NCC GROUP PLC

Earnings Release • Jan 16, 2014

National Storage Mechanism | Additional information

You don't have Javascript enabled. For full functionality this page requires javascript to be enabled.

RNS Number : 7777X

NCC Group PLC

16 January 2014

16 January 2014

NCC Group

Strong revenue growth across the Group drives earnings and dividend up 16%

NCC Group plc (LSE: NCC), the international, independent provider of Escrow and Assurance, has reported its half year results for the six months to 30 November 2013.

Highlights 

Financial

·      Group revenue increased 12% to £54.0m (£48.1m in 2012), organic growth 11% (9% in 2012)

o  Escrow revenue growth 7% (3% in 2012), organic growth 7% (3% in 2012)

o  Assurance revenue growth up 15% (18% in 2012), organic growth 13% (11% in 2012)

o  International revenue now 39% of total Group revenue (35% in 2012)

·      Reported operating profit increased by 43% to £11.6m (£8.1m in 2012)

·      Group adjusted pre-tax profits* increased to £11.4m (£10.9m in 2012)

·      Adjusted fully diluted earnings per share** increased by 16% to 4.24p (3.67p in 2012)

·      Interim dividend** up 16% to 1.14p (0.98p in 2012)

·      Cash conversion ratio was 104%*** of operating profit (114% in 2012)

Outlook

·      Group orders and renewals up 11% totalling £51.4m (£46.5m in November 2012) for the current financial year

·      Artemis development on time and on budget

o  Two beta customers already using the testing services

o  Group entered into exclusive agreement to acquire uncontested gTLD

o  Service expected to be available from start of financial year 2014/15

* Operating profit is adjusted for amortisation of acquired intangibles, exceptional items and share based payment charges.  Pre-tax profit is adjusted for these items and the unwinding of the discount on the acquisitions' contingent consideration. 

** The comparative dividend per share and earnings per share are calculated after the five for one bonus issue of shares on the 18 December 2012.

*** The cash conversion calculation excludes the release of deferred consideration to the income statement as it is a non-trading, non cash item.

Rob Cotton, NCC Group Chief Executive, commented:

"We have seen one of the strongest first half performances for a number of years across the Group, which has resulted in double digit organic growth.  Assurance was particularly strong, reflecting the rapidly growing international cyber security markets, whilst our international revenues continue to make a larger contribution overall.

"We are becoming increasingly confident about Artemis, our project to develop a secure domain environment by operating a generic Top Level Domain (gTLD) owned by the Group.  The feedback from testing customers has been very positive.

"With orders and renewals up 11% to £51.4m and an exclusive agreement to acquire a gTLD - which will enable the Artemis service to be available from the start of the next financial year - we are confident of maintaining this strong level of organic growth."

Enquiries:

NCC Group  (www.nccgroup.com)	+44 (0)161 209 5432
Rob Cotton, Chief Executive
Atul Patel, Group Finance Director
College Hill
Adrian Duffield/Rozi Morris	+44 (0)20 7457 2020

Overview

The Group had a notably strong performance in the first half of the financial year.  Group revenue increased by 12% to £54.0m (£48.1m in 2012), 11% organic, with good growth coming from both the Escrow and Assurance divisions. 

Group adjusted operating profit, which included Artemis expenditure of £0.8m (£Nil in 2012),increased by 4% to £11.8m (£11.3m in 2012).  Excluding the Artemis investment, Group adjusted operating profits grew by 11% (6% in 2012).  Escrow operating profits grew by 8% to £8.4m (£7.7m in 2012) and Assurance by 15% to £6.3m (£5.5m in 2012).

Artemis, the division that is developing a secure domain environment by operating a generic Top Level Domain (gTLD) owned by NCC Group, has continued to make good progress in line with the Board's plans and budget.  Beta customers have been using the product set that has been developed so far and the service is being further improved from this feedback.  The Group has entered into an exclusive agreement to acquire an uncontested gTLD and now expects the service to be commercially available from the start of its next financial year 2014/15.

Group adjusted diluted earnings per share improved 16% to 4.24p (3.67p in 2012).

The Board is increasing the interim dividend by 16% to 1.14p (0.98p in 2012). 

The Group continues to be highly cash generative with the ratio of operating cash flow before interest and tax being 104% of operating profits (114% in 2012).  Net debt at the end of the period was £26.2m (£28.1m in 2012) against existing facilities of £45m.

Current trading & outlook

The Group remains focused on international risk mitigation and delivering client peace of mind, by providing a complementary range of services that has the width and depth to provide multinational clients with a total solution to their information security issues. 

The approach of all the Divisions remains unchanged: to develop the business by a combination of acquisitions of earnings enhancing, high quality businesses, with strong organic growth, all focused away from areas of discretionary expenditure.

The Escrow businesses expect annual renewals to be £18.1m (£17.7m in November 2012) in this financial year, based on termination rates at 12%.  The Escrow verification testing worldwide order book stands at £2.7m (£2.0m in November 2012). 

