Ncc Regulatory News (NCC)

22 Jan 2008 07:01

NCC Group PLC22 January 2008 NCC Group plc Interim profits up 42% as ethical security testing unit gains momentum andescrow business maintains good growth NCC Group plc (LSE: NCC, "NCC Group" or "the Group"), the international,independent provider of Escrow Solutions, Assurance Testing and Consultancy, hasreported its interim results for the six months to 30 November 2007. Financial highlights • Group revenue up by 42% to £16.4m (£11.5m in 2006) • Group Escrow Solutions revenue up by 15% to £8.4m • Assurance Testing revenue up by 193% to £5.8m • Consultancy revenue down by 5% to £2.1m • Group adjusted operating profits* before charges for share option schemes up 42% to £5.0m (£3.5m in 2006) • Group adjusted operating profits* up by 41% to £4.7m (£3.3m in 2006) • Group Escrow Solutions operating profits up by 26% to £4.6m • Assurance Testing operating profits up by 898% to £0.8m • Consultancy operating profits down by £73k to £0.1m (£0.2m in 2006) • Group adjusted pre tax profits* up by 41% to £4.6m (£3.3m in 2006) • Adjusted diluted earnings* per share up by 44% to 9.8p (6.8p in 2006) • Interim dividend up by 50% to 2.25p (1.5p in 2006) • Ratio of cash inflow from operating activities before interest and tax to operating profit up to 118% (108% in 2006) • Net debt of £0.2m following acquisition of Secure Test (£1.6m net funds in 2006) Operational highlights • Acquisition of SecureTest, an ethical security testing business, on 1 August 2007 for up to £4.0m - Group now largest ethical security testing team in the UK • Southern based Escrow Solutions account management team now fully operational • Discontinuance of low margin Specialist Testing, revenue of £0.3m and operating profits of £0.1m more than covered by rapid growth of other higher margin Assurance Testing operations Acquisition of Escrow Europe Holdings B.V. (see separate announcement) • Acquisition of Escrow Europe, a pan-European escrow solutions company, also announced today for a maximum consideration of up to €10.5m in cash. • Earnings enhancing acquisition will increase the Group's share of the European escrow market and substantially develops its international presence. Rob Cotton, NCC Group Chief Executive commented: "We have yet again delivered very strong growth against each of our key metricsof operating profits, renewable revenues and cash. "The mix of growth between organic and acquisitive is well balanced across theGroup to ensure that focus, direction and management control is maintained onthe growth business streams. "Our escrow businesses remain the principal and most profitable part of theGroup. However, our established Assurance business, which contains the UK'slargest ethical security testing team and our web assurance service, also nowprovides us with considerable forward visibility." Enquiries: NCC Group (www.nccgroup.com) Today 020 7457 2020Rob Cotton, Chief Executive Thereafter 0161 209 5432/5200Paul Edwards, Group Finance Director College HillAdrian Duffield/Rozi Morris 020 7457 2815/2803 * Adjusted earnings measures: A reconciliation of adjusted operating profit,profit before tax and diluted earnings per share measures to reported adoptedIFRS measures is set out in the notes. The Directors consider that the adjustedmeasures better reflect the ongoing performance of the business. Note to editors A software escrow agreement is a contract made between three parties: thesoftware vendor (the licensor), the software customer (the licensee) and anindependent third party (the escrow agent, such as NCC Group). Under the termsof the agreement, the licensor agrees to send a copy of the source code to theescrow agent and the escrow agent agrees to hold the source code securely, andto release it to the licensee only in the event of certain predefined triggerevents. These include the insolvency of the licensor or its failure to providesupport services as defined in the software license agreement. Contract - represents an escrow agreement to provide escrow services for anowner of the software on behalf of licensees who have signed to the agreement. Beneficiary - represents licensees who have signed to the contract and whoreceive the benefits of escrow as set out in the