Interim Results
NCC Group PLC
23 January 2007
23 January 2007
NCC Group plc
Pre-tax profits up 23% & Group expands web testing capabilities
NCC Group plc (AIM: NCC), the provider of Escrow Solutions, Testing Solutions
and Consultancy services, published its interim results for the six months to 30
November 2006 and today has acquired the web assurance testing company, Site
Confidence, for £9.1m in cash.
Highlights
• Revenue up by 17% to £11.5m (2005: £9.8m)
• Pre-tax profits up by 23% to £3.2m (2005: £2.6m)
• Earnings per share up by 24% to 6.8p (2005: 5.5p)
• Interim dividend increased by 50% to 1.5p (2005: 1.0p)
• Net funds at end of half-year up at £1.6m (2005: £1.5m)
• Continued strong demand for both Verification (sales up 14%) and
Penetration Testing (sales up 41%)
• US investments, including July 2006 acquisition of Source Harbor,
showing good returns with profitable revenues of over $1m
• Acquisition of Site Confidence, a leading complementary web assurance
testing and monitoring company, for up to £9.1m in cash - see
separate announcement
Rob Cotton, NCC Group Chief Executive, said:
'The Group has continued to show strong organic growth and cash generation,
based around the established and predictable software escrow business. The
verification and particularly web penetration testing businesses are showing
notable fast growth as their markets develop. Our US business is now firmly
established and showing good returns.
'Site Confidence provides us with a complementary range of products and
services, a sales and operational hub in the South of England to increase our
market penetration for all our businesses, and considerable opportunities for
cross selling.
'We are developing a very strong platform for the future.'
Enquiries:
NCC Group (www.nccgroup.com) Today 020 7457 2020
Rob Cotton, Chief Executive Thereafter 0161 209 5432/5200
Paul Edwards, Group Finance Director
College Hill
Adrian Duffield/Corinna Dorward 020 7457 2815/2803
Note to editors
A software escrow agreement is a contract made between three parties: the
software vendor (the licensor), the software customer (the licensee) and an
independent third party (the escrow agent, such as NCC Group). Under the terms
of the agreement, the licensor agrees to send a copy of the source code to the
escrow agent and the escrow agent agrees to hold the source code securely, and
to release it to the licensee only in the event of certain predefined trigger
events. These include the insolvency of the licensor or its failure to provide
support services as defined in the software license agreement.
Contract - represents an escrow agreement to provide escrow services for an
owner of the software on behalf of licensees who have signed to the agreement.
Beneficiary - represents licensees who have signed to the contract and who
receive the benefits of escrow as set out in the contract.
Minimum annual fee - a charge is levied on the owner of the software under a
multiple agreement where there are fewer than two beneficiaries to the contract.
Once two or more beneficiaries are signed to the agreement the minimum fee is
no longer charged. The fee is charged at the end of the year and released to
the P&L account over the following twelve months. This will decline as it
intended that beneficiaries are signed to agreements.
Interim Statement
Trading results
During the first six months of the financial year to 30 November 2006, NCC Group
saw strong growth with revenue after deferred income increasing by 17% to £11.5m
(£9.8m in 2005). The Escrow Solutions and Testing Solutions divisions both
continued to increase revenue strongly, growing by 27% and 18% respectively.
Group operating margins improved by over 1% in the first six months to 28% (27%
in 2005), after the additional costs of the planned and substantial investments
made in the management infrastructure across the Group.
Group operating profits increased faster than the revenue growth at 22% to £3.2m
(£2.6m in 2005) as NCC Group continued to benefit from tight control of its
fixed costs. Due to negligible net financing costs, the Group pre tax profits
increased by 23% to £3.2m (£2.6m in 2005).
Basic earnings per share grew by 24% to 6.8p (5.5p in 2005). Diluted earnings
per share were up 25% to 6.6p (5.3p in 2005).
The interim dividend has been increased by 50% to 1.5p per share up from 1.0p in
2005. It will be paid on 2 March 2007 to shareholders on the register at the
close of business on 2 February 2007.
The Group continues to be strongly cash generative with inflows from operating
activities before interest and tax increasing by 12% to £3.5m (£3.1m in 2005) in
the period. At 30 November 2006, net funds were £1.6m, (£1.5m in 2005). After
accounting for the cash outflows for the initial acquisition cost of Site
Confidence, NCC Group expects to have a net debt of less than £1m at the
financial year end.
Web assurance testing acquisition
NCC Group has today also acquired Site Confidence, see separate announcement,
for a maximum cash consideration of £9.1m, payable in three stages up to June
2008, and subject to the trading performance of the business. This earnings
enhancing acquisition further strengthens the Group's position in the
independent web assurance and IT security market with a complementary range of
web site assurance products and services.
