Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NCC Group PLC (FRA:NZB, Financial) achieved a 2 percentage point increase in gross margin, reaching 41.4% year-on-year.
- Adjusted EBITDA increased by 13%, demonstrating improved profitability.
- The company successfully launched a sector-based go-to-market approach in North America, expanding its footprint beyond the US tech market.
- Managed services and digital forensics areas showed substantial growth, with managed services revenue becoming more resilient due to long-term contracts.
- The company received recognition as the Global Partner of the Year for Splunk, highlighting its strong alliances and service delivery.
Negative Points
- Revenue in FY24 declined by GBP10.7 million compared to FY23, primarily due to a decrease in the cybersecurity segment.
- North America saw a significant decline in cybersecurity revenue, down by 26.8% in the first half and 19% in the second half.
- Gross margin in the Escode business declined by 1.6 percentage points due to targeted investments.
- Technical assurance services in North America faced challenges, impacting overall performance.
- The company is still working on addressing market dynamics and expanding its footprint outside of historically concentrated sectors.
Q & A Highlights
Q: In terms of the strategic objectives for FY25 and how you're thinking about the cyber business going forward, can you talk about how the flywheel has evolved across the different regions and how you'd like to move that forward over time?
A: (Mike Maddison, CEO) Our capabilities and go-to-market strategies vary by region due to historical growth and acquisitions. In North America, we see significant opportunities to expand beyond technical assurance services. The UK is more mature, while Northwest Europe shows huge potential, especially in managed services. Our focus for FY25 is to build capabilities and confidently go to market with our comprehensive offerings.
Q: Are acquisitions going to be a part of your strategy?
A: (Mike Maddison, CEO) Yes, we are now more actively considering both organic and inorganic growth opportunities. (Guy Ellis, CFO) The foundational work in globalizing capabilities makes inorganic activity more feasible, and our stronger balance sheet supports this approach.
Q: Looking at the gross margins across cyber, the UK and APAC really stood out in the second half. Is there anything unusual about that number, and is it sustainable?
A: (Guy Ellis, CFO) The numbers are real, supported by high utilization rates, especially in the UK. There is an inter-company effect where work won in North America is delivered from the UK or Manila, boosting margins. We aim to improve North America's margins by adopting best practices and leveraging new tools like Kantata for better pricing decisions.
Q: What's your view on resourcing going forward, and can you share your plans for headcount in the cyber and assurance business for FY25?
A: (Guy Ellis, CFO) We're currently going through our budgeting process. Given the volatility in TAS, we're ensuring sound planning for next year. We take a global view on recruitment, allowing us to be more flexible and quicker in resourcing where needed.
Q: On Escode, can you talk about the price increases and their sustainability, and the margins on new business in critical infrastructure?
A: (Guy Ellis, CFO) Price increases have been targeted and typically in the 5-6% range. Margins on new business in critical infrastructure are not diluted and support overall margin growth.
Q: What needs to be done to grow the managed services market in North America?
A: (Mike Maddison, CEO) Success in managed services has come from integrating our offerings and targeting enterprise-level clients. In North America, the challenge is fragmentation and competition. We've invested in leadership and go-to-market strategies, but significant growth may require inorganic opportunities, though valuations are a consideration.
Q: What drove the decline in consulting, and is it an execution or market issue?
A: (Mike Maddison, CEO) The decline is due to an evolution in our consulting practice. We've invested in new leadership and broadened our offerings to include areas like digital identity and operational technology, which we believe have greater market opportunities.
Q: Can you talk about the utilization of personnel in the Philippines and the ease of shifting current work there for margin improvement?
A: (Mike Maddison, CEO) Utilization is in line with plans, and we are building talent through training. Some contracts allow flexibility to shift work, while others require renegotiation. New work is approached with flexibility to meet client needs.
Q: What's the cultural adaptation to using the Philippines facility among onshore staff?
A: (Mike Maddison, CEO) The cultural shift is positive, with strong client feedback on the quality of work from Manila. We view our team as global, deploying resources as needed to meet client requirements.
Q: Given the scale of the opportunity in managed services, are you considering increasing marketing spend?
A: (Mike Maddison, CEO) We are actively considering increasing marketing spend to build our brand and drive top-of-funnel growth. Historically, NCC Group has not been marketing-led, but we see the importance of building our reputation and driving growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
