TIDMNCC
RNS Number : 5152D
NCC Group PLC
22 June 2023
22 June 2023
NCC Group plc
FY23 unaudited post-close trading and strategy update,
appointment of new Chief Financial Officer
and notice of final results
NCC Group plc (LSE: NCC, "NCC Group" or "the Group"), a leading
independent global cyber security and resilience provider, presents
the following unaudited post-close Trading Update for the year
ended 31 May 2023 in advance of publishing its audited preliminary
results (FY23) on 14 September 2023. NCC Group also announces the
appointment of Guy Ellis as Chief Financial Officer.
FY23 Trading Update (unaudited)
The Board expects:
-- Group LFL Revenue (1) in line with prior year at constant
currency (Reported: c.+5% growth), with:
-- Assurance (Cyber Security) revenues in line with prior year
at constant currency (Reported: c.+5% growth)
o H1 growth was c.+11% at constant currency (Reported: c.+18%).
H2 decline of c.-10% at constant currency (Reported: 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, both as previously announced in March 2023
o Global Professional Services H1 growth of c.+10% at constant
currency (Reported: c.+19%), with full year decline of c. -3% at
constant currency (Reported: c.+2% growth). H2 decline of c. -16%
at constant currency (Reported: c. -13%)
o Global Managed Services H1 growth of c.+11% at constant
currency (Reported: c.+13%), with full year growth of c.+12% at
constant currency (Reported: c.+15% growth). H2 growth of c. +14%
at constant currency (Reported: c. +18%)
-- Software Resilience (Escrow) showed a LFL revenue decline(2)
of c.-0.4% at constant currency (Reported: c.+6% growth), with:
o H1 decline of -1.6% at constant currency (Reported: +6.8%)
however H2 growth of c.0.6% at constant currency (Reported:
c.+5%)
o New leadership team (appointed in November 2022) starting to
deliver momentum, consistency in quarterly growth, price rises and
realisation of contribution previously estimated as part of the May
2022 operational review
-- Unaudited Group Adjusted EBIT within the range announced in
March 2023 (GBP28m to GBP32m), at c.GBP28.5m, driven by reduction
in North America and UK Cyber Security revenue expectations
previously announced in March 2023. Adjusted EBIT includes FY23
strategic costs of c.GBP2.5m with a proportion of the initially
estimated GBP5m deferred into FY24
-- Net debt (excluding IFRS 16) of c.GBP50m, with continued
strong cash conversion and giving expected leverage (excluding IFRS
16) of 1.4x
Footnotes:
1: Group LFL revenue growth is after considering prior year
Software Resilience fair value adjustment (GBP4.4m). Group revenue
growth on a statutory basis equates to c.2% at constancy currency
(Reported: c.7%).
2: Software Resilience LFL revenue growth is after considering
prior year Software Resilience fair value adjustment (GBP4.4m).
Software Resilience revenue growth on a statutory basis equates to
c.8% at constancy currency (Reported: c.14%).
Strategy and Management Team update
Executive Team
To implement the new strategy, we continue to review the
organisation and have made good progress in establishing a new
Executive Committee with the following recent and planned
appointments:
-- Angela Brown, Chief Marketing Officer, was appointed in
January 2023, with responsibility for global brand, PR and
marketing and communications. Angela has more than 25 years of
international experience in marketing, brand and
communications.
-- Kevin Brown, Chief Operating Officer, was appointed in June
2023 with responsibility for global delivery and service
capabilities. Kevin spent 20 years in UK policing (specialising in
intelligence and serious crime) before moving across to the private
sector in 2012. He joined BT initially to transform its ability to
manage risk progressing to leading and building BT's $1 billion
cyber security business.
-- Siân John, Chief Technology Officer, will join us in July
2023 from Microsoft to drive innovation, insight and intelligence.
Siân brings 25 years of cyber security experience across strategy,
business risk, privacy, and technology and is currently Chair of
techUK's Cyber Security Management committee and a council member
for EPSRC, the funding body for Engineering and Physical Sciences
Research in the UK.
-- Finally, we are pleased to announce that Guy Ellis has been
promoted to Chief Financial Officer replacing Tim Kowalski (See
later in the release for full details of this Board change).