Assurance order books have improved to £23.8m (£20.6m in November 2012) and have £6.8m of monitoring renewals forecast for the current financial year (£6.2m in November 2012).

In total, the Group's orders and renewals for the current financial year have increased by 11% to £51.4m (£46.5m in November 2012).

The Artemis product development is on plan to deliver a safer internet service to paying customers during Q1 of the next financial year.

The Group's revenue has always been biased towards the second half of the financial year and this is expected to continue this year.  The Board remains confident of a good second half to the financial year, in line with its expectations.

Financial review

Revenue

Group revenues were £54.0m (£48.1m in 2012) with international revenue now making up 39% (35% in 2012) of total Group revenue. 

Organic revenue growth was 11%, excluding the contribution from Matasano Security LLP, which was acquired in August 2012.

Escrow accounted for 27% of NCC Group's total revenue (29% in 2012) with Assurance representing 73% (71% in 2012).  This reflects the impact of the acquisitions in the previous year as well as strong organic growth.

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

£'000's	2013 Six months ended 30 November (unaudited)	2012 Six months ended 30 November (unaudited)	% Change
Revenue by business segment
Escrow UK	10,824	10,119	7
Escrow Europe	1,634	1,560	5
Escrow USA	2,353	2,183	8
Total Escrow	14,811	13,862	7
Assurance	34,686	29,916	16
Web Performance Testing	4,502	4,273	5
Total Assurance	39,188	34,189	15
Total revenue	53,999	48,051	12

The table below provides an analysis of the Group's revenue by geographic market where the customer is based.  It highlights the significant increase in the scale of the US operations that make up almost all of the rest of the world revenue. 

£'000's	2013 Six months ended 30 November (unaudited)	2012 Six months ended 30 November (unaudited)	% Change
Revenue by geographical origin & destination
UK	33,011	31,176	6
Rest of Europe	4,066	3,329	22
Rest of the world	16,922	13,546	25
Total revenue	53,999	48,051	12

Profitability

Group adjusted operating profit, before amortisation of acquired intangible assets, exceptional items and share-based payments increased by 4% to £11.8m (£11.3m in 2012).

Group adjusted operating profit includes the £0.8m expensed in developing Artemis. Excluding these costs, Group adjusted operating profit increased by 11% to £12.6m (£11.3m in 2012).

The Group adjusted operating profit margin was 22% (24% in 2012).  The change reflects the impact of the Artemis expenditure as the Assurance margin remained firm at 16% (16% in 2012) and Escrow margin increased to 57% (56% in 2012).   

£000's	2013 Six months ended 30 November (unaudited)	2012 Six months ended 30 November (unaudited)
Operating profit by business segment
Group Escrow	8,366	7,720
Assurance Testing	6,283	5,456
Artemis	(799)	-
Segment operating profit	13,850	13,176
Head office costs	(2,066)	(1,856)
Operating profit before amortisation of acquired intangibles, charges for share based payments and exceptional items	11,784	11,320
Amortisation of acquired intangible assets Group Escrow	(355)	(492)
Amortisation of intangible assets Assurance	(925)	(1,458)
Share based payments	(605)	(470)
Operating profit before exceptional items	9,899	8,900
Exceptional items	1,685	(825)
Operating profit	11,584	8,075

	Profit before tax
	2013	2012
	£000	£000
Reported profit before tax	11,133	7,535
Amortisation of acquired intangibles	1,280	1,950
Exceptional items	(1,685)	825
Unwinding of the discount on contingent consideration	107	84
Share based payments	605	470
Adjusted profit before tax	11,440	10,864

The Group's reported pre-tax profit increased by 48% to £11.1m (£7.5m in 2012) after the inclusion of the unwinding of the discount on the acquisitions contingent consideration, amortisation of acquired intangible assets, share based payments and exceptional items as shown in Note 3.  The interest charge was £0.5m (£0.5m in 2012).

Taxation 

The tax charge for the six months ended 30 November 2013 is 22% (29% in 2012) of profit before tax.  This differs from the standard rate of UK Corporation tax for the period of 23%.  The difference relates to adjustment to the contingent consideration on the acquisitions and the treatment of Artemis expenditure.

Earnings per share

The adjusted basic earnings per share from operations increased by 16% to 4.3p (3.7p in 2012) and reported basic earnings per share from operations were 4.2p (2.6p in 2012).

The table below analyses the effect on the Group's basic earnings per share of the amortisation of acquired intangibles, unwinding of the discount on contingent consideration for acquisitions, the effect of the exceptional items and share-based payments.

