TIDMNCC
RNS Number : 5483U
NCC Group PLC
19 January 2017
19 January 2017
NCC Group plc
Solid growth in revenue & adjusted EBITDA despite H1
contract disappointments - clear opportunities for growth in
advance of 2018 General Data Protection Regulation introduction
NCC Group plc (LSE: NCC, "NCC Group" or "the Group"), the
independent global cyber security and risk mitigation expert, has
reported its half year results for the six months to 30 November
2016.
Highlights
o Group revenues increased by 35% (November 2015: 50%) to
GBP125.8m (November 2015: GBP93.5m). Organic growth of 18%
(November 2015: 17%)
o Assurance Division revenue increased by 42% (November 2015:
57%) to GBP104.8m (November 2015: GBP73.8m) - organic growth 21%
(November 2015: 17%)
o Escrow Division revenue increased by 14% (November 2015: 7%)
to GBP18.7m (November 2015: GBP16.4m)
o Group adjusted EBITDA* increased by 15% to GBP21.3m (November
2015: GBP18.5m)
o Assurance Division EBITDA increased by 18% to GBP13.1m (November 2015: GBP11.1m)
o Escrow Division EBITDA increased by 14% to GBP10.6m (November 2015: GBP9.3m)
o Group adjusted profit before tax** increased by 5% to GBP16.7m
(November 2015: GBP15.9m)
o Group profit before tax was GBP7.4m (November 2015:
GBP7.5m)
o Adjusted fully diluted earnings per share^ 4.6p (5.0p in
2015)
o Interim dividend maintained at 1.50p (1.50p in 2015)
o Three large unrelated contract cancellations in quick
succession and one deferral in the Assurance division impacted rate
of growth
o Acquisitions of North American Payment Software Company in
September 2016 and Virtual Security Research in November 2016
Board change
o Paul Mitchell, the Chairman, has notified the Board that he
intends to step down on 31 May 2017 - see separate release.
Outlook
o Adjusted EBITDA* for full year to 31 May 2017 expected to be
in the range of GBP45.5m to GBP47.5m - showing growth of up to 5%
year on year
o H1:H2 adjusted EBITDA* expected split will be approximately
46%:54% based on the midpoint of GBP46.5m
o Orders and renewals up 49% totalling GBP112.8m (November 2015:
GBP75.7m) for the current financial year
* Adjusted EBITDA is adjusted operating profit as defined at ***
below, excluding depreciation and amortisation of software and
development costs
** Adjusted profit before tax excludes exceptional items, the
loss incurred by Domain Services, share based payments, unwinding
of discount on deferred consideration and amortisation of acquired
intangible assets.
*** Adjusted operating profit excludes exceptional items, the
loss incurred by Domain Services, share based payments, unwinding
of discount on deferred consideration and amortisation of acquired
intangible assets.
^ Adjusted full diluted earnings per share is as calculated on
page 25.
Rob Cotton, Group Chief Executive, commented:
"We have continued to see strong organic growth across the
business, particularly in Assurance, albeit that earlier contract
cancellations were disappointing. Our EBITDA has increased by 15%
and we are maintaining our interim dividend at 1.50p - a clear
indication of our confidence in our growth prospects for this year
and beyond.
"With our global reach and increased product range, we are in a
prime position to help organisations as they tackle compliance with
the General Data Protection Regulation (GDPR) ahead of 25 May
2018.
"GDPR preparation should already be well underway but many
organisations still believe that preparing for GDPR sits with the
IT department and the legal team. In our view, it belongs with the
Board."
Enquiries:
+44 (0)161 209
NCC Group (www.nccgroup.trust) 5432
Rob Cotton, Chief Executive
Instinctif Partners
Adrian Duffield/Lauren +44 (0)20 7457
Foster 2020
Overview
Group revenue increased by 35% to GBP125.8m (November 2015:
GBP93.5m), with strong growth coming from both the Assurance and
Escrow divisions.
Organic growth across the Group was 18% excluding the recent
acquisitions of Fox-IT in November 2015, Payment Software Company
Inc. ("PSC") in September 2016 and Virtual Security Research LLC
("VSR") in November 2016.
International revenue, which is mostly derived from the US, grew
strongly by 89% to GBP64.2m. Following the acquisition of Fox-IT,
PSC and VSR, international revenue now represents 51% (November
2015: 36%) of total Group revenue.
Group adjusted EBITDA increased by 15% to GBP21.3m (November
2015: 18% and GBP18.5m). As previously announced, three large
unrelated contract cancellations in quick succession and one
deferral in the Assurance division reduced the Group's rate of
growth in the current financial year.
Assurance EBITDA grew by 18% to GBP13.1m (November 2015:
GBP11.1m) and Escrow EBITDA grew by 14% to GBP10.6m (November 2015:
GBP9.3m).
Group adjusted fully diluted earnings per share was 4.6p
(November 2015: 5.0p).
The Group continues to be highly cash generative with the ratio
of operating cash flow before interest and tax being 103% of
operating profits (November 2015: 116%) after adjusting for
exceptional items.
Net debt at the end of the period was, as expected, down to
GBP48.8m (November 2015: GBP73.1m) against available facilities of
GBP112.5m.
The Board is continuing with its dividend policy and is
maintaining the interim dividend at 1.50p (November 2015:
1.50p).
Current trading & outlook
The outlook for NCC Group remains positive, especially with the
market backdrop of ever-increasing high profile cyber security
breaches as well as an increasing awareness and involvement by
governments and regulators.
The Group remains focused on delivering client peace of mind and
risk mitigation. It provides a complementary range of services with
the breadth and depth to provide multinational clients with a total
solution to their cyber security issues and needs.
The approach across both Divisions remains unchanged, to develop
the business by a combination of acquisitions of earnings
enhancing, high quality businesses and strong organic growth, all
focused away from areas of discretionary expenditure.
Assurance order books have improved to GBP56.5m (November 2015:
GBP41.0m) with GBP32.3m of managed services and monitoring renewals
forecast for the current financial year (November 2015:
GBP13.1m).
The Escrow business expects annual renewals to be GBP21.3m
(November 2015: GBP19.3m) in this financial year, based on
termination rates at 11%. The Escrow verification testing worldwide
order book stands at GBP2.8m (November 2015: GBP2.3m).
In total, the Group's orders and renewals for the current
financial year have increased by 49% to GBP112.8m (November 2015:
GBP75.7m).
The Group continues to expect adjusted EBITDA for the year to 31
May 2017 to be in the range of GBP45.5m to GBP47.5m, which will see
a growth in the range of up to 5% year on year. The H1:H2 adjusted
EBITDA expected split will be approximately 46%:54% at the midpoint
of the range.
Despite the disappointments of the first half of the year, the
Group continued to trade well. The Board remains confident of a
typically strong second half performance in the current financial
year.
