Proxy Solicitation & Information Statement • May 14, 2021
Proxy Solicitation & Information Statement
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this document or the action you should take, you are recommended to seek your own financial or professional advice immediately from your stockbroker, bank, solicitor, accountant, fund manager or other appropriate independent financial adviser duly authorised under the Financial Services and Markets Act 2000 (as amended) if you are resident in the United Kingdom or, if not, from another appropriately authorised independent financial or professional adviser.
If you sell or have sold or otherwise transferred all of your Ordinary Shares in NCC, please send this document, together with the accompanying Form of Proxy, as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected, for onward transmission to the purchaser or transferee. If you sell or have sold or otherwise transferred only part of your holding of Ordinary Shares, you should retain this document and the accompanying Form of Proxy and you should consult with the stockbroker, bank or other agent through whom the sale or transfer was effected.
Any person (including, without limitation, custodians, nominees, and trustees) who may have a contractual or legal obligation or may otherwise intend to forward this document to any jurisdiction outside the United Kingdom should seek appropriate advice before taking any such action. The distribution of this document and any accompanying documents into jurisdictions other than the United Kingdom may be restricted by law. Any person not in the United Kingdom into whose possession this document and any accompanying documents come, should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.
(incorporated in England and Wales under the Companies Act 1985 with registered number 04627044)
This document should be read as a whole, including any of the documents (or parts thereof) incorporated herein by reference. Your attention is drawn to the letter from your Chairman which is set out in Part 1 (Letter from the Chairman) of this document and which contains a recommendation from the Board to vote in favour of the Resolution to be proposed at the General Meeting referred to below. Your attention is also drawn to Part 2 (Risk Factors) of this document for a discussion of certain factors which should be taken into account in considering the matters referred to in this document.
Notice of a General Meeting of NCC, to be held at 9:30 a.m. on 1 June 2021 at the registered office of NCC, being XYZ Building, 2 Hardman Boulevard, Spinningfields, Manchester M3 3AQ, is set out in Part 10 (Notice of General Meeting) of this document. A Form of Proxy for use at the General Meeting is enclosed, and, to be valid, should be completed, signed and returned in accordance with the instructions printed thereon to NCC's Registrars, Equiniti Limited, at Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA as soon as possible but in any event so as to arrive no later than 9:30 a.m. on 27 May 2021 (48 hours before the time fixed for the start of the General Meeting not taking into account any day which is not a Business Day). Forms of Proxy received after this time will be invalid. If you hold NCC shares in CREST, you may appoint a proxy by completing and transmitting a CREST Proxy Instruction to the Registrars, Equiniti (CREST participant ID: RA19). Alternatively, you may give proxy instructions by logging on to www.sharevote.co.uk. Please refer to the notes in Part 10 (Notice of General Meeting) for further details on appointing a proxy.
As a result of the ongoing COVID-19 global pandemic and the legal measures that the UK Government has put in place restricting public gatherings, for the safety of our Shareholders, our employees, our advisers and the general public, the General Meeting will be held with the minimum number of Directors who are Shareholders in attendance so as to meet the quorum requirement. Other Shareholders or their appointed proxies (other than the chair of the General Meeting) will not be permitted entry to the General Meeting. Shareholders should instead vote in advance by proxy by appointing the chair of the General Meeting as their proxy in respect of all of their shares to vote on their behalf.
This document is not a prospectus, but a shareholder circular, and it does not constitute or form part of any offer or invitation to purchase, acquire, subscribe for, sell, dispose of or issue, or any solicitation of an offer to sell, dispose of, issue, purchase, acquire or subscribe for, any security. This document is a circular which has been prepared in accordance with the Listing Rules and approved by the FCA.
No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied on as having been so authorised. The delivery of this document shall not, under any circumstances, create any implication that there has been no change in the affairs of NCC since the date of this document or that the information in it is correct as of any subsequent time.
Lazard & Co., Limited ("Lazard") is acting as financial adviser and Peel Hunt LLP ("Peel Hunt") is acting as sponsor, in each case to NCC in connection with the Acquisition and the matters referred to in this document. Each of Lazard and Peel Hunt (together, the "Banks") is authorised and regulated by the FCA in the United Kingdom and is acting exclusively for NCC and no one else in connection with the Acquisition and the matters referred to in this document and will not regard any other person (whether or not a recipient of this document) as a client in relation to the matters described in this document. None of the Banks will be responsible to anyone other than NCC for providing the protections afforded to its clients or for providing advice in relation to the matters described in this document. None of the Banks nor any of its subsidiaries or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not its client in connection with this the Acquisition and the matters referred to in this document, any statement contained in this document or otherwise. Apart from the responsibilities and liabilities, if any, which may be imposed on Peel Hunt as sponsor by FSMA or any other regulatory regime established under FSMA, none of the Banks accepts responsibility for the contents of this document, and no representation or warranty, express or implied, is made by any of the Banks in relation to the contents of this document, including its accuracy, completeness or verification of any other statement made or purported to be made by it, or on its behalf, in connection with NCC, the Acquisition or the matters described in this document. To the fullest extent permissible by law, each of the Banks accordingly disclaims all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this document or any such statements.
This document includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "may", "will", "would" or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include statements regarding the Group's and/or the Directors' intentions, beliefs or current expectations concerning, among other things, the Group's results, operations, financial condition, prospects, growth strategies and the markets in which the Group operates. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements, including without limitation: conditions in the markets, the market position of the Group, earnings, financial position, return on capital, anticipated investments and capital expenditure, changing business or other market conditions and general economic
conditions. These and other factors could adversely affect the outcome and financial effects of the events described herein and the Group. Forward-looking statements contained in this document based on these trends or activities should not be taken as a representation that such trends or activities will continue in the future. This section does not serve to qualify the working capital statement in paragraph 5 of Part 6 (Additional Information) of this document.
These forward-looking statements are further qualified by risk factors disclosed in this document that could cause actual results to differ materially from those in the forward-looking statements. See Part 2 (Risk Factors) of this document.
These forward-looking statements speak only as at the date of this document. Except as required by the Listing Rules, the Disclosure Guidance and Transparency Rules and any applicable law, NCC and/or the Directors, do not have any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, further events or otherwise. Except as required by the Listing Rules, the Disclosure Guidance and Transparency Rules and any applicable law, NCC and the Directors expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in NCC's and/or the Directors' expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document might not occur. Prospective investors should specifically consider the factors identified in this document which could cause actual results to differ before making an investment decision. Investors and Shareholders should note that the contents of these paragraphs relating to forward looking statements are not intended to qualify the statements made as to the sufficiency of working capital in this document.
This document includes certain unaudited non-IFRS measures and ratios, including Earnings before interest, tax, depreciation and amortisation (EBITDA), Adjusted EBITDA and Adjusted EBIT, which are not measures of financial performance under IFRS. In particular:
The Directors and the Group's management use these measures to evaluate the Group's performance and the Directors believe these measures provide investors with meaningful, additional insight as to underlying performance of the Group. These measures are "alternative performance measures" under the European Union regulations.
Prospective investors should not consider these non-IFRS financial measures as alternatives to measures reflected in the consolidated financial statements of the Group, which have been prepared in accordance with IFRS. In particular, prospective investors should not consider such measures as alternatives to profit after tax, operating profit or any other performance measures derived in accordance with IFRS or as an alternative to cash flow from operating activities as a measure of the Group's activity. Because alternative performance measures are not determined in accordance with generally accepted accounting principles and are thus susceptible to varying calculations, the Group's non-IFRS financial measures may not be comparable with similarly titled financial measures reported by other companies. A reconciliation of non-IFRS measures to the IFRS financial statements can be found in the interim results for the six months ended 30 November 2020 within note 2.
These measures, by themselves, do not provide a sufficient basis to compare the Group's performance and financial position with those of other companies and should not be considered in isolation, as a substitute, profit before tax, operating profit, or any other performance measure derived in accordance with IFRS or as an alternative to cash flow from operations as a measure of liquidity.
The historical financial information of IPM (the "Target") and its affiliates that hold assets comprising the IPM Business (collectively, the "Target Group") set out in Part 4 (Historical Financial Information Relating to the Target) has been prepared in accordance with IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
This document includes unaudited non-IFRS financial measures and ratios, including EBITDA, which are not measures of financial performance under IFRS. EBITDA, as presented in relation to the Target Group is defined as operating profit or loss for the year before amortisation and depreciation and individually significant items. Cash conversion calculated in line with NCC methodology of net cash flow from operating activities before interest and taxation divided by Adjusted EBITDA on a post IFRS16 basis.
Prospective investors should not consider these non-IFRS financial measures as alternatives to measures reflected in the historical financial statements of the Target, which have been prepared in accordance with IFRS. In particular, prospective investors should not consider such measures as alternatives to profit after tax, operating profit or any other performance measures derived in accordance with IFRS or as an alternative to cash flow from operating activities as a measure of the Target's liquidity.
Unless otherwise indicated, all references to "GBP", "£", "pounds", "sterling", or "pounds sterling" are to the lawful currency of the United Kingdom and all references to "USD", "\$", "U.S. dollars" or "United States dollars" are to the lawful currency of the United States.
In addition, certain U.S. dollar figures in this document have been converted into pounds sterling using the Bloomberg spot rate as at 4:35 p.m. on 12 May 2021 (\$1.409:£1.00), unless otherwise stated. Such pounds sterling amounts are not necessarily indicative of the amounts of pounds sterling that could have actually been purchased upon exchange of such currencies at the dates indicated.
Market, economic and industry data used throughout this document is derived from various industry and other independent sources. NCC and the Directors confirm that such data has been accurately reproduced and, so far as they are aware and are able to ascertain from information published from such sources, no facts have been omitted which would render the reproduced information inaccurate or misleading.
Percentages in tables have been rounded and accordingly may not add up to 100 per cent. Certain financial data have also been rounded. As a result of this rounding, the totals of data presented in this document may vary slightly from the actual arithmetic totals of such data.
Certain terms used in this document, including capitalised terms and certain technical terms, are defined and explained in Part 8 (Definitions) of this document.
Certain information in relation to NCC is incorporated by reference into this document. Further information is set out in Part 7 (Information incorporated by reference) of this document. Without limitation, unless expressly stated herein, the contents of the websites of the Group, and any links accessible through the websites of the Group, do not form part of this document.
Other than the NCC Profit Forecast referred to in paragraph 8 of Part 1 (Letter from the Chairman) and set out in Part 9 (NCC Profit Forecast), no statement in this document is intended as a profit forecast or estimate for any period and no statement in this document should be interpreted to mean that earnings, earnings per share or income, cash flow from operations or free cash flow for the Group or the Enlarged Group, as appropriate, for the current or future financial years would necessarily match or exceed the historical published earnings, earnings per share or income, cash flow from operations or free cash flow for the Group or the Enlarged Group, as appropriate.
This document is not a prospectus and it does not constitute or form part of any offer or invitation to purchase, acquire, subscribe for, sell, dispose of or issue, or any solicitation of any offer to sell, dispose of, purchase, acquire or subscribe for, any security.
This document is dated 14 May 2021.
| Section | Page | |
|---|---|---|
| PRESENTATION OF INFORMATION | 2 | |
| DIRECTORS, COMPANY SECRETARY AND ADVISERS | 7 | |
| EXPECTED TIMETABLE OF PRINCIPAL EVENTS | 8 | |
| PART 1 | LETTER FROM THE CHAIRMAN | 9 |
| PART 2 | RISK FACTORS | 18 |
| PART 3 | SUMMARY OF THE PRINCIPAL TERMS OF THE ACQUISITION AGREEMENTS |
25 |
| PART 4 | HISTORICAL FINANCIAL INFORMATION RELATING TO THE TARGET GROUP |
28 |
| PART 5 | UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP |
65 |
| PART 6 | ADDITIONAL INFORMATION | 71 |
| PART 7 | INFORMATION INCORPORATED BY REFERENCE | 80 |
| PART 8 | DEFINITIONS | 81 |
| PART 9 | PROFIT FORECAST OF THE GROUP | 85 |
| PART 10 NOTICE OF GENERAL MEETING | 87 |
| Directors | Christopher Stone (Non-Executive Chairman) Dr. Adam Palser (Chief Executive Officer) Timothy Kowalski (Chief Financial Officer) Christopher Batterham (Senior Independent Non-Executive Director) Jonathan Brooks (Non-Executive Director) Jennifer Duvalier (Non-Executive Director) Michael Ettling (Non-Executive Director) |
|---|---|
| Company Secretary | Timothy Kowalski |
| Registered Office | XYZ Building 2 Hardman Boulevard Spinningfields Manchester M3 3AQ |
| Financial Adviser | Lazard & Co., Limited 50 Stratton Street London W1J 8LL |
| Sponsor | Peel Hunt LLP 100 Liverpool Street London EC2M 2AT |
| Legal advisers to NCC | Covington & Burling LLP 265 Strand London WC2R 1BH |
| Legal advisers to Sponsor | Davis Polk & Wardwell London LLP 5 Aldermanbury Square London EC2V 7HR |
| Reporting Accountant | PricewaterhouseCoopers LLP 1 Embankment Place Charing Cross London WC2N 6RH |
| Registrars | Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA |
Each of the times and dates in the table below is indicative only and may be subject to change by NCC, in which event details of the new times and dates will be notified to the Financial Conduct Authority and, where appropriate, to Shareholders by announcement through a Regulatory Information Service.
All references to times in the timetable below are to London times.
| Announcement of the Acquisition | 13 May 2021 |
|---|---|
| Publication and posting of this document, including the Notice of General Meeting | 14 May 2021 |
| Latest time and date for receipt of Forms of Proxy, CREST Proxy Instructions and electronic registration of a proxy appointment |
9:30 a.m. on 27 May 2021 |
| Record date for entitlement to vote at the General Meeting | Close of business on 27 May 2021 |
| General Meeting | 9:30 a.m. on 1 June 2021 |
| Expected timing of Completion | 7 June 2021 |
(incorporated in and registered in England and Wales with registered number 04627044)
Christopher Stone Adam Palser Timothy Kowalski Christopher Batterham Jonathan Brooks Jennifer Duvalier Michael Ettling
Directors: Registered Office: XYZ Building 2 Hardman Boulevard Spinningfields Manchester M3 3AQ
14 May 2021
Dear Shareholder,
On 13 May 2021, NCC Group plc ("NCC", the "Company" or the "Group") announced the proposed acquisition of the Intellectual Property Management business (the "IPM Business") of Iron Mountain Inc. ("Iron Mountain"), comprising substantially all of the assets of Iron Mountain Intellectual Property Management, Inc. ("IPM"), together with certain other assets of affiliates of Iron Mountain exclusively related to the IPM Business, for a consideration of \$220 million (£156 million) (the "Acquisition"). The consideration for the Acquisition will be satisfied entirely in cash.
The consideration and related transaction costs will be funded through a combination of (i) the net proceeds of the placing of new Ordinary Shares in the Company announced on 13 May 2021 (the "Placing"), (ii) a new loan facility, provided under the Term Facility Agreement as described in paragraph 8.6 of Part 6 (Additional Information), (iii) the existing Revolving Credit Facility Agreement, as described in paragraph 8.5 of Part 6 (Additional Information), and (iv) existing cash balances.
The IPM Business, operating from Boston, Massachusetts, USA, is a leading software escrow provider with operations primarily in the United States. It serves a large and diverse blue chip customer base which spans a majority of the Fortune 500, as well as many other prominent US institutions. The IPM Business is part of the wider Iron Mountain data and records management business and is proposed to be combined with NCC's existing Software Resilience business.
Owing to its size, the Acquisition constitutes a Class 1 transaction under the Listing Rules and therefore is conditional, among other things, on the approval of Shareholders. Accordingly, notice of a General Meeting of Shareholders to be convened for 9:30 a.m. (BST) on 1 June 2021 at the registered office of NCC at XYZ Building, 2 Hardman Boulevard, Spinningfields, Manchester M3 3AQ, is set out in Part 10 (Notice of General Meeting) of this document. The Resolution, being an ordinary resolution, must be passed by a simple majority of votes cast by Shareholders who vote at the General Meeting, either in person or by proxy. The Acquisition cannot proceed if the Resolution is not approved.
The purpose of this document is to provide you with information on the terms of the Acquisition, to explain the background to, and reasons for, the proposed Acquisition and why the Directors believe the proposed Acquisition is in the best interests of Shareholders taken as a whole and to recommend that you vote in favour of the Resolution as the Directors intend (other than those Directors whose nominee arrangements for holding their Ordinary Shares do not permit them to provide voting instructions) to do in respect of the Ordinary Shares they hold in NCC's issued share capital.
The key terms of the Acquisition are described in Part 3 (Summary of the Principal Terms of the Acquisition Agreements) of this document.
If the Resolution is passed at the General Meeting on 1 June 2021, Completion of the Acquisition is expected to take place on 7 June 2021, following satisfaction of the Completion Conditions, as described in Part 3 (Summary of the Principal Terms of the Acquisition Agreements) of this document.
NCC's shares (LSE: NCC-GB) are listed on the Main Market of the London Stock Exchange and NCC is a constituent of the FTSE 250 index.
NCC is a global cyber security and software resilience business operating across a range of different sectors, geographies and technologies. By utilising its global insights into the cyber threats facing our increasingly connected society, NCC enables organisations to assess, manage and develop their cyber security resilience and posture. In turn, this affords clients the ability to operate safe in the knowledge that their business, software, and personal data are both protected and secure.
NCC comprises two divisions: "Assurance" which focuses on cyber security consultancy and technical services and "Software Resilience" which provides software escrow and verification services.
Over the past three years NCC has been executing its transformation programme, Securing Growth Together, which is focused on solidifying the core strategic and operational foundations required to underpin:
As part of this transformation, NCC has focused on improving the performance of the Software Resilience division which has resulted in a number of investments in new technology, services, and people.
Despite an unprecedented year of global challenges as a result of the COVID-19 pandemic, not just for NCC but all stakeholders and clients alike, the Directors are delighted that NCC continues to make material progress on the execution of its strategy, as demonstrated by the most recent reported financial performance and outlook for the Group published in its interim results on 4 February 2021. This progress provides the Group with the foundation to undertake a successful acquisition of the IPM Business and integration thereafter.
The Intellectual Property Management division of Iron Mountain (NYSE: IRM-US) is a leading software escrow platform in the United States. The IPM Business, which is founded on the principles of security and protecting companies' critical assets, serves as a trusted and secure third party for mitigating the risk for both software users ("beneficiaries") as well as providing higher levels of assurance for software developers ("depositors"), through the provision of a suite of escrow services. Such escrow services support the beneficiaries in the event the depositor is unable to support their software as a result of an unforeseen set of circumstances.
Complementary to the core escrow offering, the IPM Business also provides verification services for beneficiaries in order to assist them in determining whether the software IP deposited in escrow is complete and operates in line with expectations.
The IPM Business benefits from minimal client concentration and attractive market dynamics, including increasing corporate spend and focus on software, IT resilience, security and risk management.
The business currently serves over 6,000 customers and in excess of 15,000 beneficiaries across a diverse range of end markets, with a client retention rate of 86 per cent.
For the 12 months ended 31 December 2020, the IPM Business reported revenues of \$32.9 million (£23.3 million), of which escrow services comprised 86 per cent with verification services accounting for the remaining 14 per cent. 80 per cent of the IPM Business's revenues are recurring or re-occurring. EBITDA of \$21.6 million (£15.4 million) in 2020 equates to an EBITDA margin of 65.7 per cent.
Headline financials for the Target Group over the past three years to 31 December 2020 comprise:
| Year ended | Year ended | Year ended | |
|---|---|---|---|
| 31 December | 31 December | 31 December | |
| 2018 | 2019 | 2020 | |
| Revenue (\$ million) | 32.8 | 33.2 | 32.9 |
| EBITDA (\$ million) | 22.5 | 21.9 | 21.6 |
| Costs allocated from Parent undertaking* (\$ million) | 3.0 | 3.2 | 3.4 |
| EBITDA margin (%) | 68.6% | 66.0% | 65.7% |
| Cash conversion ratio (%) | 95.4% | 93.9% | 91.7% |
* As disclosed in Note 1 of the Target Group Historical Financial Information Table
This financial information has been extracted without material adjustment from the audited historical financial information for IPM for the three years ended 31 December 2020, prepared in accordance with International Financial Reporting Standards as adopted by the European Union in a form consistent with the accounting policies adopted by NCC in its own annual consolidated accounts, which is set out in Section A of Part 4 of this document (Historical Financial Information of the Target Group). Shareholders should read the whole of this document and not rely solely on the summarised financial information contained in this section 3 of Part 1 (Letter from the Chairman).
The Directors believe that the strategic and financial rationale for the Acquisition are compelling and that the Acquisition is strongly aligned with the Group's existing strategy.
The Directors believe that the combination of NCC's Software Resilience division with the IPM Business will:
In summary, the Acquisition will bring opportunity to both of NCC's divisions and enable NCC to deploy its complete service offering at scale in the US market to the ultimate benefit of all of its stakeholders.
The combined business will have increased operational reach and stronger financial performance. This is expected to provide opportunities for the Enlarged Group to pursue further organic and inorganic investments both within the software resilience market, including adjacent sectors, but also across the broader cyber assurance landscape.
The IPM Business is a leading software escrow provider within a large and fragmented US market. The Directors believe that a combination of the IPM Business with the existing NCC Software Resilience division, will provide immediate additional scale to NCC's core software resilience business, making the US region the largest contributor of the division's revenues and profits. In addition, the IPM Business represents a stable platform for NCC to deliver accretive revenue growth in the growing EaaS cloud and cyber market. Combined, NCC and the IPM Business are estimated to have a leading share of the total current addressable US market for software resilience of \$180 million, offering a strong platform to accelerate growth.
More broadly, the Directors believe that the introduction of a new, diversified and international contracted customer set will present a further opportunity to extend the NCC footprint globally and in doing so grow its recurring revenue base.
The Directors believe that the proposed Acquisition represents a compelling opportunity for both of NCC's Assurance and Software Resilience divisions to benefit from an enlarged, blue chip customer base and in doing so to generate revenue synergies alongside organic growth from NCC's core offering. The Directors believe that these revenue synergies could be made up of:
The Group generates approximately 32 per cent of revenue in its Software Resilience division from verification services whereas the IPM Business generates 14 per cent. The Directors believe that NCC currently offers a broader set of verification solutions than the IPM Business and believes that there is potential to sell these broader solutions to the IPM Business's large customer base.
