Interim Results
NCC Group PLC
22 January 2008
NCC Group plc
Interim profits up 42% as ethical security testing unit gains momentum and
escrow business maintains good growth
NCC Group plc (LSE: NCC, 'NCC Group' or 'the Group'), the international,
independent provider of Escrow Solutions, Assurance Testing and Consultancy, has
reported its interim results for the six months to 30 November 2007.
Financial highlights
• Group revenue up by 42% to £16.4m (£11.5m in 2006)
• Group Escrow Solutions revenue up by 15% to £8.4m
• Assurance Testing revenue up by 193% to £5.8m
• Consultancy revenue down by 5% to £2.1m
• Group adjusted operating profits* before charges for share option schemes
up 42% to £5.0m (£3.5m in 2006)
• Group adjusted operating profits* up by 41% to £4.7m (£3.3m in 2006)
• Group Escrow Solutions operating profits up by 26% to £4.6m
• Assurance Testing operating profits up by 898% to £0.8m
• Consultancy operating profits down by £73k to £0.1m (£0.2m in 2006)
• Group adjusted pre tax profits* up by 41% to £4.6m (£3.3m in 2006)
• Adjusted diluted earnings* per share up by 44% to 9.8p (6.8p in 2006)
• Interim dividend up by 50% to 2.25p (1.5p in 2006)
• Ratio of cash inflow from operating activities before interest and tax to
operating profit up to 118% (108% in 2006)
• Net debt of £0.2m following acquisition of Secure Test (£1.6m net funds in
2006)
Operational highlights
• Acquisition of SecureTest, an ethical security testing business, on 1
August 2007 for up to £4.0m - Group now largest ethical security testing
team in the UK
• Southern based Escrow Solutions account management team now fully
operational
• Discontinuance of low margin Specialist Testing, revenue of £0.3m and
operating profits of £0.1m more than covered by rapid growth of other higher
margin Assurance Testing operations
Acquisition of Escrow Europe Holdings B.V. (see separate announcement)
• Acquisition of Escrow Europe, a pan-European escrow solutions company,
also announced today for a maximum consideration of up to €10.5m in cash.
• Earnings enhancing acquisition will increase the Group's share of the
European escrow market and substantially develops its international
presence.
Rob Cotton, NCC Group Chief Executive commented:
'We have yet again delivered very strong growth against each of our key metrics
of operating profits, renewable revenues and cash.
'The mix of growth between organic and acquisitive is well balanced across the
Group to ensure that focus, direction and management control is maintained on
the growth business streams.
'Our escrow businesses remain the principal and most profitable part of the
Group. However, our established Assurance business, which contains the UK's
largest ethical security testing team and our web assurance service, also now
provides us with considerable forward visibility.'
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/Rozi Morris 020 7457 2815/2803
* Adjusted earnings measures: A reconciliation of adjusted operating profit,
profit before tax and diluted earnings per share measures to reported adopted
IFRS measures is set out in the notes. The Directors consider that the adjusted
measures better reflect the ongoing performance of the business.
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. This will
decline as it intended that beneficiaries are signed to agreements.
Interim report
Overview
NCC Group has delivered a very good first half underpinned by solid organic
growth in Escrow Solutions, Assurance Testing and from the acquisitions made and
integrated in the last twelve months. Overall Group revenue grew by 42% to
£16.4m (£11.5m in 2006) and adjusted operating profits by 41% to £4.7m (£3.3m in
2006). Excluding acquisitions and the discontinuance of Specialist Testing, the
Group's organic revenue growth was 15% and adjusted operating profits grew by
21%.
Adjusted fully diluted earnings per share improved 44% to 9.8p (6.8p in 2006)
and the Board has approved the payment of an interim dividend of 2.25p, up by
50%.
The Group continues to be highly cash generative with the ratio of operating
cash before interest and tax of £4.6m being 118% of operating profit before
interest and tax (108% in 2006).