			2013 Six months ended 30 November (unaudited)	2012 Six months ended 30 November (unaudited)
Basic EPS
Group earnings per share - unadjusted			4.2p	2.6p
Amortisation of acquired intangibles			0.5p	0.7p
Exceptional items			(0.6p)	0.2p
Unwinding of the discount on the contingent consideration of the acquisitions			0.0p	0.0p
Share based payments			0.2p	0.2p
Adjusted basic EPS			4.3p	3.7p

The adjusted fully diluted earnings per share from continuing operations increased 16% to 4.2p (3.7p in 2012) whilst reported fully diluted earnings per share was 4.1p (2.5p in 2012).

Dividends

In line with a continuing progressive dividend policy, the Board is paying an interim dividend of 1.14p (0.98p in 2012), an increase of 16%.  This will be paid on 21 February 2014 to shareholders on the register at the close of business on 24 January 2014, with an ex-dividend date of 22 January 2014.

This represents cover of 3.7 times (2.6 times in 2012) based on basic earnings from continuing operations and cover of 3.7 times on an adjusted basic earnings on continuing operations basis (3.8 times in 2012).    

Cash & funding

The Group remains committed to strong balance sheet management and borrowing only for affordable, value enhancing acquisitions.  Operating cash flow before interest and tax, as a ratio to operating profits, remained strong as expected at 104% (114% in 2012). The cash conversion calculation excludes the release of deferred consideration to the income statement, as it is a non-trading, non-cash item.

The Group had net debt of £26.2m (£28.1m in 2012) at the period end against facilities of £45.0m.  The first deferred consideration payment of £1.7m for Matasano will be paid during the second half of the financial year.  

No payment was due in respect of the first year of earn out for Intrepidus Group and the final year of the earn out has been settled early with a full and final payment of £0.4m due to be paid in January 2014.

Capital expenditure increased to £4.5m (£2.2m in 2012).  The Group invested £1.2m in Artemis, £1.3m in operational systems, infrastructure and product upgrades, £0.7m on the new IT system and £1.3m on tangible fixed assets.

Operational review

Group Escrow

Escrow remains the cornerstone of the Group's profitability and cash generation. All of the Escrow businesses offer substantial margins, a high degree of recurring revenue due to the contract renewal rates, as well as very strong cash conversion characteristics.

Group Escrow organic revenue increased by 7% (3% in 2012) to £14.8m (£13.9m in 2012).  Group Escrow operating profitability grew by 8% (2% in 2012) to £8.4m (£7.7m in 2012). 

Global verification revenues continued the trend seen in the last financial year and grew by 21% to £3.4m (£2.8m in 2012).  Group Escrow recurring revenues through the renewals process will grow to £18.1m this year (£17.7m in 2012).

The European and US operations now have the secure foundations and structures to deliver sustained and controlled growth.  These results reflect considerably better management control.  The Group is continuing to improve its staff retention overseas and will progressively and carefully increase headcount in these two operations. 

In November 2013 Escrow UK prices were increased in line with inflation. Price increases in mainland Europe and the US become effective in the second half of the financial year.

Escrow UK.  The first half of the financial year saw a strong performance despite being traditionally the quietest period for the division.  Overall Escrow revenue in the UK grew 7% (4% in 2012) to £10.8m (£10.1m in 2012).

The UK termination rate remains unchanged at below 12%.  The rate has been static for over the last five years, with no discernible change in the reasons for termination. 

Escrow Europe & Escrow USA.  Escrow Europe revenues were£1.6m (£1.6m in 2012).  The European team is stable and performing in line with the Group's expectations.  Further investment has been made in the Netherlands operation as its performance continues to improve. 

Escrow USA increased revenue by 8% (8% in 2012) to £2.4m in the six months, with San Francisco in particular delivering a strong performance.  Both the Group's two offices, in San Francisco and Atlanta, are fully revitalised and continued good growth is expected.

Assurance Division

Assurance revenues increased by 15% to £39.2m (£34.2m in 2012).  Excluding the acquisition of Matasano, the Division's revenue increased 13% to £36.5m (£32.2m in 2012).  Operating profits increased 15% to £6.3m (£5.5m in 2012). 

The Division remains uniquely placed to offer complete international support to multi-national organisations seeking to improve their information security. The Group now has one of the largest multi-national accredited security testing teams in the industry, with over 300 members. 

The importance of people-led security testing and advice in the global market has recently seen a spate of industry wide acquisitions taking place in both the UK and USA.  The Division expects to benefit from this consolidation process by being an acquirer of businesses.

The Group has an excellent global reputation for responsible security research, with significant amounts of time being devoted to developing security know-how, IP and technological advancement allied to a strong culture of service delivery.

The Group's responsible disclosure policy for self-funded vulnerability research has resulted in 168 new vulnerabilities being declared in the last 12 months, of which, 73 were classified as being of critical or high importance.  To date, developers and software owners have only fixed 14 of them.

The Group is also renowned for the delivery of web applications testing, vulnerability assessments and forensics, as well as being a leading provider of managed security services, all of which have seen good growth.