Cyber Security
The market headwinds experienced in the Group's Cyber Security
business reinforces the need to implement the NCC Group's Next
Chapter Strategy (as announced in February 2023). Good progress has
been made against the four pillars with some highlights of this
progress including:
1. Global Delivery Model - an efficient, agile and scalable
delivery model with new leadership , best in class skills, flexible
resourcing and the creation of a new offshore delivery and
operations centre. Preparations for the new Delivery Centre in
Manila are ahead of schedule and this is due to open by the end of
September 2023. Our experienced implementation team are developing
relationships with top universities in the city to enable the
recruitment of key skills and talent. This combined with
experienced talent attraction in the region and our existing global
internal delivery teams, we will use the best skills and talent to
deliver our high-quality services (existing and new) to our
clients.
2. Clients - a renewed focus on priority sectors most exposed to
cyber risk generally. These are fast growing, highly complex and
often highly regulated sectors. We have standardised and aligned
sales around these priority sectors and are encouraged to see our
sales pipelines increasing notably in the infrastructure and
industrials sectors.
3. Capabilities - the development of end-to-end cyber security
services consisting of a broader service portfolio to address the
full cyber life cycle and ever evolving client needs. The leaders
of our three key global cyber capabilities (Technical Assurance,
Managed Services, Consulting and Implementation services) have been
appointed, with Incident Response to follow. We have developed our
Global Managed Service offering and are seeing increased sales
orders, which will lead to annual recurring revenues when work is
scheduled. Our ability to grow our Managed Services offering is
based on strong relationships with key technology suppliers, and we
therefore are continuing to grow and strengthen our key alliances
ecosystem (e.g. Microsoft).
4. Brand - create differentiated brands for our Software
Resilience and Cyber Security businesses and increase marketing
focus on cyber industry events and activity to engage the C-suite.
The re-brand of the Software Resilience business is nearing
completion, and the Cyber Security business re-brand is
underway.
The above actions have given rise to costs in FY23 of c.GBP2.5m.
The underspend in FY23 compared to the original GBP5m estimated in
February 2023 is due to timing differences arising from a rigorous
focus on cost control and enacting an evolving programme. Planned
expenditure to be incurred in FY24 amounts to c.GBP6m (including
GBP1m deferred from FY23). Total spend on NCC Group's Next Chapter
Strategy is therefore expected to amount to c.GBP8.5m over FY23 and
FY24.
Software Resilience
The leadership team remain focused on returning the business to
sustained growth and continuing to generate strong cash conversion
from our long client tenures and our diverse client portfolio. This
growth momentum is evidenced quarterly within FY23 and the
previously targeted additional contribution and price rises have
also been realised and sustained in FY23.
The business has continued to invest to underpin this growth,
including recruiting additional sales and service colleagues,
establishing new markets and rationalising systems as well as its
rebranding as mentioned above. The leadership team is actively
implementing its comprehensive plan, which identifies several
further opportunities to drive additional growth and contribution
from FY25.
The Group has stopped the strategic review of Software
Resilience and will revisit this later in the calendar year. This
ensures a focus on navigating the market conditions for Cyber
Security and implementing strategic actions, so the Group is well
positioned to return to growth when the market improves.
Current Trading and Outlook
The trading conditions in North America and the UK, mainly in
the provision of Professional Services, which led to the 31 March
Trading Update, have since stabilised. While a level of uncertainty
remains, the Group has not lost any material clients and has been
effectively diversifying its client base in the recent period.
In FY24, which will be a period of considerable change for the
Group, the Board expects to make modest improvement in Group
Adjusted EBIT driven by both the Cyber Security and Software
Resilience businesses.
In Cyber Security:
-- We expect low single digit revenue growth driven by stronger
performance in high value Managed Services, including XDR sales
orders and revenues, offsetting annualisation of the sales declines
in the North American technology sector and the UK professional
services sector experienced during H2 FY23.
-- Costs from our ongoing strategy investment (noted above) and
certain unavoidable inflationary pressures are expected to be
outweighed by improvements in utilisation and efficiency savings.