NCC Group completed the acquisition of SecureTest, a Thame-based Ethical
Security Testing business, for up to £4.0m on 1 August 2007. The SecureTest
operation is performing well and neatly complements the existing Ethical
Security Testing team and now positions the Group collectively as the largest
Ethical Security Testing team in the UK.
SecureTest has very strong brand recognition in its market and has a
complementary skill set and service offering to NCC Group's Ethical Security
Testing Team and fits well with the Information Security Consultancy.
Trading results
Group revenues have increased by 42% to £16.4m (£11.5m in 2006). Organic revenue
growth was 15%, after adjusting for the acquisitions of Site Confidence and
SecureTest and the discontinuance of Specialist Testing activities which
contributed £0.6m in 2006. Acquisitions contributed £3.6m of revenue.
The table below summarises the revenue by business segment and includes year on
year growth.
2007 2006 Growth Organic Growth
£000 £000
Revenue by business segment
Escrow UK 7,766 6,733 15% 15%
Escrow Germany 125 88 42% 42%
Escrow US 516 473 9% 9%
Group Escrow Solutions 8,407 7,294 15% 15%
Assurance Testing 5,824 1,986 193% 42%
Consultancy 2,129 2,236 (5%) (5%)
Total revenue 16,360 11,516 42% 15%
Group Escrow Solutions accounted for 51% of the revenue (63% in 2006). The Group
strengthened its Assurance Testing proposition following the acquisitions in
2007 and consequently its proportion of revenue has increased to 36% (17% in
2006). Consultancy revenue decreased in significance, accounting for only 13%
(19% in 2006) of Group revenue.
Adjusted operating profits increased by 41% to £4.7m (£3.3m in 2006) while the
adjusted profit before tax also increased by 41% to £4.6m (£3.3m in 2006).
The table below separates out the adjustments made to obtain the adjusted
operating profit. The acquisitions contributed £0.7m of adjusted operating
profit which resulted in organic growth of 21% year on year.
Operating Operating Profit before Profit before
profit profit tax tax
2007 2006 2007 2006
£000 £000 £000 £000
As per financial statements 3,905 3,234 3,699 3,211
Amortisation of intangible assets 272 60 272 60
Exceptional items (Official List transfer 481 - 481 -
fees)
Unwinding of discount - - 147 -
Adjusted profits 4,658 3,294 4,599 3,271
Share based charges deducted above 359 250 359 250
Adjusted profit before share based charges 5,017 3,544 4,958 3,521
Group adjusted operating margins were maintained at 28.5% (28.6% in 2006).
The reported tax charge for the six months ended 30 November 2007 is 34% of
profit before tax and is based upon the expected tax charge for the year. The
increase has arisen as a result of the impact of disallowable expenses,
principally the exceptional fees of £0.5m incurred in relation to the transfer
to the London Exchange's Official List, which the Board has prudently treated as
disallowable in this interim report and the unwinding of the discount on
deferred consideration relating to the 2007 acquisitions of £0.2m.
Adjusted fully diluted earnings per share increased 44% to 9.8p (6.8p in 2006).
The table below separates out the adjustments made to obtain the adjusted fully
diluted earnings per share.
2007 2006
30 November 30 November
Pence Pence
Diluted earnings per share
Group diluted earnings per share - unadjusted 7.1 6.6
Amortisation of intangible assets 0.8 0.2
Exceptional items 1.4 -
Unwinding of discount 0.5 -
Adjusted Group diluted earnings per share 9.8 6.8
The Group continues to be highly cash generative with the ratio of operating
cash before interest and tax of £4.6m being 118% of operating profit before
interest and tax (108% in 2006).
After accounting for acquisition cash outflows of £3.4m the Group ended the
period with £2.3m of cash. The Group continues to maintain a £10m revolving
credit facility of which £2.5m was drawn down at the period end leaving the
Group almost net debt free with £0.2m of net debt (£1.6m net funds in 2006).
