Shares of NCC Group, the Manchester-based global cyber security firm, fell as much as 35% on Friday after it warned in a trading update that “market volatility has materially increased and is having a significant impact on our near-term cyber security revenue and profitability.”
NCC said it is “scrutinising the underlying cost base and will take appropriate action in due course.”
NCC said buying decision delays and cancellations are now exacerbated by North America tech sector client layoffs — saying that staffing has not yet normalised, and that continued sector layoff rounds are introducing more uncertainty.
It said turmoil in the banking sector following the failure of Silicon Valley Bank has further knocked market confidence, leading to reduced appetite to spend on technology projects across sectors.
Recent interest rate increases in both the US and UK are creating further inflationary “challenges” for clients.
The Manchester firm said: “As noted in our unaudited interim results for the period ended 30 November 2022 (FY23 interim results), the group expected to deliver an FY23 adjusted operating profit of around £47m (after the impact of FY23 strategic investments of £5m).
“Since then, market volatility has materially increased and is having a significant impact on our near-term cyber security revenue and profitability, particularly in the North American technology sector and to a lesser extent in the UK …
“The board now expects Assurance (Cyber Security) revenue growth on a constant currency basis to be low single digits compared to the high single digit growth outlined in our FY23 interim results.
“The Software Resilience (Escrow) business remains on track to perform as set out in our FY23 interim results, with revenue growth in H2 FY23 offsetting most of the decline seen in H1 FY23, with a full year outturn of c.1% revenue decline still expected.
“As a result of lower Assurance revenue, group adjusted operating profit is now expected to be within a range of £28m to £32m after the impact of FY23 strategic investments.
“On this basis, the group is scrutinising the underlying cost base and will take appropriate action in due course.
“These economic headwinds and current challenges to the group’s cyber security revenues, which the board expects will persist into the next financial year, reinforce the need to implement the next chapter of the NCC group strategy.
“The strategy will deliver revenue from a broader service portfolio, addressing the full cyber security lifecycle, with deeper presence across sectors.
“This will be supported by the activation of a global delivery model, including an offshore delivery and operations centre, and investment in the go-to-market model and brand for Cyber.
“On this basis, the board remains confident in the medium-term prospects for the cyber market and these strategic actions will position the business to return to greater growth when the market improves.”
NCC CEO Mike Maddison said: “Macro-economic headwinds, market volatility and uncertainty are undermining business confidence, particularly in the technology sector where we are well represented, and as a result we are seeing demand fall in the form of projects being further delayed, reduced or cancelled.
“While we cannot control demand in the short term, the conditions we now face reinforce the rationale for our strategy, which I outlined in February.
“We remain confident that the group’s strategy will deliver a more resilient business that is positioned to fully capitalise on opportunities to meet changing client needs in a dynamic Cyber market.”