Financial review
Revenue
Group revenue was GBP125.8m (November 2015: GBP93.5m) with
international revenues now making up 51% (November 2015: 36%) of
total revenue.
Escrow accounted for 15% of NCC Group's total revenue (November
2015: 18%) with Assurance representing 83% (November 2015:
79%).
The movements in the global currency markets had a positive
impact on the Group. On a constant currency basis, Group revenue
would have increased by 28%.
The table below summarises revenue by division, including their
key business areas.
2016 2015 %
Six months Six months Change
ended ended
30 November 30 November
GBPm GBPm
Revenue by business
segment
Escrow UK 12.8 12.1 6
Escrow Europe 1.9 1.6 19
Escrow USA 4.0 2.8 43
Total Escrow 18.7 16.5 14
Security Consulting 90.5 59.6 52
Web Performance and
Software Testing 14.3 14.1 1
Total Assurance 104.8 73.7 42
------------ ------------ -------
Domain Services (sold
on 4 Jan 2017) 2.3 3.3 (30)
------------ ------------ -------
Total revenue 125.8 93.5 35
------------ ------------ -------
The table below provides a geographical analysis of the Group's
revenue based on where the customer is located. It highlights the
significant increase in the scale of the US operations that make up
the majority of the rest of the world revenue.
2016 2015 %
Six months Six months Change
ended ended
30 November 30 November
GBPm GBPm
Revenue by geographical
destination
UK 61.6 59.4 3
Rest of Europe 24.0 8.8 174
Rest of the World 40.2 25.3 59
------------------------ ------------ ------------ -------
Total revenue 125.8 93.5 35
------------------------ ------------ ------------ -------
Profitability
Group adjusted EBITDA increased by 15% to GBP21.3m (November
2015: 18% and GBP18.5m) Depreciation was GBP2.5m (November 2015:
GBP1.6m), and amortisation of software and development costs was
GBP1.6m (November 2015: GBP0.5m). Interest charged was GBP0.6m
(November 2015: GBP0.8m), and amortisation of acquired intangible
assets was GBP5.1m (November 2015: GBP2.3m).
The adjustments include the transaction costs of the
acquisitions of GBP0.6m and the losses incurred in Domain Services
of GBP0.2m (November 2015: GBP1.0m) as the winding down process of
that division completed.
Group adjusted EBITDA margin was 17% (November 2015: 20%). This
is lower as a result of the impact of the investment made in
Assurance and the adverse trading experienced in the first half of
the year.
Assurance and Escrow adjusted EBITDA margins were 13% (November
2015: 15%) and 57% (November 2015: 56%) respectively.
Assurance and Escrow adjusted operating margins were 10%
(November 2015: 14%) and 55% (November 2015: 56%) respectively.
2016 2015 2016
Six months Six months Year ended
ended ended 31 May
30 November 30 November
GBPm GBPm GBPm
Analysis of EBITDA by
division
Escrow 10.6 9.2 20.5
Assurance 13.1 11.1 29.0
Head office costs (2.4) (1.8) (4.6)
----------------------------- ------------ ------------ -----------
Group adjusted EBITDA
excl Domain Services 21.3 18.5 44.9
----------------------------- ------------ ------------ -----------
Domain Services - (0.7) (1.2)
----------------------------- ------------ ------------ -----------
Group adjusted EBITDA 21.3 17.8 43.7
Depreciation & amortisation
of software and development
costs
- Escrow
- Assurance (0.2) (0.1) (0.5)
- Domain Services (2.9) (0.7) (3.2)
- (0.3) (0.5)
- Head office costs (0.9) (1.0) (1.1)
----------------------------- ------------ ------------ -----------
Operating profit before
amortisation of acquired
intangibles, share based
payments and exceptional
items 17.3 15.7 38.4
Amortisation of acquired
intangible assets
- Escrow (0.4) (0.3) (0.7)
- Assurance (4.4) (1.7) (5.6)
- Domain Services (0.3) (0.2) (0.5)
Share based payments (0.5) (0.7) (1.2)
Operating profit before
exceptional items 11.7 12.8 30.4
Exceptional items (3.4) (4.2) (18.9)
----------------------------- ------------ ------------ -----------
Operating profit 8.3 8.6 11.5
----------------------------- ------------ ------------ -----------
Net financing costs (0.9) (1.1) (2.1)
----------------------------- ------------ ------------ -----------
Profit before tax 7.4 7.5 9.4
----------------------------- ------------ ------------ -----------
Exceptional items
The exceptional items are as follows:
2016 2015 2016
Six months Six months Year ended
ended ended 31 May
30 November 30 November GBPm
GBPm GBPm
Exceptional items
Losses made during wind
down and sale of Domain (0.2) - -
Services
Acquisition related costs (0.6) (2.6) (2.3)
Revision to estimates
of deferred and contingent
consideration (2.6) 3.0 4.8
Development intangible
asset write down - (4.1) (6.9)
Restructuring costs (0.0) (0.5) (2.6)
Goodwill impairment - - (11.9)
Total (3.4) (4.2) (18.9)
---------------------------- ------------ ------------ -----------
Following the Group's decision to withdraw from the Domain
Services market at the end of the last financial year, the
remaining assets, the Open Registry group of companies, incurred
losses of GBP0.2m (November 2015: loss GBP1.0m) on revenues of
GBP2.3m (November 2015: GBP3.3m).
On 4 January 2017, the Group announced the sale of the Open
Registry group of companies, for a total consideration of GBP3.2m
(EUR3.75m) subject to normal closing adjustments and settlement of
the related intercompany debt of GBP120k (EUR140k). The cash
consideration is above the carrying value of the net assets. This
marks the completion of the Group's withdrawal from Domain
Services.
Acquisition related costs of GBP0.6m (November 2015: GBP2.6m)
consist of fees incurred in relation to the acquisitions of PSC and
VSR. In the prior periods, the costs relate to fees incurred in
relation to the acquisition of Fox-IT Holdings BV.
The revisions to estimates of deferred and contingent
consideration of GBP2.6m (November 2015: gain GBP3.0m) relate to
foreign exchange differences from revaluing the carrying value of
consideration liabilities and the associated loan held in foreign
currency. In the comparative period, there was a net gain of
GBP3.0m principally relating to the re-assessment of the Open
Registry contingent consideration.
The restructuring costs of GBP38k (November 2015: GBP0.5m)
relate to the final retention bonuses paid to former employees of
Accumuli plc. As previously reported, NCC Group became responsible
for paying these bonuses on acquisition of the Accumuli group, as
they were time related bonuses they impacted the Group's profit and
loss account rather than pre-acquisition profits.
In the comparative period to November 2015, an exceptional cost
of GBP4.1m was incurred for the write down of redundant
technology.
The Group's reported pre-tax profit was GBP7.4m (November 2015:
GBP7.5m) after including the unwinding of the discount on
contingent consideration, amortisation of acquired intangible
assets, share based payments and exceptional items.