Capital expenditure has increased to £0.9m (£0.3m in 2006) following the
continued investment in IT infrastructure, the development of unutilised space
in the Manchester office and the refurbishment of the new office in Dorking.
In line with NCC Group's continuing progressive dividend policy, the Board has
approved the payment of an interim dividend of 2.25p (1.5p in 2006) an increase
of 50% on last year. This will be paid on 29 February to shareholders on the
register at the close of business on 1 February 2007 with an ex-dividend date of
30 January 2007. This represents cover of 3.2 times (4.5 in 2006) based on basic
earnings, and cover of 4.4 times on an adjusted basic earnings basis (4.7 in
2006).
Business Review
Escrow Solutions
Escrow UK: The Group's core operation has seen a strong performance with a 15%
growth in revenue to £7.8m (£6.7m in 2006) and an 18% increase in operating
profits to £4.5m (£3.8m in 2006).
Escrow UK implemented price increases of an average of 6% for new business from
November 2007 and for renewals from January 2008. The business continues to
experience better than anticipated agreement and beneficiary termination rates
which remain well below 10%.
There are now 15,262 beneficiaries (14,432 in May 2007) to the 7,844 Escrow
agreements (7,440 in May 2007), including 862 minimum annual fees (911 in May
2007). Excluding minimum annual fees, the annualised growth rate in
beneficiaries in the period is 13%.
Escrow Verification Testing continues to perform strongly delivering another
record six months, with a 22% growth in revenues to £1.5m (£1.2m in 2006) in the
period.
NCC Group currently employs 88 sales account managers within its Escrow
Solutions UK business, an increase from 84 at the start of the financial year.
Included within this number are eight full time account managers who operate
from additional space acquired in Dorking. The Board is confident that this
initiative will be successful in the year and will not cause any adverse profit
impact in this financial year.
Escrow Germany: As previously announced, the business has been downscaled, and
on revenues of £0.1m (£0.1m in 2006) made a £4,000 profit (£0.2m loss in 2006).
Escrow USA: Revenue increased 19% to $1.1m ($0.9m in 2006) with new business
growing by 62% to $0.4m ($0.3m in 2006). Performance continues to be
satisfactory and the Group is now seeing a number of verification and testing
initiatives come to fruition. Operating profits before amortisation of
intangible assets increased by 114% to $0.3m ($0.1m in 2006).
Movements in the USD/GBP exchange rate in the period to November 2007 suppressed
the GBP growth rate in revenue and operating profits before amortisation of
intangible assets to 9% and 91% respectively. However, in absolute terms the
Group's exposure to the USD is minimal.
Group Escrow renewals: The rate of agreement completions, renewals and
terminations have been such that the Board is forecasting UK escrow renewals to
be £9.6m for 2007/08 with worldwide renewals forecast to be £10.6m.
Assurance Testing
Assurance Testing encompasses Ethical Security Testing in Manchester and Dorking
and the newly acquired SecureTest operation in Thame, along with the Performance
and Load Testing business, Site Confidence, in Dorking.
The division maintained the strong momentum established during the first part of
2007 into the current financial year. Through a combination of strong organic
growth and the benefits of integration, revenues increased substantially to
£5.8m (£2.0m in 2006), up 193% whilst profits jumped by 898% to £0.8m (£0.1m in
2006).
Organic revenue growth within Ethical Security Testing was 42% (41% in 2006) and
both Site Confidence and Secure Test are on track to earn most, if not all of
their performance based earn-out payments.
The Group's Ethical Security Testing operation now boasts the largest team of
CESG Check accredited ethical security testers in the UK and from the start of
the next financial year will be marketed under the NCC Group SecureTest brand.
The acquisition provides NCC Group with even greater strength and capacity to
deliver the more significant contracts for CESG, the information assurance arm
of the UK Government Communications Headquarters.