Based in Dorking, Surrey, Site Confidence is a leading UK website performance
monitoring company. It provides customers with independent, reliable and
real-time information around the clock about the technical performance of their
web sites, which enables them to detect performance problems, respond quickly
and prevent future slowdowns or outages.
Online consumer demand is driving the need for all online retail and marketing
businesses to ensure they have the strongest, fastest and most robust web
capabilities in an increasingly competitive market. Increasingly site managers
and owners need independent assurance that their online image and capabilities
meet, if not exceed, consumer expectations.
The operation will be managed independently but will develop close links with
the Group's existing IT Assurance Testing business. The business has over 400
blue chip clients and direct cross selling opportunities will be exploited.
Review of divisional performances
Overall the Group has seen substantial year on year growth, with strong sales
performances coming from the core Escrow Solutions and Testing Solutions
businesses. Business segment profits grew by 23% to £3.9m (£3.2m: 2005).
Escrow Solutions
UK: The Group's core operation has seen a strong overall performance with a 17%
growth in revenue to £5.5m (£4.7m in 2005) and a 20% increase in operating
profits to £3.3m (£2.8m in 2005).
Escrow Solutions implemented price increases by an average of 6% with effect for
new business from November 2006 and for renewals from January 2007. The Group
continues to experience a better than anticipated agreement and beneficiary
termination rate which is below 11% (11% is, the Board believes, now a safe
planning assumption).
There are now 14,020 beneficiaries of the 7,203 Escrow agreements, including 898
minimum annual fees. Through 2007 NCC Group will be focusing particularly on
software owners to devise incentive plans and packages to encourage them to
increase Escrow adoption rates for their products.
As well as the strong increases in contract business, the Escrow Solutions
account management team continue to be directly responsible for the significant
growth in sales of Verification Testing, which is currently reported in the
Testing Solutions business unit. The strong uptake in Verification Testing is
also a result of a better understanding of the benefits by clients.
NCC Group employs 77 sales account managers within its Escrow Solutions UK
business, an increase from 67 at the start of the financial year. The Board
anticipates growing these numbers more quickly once Site Confidence has been
fully integrated into the Group, thereby providing the business with a second
location from which to recruit account managers.
Germany: Trading in Germany has continued to be difficult as the Group has
found the speed of adoption and increase in product awareness in the market to
be unacceptably low. In the first half of this year the business lost £192,000
(2005: loss £144,000) on revenues of £88,000.
The Board has now cut back the investment programme and will carefully review
its strategic importance to the Group. As a result, in the second half of the
year NCC Group expects to see the rate of loss decrease.
USA: The US business, which was formed from the acquisition of two small Escrow
providers, has performed well and is ahead of plan. Gross revenues were
£519,000 ($1m) and the business contribution £69,000 before amortisation.
These acquisitions marked a significant move to take NCC Group's successful UK
escrow business template into North America. The sales template has required
significant refinement to fit with the sales culture in the US, but the Group
has started to make real headway in this important new market for the Group's
services.
To date the Board has been pleased with the leadership of the US business. NCC
Group has invested extensively in ensuring the right infrastructure is in place
and that the products deliver against the market's expectations and needs. The
US business is also focusing on the education of its market, including the need
for Verification Testing and the more comprehensive escrow services the Group
provides.
Testing Solutions
This division, consisting of Verification, Penetration and Specialist Testing,
grew substantially in the last six months, continuing the positive momentum from
the year end.
It remains the Group's aim to become the market leading provider of IT Assurance
Testing. The opportunities afforded the Group from the Payment Card Industry
(PCI) marketing initiatives, outlined below, and the acquisition of Site
Confidence are significant milestones towards achieving this objective.
Overall Testing Solutions saw an 18% increase in revenue to £3.2m (£2.7m in
2005) with the anticipated small decline (£45,000) in operating profits to £0.5m
(£0.6m in 2005). This reduction was as a result of strengthening the senior
management team of the business units as well as further investing in testing
resources to meet increasing demand.
Escrow Verification Testing continues to perform strongly, delivering yet
another record six months. In total 169 (148: 2005) verifications were
delivered, an increase of 14%. As all the sales for Verification are managed
and secured by the escrow sales team, the Group is planning to include
Verification sales figures and profit within the Escrow business in the next
financial year.
Penetration Testing will benefit from the Payment Card Industry's (PCI)
standards that have been mandated by all major card providers including Visa and
MasterCard by June 2007. Even without the introduction of these standards, the
demand for NCC Group's services has never been stronger and the Group has seen a
growth of 41% in delivery as 467 tests were carried out (331: 2005).