Taxation
The tax rate for the six months ended 30 November 2016 is 26%
(November 2015: 20%). The rate reflects the increased level of
foreign profits in the first half of the year, the disallowance of
the exceptional item relating to revision to estimates of deferred
and contingent consideration, and one-off credits arising in the
period. A tax rate of 31% is expected for the full year.
Earnings per share
The adjusted basic earnings per share was 4.7p (November 2015:
5.1p) and reported basic earnings per share were 2.0p (November
2015: 2.6p).
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.
2016 2015
Six months Six months
ended ended
Basic EPS 30 November 30 November
Group earnings per
share - unadjusted 2.0p 2.6p
----------------------------------- ------------ ------------
Amortisation of acquired
intangibles 1.4p 0.8p
Exceptional items 1.1p 1.4p
Unwinding of the discount
on the contingent consideration
of acquisitions 0.1p 0.1p
Share based payments 0.1p 0.2p
----------------------------------- ------------ ------------
Adjusted basic EPS 4.7p 5.1p
----------------------------------- ------------ ------------
Dividends
The Board is maintaining the interim dividend at 1.50p (November
2015: 1.50p). This will be paid on 24 February 2017 to shareholders
on the register at the close of business on 27 January 2017, with
an ex-dividend date of 26 January 2017.
This represents cover of 1.3 times (November 2015: 1.7 times)
based on basic earnings, due to the exceptional items and cover of
3.1 times on an adjusted basic earnings basis (November 2015: 3.4
times).
Cash & funding
The Group's net debt decreased at 30 November 2016, as expected,
to GBP48.8m (November 2015: GBP73.1m) against a total debt facility
of GBP112.5m which comprises GBP80m revolving credit facility,
GBP27.5m term loan and GBP5m overdraft.
The Group continues to be highly cash generative with the ratio
of operating cash flow before interest and tax being 103% of
operating profits (November 2015: 116%) after adjusting for
exceptional items.
In H1, the Group has spent GBP15.7m ($20.3m) on the initial
consideration for the purchase of PSC and VSR, as well as GBP2.0m
(DKK17.6m) on deferred consideration to FortConsult for completing
its earn out in full, GBP10.6m (EUR12.5m) to Fox-IT relating to its
deferred payment schedule, and GBP1.6m deferred consideration
relating to a previous acquisition by Accumuli plc.
The Group chose not to issue GBP2.1m (EUR2.5m) of new shares as
part of the deferred payment to Fox-IT as had originally been
intended preferring to make the payment in cash.
Capital expenditure which relates to buildings and IT equipment
was GBP4.0m (November 2015: GBP1.1m). The Group anticipate the
capital expenditure for H2 will be GBP7m.
The Group's working capital requirements have changed as the mix
of business has evolved as the bias moves more towards Assurance.
This was accentuated most by the acquisitions of Accumuli and
Fox-IT and to a lesser extent by PSC and VSR.
Combined with the organic growth within the Group's businesses,
these acquisitions have caused the amount of accrued income to
grow. Consultants' salaries, the Group's main costs, are incurred
in advance of their chargeable time being invoiced to clients,
accordingly the value of trade and other receivables has increased
ahead of trade and other payables.
Trade and other receivables were GBP77.3m (November 2015:
GBP57.8m) at the half year, a 34% increase on the prior year. This
trend will continue as the Group grows organically and by
acquisition, although to date the age profile of the Group's trade
and other receivables has not changed. Trade and other payables are
GBP31.9m (November 2015: GBP34.0m).
In accordance with IAS38, the Group capitalises the software
development of internal systems or products that are being
delivered to the market, such as performance tools, portals and
platforms. These tools are commercially developed for use on, and
sale to, clients in the Assurance division.
The Group has capitalised direct costs of GBP3.0m (November
2015: GBP1.9m). This has increased marginally reflecting the change
in the business due to the additions of Accumuli and Fox-IT and
offset by the curtailment of Domain Services, where the rate of
capitalisation has substantially fallen.
Operational review
Assurance Division
The Assurance Division revenue grew by 42% to GBP104.8m
(November 2015: GBP73.8m) reflecting strong organic growth in all
areas. On a constant currency basis the revenue grew 36%.
However, during the first half of the year, the Group reported
that a sequence of unrelated events in the Assurance Division would
result in a shortfall in the reported and expected performance in
the current year.
The loss, due to client cancellation of three unrelated, higher
margin contracts, which would have delivered GBP14m - GBP18m
revenue during the financial year along with issues surrounding the
renewal of some managed security services contracts has had a
marked impact.
Organic revenue grew by 21% to GBP89.2m (November 2015:
GBP73.8m) and US revenue grew 38% to GBP21.6m (November 2015:
GBP15.6m).
Assurance EBITDA* increased by 18% to GBP13.1m (November 2015:
GBP11.1m) and operating profits were GBP10.2m (November 2015:
GBP10.3m).
The operating profit was impacted by increases in the
depreciation charge for plant and equipment and in the amortisation
charge for software and development costs which together amounted
to GBP2.9m (November 2015: GBP1.2m). The 2016 depreciation and
amortisation charge for software and development costs has
increased from the acquisition of Fox-IT and additionally more
development costs are being amortised as the projects have
completed.
The Assurance EBITDA margin was 13% (November 2015: 15%) and the
operating profit margin was 10% (November 2015: 14%). Both were
lower as a consequence of the cancelled and deferred key contracts,
which were higher margin work.
While the Group is confident that the Division's margins will
improve, there will not be a quick return to levels seen before,
until a better mix of work is delivered and a return on the
investments made is seen. Investments include those made in the
areas of management and delivery and also new offices with
state-of-the-art facilities. In the medium term, more normal Group
margin levels will be achieved.
Within the Assurance Division, staff retention and recruitment
is the most significant issue and treating it as such ensures that
the Group's exemplary reputation remains intact. Indeed, the
importance the Group places on recruitment and retention is one of
the reasons why employees choose to join NCC Group.
The Division now employs over 1,600 people globally and it is
believed to be the largest multinational accredited team of
security consultants in the industry.
Carefully balancing paid-for utilisation, quality of deliverable
work and research, ensures that employee churn in the delivery
teams is less than the 10% staff separation target. This is
significantly less than the 30% market norm in high skilled IT
environments.
NCC Group's world-class research has continued to focus on the
problems faced by organisations globally today, as well as their
future challenges in cyber security.
The Group actively promotes co-ordinated responsible disclosure
for both paid for and self-funded vulnerability research. As well
as being market leaders in state-of-the art vulnerability
discovery, over the last year the Group has focused on developing
research in the automotive and maritime sectors, as well as moving
into quantum computing resistant cryptography, block chains and
biometrics.
In the past year NCC Group published 97 blog posts and 12
whitepapers globally and spoke at numerous global industry events
and forums.