Recent press coverage of the significant data losses by Government departments
highlights the opportunity for substantial growth in the demand for Assurance
Testing and Information Security Consultancy. This will be particularly
amplified in the event that one of the 'lost' data sets falls into the wrong
hands causing wide spread consumer unease and possible serious financial loss
arising from identity theft. As the UK economy now loses approximately £20bn to
fraud each year, this is an area of considerable focus for the Group.
Site Confidence is, as expected, performing strongly under the new, dynamic,
internally promoted team who took over running the business following the
Group's acquisition of the business in early 2007. The service offerings are
well placed in the market, as online retail continues to be the way forward for
the consumer and commerce alike.
As reliance grows on web based transactions, so does the need for businesses to
have total confidence over their web site capability to ensure vital revenue
opportunities are not missed. This brings with it an increased demand for NCC
Group's independent monitoring and performance and load testing services.
Online consumer expenditure continues to grow significantly with UK annual
online sales reaching £53bn in 2007, up 75% on the previous year, with 17% of
all retail, leisure and travel spending now transacted online.
This is predicted to rise to up to 50% of the £300bn annual retail spend by
2018. The increase was largely fuelled by increased spending over the festive
period, with 4.4m UK users buying online on Christmas Day 2007 alone.
At the year's online spending peak, 1.09pm on 10 December 2007, more than 138
users per second were spending over £100 per person online, giving a total
online spend of £370m just for that day.
At the turn of the financial year NCC Group withdrew Specialist Testing as a
service line, as it was an inconsistent, unpredictable and low margin revenue
stream that utilised some of the Group's best skilled testers at the lowest day
rates. The closure costs were minimal as most staff have been redeployed
elsewhere in the Group. In the equivalent period in 2006 the business performed
£0.6m of testing which equated to £1.1m for the full year. NCC Group
anticipates that 90% of this income will now be forgone.
Consultancy
Consultancy revenue fell £107,000 to £2.1m (£2.2m in 2006) as the Group operated
in a difficult and competitive market place. As a result of the mix of staff
and a late switch from sub-contracted associate resources to employees to meet
the known demand in the second half of the year, profits fell by £73,000 to
£0.1m (£0.2m in 2006). NCC Group anticipates, as in previous years, the second
half of the year will be stronger than the first half and similar levels of
revenue and profitability will be achieved.
The Group continues to focus on the sectors of Information Security where we
have expertise, in particular the current Payment Card Industry Data Security
Standards and upcoming new initiatives. At present the Board estimates that 35%
of Consultancy revenue is generated by Information Security projects and expects
this to grow.
Current trading and outlook
NCC Group continues to promote the virtue of acting as independent trusted
advisors. The Group has successfully acquired and integrated four businesses
that have extended and complemented its service and delivery offerings.
Combining this experience with the Group's track record of organic growth, NCC
Group has a sound business model that the Board will continue to evolve and
develop in order to grow the Group further. The Group's Escrow Solutions and
Assurance Testing divisions are in very good shape and are expected to continue
to perform strongly throughout 2008. The Group expects to see a typically strong
Consultancy performance in the second half.
The Assurance Testing and Consultancy order books have increased and now stand
at £3.0m and £2.0m respectively (£2.7m and £1.8m in May 2007). The renewal
rates for our monitoring and load testing are over 90%, giving a renewal revenue
of £3.5m for this financial year for Site Confidence.
The continued low agreement and beneficiary termination rates means that NCC
Group's Escrow businesses expect 2007 annual renewals to be £10.6m (projected at
£10.4m in May 2007) in this financial year. Escrow Verification Testing has a
forward order book of £1.5m (£1.3m in May 2007).
The Board remains confident of a strong second half to the financial year with
further opportunities to continue to develop the business in the following year
both organically and through further potential acquisitions.
