Interim Results

RNS Number : 8866F

NCC Group PLC

21 January 2010

 



NCC Group plc

Interim profits up 19% and dividend up 17% with forward visibility remaining very strong

21 January 2010.  NCC Group plc (LSE: NCC, "NCC Group" or "the Group"), the international, independent provider of Escrow and Assurance Testing, has reported its interim results for the six months to 30 November 2009.

Highlights    

Financial Highlights

• Group revenue up 22% to £25.4m (£20.8m in 2008)

• Group adjusted operating profits* increased by 16% to £6.3m (£5.5m in 2008)

  • Group Escrow operating profits up by 9% to £6.0m

  • Assurance Testing operating profits up by 33% to £1.6m

• Group adjusted pre tax profits* up by 19% to £6.2m (£5.2m in 2008)

• Adjusted diluted earnings* per share up by 21% to 13.3p (11.0p in 2008) 

• Interim dividend up by 17% to 3.5p (3.00p in 2008)

• Ratio of cash inflow from operating activities before interest and tax to operating profit up to 127% (119% in 2008)

• Group orders and renewals now totalling £30.9m (£30.4m in October 2009) 

Operational Highlights

• Escrow UK has seen continued good growth in new contracts in spite of continued pressure on verification delivery

• Assurance Testing Division has seen strong growth as information security issues continue to become increasingly critical to all businesses

• The Group is on track to be debt free by the expiry of the current banking terms.

* 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 on page 6. The Directors consider that the adjusted measures better reflect the ongoing performance of the business.

Rob Cotton, NCC Group Chief Executive commented:

"A 19% increase in our profitability and 21% increase in earnings is a very credible performance given the overall trading environment. We also continued to generate cash strongly with both divisions showing robust growth.

"Our confidence in the future, reinforced by our strong order book and renewals, has enabled us to increase the interim dividend by 17%. We remain on course to deliver another good year."

Enquiries:

NCC Group  (www.nccgroup.com)	0161 209 5200
Rob Cotton, Chief Executive
College Hill
Adrian Duffield / Rozi Morris	020 7457 2020

  Interim management report

Overview

NCC Group has delivered another good set of results, despite the continuing bleak economic trading conditions, driven by strong organic growth from both Divisions, with the fully integrated acquisitions performing well.

For the six months to 30 November 2009, Group revenue grew by 22% to £25.4m (£20.8m in 2008) and adjusted operating profits by 16% to £6.3m (£5.5m in 2008). Excluding the two acquisitions in November 2008 and April 2009, the Group's organic revenue growth was 8% and organic adjusted operating profits grew by 13%.  

Group adjusted operating profit increased by 16% to £6.3m (£5.5m in 2008) with adjusted diluted earnings per share improving 21% to 13.3p (11.0p in 2008). The Board has increased the interim dividend by 17% to 3.50p (3.00p in 2008). 

The Group continues to be highly cash generative with the ratio of operating cash before interest and tax being 127% of operating profits (119% in 2008). 

Although not immune to the current economic environment, the Group's strategy continues to be successful. The Group has established itself as the European market leader and premier exponent of information security assurance and continues to be the world's largest software escrow provider.

The Group has seen good growth in most of its services, with many new clients and projects won across the business. The growth in revenue has been carefully managed to protect and improve margins, work rates and the Group's balance sheet strength.  

Financial review

Revenue

Group revenues have increased by 22% to £25.4m (£20.8m in 2008). Organic revenue growth was 8%, after adjusting for the acquisitions of NGS and Escrow Switzerland, which contributed £3.0m of revenue.  

The table below summarises the revenue by Division, including their key business areas.

£'000	2009 30 November	2008 30 November	2009 31 May
Revenue by business segment
Escrow (UK)	8,467	7,847	16,611
Escrow (Europe)	1,394	1,196	2,415
Escrow (US)	974	831	2,022
Total Group Escrow	10,835	9,874	21,048
Ethical Security Testing	8,240	4,930	13,542
Site Confidence	3,081	2,777	5,582
Information Security and Advisory	3,266	3,217	6,664
Total Assurance Testing	14,587	10,924	25,788
Total revenue	25,422	20,798	46,836

Group Escrow accounted for 43% of the total NCC Group revenue (48% in 2008). This change reflects the enlargement of the Assurance Testing division, which now includes the former Consultancy business renamed Information Security and Advisory.  This reflects how the Division's performance is measured for the purposes of making key resource decisions.  It now accounts for 

57% (52% in 2008) of Group revenue.  Revenues from Information Security and Advisory activities fell as expected by 11% on the equivalent period last year. 