contract. Minimum annual fee - a charge is levied on the owner of the software under amultiple agreement where there are fewer than two beneficiaries to the contract.Once two or more beneficiaries are signed to the agreement the minimum fee isno longer charged. The fee is charged at the end of the year. This willdecline as it intended that beneficiaries are signed to agreements. Interim report Overview NCC Group has delivered a very good first half underpinned by solid organicgrowth in Escrow Solutions, Assurance Testing and from the acquisitions made andintegrated in the last twelve months. Overall Group revenue grew by 42% to£16.4m (£11.5m in 2006) and adjusted operating profits by 41% to £4.7m (£3.3m in2006). Excluding acquisitions and the discontinuance of Specialist Testing, theGroup's organic revenue growth was 15% and adjusted operating profits grew by21%. Adjusted fully diluted earnings per share improved 44% to 9.8p (6.8p in 2006)and the Board has approved the payment of an interim dividend of 2.25p, up by50%. The Group continues to be highly cash generative with the ratio of operatingcash before interest and tax of £4.6m being 118% of operating profit beforeinterest and tax (108% in 2006). NCC Group completed the acquisition of SecureTest, a Thame-based EthicalSecurity Testing business, for up to £4.0m on 1 August 2007. The SecureTestoperation is performing well and neatly complements the existing EthicalSecurity Testing team and now positions the Group collectively as the largestEthical Security Testing team in the UK. SecureTest has very strong brand recognition in its market and has acomplementary skill set and service offering to NCC Group's Ethical SecurityTesting Team and fits well with the Information Security Consultancy. Trading results Group revenues have increased by 42% to £16.4m (£11.5m in 2006). Organic revenuegrowth was 15%, after adjusting for the acquisitions of Site Confidence andSecureTest and the discontinuance of Specialist Testing activities whichcontributed £0.6m in 2006. Acquisitions contributed £3.6m of revenue. The table below summarises the revenue by business segment and includes year onyear growth. 2007 2006 Growth Organic Growth £000 £000Revenue by business segmentEscrow UK 7,766 6,733 15% 15%Escrow Germany 125 88 42% 42%Escrow US 516 473 9% 9%Group Escrow Solutions 8,407 7,294 15% 15%Assurance Testing 5,824 1,986 193% 42%Consultancy 2,129 2,236 (5%) (5%)Total revenue 16,360 11,516 42% 15% Group Escrow Solutions accounted for 51% of the revenue (63% in 2006). The Groupstrengthened its Assurance Testing proposition following the acquisitions in2007 and consequently its proportion of revenue has increased to 36% (17% in2006). Consultancy revenue decreased in significance, accounting for only 13%(19% in 2006) of Group revenue. Adjusted operating profits increased by 41% to £4.7m (£3.3m in 2006) while theadjusted profit before tax also increased by 41% to £4.6m (£3.3m in 2006). The table below separates out the adjustments made to obtain the adjustedoperating profit. The acquisitions contributed £0.7m of adjusted operatingprofit which resulted in organic growth of 21% year on year. Operating Operating Profit before Profit before profit profit tax tax 2007 2006 2007 2006 £000 £000 £000 £000 As per financial statements 3,905 3,234 3,699 3,211Amortisation of intangible assets 272 60 272 60Exceptional items (Official List transfer 481 - 481 -fees)Unwinding of discount - - 147 -Adjusted profits 4,658 3,294 4,599 3,271Share based charges deducted above 359 250 359 250Adjusted profit before share based charges 5,017 3,544 4,958 3,521 Group adjusted operating margins were maintained at 28.5% (28.6% in 2006). The reported tax charge for the six months ended 30 November 2007 is 34% ofprofit before tax and is based upon the expected tax charge for the year. Theincrease has arisen as a result of the impact of disallowable expenses,principally the exceptional fees of £0.5m incurred in relation to the transferto the London Exchange's Official List, which the Board has prudently treated asdisallowable in this interim report and the unwinding of the discount ondeferred consideration relating to the 2007 acquisitions of £0.2m. Adjusted fully diluted earnings per share increased 44% to 9.8p (6.8p in 2006).The table below separates out the adjustments made to obtain the adjusted fullydiluted earnings per share. 