In addition to long-established verification services, the Directors are pleased that the Group's flagship EaaS cloud offering, which was launched in 2019, is experiencing significant customer demand with over 100 users now using the service. The Directors are therefore excited by the potential opportunity of offering this product to the customer base of the IPM Business, which spans a majority of the Fortune 500 as well as many other prominent US institutions.
NCC's Assurance division is also anticipated to benefit from the ability to offer its broad range of cyber security consulting and managed services directly to the same client base of the IPM Business. The Directors believe that providing a holistic service offering which covers some of the most pressing corporate cyber and security requirements represents an attractive proposition for US customers and therefore creates new growth opportunities for the Assurance Division.
The Directors have thoroughly reviewed and considered the prospects of the Enlarged Group, as well as the expected revenue synergy benefits and associated costs of achieving them, and believe that the financial rationale for the combination is strong.
The Enlarged Group, and more specifically the Software Resilience division, will be of considerably greater scale than today, which the Directors believe will give rise to improved growth prospects as described above. NCC's current management team has good relevant experience in integrating acquisitions, delivering revenue synergies and driving new monetisation models. These factors give the Directors confidence that this Acquisition will have a positive impact on the Enlarged Group's financial profile.
The Directors believe that the notable financial consequences of the deal are:
The IPM Business has historically relied upon Iron Mountain to provide certain key services via its central operations. A certain number of these services, such as accounting, legal, risk and security, IT, HR and facilities, will continue to be supported under the terms of the Master Services Agreements and the Transition Services Agreement – see Part 3 (Summary of the Principal Terms of the Acquisition Agreements), while other services will be integrated with NCC's own central corporate functions. The team that will transfer with the IPM Business is already relatively streamlined and is expected to be retained as part of the Acquisition. As a result, the cost synergies arising from the Acquisition are anticipated to be minimal. NCC has developed a detailed integration plan for the Acquisition to ensure the continuity of NCC and the IPM Business's day-to-day operations which is estimated to involve one-off costs of approximately £2 million.
The IPM Business has a strong, established team, led by Mr. John Boruvka and Ms. Joy Egerton, which is expected to be retained as part of the Acquisition. Mr. John Boruvka is the Vice President of Sales for the IPM Business and has been part of a software escrow business since 1987, which was subsequently acquired by Iron Mountain. Ms. Joy Egerton is Director, Operations for the IPM Business. Mr. Boruvka, Ms. Egerton and the senior members of the IPM Business team have agreed to continue in their roles following Completion.
The IPM Business is well known to the NCC management team, having been identified as a strategic fit in recent years, which the Directors believe will help in facilitating the integration process.
Currently the IPM Business primarily operates from Iron Mountain's headquarters in Boston, Massachusetts and its premises in North Atlanta, Georgia employing approximately 50 employees as of 30 April 2021. Given the highly complementary nature of the IPM Business to NCC's existing Software Resilience division, NCC intends to operate the IPM Business as part of an enlarged US Software Resilience business within the global NCC Software Resilience operation.
Following a combination with the IPM Business, the Software Resilience business will have a greater global presence and is expected to achieve critical mass and international reach that provides it with enhanced scale and strategic flexibility.
The Directors believe that the enlarged recurring revenue profile and enhanced cash generation will provide the Group with a platform to make further strategic investments, if deemed appropriate and value-accretive. Such investments could take the form of organic initiatives, inorganic opportunities in line with the Group's strategy or a complementary mix across both divisions.
On 13 May 2021, NCC Group Software Resilience (NA) LLC, a subsidiary of NCC (the "Purchaser"), NCC Services Limited, a subsidiary of NCC (the "UK Purchaser", and together with the Purchaser, the ("Purchasers"), NCC Group (Solutions) Limited (as guarantor) (solely with respect to the guarantee therein), the Company (solely with respect to the Resolution and the financing provisions therein), IPM, Iron Mountain UK plc ("UK Iron Mountain" and together with IPM, the "Sellers"), Iron Mountain Information Management, LLC ("Iron Mountain IM") and Iron Mountain (solely with respect to the confidentiality and restrictive covenant provisions therein), entered into an asset purchase agreement (the "Purchase Agreement") pursuant to which the Purchaser and the UK Purchaser have agreed to acquire the IPM Business, comprising substantially all of the assets of IPM, together with certain other assets of affiliates of Iron Mountain exclusively related to the IPM Business. The total consideration for the acquisition of the IPM Business on a cash-free and debt-free basis with a normalised level of working capital is \$220 million, subject to adjustment.
Under the Purchase Agreement, Iron Mountain IM and the Sellers have made customary representations and warranties to the Purchasers, and the Purchasers have made customary representations and warranties to the Sellers. The representations and warranties of Iron Mountain IM and the Sellers survive until the earlier of (i) the date of Completion (the "Completion Date") and (ii) the termination of the Purchase Agreement; provided that certain fundamental representations of Iron Mountain IM and the Sellers will survive for six years following the Completion Date. The representations and warranties of the Purchasers survive until the earlier of (a) one year after the date of Completion and (b) the termination of the Purchase Agreement. The Purchaser has obtained a buy-side representation and warranty insurance policy up to a maximum coverage of \$22 million (the "R&W Insurance Policy") in respect of Iron Mountain IM and the Seller's representations and warranties contained in the Purchase Agreement, subject to certain specified retention, exclusions and limitations agreed with the insurer.
Completion of the Acquisition is subject to the passing of the Resolution without amendment at the General Meeting or any adjournment thereof by the Outside Date and other customary conditions (as more fully described in Part 3 (Summary of the Principal Terms of the Acquisition Agreements)). Subject to satisfaction of the conditions, Completion is expected to occur on 7 June 2021.
Under the Purchase Agreement, the Purchaser is required to pay a termination fee of \$10 million, equal to one per cent of the market capitalisation of the Company as at the close of business of the Business Day prior to the date of the Acquisition Announcement, to Iron Mountain IM if the Purchase Agreement is terminated (i) as a result of the Company failing to obtain financing sufficient to consummate the Acquisition prior to the Outside Date while all other conditions to the Completion of the Acquisition have been satisfied; (ii) due to the Board changing its recommendation that Shareholders vote in favour of the Resolution; (iii) as a result of the Resolution not being passed by the Shareholders prior to the Outside Date; or (iv) due to the Company not issuing this document to its Shareholders within seven days of the date of the Purchase Agreement.
The Acquisition is subject to the requirements of the US Hart–Scott–Rodino Antitrust Improvements Act of 1976 and the related rules and regulations (the "HSR Act"), which provide that certain transactions may not be completed until required information has been furnished to the US Federal Trade Commission Bureau of Competition ("FTC") and the US Department of Justice Antitrust Division ("DOJ") and until certain waiting periods have been terminated or have expired or approval has been obtained. The HSR Act requires the Company and Iron Mountain to observe a 30-day waiting period after the submission of their filings under the HSR Act before consummating the Acquisition, unless the waiting period is terminated early, or unless it is extended by a request for additional information or documentary material from the FTC or the DOJ. Each of the Company and Iron Mountain filed a Pre-Merger Notification and Report Form under the HSR Act with the FTC and the DOJ in connection with the Acquisition, and on 21 December 2020, the waiting period under the HSR Act expired.
Your attention is drawn to Part 5 (Unaudited Pro Forma Financial Information of the Enlarged Group) of this document, which contains an unaudited pro forma net asset statement of the Group as at 30 November 2020 and the IPM Business as at 31 December 2020, on the basis that the Acquisition had occurred on 30 November 2020. As more fully described in Part 5 (Unaudited Pro Forma Financial Information of the Enlarged Group) of this document, on a pro forma basis and based on the assumptions described therein, the pro forma net assets of the Enlarged Group as adjusted for the Acquisition would be £271.4 million. This information has been prepared for illustrative purposes only.
The Board believes that the Acquisition will generate considerable value for Shareholders. The key financial implications of the Acquisition are expected to be:
Accretion to earnings per share and Group EBITDA margins are based on adjusted results stated before the IFRS 3 and IFRS 13 impact of the fair value treatment of deferred revenue on acquisition.
The consideration for the Acquisition of \$220 million will be satisfied entirely in cash. The consideration and all related transaction costs will be funded through a combination of:
As announced on 13 May 2021, the Company has conditionally placed 27,906,400 new Ordinary Shares (the "Placing Shares") at a price of £2.60 per share pursuant to the Placing to realise gross proceeds of £72.6 million for the purposes of funding the Acquisition. Completion of the Placing and settlement of the Placing Shares is expected to take place on 17 May 2021 when Admission is due to occur. The Placing is not conditional on the completion of the Acquisition. In the unlikely event the Acquisition does not complete by the Outside Date, the Company may, at its option, decide to use the funds for alternative acquisitions or consider a tax efficient way to return capital to Shareholders.
The Directors reaffirm their current expectation that the Group's Pre-IFRS 16 Adjusted EBIT for the year ending 31 May 2021 will be no less than market consensus of £33 million (as outlined within the Consensus Forecasts 2021/22 as of 10 February 2021 that is available at www.nccgroupplc.com/investorrelations/results-media/). Pre-IFRS 16 Adjusted EBIT is defined as the Group's operating profit before adjusting items to assist in the understanding of the Group's performance. Adjusting items represent amortisation of acquired intangibles, the impact of IFRS 16, share-based payments and individually significant items.
This statement constitutes a profit forecast for the purposes of the Listing Rules for the year ending 31 May 2021. The profit forecast has been prepared on a basis consistent with the current accounting policies of NCC which are in accordance with IFRS. Further information in relation to the profit forecast is provided in Part 9 (NCC Profit Forecast) of this document.
Since 31 December 2020, trading has been in line with historic trends and expectations and there has been no significant change in the financial or trading position of the Target Group since that date.
The Board's view on dividend policy remains unchanged as per the interim results statement released on 4 February 2021. The Board is conscious of the need to invest in certain initiatives to support longer term growth and therefore the dividend policy will continue to remain under review.
Notice of the General Meeting is set out in Part 10 (Notice of General Meeting) of this document.
The Acquisition is conditional upon the approval of Shareholders at the General Meeting. You will find set out at the end of this document a notice convening a general meeting of NCC to be held at 9:30 a.m. (BST) on 1 June 2021 at the registered office of NCC at XYZ Building, 2 Hardman Boulevard, Spinningfields, Manchester M3 3AQ. The General Meeting is being held for the purpose of considering and, if thought fit, passing the Resolution.
As a result of the ongoing COVID-19 global pandemic and the legal measures that the UK Government has put in place restricting public gatherings, for the safety of our Shareholders, our employees, our advisers and the general public, the General Meeting will be held with the minimum number of Directors who are Shareholders in attendance so as to meet the quorum requirement. Other Shareholders or their appointed proxies (other than the chair of the General Meeting) will not be permitted entry to the General Meeting and votes can only be cast by proxy, as set out below. Any Shareholder that seeks to attend the General Meeting in person will, regrettably, be prevented from doing so on the above grounds.
The Company will continue to monitor the restrictions put in place in response to COVID-19 and, if circumstances change resulting in the lifting of measures preventing the movement of people ahead of the General Meeting, it will consider if it is appropriate to open up the General Meeting for attendance by Shareholders. If this is the case, an update will be given on the Company's website at https://www.nccgroupplc.com/investor-relations/ and an update given by way of announcement to the London Stock Exchange.
Shareholders are encouraged to send any questions they would have raised at the General Meeting to [email protected] before the date of the General Meeting. After the General Meeting has concluded the Company will publish responses to those questions on its website at https://www.nccgroupplc.com/investor-relations/.
If you are a Shareholder, you will find enclosed with this document a Form of Proxy for use at the General Meeting. You are asked to complete the Form of Proxy in accordance with the instructions printed on it and to return it to NCC's Registrars, Equiniti Limited, at Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA, as soon as possible and, in any event, so as to arrive not later than 9:30 a.m. on 27 May 2021. If you hold shares in CREST, you may appoint a proxy by completing and transmitting a CREST Proxy Instruction to the issuer's agent, ID RA19, so that it is received no later than 9:30 a.m. on 27 May 2021.
The purpose of this document is to provide you with information on the terms of the Acquisition, to explain the background to and reasons for the proposed Acquisition and why the Directors believe the proposed Acquisition is in the best interests of Shareholders taken as a whole and to recommend that you vote in favour of the Resolution as the Directors (other than those Directors whose nominee arrangements for holding their Ordinary Shares do not permit them to provide voting instructions) intend to do in respect of the Ordinary Shares they hold in NCC's issued share capital.
Shareholders should consider fully and carefully the risk factors, as set out in Part 2 (Risk Factors) of this document. This letter is not, and does not purport to be, a summary of this document and therefore should not be regarded as a substitute for reading this document. You should read the whole of this document, the documents incorporated herein by reference and not rely solely on the information set out in this Part 1 (Letter from the Chairman) of this document.
The results of the votes cast at the General Meeting will be announced as soon as possible once known through a Regulatory Information Service. It is expected that this will be on 1 June 2021.
In the Board's opinion, the Acquisition is in the best interests of NCC and Shareholders as a whole and, accordingly, unanimously recommends that Shareholders vote in favour of the Resolution. The Board has received financial advice from Lazard in relation to the Acquisition. In providing its financial advice to the Board, Lazard has relied upon the Board's commercial assessment of the Acquisition.
The Directors (other than those Directors whose nominee arrangements for holding their Ordinary Shares do not permit them to provide voting instructions) intend to vote in favour of the Resolution in respect of their own legal and beneficial holdings, amounting to 208,159 Ordinary Shares (representing approximately 0.1 per cent. of NCC's existing issued share capital as at the Latest Practicable Date).
Yours sincerely,
Christopher Stone Chairman
A number of factors affect the operating results, financial condition and prospects of each of the Group and the Target Group and, following Completion, will affect the Enlarged Group. Some of the following risk factors apply to carrying on the Group's and, following Completion, the Enlarged Group's business generally, while others are specific to the Group, the Target Group and, following Completion, the Enlarged Group. If any, or a combination, of the following risks actually materialise, the business, results of operations, financial condition, share price and prospects of the Group and, following Completion, the Enlarged Group could be materially adversely affected and potential investors may lose all or part of their investment.
The risks described below are based on information known at the date of this document and are not an exhaustive list and should be used as guidance only. Additional risks and uncertainties currently unknown to the Group and the Directors, or that the Group and the Directors do not currently consider to be material, may also have an adverse (or materially adverse) effect on the business, financial condition, results of operations and prospects of the Group and/or, following Completion, the Enlarged Group.
Shareholders should review this document carefully and, in its entirety, (together with any documents incorporated by reference) and consult with their professional advisers. For the avoidance of doubt, nothing in the risk factors outlined in this section is intended to qualify the statement made in respect of NCC's working capital statement in paragraph 5 of Part 6 (Additional Information) of this document.
Acquisitions are inherently risky, and no assurance can be given that the Acquisition will be successful. The Company may fail to achieve certain or all of the anticipated benefits that it expects to realise; the benefits may be materially lower than expected; it may take longer or cost more than expected to realise those benefits; and the IPM Business and the Enlarged Group may fail to perform as expected. The anticipated financial benefits of the Acquisition reflect the assumed prospects of the Enlarged Group, as well as the anticipated benefits and associated costs of the Acquisition. If the anticipated benefits are not achieved, or take longer than expected to be realised, this may undermine the financial success of the Acquisition and have a significant negative impact on the financial position of the Enlarged Group; as well as potentially have a material adverse effect on the Enlarged Group's business, financial condition, prospects and/or results of operations.
The Enlarged Group may face risks associated with maintaining the IPM Business's existing customer relationships. The Enlarged Group may be unable to retain the IPM Business's existing customers following Completion, both due to customary customer attrition and requirements in certain customer contracts of the IPM Business that require consent to assign such contracts to the Enlarged Group. Existing customers of the IPM Business may leverage the Acquisition to renegotiate their existing contractual agreements; change their terms of business to less preferential terms; choose not to renew existing contracts; withhold consent to the Acquisition (where such customer has this right); and may cease doing business with the Enlarged Group altogether, which may have a material adverse effect on the Enlarged Group's revenues and ongoing business performance levels. Furthermore, a significant portion of the quantified estimated financial benefits of the Acquisition are based on customer contracts that generate recurring revenue for the IPM Business, and which are expected to continue generating revenue for the Enlarged Group following Completion. If such customer contracts are not assigned, terminated, left to expire or are amended to less preferential terms (including lower prices), then the anticipated benefits of the Acquisition may not be achieved.
Additionally, if the Enlarged Group is unable to retain the existing customers in the IPM Business, the Company will be unable to sell its broader suite of verification services and Escrow-as-a-Service (EaaS) cloud offering, or cross-sell its cyber security services, to such customers.
Senior management and key employees of the IPM Business will be critical to the success of the Enlarged Group. Such personnel have significant industry experience, key relationships with existing customers of the IPM Business, and knowledge of systems and processes in the IPM Business, which makes them essential to the success of the Acquisition and future operations and prospects of the Enlarged Group. There can be no guarantee that key personnel will not leave the Enlarged Group either as a result of the Acquisition or for other reasons. The loss of senior management or key employees from the IPM Business could undermine the integration process and adversely affect the Enlarged Group's ability to run its businesses (through an inability to execute business operations and strategies effectively) and could have a material adverse effect on the Enlarged Group's business, financial condition and results of operations.
NCC and the IPM Business operate as two separate and independent businesses. The Acquisition will require the integration of IPM with the Company's existing Software Resilience business and the success of the Enlarged Group will depend, in part, on the effectiveness of the integration process without disruption to either business. The integration of the IPM Business may take longer than expected or involve challenges, some of which may not be known until after Completion and could potentially lead to operational interruption, which could have a material adverse effect on the Enlarged Group's business, financial condition and/or results of operations. In particular, poor integration and change management could lead to ineffective implementation of projects that cost more to deliver, take longer to complete, and/or result in fewer anticipated benefits of the Acquisition being realised. Additionally, the Enlarged Group's management team will be required to devote attention and resources to integrating the respective business operations and this may impair the management team's ability in managing the other parts of the Enlarged Group's business effectively. As a result the business of the Enlarged Group may not perform in line with management or shareholder expectations.
The market price of the Shares may decline as a result of the Acquisition if, among other reasons, the integration of the IPM Business with the Company's existing Software Resilience business is delayed or unsuccessful; the Company does not achieve the expected benefits of the Acquisition as quickly or to the extent anticipated or at all; the effect of the Acquisition on the Company's financial results is not consistent with the expectations of investors, or Shareholders sell a significant number of Shares after Completion. The sentiments of the stock market regarding the Acquisition, together with other factors including the actual or anticipated fluctuations in the financial performance of the Enlarged Group and its competitors, market fluctuations, and legislative or regulatory changes, could lead to the market price of the Company's Ordinary Shares going down.
The Company has conducted a due diligence exercise to evaluate important and complex business, financial, tax, accounting and legal issues with respect to the IPM Business. The Company has engaged external expertise where appropriate, including accountants, financial advisers, investment banks, legal and tax advisers, and integration planning experts, who were involved in the due diligence process in varying degrees. Nevertheless, when conducting due diligence and making an assessment regarding the Acquisition, the Company has relied on the resources available to it, including information provided by Iron Mountain. The due diligence process may at times be subjective and the Company's assessments are subject to a number of assumptions relating to profitability, growth and company valuations. Accordingly, there can be no assurance that the assessments or due diligence conducted regarding the IPM Business will prove to be accurate or reveal or highlight all relevant facts that may be necessary or helpful in evaluating the Acquisition, and actual developments may differ significantly from the Company's expectations. If any or all of these risks were to materialise, the result could have a material adverse impact on the Enlarged Group's business, financial condition, prospects and/or results of operations.
In connection with the Acquisition, the Purchasers have entered into the Purchase Agreement with Iron Mountain IM and the Sellers, further details of which are set in paragraph 1 of Part 3 (Summary of the Principal Terms of the Acquisition Agreements) of this document. The liability of Iron Mountain IM pursuant to the Purchase Agreement is limited in time and amount. The representations and warranties of Iron Mountain IM and the Sellers survive until the earlier of (i) the date of Completion (the "Completion Date") and (ii) the termination of the Purchase Agreement; provided that certain fundamental representations of Iron Mountain IM and the Sellers will survive for six years following the Completion Date. The representations and warranties of the Purchasers survive until the earlier of (a) one year after the Completion Date and (b) the termination of the Purchase Agreement. Further, the Company's recourse with respect to breaches of Iron Mountain IM and the Sellers' representations and warranties is limited to coverage pursuant to the R&W Insurance Policy, provided that breaches of certain fundamental representations and warranties may be recoverable against the Sellers up to an aggregate indemnity cap of the total purchase price received by Iron Mountain IM, subject to satisfaction of a specified retention amount, and all of Iron Mountain IM's other indemnity obligations are subject to an aggregate indemnity cap of the total purchase price received by Iron Mountain IM. Accordingly, the Company may not be able to recover (or fully recover) from Iron Mountain IM in respect of material losses which it may suffer in respect of breach of warranty or other provisions in the Purchase Agreement.
Recovery under the R&W Insurance Policy is also limited by a three year survival period for representations and warranties, with certain fundamental representations and warranties surviving for six years post-Completion, a retention in the amount of \$1.65 million and a maximum coverage amount of \$22 million, subject to certain specified limitations agreed with the insurer. The coverage available under the R&W Insurance Policy is also subject to certain specific exclusions for known risks and other potential risks excluded by the R&W Insurance Policy underwriter. Accordingly, the Company may not be able to recover (or fully recover) its losses under the R&W Insurance Policy in respect of breaches of certain representations and warranties or matters that are excluded from coverage under the R&W Insurance Policy. If any material liabilities arose and it was not possible to make a claim under the warranties or in respect thereof, or if any losses could not be recovered in respect of claims under the warranties (whether from Iron Mountain IM and/or the Sellers or under the R&W Insurance Policy), this could adversely affect the Company's business, results of operations, financial conditions and prospects.