Fox-IT continues to work with various threat intelligence
partners and clients, supporting them in the analysis, detection
and prevention of sophisticated and organised attacks. In 2016, it
published a threat intelligence report about a sophisticated
geo-politically aligned hacking campaign originating from Asia
against organisations across the globe and was also recognised by
SWIFT in a major joint partnership to help combat the cyber
security challenges affecting the global financial community.
Significant investment has already been made into the Assurance
Division, with management and delivery structures to support the
Group's future ambitions. In addition, new offices and relocations
this year will provide state of the art facilities and environments
for teams to flourish, as well as ensuring the ability to deliver
clients' requirements.
The investment in a Security Operations Centre (SOC) in Leeds,
is already seeing good returns as will the future developments in
Reading, Leatherhead, Edinburgh, Copenhagen, Delft, Chicago and San
Francisco. The Group's move to a larger office facility in
Manchester is expected to complete in July 2017.
Today, the Group's UK based 24 hour SOC, services over 900
customers and manages over 5,000 devices across 50 countries
worldwide. So far this year, 20 billion events were received and
processed by the facility across its customer base.
The managed security scanning and monitoring service currently
runs over 6,500 (2015: 6,000) application, infrastructure and
monitoring scans per month. This equates to monitoring over 130,000
(2015: 100,000) live IP addresses monthly or over six million live
and non-live IP addresses annually.
Currently this service is identifying over 500,000 (2015:
320,000) incidents a month, which is a 56% increase from the same
time last year.
The integration of Fox-IT is taking place steadily and carefully
due to the size and the complexity of the business. A new managing
director and finance director have been appointed which will
greatly assist with this process. The benefits of mutual
cooperation and shared opportunities in new markets are already
being seen.
The high assurance unit, which represents approximately 35% of
Fox-IT revenues in H1, creates, designs, develops, manufactures and
implements secure communication products, using advanced
cryptology. It is technically very advanced and highly
confidential, as well as being difficult to plan for as the
contracts are lumpy by their nature.
One of the largest customers of the high assurance unit is the
Dutch Government. As anticipated, the Group is in complex and
sensitive negotiations with them about the wider Group's engagement
given the highly confidential nature of so much of this unit's
work.
The impact of these discussions has seen work being deferred but
on completion it is expected that future opportunities will come to
fruition.
The web monitoring, performance and load testing business
continued to see recurring revenue of 85% (November 2015: 90%) as
businesses continue to recognise the importance of their website to
their business prospects.
Escrow
Escrow continues to underpin the Group's profitability and cash
generation. All of the businesses offer substantial margins, a high
degree of recurring revenue due to the contract renewal rates, as
well as notably strong cash conversion characteristics.
The Escrow Division continued to perform strongly. Revenue grew
by 14% (November 2015: 7%) to GBP18.7m (November 2015: GBP16.4m).
On a constant currency basis revenue growth, would have been
8%.
The Division's recurring revenues through the renewals process
will grow to GBP21.3m this financial year, up from GBP19.3m.
Escrow EBITDA grew by 14% to GBP10.6m (November 2015: GBP9.3m)
and operating profits grew by 12% to GBP10.3m (November 2015:
GBP9.2m).
Escrow UK revenue as expected, grew by 6% (November 2015: 7%) to
GBP12.8m (November 2015: GBP12.1m) which reflects a good
performance against an exceptionally strong performance last
year.
In North America, revenue grew sharply by 43% (November 2015:
10%) to GBP4.0m (November 2015: GBP2.8m) and in mainland Europe,
the smallest part of the Escrow Division, revenue grew by 19%
(November 2015: 3%) to GBP1.9m (November 2015: GBP1.6m). On a
constant currency basis, the growth for the combined overseas
entities was 12%.
The underlying termination rate remained at about 11% (November
2015: 11%), with no discernible change in the reasons for
termination.
GDPR introduction in 2018: "A right to security is about to
begin"
Being breached is a now a way of life, as seen by the hacks that
affected Tesco Bank, The National Lottery, Yahoo, TalkTalk and many
others. It is a daily occurrence for corporations and individuals
alike.
Most breaches go largely unreported but that is about to
change.
NCC Group has long championed the right of individuals to know
that their data has been stored safely and in a trustworthy
way.
The Group believes that organisations should, at a minimum, form
a Board level cyber security committee to address and govern how it
manages and mitigates cyber risk, to ensure individual's
information is protected.
This position has been significantly helped by the confirmation
that the UK is to adopt the EU GDPR.
GDPR will come into force across all member states, including
the UK, on 25 May 2018.
Any doubts around what would happen post-Brexit were removed by
an announcement by the Secretary of State for Culture, Media and
Sport, Karen Bradley on 24 October 2016. The UK will opt in.
The reach of the new regulation extends to any organisation
providing services and/or goods to individuals within the EU, as
well as those monitoring the behaviour of EU citizens.
The main purpose of GDPR is to allow individuals to regain
control and ownership of their data, both of which NCC Group has
always been passionate about.
GDPR is an extremely tough standard to adopt and the few
organisations who have looked at it to date have recognised that
there are some significant challenges in the way that they
currently store and think about data usage.
This is making compliance time consuming, difficult and also
expensive. It is not something that organisations can leave to the
last minute to seek to achieve compliance, as it quite often
requires processes and protocols to be completely changed.
Consent to process data will only be obtainable through clear
and accurate explanations about what precisely is being collected,
why it is being collected, where it will be used, shared or stored
and for how long.
As importantly, individuals must also be given the right to
easily withdraw consent should they change their minds.
Much has been written about the hefty fines that can be imposed
for non-compliance but gaining a reputation that an organisation
can be trusted with individuals' data will be just as
important.
Fines up to 4% of global turnover, albeit capped at GBP20m, will
provide a real incentive to get it right. Contrast this to the fine
levied on TalkTalk in 2016 of just GBP400k.
While much of the new regulation is relevant to the general
activities of information security professionals, much is devoted
to the security of personal data.
There are two areas of GDPR that will require particular focus
'privacy by design' and 'incident management'. While privacy and
security inevitably overlap, there is a clear conflict of interest
which means that different individuals will be required in an
organisation to assume each role.
Privacy by design means that any new processes or systems
processing personal data (or changes to existing processes or
systems), must include privacy considerations from the start. This
will be achieved, in part, through Data Protection Impact
Assessments, which merit their own article in the regulation.
Incident management, as it relates to personal data, includes a
72-hour deadline for notifying the supervisory authority. In
certain high-risk circumstances, the requirement is to notify the
individuals affected 'without undue delay'.
As well as complying, organisations will be required to
demonstrate their compliance. This means any decisions that impact
personal data must be consistent, involve the right people and be
recorded. Guidelines and company processes must be accessible and
easily understood.
NCC Group's Risk Management & Governance team provides a
range of data privacy services to help customers gain a holistic
view of their state of compliance towards GDPR.
