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Summary Annual Report and Accounts 2014/2015

One Company.
One Focus.
Building on Our Advantage

To Our Stakeholders:

Northgate Information Solutions has been
on a transformative journey over the past several years – and in 2015 that journey turned a milestone corner.


Adel Al-Saleh
Group Chief Executive

With the sale of Northgate Public Services (NPS) in December 2014 and the sale of Northgate Managed Services (NMS) in 2013, we have achieved an important strategic milestone of streamlining our portfolio and focusing exclusively on our core business NGA HR – HR technologies and services. In fact, while Northgate Information Solutions continues to exist in name, our business is now 100% focused on NGA Human Resources. As such, we are continuing our transformation as a people-critical partner for our clients. In last year's annual report, we outlined NGA's operating strategy for a market-segment focus, which we have fully put into action this year. And, through it all, the key differentiator in our journey continues to be the NGA Advantage – our combination of market experience and insight, advanced technology, and flexible service delivery – which will continue to drive our success as we move forward.

NGA operates in an attractive market, where HR investments and transformation – focused on improving how companies manage their human capital – are the top priorities of every board, big or small. We first saw the introduction of Software as a Service (SaaS) in the HR space, which created new demand from clients around the world for us to help them transform their HR operations and simplify their software, payroll, and HR administration services.

Over the last five years, we have grown into a leader in the markets in which we operate with our SaaS and BPaaS (Business Process as a Service) offerings, and through partnerships with global HR SaaS leaders, bringing innovative HR as a Service solutions to our clients.

As we developed and deployed our strategy, we had to work through a variety of headwinds. However, it's the way in which we as a company have dealt with these challenges that speaks volumes about NGA's strength and resilience, and our determination to succeed.

Looking back to 2012, to the start of our transformation, Northgate Information Solutions was made up of three largely unrelated businesses, serving different market segments with unique value propositions and limited synergies between them. Our first priority then was to streamline our portfolio and focus the business on core objectives, while at the same time drive efficiencies. And so started the three-year transformation program, which brought us to where we are today.

With the sale of NMS and NPS, we have accomplished our objective of streamlining our portfolio. We are now focused on refining NGA strategy and go to market. FY15 was the first full year in which we brought that strategy to life by defining and clarifying NGA's market approach. This evolution in our strategy drove investments in four market segments with clear market definitions, targeted offerings, dedicated teams and dedicated investments to enable their growth. Today, we have a clear direction and market positioning for each market segment we play in, with unique and attractive value propositions to our clients in each segment. The four market segments are:

UK Small and Medium Market
SMBs are a vibrant and growing segment around the world — and one becoming more and more reliant on external expertise given the growing complexities of legislation in the UK. NGA leads this market in the UK with integrated, cloud-based software solutions supported by a range of BPaaS services.
employers with up to
500
employees

UK and Ireland Large and Mid-Market
The UK & Ireland large and mid-market segment is at the heart of NGA's success and market leadership, with more than 4.2 million employees served and a 28% market share. In the UK & Ireland, NGA's market-leading ResourceLink platform covers core HR, talent functionality, and payroll, providing solutions for organisations with more than 500 employees, including many of the nation's largest employers.
employers with
500+
employees

ANZ Large and Mid-Market
In Australia and New Zealand, NGA has been a pioneer in SaaS solutions providing the first cloud-based HCM and payroll solution – Preceda - for employers with more than 200 employees since the early 2000s. Our fast-growing ANZ business is currently in a strong 2nd position in the market, representing a market share of 13%.
employers with
200+
employees

Global Enterprise Market
The global enterprise market is characterised for us as an IT-led HR services business, built around our unique application and integration technologies — with payroll and workforce administration at the foundation, and enabled through a global HR service delivery network with capabilities in 145 countries.
employers with
5,000+
employees

Between 2012 and today, we invested in improving our service delivery scale and global footprint, which is critical to our growth and competitiveness. We drove significant consolidation across a very fragmented delivery landscape. Starting with more than 60 delivery points across the globe, we created seven strategic centres and three onshore premium centres with scale, while maintaining a presence in local markets where our subject matter experts continue to support our clients and our global delivery centres.

It was with this in mind that a team, specifically tasked with Service Delivery Architecture and Compliance, was created. This new team's mission was to implement a new way of working in HR service delivery and payroll operations, known in short as the the NGA Way. Revisiting the way in which we work together, the NGA Way delivered a series of advancements, including NGA Process Standards that define road maps and approaches for every HR process we deliver to clients, with the objective of quickly deploying new projects and forging long-term client relationships.

Starting in 2012, we saw a major shift in the HR consulting market, from complex on-premise system integration projects to agile and fast-moving SaaS architectures. We were working with a skill set that did not match what our clients were looking for and where the market was going. To this, we responded by transforming our HR consulting capabilities, offerings, and size of the practice.