Completion of the Acquisition is conditional upon satisfaction of the following conditions: a vote in favour of the Resolution; the delivery of a Bill of Sale and Assignment and Assumption Agreement, a Transition Services Agreement, certain Master Services Agreements, and various other ancillary documents, including a trademark assignment agreement and domain name transfer agreement; the representations and warranties of the Company and Iron Mountain IM and the Sellers being true and correct as of the Completion Date, subject to certain customary materiality qualifiers; the Company, Iron Mountain IM and the Sellers complying with their covenant obligations (subject to customary materiality qualifiers), no Material Adverse Effect (subject to the definition and exclusions in the Purchase Agreement) on the IPM Business having occurred; all required governmental approvals being obtained; and there having been no court order enjoining the transactions. In the event that the conditions are not satisfied by the Outside Date (or such later date as the parties may agree in writing), the Purchase Agreement may terminate, in accordance with its terms. There can be no assurance that the conditions will be fulfilled and accordingly that the Acquisition will be completed. If the Acquisition is not completed, the Company would still be required to pay significant fees and other costs incurred in connection with the Acquisition (including financing, financial advisory, legal and accounting fees and expenses). In addition, in certain circumstances, including if the Resolution does not pass, the Company may be required to pay a termination fee of \$10 million (£7.1 million), equal to one per cent of the market capitalisation of the Company as at the close of business of the Business Day prior to the date of the Acquisition Announcement. Accordingly, a failure to complete the Acquisition may result in significant cost for the Company and may adversely impact the financial condition of the Company and/or the trading price of Ordinary Shares may decline.
Following Completion, the Enlarged Group will have increased debt compared to the Company's historical levels of debt. Taking into account the proceeds of the Placing, the Company expects to assume approximately \$100 million of additional borrowings in connection with the financing of the Acquisition. In the longer term, this increased level of debt could have the effect, among other things, of reducing the Enlarged Group's flexibility to respond to changing business and economic conditions. The amount of cash required to service the Enlarged Group's increased debt levels following Completion will be greater than the amount of cash flows required to service the Company's current debt. This will increase the demands on the Enlarged Group's cash resources and could, in the longer term, also reduce funds available for the Enlarged Group's investments in capital expenditures, payment of dividends, and other activities and may create competitive disadvantages for the Enlarged Group relative to other companies with lower debt levels.
In connection with the Acquisition, the Company has agreed enter into the Transition Services Agreement with Iron Mountain at Completion, further details of which are set in paragraphs 2 and 3, respectively, of Part 3 (Summary of the Principal Terms of the Acquisition Agreements) of this document. Consequently, the Enlarged Group will be dependent on the continuing provision of services, which had historically been provided by or shared with the Sellers and their affiliates to the IPM Business, under the Transition Services Agreement, during a transitional period, until such services can be provided by the Company. Any interruptions to the provision of, or failure to provide, such services or difficulties in transitioning services or transferring data to the Company under the Transition Services Agreement may have a negative impact for business continuity of the Enlarged Group and, in particular may impact on the cutover to the Enlarged Group at the end of the transitional period, and may result in an increased risk of inaccuracies and fraud.
Notwithstanding the Company's and the IPM Business's longstanding relationships with their respective strategic partners, uncertainty about the effects of the Acquisition on the future business relationships with such strategic partners (including customers, vendors, distributors and suppliers), may have a material adverse effect on the business, prospects, financial condition and/or results of operations of the Enlarged Group following Completion. This could result in operational disruptions due to third party suppliers ceasing to provide materials or the loss of customers who may no longer choose to do business with the Enlarged Group and which may have a material adverse effect the Enlarged Group's revenues and results of operations.
Other than with respect to the HSR Act, under which a filing has been made and the applicable waiting period has expired, the Company has not identified a requirement to make any other mandatory merger control, foreign investment screening, or other regulatory notifications. There can be no assurance that a regulator or antitrust authority operating a voluntary notification regime will not seek to assert jurisdiction to review the Acquisition, requesting a filing, and/or open a formal investigation. In such circumstances, Completion may be delayed or prohibited while the investigation is ongoing. If Completion is permitted to take place before the investigation is complete, the Company may be required to hold the Target at arm's length and ensure that the Target operates as a standalone entity, with corresponding limits on integration of the Target into the Company's group unless and until regulatory approval of the Acquisition is obtained, or take other actions to address the regulator's concerns. There can be no assurance that this would not impose any additional regulatory requirements on the Purchaser, the UK Purchaser or the Group, increase its costs, reduce the ability of the Company to achieve revenue synergies anticipated by the Acquisition or otherwise affect the Company's business or that of the Group for the duration of the review. There can be no assurance that the Acquisition will be approved, or that a regulator or antitrust authority would not seek to impose divestments, or additional requirements, limitations on or costs to, the Company's business or the business of the Group as a condition of granting regulatory approval for the Acquisition. There can be no assurance that any such failure to approve the Acquisition or proposal to impose divestments, or additional requirements as a condition of granting regulatory approval for the Acquisition, would not lead to the abandonment of or failure to complete the Acquisition, divestment of the Target, or otherwise affect the practices of the Buyer's group. In the event that the Company is unable to complete the Acquisition, it may be required to pay a termination fee of \$10 million (£7.1 million).
The successful management, operations and continuing success of the Company and, following Completion, the Enlarged Group will depend, in part, on its ability to continue to attract, motivate and retain highly experienced and skilled management and personnel. Some roles within the Company, and following Completion, the Enlarged Group, are in highly technical and extremely specialised areas in which there are shortages of skilled people in the market. If the Company and, following Completion, the Enlarged Group does not succeed in attracting and retaining skilled personnel, it may not be able to successfully execute the Company's strategy or to grow its business as anticipated. Furthermore, the departure of the Company's and, following Completion, the Enlarged Group's senior management and key employees could, in the short term, have a material adverse effect on the Company's and, following Completion, the Enlarged Group's business. The senior managers and key employees have strong and longstanding relationships with customers and, accordingly, if such senior managers or employees were to leave, this could have a detrimental effect on the business of the Company and, following Completion, the Enlarged Group, because the Company and, following Completion, the Enlarged Group may lose customers and/or the existing customer relationships may suffer. Whilst the Company has and, following Completion, the Enlarged Group will have ongoing employment agreements with its key employees, their retention cannot be guaranteed. Equally, the ability to attract new employees with the appropriate expertise and skills cannot be guaranteed. The Company and, following Completion, the Enlarged Group may experience difficulties in hiring appropriate employees and the failure to do so may have a detrimental effect upon the trading performance of the Group and, following Completion, the Enlarged Group.
NCC's strong reputation as a global cyber security and software escrow business makes its staff potentially attractive to competitors. There is a risk that key staff will move elsewhere if offered significant increases in remuneration with which the Company and, following Completion, the Enlarged Group is unable to compete. In addition, if one or more key employees were to join a competitor or set up business in competition with the Company and, following Completion, the Enlarged Group, there can be no assurance that the loss of such employee's services would not have an adverse effect on the Company's and, following Completion, the Enlarged Group's financial condition and results of operations.
b. The possibility of failures or interruptions in NCC's and, following Completion, the Enlarged Group's technological infrastructure and information technology systems could materially impact NCC's and, following Completion, the Enlarged Group's day-to-day operations.
As a provider of technology-enabled cyber resilience solutions, the Company and, following Completion, the Enlarged Group is heavily reliant on continued and uninterrupted access to technological infrastructure and information technology systems and the maintenance of a reputation for having strong security. In addition, customer agreements for cyber resilience services tend to impose more material obligations and risk than customer agreements for IP/software escrow services. Interruption in the Company's and, following Completion, the Enlarged Group's information technology systems may be caused by a number of factors including as a result of human error, malfunction, incompatibility, damage, fire, natural disasters, power loss or malicious activities including computer hackings and computer viruses. As a cyber-defense firm and a provider of security services, the Company is a high profile target and could therefore be subject to attacks specifically designed to disrupt and harm the Company's and, following Completion, the Enlarged Group's business and reputation. As the Company and, following Completion, the Enlarged Group transitions to providing more cloud-based services, the possibility cyber-attacks will increase and the impact of any such attacks would be more severe. Any failure of, or interruption to, the Company's and, following Completion, the Enlarged Group's information technology systems would restrict the Company's and, following Completion, the Enlarged Group's ability to continue its operations and to provide services to customers, and would lead to reputational damage resulting in the loss of existing customers, as well as deterring new customers, all of which could have a material adverse effect on the Company's and, following Completion, the Enlarged Group's operations and financial condition. In the event of a total network or server failure, there would be a major impact on the operational effectiveness and reputation of the Company's and, following Completion, the Enlarged Group's business. The Enlarged Group's insurance policies may only partially reimburse the losses suffered or may not cover certain losses which are too remote or losses which are otherwise excluded from the policy. Any claims made under the Enlarged Group's insurance policies may also negatively impact future insurance policy premiums.
The Company and, following Completion, the Enlarged Group is required to comply with strict data protection and privacy legislation and regulatory requirements in the jurisdictions in which the Company operates and, following Completion, the Enlarged Group will operate, including (without limitation) the General Data Protection Regulation ("GDPR") and various US privacy laws and regimes such as the California Consumer Privacy Act ("CCPA"), business associate agreements consistent with the Health Insurance Portability and Accountability Act ("HIPAA"), and state data breach notification statutes. Such laws restrict the Company's and, following Completion, the Enlarged Group's ability to collect, use and disclose personal information, and impose internal compliance requirements. If the Group and, following Completion, the Enlarged Group or any third party service providers on which it may rely fails to adequately secure personal information (including if there is a loss of personal information resulting from a cyber-attack), or fails to implement appropriate notices and controls relating to the collection, use and disclosure of personal information, the Group and, following Completion, the Enlarged Group could face liability under data protection laws (including regulatory investigations and potential fines) or under its customer contracts, and suffer reputational damage from the resulting lost goodwill of individuals such as customers or employees, as well as deterring new customers, all of which could have a material adverse effect on the Company's and, following Completion, the Enlarged Group's business, results of operations and financial condition.
The Company's and, following Completion, the Enlarged Group's business may be affected by customers' approach to security posture and their tolerance for risk. A change in customer perception or attitudes could result in fewer software applications being protected by the Company's services. The prevailing global economic climate, inflation, levels of employment, real disposable income, salaries, wage rates, interest rates, consumer confidence and consumer perception of economic conditions can all influence customer behaviours adversely and may impact the long-term growth prospects for the cyber resilience market. Each of these factors could have a material adverse effect on the Company's and, following Completion, the Enlarged Group's business, results of operations and financial condition.
Prior to the Acquisition, a substantial portion of the revenues and costs of the Company have been denominated in foreign currencies, particularly in US dollars and euros. Following Completion, because of the nature and location of the IPM Business, a greater portion of the revenues and costs of the Enlarged Group will be denominated in US dollars. Fluctuations in the exchange rate between the pound sterling and the US dollar may lead to fluctuations in the revenues and costs of the Enlarged Group as reported in pounds sterling, which would affect its reported profits. Given the significant portion of the Enlarged Group's revenues generated in US dollars, a weakening of the US dollar against the pound sterling may have a negative impact on the Enlarged Group's reported results of operations, which may be only partly offset by a decrease in costs denominated in US dollars, as applicable, as a result of such exchange rate fluctuations. The Enlarged Group may enter into hedging arrangements to mitigate some of this exposure, but there can be no assurance that the Enlarged Group will do so, that such arrangements will be available on acceptable terms, or that such hedging arrangements will be effective if entered into.
The outbreak of COVID-19 has resulted in a global pandemic and has adversely affected the global economy, resulting in a substantial decline in financial markets. While the Company has weathered the initial short-term impact of COVID-19, the long-term impacts of the outbreak are unknown and may affect the Company's and, following Completion, the Enlarged Group's ability to remain resilient, profitable and cash generative. The extent to which the Company's, and following Completion, the Enlarged Group's operating results will be affected by the COVID-19 pandemic will largely depend on future developments, which are highly uncertain and cannot be accurately predicted, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, and the direct and indirect economic effects of the pandemic and related containment measures. The future impact of COVID-19 may also cause disruption and foster uncertainty to the Company's and, following Completion, the Enlarged Group's customers, which may have a negative impact on the Company and, following Completion, the Enlarged Group. For example, the Company and, following the Enlarged Group, may experience lower demand due to customers experiencing uncertainty, financial pressures, or logistical challenges. Consequently, this may have an adverse effect of the Company's and, following Completion, the Enlarged Group's financial performance and prospects.
On 13 May 2021, NCC Group Software Resilience (NA) LLC (the "Purchaser"), NCC Services Limited (the "UK Purchaser", and together with the Purchaser, the "Purchasers"), NCC Group (Solutions) Limited (solely with respect to the guarantee therein), the Company (solely with respect to the Resolution and the financing provisions therein), Iron Mountain Intellectual Property Management, Inc. ("IPM"), Iron Mountain UK plc ("UK Iron Mountain" and together with IPM, the "Sellers"), Iron Mountain Information Management, LLC ("Iron Mountain IM") and Iron Mountain (solely with respect to the confidentiality and restrictive covenant provisions therein), entered into an asset purchase agreement (the "Purchase Agreement"), which sets out the terms and conditions pursuant to which the Purchasers have agreed to purchase substantially all of the assets of the IPM Business, together with certain other assets of affiliates of Iron Mountain IM (such affiliates, collectively with Iron Mountain IM and the Sellers, the "Target Group") comprising the IPM Business.
Upon the Completion, the Company will, indirectly, hold the assets comprising the IPM Business.
The total consideration for the sale and purchase of the IPM Business on a cash-free and debt-free basis with a normalised level of working capital is \$220 million, subject to (i) a pre-Completion adjustment for any variance in estimated Completion working capital and the agreed upon normalised level of working capital, which is subject to a post-Completion true up and (ii) a post-Completion adjustment in relation to any lost revenue from existing customers of the IPM Business whose consent to the Acquisition is required under each such customer's contract but not timely obtained, subject to a negotiated cap and deductible.
Under the Purchase Agreement, Iron Mountain IM and the Sellers have made customary representations and warranties to the Purchasers, and the Purchasers have made customary representations and warranties to the Sellers. The representations and warranties of Iron Mountain IM and the Sellers survive until the earlier of (i) the date of Completion (the "Completion Date") and (ii) the termination of the Purchase Agreement; provided that certain fundamental representations of Iron Mountain IM and the Sellers will survive for six years following the Completion Date. The representations and warranties of the Purchasers survive until the earlier of (a) one year after the Completion Date and (b) the termination of the Purchase Agreement. The Purchaser, paying a majority of the total costs and associated fees, has obtained a buy-side representation and warranty insurance policy up to a maximum coverage of \$22 million (the "R&W Insurance Policy") in respect of Iron Mountain IM and the Sellers' representations and warranties contained in the Purchase Agreement, subject to certain specified retention and limitations agreed with the insurer.
The Company's sole recourse for post-Completion adjustments to the purchase price in relation to the working capital calculations in the Purchase Agreement is directly from Iron Mountain IM. Iron Mountain IM's sole recourse for post-Completion adjustments to the purchase price in relation to the working capital calculations in the Purchase Agreement is directly from the Company. In addition, the Company's sole recourse for negotiated adjustments in relation to any lost revenue from existing customers of the IPM Business is directly from Iron Mountain IM. As a general matter, the Company's recourse with respect to breaches of Iron Mountain IM and the Sellers' representations and warranties is limited to coverage pursuant to the R&W Insurance Policy; provided that breaches of certain fundamental representations and warranties may be recoverable against Iron Mountain up to an aggregate indemnity cap of the total purchase price received by Iron Mountain IM, subject to satisfaction of a specified retention amount. In addition, the Company may be indemnified, subject to an aggregate indemnity cap of the total purchase price received by Iron Mountain IM, for the Target Group's breach of covenants in the Purchase Agreement and certain liabilities of the Target Group that are not being assumed by the Company. The Company also expects to have coverage under the R&W Insurance Policy for certain of Iron Mountain IM's the Sellers' or their respective affiliates' pre-Completion taxes and also be indemnified by the Sellers for such taxes, subject to an aggregate indemnity cap of the total purchase price received by Iron Mountain IM.
Due to its size, the Acquisition constitutes a "Class 1" transaction under the Listing Rules. As such, the Company is seeking the approval of Shareholders for the Acquisition at the General Meeting, which has been convened for 9:30 a.m. on 1 June 2021. Shareholders will be asked to vote in favour of the Resolution. The Directors intend to vote in favour of the Resolution (other than those Directors whose nominee arrangements for holding their Ordinary Shares do not permit them to provide voting instructions).
Completion under the Purchase Agreement is subject to, and can only occur upon satisfaction or (to the extent permitted by law) waiver of, a number of outstanding conditions (the "Conditions"), including, but not limited to:
The Purchase Agreement contains customary termination rights, including termination by:
Under the Purchase Agreement, the Company is required to pay a termination fee of \$10 million, equal to one per cent of the market capitalisation of the Company as at the close of business on the Business Day prior to the date of the Acquisition Announcement, to Iron Mountain IM if the Purchase Agreement is terminated (i) as a result of the Company failing to obtain financing sufficient to complete the Acquisition prior to the Outside Date while all other Conditions have been satisfied; (ii) due to the Board changing its recommendation that Shareholders vote in favour of the Resolution; (iii) as a result of the vote in favour of the Resolution not having been obtained prior to the Outside Date; or (iv) due to the Company not issuing this document to its Shareholders within seven days of the Purchase Agreement.
The Purchase Agreement contains certain covenants, including, among other things that:
Iron Mountain Information Management, LLC and the Purchaser have agreed to enter into a Transition Services Agreement at Completion providing for certain transitional services, which had historically been provided by or shared with the Sellers and their affiliates to the IPM Business to be provided by the Sellers and their affiliates to the IPM Business, the Company and their respective affiliates for a transition period following Completion.
The Purchaser has agreed to enter into at Completion (i) a master services agreement with Iron Mountain Information Management, LLC; (ii) a global data center customer agreement with Iron Mountain Data Centers, LLC; (iii) an e-vaulting-as-a-service agreement with Iron Mountain Information Management, LLC; and (iv) a lease agreement with Iron Mountain Information Management, LLC pursuant to which the Purchaser or certain of its affiliates (including, following the Completion, the IPM Business) will become a customer of the Sellers or their affiliates for purposes of usage of vault, office space, data centres that house the servers of the IPM Business, and certain ancillary services thereto, as well as document management and other services that Iron Mountain routinely offers to customers.
The following Section A contains the historical financial information of Target Group for the three years ended 31 December 2018, 2019 and 2020.
The historical financial information of Target Group presented in Section A of this Part 4 of this document (the "Target Group Historical Financial Information Table") has been prepared for the purpose of the Listing Rules and in accordance with the IFRS accounting policies of the Company.
Shareholders should read the whole of this document and not rely solely on the financial information contained in this Part 4.