In all areas of Assurance, staff retention and recruitment remains the most important issue.  Ensuring the quality of work and the balance between on-site and remote testing are as important as ensuring that there is sufficient personal development provided by research time.  This, along with the Group's exemplary ethical reputation, ensures that NCC Group Assurance is a draw for talented, capable and ambitious new employees. 

The Group, despite its size, works hard to retain the boutique feel that information security professionals thrive in. All of the 16 local offices have their own culture and feel but have a deep bond with the Group's values, culture and ways of working.

Accordingly, within the security team staff churn is currently at 8%, well below the 12% that is regarded as the industry norm.  Within the Division almost 20% of employees have more than five years' service and nearly 6% of employees have more than 10 years' service.

After a period of consolidation, carefully targeted acquisitions in both existing and new emerging markets are again being considered, but, as importantly, growth will continue to be delivered organically by further recruitment of leading security experts.

The web monitoring, performance and load testing business continued to perform strongly.  It once again achieved a recurring revenue rate above 90% (90% in 2012) as businesses continue to recognise the importance of their website performance to their business prospects.

Artemis

Artemis was specifically created 18 months ago to help make the internet a safer place.  By acquiring a gTLD and offering a secure environment to selected customers, it is possible to remove many of the basic weaknesses of the internet today.  Artemis aims to provide users with peace of mind over the identity of a website by restricting third parties from gaining the rights and access to domains that are not their own. 

In addition, some of the most common cyber threats and vulnerabilities are reduced as the new Artemis service will insist on high levels of security compliance that will constantly be monitored and tested by the Group.

As previously stated, it is expected to cost £7m - £8m to develop a safe and secure gTLD.  To date the project is progressing on time and on budget. 

NCC Group expects that Artemis will be able to deliver the full service to customers from its group of 30 or so pioneers who have helped shape the service, its policies, procedures and its operation, in the next financial year.

Two customers are already benefiting from using part of the developed solution.  They will become the first "early access" paying customers once this trial is complete, after which further customers will be carefully added.

The final stage of development is to connect the back end testing engines to the front end portal and operational centres, as well as to provide different functionality around other portal service offerings.  By the end of the financial year the full secure service and customer service portals will be available.

The Group initially applied for a single gTLD, .secure, but the popularity of the service has suggested that there will be a benefit in having a set of similarly named gTLD's, all of which offer the same high levels of internet security. NCC Group has entered into an exclusive agreement to acquire an uncontested gTLD for an undisclosed sum.  The meaning of the gTLD extension is appropriate for Artemis and reflects the Group's ambition to deliver a safer internet to customers.

Amazon also applied for .secure.  The ICANN rules for resolving contentions between parties who apply for the same gTLD are now clear and subject to any last minute changes, auctions will begin in groups from April 2014.  It is expected that the auction group including .secure will take place in September 2014.  Amazon notably has over 20 other significant applications to resolve in this way. 

That the auction and allocation process will not have been completed before the end of this financial year will not in any way restrict the Group's ability to launch the Artemis project on time.  The Artemis service will be available to customers who have acquired the rights to their own gTLD or other domains that they currently operate.

To date, the Group has capitalised £2.6m of development costs for this project and expensed £1.9m of which £0.8m is in the reported period.  This relates primarily to the cost of the application, product and infrastructure design, know-how and filing of patents.  The Group expects to capitalise about £4m - £5m out of the £7m - £8m of the anticipated costs of the project with the rest expensed as operating costs.

IT Systems

Work continues with the Group's suppliers to provide a new IT solution for the entire Group including Artemis.  Parts of the Group will see the benefit of the new solution by the end of the financial year.  It is expected that the by end of 2014 the roll out to the rest of the Group will be complete.

The mediation process with Ciber UK, part of Ciber Inc. has not resulted in settlement between the parties and the Group remains committed to pursuing robustly, all reasonable and appropriate steps to receive suitable recompense from the providers.

Principal risks & uncertainties

The Group faces operational risks and uncertainties, which the Directors take all reasonable steps possible to mitigate, however the Directors recognise that they 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 occurrence of unforeseen difficulties in the integration of the current or future acquisitions the Group may enter into, the development of new business entities and the dependence on key executives and senior managers. 

There are no persons with whom the Company has contractual or other arrangements that are deemed to be essential to the Group.