Specialist Testing, the smallest unit, saw an expected slight fall in revenue,
but the prospects for the core areas of work remain solid as NCC Group
anticipates being awarded two sizeable contracts that underpin the second half
of the year.
NCC Group has recently launched a number of marketing campaigns and initiatives
including direct mail, trade and national press advertising plus market surveys
to directly support a range of its services. For example, in a recent awareness
campaign, targeting finance directors from 500 of the UK's plcs, over 47% risked
the security of their business and customers by inserting an unidentified memory
stick into their computers.
UK business has never been so susceptible to the risk of serious electronic
fraud and unless that threat is taken much more seriously, and quickly, by way
of a significant growth in their commitment to security and prevention measures,
there will be a substantial increase in committed fraud, the cost of which will
ultimately be passed on to the consumer.
In order to support not only the ambition outlined above and in line with market
developments, the Group is now focussing its resources on developing and
delivering more general IT assurance services and products. It is reducing its
reliance on some of the more niche, unpredictable testing specialisms which have
lower margins.
The Specialist Testing unit is being absorbed into the other Testing areas and
certain products and services will be streamlined. Low yielding assignments
will not be undertaken.
The Testing Solutions operation has now been branded Assurance Testing and
encompasses Penetration Testing, together with the newly acquired Site
Confidence operation. These businesses, along with the retained higher margin
specialist services, will be marketed together and form the basis of a highly
appealing portfolio of IT assurance testing services that broadens NCC Group's
market appeal as well as offering considerably more opportunities at stronger
day rates and margins.
As a result of the recruitment drive, the Penetration Testing business now has
an Operational Director and a Commercial Sales Manager with Verification having
a dedicated Business Manager. The penetration testing team has grown to 17
testers, excluding the small Argentinean off shore resource.
With the acquisition of Site Confidence, NCC Group sees excellent opportunities
to provide an additional penetration testing facility in the South of England.
The Group plans to recruit extensively in the South of England using the Site
Confidence premises in Dorking as a base for both testers and sales resource.
This will significantly help the recruitment process and enhance the Group's
growth prospects in the medium term.
Consultancy
This division has continued to operate effectively in a competitive market and
has only competed in sectors that have enable the Group to maintain margins. As
a result the Group has maintained a similar level of revenue achieved last year
at £2.2m but returned to normal levels of profitability for the six months to 30
November 2006 of £0.2m (£42,000 loss: 2005).
During the last six months there has been a greater percentage of client spend
on information security consultancy work, driven particularly by the PCI
standards. NCC Group is well positioned to meet the increasing demand.
Current trading and outlook
During the six months the Group maintained its focus on its core business,
Escrow Solutions, whilst widening its geographical reach, and refining and
enhancing its total IT assurance product portfolio. Considerable resources have
gone into recruitment and also acquiring the right business at the right price
to enhance and develop the Group's operations in the South of England.
The Group's Escrow and testing businesses are in very good shape and are
expected to continue to perform strongly throughout 2007.
The Testing Solutions and Consultancy order books have increased and now stand
at £2.7m and £1.8m respectively (up from £2.1m and £1.7m in November). The
continued improvement in Escrow agreement termination rates means that NCC Group
now expects annual renewals to be £9.2m (£9.1m in November 2006) in this
financial year.
The Board remains confident of a strong second half to the financial year with
further opportunities to develop the business in the following year.