| 2020 | 2019 | 2018 | ||
|---|---|---|---|---|
| Notes | \$ | \$ | \$ | |
| Revenue | 3 | 32,894,303 | 33,177,016 | 32,843,808 |
| Cost of sales | 4 | (2,688,745) | (2,917,108) | (2,537,513) |
| Gross profit | –————— 30,205,558 |
–————— 30,259,908 |
–————— 30,306,295 |
|
| Administrative expenses | –————— | –————— | –————— | |
| Depreciation and amortisation | 4 | (303,500) | (19,352) | (52,218) |
| Other administrative expenses | 4 | (8,568,330) | (8,400,704) | (7,764,530) |
| Total administrative expenses | –————— (8,871,830) |
–————— (8,420,056) |
–————— (7,816,748) |
|
| Operating profit | –————— 21,333,728 |
–————— 21,839,852 |
–————— 22,489,547 |
|
| Parent fees charged on sale of receivables | (236,198) | (241,916) | (237,870) | |
| Finance income | 6 | 517,321 | 1,299,857 | 676,269 |
| Profit before taxation | –————— 21,614,851 |
–————— 22,897,793 |
–————— 22,927,946 |
|
| Taxation | 7 | (5,622,857) | (5,672,285) | (5,468,261) |
| Profit for the year | –————— 15,991,994 –————— |
–————— 17,225,508 –————— |
–————— 17,459,685 –————— |
|
| 2020 | 2019 | 2018 | ||
| \$ | \$ | \$ | ||
| Profit for the year | 15,991,994 | 17,225,508 | 17,459,685 | |
| Other comprehensive income/(loss) | –————— 277,534 |
–————— 117,505 |
–————— (210,855) |
|
| Total comprehensive income for the year (net of tax) | 16,269,528 | 17,343,013 | 17,248,830 | |
| –————— –————— |
–————— –————— |
–————— –————— |
| 2020 | 2019 | 2018 | 1/1/2018 | ||
|---|---|---|---|---|---|
| Notes | \$ | \$ | \$ | \$ | |
| Non-current assets | |||||
| Goodwill | 8 | 15,446,000 | 15,446,000 | 15,446,000 | 15,446,000 |
| Other intangible assets | 8 | 1,095,008 | 713,198 | 22,848 | 86,906 |
| Property, plant and equipment | 9 | 24,522 | 39,754 | 52,588 | 30,114 |
| Deferred tax asset | 11 | 641,609 –————— |
301,283 –————— |
287,844 –————— |
484,482 –————— |
| Total non-current assets | 17,207,139 –————— |
16,500,235 | 15,809,280 | 16,047,502 | |
| Current assets | –————— | –————— | –————— | ||
| Trade and other receivables | 10 | 3,280,298 | 3,647,815 | 3,390,569 | 4,080,281 |
| Current tax receivable | 54,889 | 192,545 | – | 82,492 | |
| Cash and cash equivalents | 14 | 66,504,239 –————— |
51,241,661 | 39,688,251 | 22,032,368 |
| Total current assets | 69,839,426 –————— |
–————— 55,082,021 |
–————— 43,078,820 |
–————— 26,195,141 |
|
| Total assets | 87,046,565 –————— |
–————— 71,582,256 |
–————— 58,888,100 |
–————— 42,242,643 |
|
| Current liabilities | –————— | –————— | –————— | ||
| Trade and other payables | 12 | 4,076,917 | 2,540,629 | 2,495,312 | 4,852,641 |
| Current tax payable Contract liabilities – deferred |
– | – | 3,847,976 | 1,241,029 | |
| revenue | 13 | 19,106,704 –————— |
19,241,996 | 18,440,794 | 18,095,501 |
| Total current liabilities | 23,183,621 –————— |
–————— 21,782,625 |
–————— 24,784,082 |
–————— 24,189,171 |
|
| Non-current liabilities | –————— | –————— | –————— | ||
| Contract liabilities – deferred | |||||
| revenue | 13 | 2,114,199 –————— |
1,733,090 –————— |
1,530,676 –————— |
1,474,020 –————— |
| Total non-current liabilities | 2,114,199 –————— |
1,733,090 –————— |
1,530,676 –————— |
1,474,020 –————— |
|
| Total liabilities | 25,297,820 –————— |
23,515,715 –————— |
26,314,758 –————— |
25,663,191 –————— |
|
| Net assets | 61,748,745 | 48,066,541 | 32,573,342 | 16,579,452 | |
| Equity | –————— | –————— | –————— | –————— | |
| Translation reserve | (183,866) | (461,400) | (578,905) | (368,050) | |
| Invested capital | 61,932,611 –————— |
48,527,941 –————— |
33,152,247 –————— |
16,947,502 –————— |
|
| Total equity | 61,748,745 | 48,066,541 | 32,573,342 | 16,579,452 | |
| –————— | –————— | –————— | –————— |
| 2020 | 2019 | 2018 | ||
|---|---|---|---|---|
| Notes | \$ | \$ | \$ | |
| Cash flow from operating activities | ||||
| Profit for the year | 15,991,994 | 17,225,508 | 17,459,685 | |
| Adjustments for: | ||||
| Depreciation of property, plant and | ||||
| equipment | 9 | 19,199 | 10,446 | 26,177 |
| Amortisation of internally developed | ||||
| intangible assets and software | 8 | 284,301 | 8,906 | 26,041 |
| Parent fees charged on sale of receivables | 236,198 | 241,916 | 237,870 | |
| Finance income | 6 | (517,321) | (1,299,857) | (676,269) |
| Loss on disposal of plant and | ||||
| equipment and intangible assets | 2,400 | 10,343 | 30,924 | |
| Income tax expense | 7 | 5,662,857 | 5,672,285 | 5,468,261 |
| Income tax expense settled by parent | (2,221,528) | (2,009,245) | (1,662,184) | |
| Cash inflow for the year before changes | ||||
| in working capital | 19,418,100 | 19,860,302 | 20,910,505 | |
| Increase in deferred revenue | 245,817 | 1,003,616 | 401,949 | |
| (Increase)/decrease in trade and | ||||
| other receivables not due from Parent | (136,512) | (63,200) | 117,582 | |
| Increase/(decrease) in trade and | ||||
| other payables not owed from Parent | 303,971 | (279,167) | 81,949 | |
| Cash generated from operating activities | –————— | –————— | –————— | |
| before interest and taxation | 19,831,376 | 20,521,551 | 21,511,985 | |
| Other interest (paid)/received | 6 | 517,321 | 1,299,857 | 676,269 |
| Taxation (paid) | 7 | (3,604,000) –————— |
(7,717,000) –————— |
(920,000) –————— |
| Net cash generated from operating activities | 16,744,697 –————— |
14,104,408 –————— |
21,268,254 –————— |
|
| Cash flows from investing activities | ||||
| Purchase of property, plant and equipment | 9 | (3,967) | – | (34,384) |
| Software and development expenditure | 8 | (668,510) | (707,212) | (7,174) |
| Net cash used in investing activities | –————— (672,477) |
–————— (707,212) |
–————— (41,558) |
|
| Cash flows from financing activities | –————— | –————— | –————— | |
| Increase/(decrease) in amounts due to Parent | 1,232,317 | 324,484 | (2,439,277) | |
| (Increase)/decrease in amounts due from Parent | 267,831 | (435,961) | 334,259 | |
| Distributions to Parent | (2,309,790) | (1,732,309) | (1,465,795) | |
| Net cash generated/(used) in financing activities | –————— (809,642) |
–————— (1,843,786) |
–————— (3,570,813) |
|
| –————— | –————— | –————— | ||
| Net increase in cash and cash equivalents | 15,262,578 | 11,553,410 | 17,655,883 | |
| Cash and cash equivalents at beginning of year | 51,241,661 –————— |
39,688,251 –————— |
22,032,368 –————— |
|
| Cash and cash equivalents at end of year | 14 | 66,504,239 –————— |
51,241,661 –————— |
39,688,251 –————— |
| Invested capital |
Translation reserve |
Total Invested capital |
||
|---|---|---|---|---|
| Notes | \$ | \$ | \$ | |
| Balance at 1 January 2018 | 16,947,502 –————— |
(368,050) –————— |
16,579,452 –————— |
|
| Profit for the year | 17,459,685 | – | 17,459,685 | |
| Foreign currency translation differences | – | (210,855) | (210,855) | |
| Total comprehensive income for the year | –————— 17,459,685 |
–————— (210,855) |
–————— 17,248,830 |
|
| Transactions with owners recorded directly in invested capital Total contributions from and (distributions to) Parent Balance at 31 December 2018 |
–————— (1,254,940) 33,152,247 |
–————— – (578,905) |
–————— (1,254,940) 32,573,342 |
|
| Profit for the year | –————— 17,225,508 |
–————— – |
–————— 17,225,508 |
|
| Foreign currency translation differences | – | 117,505 | 117,505 | |
| Total comprehensive income for the year | –————— 17,225,508 |
–————— 117,505 |
–————— 17,343,013 |
|
| Transactions with owners recorded directly in invested capital Total contributions from and (distributions to) Parent |
–————— (1,849,814) |
–————— – |
–————— (1,849,814) |
|
| Balance at 31 December 2019 | –————— 48,527,941 |
–————— (461,400) |
–————— 48,066,541 |
|
| Profit for the year | –————— 15,991,994 |
–————— – |
–————— 15,991,994 |
|
| Foreign currency translation differences | – | 277,534 | 277,534 | |
| Total comprehensive income for the year | –————— 15,991,994 |
–————— 277,534 |
–————— 16,269,528 |
|
| Transactions with owners recorded directly in invested capital Total contributions from and (distributions |
–————— | –————— | –————— | |
| to) Parent | (2,587,324) –————— |
– –————— |
(2,587,324) –————— |
|
| Balance at 31 December 2020 | 61,932,611 –————— |
(183,866) –————— |
61,748,745 –————— |
|
Iron Mountain Intellectual Property Management, Inc. and Iron Mountain (UK) Plc (to the extent related to the UK operations of Iron Mountain Intellectual Property Management), referred to herein as "IPM" or the "Business", a wholly-owned business of Iron Mountain Incorporated (the "Parent" or the "Parent Company") specializes in third party technology escrow services that protect intellectual property assets such as software source code. In addition, IPM assists in securing intellectual property as collateral for lending, investments and joint ventures, in managing domain name registrations and transfers, and in providing expertise and assistance to brokers and dealers in complying with electronic records regulations of the United States Securities Exchange Commission.
The Historical Financial Information of IPM, presented herein, represents a combined reporting entity comprising the assets and liabilities used in managing and operating IPM. IPM has not previously constituted a single legal group which prepared combined financial results. Accordingly, the combined Historical Financial Information (the "Historical Financial Information") has been prepared specifically for the purposes of this Circular. The Historical Financial Information has been presented on a standalone basis, derived from the consolidated financial information of the Parent and includes the results and balances of legal entities, branches and operations which relate to the IPM business. IPM's Historical Financial Information may not be indicative of tIPM's future performance and do not necessarily reflect what the results of operations, financial position and cash flows would have been had it operated as a standalone, publicly traded group during the periods presented.
The Historical Financial Information of the Business for the three years ended 31 December 2020 has been prepared in accordance with International Financial Reporting Standards as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union ('IFRS') and in accordance with the basis of preparation set out below.
This Historical Financial Information does not constitute statutory accounts within the meaning of section 434(3) of the Companies Act 2006.
As the Business has not historically constituted a separate legal entity or group, the Historical Financial Information, which has been presented for the purpose of this document has been prepared on a basis that combines the results, assets and liabilities of the Business by applying principles of consolidation as set out in IFRS 10 'Consolidated Financial Statements'.
The Historical Financial Information has been prepared in accordance with the requirements of the Listing Rules and in accordance with this basis of preparation. This basis of preparation describes how the Historical Financial Information has been prepared in accordance with International Financial Reporting Standards as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union ('IFRS') for the three years ended 31 December 2020. The principal accounting policies that have been applied in preparing the Historical Financial Information are set out below. These policies have been consistently applied to all years unless set otherwise stated. The Historical Financial Information has been prepared on a basis consistent with the accounting policies adopted in the latest annual financial statements of NCC Group plc.
IFRS does not explicitly provide guidance for the preparation of combined historical financial information, therefore certain accounting conventions permitted for the preparation of historical financial information for inclusion in investment circulars, as described in the Standards for Investment Reporting 2000 Annexure (the 'Annexure'), issued by the UK Audit Practices Board, have been applied where IFRS does not provide specific accounting treatments.
As the financial information has been prepared on a combined basis, it is not possible to measure earnings per share. Accordingly, no information on 'Earnings Per Share' as required by IAS 33 has been included within the Historical Financial Information.
The Historical Financial has been prepared with a date of transition to IFRS of 1 January 2018, the beginning of the first period presented, and the requirements of IFRS 1 have been applied as of that date.
The Historical Financial Information has been prepared on a going concern basis and under the historical cost convention, unless otherwise indicated, and presents the financial position, results of operations and cash flows of IPM for the three years ended 31 December 2020 and as at these dates. An opening combined balance sheet as at 1 January 2018 has also been presented.
The Historical Financial Information is presented in US Dollars ('\$') and all values stated in US Dollars ('\$') except where otherwise indicated.
The Historical Financial Information for the IPM has been prepared for the three years ended 31 December 2020 on an aggregated basis, in accordance with the Annexure. The aggregation process was as follows:
The assets, liabilities, income and expenses that the Directors have determined relate to IPM include all those that are directly attributable and/or separately identifiable to IPM, together with an allocation of the items that are not. The below summarises the approach for each balance sheet and income statement line item included in the Historical Financial Information:
Depreciation and amortisation: Represent depreciation and amortisation expense on property, plant and equipment and intangible assets of IPM.
Other administrative expenses: Represents administrative expenses incurred by IPM that are not directly related to servicing IPM's customers. Included in administrative expenses are certain expense allocations for functions provided by Parent and certain functions provided by Parent's subsidiaries, including, but not limited to, the preparation of billing, accounting records, management of cash, and services of the Parent's legal, risk management, internal audit, tax, accounts payable, payroll, and purchasing departments, use of the Parent's trademark, the development of computer systems and use of computer software, share-based payment costs. These expenses have been allocated to IPM based on methodologies that management determined are reasonable based on the historical management of IPM and Parent. Allocated expenses have been allocated primarily on the basis of IPM's budgeted revenues as percent of total budgeted Parent revenue with certain other expenses allocated based on IPM headcount as a percent of total Parent headcount or square footage occupied by IPM employees. During 2020, 2019 and 2018 IPM was allocated \$2,847,990, \$2,657,488 and \$2,500,333 of costs for these functions. Administrative expenses also include an allocation from Parent for IPM's use of space to operate the IPM business within facilities of the Parent or its subsidiaries of \$133,685, \$121,614 and \$90,363 for the years ended December 31, 2020, 2019 and 2018. Additionally, other administrative expenses include expenses directly attributed to IPM's employees for their participation in Parent's medical plan of \$403,243, \$382,179 and \$364,004 for the years ended December 31, 2020, 2019 and 2018. The allocations and medical plan expenses directly attributable may not, however, reflect the expense IPM would have incurred as an independent company or component of NCC Group plc for the periods presented. Actual costs that may have been incurred if the Business had been a standalone company would depend on a number of factors, including the organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure. See additional disclosures regarding derecognition in the financial assets policy below and the arrangement in the related party footnote 18.
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| \$ | \$ | \$ | |
| Amounts allocated by Parent undertaking | |||
| General costs | 2,847,990 | 2,657,488 | 2,500,333 |
| Office space costs | |||
| Medical plan costs | 133,685 | 403,243 | 121,614 |
| 382,179 | 90,363 | 364,004 | |
| Total amount allocated by Parent undertaking | –————— | –————— | –————— |
| within administrative expenses | 3,384,918 | 3,161,281 | 2,954,700 |
| Medical plan costs within cost of sales | 23,614 | 22,555 | 26,293 |
| Total amount allocated by Parent undertaking | –————— 3,408,532 |
–————— 3,183,836 |
–————— 2,980,993 |
Trade and other receivables: Consist of amounts due from Parent, trade receivables due from UK customers, and prepayments.
Amounts due from Parent represent a loan receivable from Parent and other amounts due from Parent under the Accounts Receivable Securitisation Programme. Through the receivables securitisation programme, at each month end IPM sells all of their billed U.S. accounts receivable balances to Parent's wholly owned special purpose entity which uses the receivables to collateralize loans obtained by Parent from certain financial institutions. The special purpose subsidiary is a consolidated subsidiary of Iron Mountain Incorporated, and Parent retains the responsibility of servicing the receivable balances purchased from the IPM business. Amounts due from Parent are settled via cash wires on an ongoing monthly basis. See additional disclosures regarding derecognition in the financial assets policy below and the arrangement in the related party footnote 18.
Accrued expenses represent liabilities associated with sales and VAT taxes payable, and employee-related accrued expenses (payroll, medical insurance, commissions, payroll taxes, and vacation).
Contract liabilities deferred revenue: Represents services invoiced that will be rendered at a future date. A portion of deferred revenue relates to services to be rendered beyond one year from the balance sheet date and thus is classified non-current in the balance sheet.
IPM has historically maintained books and records in accordance with US GAAP. Conversion of the Historical Financial Information to IFRS is required by the Listing Rules for comparability with NCC's financial statements. In connection with the transition to IFRS, unless required by IFRS, no further policy elections have been made or required to make accounting policies consistent with those applied by NCC Group plc. For the purposes of following IFRS Historical Financial Information, IPM's date of transition to IFRS is 1 January 2018.
In preparing this historical financial information in accordance with IFRS, IPM has applied the mandatory exceptions and certain of the optional exemptions from full retrospective application of IFRS described below as set out in the appendices to IFRS 1. All other mandatory exceptions were not applicable, and all other optional exemptions were either not applicable or not applied to IPM.
has elected to apply this optional exemption and thus there was no impact to the opening property, plant and equipment balances at 1 January 2018.
• Revenue: IFRS 1 permits an entity to elect certain of the practical expedients provided in IFRS 15 on transition to IFRS including the expedient not to reassess contracts that begin and end within the same annual reporting period; or are completed contracts at the beginning of the earliest period presented. Given IPM is adopting IFRS 15 as of 1 January 2018 with no earlier comparative periods presented, management elected to apply the optional exemption to IPM. The application of this exemption did not have an impact to the opening balance sheet of IPM.
Whilst IFRS 1 requires reconciliations and disclosure of any material effects on IPM's invested capital, comprehensive income or cash flow statement, given there were no impacts from applying IFRS 1 and given the business has not previously issued audited US GAAP financial statements, reconciliations are not provided. The only impact to balance sheet related to software and capitalised software development costs being classified within other intangible assets as opposed to property, plant and equipment under US GAAP.
Management has reviewed the potential impact of COVID-19 on the Historical Financial Information. Accordingly, consideration has been given to the impact on the IFRS 9 expected credit loss model, IFRS 15 collectability assessments, the annual impairment review and the Going Concern assessments.
At the date of authorisation of the Historical Financial Information, the following standards and interpretations were in issue but have not been applied in the Historical Financial Information as they were not yet mandatory:
The Historical Financial Information is presented in United States Dollars (\$) because that is the currency of the principal economic environment in which IPM operates. The functional currency of IPM's US component is United States Dollars (\$), and the functional currency of IPM's UK component is British Pound Sterling (£).
The Historical Financial Information has been prepared on a going concern basis which the Directors consider to be appropriate for the following reasons:
IPM generated positive cash flow from operations in 2020 (and historically) and has an ending cash balance of \$66,504,239 as at 31 December 2020.
The Directors have prepared cash flow forecasts which indicate that, taking account of reasonably possible downsides and the anticipated impact of COVID-19 on the operations and its financial resources, IPM will have sufficient funds to meet its liabilities as they fall due for that period.
Having reviewed the current performance, forecasts, cash on hand and risks, the Directors are confident that IPM has sufficient funds to continue to meet their liabilities as they fall due for a period of at least 12 months from the date of approval of the Historical Financial Information. Accordingly, they adopt the going concern basis of accounting in preparing IPM's Historical Financial Information for the year ended 31 December 2020.
Goodwill represents amounts arising on acquisition of businesses. In respect of business acquisitions goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired including identifiable intangible assets.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash generating units and is not amortised but is tested annually for impairment.
Software costs are capitalised in accordance with the criteria of IAS 38. Software costs comprise two elements: IT licences for periods of more than one year, and the third party and internal employee time costs for internal system developments. Capitalised costs are initially measured at cost and amortised on a straightline basis over the licence term or the period for which the developed system is expected to be in use as a business platform.
The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use. Other development expenditure is recognised in the Income Statement as an expense as incurred. Software costs are stated at cost less accumulated amortisation and less accumulated impairment losses.
Expenditure on internally generated goodwill is recognised in the Income Statement as an expense as incurred.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill, is recognised in the Income Statement as an expense as incurred.
Amortisation is charged to the Income Statement on a straight-line basis over the estimated useful economic lives of intangible assets. Goodwill is systematically tested for impairment at each Balance Sheet date. Other intangibles are amortised from the date they are available for use. The estimated useful lives are as follows:
Property, plant and equipment assets are carried at cost less accumulated depreciation and any recognised impairment in value. Depreciation is charged to the Income Statement on a straight-line basis over the estimated useful economic lives of each part of an item of plant and equipment as follows:
• Computer equipment – three years
Property, plant and equipment is also tested for impairment whenever there is an indication of potential impairment.
Financial assets and financial liabilities, in respect of financial instruments, are recognised in IPM's Balance Sheet when IPM becomes a party to the contractual provisions of the instrument.
Classification of financial assets is generally based on the business model in which the financial asset is managed and its contractual cash flow characteristics. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
A financial asset is measured at amortised cost if it is held with the objective of collecting the contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. If not, financial assets are measured at fair value through other comprehensive income or the Income Statement.
Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as financial assets initially measured at the transaction price and are subsequently measured at amortised cost. Financial assets at amortised cost include IPM's U.K. customer receivable balances, a loan receivable due from Parent and the other receivables due from Parent.
Under the IFRS 9 "expected credit loss" model, a credit event (or impairment "trigger") does not need to occur before credit losses are recognised.
IPM's Parent analyses the risk profile of trade and other receivables based on past loss experience, current and prior trends in aged receivables, credit memo activity, future economic conditions and reasonable and supportable forecasts regarding the expected future collectability of outstanding receivables. Considerations when determining the expected credit losses include, but are not limited to: the location of our businesses, the composition of the customer base, service lines, potential future economic unrest, and potential future macroeconomic factors, including natural disasters and any impacts associated with the COVID-19 pandemic. Continued adjustments are made should there be any material change to reasonable and supportable forecasts that may impact our likelihood of collection, as it becomes evident. A default event is considered to occur when information is obtained that indicates that a receivable is unlikely to be paid to IPM.
Credit risk is regularly reviewed by management to ensure the expected credit loss (ECL) model is being appropriately applied.
IPM's U.S. customer trade receivables are classified as financial assets initially measured at fair value and subsequently measured at fair value through profit or loss.
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss.
Given the U.S. customer receivable balances are sold as part of Parent's trade receivables securitisation programme (discussed in note 18) these amounts are billed and recognised and sold and derecognised within the same month and thus no amounts are presented as trade receivables from U.S. customers at any balance sheet date within these financial statements. The fee charged by Parent for assuming risk of loss on the U.S. customer trade receivables balance is disclosed on the face of the income statement.
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised (i.e., removed from IPM's balance sheet) when:
When the Business has transferred its rights to receive cash flows from an asset, it evaluates if, and to what extent, it has retained the risks and rewards of ownership.
As IPM is a party to Parent's accounts receivable securitisation programme, IPM transfers its legal right to receive cash flows from US-based customer receivables to the IM securitization entity on a monthly basis. As a result of IPM transferring legal rights to the receivables, IPM management evaluates whether it has transferred substantially all of the risk and rewards by comparing its exposure, before and after the transfer, to the variability in the amounts and timing of the cash flows of the transferred financial asset. Through the assessment, IPM management has determined substantially all the risks and rewards of ownership are transferred to Parent as IPM's exposure to the variability in amounts and timing of the net cash flows of the US-customer based receivables are no longer significant in relation to the total variability of the UScustomer based receivables.
Trade and other payables are other financial liabilities initially measured at fair value and subsequently measured at amortised cost.
The carrying amounts of IPM's non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill, and intangible assets that are not yet available for use, the recoverable amount is estimated each year at the same time.
The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the 'cash generating unit'). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash generating units (CGUs). Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in the Income Statement. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. See goodwill impairment analysis in footnote 8.
Cash and cash equivalents comprise cash in hand and deposits repayable on demand.
IPM revenues consist of software escrow rental and service revenues and verification service revenues and are reflected net of sales and value added taxes.
Escrow revenues consist primarily of recurring periodic charges related to the storage and service of intellectual property provided by a depositor often on behalf of named beneficiaries (generally on a per unit basis) that are typically retained until the parties terminate the agreement. These services include registry/registrar escrow of domain name registry data.
Verification service revenues include charges for related service activities, the most significant of which include performing agreed upon procedures to the escrow deposit to provide varying levels of insight into its composition.
While the detailed recognition is contract specific, and set out in the table below, in most cases:
Revenue is measured based on the consideration specified in a contract with a customer. IPM recognises revenue when it transfers control over a service to a customer.
Due to the nature of IPM's activities, the transaction price for the majority of its contracts is entirely fixed consideration for the contract period. IPM does not have any material obligations in respect of returns, refunds or warranties. The impact of any financing component within contracts with customers has been assessed and concluded to be immaterial.
On contract inception, the probability of collectability is assessed across IPM and, unless there is a significant change in facts and circumstances, revenue is recognised. During the year, no instances have been identified where reassessment of the collectability has had to be reassessed, nor have there been any new contracts with customers for which the collection of consideration has not been assessed at inception as probable. This current year assessment also considers the impact of COVID-19 on IPM's customer base.