Today we have an agile and cloud-focused HR consulting practice with market-leading SaaS HR capabilities, giving us a solid foundation from which we can grow. HR consulting's strategic mission is to win new clients, help them with HR technology landscapes, and act as the tip of the arrow for the rest of our offerings where we develop long-term, annuity-based client relationships.

The most challenging headwind we faced was in our HR outsourcing (HRO) line of business, where we faced attrition of the legacy client base we acquired from Convergys. As a result, we needed to restructure and transition a number of older, mature contracts from our Convergys acquisition. Convergys was acquired in June 2010 with the strategic ambition of NGA becoming a leader in the enterprise HRO market by leveraging Convergys' delivery capabilities, footprint in North America and blue-chip customer base. The acquisition of Convergys HRM included 16 significant blue-chip corporate customer contracts, which operated mainly under an outdated 'lift and shift' model that offered limited opportunity for transformation, innovation and productivity improvements.

The anticipated nonrenewal at the time of the acquisition of four large customer contracts, which were acquired through Convergys HRM, has impacted results over several years. The restructuring and transition effort around these contracts spanned multiple years, and the revenue effects of attrition and de-scoping of contracts by remaining clients is expected to end in FY17.

The restructuring efforts will leave us with a strong and trusted portfolio of remaining clients, with strong relationships, modern operating models, and high levels of client satisfaction. This is illustrated by significant renewals from our largest and most complex clients, who are taking advantage of the innovation, investments and service delivery improvements enabled by NGA. The acquisition of Convergys HRM provided us with a solid global delivery platform and a remaining group of key clients that we expect to work with for many years to come.

One of the key foundations of our company is our people. Over the last three years, we have created an integrated global approach across the HR functions. This includes implementing a performance-based culture, investing in programs that develop our employees, encouraging and enabling peer collaboration, delivering a supportive work environment, and retaining our top talent. At NGA we are committed to investing in our people, providing them with an environment where they can learn and grow as they take advantage of the opportunities NGA offers across the globe.

Over the past several years, we have invested significantly in innovation and further developing our Intellectual Property Platforms, including our products and our process knowledge and expertise. Not too long ago we had a fragmented product and offering development team. Two years ago we made a bold move by creating a global product and offerings development team. We then tasked them to drive more innovation and shifted more of our investments into new platforms, new products and new innovation. Today more than 60% of our R&D budget is spent on innovative new offerings that help us maintain our leadership in the marketplace. As a result, we have seen several new product launches, including Payroll Exchange, myHRW, Preceda and ResourceLink.

The above changes were challenging, but necessary to make NGA a competitive player in the HR technology and services space, and critical to maintain our leadership in the market segments where we play. We have created a solid platform for growth, with clear strategy and solid foundations. Our primary objective now is to get back to growth.

Business Performance
As a result of our continued transformation and focus, FY15 saw a number of critical events across the company, delivering variable results for NIS.

FY15 results for NGA Human Resources were mixed, with increased profitability across the business but also continued headwinds in the enterprise segment. NGA closed the year with revenue of £451.7m (-6.9%) and EBITDA of £81.5m (+0.1%). The reduction in revenue owed largely to two factors:

First, the erosion of the Convergys legacy contracts, as described above. The impact of these erosions in the year was £7.7m revenue. We expect Convergys legacy contract erosion to complete and stabilise in FY17.

Second, we have completed the restructuring of our HR consulting business to reduce OnPremise systems integration work, growing our cloud capabilities, rightsizing the business and building stronger, more strategic customer relationships. Our business strategy is to be a predominantly annuity-based business through long-term relationships with our clients. As a result we exited smaller, low-margin consulting projects, where there was no strategic relationship with larger or international clients. Our planned and proactive transformation of the HR consulting business resulted in 32% (£18.4m) of revenue loss but provides us with better profitability and a more stable client base to grow from. The strategic position of our HR consulting activity is to be the tip of the spear for new client acquisitions and creating beachheads to sell annuity business.

Normalising for both of the above factors (Convergys legacy contracts erosion and HRC transformation) NGA performance was £415.7m revenue, 3.2% CAGR in three years. This demonstrates true underlying performance of our business.

Underlying Business Revenue (£m)

Note: NGA sales FY13-FY15 excluding HR consulting and select non-renewed contracts. All figures shown at budget rates.
Financials shown are for financial year ending April 30.

On December 22, 2014, we sold our NPS business to Cinven, a leading European private equity firm. Our Public Services division had delivered a strong performance in recent years, growing 7.2% in revenue and 6.9% in EBITDA, at £181.0m and £42.0m respectively in FY14. NPS delivered eight consecutive quarters of growth in both the top line and bottom line as part of Northgate. Stakeholders welcomed the transition as it offered the Public Services division a platform for continued growth, and made NGA the primary focus of Northgate.

