Ncc Group Plc · LSE:NCC
Ncc — H1 2018 Earnings Presentation
30 slides from Ncc's earnings presentation, Jan 16, 2018
Slide 1: Half Year Results
Half Year Results for the six months ended 30 November 2017 16 January 2018 Chairman – Chris Stone CEO – Adam Palser CFO – Brian Tenner
Slide 2: Agenda
Agenda Overview and strategy update Financial highlights Financial performance First impressions Current trading and outlook Q&A Appendices NCC Group plc Six months ended 30 November 2017 2
Slide 3: Overview
Overview Good progress against all of our Strategic Objectives Adam Palser appointed as new CEO 1 December 2017 1. Grow revenue at a managed pace • Medium term goal of above market growth rates while controlling costs • Year on year organic growth in retained Assurance (14.3%) and Escrow (1.6%) 2. I
Slide 4: Overview (continued)
Overview (continued) Good progress against all of our Strategic Objectives 4. Lead technical thinking and product development in our market sector • Launch of CENTA service (Centre for Evolved Next Generation Threat Assurance) - unique high value offering in regulated financial services and governme
Slide 5: Financial performance
Financial performance Six months ending 30 November 2017 CFO – Brian Tenner
Slide 6: Highlights H1 - 2018
Highlights H1 - 2018 Assurance Growth Escrow Growth +8.3% +1.6% Assurance GM% Escrow GM% +2.7% +4.9% Group EBIT Margin Cash Conversion (2.8%) +13.5%
Slide 7: Summary Income Statement
Summary Income Statement Prior periods re-stated for H1 H1 H2 discontinued operations* • Firm recovery from low point in H2 PY 2018 2017 2017 £m £m £m • Continuing revenue grew £7.9m (7.2%): Revenue 118.2 110.3 107.5 o Retained organic Assurance grew 14.3% o Escrow grew 1.6% (2.1% before FX) Gross p
Slide 8: Revenue bridge
Revenue bridge £m Assurance growth 130 UK 11% 1.3 US 18% 125 NL 23% 7.6 120 9.8 DK 17% 0% 5% 10% 15% 20% 25% 115 4.2 0.4 118.2 110 0.2 110.3 105 H1 2017 FX Escrow PSC & VSR Assurance Fox HA MSS - Products H1 2018 • Escrow growth in UK partly offset by weaker USA • Fox High Assurance delivered recove
Slide 9: GM% bridge
GM% bridge % 40% 39% 0.4% 0.8% 38% 1.4% 37% 39.4% 36% 36.8% 35% 34% H1 2017 Organic PSC & VSR MSS - Products H1 2018 • GM% growth driven by three different factors: o Organic improvements in Escrow (4.9% pts) and Assurance (2.7% pts) – Group GM% growth partially diluted by Assurance growing much fas
Slide 10: Assurance performance
Assurance performance 120 Reported H1 revenue (£m) • Sales grew £7.6m (8.3%): 100 o Retained organic growth £11.1m (14.3%) 80 o Acquisitions added a further £4.2m o Expansion of higher value added service lines 60 such as Risk Management & Governance 91.6 99.2 o Increasing share of revenue being sol
Slide 11: Escrow performance
Escrow performance 25 • Growth of £0.3m (1.6%), made up of: Reported revenue (£m) 20 o UK growth £0.7m; offset by o US reduction £0.4m (£0.1m FX) – team 15 changes aimed at returning to growth H2 o Europe broadly flat 10 18.7 19.0 16.5 5 • Renewal rates firm at 89% (2017: 89%) – new customer service
Slide 12: General admin cost increases
General admin cost increases £m 28.0 0.2 0.6 26.0 1.4 24.0 0.6 1.7 22.0 1.3 26.6 20.0 18.0 20.8 16.0 H1 2017 FX Acq'ns Salaries Property Prof Fees Other H1 2018 • Adverse £1.3m transactional FX year-on-year (in G&A) • Salaries relates to PY headcount growth and additional bonus provisions £0.5m • Pr
Slide 13: Adjusted EBIT bridge
Adjusted EBIT bridge £m 24 G&A to stabilise in 22 H2 - opportunity for 1.2 operational leverage 20 4.0 18 4.2 2.3 16 1.3 1.4 1.5 0.1 14 16.2 14.1 12 H1 2017 FX Acq'ns Growth GM% G&A D&A MSS Other H1 2018 Products • Recent acquisitions in US continue to make good contributions to EBIT • Estimated imp
Slide 14: Individually significant items
Individually significant items Charges / (credits) H1 H1 • Deferred consideration charges (in both 2018 2017 years) primarily Fox-IT (FX) (£m) (£m) • Expected €12.5m deferred payment for Fox-IT: 90% withheld pending dispute outcome on certain warranty matters, Changes in deferred / 10% paid in full
Slide 15: Tax and dividends
Tax and dividends 40.0% Effective adjusted tax rate (%) • Effective adjusted tax rate 27.6% based on 30.0% full year forecast (PY’s are full years also) 29.1% 27.6% 20.0% 22.0% 21.7% • Reflects blend of UK / US / NL rates 10.0% • Reviewing current inefficient structures 0.0% • US changes will cut Gr