The following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers by revenue stream, including significant payment terms, and the related revenue recognition policies.
| Revenue stream |
Nature | Timing of satisfaction of performance obligations and significant payment terms |
Revenue recognition policies, including determination of transaction price and rationale |
|---|---|---|---|
| Escrow contract services |
Storage and service of intellectual property provided by a depositor often on behalf of named beneficiaries (generally on a per unit basis) that are typically retained until the parties terminate the agreement. The services may include set-up time which is administrative in nature. |
The customer benefits from the service evenly over a contract period, usually at least a year and potentially over longer periods. The service represents one performance obligation. Invoices are raised based on an agreed invoicing profile with the customer, usually up front. |
Revenue is recognized over time on a straight-line basis representing the service delivery agreement. The nature of the agreement gives rise to the customer having the stand-ready benefit to receive access to the IP deposit, when appropriate, over the contract period. Revenue is recognized on a straight-line basis as the pattern of benefit to the customer as well as the Business' efforts to fulfil the contract are generally even throughout the period. The transaction price is determined by a contract price and is fixed at inception. Set-up time is not considered distinct and a separate performance obligation due |
| to the administrative nature and therefore is recognised over the period of the contract. |
|||
| Verification services |
Incremental services provided to escrow customers, the most |
The customer benefits from the service on completion when the service is |
Revenue is recognised on completion of the verification services. |
| significant of which include performing agreed upon procedures over the escrow deposits and providing insights to the customers. |
completed as this is the point the customer obtains control. The service represents one performance obligation. |
The transaction price is determined by a contract price and is fixed at inception. |
|
| Invoices are raised based on an agreed invoicing profile with the customer, either up front or at a point in time. |
Contract costs comprise incremental sales commissions paid to sales agents which can be directly attributed to an acquired or retained contract. When commissions are earned on a contract where the period of expected benefit in one year or less are, internal and external costs of obtaining the contract are recognised as incurred.
There were no capitalised commissions costs at the opening balance sheet date or 31 December 2018-2020.
Deferred revenue represents advanced consideration received from customers, for which revenue will be substantially recognized within one year or less from the balance sheet date.
Non-current deferred revenue represents the transaction price allocated to the remaining performance obligations that the Business expects to recognize more than 12 months from the balance sheet date.
IPM determines and presents operating segments based on the information that is provided to the Senior Vice President & General Manager, Global Digital Solutions for Iron Mountain, who acts as IPM's chief operating decision maker (CODM) in order to assess performance and to allocate resources.
An operating segment is a component of IPM that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of IPM's other components. An operating segment's results are reviewed regularly by the CODM to make decisions about resources to be allocated to the segment and to assess its performance.
IPM operates and reports its business as a single segment as the CODM assess performance and makes decisions on the allocation of resources based on the overall performance of IPM. Whilst the CODM may receive revenue details for IPM's US and UK customers and/or revenue details for escrow and verification services they do not obtain full operating results based on these splits to enable the CODM to assess performance and allocate resources. The CODM only receives monthly financial operating results on the total performance of the IPM business to assess performance and make decisions as to how resources are allocated.
Transactions in foreign currencies are recorded using the appropriate exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated using the exchange rate ruling at the Balance Sheet date and the gains or losses on translation are included in the Income Statement.
The assets and liabilities of UK operations of IPM are retranslated at the exchange rate ruling at the Balance Sheet date. The income statements of the UK operations of IPM are translated at the weighted average exchange rates for the year. Gains and losses arising on the retranslation of the UK operations are taken to the currency translation reserve.
IPM's Parent maintains a defined contribution plan for all employees. All regularly scheduled non-union employees are eligible and may elect to defer from 1% to 25% of compensation per pay period up to the amount allowed by the Internal Revenue Service Code 401(k). The maximum contribution allowed per participant is \$19,500. The Parent Company makes matching contributions based on the amount of an employee's contribution in accordance with the plan document.
The IPM balance sheet does not reflect any asset or liability associated with this plan aside from any employer contributions earned by employees but not yet disbursed included as part of accruals within trade and other payables.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if IPM has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
A liability is recognised in the Balance Sheet for any earned but not yet taken holiday entitlement for staff. Earned holiday is calculated on a straight-line basis over a holiday year which can vary by business unit. Taken holiday is based on actually taken holiday. Any movement in the liability between the opening and closing balance in the year is recorded as an employee cost or a reduction in employee costs in the Income Statement in the year.
Finance income is recognised within the Income Statement in the year in which is it earned.
Taxation on the profit or loss for the year comprises current and deferred taxation. Taxation is recognised in the Income Statement except to the extent that it relates to items recognised directly in invested capital, in which case it is recognised in invested capital.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the Balance Sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the Balance Sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.
Details of related party transactions are set out in Note 18 to the Historical Financial Information.
The preparation of Historical Financial Information requires management to exercise judgment in applying its accounting policies. Different judgments would have the potential to change the reported outcome of an accounting transaction or statement of financial position. It also requires the use of estimates that affect the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis, with changes recognised in the period in which the estimates are revised and in any future periods affected. No critical accounting judgments or estimates that the Directors consider material or that could reasonably change significantly in the next year. were identified. However, Directors consider the capitalisation of development costs to be a key accounting judgement and the carrying value of goodwill to be a key accounting estimate, with consideration of these below.
Information about key accounting judgments made in applying accounting policies that have the most significant effects on the amounts recognised in the combined Historical Financial Information are as follows.
Development activities involve a plan or design for the production of new or substantially improved products or processes. Judgment is required in determining whether the project is technically and commercially feasible; judgment is also required in assessing the future economic benefit. Such judgments are inherently subjective and can have a material impact on determining the viability of the project and ultimately whether the costs should be capitalised.
Information about estimation uncertainties to the carrying values of assets and liabilities within the next financial year are addressed below.
Whilst every effort is made to ensure that such estimates and assumptions are reasonable, by their nature they are uncertain, and as such changes in estimates and assumptions may have an impact. Estimates and assumptions used in the preparation of the Historical Financial Information are continually reviewed and revised as necessary at each reporting date.
IPM has a balance relating to goodwill of \$15,446,000 at the opening balance sheet date as at 31 December 2020 as a result of acquisitions of businesses in previous years. Goodwill balances are tested annually for impairment. Tests for impairment are based on the calculation of a recoverable amount based on the higher of fair value less costs to sell or value in use. Capitalised development and software costs are also allocated to CGUs.
Determining the value in use involves the preparation of discounted cash flow projections, which require estimates of both future operating cash flows and an appropriate risk-adjusted discount rate.
The commercial viability of individually capitalised development project costs is also part of the overall assessment of carrying values.
The calculation of an appropriate discount rate to apply to the future cash flow estimate is itself an estimate. While some aspects of discount rate calculations can be more mechanical in nature (such as using the US treasury rate as a proxy for the risk-free rate) others, such as entity or sector-specific risk adjustments, rely on management estimates. The discount rate is also a key component in assessing the terminal value which is often an important part of any valuation. Sensitivity analysis on what are regarded as reasonably possible changes is provided in Note 8.
IPM represents one operating and reportable segment for all periods included in this Historical Financial Information.
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| \$ | \$ | \$ | |
| Revenue | 32,894,303 | 33,177,016 | 32,843,808 |
| Cost of sales | (2,688,745) | (2,917,108) | (2,537,513) |
| Gross profit | –————— 30,205,558 |
–————— 30,259,908 |
–————— 30,306,295 |
| Administrative expenses allocated from Parent | –————— (3,384,918) |
–————— (3,161,281) |
–————— (2,954,700) |
| Administrative expenses not allocated from Parent | (5,183,412) | (5,239,423) | (4,809,830) |
| EBITDA | –————— 21,637,228 |
–————— 21,859,204 |
–————— 22,541,765 |
| Depreciation and amortisation | –————— (303,500) |
–————— (19,352) |
–————— (52,218) |
| Operating profit | –————— 21,333,728 –————— |
–————— 21,839,852 –————— |
–————— 22,489,547 –————— |
As an entity with a single reportable segment, IPM is exempt from the disclosure requirements in IFRS 8 'Operating Segments' aside from the entity-wide disclosure requirements requiring disclosure of information regarding: products and services, geographic areas, and major customers.
Revenue from customers located in countries outside the United States where the customer has historically been serviced by the IPM US legal entity and invoiced in USD are included in US revenues below.
| Escrow | Verification | 2020 Total | |
|---|---|---|---|
| \$ | \$ | \$ | |
| Revenue by originating country | |||
| US | 27,428,306 | 4,465,759 | 31,894,065 |
| UK | 835,875 | 164,363 | 1,000,238 |
| Total revenue | –————— 28,264,181 |
–————— 4,630,122 |
–————— 32,894,303 |
| –————— Escrow |
–————— Verification |
–————— 2019 Total |
|
| \$ | \$ | \$ | |
| Revenue by originating country | |||
| US | 28,119,949 | 4,118,444 | 32,238,393 |
| UK | 800,910 | 137,713 | 938,623 |
| Total revenue | –————— 28,920,859 |
–————— 4,256,157 |
–————— 33,177,016 |
| –————— Escrow |
–————— Verification |
–————— 2018 Total |
|
| \$ | \$ | \$ | |
| Revenue by originating country | |||
| US | 28,581,124 | 3,400,153 | 31,981,277 |
| UK | 759,914 | 102,617 | 862,531 |
| Total revenue | –————— 29,341,038 |
–————— 3,502,770 |
–————— 32,843,808 |
| –————— | –————— | –————— |
Approximately 10%, 9% and 10% of IPM's 2020, 2019 and 2018 revenues are represented by ten customers, with one customer representing approximately 2% of revenue in each of those years.
All non-current assets as at the opening balance sheet date and as at 31 December 2018-2020 are US-based assets.
There are no customer contracts in either 2020, or 2019 or 2018 which account for more than 10% of revenue.
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| \$ | \$ | \$ | |
| Cost of sales | |||
| Third party costs | 794,593 | 1,089,193 | 691,459 |
| Employee costs | 1,811,723 | 1,731,133 | 1,830,264 |
| Other | 82,429 | 96,782 | 15,790 |
| Total cost of sales | –————— 2,688,745 |
–————— 2,917,108 |
–————— 2,537,513 |
| –————— 2020 |
–————— 2019 |
–————— 2018 |
|
| \$ | \$ | \$ | |
| Other administrative expenses | |||
| Bank fees | 63,798 | 71,825 | 86,636 |
| Parent costs allocated – general costs | 2,847,990 | 2,657,488 | 2,500,333 |
| Parent costs allocated – office space | 133,685 | 121,614 | 90,363 |
| IT costs | 71,946 | 87,371 | 76,427 |
| Non-wage and salary employee related expenses | 20,880 | 115,752 | 122,706 |
| Professional fees | 764,678 | 436,322 | 281,316 |
| Facilities and office expenses | 39,822 | 122,045 | 318,811 |
| Employee costs | 4,621,423 | 4,775,752 | 4,294,875 |
| Other | 4,108 | 12,535 | (6,937) |
| Total other administrative expenses | –————— 8,568,330 –————— |
–————— 8,400,704 –————— |
–————— 7,764,530 –————— |
Given how Parent has historically managed its operations, including the IPM business, IPM has historically obtained key management services from Parent and thus the costs of key management personnel have been included as part of the Parent cost allocations disclosed in the related party footnote below.
The average monthly number of persons employed by IPM during the year, is analysed by category as follows:
| Number of employees | |||
|---|---|---|---|
| 2020 | 2019 | 2018 | |
| Operational | 45 | 47 | 53 |
| Administration | 6 | 8 | 6 |
| Total | –————— 51 |
–————— 55 |
–————— 59 |
| The aggregate payroll costs of these persons were as follows: | –————— | –————— | –————— |
| 2020 | 2019 | 2018 | |
| \$ | \$ | \$ | |
| Wages and salaries | 5,505,823 | 5,568,579 | 5,252,302 |
| Social security costs | 808,772 | 822,580 | 770,895 |
| Other pension costs | 118,551 | 115,726 | 101,942 |
| Total payroll costs | –————— 6,433,146 |
–————— 6,506,885 |
–————— 6,125,139 |
| –————— | –————— | –————— |
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| \$ | \$ | \$ | |
| Interest income on cash deposits | 364,183 | 1,070,693 | 484,954 |
| Interest income on amount due from parent | 153,138 | 229,164 | 191,315 |
| Finance income | –————— 517,321 |
–————— 1,299,857 |
–————— 676,269 |
| –————— | –————— | –————— |
The above finance income relates entirely to assets not at fair value through profit or loss.
| 2020 | 2019 | 2018 |
|---|---|---|
| \$ | \$ | \$ |
| 5,788,265 | 5,522,136 | 5,122,007 |
| 174,918 | 163,588 | 149,616 |
| 5,963,183 | 5,685,724 | –————— 5,271,623 |
| –————— | –————— | |
| – | – | – |
| 196,638 –————— |
||
| (340,326) | (13,439) | 196,638 |
| 5,622,857 | 5,672,285 | –————— 5,468,261 –————— |
| 2020 | 2019 | 2018 |
| \$ | \$ | \$ |
| 21,614,851 | 22,897,793 | 22,927,946 |
| –————— | ||
| 4,539,119 | 4,808,537 | 4,814,869 |
| 983,902 | 818,532 | 635,585 |
| 167,382 | 171,179 | 226,079 |
| (129,208) | (105,583) | (168,679) |
| 61,662 | (20,380) | (39,593) –————— |
| 5,622,857 | 5,672,285 | 5,468,261 –————— |
| –————— (340,326) –————— –————— –————— –————— –————— –————— |
–————— –————— (13,439) –————— –————— –————— –————— –————— –————— |
Current and deferred tax recognised directly in Invested capital was nil in 2018, 2019 and 2020.
| Goodwill | Software | costs | Total | |
|---|---|---|---|---|
| \$ | \$ | \$ | \$ | |
| Cost | ||||
| At 1 January 2018 Additions |
15,446,000 – |
2,256,182 7,174 |
– – |
17,702,182 7,174 |
| Transfers | – | – | – | – |
| Disposals | – –————— |
(45,191) | – | (45,191) |
| At 31 December 2018 | 15,446,000 | –————— 2,218,165 |
–————— – |
–————— 17,664,165 |
| Additions | –————— – |
–————— – |
–————— 707,212 |
–————— 707,212 |
| Transfers | – | – | – | – |
| Disposals | – –————— |
(7,956) –————— |
– –————— |
(7,956) –————— |
| At 31 December 2019 | 15,446,000 | 2,210,209 | 707,212 | 18,363,421 |
| Additions | –————— – |
–————— 215,403 |
–————— 453,107 |
–————— 668,510 |
| Transfers | – | 707,212 | (707,212) | – |
| Disposals | – –————— |
(2,399) | – | (2,399) |
| At 31 December 2020 | 15,446,000 | –————— 3,130,425 |
–————— 453,107 |
–————— 19,029,532 |
| Accumulated amortisation and | –————— | –————— | –————— | –————— |
| impairment losses | ||||
| At 1 January 2018 | – | (2,169,276) | – | (2,169,276) |
| Charge for year Disposals |
– – |
(26,041) – |
– – |
(26,041) – |
| –————— | –————— | –————— | –————— | |
| At 31 December 2018 | – –————— |
(2,195,317) –————— |
– –————— |
(2,195,317) –————— |
| Charge for year | – | (8,906) | – | (8,906) |
| Disposals | – –————— |
– –————— |
– –————— |
– –————— |
| At 31 December 2019 | – –————— |
(2,204,223) –————— |
– –————— |
(2,204,223) –————— |
| Charge for year | – | (284,301) | – | (284,301) |
| Disposals | – –————— |
– –————— |
– –————— |
– –————— |
| At 31 December 2020 | – | (2,488,524) | – | (2,488,524) |
| Net book value | –————— | –————— | –————— | –————— |
| At 1 January 2018 | 15,446,000 –————— |
86,906 –————— |
– –————— |
15,532,906 –————— |
| At 31 December 2018 | 15,446,000 –————— |
22,848 | – | 15,468,848 |
| At 31 December 2019 | 15,446,000 –————— |
–————— 5,986 |
–————— 707,212 |
–————— 16,159,198 |
| At 31 December 2020 | 15,446,000 | –————— 641,901 |
–————— 453,107 |
–————— 16,541,008 |
| –————— | –————— | –————— | –————— |
At 31 December 2020 there were fully amortised intangible assets still in use with an original cost of \$2,270,670 (2019: \$2,267,589, 2018: \$2,205,467, 1 January 2018: \$2,169,276).
At 31 December 2020 there were two individually material internally developed software intangible assets with a carrying value of \$1,093,812 and a remaining amortisation period of 30 months (2019: one with a carrying value of \$707,212 and remaining amortisation period of 36 months, 2018: none, 1 January 2018: none).
All goodwill at IPM relates to business combinations completed prior to the earliest date presented.
Goodwill and intangible assets are allocated to CGUs in order to be assessed for potential impairment. CGUs are defined by accounting standards as the lowest level of asset groupings that generate separately identifiable cash inflows that are not dependent on other CGUs. Judgment is required in determining the CGUs. The Directors have determined the entire IPM business represents a single CGU for which the entire goodwill balance relates to. Management has determined that neither the UK operations of IPM nor the verification services revenue stream represent an asset grouping that generates cash flows separately identifiable from the US operations or the escrow services revenue stream.
Goodwill is tested for impairment annually at the level of the CGU to which it is allocated. In each of the tests carried out as at 1 October of each year, the recoverable amount of the CGUs concerned was measured on a value in use basis (VIU). VIU represents the present value of the future cash flows that are expected to be generated by the CGU to which the goodwill is allocated.
Capitalised development and software costs are included in the CGU asset bases when performing the impairment review and are also considered, on an asset-by-asset basis, for impairment where there are indicators of impairment. During the year, management carried out a detailed review of the capitalised product portfolio and, based on cash flow projections for the respective projects, concluded that no impairment was required.
VIU calculations are an area of management estimation as set out in Note 2. These calculations require the use of estimates, specifically: pre-tax cash flow projections; long-term growth rates; and a discount rate. Further detail in relation to these key assumptions used in the Group's goodwill annual impairment review is as follows:
Cash flow projections are based on management's budget for the forthcoming financial year and longer-term strategic forecast for the next 10 years. The budget and 10-year strategic forecast are compiled by the Business' management using a detailed, bottom-up process with respect to revenue, margin and overheads, considering factors specific to that business unit as well as wider economic factors such as the impact of COVID-19.
Assumptions have then been applied for expected revenue, contribution margin growth, and capital expenditures for the subsequent 10 years from the end of the base year. A period longer than 10 years has been used in line with the accounting practices of the Parent. Had a period of 5 years been used with the same long-term growth rate into perpetuity applied, there would be no change to the conclusion as to whether an impairment is required.
These assumptions are based on management's experience of growth and knowledge of the industry sector, market and the Business' internal opportunities for growth and margin enhancement. The projections beyond 10 years into perpetuity use an estimated long-term growth rate.
Forecast capital expenditures included within the cash flow projections are based on management's expectations of future expenditure required to support the Business and current run rate requirements.
The revenue growth rate is considered a critical estimate by management. Revenue growth is considered to be the most critical estimate, due to the Business' stable overhead base and high operating leverage. Contributions margins for each CGU are assumed to be lower in future years relative to current actuals. The revenue growth rate for the next year is forecasted at 2.5%, decreasing steadily to 0.2% for year 10.
To forecast growth beyond the detailed cash flows into perpetuity, a long-term average growth rate of 0.2% was utilised (2019:0.2%, 2018: 0.4%) has been used. This represents management's best estimate of a longterm annual growth rate. Different assumptions may be more appropriate in future years dependent on changes in the macroeconomic environment. These rates are not greater than the published International Monetary Fund average growth rates in gross domestic product for the next five-year period in each relevant territory in which the CGUs operate.
Discount rates can change relatively quickly for reasons both inside and outside of management's control. Those outside management's direct control or influence include changes in the Group's Beta, changes in risk-free rates of return and changes in capital structure.
The discount rates are determined using a capital asset pricing model and reflect current market interest rates, relevant equity and size risk premiums and the risks specific to the business. On this basis, the specific discount rate used in the VIU calculation and the rates reflect management's assessment on the level of relative risk in the business. For the impairment test performed as of 1 October 2020, a discount rate of 6.75% was used (2019: 7.25%, 2018: 7.25%).
Sensitivity analysis has been performed in respect of certain scenarios where management considers a reasonably possible change in key assumptions could occur. A reasonably possible change in key assumptions could occur as follows:
• The discount rate: both factors inside and outside of management's control impact the discount rate and 2% is considered a reasonably possible change in assumption due to changing market conditions.
The outcome of the discount rate sensitivity analysis indicated a 2% increase in the discount rate would have an insignificant impact to the headroom. Holding all other inputs constant, a discount rate of 17.5% would be required to trigger an impairment. Further, in calculating the sensitivity while setting revenue growth to 0% and increasing the discount rate by 2%, there is still significant headroom between the VIU and carrying value. Management do not consider there to be a reasonably possible change in revenue that could result in an impairment of goodwill.
| Fixtures, | |||
|---|---|---|---|
| Computer | fittings and | ||
| equipment | equipment | Total | |
| \$ | \$ | \$ | |
| Cost | |||
| At 1 January 2018 | 300,946 | 1,055,547 | 1,356,493 |
| Additions | 34,384 | – | 34,384 |
| Disposals | (254,233) | (1,055,547) | (1,309,780) |
| At 31 December 2018 | –————— 81,097 |
–————— – |
–————— 81,097 |
| Additions | –————— – |
–————— – |
–————— – |
| Disposals | (2,388) | – | (2,388) |
| At 31 December 2019 | –————— 78,709 |
–————— – |
–————— 78,709 |
| Additions | –————— 3,967 |
–————— – |
–————— 3,967 |
| Disposals | – | – | – |
| At 31 December 2020 | –————— 82,676 |
–————— – |
–————— 82,676 |
| –————— | –————— | –————— |
| Computer | fittings and | |
|---|---|---|
| equipment | equipment | Total |
| \$ | \$ | \$ |
| (285,498) | (1,040,881) | (1,326,379) |
| (11,511) | (14,666) | (26,177) |
| 268,500 | 1,055,547 | 1,324,047 |
| (28,509) | – | –————— (28,509) |
| –————— (10,446) |
||
| – | – | – |
| (38,955) | – | –————— (38,955) |
| –————— (19,199) |
||
| – | – | – |
| (58,154) | – | –————— (58,154) |
| –————— | –————— | –————— |
| 15,448 | 14,666 | 30,114 |
| 52,588 | – | –————— 52,588 |
| 39,754 | – | –————— 39,754 |
| 24,522 | – | –————— 24,522 |
| –————— –————— (10,446) –————— –————— (19,199) –————— –————— –————— –————— |
Fixtures, –————— –————— – –————— –————— – –————— –————— –————— –————— |
None of the property, plant and equipment assets are pledged as security for any of IPM's liabilities.
At 31 December 2018-2020, no interest or other expenses have been capitalised to property, plant and equipment.