After one-off restructuring and property costs of £24.8m, profit on sale of the NPS business of £24.8m and amortisation of acquired intangibles of £45.1m, NIS recorded an operating profit of £26.0m. Net financing costs increased to £95.9m, and loss on ordinary activities before tax was £69.9m.

Our Strategy for Growth
Our growth strategy incorporates several components. One element continues to be the NGA Advantage. The NGA Advantage offers our clients a unique combination of deep market experience and insight, advanced technology platforms and applications, and unparalleled, flexible service delivery, making us unique in the marketplace and very difficult to replicate. Everything we do for our clients, and what makes us unique revolves around our combination of local and global HR knowledge and expertise, our advanced technology platforms, and our highly flexible service delivery options offered around the world. As we focus strictly on our HR business, our Advantage will only grow through continued focus and investment.

Overall, our strategy for growth has included four main focal points.

01

Market Leadership

We support more than 8 million employees globally and produce more than 50 million payslips per year, with more than 1,000 HR implementations in 25 languages, supporting customers in 145+ countries. Clients and advisors continue to position us as a strategic partner, resulting in continued top rankings in analyst reports, from Gartner and Everest. We have organised ourselves around four market segments: UK SMB, UK Mid-Market, ANZ Mid-Market and Global Enterprise, our strategy is to be a leader in each of these segments by continuously investing in our offerings and teams supporting these segments.

02

World-class delivery

We have been working hard on building our capabilities for success, including creation of scalable delivery centres around the world (moving from 60+ centres to seven strategic and three premium centres), establishing NGA standards, and driving automation and standardisation by leveraging our IP across our delivery network. We will continue on this journey, with productivity, analytics and automation being our next areas of focus.

03

IP platforms

We strongly believe that intellectual property is a critical differentiator, both across our software and services. In the last three years, we have refocused our investments in IP to innovation – user experience, automation, plug-and-play connectors, cloud platforms, and analytics. This resulted in each of our segments having a strong IP foundation – both in the form of dedicated, best-in-class SaaS and BPaaS HCM platforms (MoorepayHR, Preceda, ResourceLink, myHRW and Payroll Exchange), and by being deeply embedded in our service delivery processes and organisation.

04

Sustainable long-term client relationships

Deep, long-lasting relationships are NGA's most important differentiator. We believe that developing and nurturing deep, multipronged and long-lasting client relationships is the best way to grow a business model that is built around long-term annuity-type revenue streams. Dedicated and focused service delivery and account teams, intelligent client satisfaction surveys, and peer-to-peer client platforms are some of the many mechanisms we've introduced to build client intimacy into every aspect of our business.

Over the past four years, we have gone through a very significant transformation – from a portfolio of three businesses to a single focus on NGA HR, which reflects our core strengths and our view that HR will be the best business for us over the long term. Within our HR-focused business, we have refined our go-to-market strategy to be focused on four key segments, which is a key platform for future growth.

Let me expand on the point above and speak further to the strategy behind our market segmentation. It recognises that NGA is not one offering, but a group of offerings and value propositions tailored to the needs of different market segments.

Specifically, we have targeted four strategic product-market combinations: UK small and medium-sized business (SMB), UK and Ireland large and mid-market, Australia/New Zealand mid-market, and global enterprise business. These segments now compose the foundation of our growth strategy and our overall go-to-market approach. They represent how we measure ourselves and how we will report results going forward. Let's look at each.

UK SMB – Moorepay
The SMB mark is a vibrant and growing segment around the world – and one becoming more and more reliant on external expertise given the growing complexities of legislation in the UK. NGA leads this market in the UK with integrated software and services solutions under the Moorepay brand.

Through Moorepay, we market a BPaaS offering – business process as a service – that which combines subscription to our leading software through the cloud, delivering payroll services on top of that software, and accessing a pool of legislative and regulatory experts that small organisations typically don't have access to on their own. In addition to cloud-based HR software and payroll services, we provide our SMB clients with HR Services and Health & Safety services, all managed by NGA, leveraging proprietary software platforms and our extensive local knowledge and expertise. Today, Moorepay serves 5.7% of the UK SMB HR & payroll market, processes 12m payslips and 250,000 HR service engagements on an annual basis.

Over the past few years, we overlooked this business, and, as a result, our growth suffered. With the dedicated team, clear strategy, and focus on execution, we expect SMB to get back to growth in the next 12 months.

UK and Ireland Large and Mid-Market
Our UK and Ireland large and mid-market business remains strong. We have a market-leading offering, strong market share, a buoyant market environment and an outstanding team. Our focus here is to get to new growth levels by executing our growth plans.