Rob Cotton                                          

Chief Executive

16 January 2014

Independent Review Report To NCC Group PLC

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 November 2013 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 November 2013 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Stuart Burdass

For and on behalf of KPMG LLP

Chartered Accountants

St James' Square

Manchester

M2 6DS

16 January 2014

Group condensed income statement

	Notes	2013 six months ended 30 November (unaudited)	2012 six months ended 30 November (unaudited)	2013 year ended  31 May (audited)
		£000	£000	£000
Continuing operations
Revenue	2	53,999	48,051	99,225
Cost of sales		(35,291)	(31,161)	(63,376)
Gross profit		18,708	16,890	35,849
Administrative expenses before amortisation of acquired intangible assets, share based payments, impairment losses and exceptional items		(6,924)	(5,570)	(11,911)
Operating profit before amortisation of acquired intangibles, share based payments, impairment losses and exceptional items		11,784	11,320	23,938
Amortisation of acquired intangible assets		(1,280)	(1,950)	(3,612)
Share based payments		(605)	(470)	(760)
Exceptional items	3	1,685	(825)	261
Total administrative expenses		(7,124)	(8,815)	(16,022)
Operating profit	2	11,584	8,075	19,827
Financial income		-	-	18
Finance expense excluding unwinding of discount		(344)	(456)	(920)
Net finance expense excluding unwinding of discount		(344)	(456)	(902)
Unwinding of discount effect relating to deferred consideration on business combinations		(107)	(84)	(167)
Financial expenses		(451)	(540)	(1,087)
Net financing costs		(451)	(540)	(1,069)
Profit before taxation		11,133	7,535	18,758
Taxation	4	(2,448)	(2,213)	(4,274)
Profit for the period		8,685	5,322	14,484
Attributable to equity holders of the parent company		8,685	5,322	14,484
Earnings per share from continuing operations	5
Basic earnings per share		4.2p	2.6p*	7.0p
Diluted earnings per share		4.1p	2.5p*	6.9p

* The prior year EPS figures have been restated to reflect the five for one bonus issue of shares in December 2012 (see note 1).

Group condensed statement of comprehensive income

		2013 six months ended 30 November (unaudited)	2012 six months ended 30 November (unaudited)	2013 year ended  31 May (audited)
		£000	£000	£000
Profit for the period		8,685	5,322	14,484
Items that will not be reclassified to profit or loss		-	-	-
Items that may be reclassified subsequently to profit or loss
Foreign exchange translation differences		(1,175)	(144)	876
Total comprehensive income for the period, net of tax		7,510	5,178	15,360
Attributable to:
Equity holders of the parent		7,510	5,178	15,360

Group condensed statement of financial position

	Notes	2013 30 November (unaudited)	2012 30 November (unaudited)	2013 31 May (audited)
		£000	£000	£000
Non current assets
Intangible assets	7	104,398	103,199	105,680
Plant and equipment		5,453	5,318	5,131
Deferred tax assets		1,749	1,787	987
Total non-current assets		111,600	110,304	111,798
Current assets
Trade and other receivables	9	25,200	23,247	24,474
Cash and cash equivalents		7,527	6,192	4,589
Total current assets		32,727	29,439	29,063
Total assets		144,327	139,743	140,861
Equity
Issued capital		2,085	345	2,075
Share premium		23,551	24,790	23,086
Retained earnings		48,205	37,365	44,392
Currency translation reserve		(258)	(103)	917
Total equity attributable to equity holders of the parent		73,583	62,397	70,470
Non current liabilities
Interest bearing loans	11	33,709	-	29,852
Other financial liabilities		531	629	577
Deferred tax liability		2,115	2,021	1,048
Contingent consideration on acquisitions		-	3,916	4,765
Total non current liabilities		36,355	6,566	36,242
Current liabilities
Interest bearing loans	11	-	34,328	-
Trade and other payables	10	11,248	11,059	12,554
Contingent consideration on acquisitions		4,288	6,283	2,177
Deferred revenue		16,391	15,757	16,847
Current tax payable		2,462	3,047	2,571
Provisions		-	306	-
Total current liabilities		34,389	70,780	34,149
Total liabilities		70,744	77,346	70,391
Total liabilities and equity		144,327	139,743	140,861

Group condensed statement of cash flows

		2013 six months ended 30 November (unaudited)	2012 six months ended 30 November (unaudited)	2013 year ended 31 May (audited)
		£000	£000	£000
Cash inflow from operating activities
Profit for the period		8,685	5,322	14,484
Adjustments for:
Depreciation charge		998	969	1,964
Share based charges (net of national insurance)		465	389	690
Amortisation of intangible assets		1,435	1,950	3,929
Net financing costs		451	540	1,069
Profit on sale of plant and equipment		-	(27)	(27)
Adjustments to contingent consideration		(1,894)	-	(1,239)
Income tax expense		2,448	2,213	4,274
Cash inflow for the period before changes in working capital		12,588	11,356	25,144
Increase in trade and other receivables		(726)	(978)	(2,482)
(Decrease)/Increase in trade and other payables		(1,805)	(2,099)	289
Cash generated from operating activities before interest and tax		10,057	8,279	22,951
Interest paid		(423)	(486)	(791)
Income tax (paid)/repaid		(2,058)	65	(2,993)
Net cash generated from operating activities		7,576	7,858	19,167
Cash flows from investing activities
Interest received		23	-	18
Acquisition of plant and equipment		(1,303)	(1,192)	(1,974)
Development expenditure		(3,192)	(422)	(2,895)
Acquisition of business net of cash acquired		(378)	(7,855)	(10,455)  (
Acquisition of intangible fixed assets		-	(562)	-
Net cash used in investing activities		(4,850)	(10,031)	(15,306)
Cash flows from financing activities
Proceeds from the issue of ordinary share capital		475	268	294
Purchase of own shares		(1,048)	-	-
Draw down of borrowings		5,355	6,592	1,157
Equity dividends paid		(4,403)	(3,796)	(5,830)
Net cash from financing activities		379	3,064	(4,379)
Net Increase in cash and cash equivalents		3,105	891	(518)
Cash and cash equivalents at beginning of period		4,589	5,450	5,450
Effect of exchange rate fluctuations		(167)	(149)	(343)
Cash and cash equivalents at end of period		7,527	6,192	4,589