The table below sets out Group turnover by geographical market. 

£000	2009 30 November	% of revenue	2008 30 November	% of revenue
Revenue by geographical market
UK	19,259	75.8	16,867	81.1
Rest of Europe	2,578	10.1	1,651	7.9
Rest of the World	3,585	14.1	2,280	11.0
Total revenue	25,422	100.0	20,798	100.0

Profitability

Adjusted operating profit, which is operating profit excluding amortisation of intangible assets but not share based deductions, increased by 16% to £6.3m (£5.5m in 2008).  

The table below show the adjustments made to obtain the adjusted operating profit and adjusted profit before tax.

£000	Operating profit 2009	Operating profit 2008	Profit before tax 2009	Profit before tax 2008
As per financial statements	5,594	4,947	5,429	4,680
Amortisation of intangible assets	729	508	729	508
Unwinding of discount	-	-	27	21
Adjusted profits	6,323	5,455	6,185	5,209
Share based charges deducted above	411	460	411	460
Adjusted profit before share based charges	6,734	5,915	6,596	5,669

In the traditionally slower first half of the year, Group Escrow operating margins are 55% (56% in 2008) and Assurance Testing 11% (11% in 2008). In the second half of the year these margins have historically improved.

Group adjusted pre tax profits increased by 19% to £6.2m (£5.2m in 2008). The Group's reported pre-tax profit was up 16% to £5.4m (£4.7m in 2008).  

Taxation

The reported tax charge for the six months ended 30 November 2009 is 28% of profit before tax and is based upon the expected tax charge for the year (29% in 2008).  

Earnings per share

Reported basic earnings per share increased by 17% to 11.6p (9.9p in 2008) and adjusted diluted earnings per share increased by 21% to 13.3p (11.0p in 2008).  

The table below separates out the adjustments made to obtain the adjusted diluted earnings per share.  

Pence	2009 30 November	2008 30 November
Diluted earnings per share
Group diluted earnings per share - unadjusted	11.2	9.5
Amortisation of intangible assets	2.0	1.4
Unwinding of discount	0.1	0.1
Adjusted Group diluted earnings per share	13.3	11.0

Dividends

In line with a continuing progressive dividend policy, the Board is paying an interim dividend of 3.50p (3.00p in 2008) an increase of 17% on last year. This will be paid on 26 February 2010 to shareholders on the register at the close of business on 29 January 2010 with an ex-dividend date of 27 January 2010. 

This represents cover of 3.3 times (3.2 in 2008) based on basic earnings and cover of 3.9 times on an adjusted basic earnings basis (3.8 in 2008).

Cash & funding

The Group remains committed to strong balance sheet management and advocates the basic business principles of strong profitability and quick cash conversion, whilst borrowing only for affordable value enhancing acquisitions. Accordingly operating cashflow before interest and tax, as a ratio to operating profits of £5.6m, is currently at 127% (119% in 2008).  

After accounting for deferred consideration payments of £3.6m arising from acquisitions, the Group had £8.6m (£11.9m in 2008) of net debt at the period end against facilities of £15m.  Additional deferred consideration of £0.5m will be paid in the second half of the financial year. 

It is anticipated, that without any further acquisitions the Group will be net debt free by the expiry of the banking terms. The current facility is a committed multi-option facility, for up to £13m, with an additional £2m overdraft which expires in July 2010.

Capital expenditure in the period increased to £1.5m (£0.6m in 2008) which is mainly due to the commencement of the Group wide system implementation which is expected to be completed by October 2010.

Operational review

Group Escrow 

Escrow UK:  Flat Verification Testing revenues as highlighted in the Group's IMS in October 2009, held back revenues to £8.5m (£7.8m in 2008), up 8%. Excluding Verification Testing, Escrow UK grew by 10%.  Adjusted operating profit increased by 5% to £5.2m (£4.9m in 2008).  

