Last checked at 21 Jan 2010 07:00
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