At 31 December 2020 there were fully depreciated property, plant and equipment assets still in use with an original cost of \$8,305 (2019: \$5,223, 2018: \$17,634, 1 January 2018: \$1,288,607). During the year ended 31 December 2018 fully depreciated furniture, fittings and equipment with a cost basis of \$1,055,547 were written off.
| 1/1/2018 | |||
|---|---|---|---|
| \$ | \$ | \$ | \$ |
| 374,094 | 272,656 | 213,672 | 287,033 |
| 39,845 | 4,771 | 555 | 44,776 |
| 2,672,697 | 2,914,564 | 2,944,622 | 3,748,472 |
| 193,662 | 455,824 | 231,720 | – |
| 3,280,298 | 3,647,815 | 3,390,569 | –————— 4,080,281 |
| 3,280,298 | 3,647,815 | 3,390,569 | –————— 4,080,281 |
| –————— | – –————— 4,080,281 |
||
| 2020 –————— –————— – |
2019 –————— –————— – –————— |
2018 –————— –————— – –————— 3,280,298 3,647,815 3,390,569 |
The entire trade receivables balance represents receivables due from customers based in the U.K. initially measured at the transaction price and subsequently classified as measured at amortised cost.
Trade receivable balances invoiced to U.S. customers are initially measured at fair value, which is deemed to be the transaction price, due to the short-term nature of the receivable balances, and subsequently measured at fair value through profit or loss. As IPM is party to Parent's trade receivables securitisation programme discussed in footnote 18, on a monthly basis IPM bundles its billed U.S. receivable balances and sells them to Parent's special purpose securitisation entity at a discount for the securitisation entity assuming the risk of loss. As part of the sale, management transfers all of the risks and rewards to Parent's special purpose entity and thus meets the criteria to derecognise the U.S. trade receivables and recognise an amount receivable from Parent. That is, the IPM business is no longer exposed to variability in the amount and timing of the cash flows subsequent to transferring to Parent's special purpose entity. As a result, no amounts are presented on the balance sheet as trade receivables from U.S. customers at any balance sheet date within these financial statements.
Both the loan receivable from Parent and the other receivables owed by Parent are classified as financial assets measured amortised cost, as IPM holds the loan receivable and other receivables with the intent to collect them. IPM earns and records interest income from Parent on the loan receivable balance.
Expected credit losses are recognised on the U.K. customer trade receivable balances. IPM management does not expect and therefore does not provide for any credit losses on amounts owed by Parent given the nature of the securitisation arrangement, IPM's history collecting amounts due from Parent and its future expectations on its ability to collect amounts due from Parent when due.
The ageing of the U.K. customer trade receivables at the end of the reporting period was:
| Expected credit |
Expected credit |
|||||
|---|---|---|---|---|---|---|
| Gross | losses | Net | Gross | losses | Net | |
| 2020 | 2020 | 2020 | 2019 | 2019 | 2019 | |
| \$ | \$ | \$ | \$ | \$ | \$ | |
| Trade receivables: | ||||||
| Not past due | 120,005 | – | 120,005 | 88,744 | – | 88,744 |
| Past due 0–30 days | 23,819 | (12,286) | 11,533 | 70,151 | (2,931) | 67,220 |
| Past due 31–90 days | 112,105 | (24,572) | 87,533 | 66,023 | (5,862) | 60,161 |
| Past due more than 90 days | 241,025 | (86,002) | 155,023 | 77,048 | (20,517) | 56,531 |
| Total | –———— 496,954 |
–———— (122,860) |
–———— 374,094 |
–———— 301,966 |
–———— (29,310) |
–———— 272,656 |
| –———— | –———— | –———— | –———— | –———— Expected |
–———— | |
| Gross | credit losses | Net | ||||
| 2018 | 2018 | 2018 | ||||
| \$ | \$ | \$ | ||||
| Trade receivables: | ||||||
| Not past due | 64,960 | – | 64,960 | |||
| Past due 0–30 days | 104,481 | (2,199) | 102,282 | |||
| Past due 31–90 days | 31,519 | (4,399) | 27,120 | |||
| Past due more than 90 days | 34,706 | (15,396) | 19,310 | |||
| Total | –————— –————— |
235,666 | –————— (21,994) –————— |
–————— 213,672 –————— |
Creditworthiness of all trade debts is assessed on an ongoing basis providing for expected credit losses in line with IFRS 9. COVID-19 has not had a material impact on the collection of trade receivables, and consequently has not materially impacted forward looking estimates for expected credit losses. Trade receivables are written off when circumstances there is no reasonable expectation of recovery, generally when trade receivables are one year past due.
The movement in the expected credit losses of trade and other receivables is as follows:
| 2020 \$ |
2019 \$ |
2018 \$ |
|
|---|---|---|---|
| Balance at 1 January | (29,310) | (21,994) | (21,119) |
| Increases in loss allowance recognised in the income | |||
| statement during the year | (145,012) | (153,225) | (212,141) |
| Other net movements (specific write-offs) | 51,462 | 145,909 | 211,266 |
| Balance at 31 December | –————— (122,860) |
–————— (29,310) |
–————— (21,994) |
| –————— | –————— | –————— |
Deferred tax assets and liabilities on the combined Statement of Financial Position are offset in accordance with IAS 12.
Movement in deferred tax during the year:
| Adjustment | |||||
|---|---|---|---|---|---|
| 1 January | Recognised | Recognised in | to opening | 31 December | |
| 2020 | in income invested capital | reserves | 2020 | ||
| \$ | \$ | \$ | \$ | \$ | |
| Foreign tax credit | 105,583 | 81,858 | – | – | 187,441 |
| Accrued employee benefits | 33,177 | 104,667 | – | – | 137,844 |
| Deferred revenue | 891,381 | 267,527 | – | – | 1,158,908 |
| Intangible amortisation | (584,214) | (33,643) | – | – | (617,857) |
| Allowance for bad debts | 13,219 | (13,219) | – | – | – |
| Software development costs Book versus tax basis |
(154,155) | (132,995) | – | – | (287,150) |
| differences – fixed assets | (3,708) | 66,131 | – | – | 62,423 |
| Deferred tax (liability)/ | –————— | –————— | –————— | –————— | –————— |
| asset | 301,283 –————— |
340,326 –————— |
– –————— |
– –————— |
641,609 –————— |
| Analysed as follows: Non-current assets |
–————— | –————— | –————— | –————— | 641,609 –————— |
| Non-current liabilities | – | ||||
| –————— | –————— | –————— | –————— Adjustment |
–————— | |
| 1 January | Recognised | Recognised in | to opening | 31 December | |
| 2019 | in income invested capital | reserves | 2019 | ||
| \$ | \$ | \$ | \$ | \$ | |
| Foreign tax credit | – | 105,583 | – | – | 105,583 |
| Accrued employee benefits | 75,584 | (42,407) | – | – | 33,177 |
| Deferred revenue | 765,204 | 126,177 | – | – | 891,381 |
| Intangible amortisation | (562,961) | (21,253) | – | – | (584,214) |
| Allowance for bad debts | 43,980 | (30,761) | – | – | 13,219 |
| Software development costs Book versus tax basis |
1,811 | (155,966) | – | – | (154,155) |
| differences – fixed assets | (35,774) | 32,066 | – | – | (3,708) |
| Deferred tax (liability)/ asset |
–————— 287,844 |
–————— 13,439 |
–————— – |
–————— – |
–————— 301,283 |
| Analysed as follows: | –————— | –————— | –————— | –————— | –————— |
| Non-current assets | 301,283 | ||||
| Non-current liabilities | –————— | –————— | –————— | –————— | –————— – |
| –————— | –————— | –————— | –————— | –————— |
| Adjustment | |||||
|---|---|---|---|---|---|
| 1 January | Recognised | Recognised in | to opening | 31 December | |
| 2018 | in income invested capital | reserves | 2018 | ||
| \$ | \$ | \$ | \$ | \$ | |
| Foreign tax credit | – | – | – | – | – |
| Accrued employee benefits | 62,410 | 13,174 | – | – | 75,584 |
| Deferred revenue | 880,496 | (115,292) | – | – | 765,204 |
| Intangible amortisation | (606,961) | 44,000 | – | – | (562,961) |
| Allowance for bad debts | 98,292 | (54,312) | – | – | 43,980 |
| Software development costs | 1,963 | (152) | – | – | 1,811 |
| Book versus tax basis | |||||
| differences – fixed assets | 48,282 | (84,056) | – | – | (35,774) |
| Deferred tax (liability)/ | –————— | –————— | –————— | –————— | –————— |
| asset | 484,482 | (196,638) | – | – | 287,844 |
| Analysed as follows: | –————— | –————— | –————— | –————— | –————— |
| Non-current assets | 287,844 | ||||
| Non-current liabilities | –————— | –————— | –————— | –————— | –————— – |
| –————— | –————— | –————— | –————— | –————— |
There are no potential deferred tax assets that have not been recognised due to uncertainty.
| 2020 | 2019 | 2018 | 1/1/2018 | |
|---|---|---|---|---|
| \$ | \$ | \$ | \$ | |
| Trade payables | – | – | – | – |
| Non-trade payables | 9,880 | 27,020 | 16,139 | 21,927 |
| Accruals | 1,439,932 | 1,118,821 | 1,408,869 | 1,321,133 |
| Amounts owed to Parent | 2,627,105 –————— |
1,394,788 | 1,070,304 | 3,509,581 |
| Total | 4,076,917 | –————— 2,540,629 |
–————— 2,495,312 |
–————— 4,852,641 |
| –————— | –————— | –————— | –————— |
The carrying value of trade and other payables classified as financial liabilities measured at amortised cost approximates fair value.
Accruals represent incurred but unpaid employee costs for salaries, benefits and the associated employer payroll taxes.
Deferred revenue represents advanced consideration received from customers, for which revenue is recognised over time. Deferred revenue is analysed as follows and is considered a contract liability:
| 2020 | 2019 | 2018 | 1/1/2018 | |
|---|---|---|---|---|
| \$ | \$ | \$ | \$ | |
| Escrow | 16,637,593 | 16,962,154 | 17,094,220 | 16,750,179 |
| Verification | 4,583,310 –————— |
4,012,932 | 2,877,250 | 2,819,342 |
| Total | 21,220,903 | –————— 20,975,086 |
–————— 19,971,470 |
–————— 19,569,521 |
| Analysed as follows: | –————— | –————— | –————— | –————— |
| Current | 19,106,704 | 19,241,996 | 18,440,794 | 18,095,501 |
| Non-current | 2,114,199 –————— |
1,733,090 | 1,530,676 | 1,474,020 |
| Total | 21,220,903 | –————— 20,975,086 |
–————— 19,971,470 |
–————— 19,569,521 |
| –————— | –————— | –————— | –————— |
All deferred revenue classified as non-current relates to escrow services.
Revenue recognised in the year ended 31 December 2020 that was included in the contract liability at 1 January 2020 amounted to \$19,241,996 (2019: \$18,440,794, 2018: \$18,095,501).
The above deferred revenue will be allocated to the remaining performance obligations for the year ending as follows:
| 2020 | |||||||
|---|---|---|---|---|---|---|---|
| —————–—————–—————–—————–—————–————— 2021 |
2022 | 2023 | 2024 | Thereafter | |||
| \$ | \$ | \$ | \$ | \$ | |||
| Escrow | 14,523,394 | 436,184 | 328,768 | 168,135 | 1,181,112 | ||
| Verification | 4,583,310 | – | – | – | – | ||
| Total | –————— 19,106,704 |
–————— 436,184 |
–————— 328,768 |
–————— 168,135 |
–————— 1,181,112 |
||
| –————— | –————— | –————— 2019 |
–————— | –————— | |||
| —————–—————–—————–—————–—————–————— 2020 |
2021 | 2022 | 2023 | Thereafter | |||
| \$ | \$ | \$ | \$ | \$ | |||
| Escrow | 15,229,064 | 445,201 | 204,889 | 247,732 | 835,268 | ||
| Verification | 4,012,932 | – | – | – | – | ||
| Total | –————— 19,241,996 |
–————— 445,201 |
–————— 204,889 |
–————— 247,732 |
–————— 835,268 |
||
| –————— –————— –————— –————— –————— 2018 —————–—————–—————–—————–—————–————— |
|||||||
| 2019 | 2020 | 2021 | 2022 | Thereafter | |||
| \$ | \$ | \$ | \$ | \$ | |||
| Escrow | 15,563,544 | 333,860 | 154,720 | 135,996 | 906,100 | ||
| Verification | 2,877,250 | – | – | – | – | ||
| Total | –————— 18,440,794 |
–————— 333,860 |
–————— 154,720 |
–————— 135,996 |
–————— 906,100 |
||
| –————— | –————— | –————— 1/1/2018 |
–————— | –————— | |||
| —————–—————–—————–—————–—————–————— 2018 |
2019 | 2020 | 2021 | Thereafter | |||
| \$ | \$ | \$ | \$ | \$ | |||
| Escrow | 15,276,159 | 355,494 | 155,328 | 131,208 | 831,990 | ||
| Verification | 2,819,342 | – | – | – | – | ||
| Total | –————— 18,095,501 |
–————— 355,494 |
–————— 155,328 |
–————— 131,208 |
–————— 831,990 |
||
| –————— | –————— | –————— | –————— | –————— |
Cash and cash equivalents comprise:
| 2020 | 2019 | 2018 | 1/1/2018 | |
|---|---|---|---|---|
| \$ | \$ | \$ | \$ | |
| Cash at bank and in hand | 66,504,239 | 51,241,661 | 39,688,251 | 22,032,368 |
| –————— | –————— | –————— | –————— |
As at 31 December 2020, IPM did not have any committed bank facilities, revolving credit facilities or letters of credit (2019: \$nil, 2018: \$nil, 1 January 2018: \$nil).
IPM has exposure to the following risks from its use of financial instruments:
Liquidity risk
Currency risk
Parent has overall responsibility for establishing appropriate management of exposure to risk.
Parent's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.
All instruments utilised by IPM are for financing purposes. The financial management and treasury activities of IPM are managed centrally by Parent for all of IPM's operations.
As at 1 January 2018 and 31 December 2018-2020 IPM had no financial instruments measured at fair value on a recurring basis. In addition, no embedded derivatives have been identified.
All financial assets and financial liabilities are held at their carrying value which approximates to fair value.
Credit risk is the risk of financial loss to IPM if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from IPM's receivables from customers and amounts due from Parent. IPM's exposure to credit risk is influenced mainly by the individual characteristics of each customer and counterparty.
The carrying value of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
| 2020 | 2019 | 2018 | 1/1/2018 | |
|---|---|---|---|---|
| \$ | \$ | \$ | \$ | |
| Trade receivables | 374,094 | 272,656 | 213,672 | 287,033 |
| Amounts owed by parent | 2,866,359 | 3,370,388 | 3,176,342 | 3,748,472 |
| Cash and cash equivalents | 66,504,239 –————— |
51,241,661 | 39,688,251 | 22,032,368 |
| Total | 69,744,692 | –————— 54,884,705 |
–————— 43,078,265 |
–————— 26,067,873 |
| –————— | –————— | –————— | –————— |
The maximum exposure to credit risk for trade receivables and other receivables at the reporting date by geographic region was:
| 2020 | 2019 | 2018 | 1/1/2018 | |
|---|---|---|---|---|
| Debtors by country | \$ | \$ | \$ | \$ |
| UK | 374,094 | 272,656 | 213,672 | 287,033 |
| US (amounts due from Parent) | 2,866,359 | 3,370,388 | 3,176,342 | 3,748,472 |
| Total | –————— 3,240,453 |
–————— 3,643,044 |
–————— 3,390,014 |
–————— 4,035,505 |
| –————— | –————— | –————— | –————— |
The trade receivables of IPM typically comprise amounts due from a large number of UK-based customers and represent a spread of industry sectors. Management monitors trade receivables and records a provision for expected credit losses. IPM's Parent has a dedicated team within the treasury department that regularly performs credit checks on potential customers and regularly reviews customer debt balances to assess the risk of recovery.
The amounts owed by Parent relate to the Parent's US trade receivables securitisation programme discussed in the related party footnote. Management does not expect and therefore does not provide for any credit losses on amounts owed by Parent given the nature of the securitisation arrangement, IPM's history collecting amounts due from Parent and its future expectations on its ability to continually collect the entire amount due from Parent.
All of IPM's cash is held with financial institutions of high credit rating.
Liquidity risk is the risk that IPM will not be able to meet its financial obligations as they fall due. IPM manages liquidity risk by regularly reviewing forecast and actual cash inflows against the contractual due dates of cash outflows to settle financial liabilities.
IPM's only financial liabilities as at 1 January 2018 and 31 December 2018-2020 are the trade and other payables (including amounts owed to Parent). The entire outstanding balance of trade and other payables is classified as current is due within one year from each balance sheet date. IPM has cash and cash equivalents in excess of trade and other payables at each balance sheet date.
IPM is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional and presentational currency of IPM. Management reviews the size and probable timing of settlement of all financial assets and liabilities denominated in foreign currencies. IPM's exposure to currency risk is specific to its sales to and trade receivables with UK-based customers as all other financial assets and liabilities are denominated in USD.
A change in GBP/USD exchange rate of 10% would have an impact of \$100,024 (2019: \$93,862, 2018: \$86,253) on revenue, \$92,062 (2019: \$86,099, 2018: \$78,745) on operating profit and \$48,500 (2019: \$31,956, 2018: \$31,126) on net assets.
IPM finances their operations through retained profits and its cash balances are part of a cash pooling arrangement with Parent discussed in the related party transaction footnote. As a party to the cash pooling agreement, IPM earns interest at floating rates of interest based upon its deposits and the bank interest rates. The cash and cash equivalents of IPM earning interest at the end of the financial year were as follows:
| –————— | –————— | –————— | –————— | |
|---|---|---|---|---|
| Total | 66,504,239 | –————— 51,241,661 |
–————— 39,688,251 |
–————— 22,032,368 |
| US dollar denominated cash and cash equivalents |
66,504,239 –————— |
51,241,661 | 39,688,251 | 22,032,368 |
| \$ | \$ | \$ | \$ | |
| 2020 | 2019 | 2018 | 1/1/2018 |
A change of 100 basis points in interest rates would result in a difference in annual pre-tax profit of \$588,729 (2019: \$454,650, 2018: \$308,603).
The Directors do not consider that the LIBOR reform will have any impact on IPM.
There are no contingent liabilities not provided for at the end of the financial year (2019: \$nil, 2018: \$nil, 1/1/2018: \$nil). Similarly, there are no contingent assets (2019: \$nil, 2018: \$nil, 1/1/2018: \$nil).
IPM has expensed \$118,551, \$115,726 and \$101,942 during the years ended December 31, 2020, 2019 and 2018 related to its contributions to the defined contribution plan.
As of December 31, 2020, 2019 and 2018, a balance of \$2,866,359, \$3,370,388 and \$3,176,342 respectively, was due from related parties. These amounts relate to the net of 1) cash collected by Parent for customer invoices on behalf of the Business and 2) amounts due from the Parent Company's wholly owned special purpose entity relating to the accounts receivable securitization program as outlined below.
As of 31 December 2020, 2019 and 2018, a net balance of \$2,627,105 \$1,394,788 and \$1,070,304 respectively, was due to related parties for funds advanced to the IPM Business in the normal course of business for general working capital purposes and capital expenditures. There is no interest charged on the intercompany balance and it is settled in the normal course of business. The Business's cash receipts and disbursements occur at the Parent Company's divisional level. Accordingly, the intercompany balance will fluctuate based upon cash flows. IPM is a guarantor of Parent Company's debt, however, this guarantee will not transfer with the IPM Business as part of the Acquisition.
In March 2015, Parent entered into a \$250,000,000 trade receivable securitisation program involving several of its wholly owned subsidiaries (including the IPM Business) and certain financial institutions. Under the trade receivable securitisation program, IPM sells all of the Business' U.S. customer receivable balances to the Parent's wholly owned and consolidated special purpose entity, Iron Mountain Receivables TRS, LLC.
The Special Purpose Subsidiaries use IPM's accounts receivable balance to collateralize loans obtained from certain financial institutions. On 31 July 2017, the Parent amended the trade receivable securitisation program to increase the maximum amount available from \$250,000,000 to \$275,000,000 and extend the maturity date from 6 March 2018 to 30 July 2020. On 31 March 2020, the Parent amended the trade receivable securitisation program to increase the maximum amount available from \$275,000,000 to \$300,000,000 and extend the maturity date from 30 July 2020 to 30 July 2021, at which point all obligations of Parent become due.
As of December 31, 2020, 2019 and 2018, the amount of IPM's accounts receivable pledged under the Accounts Receivable Securitization Program was \$7,994,276, \$7,999,945 and \$7,788,088, respectively. The interest rate in effect under the Accounts Receivable Securitization Program as of December 31, 2020, 2019 and 2018 was 1.1%, 2.8% and 3.0%, respectively. The Parent Company retains the responsibility of servicing the accounts receivable balances pledged as collateral in this transaction and thus the IPM business derecognises trade receivables and recognises as receivable due from Parent. The maximum availability allowed is limited by eligible accounts receivable, as defined under the terms of the Accounts Receivable Securitization Program.
Certain of Parent's subsidiaries, including IPM participate in cash pooling arrangements with Bank Mendes Gans ("BMG"), an independently operated wholly owned subsidiary of ING Group, in order to help the Parent manage global liquidity requirements. Each subsidiary, including IPM, receives interest on the cash balances held on deposit (or pays interest if they are debit position with BMG).
As of December 31, 2020, 2019, 2018 and 1 January 2018, the entire cash and cash equivalents balance presented in the Balance Sheet is part of the cash pool. The related interest income for each year is included in the Income Statement as a component of Finance income.
As discussed in the basis of preparation, the IPM business was allocated costs from Parent.
Total Parent costs of \$3,408,532, \$3,183,836 and \$2,980,993 were allocated to IPM by Parent during the years ended December 31, 2020, 2019 and 2018, respectively, and are included in other administrative expenses and cost of sales within the Income Statement. The Parent or its subsidiary Iron Mountain Information Management, LLC allocates these costs to all subsidiaries, including IPM. This allocation for the preparation of accounting records, management of cash, and services of the Parent's legal, risk management, internal audit, tax, accounts payable, payroll, and purchasing departments, as well as use of the Parent's trademark, share-based payment costs, the development of computer systems and use of computer software.
The Business' key management personnel comprise the sole director of IPM and the Senior Vice President of Parent's Global Digital Solutions business. A portion of these individuals' costs is included in the allocation from Parent. Details of the remuneration included in that allocation are as follows:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| \$ | \$ | \$ | |
| Wages and salaries | 57,000 | 56,000 | 50,000 |
| Social security costs | 3,000 | 3,000 | 3,000 |
| Other pension costs | 1,000 | 1,000 | 1,000 |
| Total payroll costs | –————— 61,000 |
–————— 60,000 |
–————— 54,000 |
| –————— | –————— | –————— |
In addition, Parent costs of \$133,685, \$121,614 and \$90,363 were allocated to IPM by the Parent during the years ended December 31, 2020, 2019 and 2018, respectively, and are included in other administrative expenses within the Income Statement. This is an allocation for the use of space to operate the IPM business within facilities of the Parent or its subsidiary Iron Mountain Information Management, LLC.