Slide 16: Cash flow and net debt
Cash flow and net debt Includes continuing AND H1 H1 • Positive result from early focus on discontinued operations 2018 2017 (£m) (£m) working capital management Adjusted EBITDA 20.8 21.2 • Other operating cash flows mainly cash Movement in working capital (0.7) (7.1) exceptional costs in the period
Slide 17: First impressions and next steps
First impressions and next steps CEO – Adam Palser
Slide 18: First impressions
First impressions Strengths Priorities • Strong organic Assurance market • Strengthen Assurance: demand in UK and US businesses o Greater visibility of sales pipeline o Less 'day rate' pricing • People: passionate, skilled, o Progress through utilization gains interesting o AND... o ...higher margin
Slide 19: Level of Differentiation
Portfolio summary High Assurance Premium products with recurring revenues Differentiated Incident Response Threat Intelligence Level of Differentiation Process & Governance Monitoring Security Testing Products Standardised Escrow Bubble Size Indicates Commoditised products with low NCC FY17 Revenue
Slide 20: Current trading and outlook
Current trading and outlook • Markets buoyant although month to month volatility in NCC performance remains • Strong current trading in key Assurance geographies • Escrow growth in UK as expected, US requires additional focus on large opportunity • G&A costs targeted to remain flat on an annualised
Slide 21: Thankyou Q&A
nccgroup* Thankyou Q&A
Slide 22: Appendices
Appendices
Slide 23: Balance sheet
Balance sheet H1 2018 includes Assets Held H1 H1 • Intangible impairments booked in for Sale, PY not re-stated 2018 2017 (£m) (£m) May 2017 of £59.5m Intangible assets 247.8 334.7 • PPE grew with property fit out costs Property, plant and equipment 20.3 14.6 and ongoing IT spend Investments 0.4 0.3
Slide 24: Non-GAAP reconciliation
Non-GAAP reconciliation Continuing operations only H1 H1 • Table reconciles GAAP and non-GAAP 2018 2017 measures used by management £m £m • Adjusted EBITDA flat on PY – £2.1m Adjusted EBITDA 20.0 19.8 fall in EBIT offset by £2.3m rise in D&A Depreciation of tangibles (3.1) (2.4) • Depreciation incre
Slide 25: Reconciliation: businesses held for sale / exited
Reconciliation: businesses held for sale / exited H1 - 2018 H1 - 2017 £m £m Revenue including businesses held for sale / exited 130.2 125.8 Revenue from businesses held for sale / exited (12.0) (15.5) Reported revenue 118.2 110.3 Adjusted EBIT including businesses held for sale / exited 14.5 17.1 Ad
Slide 26: Treatment of businesses sold or held for sale
Treatment of businesses sold or held for sale H1 2018 Group Web & SWT Domain Continuing Operations £m £m £m £m Revenue 130.2 (12.0) - 118.2 Cost of sales (81.2) +9.6 - (71.6) Gross profit 49.0 (2.4) - 46.6 G&A (34.4) +1.8 +0.1 (32.5) Adjusted EBIT 14.6 (0.6) +0.1 14.1 Unwinding discount on provision
Slide 27: Depreciation and amortisation charges
Depreciation and amortisation charges H1 - 2018 H1 - 2017 £m £m Adjusted EBIT 14.1 16.2 Amortization of capitalized development costs 2.8 1.6 Depreciation of PPE 3.1 2.4 Adjusted EBITDA 20.0 19.8 Amortisation of acquired intangibles 4.9 5.1 Total D&A 10.8 8.7 • Increases in 2018 in amortisation of c
Slide 28: Foreign exchange rates
Foreign exchange rates Columns show WAER FX rates 1.40 at each half year end 1.35 1.30 1.25 1.20 1.15 1.10 1.05 USD EUR 1.00 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 • Compared to H1 PY, the six month average FX rat
Slide 29: Free cash flow and cash conversion ratio
Free cash flow and cash conversion ratio H1 - 2018 H1 - 2017 £m £m Net cash from operating activities 14.7 12.2 Net capital expenditure (6.0) (3.6) Capitalised development costs (2.5) (4.3) Free cash flow +6.2 +4.3 • NCC systems do not currently capture ‘discretionary’ vs ‘maintenance’ capex • There
Slide 30: Working capital
Working capital Sales WC assets H1 - 2018 H1 - 2017 £m £m Accrued income 19.2 23.8 Trade debtors 39.1 44.5 ‘Sales’ working capital 58.3 68.3 Annualised* Q2 sales 270.2 260.8 Sales WC % 21.6% 26.2% * Annualised calculated using reported Q2 sales. CY includes Web and Software Testing (held for sale bu