Interim Results
NCC Group PLC
25 January 2005
STRONG ORGANIC GROWTH DRIVING PROFITABILITY AND CASH GENERATION
NCC Group plc, a well-established provider of Escrow Solutions, Testing
Solutions and Consultancy, operating predominately in the UK and Europe,
published interims results today. The Escrow Solutions are provided globally.
• Group turnover up by 23% to £8.5m (£6.9m in 2003)
• Group operating profits* up by 21% to £2.8m (£2.3m in 2003)
• Underlying group pre tax profits** up by 100% to £2.7m (£1.35m in 2003)
• Group pre tax profits up by 41% to £0.84m (£0.59m in 2003)
• Adjusted earnings per share*** up by 16% to 5.58p (4.80p in 2003)
• Initial interim dividend declared at 0.75p
• Cash inflows from operating activities up by 11% to £3.0m (£2.7m in 2003)
* Before goodwill amortisation. ** Before goodwill amortisation, exceptional
items and non recurring interest charges. *** Before goodwill amortisation,
exceptional items, non recurring interest charges and fully diluted
Rob Cotton, NCC Group Chief Executive, said:
'We are delighted to present our first set of results since the admission of the
company to AIM on 12 July 2004 and are pleased to report that the Group has
continued to make good progress.
'We will continue to focus our efforts on profits and cash generation whilst
making the right investments in the infrastructure and the management team to
help ensure future growth. The Board remains confident of a strong second half
to the year.'
25 January 2005
Enquiries:
NCC Group (www.nccgroup.com) 0161 209 5432
Rob Cotton, Chief Executive
Paul Edwards, Group Finance Director
College Hill
Adrian Duffield/Clare Warren 020 7457 2815/2055
Chief Executive's Review
Trading results
During the first six months of the financial year to 30 November 2004, NCC Group
has seen strong growth in revenue across all its divisions. Group turnover
after deferred income increased by 23% to £8.5m (£6.9m in 2003) and operating
profits, before goodwill amortisation, grew by 21% to £2.8m (£2.3m in 2003).
Operating profits increased by 31% to £2.0m (£1.5m in 2003.)
Group operating margins, before goodwill amortisation, were broadly consistent
in the first six months at 32.4% (32.9% in 2003) although we expect them to
strengthen slightly in the second half of the year as is normal. This is due to
the impact of Escrow Solutions price increases in the second half of the year.
However, our continued investments in new staff at a senior level to manage and
grow the business and additional staff to deliver our products and services,
will, as anticipated, hold back the growth in margins.
Underlying Group pre tax profits, before goodwill amortisation, were £2.7m for
the six months, up 100%. Exceptional finance costs of £0.86m were written off
to the profit and loss account when the debt financing was repaid and a
non-recurring interest charge of £0.24m is included within interest payable.
Group pre tax profits increased by 41% to £0.84m (£0.59m in 2003).
Adjusted diluted earnings per share, before amortisation of goodwill and
exceptional items, grew by 16% to 5.58p (4.80p in 2003), the increase was
suppressed by the lower number of shares in issues prior to admission.
We will pay a progressive dividend after consideration of other calls on cash,
such as acquisitions, earnings increasing investments and operational
requirements. Accordingly, the Board is pleased to announce the Group's first
interim dividend of 0.75p per share, which will be paid on 4 March 2005 to
shareholders on the register at the close of business on 4 February 2005.
Following admission, the Group repaid its bank loans and loan notes in full and
revised the capital structure leaving £5.2m of net debt in the new structure.
Our business is very cash generative with cash inflows from our operating
activities up by 11% to £3.0m (£2.7m in 2003) in the period. The Group's net
debt reduced from £5.2m to £3.1m at 30 November 2004 and we expect that we will
be almost debt free at the year end.
Review of business divisional performances
Along with delivering the strong results, attention has also been focused on
developing new products, services and marketing initiatives and strengthening
the management team in each division. This will allow them ultimately to
operate as autonomous businesses within the Group.