These costs, and the classification of them as financing activities in the statement of cash flows, may not be indicative of actual costs that may have been incurred, or classified with the statement of cash flows, if IPM had been operated as a standalone business or component of a different entity.
As discussed in the basis of preparation, employees of the IPM business participate in Parent's medical plan. Total costs directly attributable to IPM employees reflected in the historical financial information for the years ended December 31, 2020, 2019 and 2018 totalled of \$426,857, \$404,734 and \$390,297, respectively, of which \$403,243, \$382,179 and \$364,004 is classified in administrative expenses with the remainder in cost of sales.
These costs may not be indicative of actual costs that may have been incurred if IPM had been operated as a standalone business or component of a different entity.
Parent offers an employee share purchase plan which is available to substantially all U.S. and Canadian employees who meet certain service eligibility requirements and provides a way for eligible employees to become shareholders of Parent on favourable terms. Generally, there are two six-month offering periods per year, the first of which generally runs from 1 June through 30 November and the second generally runs from 1 December through 31 May.
During each offering period, participating employees accumulate after-tax payroll contributions, up to a maximum of 15% of their compensation, to pay for shares at the purchase price at the end of the offering. There is no employer match for this plan. Participating employees may withdraw from an offering before the purchase date and obtain a refund of the amounts withheld as payroll deductions. At the end of the offering period, outstanding options under the Plan are exercised, and each employee's accumulated contributions are used to purchase Parent Company common stock. The price for shares purchased under the Plan is 95% of the fair market price at the end of the offering period, without a look-back feature, and shares are distributed from Parent's employee share purchase plan reserve as approved by Parent's shareholders.
Given the structure of the plan, employees deferring their own salaries with no employer contributions to purchase shares of Parent at a 5% discount, no share-based compensation cost is recognised in IPM or in Parent's income or comprehensive income statements.
There were 2,459, 2,188 and 2,033 shares purchased by IPM's employees under Parent's employee share purchase plan for the years ended December 31, 2020, 2019 and 2018, respectively.
No material subsequent events have occurred that required recognition or disclosure in the Historical Financial Information.
The Directors (the "Directors") NCC Group plc (the "Company") XYZ Building 2 Hardman Boulevard Spinningfields M3 3AQ United Kingdom
Peel Hunt LLP (the "Sponsor") 100 Liverpool Street London EC2M 2AT United Kingdom
14 May 2021
Dear Ladies and Gentlemen
Iron Mountain Intellectual Property Management, Inc. ("IPM") and together with certain assets and liabilities used in managing and operating IPM (the "Target Group")
We report on the financial information of the Target Group for the years ended 31 December 2018, 31 December 2019 and 31 December 2020 set out in section A of Part 4 of the circular dated 14 May 2021 (the "Circular") of the Company (the "Target Group Financial Information Table").
This report is required by item 13.5.21R of the Listing Rules of the Financial Conduct Authority (the "Listing Rules") and is given for the purpose of complying with that item and for no other purpose.
In our opinion, the Target Group Financial Information Table gives, for the purposes of the Circular, a true and fair view of the state of affairs of the Target Group as at the dates stated and of its profits, cash flows and statement of changes in invested capital for the years ended 31 December 2018, 31 December 2019 and 31 December 2020 in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with the basis of preparation set out in note 1 to the Target Group Financial Information Table.
We are required to report if we have anything material to add or draw attention to in respect of the Directors' statement in the Target Group Financial Information Table about whether the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the Target Group Financial Information Table and the Directors' identification of any material uncertainties to the Target Group's ability to continue as a going concern over a period of at least twelve months from the date of this Circular.
We have nothing material to add or to draw attention to.
PricewaterhouseCoopers LLP, 1 Embankment Place, London, WC2N 6RH T: +44 (0) 2075 835 000, F: +44 (0) 2072 124 652, www.pwc.co.uk
PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Conduct Authority for designated investment business.
The Directors of the Company are responsible for preparing the Target Group Financial Information Table in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with the basis of preparation set out in note 1 to the Target Group Financial Information Table.
It is our responsibility to form an opinion on the Target Group Financial Information Table and to report our opinion to you.
Save for any responsibility which we may have to those persons to whom this report is expressly addressed and to any person as and to the extent there provided which we may have to shareholders of the Company as a result of the inclusion of this report in the Circular, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 13.4.1R(6) of the Listing Rules, consenting to its inclusion in the Circular.
The Target Group Financial Information Table has been prepared for inclusion in the Circular of the Company on the basis of the accounting policies set out in note 1 to the Target Group Financial Information Table.
We conducted our work in accordance with Standards for Investment Reporting issued by the Financial Reporting Council ("FRC") in the United Kingdom. We are independent in accordance with the FRC's Ethical Standard as applied to Investment Circular Reporting Engagements and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Our work included an assessment of evidence relevant to the amounts and disclosures in the Target Group Financial Information Table. It also included an assessment of significant estimates and judgments made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entity's circumstances, consistently applied and adequately disclosed.
We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error.
Yours faithfully
Chartered Accountants
PricewaterhouseCoopers LLP, 1 Embankment Place, London, WC2N 6RH T: +44 (0) 2075 835 000, F: +44 (0) 2072 124 652, www.pwc.co.uk
PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Conduct Authority for designated investment business.
The unaudited pro forma statement of net assets set out below has been prepared on the basis set out in the notes below to illustrate the impact of the Acquisition, the Placing and the drawdown of the Term Facility Agreement on the net assets of NCC Group plc as at 30 November 2020 as if they had taken place at that date (together the "Unaudited Pro Forma Financial Information").
The Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only and, by its nature, addresses a hypothetical situation and does not, therefore, represent the Enlarged Group's actual financial position. Such information may not, therefore, give a true picture of the Group's financial position.
The Unaudited Pro Forma Financial Information does not constitute financial statements within the meaning of section 434 of the Companies Act 2006. Shareholders should read the whole of this document and not rely solely on the summarised financial information contained in this Part 5.
The Unaudited Pro Forma Financial Information has been prepared on a consistent basis with the accounting policies and presentation adopted by NCC Group plc in relation to the unaudited condensed consolidated interim financial information for the half year ended 30 November 2020, on the basis of notes set out below and in accordance with Listing Rule 13.3.3R.
Shareholders should read the whole of this document and not rely solely on the summarised financial information contained in this Part 5 (Unaudited Pro Forma Financial Information on the Enlarged Group). PricewaterhouseCoopers LLP's report on the Unaudited Pro Forma Financial Information is set out in Section B of this Part 5 (Unaudited Pro Forma Financial Information on the Enlarged Group).
The Unaudited Pro Forma Financial Information does not reflect the effect of anticipated synergies and efficiencies associated with the Acquisition, nor the costs which may be incurred in relation thereto.
| Adjustments –––––––––––––––––––––––––––––––––––––––––––– |
|||||||
|---|---|---|---|---|---|---|---|
| NCC Group plc Net Assets |
Target Group Net Assets |
||||||
| as at | as at 30 November 31 December |
Equity | Debt | Acquisition | Purchase accounting |
Enlarged | |
| £ millions | 2020 Note 1 |
2020 Note 2 |
Financing Note 3 |
Financing Note 4 |
adjustments Note 5 |
adjustment Note 6 |
Group |
| Non-current assets: |
|||||||
| Goodwill | 188.7 | 11.4 | – | – | – | 155.4 | 355.5 |
| Other intangible | |||||||
| assets | 34.9 | 0.8 | – | – | – | – | 35.7 |
| Property, plant and | |||||||
| equipment | 12.3 | – | – | – | – | – | 12.3 |
| Right-of-use assets | 26.2 | – | – | – | – | – | 6.2 |
| Investments | 0.3 | – | – | – | – | – | 0.3 |
| Deferred tax asset | 0.4 –––––– |
0.5 –––––– |
– –––––– |
– –––––– |
(0.5) –––––– |
– –––––– |
0.4 –––––– |
| 262.8 –––––– |
12.7 –––––– |
– –––––– |
– –––––– |
(0.5) –––––– |
155.4 –––––– |
430.4 –––––– |
|
| Current assets: | |||||||
| Inventories | 1.0 | – | – | – | – | – | 1.0 |
| Trade and other | |||||||
| receivables | 73.5 | 2.4 | – | – | 3.8 | – | 79.7 |
| Current tax receivable | 2.1 | – | – | – | – | – | 2.1 |
| Cash and cash equivalents |
101.1 | 48.9 | 72.6 | 49.6 | (48.9) | (169.6) | 53.7 |
| –––––– 177.7 |
–––––– 51.3 |
–––––– 72.6 |
–––––– 49.6 |
–––––– (45.1) |
–––––– (169.6) |
–––––– 136.5 |
|
| Total assets | –––––– 440.5 |
–––––– 64.0 |
–––––– 72.6 |
–––––– 49.6 |
–––––– (45.6) |
–––––– (14.2) |
–––––– 566.9 |
| –––––– | –––––– | –––––– | –––––– | –––––– | –––––– | –––––– | |
| Current liabilities Trade and other |
|||||||
| payables | (45.6) | (3.0) | – | – | 1.9 | 0.8 | (45.9) |
| Lease liabilities | (5.3) | – | – | – | – | – | (5.3) |
| Current tax liabilities | (1.0) | – | – | – | – | – | (1.0) |
| Provisions | (2.6) | – | – | – | – | – | (2.6) |
| Deferred revenue | (38.0) | (14.0) | – | – | – | – | (52.0) |
| –––––– (92.5) –––––– |
–––––– (17.0) –––––– |
–––––– – –––––– |
–––––– – –––––– |
–––––– 1.9 –––––– |
–––––– 0.8 –––––– |
–––––– (106.8) –––––– |
|
| Non-current | |||||||
| liabilities | |||||||
| Borrowings | (98.1) | – | – | (49.6) | – | – | (147.7) |
| Lease liabilities | (31.9) | – | – | – | – | – | (31.9) |
| Deferred tax liability | (2.2) | – | – | – | – | – | (2.2) |
| Provisions | (0.3) | – | – | – | – | – | (0.3) |
| Deferred revenue | (5.0) –––––– |
(1.6) –––––– |
– –––––– |
– –––––– |
– –––––– |
– –––––– |
(6.6) –––––– |
| (137.5) –––––– |
(1.6) –––––– |
– –––––– |
(49.6) –––––– |
– –––––– |
– –––––– |
(188.7) –––––– |
|
| Total liabilities | (230.0) –––––– |
(18.6) –––––– |
– –––––– |
(49.6) –––––– |
1.9 –––––– |
0.8 –––––– |
(295.5) –––––– |
| Net Assets | 210.5 –––––– |
45.4 –––––– |
72.6 –––––– |
– –––––– |
(43.7) –––––– |
(13.4) –––––– |
271.4 –––––– |
Notes
(1) NCC Group plc financial information has been extracted, without material adjustment from the NCC Group plc Group Unaudited Condensed and Consolidated Interim Financial Information for the six month period ended 30 November 2020 incorporated by reference in Part 7 of this document.
(2) Target Group's financial information has been extracted, without material adjustment, from the Target Group Historical Financial Information Table as at 31 December 2020, which has been prepared in accordance with IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and NCC Group plc's accounting policies, and is set out in Part 4 of this document. A spot rate of \$1.36 to £1, has been used to convert the financial information of the Target Group into pounds sterling as at 31 December 2020.
| £ in millions |
|---|
| 3.0 |
| 72.6 |
| (157.1) |
| (12.5) –––––– |
| (94.0) –––––– |
In addition, certain trade receivables previously securitised by parent undertaking will be acquired.
(6) The Unaudited Pro Forma Financial Information has been prepared on the basis that the Acquisition will be treated as a business combination in accordance with IFRS 3 Business Combinations. NCC Group plc expects to undertake a fair value exercise following Completion of the Acquisition and no account has been taken of any fair value adjustments to the acquired assets and liabilities of Target Group in the Unaudited Pro Forma Financial Information. For the purposes of the Unaudited Pro Forma Financial Information the excess of total Consideration over the carrying amount of net assets acquired has been attributed to goodwill.
The Total consideration has been translated at the Spot rate of \$1.40 to £1. As such the following adjustments has been made to Target Group Net Assets for the purposes of the pro forma goodwill calculation:
| \$ in millions | \$ in millions | £ in millions | £ in millions | |
|---|---|---|---|---|
| Total Consideration | 220.0 | 157.1 | ||
| Less: | ||||
| Target Group net assets | 61.7 | 45.4 | ||
| Target Group cash and cash equivalents | (66.6) | (48.9) | ||
| Target Group deferred tax asset | (0.7) | (0.5) | ||
| Target Group amounts due from parent undertaking | (2.9) | (2.1) | ||
| Target Group amounts due to parent undertaking | 2.6 | 1.9 | ||
| Add: | ||||
| Target Group trade receivables previously securitised by | ||||
| parent undertaking | 8.0 –––––– |
5.9 –––––– |
||
| Pro forma net assets acquired | 2.1 –––––– |
1.7 –––––– |
||
| Pro forma Goodwill Adjustment | 217.9 –––––– |
155.4 –––––– |
(ii) Total Transaction costs in relation to the Acquisition are expected to be £12.5m and will be expensed to the income statement and tax effected thereon. As at 30 November 2020, an accrual had been recognised amounting to £0.8m, however no costs had been settled.
(iii) The Group will account for the Acquisition as an acquisition under IFRS by applying the purchase method. Under this method the cost of the Acquisition is the aggregate of the fair values, at the Acquisition date, of the assets and liabilities acquired. The identifiable assets and liabilities of the Acquisition will be measured initially at fair value at the Acquisition date. The excess of the cost of the Acquisition over the net fair value of the identifiable assets and liabilities is recognised as goodwill. A fair value exercise to allocate the purchase price will be completed following Completion of the Acquisition; therefore, no account has been taken in the pro forma of any fair value adjustment that may arise on the Acquisition.
| Total Consideration | |
|---|---|
| 157.1 | |
| Transaction costs | 12.5 –––––– |
| Cash outflow in respect of consideration and transaction costs | 169.6 –––––– |
(7) In preparing the pro forma statement of Net Assets, no account has been taken of the trading or transactions of NCC Group plc or Target Group since 30 November 2020 and 31 December 2020 respectively.
The Directors (the "Directors") NCC Group plc XYZ Building 2 Hardman Boulevard Spinningfields M3 3AQ United Kingdom
Peel Hunt LLP (the "Sponsor") 100 Liverpool Street London EC2M 2AT United Kingdom
14 May 2021
Dear Ladies and Gentlemen
We report on the unaudited pro forma financial information (the "Pro Forma Financial Information") set out in Section A of Part 5 of the Company's Circular dated 14 May 2021 (the "Circular").
This report is required by item 13.3.3R of the Listing Rules of the Financial Conduct Authority (the "Listing Rules") and is given for the purpose of complying with that item and for no other purpose.
In our opinion:
It is the responsibility of the Directors to prepare the Pro Forma Financial Information in accordance with item 13.3.3R of the Listing Rules.
It is our responsibility to form an opinion, as required by item 13.3.3R of the Listing Rules, as to the proper compilation of the Pro Forma Financial Information and to report our opinion to you.
No reports or opinions have been made by us on any financial information of the Company used in the compilation of the Pro Forma Financial Information. In providing this opinion we are not providing any assurance on any source financial information of the Company on which the Pro Forma Financial Information is based beyond the above opinion.
PricewaterhouseCoopers LLP, 1 Embankment Place, London, WC2N 6RH T: +44 (0) 2075 835 000, F: +44 (0) 2072 124 652, www.pwc.co.uk
PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Conduct Authority for designated investment business.
Save for any responsibility which we may have to those persons to whom this report is expressly addressed and to any person as and to the extent there provided which we may have to shareholders of the Company as a result of the inclusion of this report in the Circular, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 13.4.1R(6) of the Listing Rules, consenting to its inclusion in the Circular.
The Pro Forma Financial Information has been prepared on the basis described in the notes to the Pro Forma Financial Information, for illustrative purposes only, to provide information about how the acquisition by NCC Group plc of the Intellectual Property Management division of Iron Mountain Inc., the Placing and the drawdown of the Term Facility Agreement might have affected the financial information presented on the basis of the accounting policies adopted by the Company in preparing the financial statements for the period ended 30 November 2020.
We conducted our work in accordance with the Standards for Investment Reporting issued by the Financial Reporting Council ("FRC") in the United Kingdom. We are independent in accordance with the FRC's Ethical Standard as applied to Investment Circular Reporting Engagements and we have fulfilled our other ethical responsibilities in accordance with these requirements.
The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Financial Information with the Directors.
We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro Forma Financial Information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Company.
Yours faithfully
PricewaterhouseCoopers LLP Chartered Accountants
PricewaterhouseCoopers LLP, 1 Embankment Place, London, WC2N 6RH T: +44 (0) 2075 835 000, F: +44 (0) 2072 124 652, www.pwc.co.uk
PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Conduct Authority for designated investment business.
NCC and the Directors of NCC, whose names and functions appear in this Part 6 (Additional Information) of this document, accept responsibility both individually and collectively for the information contained in this document. To the best of the knowledge of NCC and those Directors (who have taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.
3.1 The interests of the Directors, their immediate families and any persons connected with them (within the meaning of section 252 of the Act) (all of which, unless otherwise stated, are beneficial) in the issued share capital of NCC as at the Latest Practicable Date are as follows:
| As of 13 May 2021 | ||
|---|---|---|
| Number of | Percentage | |
| Ordinary Shares | of issued | |
| (nominal value of | Ordinary | |
| Director | 1 pence each) | Shares |
| Christopher Stone | 124,382 | 0.044% |
| Dr. Adam Palser | 24,277 | 0.009% |
| Timothy Kowalski | 23,614 | 0.008% |
| Christopher Batterham | 50,000 | 0.018% |
| Jonathan Brooks | 50,000 | 0.018% |
| Jennifer Duvalier | 9,500 | 0.003% |
| Michael Ettling | 50,000 | 0.018% |
| Total | —————– 331,773 —————– |
—————– 0.236% —————– |
3.2 Details of options and other share incentives held by the Directors are set out below:
Details of options and awards granted through NCC's Long-Term Incentive Plan and held by the Directors are set out below:
| Period | Shares/LTIP | Total LTIP | ||
|---|---|---|---|---|
| (Awarded/ | Number of | vested but | options held at | |
| Director/Beneficiary | Vested) | LTIP awards | unexercised | 13 May 2021 |
| Adam Palser | 2017/2020 | 178,601 | 93,533 | |
| 2018/2021 | 197,285 | |||
| 2019/2022 | 245,338 | 536,1561 | ||
| Timothy Kowalski | 2018/2021 | 124,434 | ||
| 2019/2022 | 154,876 | 279,310 –––––––– |
||
| Total | 815,466 |
Details of outstanding options awarded through the deferred bonus plan are set out below:
| Shares | |||||
|---|---|---|---|---|---|
| Expected | outstanding | ||||
| Date of | term of | as at 13 | Exercise | ||
| Director | Grant | Period | options | May 2021 | period |
| Adam Palser | August 2018 | 2018/2020 | 2 years | 10,993 June 2020 – August 2028 |
|
| September 2019 | 2019/2021 | 2 years | 41,232 June 2021 – August 2029 |
||
| Timothy Kowalski | September 2019 | 2019/2021 | 2 years | 20,462 June 2021 – August 2029 |
|
| Total | 72,687 |
1 Note: See page 88 of the 2020 Annual Report.
4.1 The remuneration of the Directors (excluding long-term incentive awards), during the financial year ended 31 May 2020 is set out below:
| Director | Annual salary/fee | Bonus and benefits/£ | Pension contribution/£ |
|---|---|---|---|
| Christopher Stone | 145,000 | – | – |
| Dr. Adam Palser | 447,000 | 119,000 | 22,000 |
| Timothy Kowalski | 282,000 | 73,000 | 28,000 |
| Christopher Batterham | 63,000 | – | – |
| Jonathan Brooks | 57,000 | – | – |
| Jennifer Duvalier | 50,000 | – | – |
| Michael Ettling | 50,000 | – | – |
Notes:
| Director | Start date | Length of service as at the date of this document2 |
Expiry |
|---|---|---|---|
| Christopher Stone | 6 April 2017 | 4 years, 1 month | Continuous |
| Dr. Adam Palser | 1 December 2017 | 3 years, 5 months | Continuous |
| Timothy Kowalski | 23 July 2018 | 2 years, 9 months | Continuous |
| Christopher Batterham | 1 May 2015 | 6 years | Continuous |
| Jonathan Brooks | 16 March 2017 | 4 years, 1 month | Continuous |
| Jennifer Duvalier | 25 April 2018 | 3 years | Continuous |
| Michael Ettling | 22 September 2017 | 3 years, 8 months | Continuous |
2 Note: Length of service has been calculated based on an assumed date of 1 May 2021.
of his salary, of which at least 35 per cent. of any bonus payment is deferred into shares or nominal cost share options which vest after two year period (with dividend equivalents paid on vesting share options). Timothy also participates in NCC's long-term incentive plan. NCC makes annual contributions to Timothy's pension arrangements up to ten per cent. of his annual salary. Timothy's benefits in kind currently include the provision of (i) a car or car allowance, payment of private fuel and car insurance, (ii) private medical insurance, (iii) life assurance and (iv) permanent health insurance. NCC also maintains executive director and officers' insurance in respect of those liabilities which he may incur as a Director.
NCC is of the opinion that, after taking into account the facilities available under the Revolving Credit Facility Agreement, the Term Facility Agreement, and the net proceeds of the Placing, the working capital available to the Enlarged Group, is sufficient for its present requirements, that is, for at least the next 12 months from the date of this document.
There has been no significant change in the financial position or financial performance of the Group since 30 November 2020, being the date to which NCC's last published unaudited interim financial statements were drawn up.
There has been no significant change in the financial position or financial performance of the Target Group since 31 December 2020, being the date to which the Target Group Historical Financial Information Table was drawn up.
There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Group is aware), which during the 12 month period prior to the publication of this document may have, or have had in the recent past, significant effects on the Group's financial position or profitability.
There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Group is aware), which during the 12 month period prior to the publication of this document may have, or have had in the recent past, significant effects on the Target Group's financial position or profitability.