Group income statement
2007 2006 2007
six months ended six months ended year ended
Notes 30 November 30 November 31 May
(unaudited) (unaudited) (audited)
£000 £000 £000
Revenue 2 16,360 11,516 25,400
Cost of sales (9,305) (6,344) (13,365)
Gross profit 7,055 5,172 12,035
Administrative expenses before amortisation of (2,397) (1,878) (3,853)
intangible assets
Earnings before interest, tax and amortisation 4,658 3,294 8,182
Amortisation of intangible assets (272) (60) (230)
Exceptional items - move to Official List 3 (481) - -
Total administrative expenses (3,150) (1,938) (4,083)
Operating profit 2 3,905 3,234 7,952
Financial income 58 43 109
Finance expense excluding unwinding of discount (117) (66) (174)
Net finance expense excluding unwinding of (59) - (65)
discount
Unwinding of discount effect relating to (147) - (102)
deferred consideration on business combinations
Financial expenses (264) (66) (276)
Net financing costs (206) (23) (167)
Profit before taxation 3,699 3,211 7,785
Income tax expense 6 (1,247) (982) (2,411)
Profit for the period attributable to equity 2,452 2,229 5,374
holders of the parent
Earnings per share 5
Basic earnings per share 7.4p 6.8p 16.5p
Adjusted basic earnings per share 10.2p 7.0p 17.5p
Fully diluted earnings per share 7.1p 6.6p 15.9p
Adjusted fully diluted earnings per share 9.8p 6.8p 16.8p
Group balance sheet
2007 2006 2007
Notes 30 November 30 November 31 May
(unaudited) (unaudited) (audited)
£000 £000 £000
Non current assets
Plant and equipment 1,922 1,276 1,482
Intangible assets 42,927 31,314 39,302
Deferred tax assets 1,159 475 2,005
Total non-current assets 46,008 33,065 42,789
Current assets
Trade and other receivables 8 9,924 5,582 7,757
Cash and cash equivalents 2,253 1,590 4,377
Total current assets 12,177 7,172 12,134
Total assets 58,185 40,237 54,923
Equity
Issued capital 335 326 326
Share premium 21,417 19,929 19,929
Retained earnings 14,437 9,605 13,144
Currency translation reserve 49 27 39
Total equity attributable to equity holders of the parent 36,238 29,887 33,438
Non current liabilities
Interest bearing loans 2,500 - 3,500
Other financial liabilities 10 100 117 3,782
Deferred tax liabilities 529 - 473
Total non current liabilities 3,129 117 7,755
Current liabilities
Trade and other payables 9 4,037 2,613 3,931
Other financial liabilities 10 5,331 - -
Deferred revenue 9,161 6,611 8,620
Current tax payable 289 1,009 1,179
Total current liabilities 18,818 10,233 13,730
Total liabilities 21,947 10,350 21,485
Total liabilities and equity 58,185 40,237 54,923
Group cash flow statement
2007 2006 2007
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 2,452 2,229 5,374
Adjustments for:
Depreciation charge 455 304 688
Share based charges 359 250 575
Amortisation of intangible assets 272 60 230
Finance expense 59 23 167
Profit on sale of plant and equipment (3) - -
Income tax expense 1,247 982 2,411
Operating cash flow before changes in working capital 4,841 3,848 9,445
Increase in receivables (1,621) (719) (1,976)
Increase in payables 1,387 375 314
Cash generated from operating activities before interest and 4,607 3,504 7,783
tax
Interest paid (116) (83) (166)
Income taxes paid (1,334) (1,110) (2,449)
Net cash generated from operating activities 3,157 2,311 5,168
Cash flows from investing activities
Interest received 58 43 109
Proceeds from the sale of plant and equipment 55 - 1
Acquisition of plant and equipment (885) (319) (734)
Acquisition of business (net of cash acquired) (3,394) (896) (3,641)
Net cash used in investing activities (4,166) (1,172) (4,265)
Cash flows from financing activities
Proceeds from the issue of ordinary share capital 1,497 16 16
Purchase of own shares (559) - -
Proceeds from borrowings - - 3,500
Payment of bank loans (1,000) (3,900) (3,900)
Equity dividends paid (1,063) (815) (1,304)
Net cash from financing activities (1,125) (4,699) (1,688)
Net (decrease) / increase in cash and cash equivalents (2,134) (3,560) (785)
Cash and cash equivalents at beginning of period 4,377 5,139 5,139
Effect of exchange rate fluctuations on cash held 10 11 23
Cash and cash equivalents at end of period 2,253 1,590 4,377
Statement of changes of equity
Share Share Retained Currency Total
capital premium earnings translation Equity