Group condensed statement of changes in equity

	Share capital	Share premium	Currency Translation reserve	Retained earnings	Total
	£000	£000	£000	£000	£000
Balance at 1 June 2012	343	23,244	41	36,730	60,358
Profit for the period	-	-	-	5,322	5,322
Foreign currency translation differences	-	-	(144)	-	(144)
Total comprehensive income for the period	-	-	(144)	5,322	5,178
Transactions with owners recorded directly in equity
Dividends to equity shareholders	-	-	-	(3,796)	(3,796)
Share based payment transactions	-	-	-	389	389
Shares issued	2	266	-	-	268
Purchase of own shares	-	1,280	-	(1,280)	-
Total contributions by and distributions to owners	2	1,546	-	(4,687)	(3,139)
Balance at 30 November 2012	345	24,790	(103)	37,365	62,397
Balance at 1 June 2012	343	23,244	41	36,730	60,358
Profit for the period	-	-	-	14,484	14,484
Foreign currency translation differences	-	-	876	-	876
Total comprehensive income for the period	-	-	876	14,484	15,360
Dividends to equity shareholders	-	-	-	(5,830)	(5,830)
Share bonus issue	1,729	(1,729)	-	-	-
Share based payment transactions	-	-	-	690	690
Current and deferred tax on share based payments	-	-	-	(402)	(402)
Shares issued	3	291	-	-	294
Purchase of own shares	-	1,280	-	(1,280)	-
Total contributions by and distributions to owners	1,732	(158)	-	(6,822)	(5,248)
Balance at 31 May 2013	2,075	23,086	917	44,392	70,470

Balance at 1 June 2013	2,075	23,086	917	44,392	70,470
Profit for the period	-	-	-	8,685	8,685
Foreign currency translation differences	-	-	(1,175)	-	(1,175)
Total comprehensive income for the period	-	-	(1,175)	8,685	7,510
Transactions with owners recorded directly in equity
Dividends to equity shareholders	-	-	-	(4,403)	(4,403)
Share based payment transactions	-	-	-	465	465
Current and deferred tax on share based payments	-	-	-	114	114
Shares issued	10	465	-	-	475
Purchase of own shares	-	-	-	(1,048)	(1,048)
Total contributions by and distributions to owners	10	465	-	(4,872)	(4,397)
Balance at 30 November 2013	2,085	23,551	(258)	48,205	73,583

Notes to the interim report

1 Accounting policies

Basis of preparation

This interim report for the six months ended 30 November 2013 has been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted by the EU.

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 2013 and is unaudited but has been reviewed by KPMG LLP. 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 2013.

The financial statements of the Group for the year ended 31 May 2013 are available from the Company's registered office, or from the website www.nccgroup.com.

The comparative figures for the financial year ended 31 May 2013 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.

Significant accounting policies

The accounting policies applied by the Group in these consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 May 2013.

There are no new IFRS or IFRIC interpretations, effective for the first time in this financial period, that have a material impact on the Group.

Restatement

On the 18 December 2012, NCC Group made a bonus issue of five ordinary shares for every one share held.  The consolidated income statement for the period ended 30 November 2012 has been restated to present the Group's basic earnings per share on a consistent basis.  The restatement has no impact on the Group's reported profit. 

Going concern

The Group's activities, together with the factors likely to affect its future development, performance and position are set out in the financial and operational reviews.

The Group funds its strategic acquisitions and meets its day to day working capital requirements via a revolving credit facility of £40m and an overdraft of £5m.  This facility is due for renewal in July 2016.

The Group's forecast and projections taking into account reasonably possible changes in trading performance show that the Group is able to operate within the level of this facility and as a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain external economic outlook. 

After making enquiries, the Directors have a reasonable expectation that the company and the Group have adequate resources to continue in operational existence for the foreseeable future. 

The directors therefore continue to adopt the going concern basis of accounting in preparing the interim financial statements.

NCC Group plc ("the Company") is a company incorporated in the UK.

Use of estimates and judgements

The preparation of the consolidated interim financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.  Actual results may differ from these estimates.

In preparing the consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and key sources of estimated uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 May 2013.