2007 2006 30 November 30 November Pence PenceDiluted earnings per shareGroup diluted earnings per share - unadjusted 7.1 6.6Amortisation of intangible assets 0.8 0.2Exceptional items 1.4 -Unwinding of discount 0.5 -Adjusted Group diluted earnings per share 9.8 6.8 The Group continues to be highly cash generative with the ratio of operatingcash before interest and tax of £4.6m being 118% of operating profit beforeinterest and tax (108% in 2006). After accounting for acquisition cash outflows of £3.4m the Group ended theperiod with £2.3m of cash. The Group continues to maintain a £10m revolvingcredit facility of which £2.5m was drawn down at the period end leaving theGroup almost net debt free with £0.2m of net debt (£1.6m net funds in 2006). Capital expenditure has increased to £0.9m (£0.3m in 2006) following thecontinued investment in IT infrastructure, the development of unutilised spacein the Manchester office and the refurbishment of the new office in Dorking. In line with NCC Group's continuing progressive dividend policy, the Board hasapproved the payment of an interim dividend of 2.25p (1.5p in 2006) an increaseof 50% on last year. This will be paid on 29 February to shareholders on theregister at the close of business on 1 February 2007 with an ex-dividend date of30 January 2007. This represents cover of 3.2 times (4.5 in 2006) based on basicearnings, and cover of 4.4 times on an adjusted basic earnings basis (4.7 in2006). Business Review Escrow Solutions Escrow UK: The Group's core operation has seen a strong performance with a 15%growth in revenue to £7.8m (£6.7m in 2006) and an 18% increase in operatingprofits to £4.5m (£3.8m in 2006). Escrow UK implemented price increases of an average of 6% for new business fromNovember 2007 and for renewals from January 2008. The business continues toexperience better than anticipated agreement and beneficiary termination rateswhich remain well below 10%. There are now 15,262 beneficiaries (14,432 in May 2007) to the 7,844 Escrowagreements (7,440 in May 2007), including 862 minimum annual fees (911 in May2007). Excluding minimum annual fees, the annualised growth rate inbeneficiaries in the period is 13%. Escrow Verification Testing continues to perform strongly delivering anotherrecord six months, with a 22% growth in revenues to £1.5m (£1.2m in 2006) in theperiod. NCC Group currently employs 88 sales account managers within its EscrowSolutions UK business, an increase from 84 at the start of the financial year.Included within this number are eight full time account managers who operatefrom additional space acquired in Dorking. The Board is confident that thisinitiative will be successful in the year and will not cause any adverse profitimpact in this financial year. Escrow Germany: As previously announced, the business has been downscaled, andon revenues of £0.1m (£0.1m in 2006) made a £4,000 profit (£0.2m loss in 2006). Escrow USA: Revenue increased 19% to $1.1m ($0.9m in 2006) with new businessgrowing by 62% to $0.4m ($0.3m in 2006). Performance continues to besatisfactory and the Group is now seeing a number of verification and testinginitiatives come to fruition. Operating profits before amortisation ofintangible assets increased by 114% to $0.3m ($0.1m in 2006). Movements in the USD/GBP exchange rate in the period to November 2007 suppressedthe GBP growth rate in revenue and operating profits before amortisation ofintangible assets to 9% and 91% respectively. However, in absolute terms theGroup's exposure to the USD is minimal. Group Escrow renewals: The rate of agreement completions, renewals andterminations have been such that the Board is forecasting UK escrow renewals tobe £9.6m for 2007/08 with worldwide renewals forecast to be £10.6m. Assurance Testing Assurance Testing encompasses Ethical Security Testing in Manchester and Dorkingand the newly acquired SecureTest operation in Thame, along with the Performanceand Load Testing business, Site Confidence, in Dorking. The division maintained the strong momentum established during the first part of2007 into the current financial year. Through a