£000 £000 £000 £000 £000
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
Foreign exchange translation differences - - - 12 12
Dividends to shareholders - - (815) - (815)
Balance at 30 November 2006 326 19,929 9,605 27 29,887
Balance at 1 June 2006 326 19,913 7,964 15 28,218
Share based charges - - 575 - 575
Deferred tax on share based payments - - 535 - 535
Profit for the period - - 5,374 - 5,374
Foreign exchange translation differences - - - 24 24
Shares issued - 16 - - 16
Dividends to shareholders - - (1,304) - (1,304)
Balance at 31 May 2007 326 19,929 13,144 39 33,438
Balance at 1 June 2007 326 19,929 13,144 39 33,438
Share based charges - - 359 - 359
Deferred tax on share based payments - - 104 - 104
Profit for the period - - 2,452 - 2,452
Shares issued 9 1,488 - - 1,497
Purchase of own shares - - (559) - (559)
Foreign exchange translation differences - - - 10 10
Dividends to shareholders - - (1,063) - (1,063)
Balance at 30 November 2007 attributable to 335 21,417 14,437 49 36,238
equity holders of the parent
Notes to the interim report
1 Accounting policies
Basis of preparation
This condensed interim report for the six months ended 30 November 2007 has been
prepared in accordance with the Disclosure and Transparency Rules of the
Financial Services Authority and with IAS 34, 'Interim Financial Reporting' as
adopted by the European Union. The half yearly financial statements do not
contain all the information required for full annual financial statements and
should be read in conjunction with the annual financial statements for the year
ended 31 May 2007, which have been prepared in accordance with adopted IFRSs.
The financial information contained in this interim report does not amount to
statutory financial statements within the meaning of section 240 Companies Act
1985. The financial information contained in this report has been prepared using
the accounting policies applied for the year ended 31 May 2007 and is unaudited
but has been reviewed by KPMG Audit plc.
The comparative figures for the financial year ended 31 May 2007 are not the
company's statutory accounts for that financial year. Those accounts have been
reported on by the company's auditors and delivered to the registrar of
companies. The report of the auditors was (i) unqualified, (ii) did not include
a reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a statement
under section 237(2) or (3) of the Companies Act 1985.
2 Segmental information
The Group is organised into three primary business segments: Escrow Solutions,
Assurance Testing and Consultancy. These three segments are the Group's primary
reporting format for segment information.
2007 2006 2007
30 November 30 November 31 May
£000 £000 £000
Revenue by business segment
Escrow Solutions (UK) 7,766 6,733 13,790
Escrow Solutions (Germany) 125 88 203
Escrow Solutions (US) 516 473 1,028
Total Escrow Solutions 8,407 7,294 15,021
Assurance Testing 5,824 1,986 5,795
Consultancy 2,129 2,236 4,584
Total revenue 16,360 11,516 25,400
Operating profit by business segment
Escrow Solutions (UK) 4,479 3,794 8,182
Escrow Solutions (Germany) 4 (192) (476)
Escrow Solutions (US) 132 69 248
Total Escrow Solutions 4,615 3,671 7,954
Assurance Testing 778 78 740
Consultancy 126 199 717
Segment operating profit 5,519 3,948 9,411
Head office costs (861) (654) (1,229)
Operating profit before amortisation and exceptional 4,658 3,294 8,182
items
Exceptional item - move to full list (481) - -
Amortisation of intangible assets Escrow (US) (57) (60) (118)
Amortisation of intangible assets Assurance Testing (215) - (112)
Operating profit 3,905 3,234 7,952
2 Segmental information (continued)
The table below provides additional disclosure on revenue by geographical market
where the customer is based
2007 2006 2007
30 November 30 November 31 May
£000 £000 £000
Revenue by geographical segment
UK 13,695 9,041 20,620
Rest of Europe 882 979 1,756
Rest of the World 1,783 1,496 3,024
Total revenue 16,360 11,516 25,400
3 Exceptional Items
The Group identifies separately items as 'exceptional'. These are items which
in the management's judgement, need to be disclosed by virtue of their size or
incidence in order for the user to obtain a proper understanding of the
financial information.