2 Segmental information

The Group is organised into three operating segments (2012: two) Group Escrow, Assurance Testing and Artemis each of which is separately reported.  The Directors have assessed the newly formed Artemis to be a separate operating segment from Assurance Testing as its performance will be reviewed and managed separately, will require different technology and offer a different range of services.

Whilst revenue and profitability are monitored by individual business units within these operational segments it is only at the operating level that resource allocation decisions are made.  Performance is measured based on segment profit, which comprises segment operating profit, excluding amortisation of acquired intangible assets, share based payment charges and exceptional items.  Interest and tax are not allocated to business segments and there are no intra-segment sales.

£'000	2013 Six months ended 30 November (unaudited)	2012 Six months ended 30 November (unaudited)	2013 Year ended 31 May (audited)
Revenue by business segment
Escrow UK	10,824	10,119	20,888
Escrow Europe	1,634	1,560	3,180
Escrow USA	2,353	2,183	4,449
Total Group Escrow	14,811	13,862	28,517
Assurance  Delivery	34,686	29,916	61,947
Monitoring Performance	4,502	4,273	8,761
Total Assurance Testing	39,188	34,189	70,708
Artemis	-	-	-
Total revenue	53,999	48,051	99,225

£'000	2013 Six months ended 30 November (unaudited)	2012 Six months ended 30 November (unaudited)	2013 Year ended 31 May (audited)
Operating profit by business segment
Group Escrow	8,366	7,720	16,737
Assurance Testing	6,283	5,456	12,022
Artemis	(799)	-	(1,174)
Segment operating profit	13,850	13,176	27,585
Head office costs	(2,066)	(1,856)	(3,647)
Operating profit before amortisation, share based payments and exceptional items	11,784	11,320	23,938
Amortisation of acquired intangible assets -	(355)	(492)	(712)
Group Escrow
Amortisation of acquired intangible assets -	(925)	(1,458)	(2,900)
Assurance Testing
Share based payments	(605)	(470)	(760)
Operating profit before exceptional items	9,899	8,900	19,566
Exceptional items	1,685	(825)	261
Operating profit	11,584	8,075	19,827

There are no customer contracts that account for more than 10% of segment revenue.

The table below provides an analysis of the Group's revenue by geographical market where the customer is based.

£'000	2013 Six months ended 30 November (unaudited)	2012 Six months ended 30 November (unaudited)	2013 Year ended 31 May (audited)
Revenue by geographical origin and destination
UK	33,011	31,176	63,090
Rest of Europe	4,066	3,329	7,702
Rest of the World	16,922	13,546	28,433
Total revenue	53,999	48,051	99,225

3 Exceptional items and acquisition related costs

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.

	2013 Six months ended 30 November (unaudited)	2012 Six months ended 30 November (unaudited)	2013 Year ended 31 May (audited)
Exceptional items and acquisition related costs
Legal fees	(209)	-	(372)
Remedial costs	-	-	219
Acquisition related costs	-	(825)	(825)
Revision to estimates of contingent consideration	1,894	-	1,239
Total	1,685	(825)	261

Legal fees of £0.2m (£0.4m in May 2013) are primarily in respect of legal advice received in relation to the Group's claim to recover capitalised and other costs incurred as part of the Group's IT system implementation which was terminated in May 2012.

In accordance with IFRS3, the Directors re-assessed the carrying value of contingent consideration held in respect of business acquisitions and this resulted in a £1.9m release of provisions held (£1.2m in 2012) (see note 12).

Acquisition related costs of £825,000 principally consisted of professional fees incurred in relation to the acquisitions of Matasano Security Services LLC and Intrepidus Group Inc.  in August 2012.

4 Taxation

The Group tax charge represents the estimated annual effective rate of 22% (29% in 2012) 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.

5 Earnings per share

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

£'000	2013 Six months ended 30 November (unaudited)	2012 Six months ended 30 November  (unaudited)	2013 Year ended 31 May (audited)
Profit for the period from continuing operations used for earnings per share	8,685	5,322	14,484
Amortisation of acquired intangible assets	1,280	1,950	3,612
Exceptional items	(1,685)	825	(261)
Unwinding of discount	107	84	167
Share based payments	605	470	760
Tax arising on the above items	(44)	(945)	(937)
Adjusted profit from continuing operations used for adjusted earnings per share	8,948	7,706	17,825

	Number of shares 000's	Number of shares 000's	Number of shares 000's
Basic weighted average number of shares in issue	208,385	207,288	207,303
Dilutive effect of share options	2,711	3,403	4,132
Diluted weighted average shares in issue	211,096	210,691	211,435

6 Dividends

£'000	2013 Six months ended 30 November (unaudited)	2012 Six months ended 30 November (unaudited)	2013 Year ended 31 May (audited)
Dividends paid and recognised in the period	4,403	3,796	5,830
Dividends proposed but not recognised in the period	2,376	2,038	4,400
Dividends per share paid and recognised in the Period	2,12p	1.83p	2.81p
Dividends per share proposed but not recognised in the period	1.14p	0.98p	2.12p