The following contracts (not being contracts entered into in the ordinary course of business) have been entered into in the two years preceding the date of this document by any member of the Group and are, or may be, material to the Group or have been entered into by any member of the Group and contain any provision under which any member of the Group has any obligation or entitlement which is material to the Group at the date of this document:
A description of the principal terms of the Purchase Agreement is set out in Part 3 (Summary of the Principal Terms of the Acquisition Agreements) of this document.
As referred to in the Part 3 (Summary of the Principal Terms of the Acquisition Agreements) above, the Company has obtained a R&W Insurance Policy with respect to any breaches of Iron Mountain IM and the Sellers' representations and warranties set forth in the Purchase Agreement. Other than breaches which are known to the Purchaser and certain other customary exclusions, Purchaser has coverage under such R&W Insurance Policy for any breach of Iron Mountain and the Sellers' representations and warranties in the Purchase Agreement, subject to a retention of 0.75 per cent of the purchase price. The limits of this policy are expected to be 10 per cent of purchase price, subject to certain specified retention and limitations agreed with the insurer, and breaches identified within three years of the Completion Date (for general representations) and six years of the Completion Date (for certain fundamental representations) will be covered.
In connection with the Acquisition, the Purchaser has agreed to enter into a Transition Services Agreement with Iron Mountain Information Management, LLC at Completion providing for certain transitional services, which had historically been provided by or shared with the Sellers and their affiliates to the IPM Business to be provided by the Sellers and their Affiliates to the IPM Business, the Company and their respective affiliates for a transition period following Completion.
In connection with the Acquisition, the Purchaser has agreed to enter into at Completion (i) a master services agreement with Iron Mountain Information Management, LLC; (ii) a global data center customer agreement with Iron Mountain Data Centers, LLC; (iii) an e-vaulting-as-a-service agreement with Iron Mountain Information Management, LLC; and (iv) a lease agreement with Iron Mountain Information Management, LLC pursuant to which the Purchaser or certain of its affiliates (including following the Completion, the IPM Business) will become a customer of the Sellers or their affiliates for purposes of usage of vault and office space, data centres that house the servers of the IPM Business and other ancillary services as well as document management and other services that Iron Mountain routinely offers to customers.
On 10 June 2019, NCC Group plc and NCC Group (Solutions) Limited, a subsidiary to NCC Group plc (as Original Borrowers) entered into a revolving credit facility agreement with National Westminster Bank Plc, HSBC UK Bank Plc, and ING Bank N.V. (the "Revolving Credit Facility Agreement").
The facility made available under the Revolving Credit Facility Agreement (the "Revolving Credit Facility") is a £100 million revolving credit facility. Subject to the satisfaction of certain conditions precedent, the Revolving Credit Facility is available for drawing in sterling, US dollars, and euro or as approved by the agent. Amounts borrowed under the Revolving Credit Facility may be used for general working capital purposes. The Revolving Credit Facility contains an accordion feature whereby the Group may give notice to the facility agent that it wishes to increase the total commitments under the Revolving Credit Facility by up to £75 million in aggregate, subject to the agreement of the lenders.
The rate of interest on each loan under the Revolving Credit Facility is the percentage rate per annum which is equal to the aggregate of the margin (based on a leverage ratchet varying from 0.90 per cent to 2.0 per cent per annum) and: (i) for loans denominated in sterling; a compounded rate based on SONIA (sterling overnight index average); (ii) for loans denominated in US dollars, a compounded rate based on the secured overnight financing rate (SOFR) administered by the Federal Reserve Bank of New York; or (iii) for loans denominated in euro, EURIBOR.
The Revolving Credit Facility may be prepaid without premium or penalty but subject to breakage costs (if applicable). Subject to its terms, amounts repaid under the Revolving Credit Facility may be re-borrowed. The term of the Revolving Credit Facility is five years, with the maturity date being 10 June 2024 when all outstanding amounts shall be repaid to the lenders.
The Revolving Credit Facility Agreement contains customary representations, undertakings and events of default with certain carve-outs and materiality thresholds (where relevant). The undertakings include, among others, restrictions on the creation of security, the disposal of assets and acquisitions (each with permitted exceptions). The Revolving Credit Facility Agreement also contains financial covenants relating to leverage and interest cover and provisions relating to guarantor coverage.
The Revolving Credit Facility Agreement is governed by English law.
On 12 May 2021, NCC Group plc and NCC Group (Solutions) Limited, a subsidiary to NCC Group plc (as Original Borrowers) entered into a term loan facility agreement with National Westminster Bank Plc, HSBC UK Bank plc, and ING Bank N.V. (the "Term Facility Agreement").
The facility made available under the Facility Agreement (the "Term Facility") is a \$70 million amortising term loan facility, which is available to be drawn subject to the satisfaction of certain conditions precedent. Amounts borrowed under the Term Facility may be used towards payment of the purchase price under the Purchase Agreement and associated costs.
The rate of interest on each loan under the Term Facility is the percentage rate per annum which is equal to the aggregate of a compounded rate based on the secured overnight financing rate (SOFR) administered by the Federal Reserve Bank of New York and the margin (based on a leverage ratchet varying from 1.40 per cent to 2.65 per cent per annum).
The Term Facility is repaid in annual instalments of \$23,300,000 on each of 10 June 2022 and 10 June 2023, with a final instalment of \$23,400,000 payable on 10 June 2024. The Term Facility may be prepaid without premium or penalty but subject to breakage costs (if applicable). Amounts repaid or prepaid under the Term Facility may not be re-borrowed.
The Term Facility Agreement contains customary representations, undertakings and events of default with certain carve-outs and materiality thresholds (where relevant). The undertakings include, among others, restrictions on the creation of security, the disposal of assets and acquisitions (each with permitted exceptions). The Term Facility Agreement also contains financial covenants relating to leverage and interest cover and provisions relating to guarantor coverage.
The Term Facility Agreement is governed by English law.
On 13 May 2021, the Company, Peel Hunt, Jefferies International Limited and Jefferies GmbH entered into the Placing Agreement, pursuant to which and subject to certain conditions, the Company agreed to allot and issue up to 27,906,400 new Ordinary Shares (the "Placing Shares") at a price per share to be agreed between the parties (the "Placing Price") and Peel Hunt, Jefferies International Limited and Jefferies GmbH agreed as agent for the Company to use their reasonable endeavours to procure subscribers for the Placing Shares at the Placing Price and to subscribe themselves in respect of any Placing Shares for which the relevant placee defaults in paying the Placing Price in respect of any Placing Shares allotted to it.
The obligations of Peel Hunt, Jefferies International Limited and Jefferies GmbH under the Placing Agreement are subject to certain customary conditions being satisfied including, among others, (a) the Company having complied with its obligations, (b) the representations and warranties provided by the Company not being untrue, inaccurate or misleading, (c) no material adverse change having occurred, and (d) certain announcements having been made and certain documents having been delivered to Peel Hunt, Jefferies and Jefferies GmbH. The Company gave certain customary representations and warranties, agreed to comply with certain undertakings and gave a customary indemnity to Peel Hunt, Jefferies International Limited and Jefferies GmbH.
In addition, the Company agreed to pay all of Peel Hunt's, Jefferies International Limited's and Jefferies GmbH's properly incurred costs, charges, professional fees and expenses (including any applicable VAT) in connection with the Placing.
On 14 May 2021, the Company and Peel Hunt entered into an agreement, whereby Peel Hunt agreed to act as sponsor to the Company in connection with the publication of this document. In connection with Peel Hunt's role as sponsor, the Company has given certain customary representations and warranties, agreed to comply with certain undertakings and given a customary indemnity to Peel Hunt. Peel Hunt may terminate the Sponsor Agreement and its role as sponsor in certain circumstances. In addition, the Company has agreed to pay all of Peel Hunt's properly incurred costs, charges, professional fees and expenses (including any applicable VAT) in connection with its role as sponsor.
The Target Group has not entered into any contracts outside the ordinary course of business in the two years preceding the date of this document.
Mr. John Boruvka, Vice President of Sales, and Ms. Joy Egerton, Director, Operations, each of the IPM Business, are considered by the Company to be key individuals who are important to the IPM Business.
12.1 So far as is known to NCC, the names of any persons other than a Director who, directly or indirectly, holds three per cent. or more of NCC's voting rights and has been notified under the Disclosure Guidance and Transparency Rules as at the Latest Practicable Date:
| Number of | Percentage of | |
|---|---|---|
| Ordinary Shares | current Issued | |
| Name | as notified to NCC | Share Capital |
| BlackRock, Inc. | 14,224,646 | 5.15% |
| Montanaro Asset Management | 16,546,426 | 5.90% |
| Castlefield Fund Partners | 14,325,000 | 5.16% |
| Schroder Investment Management | 15,364,318 | 5.53% |
| Artemis Investment Management | 13,822,640 | 4.98% |
| Unicorn Asset Management | 10,796,426 | 3.89% |
Dated: 14 May 2021
Part 4 and Part 9 of this document includes information incorporated by reference. The information incorporated by reference comprises the whole of the following:
All of the information incorporated by reference in this document can be found at the website of NCC (https://www.nccgroupplc.com/investor-relations/). Other than the information incorporated by reference, the contents of the website of NCC (including any materials which are hyper-linked to such website) do not form part of this document and prospective investors should not rely on them other than to the extent expressly referred to in this document. The parts of such documents not incorporated by reference are either not relevant for any prospective investor or are otherwise covered elsewhere in this document.
Information that is itself incorporated by reference or referred or cross-referred to in the documents listed in this Part 7 is not incorporated by reference into this document. Except as set forth in this Part, no other sections of these documents are incorporated by reference into this document.
The following definitions apply throughout this document, unless the context otherwise requires:
| "Acquisition" | the acquisition of the Intellectual Property Management business of Iron Mountain on the terms and conditions set out in the Purchase Agreement |
|---|---|
| "Acquisition Agreements" | the Purchase Agreement, the Bill of Sale and Assignment and Assumption Agreement, the Transition Services Agreement and the Master Services Agreements |
| "Acquisition Announcement" | means the RNS announcement made by the Company on 13 May 2021 in relation to the Acquisition |
| "Act" | the Companies Act 2006 |
| "Admission" | the admission of the Placing Shares to the premium listing segment of the Official List of the Financial Conduct Authority becoming effective in accordance with the Listing Rules and the admission of the Placing Shares to trading on the London Stock Exchange's main market for listed securities becoming effective in accordance with the Admission and Disclosure Standards of the London Stock Exchange |
| "Annual Reports" | the Group's annual report and accounts for the financial years ended 31 May 2020, 31 May 2019 and 31 May 2018 |
| "Articles" | the articles of association of NCC |
| "Banks" | Lazard and Peel Hunt |
| "Board" or "Directors" | the directors of NCC as at the date of this document whose names are set out in the section headed Directors, Company Secretary and Advisers of this document and/or the directors of NCC from time to time (as the context so requires) |
| "Business Day" | a day (other than Saturday or Sunday or a bank holiday) on which banks are generally open for normal banking business in the City of London |
| "certificated" or "in certificated form" |
an Ordinary Share which is not in uncertificated form |
| "Completion" | completion of the Acquisition pursuant to the terms of the Purchase Agreement |
| "CREST" | the relevant system (as defined in the Regulations) in respect of which Euroclear is the operator (as defined in the Regulations) |
| "Disclosure Guidance and Transparency Rules" |
the disclosure, guidance and transparency rules made pursuant to Part VI of FSMA |
| "document" | this document |
| "Euroclear" | Euroclear UK & Ireland Limited (incorporated in England and Wales under registered number 2878738), the operator of CREST |
|---|---|
| "FCA" or "Financial Conduct Authority" |
the Financial Conduct Authority of the UK in its capacity as the competent authority for the purposes of Part VI of FSMA and in the exercise of its functions in respect of Admission to the Official List otherwise than in accordance with Part VI of FSMA |
| "Form of Proxy" | the form of proxy accompanying this document for use in relation to the General Meeting |
| "FSMA" | the Financial Services and Markets Act 2000 (as amended) |
| "General Meeting" | the general meeting of NCC proposed to be held at 9:30 a.m. on 1 June 2021 |
| "Group" | NCC and its subsidiary undertakings from time to time |
| "IFRS" | the International Financial Reporting Standards as issued by the International Accounting Standards Board and, for the purposes of this document, as adopted by the European Union |
| "Iron Mountain" | Iron Mountain Inc. |
| "Iron Mountain IM" | Iron Mountain Information Management, LLC |
| "IPM Business" | the Intellectual Property Management business of Iron Mountain, comprising substantially all of the assets of IPM, together with certain other assets of affiliates of Iron Mountain exclusively related to the IPM Business |
| "ISIN" | International Security Identification Number |
| "Latest Practicable Date" | 13 May 2021, being the latest practicable date for the calculation and inclusion of information prior to the publication of this document |
| "Lazard" | Lazard & Co., Limited |
| "Listing Rules" | the listing rules of the Financial Conduct Authority made pursuant |
| to Part VI of FSMA | |
| "London Stock Exchange" | London Stock Exchange plc |
| "Master Services Agreements" | collectively, (i) the master services agreement between Iron Mountain Information Management, LLC and the Purchaser; (ii) the global data center customer agreement between Iron Mountain Data Centers, LLC and the Purchaser; (iii) an e-vaulting-as-a service agreement with Iron Mountain Information Management, LLC; and (iv) the lease agreement between Iron Mountain Information Management, LLC and the Purchaser; in each case, to be entered into at Completion and details of which are set out in paragraph 8.4 of Part 6 (Additional Information) of this document |
| "NCC" or "Company" | NCC Group plc (incorporated in England and Wales with registered number 04627044) |
| "Official List" | the Official List of the FCA |
|---|---|
| "Ordinary Shares" | the ordinary shares of £0.01 each in the capital of NCC |
| "Outside Date" | 28 June 2021 or such other date as the parties to the Purchase Agreement may agree in writing |
| "Peel Hunt" | Peel Hunt LLP |
| "Placing" | the placing of new Ordinary Shares at £2.60 per share with placees as announced on 13 May 2021 to realise gross proceeds of £72.6m, subject to Admission and certain other conditions pursuant to the terms of the Placing Agreement |
| "Placing Agreement" | the agreement among NCC, Jefferies International Limited, Jefferies GmbH and Peel Hunt and dated 13 May 2021 relating to the Placing |
| "Placing Shares" | the 27,906,400 new Ordinary Shares to be issued pursuant to the Placing |
| "Purchase Agreement" | the asset purchase agreement dated 13 May 2021 by and among the Purchaser, the UK Purchaser, NCC Group (Solutions) Limited (solely with respect to the guarantee therein), the Company (solely with respect to the Resolution and the financing provisions therein), Iron Mountain IM, the Sellers and Iron Mountain (solely with respect to the confidentiality and restrictive covenant provisions therein), details of which are set out in paragraph 1 of Part 6 (Additional Information) of this document |
| "Purchaser" | NCC Group Software Resilience (NA) LLC, as purchaser under the Purchase Agreement |
| "Registrars" | Equiniti Limited of Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA |
| "Regulations" | the Uncertificated Securities Regulations 2001 of the United Kingdom |
| "Resolution" | the ordinary resolution to approve the Acquisition as set out in the notice of General Meeting |
| "Revolving Credit Facility Agreement" |
the £100 million revolving credit facility agreement entered into among National Westminster Bank Plc, HSBC UK Bank Plc, ING Bank N.V., NCC Group plc, NCC Group (Solutions) Limited, originally dated 10 June 2019, as amended and restated on 12 May 2021 |
| "R&W Insurance Policy" | the representation and warranty and insurance policy issued to the Purchaser details of which are set out in paragraph 8.2 of Part 6 (Additional Information) of this document |
| "Sellers" | Iron Mountain Intellectual Property Management, Inc. and Iron Mountain UK plc, as sellers under the Purchase Agreement |
| "Shareholders" | the holder(s) of Ordinary Shares |
| "Sponsor" | Peel Hunt |
| "Sponsor Agreement" | the agreement between NCC and Peel Hunt and dated 14 May 2021 relating to the Acquisition and the publication of this document |
| "Target" or "IPM" | Iron Mountain Intellectual Property Management, Inc. |
|---|---|
| "Target Group" | Iron Mountain IM, the Sellers and its affiliates that hold assets comprising the IPM Business |
| "Target Group Historical Financial Information Table" |
the historical financial information of the Target Group presented in Section A of Part 4 of this document |
| "Term Facility Agreement" | the \$70 million term loan facility agreement entered into among National Westminster Bank Plc, HSBC UK Bank plc, ING Bank N.V., NCC Group plc, and NCC Group (Solutions) Limited, dated 12 May 2021 |
| "Transition Services Agreement" | the transition services agreement to be entered into between Iron Mountain Information Management, LLC and the Purchaser at Completion, details of which are set out in paragraph 8.3 of Part 6 (Additional Information) of this document |
| "Unaudited Pro Forma Financial Information" |
has the meaning given to it in the introduction to Part 5 (Unaudited Pro Forma Financial Information of the Enlarged Group) of this document |
| "uncertificated" or "in uncertificated form" |
recorded on the relevant register of Ordinary Shares as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST |
| "UK Purchaser" | NCC Services Limited, as purchaser of certain UK assets under the Purchase Agreement |
| "United Kingdom" or "UK" | the United Kingdom of Great Britain and Northern Ireland |
| "United States" or "US" | the United States of America, its territories and possessions, any state of the United States and the District of Columbia |
On 4 February 2021, the Group announced its interim results for the half year ended 30 November 2020. The announcement stated the following:
'Full year trading is in line with our expectations'
Consensus guidance ranging from £31.1 million to £36.2 million was also included, with a consensus estimate of £33.0 million.
Taken together, this set a profit expectation for the Group for the year ending 31 May 2021 ("FY 2021"), and therefore constitutes a profit forecast for the purposes of the Listing Rules (the "Profit Forecast").
As at the date of this document, the Directors reaffirm their current expectation that Pre-IFRS 16 Adjusted EBIT for FY 2021 will be no less than the market consensus of £33.0 million.
Set out below is the basis of preparation in respect of the FY 2021 Profit Forecast, together with the assumptions on which it is based.
The FY 2021 Profit Forecast is based on the reviewed half year unaudited interim statements of the Group for the six months ended 30 November 2020, four months of unaudited management accounts for the period ended 31 March 2021, and management's forecasts for the two months ending 31 May 2021. The Profit Forecast has been prepared on a basis consistent with the current accounting policies of the Company which are in accordance with IFRS.
Pre-IFRS 16 Adjusted EBIT is defined as the Group's operating profit before adjusting items to assist in the understanding of the Group's performance. Adjusting items represent amortisation of acquired intangibles, share-based payments, the impact of IFRS 16 and individually significant items.
This Profit Forecast has been properly compiled on the basis of the assumptions stated, and this basis of accounting is consistent with the accounting policies of the Group.
This Profit Forecast has also been compiled and prepared on a basis which is comparable with the historical financial information of the Group.
The Profit Forecast is based on the following assumptions for the period to which it relates:
Factors outside the influence or control of the Group's Directors:
There will be no material impact on the Group of litigation or any product liability claims;
There will be no material changes in legislation or regulatory requirements impacting on the Group's operations or its accounting policies;
Factors within the influence and control of the Group's Directors:
NOTICE is hereby given that a General Meeting of NCC will be held at 9:30 a.m. on 1 June 2021 at the registered office of NCC being XYZ Building, 2 Hardman Boulevard, Spinningfields, Manchester M3 3AQ for the purpose of considering and, if thought fit, passing the following resolution as an ordinary resolution:
In this Notice, words and defined terms shall have the same meaning as words and defined terms in the circular to which this Notice is attached.
By order of the Board Timothy Kowalski Company Secretary 14 May 2021
Registered Office: XYZ Building, 2 Hardman Boulevard Spinningfields Manchester M3 3AQ
Registered in England and Wales No: 04627044
Any changes to the arrangements for the holding of the General Meeting will be communicated to Shareholders in advance through the Company's website at https://www.nccgroupplc.com/investor-relations/.
Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, the Company specifies that in order to have the right to attend and vote at the General Meeting (and also for the purpose of determining how many votes a person entitled to attend and vote may cast), a person must be entered on the register of members of the Company at 6:30 p.m. on 27 May 2021 or, in the event of any adjournment, at 6:30 p.m. on the date which is two Business Days before the day of the adjourned meeting. Changes to entries on the register of members after this date shall be disregarded in determining the rights of any person to attend or vote at the meeting.
Only holders of Ordinary Shares are entitled to attend and vote at this meeting.
A member is entitled to appoint another person as his proxy to exercise all or any of his rights to attend, to speak and to vote at the General Meeting. A member may appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by him. A proxy need not be a member of the Company. A Form of Proxy for the meeting is enclosed.
To be valid any proxy form or other instrument appointing a proxy must be received by our Registrar Equiniti at Equiniti, Aspect House, Spencer Road, Lancing BN99 6DA or electronically at www.sharevote.co.uk, in each case no later than 9:30 a.m. on 27 May 2021. If you are a CREST member, see note 4 below.
Completion of a Form of Proxy, or other instrument appointing a proxy or any CREST Proxy Instruction will not preclude a member attending and voting in person at the meeting if he/she wishes to do so.
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the General Meeting and any adjournment(s) thereof by using the procedures, and to the address, described in the CREST Manual subject to the provisions of the Company's articles of association. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a "CREST Proxy Instruction") must be properly authenticated in accordance with Euroclear specifications and must contain the information required for such instructions, as described in the CREST Manual (available on www.euroclear.com/CREST). The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by the issuer's agent Equiniti (RA19) by 9:30 a.m. on 27 May 2021. For this purpose, the date of receipt will be taken to be the date (as determined by the date stamp applied to the message by the CREST Applications Host) from which the issuer's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this date any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that Euroclear does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular Date. In this connection, CREST members and, where applicable, their CREST sponsors or voting service provider(s) are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
The statement of the above rights of the members in relation to the appointment of proxies does not apply to Nominated Persons. Those rights can only be exercised by members of the Company.
As at 13 May 2021 (being the latest practicable date prior to the publication of this notice) the Company's issued share capital consists of 280,980,385 Ordinary Shares, carrying one vote each. Therefore, the total voting rights in the Company as at that date are 280,980,385.
You may not use any electronic address (within the meaning of section 333(4) of the Companies Act 2006) provided in this Notice of Meeting (or in any related documents including this document to Shareholders and any Form of Proxy) to communicate with NCC for any purposes other than those expressly stated.
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