Exceptional items in the six months ended 30 November 2007 were costs relating
to the move to the London Stock Exchange's Official List on 13 July 2007,
£481,000 was identified as an exceptional item.
4 Dividends
2007 2006 2007
30 November 30 November 31 May
£000 £000 £000
Dividends paid and recognised in the period 1,063 815 1,304
Dividends proposed but not recognised in the period 755 489 1,060
Dividends per share paid and recognised in the period 3.25p 2.50p 4.00p
Dividends per share proposed but not recognised in the 2.25p 1.50p 3.25p
period
5 Earnings per share
2007 2006 2007
30 November 30 November 31 May
£000 £000 £000
Profit for the period 2,452 2,229 5,374
Amortisation of intangible assets 272 60 230
Exceptional items 481 - -
Unwinding of discount 147 - 102
Adjusted profit 3,352 2,289 5,706
Number of Number of Number of
shares shares shares
000's 000's 000's
Basic weighted average number of shares in issue 32,984 32,609 32,611
Dilutive effect of share options 1,325 1,116 1,256
Diluted weighted average shares in issue 34,309 33,725 33,867
6 Taxation
The Group tax charge represents the estimated annual effective rate of 34% (31%
in 2006) applied to the profit before tax for the period. The interim period is
regarded as an integral part of the annual period and all tax liabilities are
disclosed as such. The increase has arisen due to the impact of disallowable
expenses, principally the exceptional fees of £481,000 incurred in relation to
the transfer to the London Exchange's Official List which have been treated as
disallowable in these interim reports and the unwinding of the discount of
£147,000, on deferred consideration for the acquisition of Site Confidence
Limited and SecureTest Limited.
7 Capital expenditure
Additions to plant and equipment during the period ended 30 November 2007
amounted to £885,000 (£319,000 in 2006). The net book value of equipment
disposed during the period ended 30 November 2007 amounted to £51,000 (£1,000 in
2006).
8 Trade and other receivables
2007 2006 2007
30 November 30 November 31 May
£000 £000 £000
Trade debtors 7,816 4,084 5,792
Prepayments and accrued income 2,108 1,498 1,965
9,924 5,582 7,757
9 Trade and other payables
2007 2006 2007
30 November 30 November 31 May
£000 £000 £000
Trade creditors 908 218 431
Non trade payables 1,114 763 963
Accruals 1,985 1,621 1,512
Deferred consideration on acquisition - - 996
Interest 30 11 29
4,037 2,613 3,931
10 Other financial liabilities
Other current liabilities £000
Other current financial liabilities 31 May 2007 -
Transfer from non current liabilities 3,675
Provision for deferred payment - SecureTest 1,408
Unwind of discount on deferred consideration payable 147
Reclassification from trade and other payables - Source Harbour 101
Other current financial liabilities 30 November 2007 5,331
Other non-current liabilities £000
Other non-current financial liabilities 31 May 2007 3,782
Transfer from non current liabilities (3,675)
Unwind of the rent free period provision (7)
Other non-current financial liabilities 30 November 2007 100
11 Acquisitions
A. On 1 August 2007 the Group acquired 100% of the share capital of SecureTest
Limited for a maximum consideration of £4.0m of which £1.5m has been withheld
subject to the achievement of performance criteria specified in the purchase
agreement. The present value of the deferred contingent consideration on 1
August 2007 was £1.4m and is accounted for within other financial liabilities
(note 10). The performance conditions are required to be satisfied by July
2008.