Through awareness workshops, privacy impact assessments, health
checks and remediation support, we are actively working with
organisations at all levels of maturity as they assess their
readiness in advance of 2018.
As if that was not enough of a driver for change, in
mid-December, the UK government Cyber Security regulation and
incentives review was published.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/579442/Cyber_Security_Regulation_and_Incentives_Review.pdf
It concluded that the approach the UK is taking to implement the
GDPR "presents an opportunity to incentivise significant
improvements in cyber risk management", such as around developing
detailed guidance, information security principles and fining
structures.
It also stated that "businesses must accept responsibility for
their cyber security and ensure that they have the appropriate
controls and systems in place to deter and deal with breaches if
they do occur".
It concluded that there are a number of non-regulatory
interventions to incentivise better cyber risk management,
delivered mostly through the National Cyber Security Centre
(NCSC).
These include:
o Government efforts to raise awareness on cyber security,
including linking cyber security to data protection;
o Using breach reporting data to increase threat understanding and sharing;
o The creation of a regulators' forum to share best practice and ensure consistent messaging;
o NCSC work with the Financial Reporting Council positively to
engage Boards around cyber risk understanding, and with the
Investment Association to give investors the tools to challenge
Boards and
o Potential certification of cyber health checks to complement technical certification.
In NCC Group's view, it is crucial to raise awareness with key
stakeholders, so that everyone is aware of the changes required and
the amount of work to be planned for.
As the compliance deadline approaches fast, along with the
Government looking to drive compliance, the work to prepare
businesses should already be well underway.
Many organisations believe that preparing for GDPR sits solely
with the IT department and the legal team. It does not. It belongs
with the Board.
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 failure of information
technology in the business, the loss of key management, the
recruitment of additional staff to meet the Group's ambitious
growth plans; conduct risk which can arise from failing to maintain
discipline and meet customer expectations, the protection of
critical assets and information against the threat of cyber-crime;
the impact of a successful cyber-attack on company reputation,
share price and customer confidence; the occurrence of unforeseen
difficulties in the integration of current or future acquisitions;
changes in the competitive landscape and failing to respond to
market trends, investing in new areas that are unsuccessful, the
impact of ethical and legal breaches on company reputation, share
price and customer confidence and a failure to protect intellectual
property.
There are no persons with whom the Company has contractual or
other arrangements that are deemed to be essential to the
Group.
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
half year period ended 30 November 2016 which comprises the
condensed consolidated income statement, the condensed consolidated
statement of comprehensive income, the condensed consolidated
balance sheet, the condensed consolidated cash flow statement, the
condensed consolidated statement of changes in equity 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 Guidance 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 half year period ended
30 November 2016 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
1 St Peter's Square, Manchester, M2 3AE
19 January 2017
Group condensed income statement
2016 2015 2016
six months six months year
ended ended ended
Notes 30 November 30 November 31 May
GBP'000 GBP'000 GBP'000
Revenue 2 125,776 93,508 209,102
Cost of sales (93,882) (68,716) (150,537)
------------------------------- ------- ------------ ------------ ---------
Gross profit 31,894 24,792 58,565
Administrative expenses
before amortisation of
acquired intangible assets,
share based payments
and exceptional items (14,601) (9,078) (20,140)
Operating profit before
amortisation, share based
payments and exceptional
items 17,293 15,714 38,425
Amortisation of acquired
intangible assets (5,089) (2,251) (6,833)
Share based payments (535) (696) (1,191)
Exceptional items 3 (3,433) (4,174) (18,945)
Total administrative
expenses (23,658) (16,199) (47,109)
Operating profit 2 8,236 8,593 11,456
------------------------------- ------- ------------ ------------ ---------
Financial income 11 3 5
------------------------------- ------- ------------ ------------ ---------
Finance expense excluding
unwinding of discount (570) (828) (1,412)
Net finance expense excluding
unwinding of discount (559) (825) (1,407)
Unwinding of discount
effect relating to deferred
consideration on business
combinations (325) (230) (621)
------------------------------- ------- ------------ ------------ ---------
Financial expenses (895) (1,058) (2,033)
------------------------------- ------- ------------ ------------ ---------
Net financing costs (884) (1,055) (2,028)
------------------------------- ------- ------------ ------------ ---------
Profit before taxation 7,352 7,538 9,428
Taxation 4 (1,895) (1,528) (3,145)
------------------------------- ------- ------------ ------------ ---------
Profit for the period 5,457 6,010 6,283
Attributable to equity
holders of the parent
company 5,457 6,010 6,283
Earnings per share 5
Basic earnings per share 2.0p 2.6p 2.5p
Diluted earnings per
share 2.0p 2.6p 2.4p
Group condensed statement
of comprehensive income
2016 2015 2016
six months six months year
ended ended ended
30 November 30 November 31 May
GBP'000 GBP'000 GBP'000
Profit for the period 5,457 6,010 6,283
------------------------------ ------------ ------------ -------
Other comprehensive income
Foreign exchange translation
differences 17,312 260 9,713
------------------------------ ------------ ------------ -------
Total comprehensive income
for the period 22,769 6,270 15,996
------------------------------ ------------ ------------ -------
Attributable to:
----------------------------- ------------ ------------ -------
Equity holders of the
parent 22,769 6,270 15,996
------------------------------ ------------ ------------ -------
Group condensed statement of financial position
2016 2015 2016
Notes 30 November 30 November 31 May
GBP'000 GBP'000 GBP'000
Non-current assets
Intangible assets 7 334,730 292,458 297,277
Plant and equipment 14,530 11,167 12,686
Investments 329 271 608
Deferred tax assets 1,738 4,704 5,285
------------ ------------ -------
Total non-current assets 351,327 308,600 315,856
------------ ------------ -------
Current assets
Trade and other receivables 9 77,266 57,833 66,467
Inventory 442 372 334
Cash and cash equivalents 22,126 22,221 20,663
------------ ------------ -------
Total current assets 99,834 80,426 87,464
------------ ------------ -------
Total assets 451,161 389,026 403,320
------------ ------------ -------
Equity
Issued capital 15 2,764 2,528 2,759
Share premium 149,026 86,145 147,324
Merger reserve 42,308 42,308 42,308
Reserve for own shares - (230) (230)
Retained earnings 57,873 65,371 62,490
Currency translation
reserve 25,586 (1,179) 8,274