In the UK & Ireland, we provide HR software and services on NGA's proprietary ResourceLink platform that covers core HR, talent functionality, and payroll. NGA is a market-leading player with 28% market share, more than 1,000 customers and 4.2 million employees served in the UK and Republic of Ireland.

Our ResourceLink platform has been a pioneering cloud HR solution since 2000. In addition to our HR software platform, we have been growing HR BPO/BPaaS services, providing our clients flexibility in service delivery models. As we progress, we will expand our sales through new channels and more effective sales activities.

Over the last few years, our UKIE business has grown 2%–3%. With the new strategy and focus, we expect it to grow in excess of 5%.

ANZ Large and Mid-Market
Similar to the UK, Australia and New Zealand are software-led opportunities for NGA – and NGA has been a pioneer in SaaS solutions in those markets. With a highly localised solution, NGA can support our own software, or we can add payroll and support to our Workday and SAP SuccessFactors partner solutions in these markets as well.

Our Preceda platform – the first cloud HR platform in the region – continues its growth as we're targeting to get to 1 million employees served, either through stand-alone SaaS service or in combination with BPO and HR shared services from our Sydney and regional delivery centres. Our Australia business is currently in a strong 2nd position in the market, representing a market share of 13%.

Last financial year, our ANZ mid-market business saw double-digit revenue growth in the second half of the year, with revenue growth of 8.2% to achieve £17.9m GBP over the year and as such established a record year in terms of revenue performance. The business entered the new year with strong momentum, making this segment living proof that our strategy is working and investments are paying off. We anticipate a strong order intake over the next year as well, ensuring that this segment continues to flourish.

Global Enterprise
This market is characterised for us as a technology platform–led HR services business, built around our unique application and integration technologies – with payroll and workforce administration at the foundation, leveraging global delivery capabilities and strong partnerships with SAP SuccessFactors and Workday.

Our global enterprise segment is of critical importance to NGA, but was also subject to several headwinds, as laid out earlier, including the transformation of our HR consulting business and the results of the Convergys acquisition.

These headwinds are well understood and adequately managed. We recorded strong deal flow this past year in the enterprise segment. This is especially true for our global payroll offering, which saw the introduction of Payroll Exchange: a new, highly innovative capability to connect cloud HR solutions with payroll solutions in 145 countries. At the time of publication, nine months after go-live of Payroll Exchange, 15 global multinationals and 250,000 employees signed up for the new offering.

This market segment–based structure allows us to combine our focus on local and regional customer requirements, with an integrated sales and delivery organisation for the markets in which we operate. Each segment has started to deliver on the growth plans it put forward, and we continue to feel confident about our growth strategy, built on a solid delivery footprint and a market segment–focused view of the HR and payroll services marketplace.

Business Outlook
Today NGA is truly one company, with one focus...

We've come a long way, based on our team's hard work, effort and determination. We've managed to transform ourselves into a truly global player and our brand recognition is impressive. For the year ahead, we will continue to drive our segment-focused strategy which we established two years ago, with growth as the main objective for all segments. The foundations of our growth are laid in our focus on customer satisfaction, delivery quality, and innovation.

In March 2016, we completed our refinancing. Our new capital structure significantly strengthens our balance sheet and will help accelerate the growth of NGA. Following agreement between our shareholders and our lenders, the Merchant Banking Division of Goldman Sachs and funds advised by Park Square Capital are now the majority shareholders of NGA Human Resources and its parent company Northgate. Northgate's current shareholder, KKR, stays on as a minority shareholder. The refinancing package comprises the conversion of subordinated debt into equity and a full repayment of outstanding senior debt using proceeds from the sale of Northgate Public Services in December 2014 and from new £395m term facilities.

I believe this is a major step forward for NGA, our clients, our employees, and our partners. This transaction will facilitate growth and investment for the long term. Our focus today is more than ever on our clients and on developing integrated and highly innovative HR and payroll solutions.

As I have done before, I would like to thank our customers, our staff and our shareholders — not only for understanding and supporting our vision, but also for helping us to deliver on the NGA Advantage. NGA offers 'a safe pair of hands' for our customers, an exciting career environment for our employees and a sound financial and operational opportunity for our owners.


Adel Al-Saleh
Group Chief Executive

NGA offers a safe pair of hands for our customers, an exciting career environment for our employees and a sound financial and operational opportunity for our owners.

Adel Al-Saleh, CEO NGA Human Resources


Financial Highlights

To clarify for the reader of the accounts, we have adjusted the continuing operating profit and EBITDA* for years ending 30 April 2014 and 30 April 2015, to account for one-off items, property provisions and amortisation of acquired intangibles.


Downloads

In this section you can find pdf documents related to the Annual Report. These can be viewed by clicking on the name of the document.

Summary Annual Report  PDF (1,245kb)
Financial Report  PDF (441kb)
Directors' Report  PDF (166kb)
Strategic Report  PDF (180kb)