Escrow Solutions has seen a strong overall performance with a 21% growth in
turnover to £3.9m (£3.2m in 2003) and a 27% increase in operating profits to
£2.3m (£1.8m in 2003). The overall price increase, effective from November
2004, was 8%, with our customers benefiting from even better service levels and
a doubling of the limit of our liability to Escrow contracts to £1m.
Escrow Solutions is currently experiencing an agreement termination rate of 11%,
which is better than we anticipated by 1%. There are now over 10,300
beneficiaries to our Escrow agreements.
Nonetheless, recruiting high quality account managers to market, manage and sell
our Escrow Solutions is our biggest challenge and is therefore critical to our
ambitious growth plans. This has been the most difficult part of our business
in the first half of the year and recruitment to add to our existing 47 sales
staff remains a priority. It is not the Group's philosophy to compromise the
standard of employees recruited. Our rigorous HR policies and procedures will
continue to maintain that stance, so that, we will aim to employ only the
highest calibre account managers.
Later this year, we plan to launch our new and unique Copyright Protection
Escrow service. It will offer for the first time a proposition that will both
protect and ensure the security of intellectual property for both the public and
private sectors.
Testing Solutions has seen a 25% increase in turnover to £2.0m (£1.6m in 2003)
and a 14% increase in operating profits to £0.43m (£0.37m in 2003).
Verification Testing and Penetration Testing have grown substantially and it
continues to be our objective to become the market leading provider in both
areas. We have carried out a record 114 Verifications in the first half of the
year, an increase of 30%, and 133 Penetration Tests, an increase of 43%. There
has been, a small decline in levels of Specialist Testing services provided, but
it remains the standard bearer for our technical excellence in the testing
arena.
Consultancy continues to deliver the highest levels of service to our clients
and has seen a strengthening in our relationships with them, resulting in a 24%
increase in turnover to £2.6m (£2.1m in 2003.) The 6% decline in operating
profits to £0.44m (£0.47m in 2003) reflects the fact that the Information
Security consultancy is still in its start up phase. Accordingly we are
investing in it to establish a significant independent Information Security
consultancy business.
In the next six months, we anticipate that the take up of Information Security
consultancy will accelerate, as formal risk assessment processes become more
important to both the public and private sectors.
The provision of fully independent IT consultancy services, the other unit of
our Consultancy division, is even more highly valued by our customers who
benefit from having advice provided to them by individuals who are both expert
in knowledge and experience and fully independent of any provision of hardware,
software or implementation service offerings.
Current trading and outlook
These half year results represent a satisfactory start to life as a public
company following the transition from a venture capital environment. We will
continue to focus our efforts on profits and cash generation whilst making the
right investments in the infrastructure and the management team to help ensure
future growth.
The Consultancy and Testing Solutions order books have increased and now stand
at £1.6m and £1.7m respectively (up from £1.4m and £1.2m in October). The
improvement in agreement termination rates means that we now expect annual
renewals to be £5.7m in this financial year. The Board remains confident of a
strong second half to the year.
-----------
Group profit and loss account
2004 2003 2004
six months six months year
Notes ended ended ended
30 November 30 November 31 May
(unaudited) (unaudited) (audited)
£000 £000 £000
Turnover before movement in deferred income 8,925 7,336 15,316
Deferred income (412) (400) (797)
Turnover 2 8,513 6,936 14,519
Cost of sales (4,455) (3,779) (7,634)
Gross profit 4,058 3,157 6,885
Administrative expenses (2,051) (1,624) (3,584)
Operating profit before amortisation of
goodwill 2,759 2,285 4,806
Amortisation of goodwill (752) (752) (1,505)
Operating profit 2 2,007 1,533 3,301
Interest payable and similar charges (365) (990) (2,002)
Interest receivable 55 50 104
Other charges - exceptional finance costs 3 (861) - -
Net interest payable and similar charges (1,171) (940) (1,898)
Profit on ordinary activities before taxation 836 593 1,403
Tax on profit on ordinary activities (500) (413) (893)
Profit on ordinary activities after taxation 336 180 510
Dividends 4 (245) - (4)
Retained profit for the financial period 91 180 506
Earnings per share 5
Basic 1.12p 0.93p 2.61p
Diluted 1.11p 0.93p 2.61p
Adjusted earnings per share before goodwill
amortisation and exceptional items
Basic 5.61p 4.80p 10.31p
Diluted 5.58p 4.80p 10.31p
There are no recognised gains or losses in the period other than the profit for
each period.