Escrow Verification Testing revenue, within the overall Escrow UK revenue, remained unchanged at £1.1m (£1.1m in 2008) but current projections for the second half of the financial year are very encouraging with a number of substantial projects being released for delivery. This is not a sign that the software market itself is becoming more buoyant, more it represents clients ensuring maximum protection is in place for long overdue critical upgrades that can no longer be held off.

The vast majority of verifications that are being delivered are on existing applications as users seek to get more assurance over the applications used. This is especially relevant as the Group has seen a 150% rise in Escrow releases and requests for release due to failing software owners.

As reported at the last IMS, Escrow UK deferred its price increase for at least six months. Traditionally, the month before an Escrow price increase is the biggest sales month of the year, with October new contract sales being typically 50% higher than in a normal month.  

To ensure that a buoyant sales month was replicated in 2009 and contributed as much as in previous years, for UK customers, a loyalty bonus was offered that could be used against any new agreements initiated in that month. As a result October revenues were not detrimentally affected by the price increase deferral.

Price increases will be reviewed before October 2010 but with the state of the economy, sentiment at the time will indicate if any increase is appropriate.

The underlying termination rate remains at 12%. This has been fairly static for the last 12 months with no discernable change anticipated in the short term. The primary reasons for termination remain either that the application is no longer seen as business critical or it is no longer being used.

Escrow Europe:  Revenue increased by 17% to £1.4m (£1.2m in 2008) and adjusted operating profits were £0.5m (£0.4m in 2008), an increase of 31%. This is a very positive performance from the business.  During the last six months the quality of earnings has been substantially improved and the acquisition of the small Swiss operation will provide a useful addition to the services provided across Europe.  

In January 2010 the South African franchise, one of four that the Group inherited with the acquisition of Escrow Europe, was released from the affiliate agreement it had with NCC Group. This will have a negligible impact on revenues.

Escrow USA:  Revenue increased 17% to £1.0m (£0.8m in 2008) and the business continues to develop a number of verification and testing initiatives.  Adjusted operating profits increased by 46% to £0.2m (£0.2m in 2008). 

The Group still intends to further develop the exceptional reputation NGS has in the USA by establishing a larger permanent operation alongside the Group's Escrow activities there.  

Assurance Testing 

Through a combination of strong organic growth and the benefits of the NGS integration, revenue increased substantially by 34% to £14.6m (£10.9m in 2008), of which 7% was through organic growth, whilst adjusted operating profits increased 33% to £1.6m (£1.2m in 2008).

Assurance Testing encompasses 365 Secure security accreditation and Minerva managed security monitoring service, NGS security testing and forensics, Secure Test security testing and Site Confidence web site performance monitoring.  Since 1 June 2009 the Division also includes the Group's Information Security and Advisory operation that provides predominately Information Security advice to organisations.

In the last six months the Group has seen an increase in the cross flow of work from Secure Test to NGS, as well as the provision of Secure Test staff who have the skills to complement the NGS team. This is being actively encouraged as the Group endeavours to provide clients with the appropriate solution to their security assignments. This starts with Minerva managed service offering through to full security accreditation and onto forensics.

The Assurance Testing Division continues to see strong growth from NGS and Secure Test. This has been driven by organisations facing up to the sophisticated threats and attacks, often by organised crime, to steal data or commit fraud, and in order to comply with the Payment Card Industry standards that all organisations which accept credit and debit card payments need to adopt and comply with.

The Group is also seeing good growth in its forensics and managed security service offerings. Organisations are realising that the IT security "arms race" is not being quickly won and that an 

increasingly important way to limit the damage is at least to understand what has happened and how, as well as to learn from it.  

For any organisation that has been hacked, the analysis and understanding about what took place and what information was taken, can only be accomplished by properly accredited independent security experts, who fully understand where the vulnerabilities are.

NCC Group believes that 'being hacked' must not be seen by organisations as a stigma, just a reflection of the digital and information age. Concealing the problem is counterproductive, both in the short and long term.

Site Confidence, which encompasses the web site monitoring and load testing activities, continued to show good growth as the need for high performance from web sites and in particular the ability to carry substantially higher loads on sites, grow in importance.  Revenue growth was almost 11% with over 81% of customers renewing by number and 82% by value. The rate of revenue growth and renewal has been slightly slower than expected in part due to the retailers holding back expenditure and in part due to losing a client renewal, following the closure of a web site upon it's acquisition by another of the Group's customers.  