combination of strong organicgrowth and the benefits of integration, revenues increased substantially to£5.8m (£2.0m in 2006), up 193% whilst profits jumped by 898% to £0.8m (£0.1m in2006). Organic revenue growth within Ethical Security Testing was 42% (41% in 2006) andboth Site Confidence and Secure Test are on track to earn most, if not all oftheir performance based earn-out payments. The Group's Ethical Security Testing operation now boasts the largest team ofCESG Check accredited ethical security testers in the UK and from the start ofthe next financial year will be marketed under the NCC Group SecureTest brand.The acquisition provides NCC Group with even greater strength and capacity todeliver the more significant contracts for CESG, the information assurance armof the UK Government Communications Headquarters. Recent press coverage of the significant data losses by Government departmentshighlights the opportunity for substantial growth in the demand for AssuranceTesting and Information Security Consultancy. This will be particularlyamplified in the event that one of the "lost" data sets falls into the wronghands causing wide spread consumer unease and possible serious financial lossarising from identity theft. As the UK economy now loses approximately £20bn tofraud each year, this is an area of considerable focus for the Group. Site Confidence is, as expected, performing strongly under the new, dynamic,internally promoted team who took over running the business following theGroup's acquisition of the business in early 2007. The service offerings arewell placed in the market, as online retail continues to be the way forward forthe consumer and commerce alike. As reliance grows on web based transactions, so does the need for businesses tohave total confidence over their web site capability to ensure vital revenueopportunities are not missed. This brings with it an increased demand for NCCGroup's independent monitoring and performance and load testing services. Online consumer expenditure continues to grow significantly with UK annualonline sales reaching £53bn in 2007, up 75% on the previous year, with 17% ofall retail, leisure and travel spending now transacted online. This is predicted to rise to up to 50% of the £300bn annual retail spend by2018. The increase was largely fuelled by increased spending over the festiveperiod, with 4.4m UK users buying online on Christmas Day 2007 alone. At the year's online spending peak, 1.09pm on 10 December 2007, more than 138users per second were spending over £100 per person online, giving a totalonline spend of £370m just for that day. At the turn of the financial year NCC Group withdrew Specialist Testing as aservice line, as it was an inconsistent, unpredictable and low margin revenuestream that utilised some of the Group's best skilled testers at the lowest dayrates. The closure costs were minimal as most staff have been redeployedelsewhere in the Group. In the equivalent period in 2006 the business performed£0.6m of testing which equated to £1.1m for the full year. NCC Groupanticipates that 90% of this income will now be forgone. Consultancy Consultancy revenue fell £107,000 to £2.1m (£2.2m in 2006) as the Group operatedin a difficult and competitive market place. As a result of the mix of staffand a late switch from sub-contracted associate resources to employees to meetthe known demand in the second half of the year, profits fell by £73,000 to£0.1m (£0.2m in 2006). NCC Group anticipates, as in previous years, the secondhalf of the year will be stronger than the first half and similar levels ofrevenue and profitability will be achieved. The Group continues to focus on the sectors of Information Security where wehave expertise, in particular the current Payment Card Industry Data SecurityStandards and upcoming new initiatives. At present the Board estimates that 35%of Consultancy revenue is generated by Information Security projects and expectsthis to grow. Current trading and outlook NCC Group continues to promote the virtue of acting as independent trustedadvisors. The Group has successfully acquired and integrated four businessesthat have extended and complemented its service and delivery offerings.Combining this experience with the Group's