We have identified GBP10m of cost efficiencies across Cyber
Security and corporate functions, of which we expect to realise
approximately GBP5m in FY24 and achieve the full annual
contribution from FY25 onwards.
-- Our Manila delivery and operations centre will benefit Group
gross margin in the second half of the year, with the full year
effect expected to be neutral following the associated investment
in the first half. It will then contribute to expanded gross
margins on an ongoing basis from FY25.
We expect Software Resilience 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 in-year systems investments that will realise
newly identified contribution efficiencies of c.GBP1m from FY25
onwards.
With a clear strategy, the actions completed to date and the
ever-growing opportunities in the cyber market, we remain confident
in the Group's ability to achieve double-digit revenue growth and
mid-teens operating profit margins from FY26 onwards.
Board changes and appointment of a new Chief Financial
Officer
NCC Group is pleased to announce the appointment of Guy Ellis as
Chief Financial Officer following Tim Kowalski's decision to step
down after five years in the role.
Guy joined NCC Group in 2021, as Director of Commercial Finance
as well as serving as Interim Managing Director of our Software
Resilience business, and most recently as Interim Managing Director
of our UK Cyber business. Guy has over 25 years' experience in
Finance and Commercial roles in the retail sector for brands
including Asda and Specsavers. This experience, and the recent
interim roles in NCC Group have given him a breadth of
understanding of the commercial drivers and operations across the
whole business.
Tim will remain as CFO until 30 June 2023 and will support an
orderly handover to Guy, who will join the Board on the 30 June
2023.
The Company confirms that there is no additional information
which is required to be disclosed relating to Guy under paragraph
9.6.13 of the Listing Rules of the Financial Conduct Authority.
Mike Maddison, CEO, said:
"Since launching the next chapter of our strategy in February,
the Group has taken a number of strategic steps as we 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 the dynamic Cyber
market.
We have fortified our leadership team with high-calibre
appointments in key areas, accelerated the diversification of our
client base across our fastest growing sectors, secured our new
global delivery centre in Manila, which will open ahead of schedule
in September 2023, and we will soon complete the rebrand of our
Software Resilience business, with work on the Cyber Security brand
progressing well.
While the more challenging market conditions we announced in our
March Trading Update have impacted the FY23 outturn, we are
confident about the medium-term growth drivers for cyber and that
progress on strategic actions will position the business to deliver
greater growth and profitability in the current financial year and
beyond.
On behalf of everyone at NCC Group, I would like to thank Tim
for the enormous contribution he has made over the past five years,
and we wish him every success in the future.
Meanwhile, I am delighted that someone with Guy's commercial
perspective, transformation experience and track record in
organisations operating in fast-paced industries, has agreed to
step up from within NCC Group and we are proud of this internal
promotion. We are all very much looking forward to collaborating
with him in his new role."
Notice of Final results
The Group expects to report its audited preliminary results for
the year ended 31 May 2023, on 14 September 2023. Management will
host a presentation and Q&A session, details of which will be
circulated ahead of the event.
Enquiries:
NCC Group
Yvonne Harley +44 (0)7824 412 405
H/Advisors Maitland
Neil Bennett +44 (0)20 7379 5151
Sam Cartwright +44 (0)7827 254 561
About NCC Group
Purpose: Creating a more secure digital future.
Vision: To be a global leader in providing cyber security and
escrow services recognised for client centricity and the technical
depth and breadth of our capability. Famous for our people and a
culture that reflects professionalism, teamwork, and respect with a
relentless focus on quality and our contribution to the development
of the industry and our impact on wider society.
NCC Group is trusted by over 14,000 clients worldwide to protect
their most critical assets from the everchanging threat landscape.
With the company's knowledge, experience, and global footprint, it
is best placed to help organisations assess, develop, and manage
their cyber resilience posture. To support its purpose, NCC Group
continually invests in research and innovation, and is passionate
about developing the next generation of cyber scientists. With
c.2,300 colleagues in 12 countries, NCC Group has a significant
market presence in North America, Europe and the UK, and a
footprint in Asia Pacific with offices in Australia, Japan, and
Singapore.
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END
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