Current trading & outlook

The last 12 months have without doubt been extremely challenging. However, the positioning of the Group away from areas of discretionary expenditure and divesting of non-core activities has ensured that the business continued to grow strongly.

The Group is now beginning to realise the benefit from effective cross selling between the two Divisions, principally to larger customers. Both Divisions promote the virtue of acting as independent trusted advisor and this best value, supplier independent strategy, is strongly endorsed by customers, as demonstrated by the very high levels of recurring revenue that are being achieved across the Group.

Growth by acquisition of earnings enhancing, high quality businesses, combined with strong organic growth, continues to be an important part of the Group's strategy. So far this year, no opportunity has met the Group's stringent criteria, but the Board expects opportunities in the UK and in the USA will be realised in due course.  

The Escrow businesses expect annual renewals to be £14.4m (£14.3m in October 2009) in this financial year setting termination rates at 12%. Escrow Verification Testing worldwide has a forward order book of £2.3m (£2.1m in October 2009).  

The Assurance Testing order books have increased and now stand at £10.5m (£10.3m in October 2009). The renewal rate for Site Confidence monitoring is 82% (90% at October 2009), giving renewal revenue of £3.7m (£3.7m in October 2009) for this financial year.

In total the Group has orders and renewals totalling £30.9m (£30.4m in October 2009) for the current financial year.

Historically the Group's revenue has been biased towards the second half of the financial year and this is expected to continue to be the case this year. The Board remains confident of a good second half to the financial year in line with current market expectations. 

Principal risks and uncertainties

The Group faces operational risks and uncertainties which the directors take reasonable steps to mitigate, however the directors recognise that such risks can never be eliminated completely. 

The principal operational risks and uncertainties the Group faces include those in relation to the recruitment of additional staff to meet the Group's ambitious growth plans, the entry of a significant competitor to threaten the Group's position in its domestic Group Escrow market, the occurrence of unforeseen difficulties in the integration of future acquisitions the Group may enter into and the dependence on key executives and senior managers.

Risk and uncertainties outside the Group's control include those relating to the implementation of changes in government policy for the procurement of IT Services and alterations to the legislative and taxation framework in which the Group operates.

Group income statement

	Notes	2009 six months ended 30 November (unaudited)	2008 six months ended 30 November (unaudited)	2009  year  ended   31 May  (audited)
		£000	£000	£000
Revenue	2	25,422	20,798	46,836
Cost of sales		(15,011)	(12,140)	(26,275)
Gross profit		10,411	8,658	20,561
Administrative expenses before amortisation of intangible assets		(4,088)	(3,203)	(7,838)
Earnings before interest, tax and amortisation		6,323	5,455	12,723
Amortisation of intangible assets		(729)	(508)	(1,237)
Total administrative expenses		(4,817)	(3,711)	(9,075)
Operating profit	2	5,594	4,947	11,486
Financial income		1	16	24
Finance expense excluding unwinding of discount		(139)	(262)	(466)
Net finance expense excluding unwinding of discount		(138)	(246)	(442)
Unwinding of discount effect relating to deferred consideration on business combinations		(27)	(21)	(177)
Financial expenses		(166)	(283)	(643)
Net financing costs		(165)	(267)	(619)
Profit before taxation		5,429	4,680	10,867
Income tax expense	5	(1,535)	(1,364)	(3,170)
Profit for the period attributable to equity holders of the parent		3,894	3,316	7,697
Earnings per share	4
Basic earnings per share		11.6p	9.9p	22.9p
Diluted earnings per share		11.2p	9.5p	22.1p