track record of organic growth, NCCGroup has a sound business model that the Board will continue to evolve anddevelop in order to grow the Group further. The Group's Escrow Solutions andAssurance Testing divisions are in very good shape and are expected to continueto perform strongly throughout 2008. The Group expects to see a typically strongConsultancy performance in the second half. The Assurance Testing and Consultancy order books have increased and now standat £3.0m and £2.0m respectively (£2.7m and £1.8m in May 2007). The renewalrates for our monitoring and load testing are over 90%, giving a renewal revenueof £3.5m for this financial year for Site Confidence. The continued low agreement and beneficiary termination rates means that NCCGroup's Escrow businesses expect 2007 annual renewals to be £10.6m (projected at£10.4m in May 2007) in this financial year. Escrow Verification Testing has aforward order book of £1.5m (£1.3m in May 2007). The Board remains confident of a strong second half to the financial year withfurther opportunities to continue to develop the business in the following yearboth organically and through further potential acquisitions. Group income statement 2007 2006 2007 six months ended six months ended year ended Notes 30 November 30 November 31 May (unaudited) (unaudited) (audited) £000 £000 £000 Revenue 2 16,360 11,516 25,400Cost of sales (9,305) (6,344) (13,365)Gross profit 7,055 5,172 12,035 Administrative expenses before amortisation of (2,397) (1,878) (3,853)intangible assetsEarnings before interest, tax and amortisation 4,658 3,294 8,182Amortisation of intangible assets (272) (60) (230)Exceptional items - move to Official List 3 (481) - -Total administrative expenses (3,150) (1,938) (4,083) Operating profit 2 3,905 3,234 7,952 Financial income 58 43 109Finance expense excluding unwinding of discount (117) (66) (174)Net finance expense excluding unwinding of (59) - (65)discountUnwinding of discount effect relating to (147) - (102)deferred consideration on business combinationsFinancial expenses (264) (66) (276)Net financing costs (206) (23) (167) Profit before taxation 3,699 3,211 7,785Income tax expense 6 (1,247) (982) (2,411)Profit for the period attributable to equity 2,452 2,229 5,374holders of the parent Earnings per share 5Basic earnings per share 7.4p 6.8p 16.5pAdjusted basic earnings per share 10.2p 7.0p 17.5pFully diluted earnings per share 7.1p 6.6p 15.9pAdjusted fully diluted earnings per share 9.8p 6.8p 16.8p Group balance sheet 2007 2006 2007Notes 30 November 30 November 31 May (unaudited) (unaudited) (audited) £000 £000 £000 Non current assetsPlant and equipment 1,922 1,276 1,482Intangible assets 42,927 31,314 39,302Deferred tax assets 1,159 475 2,005Total non-current assets 46,008 33,065 42,789 Current assetsTrade and other receivables 8 9,924 5,582 7,757Cash and cash equivalents 2,253 1,590 4,377Total current assets 12,177 7,172 12,134Total assets 58,185 40,237 54,923 EquityIssued capital 335 326 326Share premium 21,417 19,929 19,929Retained earnings 14,437 9,605 13,144Currency translation reserve 49 27 39Total equity attributable to equity holders of the parent 36,238 29,887 33,438 Non current liabilitiesInterest bearing loans 2,500 - 3,500Other financial liabilities 10 100 117 3,782Deferred tax liabilities 529 - 473Total non current liabilities 3,129 117 7,755 Current liabilitiesTrade and other payables 9 4,037 2,613 3,931Other financial liabilities 10 5,331 - -Deferred revenue 9,161 6,611 8,620Current tax payable 289 1,009 1,179Total current liabilities 18,818 10,233 13,730Total liabilities 21,947 10,350 21,485Total liabilities and equity 58,185 40,237 54,923 Group cash flow statement 2007 2006 2007 six months six months year ended ended ended 30 November 30 November 31 May Notes (unaudited) (unaudited) (audited) £000 £000 £000Cash inflow from operating activitiesProfit for the period 2,452 2,229 5,374Adjustments for:Depreciation charge 455 304 688Share based charges 359 250 575Amortisation of intangible assets 272 60 230Finance expense 59 23 167Profit on sale of plant and equipment (3) - -Income tax expense 1,247 982 2,411Operating cash flow before changes in working capital 4,841 3,848 9,445Increase in receivables (1,621) (719) (1,976)Increase