Group income statement
2006 2005 2006
six months six months year
ended ended ended
Notes 30 November 30 November 31 May
(unaudited) (unaudited) (audited)
£000 £000 £000
Revenue 2 11,516 9,807 20,747
Cost of sales (6,344) (5,424) (10,647)
Gross profit 5,172 4,383 10,100
Administrative expenses before amortisation of intangible assets (1,878) (1,738) (3,417)
Earnings before interest, tax and amortisation 3,294 2,645 6,683
Amortisation of intangible assets (60) - (47)
Total administrative expenses (1,938) (1,738) (3,464)
Operating profit 2 3,234 2,645 6,636
Financial income 43 105 175
Financial expense (66) (144) (260)
Net financing costs (23) (39) (85)
Profit before taxation 3,211 2,606 6,551
Taxation (982) (829) (1,993)
Profit for the period 2,229 1,777 4,558
Attributable to equity holders of the company 2,229 1,777 4,558
Profit for the period 2,229 1,777 4,558
Earnings per share 4
Basic earnings per share 6.8p 5.5p 14.0p
Diluted earnings per share 6.6p 5.3p 13.6p
Group balance sheet
2006 2005 2006
30 November 30 November 31 May
(unaudited) (unaudited) (audited)
Notes £000 £000 £000 £000 £000 £000
Non current assets
Property, plant and equipment 1,276 1,120 1,257
Intangible assets 31,314 27,419 30,420
Deferred tax assets 475 229 423
Total non-current assets 33,065 28,768 32,100
Current assets
Trade and other receivables 5 5,582 3,742 4,840
Cash and cash equivalents 1,590 5,961 5,139
Total current assets 7,172 9,703 9,979
Total assets 40,237 38,471 42,079
Equity
Issued capital 326 326 326
Share premium 19,929 19,913 19,913
Retained earnings 9,605 5,146 7,964
Currency translation reserve 27 - 15
Total equity attributable to equity holders 29,887 25,385 28,218
of the parent
Total equity 29,887 25,385 28,218
Liabilities
Interest bearing loans - 3,285 2,689
Lease incentives 117 130 123
Total non current liabilities 117 3,415 2,812
Interest bearing loans - 1,200 1,200
Trade and other payables 6 2,613 2,382 2,750
Deferred revenue 6,611 5,234 6,037
Current tax payable 1,009 855 1,062
Total current liabilities 10,233 9,671 11,049
Total liabilities 10,350 13,086 13,861
Total liabilities and equity 40,237 38,471 42,079
Group cash flow statement
2006 2005 2006
six months six months year
ended ended ended
30 November 30 November 31 May
Notes (unaudited) (unaudited) (audited)
£000 £000 £000
Cash inflow from operating activities
Profit for the period 2,229 1,777 4,558
Adjustments for:
Depreciation charge 304 248 550
Share based charges 250 208 468
Amortisation of intangible assets 60 - 47
Finance expense 23 39 85
Profit on sale of property plant and equipment - - (9)
Income tax expense 982 829 1,993
Operating cash flow before changes in working capital 3,848 3,101 7,692
Increase in receivables (719) (147) (1,045)
Increase in payables 375 170 636
Cash generated from operating activities before 3,504 3,124 7,283
interest and tax
Interest paid (83) (149) (272)
Income taxes paid (1,110) (761) (1,808)
Net cash generated from operating activities 2,311 2,214 5,203
Cash flows from investing activities
Interest received 43 105 175
Proceeds from the sale of plant and equipment - - 34
Acquisition of property, plant and equipment (319) (366) (824)
Acquisition of business (896) - (2,546)
Net cash used in investing activities (1,172) (261) (3,161)
Cash flows from financing activities
Proceeds from the issue of ordinary share capital 16 94 94
Payment of bank loans (3,900) (600) (1,200)
Payment for shares in minority interest - (18) (18)
Equity dividends paid (815) (571) (897)
Net cash from financing activities (4,699) (1,095) (2,021)
Net (decrease) / increase in cash and cash equivalents 7 (3,560) 858 21
Cash and cash equivalents at beginning of period 5,139 5,103 5,103
Effect of exchange rate fluctuations on cash held 11 - 15
Cash and cash equivalents at end of period 1,590 5,961 5,139
Statement of changes of equity
Share Share Retained Currency Minority Total
capital premium earnings translation interest Equity
£000 £000 £000 £000 £000 £000
Balance at 1 June 2005 326 19,819 3,755 - (23) 23,877
Share based charges - - 208 - - 208
Profit for the period - - 1,777 - - 1,777
Recovery of VAT on share issue fees - 94 - - - 94
Purchase of minority interest - - (23) - 23 -
Dividends to shareholders - - (571) - - (571)
Balance at 30 November 2005 326 19,913 5,146 - - 25,385
Balance at 1 June 2005 326 19,819 3,755 - (23) 23,877
Share based charges - - 468 - - 468
Deferred tax on share based payments - - 103 - - 103
Profit for the period - - 4,558 - - 4,558
Currency translation reserve - - - 15 - 15
Recovery of VAT on share issue fees - 94 - - - 94
Purchase of minority interest - - (23) - 23 -
Dividends to shareholders - - (897) - - (897)
Balance at 31 May 2006 326 19,913 7,964 15 - 28,218
Balance at 1 June 2006 326 19,913 7,964 15 - 28,218
Share based charges - - 250 - - 250
Deferred tax on share based payments - - (23) - - (23)
Profit for the period - - 2,229 - - 2,229
Shares issued - 16 - - - 16
Currency translation reserve - - - 12 - 12
Dividends to shareholders - - (815) - - (815)
Balance at 30 November 2006 326 19,929 9,605 27 - 29,887
Notes to the interim statement
1 Accounting policies
Basis of preparation
The interim statement has been prepared on the basis of the accounting policies
set out in the annual report and financial statements for the year ended 31 May
2006 and in accordance with those accounting policies expected to be followed in
the year end financial statements. The Group has chosen not to adopt IAS 34 '
Interim Financial Statements' in preparing the interim statement since the
adoption of this standard is not mandatory.
