Together programme • Full year 10% revenue growth in Assurance and gross margin continues to highlights increase • A year of transition for Escrow with revenue down 3% although new Cloud-resilience offering, EaaS (“Escrow as a Service”), launched with encouraging initial demand • Regulatory pressure and high profile breaches continue to increase the strategic importance and value of cyber security in our target markets • 3 year SGT transformation progressing on time and within budget to Outlook create the next version of NCC Group • We look forward with confidence to a dynamic year and expect full year trading to be in line with our expectations 4

Agenda Adam Palser Overview CEO Tim Kowalski Financial review CFO Adam Palser Business review CEO Q&A Appendix 5

Financial summary Robust revenue, growing profit and better cash generation Adjusted EBIT Margin *1*2 % Revenue* 1 (£m) Adjusted EBIT *1*2 (£m) 13.4% (2018: 13.2%) (2018: £233.0m) (2018: £30.8m) +0.2% pts £250.7 m £33.7 m Assurance GM *1 % Escrow GM *1 % Gross Margin *1 % 40.6% (2018: 41.2%) 34.6% (2018: 34.0%) 74.5% (2018: 76.5%) -0.6% pts +0.6% pts -2.0% pts Net Debt *3 (£m) Free Cash Flow *1*5 (£m) Cash conversion ratio *4 (2018: £27.8m) (2018: £20.3m) (2018: 90.2%) £20.2 m £30.7 m 109.6% References to the Group’s results, unless stated to the contrary, are to continuing operations only and exclude the performa nce of businesses sold or discontinued in the prior year (principally Web *1 Performance and Software Testing) and incorporate the retrospective application of IFRS 15 and IFRS 9 for comparative information *2 Adjusted EBIT excludes individually significant items, share based payments, unwinding of discounts on deferred consideration, profit on disposal of investments and amortisation of acquired intangible assets. This is an Alternative Performance Measure (APM) for which a reconciliation to the equivalent GAAP measure is detailed in Note 2 of the RNS *3 Net debt is defined as total borrowings less cash and cash equivalents. As an APM, it is detailed in Note 2 of the RNS *4 Cash conversion ratio is a measure of how effectively Adjusted EBITDA is converted into cash. As an APM, it is detailed in Note 2 of the RNS *5 Free cash flow is defined as cash generated from operating activities before interest and tax less net interest paid, tax paid, tangible capex and software expenditure. See page 13 of this presentation 6

Financial performance – income statement Profitable growth in first year of transformation • North America and Europe & RoW strong growth 2019 2018* Continuing operations (£m) (£m) • UK, across Assurance and Escrow, continued to Revenue 250.7 233.0 have sales capability challenges Cost of Sales (148.9) (137.1) Gross Margin 101.8 95.9 • GM% grew in Assurance but impacted by Escrow Gross Margin % 40.6% 41.2% G&A before adjusting items excluding decline due to higher direct sales costs as a (58.1) (53.0) Depreciation and Amortisation proportion of lower Y-O-Y contract revenue Adjusted EBITDA 43.7 42.9 Adjusted EBITDA Margin % 17.4% 18.4% • G&A cost increases as a result of investments in Depreciation and Amortisation (10.0) (12.1) people, training and occupancy costs Adjusted EBIT 33.7 30.8 Adjusted EBIT Margin % 13.4% 13.2% • Adjusting items reduced against prior year due to Financing costs (1.7) (1.5) lower ISIs mitigated by higher share-based Adjusted Profit before taxation 32.0 29.3 payments and were broadly cash neutral Adjusted Taxation (6.5) (6.6) Adjusted profit from continuing 25.5 22.7 • Adjusted Effective Tax Rate of 20.3% mainly from operations US federal rate cut Adjusted Basic EPS (pence) 9.2 8.2 • Adjusted EPS growth of 12.2% *2018 excludes prior year discontinued items and revenue is reduced by £0.2m due to the impact of IFRS 15 7