in payables 1,387 375 314Cash generated from operating activities before interest and 4,607 3,504 7,783taxInterest paid (116) (83) (166)Income taxes paid (1,334) (1,110) (2,449)Net cash generated from operating activities 3,157 2,311 5,168 Cash flows from investing activitiesInterest received 58 43 109Proceeds from the sale of plant and equipment 55 - 1Acquisition of plant and equipment (885) (319) (734)Acquisition of business (net of cash acquired) (3,394) (896) (3,641)Net cash used in investing activities (4,166) (1,172) (4,265) Cash flows from financing activitiesProceeds from the issue of ordinary share capital 1,497 16 16Purchase of own shares (559) - -Proceeds from borrowings - - 3,500Payment of bank loans (1,000) (3,900) (3,900)Equity dividends paid (1,063) (815) (1,304)Net cash from financing activities (1,125) (4,699) (1,688) Net (decrease) / increase in cash and cash equivalents (2,134) (3,560) (785) Cash and cash equivalents at beginning of period 4,377 5,139 5,139Effect of exchange rate fluctuations on cash held 10 11 23Cash and cash equivalents at end of period 2,253 1,590 4,377 Statement of changes of equity Share Share Retained Currency Total capital premium earnings translation Equity £000 £000 £000 £000 £000 Balance at 1 June 2006 326 19,913 7,964 15 28,218Share based charges - - 250 - 250Deferred tax on share based payments - - (23) - (23)Profit for the period - - 2,229 - 2,229Shares issued - 16 - - 16Foreign exchange translation differences - - - 12 12Dividends to shareholders - - (815) - (815)Balance at 30 November 2006 326 19,929 9,605 27 29,887 Balance at 1 June 2006 326 19,913 7,964 15 28,218Share based charges - - 575 - 575Deferred tax on share based payments - - 535 - 535Profit for the period - - 5,374 - 5,374Foreign exchange translation differences - - - 24 24Shares issued - 16 - - 16Dividends to shareholders - - (1,304) - (1,304)Balance at 31 May 2007 326 19,929 13,144 39 33,438 Balance at 1 June 2007 326 19,929 13,144 39 33,438Share based charges - - 359 - 359Deferred tax on share based payments - - 104 - 104Profit for the period - - 2,452 - 2,452Shares issued 9 1,488 - - 1,497Purchase of own shares - - (559) - (559)Foreign exchange translation differences - - - 10 10Dividends to shareholders - - (1,063) - (1,063)Balance at 30 November 2007 attributable to 335 21,417 14,437 49 36,238equity holders of the parent Notes to the interim report 1 Accounting policies Basis of preparation This condensed interim report for the six months ended 30 November 2007 has beenprepared in accordance with the Disclosure and Transparency Rules of theFinancial Services Authority and with IAS 34, "Interim Financial Reporting" asadopted by the European Union. The half yearly financial statements do notcontain all the information required for full annual financial statements andshould be read in conjunction with the annual financial statements for the yearended 31 May 2007, which have been prepared in accordance with adopted IFRSs. The financial information contained in this interim report does not amount tostatutory financial statements within the meaning of section 240 Companies Act1985. The financial information contained in this report has been prepared usingthe accounting policies applied for the year ended 31 May 2007 and is unauditedbut has been reviewed by KPMG Audit plc. The comparative figures for the financial year ended 31 May 2007 are not thecompany's statutory accounts for that financial year. Those accounts have beenreported on by the company's auditors and delivered to the registrar ofcompanies. The report of the auditors was (i) unqualified, (ii) did not includea reference to any matters to which the auditors drew attention by way ofemphasis without qualifying their report, and (iii) did not contain a statementunder section 237(2) or (3) of the Companies Act 1985. 2 Segmental information The Group is organised into three primary business segments: Escrow Solutions,Assurance Testing and Consultancy. These three segments are the Group's primaryreporting format for segment information. 