Total equity attributable
to equity holders of
the parent 277,557 194,943 262,925
------------ ------------ -------
Non-current liabilities
Interest bearing loans 11 65,893 95,311 33,395
Other financial liabilities 4,260 631 394
Deferred tax liability 15,057 9,259 15,492
Consideration on acquisitions 4,259 17,652 18,526
Total non-current liabilities 89,469 122,853 67,807
------------ ------------ -------
Current liabilities
Trade and other payables 10 31,875 33,985 31,647
Consideration on acquisitions 10,369 3,496 3,471
Deferred revenue 35,099 32,351 36,313
Interest bearing loans 11 5,000 - -
Current tax payable 1,792 1,398 1,157
Total current liabilities 84,135 71,230 72,588
------------ ------------ -------
Total liabilities 173,604 194,083 140,395
------------ ------------ -------
Total liabilities and
equity 451,161 389,026 403,320
Group condensed statement of cash flows
2016 2015 2016
six months six months year
ended ended ended
30 November 30 November 31 May
GBP'000 GBP'000 GBP'000
Cash inflow from operating
activities
Profit for the period 5,457 6,010 6,283
Adjustments for:
Depreciation charge 2,513 1,569 3,682
Share based charges 535 696 1,135
Amortisation of intangible
assets 6,650 2,743 8,409
Net financing costs 884 1,055 2,028
Profit/(loss) on sale of
plant and equipment 44 - (148)
Intangible asset write down - 4,086 6,858
Adjustments to contingent
consideration - (2,992) (5,940)
Impairment of goodwill - - 11,877
Exceptional exchange rate
loss 2,570 - -
Income tax expense 1,895 1,528 3,145
------------ ------------ --------
Cash inflow for the period
before changes in working
capital 20,548 14,695 37,329
------------ ------------ --------
Increase in trade and other
receivables (7,072) (5,880) (15,055)
(Decrease)/increase in trade
and other payables (66) 1,145 2,860
Decrease in exceptional
payables - (2,079) (2,049)
Cash generated from operating
activities before interest and
tax 13,410 7,881 23,085
Interest paid (895) (1,054) (2,029)
Income tax paid (266) (3,425) (7,291)
------------ ------------ --------
Net cash generated from
operating activities 12,249 3,402 13,765
Cash flows from investing
activities
Interest received 11 3 5
Purchase of plant and equipment (4,001) (1,132) (4,649)
Proceeds from sale of plant
and equipment 397 - -
Development expenditure (4,361) (4,329) (8,863)
Acquisition of businesses
and deferred consideration
paid (29,912) (77,959) (78,427)
Cash acquired with subsidiaries 1,830 1,769 1,769
Net cash used in investing
activities (36,036) (81,648) (90,165)
------------ ------------ --------
Cash flows from financing
activities
Proceeds from the issue of
ordinary share capital 669 62,416 123,826
Purchase of own shares 346 (97) (98)
Drawdown/(repayment)of borrowings 37,498 27,954 (33,509)
Equity dividends paid (8,695) (6,145) (10,280)
------------ ------------ --------
Net cash from financing activities 29,818 84,128 79,939
Net increase in cash and cash
equivalents 6,031 5,882 3,539
------------ ------------ --------
Cash and cash equivalents
at beginning of period 20,663 16,353 16,353
------------ ------------ --------
Effect of exchange rate fluctuations (4,568) (14) 771
9
------------ ------------ --------
Cash and cash equivalents
at end of period 22,126 22,221 20,663
------------ ------------ --------
Group condensed statement of changes in equity
Share Share Merger Currency Reserve Retained Total
capital premium reserve Translation for earnings
reserve own
shares
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 June 2015 2,293 23,964 42,308 (1,439) (464) 65,064 131,726
Profit for the period - - - - - 6,010 6,010
Foreign currency translation
differences - - - 260 - - 260
--------- --------- --------- ------------- -------- ---------- ---------
Total comprehensive
income for the period - - - 260 - 6,010 6,270
--------- --------- --------- ------------- -------- ---------- ---------
Transactions with owners
recorded directly in equity
Dividends to equity
shareholders - - - - - (6,145) (6,145)
Share based charge - - - - - 696 696
Current and deferred
tax - - - - - 77 77
Shares issued 235 62,181 - - - - 62,416
Purchase of own shares - - - - 234 (331) (97)
Total contributions
by & distributions to
owners 235 62,181 - - 234 (5,703) 56,947
--------- --------- --------- ------------- -------- ---------- ---------
Balance at 30 November
2015 2,528 86,145 42,308 (1,179) (230) 65,371 194,943
--------- --------- --------- ------------- -------- ---------- ---------
Share Share Merger Currency Reserve Retained Total
capital premium reserve Translation for earnings
reserve own
shares
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 June 2015 2,293 23,964 42,308 (1,439) (464) 65,064 131,726
Profit for the period - - - - - 6,283 6,283
Foreign currency translation
differences - - - 9,713 - - 9,713
--------- --------- --------- ------------- -------- ---------- ---------
Total comprehensive
income for the period - - - 9,713 - 6,283 15,996
--------- --------- --------- ------------- -------- ---------- ---------
Dividends to equity
shareholders - - - - - (10,280) (10,280)
Share based charge - - - - - 1,135 1,135
Current and deferred
tax - - - - - 620 620
Shares issued 466 123,360 - - - - 123,826
Purchase of own shares - - - - 234 (332) (98)
--------- --------- --------- ------------- -------- ---------- ---------
Total contributions
by & distributions to
owners 466 123,360 - - 234 (8,857) 115,203
--------- --------- --------- ------------- -------- ---------- ---------
Balance at 31 May 2016 2,759 147,324 42,308 8,274 (230) 62,490 262,925
--------- --------- --------- ------------- -------- ---------- ---------
Share Share Merger Currency Reserve Retained Total
capital premium reserve Translation for earnings
reserve own
shares
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 June 2016 2,759 147,324 42,308 8,274 (230) 62,490 262,925
Profit for the period - - - - - 5,457 5,457
Foreign currency translation
differences - - - 17,312 - - 17,312
--------- --------- --------- ------------- -------- ---------- ---------
Total comprehensive
income for the period - - - 17,312 - 5,457 22,769
--------- --------- --------- ------------- -------- ---------- ---------
Transactions with owners
recorded directly in equity
Dividends to equity
shareholders - - - - - (8,695) (8,695)
Share based charge - - - - - (1,223) (1,223)
Current and deferred
tax - - - - - (156) (156)
Shares issued 5 1,702 - - - - 1,707
Purchase of own shares - - - - 230 - 230
Total contributions
by & distributions to
owners 5 1,702 - - 230 (10,074) (8,137)
--------- --------- --------- ------------- -------- ---------- ---------
Balance at 30 November
2016 2,764 149,026 42,308 25,586 - 57,873 277,557
--------- --------- --------- ------------- -------- ---------- ---------
Notes to the Half Year Report
1 Accounting policies
Basis of preparation
The Group condensed half-year financial statements for the six
months ended 30 November 2016 have been prepared in accordance with
IAS 34, "Interim Financial Reporting" as adopted by the EU.
As required by the Disclosure Guidance and Transparency Rules of
the Financial Services Authority the financial information
contained in this report has been prepared using the accounting
policies and presentation that were applied in the company's
published consolidated financial statements for the year ended 31
May 2016. 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 2016.