  Group balance sheet

	Notes	2009 30 November (unaudited)	2008 30 November (unaudited)	2009       31 May       (audited)
		£000	£000	£000
Non current assets
Plant and equipment		3,038	2,012	2,131
Intangible assets		58,941	60,136	60,009
Deferred tax assets		742	999	787
Total non-current assets		62,721	63,147	62,927
Current assets
Trade and other receivables	7	13,499	15,432	14,785
Cash and cash equivalents		3,543	1,763	3,356
Total current assets		17,042	17,195	18,141
Total assets		79,763	80,342	81,068
Equity
Issued capital		337	337	337
Share premium		21,700	21,630	21,630
Retained earnings		23,921	19,090	22,891
Currency translation reserve		(117)	(50)	(104)
Total equity attributable to equity holders of the parent		45,841	41,007	44,754
Non current liabilities
Interest bearing loans		-	46	8,932
Other financial liabilities		-	84	76
Deferred tax liabilities		1,432	1,375	1,588
Total non current liabilities		1,432	1,505	10,596
Current liabilities
Interest bearing loans		9,937	12,000	-
Bank overdrafts		2,227	1,655	-
Trade and other payables	8	5,996	11,384	11,317
Deferred revenue		12,306	11,555	12,406
Current tax payable		2,024	1,236	1,995
Total current liabilities		32,490	37,830	25,718
Total liabilities		33,922	39,335	36,314
Total liabilities and equity		79,763	80,342	81,068

Group cash flow statement

		2009 six months ended 30 November (unaudited)	2008 six months ended 30 November (unaudited)	2009 year  ended 31 May (audited)
		£000	£000	£000
Cash inflow from operating activities
Profit for the period		3,894	3,316	7,697
Adjustments for:
Depreciation charge		591	624	1,283
Share based charges		411	460	1,031
Amortisation of intangible assets		729	508	1,237
Finance expense		166	246	619
Profit on sale of plant and equipment		(16)	(3)	(1)
Income tax expense		1,535	1,364	3,170
Operating cash flow before changes in working capital		7,310	6,515	15,036
Decrease/ (increase) in receivables		1,293	(1,503)	(866)
(Decrease) / increase in payables		(1,510)	886	1,955
Cash generated from operating activities before interest and tax		7,093	5,898	16,125
Interest paid		(139)	(265)	(468)
Income taxes paid		(1,708)	(625)	(1,772)
Net cash generated from operating activities		5,246	5,008	13,885
Cash flows from investing activities
Interest received		1	16	25
Proceeds from the sale of plant and equipment		-	17	-
Acquisition of plant and equipment		(1,484)	(598)	(1,409)
Acquisition of business (net of cash acquired)		(3,648)	(10,746)	(11,358)
Net cash used in investing activities		(5,131)	(11,311)	(12,742)
Cash flows from financing activities
Proceeds from the issue of ordinary share capital		70	94	94
Purchase of own shares		(1,108)	(658)	(656)
Proceeds from borrowings		1,000	8,500	4,412
Payment of bank loans		-	(1,008)	(56)
Equity dividends paid		(2,104)	(1,597)	(2,607)
Net cash from financing activities		(2,142)	5,331	1,187
Net decrease in cash and cash equivalents		(2,027)	(972)	2,330
Cash and cash equivalents at beginning of period		3,356	1,142	1,142
Effect of exchange rate fluctuations on cash held		(13)	(62)	(116)
Cash and cash equivalents at end of period		1,316	108	3,356

Group statement of changes of equity

	Share capital	Share premium		Translation reserve	Retained earnings	Total
	£000	£000		£000	£000	£000
Balance at 1 June 2008	336	21,537		12	17,569	39,454
Profit for the period	-	-		-	3,316	3,316
Foreign exchange translation differences	-	-		(62)	-	(62)
Total comprehensive income for the period	-	-		(62)	3,316	3,254
Transactions with owners recorded directly in equity
Dividends to equity shareholders	-	-		-	(1,597)	(1,597)
Share based payment transactions	-	-		-	460	460
Shares issued	1	93		-	-	94
Purchase of own shares	-	-		-	(658)	(658)
Total contributions by and distributions to owners	1	93		-	(1,795)	(1,701)
Balance at 30 November 2008	337	21,630		(50)	19,090	41,007
	Share capital	Share premium		Translation reserve	Retained earnings	Total
	£000	£000		£000	£000	£000
Balance at 1 June 2008	336	21,537		12	17,569	39,454
Profit for the period	-	-		-	7,697	7,697
Foreign currency translation differences	-	-		(116)	-	(116)
Total comprehensive income for the period	-	-		(116)	7,697	7,581
Transactions with owners recorded directly in equity
Dividends to equity shareholders	-	-		-	(2,607)	(2,607)
Share based payment transactions	-	-		-	1,031	1,031
Deferred tax on share based payments	-	-		-	(143)	(143)
Shares issued	1	93		-	-	94
Purchase of own shares	-	-		-	(656)	(656)
Total contributions by and distributions to owners	1	93		-	(2,375)	(2,281)
Balance at 31 May 2009	337	21,630		(104)	22,891	44,754
	Share capital	Share premium	Translation reserve		Retained earnings	Total
	£000	£000	£000		£000	£000
Balance at 1 June 2009	337	21,630	(104)		22,891	44,754
Profit for the period	-	-	-		3,894	3,894
Foreign currency translation differences	-	-	(13)		-	(13)
Total comprehensive income for the period	-	-	(13)		3,894	3,881
Transactions with owners recorded directly in equity
Dividends to equity shareholders	-	-	-		(2,104)	(2,104)
Share based payment transactions	-	-	-		411	411
Deferred tax on share based payments	-	-	-		(63)	(63)
Shares issued	-	70	-			70
Purchase of own shares	-	-	-		(1,108)	(1,108)
Total contributions by and distributions to owners	-	70	-		(2,864)	(2,794)
Balance at 30 November 2009	337	21,700	(117)		23,921	45,841