2007 2006 2007 30 November 30 November 31 May £000 £000 £000Revenue by business segmentEscrow Solutions (UK) 7,766 6,733 13,790Escrow Solutions (Germany) 125 88 203Escrow Solutions (US) 516 473 1,028Total Escrow Solutions 8,407 7,294 15,021Assurance Testing 5,824 1,986 5,795Consultancy 2,129 2,236 4,584Total revenue 16,360 11,516 25,400 Operating profit by business segmentEscrow Solutions (UK) 4,479 3,794 8,182Escrow Solutions (Germany) 4 (192) (476)Escrow Solutions (US) 132 69 248Total Escrow Solutions 4,615 3,671 7,954Assurance Testing 778 78 740Consultancy 126 199 717Segment operating profit 5,519 3,948 9,411Head office costs (861) (654) (1,229)Operating profit before amortisation and exceptional 4,658 3,294 8,182itemsExceptional item - move to full list (481) - -Amortisation of intangible assets Escrow (US) (57) (60) (118)Amortisation of intangible assets Assurance Testing (215) - (112)Operating profit 3,905 3,234 7,952 2 Segmental information (continued) The table below provides additional disclosure on revenue by geographical marketwhere the customer is based 2007 2006 2007 30 November 30 November 31 May £000 £000 £000Revenue by geographical segmentUK 13,695 9,041 20,620Rest of Europe 882 979 1,756Rest of the World 1,783 1,496 3,024Total revenue 16,360 11,516 25,400 3 Exceptional Items The Group identifies separately items as "exceptional". These are items whichin the management's judgement, need to be disclosed by virtue of their size orincidence in order for the user to obtain a proper understanding of thefinancial information. Exceptional items in the six months ended 30 November 2007 were costs relatingto the move to the London Stock Exchange's Official List on 13 July 2007,£481,000 was identified as an exceptional item. 4 Dividends 2007 2006 2007 30 November 30 November 31 May £000 £000 £000 Dividends paid and recognised in the period 1,063 815 1,304Dividends proposed but not recognised in the period 755 489 1,060 Dividends per share paid and recognised in the period 3.25p 2.50p 4.00pDividends per share proposed but not recognised in the 2.25p 1.50p 3.25pperiod 5 Earnings per share 2007 2006 2007 30 November 30 November 31 May £000 £000 £000 Profit for the period 2,452 2,229 5,374Amortisation of intangible assets 272 60 230Exceptional items 481 - -Unwinding of discount 147 - 102Adjusted profit 3,352 2,289 5,706 Number of Number of Number of shares shares shares 000's 000's 000's Basic weighted average number of shares in issue 32,984 32,609 32,611Dilutive effect of share options 1,325 1,116 1,256Diluted weighted average shares in issue 34,309 33,725 33,867 6 Taxation The Group tax charge represents the estimated annual effective rate of 34% (31%in 2006) applied to the profit before tax for the period. The interim period isregarded as an integral part of the annual period and all tax liabilities aredisclosed as such. The increase has arisen due to the impact of disallowableexpenses, principally the exceptional fees of £481,000 incurred in relation tothe transfer to the London Exchange's Official List which have been treated asdisallowable in these interim reports and the unwinding of the discount of£147,000, on deferred consideration for the acquisition of Site ConfidenceLimited and SecureTest Limited. 7 Capital expenditure Additions to plant and equipment during the period ended 30 November 2007amounted to £885,000 (£319,000 in 2006). The net book value of equipmentdisposed during the period ended 30 November 2007 amounted to £51,000 (£1,000 in2006). 8 Trade and other receivables 2007 2006 2007 30 November 30 November 31 May £000 £000 £000 Trade debtors 7,816 4,084 5,792Prepayments and accrued income 2,108 1,498 1,965 9,924 5,582 7,757 9 Trade and other payables 2007 2006 2007 30 November 30 November 31 May £000 £000 £000 Trade creditors 908 218 431Non trade payables 1,114 763 963Accruals 1,985 1,621 1,512Deferred consideration on acquisition - - 996Interest 30 11 29 4,037 2,613 3,931 10 Other financial liabilities Other current liabilities £000Other current financial liabilities 31 May 2007 -Transfer from non current liabilities 3,675Provision for deferred payment - SecureTest 1,408Unwind of discount on deferred consideration payable 147Reclassification from trade and other payables - Source Harbour 101Other current financial liabilities 30 November 2007 5,331 Other non-current liabilities £000Other non-current financial liabilities 31 May 2007 3,782Transfer