The financial statements of the Group for the year ended 31 May
2016 are available from the Company's registered office, or from
the website www.nccgroup.trust.
The comparative figures for the financial year ended 31 May 2016
are not the company's statutory accounts for that financial year.
Those accounts, which were prepared under IFRS as adopted by the EU
("adopted IFRS"), 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.
NCC Group plc ("the Company") is a company incorporated in the
UK.
Significant accounting policies
As required by the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority, this condensed
set of financial statements has been prepared applying the same
accounting policies and computation methods that were applied in
the preparation of the company's published consolidated financial
statements for the year ended 31 May 2016.
There are no IFRS or IFRIC interpretations effective for the
first time in this financial period which are relevant that have
had a material impact on the Group.
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 directors have reviewed the trading and cash flow forecasts
as part of their going concern assessment, together with the
available facilities at 30 November 2016, (see note 11), including
reasonable downside sensitivities which take into account the
uncertainties in the current operating environment.
Taking into account the above uncertainties and circumstances,
the directors formed a judgement that there is a reasonable
expectation that the group has adequate resources to continue in
operational existence for the foreseeable future. Accordingly they
continue to adopt the going concern basis in preparing the group's
condensed half-year financial statements for the period ended 30
November 2016.
Use of estimates and judgements
The preparation of the consolidated half-year 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 half-year 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 2016.
2 Segmental information
The Group is organised into three operating segments (30
November 2015: three): Escrow, Assurance and Domain Services each
of which is separately reported.
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.
The Group's revenue has always been biased towards the second
half of the financial year. This is expected to continue this
year.
2016 2015 2016
Six months Six months Year ended
ended ended 31 May
30 November 30 November
GBP'000 GBP'000 GBP'000
Analysis of revenue
Escrow UK 12,829 12,077 25,680
Escrow Europe 1,907 1,597 3,434
Escrow USA 3,955 2,772 6,187
Total Escrow 18,691 16,446 35,301
Security Consulting 90,529 59,625 138,903
Web Performance and
Software Testing 14,262 14,128 29,963
------------ ------------ -----------
Total Assurance 104,791 73,753 168,866
Domain Services 2,294 3,309 4,935
------------ ------------ -----------
Total Revenue 125,776 93,508 209,102
------------ ------------ -----------
2016 2015 2016
Six months Six months Year ended
ended ended 31 May
30 November 30 November
GBP'000 GBP'000 GBP'000
Analysis of EBITDA by division
Escrow 10,599 9,257 20,536
Assurance 13,081 11,078 28,992
--------------------------------- ------------ ------------ -----------
Head office costs (2,357) (1,816) (4,602)
--------------------------------- ------------ ------------ -----------
Group adjusted EBITDA excl
Domain Services 21,323 18,519 44,926
--------------------------------- ------------ ------------ -----------
Domain Services - (736) (1,220)
--------------------------------- ------------ ------------ -----------
Group adjusted EBITDA 21,323 17,783 43,706
Depreciation & amortisation
- Escrow (260) (59) (472)
- Assurance (2,879) (758) (3,229)
- Domain Services - (293) (492)
--------------------------------- ------------ ------------ -----------
Head office costs (891) (959) (1,088)
--------------------------------- ------------ ------------ -----------
Operating profit before
amortisation, share based
payments and exceptional
items 17,293 15,714 38,425
Amortisation of acquired
intangible assets
- Escrow (422) (353) (732)
- Assurance (4,349) (1,682) (5,599)
- Domain Services (318) (216) (502)
Share based payments (535) (696) (1,191)
Operating profit before
exceptional items 11,669 12,767 30,401
Exceptional items (3,433) (4,174) (18,945)
--------------------------------- ------------ ------------ -----------
Operating profit 8,236 8,593 11,456
--------------------------------- ------------ ------------ -----------
Net financing costs (884) (1,055) (2,028)
--------------------------------- ------------ ------------ -----------
Profit before tax 7,352 7,538 9,428
--------------------------------- ------------ ------------ -----------
The table below provides an analysis of the Group's revenue by
geographical market where the customer is based.
2016 2015 2016
Six months Six months Year ended
ended ended 31 May
30 November 30 November
GBP'000 GBP'000 GBP'000
Revenue by geographical
destination
UK 61,540 59,467 122,014
Rest of Europe 24,007 8,764 34,242
Rest of the World 40,229 25,277 52,846
------------------------ ------------ -------------------- -----------
Total Revenue 125,776 93,508 209,102
------------------------ ------------ -------------------- -----------
3 Exceptional items
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.
2016 2015 2016
Six months Six months Year ended
ended ended 31 May
30 November 30 November
GBP'000 GBP'000 GBP'000
Exceptional items
Acquisition related costs (637) (2,583) (2,295)
Adjustments to deferred
and contingent consideration (2,570) 2,992 4,712
Development intangible
asset write down - (4,086) (6,858)
Goodwill impairment - - (11,877)
Losses made during wind
down and sale of Domain
Services (188) - -
Restructuring costs (38) (497) (2,627)
Total (3,433) (4,174) (18,945)
------------------------------ ------------ ------------ -----------
Acquisition related costs in the period of GBP637,000 (November
2015: GBP2,583,000) consist of fees incurred in relation to the
acquisitions of Payment Software Company Inc on 28 September 2016
and Virtual Security Research LLC on 11 November 2016 (note 12). In
the prior periods, the costs relate to fees incurred in relation to
the acquisition of Fox-IT Holdings BV.
The adjustments to deferred and contingent consideration of
GBP2,570,000 (November 2015: GBP2,992,000) relate to foreign
exchange revaluation differences on the carrying value of
consideration liabilities and the associated loan held in foreign
currency. In the prior periods, the net gains principally relate to
the re-assessment of the Open Registry contingent
consideration.
The GBP188,000 loss made during the wind down and sale of Domain
Services represents the operating loss generated by this business
in the six months to November 2016.
The restructuring cost of GBP38,000 (November 2015: GBP497,000)
relates to retention bonuses paid to former employees of Accumuli
plc. As previously reported NCC Group became responsible for paying
these bonuses on acquisition of the Accumuli group. In the year to
31 May 2016, restructuring costs also included headcount and other
costs associated with the wind down of the Domain Services
division.
In the periods to November 2015 and May 2016, the intangible
asset write down of GBP4,086,000 and GBP6,858,000 respectively
relates to the impairment of capitalised costs for redundant
technology and the goodwill impairment of GBP11,877,000 relates to
Open Registry.
4 Taxation
The Group tax charge is based on the estimated annual effective
rate and for the half year is calculated at 26% (30 November 2015:
20%) and applied to the profit before tax for the period.