Acquiree's Fair value Acquisition
book values Adjustments amounts
£000 £000 £000
Acquiree's net assets at the acquisition date:
Plant and equipment 60 - 60
Trade and other receivables 550 - 550
Deferred tax liability - (154) (154)
Cash 222 - 222
Trade creditors and other liabilities (442) - (442)
Intangible assets purchased - 512 512
Net identifiable assets 390 358 748
Goodwill on acquisition 3,384
Maximum consideration to be paid including expenses 4,132
Less purchase consideration withheld (1,408)
Net cash outflow 2,724
Cash acquired (222)
Net cash outflow excluding cash acquired 2,502
Goodwill has arisen on the acquisition because the purchase price exceeds the
net fair value of the separately identifiable assets, liabilities and contingent
liabilities acquired including £0.5m assigned to customer relationships and
contracts. Goodwill represents synergies, business processes and the assembled
value of the work force including industry specific knowledge and technical
skills.
From the date of acquisition SecureTest Limited contributed an operating profit
before amortisation of intangible assets of £101,000 (nil in 2006) and revenue
of £1,041,000 (nil in 2006) to the Group consolidated income statement for the
period ended 30 November 2007. After amortisation of intangible assets,
operating profits were £44,000. If the acquisition had occurred at the beginning
of the financial year the actual consolidated revenue and operating profit for
the six months ended 30 November 2007 would have been approximately £16.9m and
£3.9m respectively.
B. On 23 January 2007, the Group acquired 97% of the share capital of Site
Confidence Limited for a maximum consideration of £9,100,000 of which £4,800,000
was withheld subject to the achievement of performance criteria specified in the
purchase agreement, 100% of the share capital had been acquired by 8 March 2007.
A second instalment of £892,000 was paid in June 2007 in accordance with the
purchase agreement. The remaining performance conditions are required to be
satisfied by June 2008.
12 Related party transactions
NCC Group's Non Executive Chairman Paul Mitchell is a director of Rickitt
Mitchell & Partners Limited and the Group conducted business to the value of
£140,000 with Rickitt Mitchell & Partners Limited during the period ending 30
November 2007. Included within the charge is £60,000 in relation to advice
received in connection with the acquisition of SecureTest Limited and the
remaining £30,000 relates to the services of the Non Executive Chairman.
Additionally a charge of £50,000 has been incurred in relation to advice
received in connection with the move to the London Stock Exchange's Official
List.
13 Reconciliation of adjusted earnings to IFRS reported figures
2007 2006 2007
30 November 30 November 31 May
£000 £000 £000
Operating profit
Group operating profit - unadjusted 3,905 3,234 7,952
Amortisation of intangible assets 272 60 230
Exceptional items 481 - -
Adjusted Group operating profit 4,658 3,294 8,182
2007 2006 2007
30 November 30 November 31 May
£000 £000 £000
Profit before tax
Group profit before tax - unadjusted 3,699 3,211 7,785
Amortisation of intangible assets 272 60
230
Exceptional items 481 - -
Unwinding of discount 147 - 102
Adjusted Group profit before tax 4,599 3,271 8,117
2007 2006 2007
30 November 30 November 31 May
Pence Pence Pence
Diluted earnings per share
Group diluted earnings per share - unadjusted 7.1 6.6 15.9
Amortisation of intangible assets 0.8 0.2 0.6
Exceptional items 1.4 - -
Unwinding of discount 0.5 - 0.3
Adjusted Group diluted earnings per share 9.8 6.8 16.8
This information is provided by RNS
The company news service from the London Stock Exchange
Tuesday, 4th June 2024
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