7 Intangible assets

	Operational systems and Software	Artemis Development costs	Customer  contracts and relationships	Goodwill	Total
	£000	£000	£000	£000	£000
Net book value:
At 1 June 2012	727	354	9,089	79,329	89,499
Acquisitions through business combinations	-	-	3,958	11,371	15,329
Other acquisitions - internally developed	562	422	-	-	984
Effects of movements in exchange rates	-	(9)	(118)	(536)	(663)
Amortisation	(179)	-	(1,771)	-	(1,950)
At 30 November 2012	1,110	767	11,158	90,164	103,199
Acquisitions through business combinations	-	-	3,958	11,371	15,329
Other acquisitions - internally developed	2,228	667	-	-	2,895
Effects of movements in exchange rates	-	23	481	1,489	1,993
Amortisation	(1,113)	-	(5,788)	(10,835)	(17,736)
At 31 May 2013	2,225	1,457	9,809	92,189	105,680
Acquisitions through business combinations	-	-	-	-	-
Other acquisitions - internally developed	1,958	1,234	-	-	3,192
Effects of movements in exchange rates	-	(105)	(532)	(2,402)	(3,039)
Amortisation	(159)	-	(1,276)	-	(1,435)
At 30 November 2013	4,024	2,586	8,001	89,787	104,398

8 Capital expenditure

Additions to plant and equipment during the period ended 30 November 2013 amounted to £1,303,000 (£1,192,000 in 2012) and depreciation charged in the period amounted to £998,000 (£969,000 in 2012).

9 Trade and other receivables

£'000	2013 Six months ended 30 November (unaudited)	2012 Six months ended 30 November (unaudited)	2013 Year ended 31 May (audited)
Trade debtors	16,277	15,607	16,598
Prepayments and accrued income	8,923	7,640	7,876
	25,200	23,247	24,474

10 Trade and other payables

£'000	2013 Six months ended 30 November (unaudited)	2012 Six months ended 30 November (unaudited)	2013 Year ended 31 May (audited)
Trade creditors	2,630	2,203	2,944
Non trade payables	2,589	3,203	4,251
Accruals	6,029	5,653	5,359
	11,248	11,059	12,554

11 Interest bearing loans

£'000	2013 Six months ended 30 November (unaudited)	2012 Six months ended 30 November (unaudited)	2013 Year ended 31 May (audited)
Secured bank loan	33,709	34,328	29,852
	33,709	34,328	29,852
Analysed as:
Current	-	34,328	-
Non current	33,709	-	29,852
	33,709	34,328	29,852

As at 30 November 2013, the Group had a multi-currency revolving credit facility of £40m (£35m in 2012).  The effective interest payable on drawn down funds as at 30 November 2013 was 1.6% above LIBOR (2.0% in November 2012).  This facility is due for renewal in July 2016.

12 Acquisitions

Matasano Security LLC

On 1 August 2012 the Group acquired 100% of the partnership interests of Matasano Security LLC for a maximum consideration of £8.1m, of which up to a maximum of £4.1m has been withheld subject to the achievement of performance criteria specified in the purchase agreement.  The performance conditions are required to be satisfied by 31 July 2013 and 31 July 2014.  The contingent consideration is to be paid in December 2013 and November 2014.

The fair value of the contingent consideration at the acquisition date was £3.9m, this value is still considered appropriate and is based on the present value of future cashflows.  Management expect the full amount to be payable based on Matasano's predicted performance.

Intrepidus Group, Inc. 

During the period £0.4m has been paid which relates to part of the initial consideration that was deferred for one year.

As at 30 November 2013 the fair value of the contingent consideration was decreased to £0.4m from £2.4m as at 31 May 2013 to reflect the agreed amount that will be paid in final settlement of the agreement. The fair value adjustment has been recognised within exceptional administration expenses (see note 3).

During the year ended 31 May 2013, as a result of the acquisitions noted above, total acquisition related costs of £825,000 were incurred (see note 3).

14 Related party transactions

The Group's key management personnel comprise the Directors of the Group.

NCC Group's Non Executive Chairman Paul Mitchell is a director of Rickitt Mitchell & Partners Limited (Rickitt Mitchell) with whom the Group conducted business to the value of £57,500 (£262,500 in 2012).  Rickitt Mitchell provides the services of the Non Executive Chairman and an outsourced acquisition service, which facilitates the delivery of acquisition targets, which have been identified and approved by the Board. 

Rickitt Mitchell hold 7,000 1.0p ordinary shares (7,000 in 2012).

Responsibility statement of the Directors in respect of the interim report

We confirm that to the best of our knowledge:

-      The condensed set of consolidated 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

16 January 2014

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR UVVWRSOAAAAR