Notes to the interim report

1 Accounting policies

Basis of preparation

This interim report for the six months ended 30 November 2009 has been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted by the EU. They 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 2009.

As required by the Disclosure and Transparency Rules of the Financial Services Authority the financial information contained in this report has been prepared using the accounting policies applied for the year ended 31 May 2009 with the exceptions described below under 'Changes in accounting policy'. The interim report is unaudited but has been reviewed by KPMG Audit Plc. 

The comparative figures for the financial year ended 31 May 2009 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 498(2) or (3) of the Companies Act 2006.

Going concern

The Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months, from the date of this report. For this reason, they continue to adopt the going concern basis in preparing the Interim Report.

Changes in accounting policy

IAS 1 (revised 2007) 'Presentation of Financial Statements' is mandatory for accounting periods beginning on or after 1 January 2009. The statement requires the presentation of a statement of changes in equity as a primary statement, separate from the income statement and statement of comprehensive income, which has replaced the statement of recognised income and expense. As a result, a condensed consolidated statement of changes in equity has been included in the primary statements, showing changes in each component of equity for each period presented. Comparative information has been re-presented so that it is in conformity with the revised standard. The Group has adopted the revised standard; there is no impact upon the financial statements other than presentation.

Determination and presentation of operating segments

As of 1 June 2009 the Group determines and presents operating segments based on the information that is provided to the CEO, who is the Group's chief operating decision maker in order to assess performance and to allocate resources. This change in accounting policy is due to the adoption of IFRS 8 Operating Segments. Previously operating segments were determined and presented in accordance with IAS 14 Segment Reporting. Comparative segment information has been re-presented in conformity with the transitional requirements of IFRS 8. There is no impact of this change in accounting policy other than presentation.

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. An operating segment's results are reviewed regularly by the CEO to make decisions about resources to be allocated to the segment and to assess its performance.

For the year ended 31 May 2009, the Group had three reportable segments Group Escrow, Assurance Testing and Consultancy. The board has reviewed the requirements of IFRS 8 and concluded that from 1 June 2009, the Group has two reportable segments only Group Escrow and Assurance Testing. The results of the segment formerly reported separately as Consultancy is now included within the Assurance Testing segment on the basis that decisions on the allocation of resources are made at the Assurance Testing Divisional level. Group Escrow and Assurance Testing are the Group's strategic business units offering different services and they are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the CEO reviews internal management reports on at least a quarterly basis. 

Note 2 to the interim report shows the segmental analysis of the Group's two business units of Group Escrow and Assurance Testing. Additionally an analysis of the geographic origin of Group Escrow and Assurance Testing  segments revenue is reported to provide extra information. This is consistent with both the basis of internal reporting and the allocation of responsibilities within the senior management team. Whilst performance is managed and monitored on a geographic basis for Group Escrow and on a business level for Assurance Testing, each Division has its own Managing Director and all decisions over the allocation of resources are made at the Divisional level.

2 Segmental information

The Group is organised into two reportable segments Group Escrow and Assurance Testing. These two segments are the Group's primary reporting format for segment information. 