Group balance sheet
Notes 2004 2003 2004
30 November 30 November 31 May
(unaudited) (unaudited) (audited)
£000 £000 £000 £000 £000 £000
Fixed assets
Intangible assets 26,650 28,153 27,401
Tangible assets 761 571 546
27,411 28,724 27,947
Current assets
Debtors 6 3,886 3,275 3,524
Cash at bank and in hand 2,581 3,504 4,278
6,467 6,779 7,802
Creditors: amounts falling due 7 (4,227) (4,442) (4,328)
within one year
Net current assets 2,240 2,337 3,474
Total assets less current
liabilities 29,651 31,061 31,421
Deferred income (4,428) (3,597) (4,033)
Creditors: amounts falling due
after more than one year (4,478) (27,191) (26,566)
Net assets 20,745 273 822
Capital and reserves
Called up share capital 326 98 100
Share premium account 19,824 - 219
Profit and loss account 618 199 526
Shareholders' funds 20,768 297 845
Minority interest (23) (24) (23)
20,745 273 822
Shareholders' funds analysed as
Equity 20,768 228 776
Non-equity - 69 69
10 20,768 297 845
Group cash flow statement
2004 2003 2004
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 8 3,034 2,736 5,218
Returns on investments and servicing of finance
Interest received 55 50
104
Interest paid (855) (622) (1,297)
Exceptional finance costs 3 (35) - -
Preference dividend paid
(4) - -
Net cash outflow from returns on investment and
servicing of finance (839) (572) (1,193)
Taxation
UK Corporation tax paid (284) (418) (924)
Capital expenditure and financial investment
Purchase of tangible fixed assets (367) (96) (203)
Sale of tangible fixed assets 7 50 55
Net cash outflow from capital expenditure and
financial investment (360) (46) (148)
Net cash inflow before financing 1,551 1,700 2,953
Financing
Issue of share capital 19,831 2 223
Repayment of loan notes (16,779) (1,363) (1,363)
Repayment of bank loan (12,275) (700) (1,400)
Receipt of bank loan 5,975 - -
Net cash outflow from financing (3,248) (2,061) (2,540)
(Decrease) / increase in cash for the period/year 9 (1,697) (361) 413
Notes to the interim statement
1 Basis of preparation
The interim statement comprises the unaudited consolidated accounts of NCC Group
plc for the six months ended 30 November 2004. The interim statements have been
reviewed by the auditors. The report of the auditors to the directors is set
out on page 6.
The basis of preparation and the prior year comparatives are derived from
audited financial information for The NCC Group (Holdings) Limited (renamed NCC
Group plc) and are as set out in the Annual Report for the year ended 31 May
2004.
The comparative figures for the financial year ended 31 May 2004 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 unqualified.
2 Segmental information
2004 2003 2004
30 November 30 November 31 May
£000 £000 £000
Turnover by geographical segment
UK 7,504 5,792 12,452
Rest of Europe 522 582 1,011
Rest of the World 487 562 1,056
Total turnover 8,513 6,936 14,519
Turnover by business segment
Escrow Solutions 3,902 3,217 6,721
Consultancy 2,583 2,091 4,357
Testing Solutions 2,028 1,628 3,441
Total turnover 8,513 6,936 14,519
Operating profit by business segment
Escrow Solutions 2,318 1,832 3,760
Consultancy 440 470 900
Testing Solutions 427 373 884
Segment operating profit 3,185 2,675 5,544
Head office costs (426) (390) (738)
Goodwill amortisation and exceptional items (752) (752) (1,505)
Operating profit 2,007 1,533 3,301
Net assets / (liabilities) by business
segment
Escrow Solutions (3,437) (2,868) (3,003)
Consultancy 816 462 453
Testing Solutions 123 2 150
Unallocated net assets 23,243 2,677 3,222
Total net assets 20,745 273 822
Unallocated net assets consist of goodwill, cash, tax payable and other
centrally held assets and liabilities.