The financial information contained in this interim statement does not amount to
statutory financial statements within the meaning of section 240 Companies Act
1985. The financial information contained in this report is unaudited but has
been reviewed by KPMG Audit plc. The financial statements for the year ended 31
May 2006, from which data has been extracted, were prepared under IFRS and have
been delivered to the Registrar of Companies. The report of the auditors was
unqualified in accordance with section 235 Companies Act 1985 and did not
contain a statement under section 237 (2) or (3) Companies Act 1985. The interim
financial statements were approved by the Board of Directors on 22 January 2007.
2 Segmental information
The Group is organised into three primary business segments, namely Escrow
Solutions, Testing Solutions and Consultancy. These three segments are the
Group's primary reporting format for segment information.
2006 2005 2006
30 November 30 November 31 May
£000 £000 £000
Revenue by business segment
Escrow Solutions (UK) 5,511 4,698 9,832
Escrow Solutions (Germany) 88 70 183
Escrow Solutions (US) 473 - 371
Total Escrow Solutions 6,072 4,768 10,386
Testing Solutions 3,208 2,722 5,704
Consultancy 2,236 2,317 4,657
Total revenue 11,516 9,807 20,747
Operating profit by business segment
Escrow Solutions (UK) 3,330 2,773 6,065
Escrow Solutions (Germany) (192) (144) (384)
Escrow Solutions (US) 9 - 131
Total Escrow Solutions 3,147 2,629 5,812
Testing Solutions 542 587 1,300
Consultancy 199 (42) 616
Segment operating profit 3,888 3,174 7,728
Head office costs (654) (529) (1,092)
Operating profit 3,234 2,645 6,636
The table below provides additional disclosure on revenue by geographical market
where the customer is based
2006 2005 2006
30 November 30 November 31 May
£000 £000 £000
Revenue by geographical segment
UK 9,041 8,561 17,699
Rest of Europe 979 634 1,275
Rest of the World 1,496 612 1,773
Total revenue 11,516 9,807 20,747
3 Dividends
2006 2005 2006
30 November 30 November 31 May
£000 £000 £000
Dividends paid and recognised in the period 815 571 897
Dividends proposed but not recognised in the 489 326 815
period
Dividends per share paid and recognised in the 2.50p 1.75p 2.75p
period
Dividends per share proposed but not recognised in 1.50p 1.00p 2.50p
the period
4 Earnings per share
The calculation of earnings per share is based on the following:
2006 2005 2006
30 November 30 November 31 May
£000 £000 £000
Profit for the period 2,229 1,777 4,558
Number of Number of Number of
Shares Shares Shares
000's 000's 000's
Basic weighted average number of shares 32,609 32,604 32,604
in issue
Dilutive effect of share options 1,116 724 800
Diluted weighted average shares in issue 33,725 33,328 33,404
5 Trade and other receivables
2006 2005 2006
30 November 30 November 31 May
£000 £000 £000
Trade debtors 4,084 2,428 3,464
Prepayments and accrued income 1,498 1,314 1,376
5,582 3,742 4,840
6 Trade and other payables
2006 2005 2006
30 November 30 November 31 May
£000 £000 £000
Trade creditors 218 485 448
Other taxation and social security 763 692 804
Accruals 1,621 1,146 1,465
Other creditors - 17 -
Interest 11 42 33
2,613 2,382 2,750
7 Reconciliation of net cash flow to movement in net funds / (debt)
2006 2005 2006
30 November 30 November 31 May
£000 £000 £000
(Decrease) / increase in cash in the period (3,560) 858 21
Effect of exchange rate fluctuations on cash held 11 - 15
Cash outflow from movement in loans and loan notes 3,900 600 1,200
Non cash items (11) (3) (7)
Movement in net funds in the period 340 1,455 1,229
Net funds / (debt) at beginning of period 1,250 21 21
Net funds / (debt) at end of period 1,590 1,476 1,250
Analysis of net funds / (debt)
At beginning of Cash Non cash At end of
year flow items period
£000 £000 £000 £000
Cash and cash equivalents 5,139 (3,560) 11 1,590
Term loan (3,889) 3,900 (11) -
Total 1,250 340 - 1,590
This information is provided by RNS
The company news service from the London Stock Exchange
Wednesday, 15th May 2024
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