	2009 30 November	2008 30 November	2009 31 May
	£000	£000	£000
Revenue by business market
Escrow (UK)	8,467	7,847	16,611
Escrow (Europe)	1,394	1,196	2,415
Escrow (US)	974	831	2,022
Total Group Escrow	10,835	9,874	21,048
Ethical Security Testing	8,240	4,930	13,542
Site Confidence	3,081	2,777	5,582
Information Security and Advisory	3,266	3,217	6,664
Total Assurance Testing	14,587	10,924	25,788
Total revenue	25,422	20,798	46,836
Operating profit by business segment
Group Escrow	5,981	5,509	11,652
Assurance Testing	1,587	1,190	3,558
Segment operating profit	7,568	6,699	15,210
Head office costs	(1,245)	(1,244)	(2,487)
Operating profit before amortisation and exceptional items	6,323	5,455	12,723
Amortisation of intangible assets Group Escrow	(284)	(265)	(543)
Amortisation of intangible assets Assurance Testing	(445)	(243)	(694)
Operating profit	5,594	4,947	11,486

The table below provides additional disclosure on revenue by geographical market where the customer is based

	2009 30 November	2008 30 November	2009 31 May
	£000	£000	£000
Revenue by geographical segment
UK	19,259	16,867	36,648
Rest of Europe	2,578	1,651	4,604
Rest of the World	3,585	2,280	5,584
Total revenue	25,422	20,798	46,836

3 Dividends

	2009 30 November £000	2008 30 November £000	2009 31 May  £000
Dividends paid and recognised in the period	2,104	1,597	2,607
Dividends proposed but not recognised in the period	1,179	1,010	2,104
Dividends per share paid and recognised in the period	6.25p	4.75p	7.75p
Dividends per share proposed but not recognised in the period	3.50p	3.00p	6.25p

4 Earnings per share

The calculation of earnings per share is based on the following:

	2009 30 November	2008 30 November	2009 31 May
	£000	£000	£000
Profit for the period used for earnings per share	3,894	3,316	7,697
Amortisation of intangible assets	729	508	1,237
Unwinding of discount	27	21	177
Adjusted profit used for adjusted earnings per share	4,650	3,845	9,111
	Number of  shares 000's	Number of  shares 000's	Number of  shares 000's
Basic weighted average number of shares in issue	33,682	33,653	33,653
Dilutive effect of share options	1,228	1,329	1,211
Diluted weighted average shares in issue	34,910	34,982	34,864

5 Taxation

The Group tax charge represents the estimated annual effective rate of 28% (29% in 2008) 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. 

6 Capital expenditure

Additions to plant and equipment during the period ended 30 November 2009 amounted to £1,484,000 (£598,000 in 2008). This increase is due to the progressing implementation of SAP expected to complete in October 2010. The net book value of equipment disposed during the period ended 30 November 2009 amounted to £44,000 (£14,000 in 2008).

7 Trade and other receivables 

	2009 30 November £000	2008 30 November £000	2009 31 May  £000
Trade debtors	9,225	10,822	11,193
Prepayments and accrued income	4,274	4,610	3,592
	13,499	15,432	14,785

8 Trade and other payables

	2009 30 November £000	2008 30 November £000	2009 31 May  £000
Trade creditors	630	845	1,217
Non trade payables	1,430	2,048	1,807
Accruals	3,264	3,595	3,751
Deferred consideration on acquisitions	670	4,895	4,539
Interest	2	1	3
	5,996	11,384	11,317

9 Acquisitions

During the period, £3,462,000 was paid in relation to the settlement of deferred contingent consideration arising from the acquisitions of Site Confidence Limited, Next Generation Security Software Limited, Escrow Europe B.V and Escrow Europe (Switzerland)A.G.

10 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 £55,000 with Rickitt Mitchell & Partners Limited during the period ending 30 November 2009. Included within the charge is £25,000 in relation to corporate finance advice and the remaining £30,000 relates to the services of the Non Executive Chairman. 

Responsibility statement of the Directors in respect of the interim report

We confirm that to the best of our knowledge:

• The condensed set of financial statements has been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted by the EU;

• The interim management report includes a fair review of the information required by:
  

(a)    DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b)    DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period and any changes in the related party transactions described in the last annual report that could do so.

Rob Cotton                 

Chief Executive            

On behalf of the Board

20 January 2010

 

END

 

 

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