from non current liabilities (3,675)Unwind of the rent free period provision (7)Other non-current financial liabilities 30 November 2007 100 11 Acquisitions A. On 1 August 2007 the Group acquired 100% of the share capital of SecureTestLimited for a maximum consideration of £4.0m of which £1.5m has been withheldsubject to the achievement of performance criteria specified in the purchaseagreement. The present value of the deferred contingent consideration on 1August 2007 was £1.4m and is accounted for within other financial liabilities(note 10). The performance conditions are required to be satisfied by July2008. Acquiree's Fair value Acquisition book values Adjustments amounts £000 £000 £000Acquiree's net assets at the acquisition date:Plant and equipment 60 - 60Trade and other receivables 550 - 550Deferred tax liability - (154) (154)Cash 222 - 222Trade creditors and other liabilities (442) - (442)Intangible assets purchased - 512 512Net identifiable assets 390 358 748Goodwill on acquisition 3,384Maximum consideration to be paid including expenses 4,132Less purchase consideration withheld (1,408)Net cash outflow 2,724Cash acquired (222)Net cash outflow excluding cash acquired 2,502 Goodwill has arisen on the acquisition because the purchase price exceeds thenet fair value of the separately identifiable assets, liabilities and contingentliabilities acquired including £0.5m assigned to customer relationships andcontracts. Goodwill represents synergies, business processes and the assembledvalue of the work force including industry specific knowledge and technicalskills. From the date of acquisition SecureTest Limited contributed an operating profitbefore amortisation of intangible assets of £101,000 (nil in 2006) and revenueof £1,041,000 (nil in 2006) to the Group consolidated income statement for theperiod ended 30 November 2007. After amortisation of intangible assets,operating profits were £44,000. If the acquisition had occurred at the beginningof the financial year the actual consolidated revenue and operating profit forthe six months ended 30 November 2007 would have been approximately £16.9m and£3.9m respectively. B. On 23 January 2007, the Group acquired 97% of the share capital of SiteConfidence Limited for a maximum consideration of £9,100,000 of which £4,800,000was withheld subject to the achievement of performance criteria specified in thepurchase agreement, 100% of the share capital had been acquired by 8 March 2007.A second instalment of £892,000 was paid in June 2007 in accordance with thepurchase agreement. The remaining performance conditions are required to besatisfied by June 2008. 12 Related party transactions NCC Group's Non Executive Chairman Paul Mitchell is a director of RickittMitchell & Partners Limited and the Group conducted business to the value of£140,000 with Rickitt Mitchell & Partners Limited during the period ending 30November 2007. Included within the charge is £60,000 in relation to advicereceived in connection with the acquisition of SecureTest Limited and theremaining £30,000 relates to the services of the Non Executive Chairman.Additionally a charge of £50,000 has been incurred in relation to advicereceived in connection with the move to the London Stock Exchange's OfficialList. 13 Reconciliation of adjusted earnings to IFRS reported figures 2007 2006 2007 30 November 30 November 31 May £000 £000 £000Operating profitGroup operating profit - unadjusted 3,905 3,234 7,952Amortisation of intangible assets 272 60 230Exceptional items 481 - -Adjusted Group operating profit 4,658 3,294 8,182 2007 2006 2007 30 November 30 November 31 May £000 £000 £000Profit before taxGroup profit before tax - unadjusted 3,699 3,211 7,785Amortisation of intangible assets 272 60 230Exceptional items 481 - -Unwinding of discount 147 - 102Adjusted Group profit before tax 4,599 3,271 8,117 2007 2006 2007 30 November 30 November 31 May Pence Pence PenceDiluted earnings per shareGroup diluted earnings per share - unadjusted 7.1 6.6 15.9Amortisation of intangible assets 0.8 0.2 0.6Exceptional items 1.4 - -Unwinding of discount 0.5 - 0.3Adjusted Group diluted earnings per share 9.8 6.8 16.8 This information is provided by RNS The company news service from the London Stock Exchange