3 Exceptional items
During the 6 months ended 30 November 2004, exceptional finance costs of £861K
(2003: nil) were written off to the profit and loss account when the debt
financing was repaid on 17 July 2004 following the Group's listing on AIM. Only
£35K had a cash impact in the 6 month period as the rest were paid in prior
periods.
4 Dividends
2004 2003 2004
30 November 30 November £000 31 May
£000 £000
Interim dividend (0.75p (2003: 0p) per share) 245 - -
Preferred ordinary dividend (£Nil (2003: £Nil)) - - 4
Dividends 245 - 4
5 Earnings per share
The calculation of earnings per share is based on the following:
2004 2003 2004
30 November 30 November 31 May
£000 £000 £000
Profit for the period 91 180 506
Dividends 245 - 4
Earnings used in basic and diluted
earnings per share 336 180 510
Amortisation and exceptional item net of tax 1,346 752 1,505
Adjusted Earnings used in basic and diluted 1,682 932 2,015
earnings per share
Number of Number of Number of
Shares Shares Shares
000's 000's 000's
Basic weighted average number of shares
in issue 29,987 19,415 19,545
Dilutive effect of share options 170 - -
Diluted weighted average shares in issue 30,157 19,415 19,545
6 Debtors
2004 2003 2004
30 November 30 November 31 May
£000 £000 £000
Trade debtors 2,666 2,265 2,407
Prepayments and accrued income 71 71 71
Deferred tax 1,149 939 1,046
3,886 3,275 3,524
7 Creditors: amounts falling due within one year
2004 2003 2004
30 November 30 November 31 May
£000 £000 £000
Trade creditors 308 160 365
Corporation tax 507 316 290
Other taxation and social security 759 1,317 701
Other creditors 56 60 56
Accruals 1,152 1,231 1,550
Dividends payable 245 - 4
Bank loan 1,200 1,358 1,362
4,227 4,442 4,328
8 Reconciliation of operating profit to operating cash flows
2004 2003 2004
30 November 30 November 31 May
£000 £000 £000
Operating profit 2,007 1,533 3,301
Depreciation charge 150 132 262
Amortisation of goodwill 752 752 1,505
Profit on sale of fixed assets (5) (9) (12)
Increase in debtors (362) (275) (524)
Increase in creditors 492 603
686
Cash inflow from operating activities 3,034 2,736 5,218
9 Reconciliation of net cash flow to movement in net debt
2004 2003 2004
30 November 30 November 31 May
£000 £000 £000
(Decrease) / increase in cash in the period (1,697) (361) 413
Cash outflow from movement in loans and loan 23,079 2,063 2,763
Non cash items (829) (103) (182)
Movement in net debt in the period 20,553 1,599 2,994
Net debt at beginning of period (23,650) (26,644) (26,644)
Net debt at end of period (3,097) (25,045) (23,650)
Analysis of net debt
At beginning Cashflow Non cash At end of
of items period
year
£000 £000 £000 £000
Cash in hand and at bank 4,278 (1,697) - 2,581
Loan and loan notes (27,928) 23,079 (829) (5,678)
Total (23,650) 21,382 (829) (3,097)
10 Reconciliation of movements in shareholders' funds
2004 2003 2004
30 November 30 November 31 May
£000 £000 £000
Profit for the financial period 336 180 510
Dividends (245) - (4)
91 180 506
Issue of share capital 226 2
Share premium 19,605 -
Currency translation gain / (loss) 1 (2) (1)
Net addition to shareholders' funds 19,923 180 728
Opening shareholders' funds 845 117 117
Closing shareholders' funds 20,768 297 845
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