Financial performance – Group revenue bridge Robust Assurance revenue growth * ** *** • Fall in product sales consistent with strategy to de-emphasise non-value added sales • Assurance delivered strong growth (+9.7%) of £18.8m to grow to £212.7m *** • Escrow overall decline of -2.8%; mainly due to UK decline of -6.5% offset by growth in North America of +10.7% *2018 excludes prior year discontinued items and revenue is reduced by £0.2m due to the impact of IFRS 15 ** Product sales decline of £3.1m includes UK 3 rd party product sales decline of £3.6m while Europe & RoW has increased by £0.5m ***Assurance revenue growth in total is £18.8m which includes product sales decline of £3.1m (£21.9m excluding product sales); FY19 turnover of £212.7m (2018: £193.9m) 8

Financial performance – adjusted EBIT bridge^ Year on year profitable growth while investing in transformation * • Assurance increase is driven by increased revenues, gross margin improvement offset by increased people and allocated corporate costs • Escrow decline is a result of the impact of decreased revenues and margin decline with additional people and allocated corporate costs • Support costs increase predominantly relates to the investment in support colleagues to professionalise the business coupled with higher occupancy costs. These increases were mitigated by lower depreciation & amortisation mainly due to disposals in the prior year * 2018 restated for prior year discontinued items and adjusted for the impact of IFRS 15 of £0.2m ^ Adjusted EBIT bridge excluding impact of corporate allocations is shown in the Appendix 9

Financial performance – Assurance Profitable growth globally although variability in regional demand • Revenue growth per territory: • Strong in North America: +23.4% to £75.5m • Robust in Europe and RoW: +12.9% to £48.3m • Disappointing in UK: +3.1%** excluding products (-1.1% overall to £88.9m) • Technical resourcing challenge in H1 • GM% margin grew by +0.6% pts as a result of improved value selling and resourcing despite lower utilisation • Average Order Value increased by 23% and 28% in UK and North America respectively • Global resourcing increased by approx. 31% • Utilisation in technical consulting decreased to 75.4% from 78.6% across combined UK and US with planned investment in research days Assurance* 2019 2018 % Change Revenue £m 212.7 193.9 9.7% Gross profit £m 73.5 66.0 11.4% GM% 34.6% 34.0% 1.8% Adjusted EBIT £m 22.6 16.5 37.0% Adjusted EBIT Margin % 10.6% 8.5% 24.7% *2018 Assurance revenue reduced by £0.5m due to the impact of IFRS 15; 2017 has not been restated for IFRS 15 on basis of materiality. Excludes prior year discontinued activities **removes UK 3 rd party product sales from both 2018 and 2019 10

Financial performance – Escrow Targeting growth after re-investment in sales and launch of cloud- resilience EaaS • Good growth in North America revenue +10.7% (2018: - 5.1%) as we increase our presence there • UK disappointing with operational challenges resulting in revenue decline of -6.5% leading to a GM% decrease of 3.0% pts in UK • We recently won our largest ever on-premise deal (£800k) with major international bank • Renewal rates remain firm at 89.6% (2018: 89.6%) • New cloud-resilience offering EaaS launched coupled with re-investment in sales gives us confidence in our ability to return Escrow to revenue growth • investment in EaaS market launch may dilute margin temporarily • EBIT margin impacted by increased investment in support colleagues to professionalise the business Escrow* 2019 2018 % Change Revenue £m 38.0 39.1 (2.8%) Gross profit £m 28.3 29.9 (5.4%) GM % 74.5% 76.5% (2.6%) Adjusted EBIT £m 19.0 21.9 (13.2%) Adjusted EBIT Margin % 50.0% 56.0% (10.7%) * 2018 revenue increased by £0.3m for the impact of IFRS 15; 2017 revenue decreased by £0.4m for impact of IFRS15 for comparative analysis and is unaudited. Excludes prior year discontinued activities 11