5 Earnings per share
The calculation of earnings per share is based on the
following:
2016 2015 2016
Six months Six months Year ended
ended ended 31 May
30 November 30 November
GBP'000 GBP'000 GBP'000
Profit for the period used
for earnings per share 5,457 6,010 6,283
Amortisation of acquired
intangible assets 5,089 2,251 6,833
Exceptional items (Note
3) 3,433 4,174 18,945
Unwinding of discount 325 230 621
Share based payments 535 696 1,191
Tax arising on the above
items (1,970) (1,538) (4,854)
Adjusted profit used for
adjusted earnings per share 12,869 11,823 29,019
Number Number Number
of of of
shares shares shares
000's 000's 000's
Basic weighted average number
of shares in issue 276,136 233,355 254,625
Dilutive effect of share
options 2,479 3,217 3,459
------- ------- -------
Diluted weighted average
shares in issue 278,615 236,572 258,084
------- ------- -------
6 Dividends
2016 2015 2016
Six months Six months Year ended
ended ended 31 May
30 November 30 November
GBP'000 GBP'000 GBP'000
Dividends paid and recognised
in the period 8,695 6,145 10,280
Dividends proposed but
not recognised in the
period 4,147 4,135 8,692
Dividends per share paid
and recognised in the
period 3.15p 2.68p 4.18p
Dividends per share proposed
but not recognised in
the period 1.50p 1.50p 3.15p
7 Intangible assets
Development Customer
costs contracts
Software and relationships Goodwill Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net book value:
------------------ -------- --------------------------- ------------------ -------- --------
At 1 June 2015 10,686 8,741 29,989 155,520 204,936
------------------ -------- --------------------------- ------------------ -------- --------
Acquisitions
through business
combinations 1,832 - - 87,908 89,740
Additions 2,434 (2,191) - - 243
Effects of
movements in
exchange rates - 194 (10) 98 282
------------------ -------- --------------------------- ------------------ -------- --------
Amortisation
in the period (492) - (2,251) - (2,743)
------------------ -------- --------------------------- ------------------ -------- --------
At 30 November
2015 14,460 6,744 27,728 243,526 292,458
------------------ -------- --------------------------- ------------------ -------- --------
Acquisitions
through business
combinations (126) - 25,393 (14,993) 10,274
Additions 4,510 4,110 - - 8,620
Impairment - (6,858) - (11,877) (18,735)
Effects of
movements in
exchange rates (18) 196 2,541 7,607 10,326
------------------ -------- --------------------------- ------------------ -------- --------
Amortisation
in the period (1,084) - (4,582) - (5,666)
------------------ -------- --------------------------- ------------------ -------- --------
At 31 May 2016 17,742 4,192 51,080 224,263 297,277
------------------ -------- --------------------------- ------------------ -------- --------
Acquisitions
through business
combinations - - 4,132 14,550 18,682
Additions 1,348 3,013 - - 4,361
Reclassification (17,337) 17,254 92 (9) -
Effects of
movements in
exchange rates - 994 4,177 15,889 21,060
------------------ -------- --------------------------- ------------------ -------- --------
Amortisation
in the period (472) (1,089) (5,089) - (6,650)
------------------ -------- --------------------------- ------------------ -------- --------
At 30 November
2016 1,281 24,364 54,392 254,693 334,730
------------------ -------- --------------------------- ------------------ -------- --------
The Group acquired Payment Software Company Inc on 28 September
2016 and Virtual Security Research LLC on 11 November 2016. The
goodwill and acquired intangibles in respect of both acquisitions
included above are provisional values and will be confirmed in the
31 May 2017 Annual Report (Note 12).
The reclassification of costs relates to internal development
costs associated with systems development which the directors
consider is more appropriate to report as capitalised development
costs rather than software.
8 Capital expenditure
Additions to plant and equipment during the period ended 30
November 2016 amounted to GBP4,001,000 (November 2015:
GBP1,132,000) and depreciation charged in the period amounted to
GBP2,513,000 (November 2015: GBP1,569,000).
9 Trade and other receivables
2016 2015 2016
30 November 30 November 31 May
GBP'000 GBP'000 GBP'000
Trade receivables 44,717 34,474 39,410
Prepayments and accrued
income 32,549 23,359 27,057
77,266 57,833 66,467
------------ ------------ -------
10 Trade and other payables
2016 2015 2016
30 November 30 November 31 May
GBP'000 GBP'000 GBP'000
Trade payables 9,067 6,322 7,906
Non trade payables 7,658 8,497 7,560
Finance leases 26 139 38
Accruals 15,124 19,027 16,143
31,875 33,985 31,647
------------ ------------ -------
11 Interest bearing loans
2016 2015 2016
30 November 30 November 31 May
GBP'000 GBP'000 GBP'000
Secured bank loan 70,893 95,311 33,395
------------ ------------ -------
Analysed as:
Current 5,000 - -
Non-current 65,893 95,311 33,395
------------ ------------ -------
70,893 95,311 33,395
------------ ------------ -------
The Group has a multi-currency revolving credit facility of
GBP80m (November 2015: GBP80m), a GBP27.5m multi-currency term loan
(30 November 2015: GBP30m) and an overdraft facility of GBP5m
(November 2015: GBP5m). The effective interest payable on drawn
down funds as at 30 November 2016 was 0.9% above LIBOR (2015:
2.0%).
12 Acquisitions
Payment Software Company Inc
NCC Group Inc acquired Payment Software Company Inc, a company
based in California, USA, on 28 September 2016. PSC is a global
payment and security consulting company, providing services to
organisations that require specialist compliance, forensics and
consulting support.
The consideration paid was $16.6m initial cash consideration
with contingent consideration payments of $1.9m due on earn-out
periods to 31 December 2017 and 31 December 2018. The two
contingent payments are payable in cash on the achievement of
specific profit based performance targets.
Fair values
Acquiree's identifiable net assets GBP'000 GBP'000
at the acquisition date:
Intangible assets - acquired 4,132
Trade and other receivables 1,532
Deferred tax liability (1,504)
Cash 1,768
Creditors & accruals (793)
Net identifiable assets 5,135
Goodwill on acquisition 10,390
--------------------------------------------------- ------- -----------
Total consideration 15,525
--------------------------------------------------- ------- -----------
Satisfied by: Initial cash consideration 12,799
--------------------------------------------------- ------- -----------
Deferred cash consideration 2,889
--------------------------------------------------- ------- -----------
Finance discount on deferred
consideration (163)
--------------------------------------------------- ------- -----------
15,525
-------------------------------------------------- ------- -----------
Net cash outflow 12,799
--------------------------------------------------- ------- -----------
Cash acquired (1,768)
--------------------------------------------------- ------- -----------
Net cash outflow excluding cash
acquired 11,031
--------------------------------------------------- ------- -----------
The goodwill of GBP10.4m represents the benefits expected to be
generated from sales and profit growth from the wider NCC Group
customer base in the US market. The goodwill is not expected to be
deductible for tax purposes. Acquisition costs relating to
professional fees totalling GBP0.4m were incurred and are
recognised as exceptional costs in the income statement (note 3).
The Group's consolidated income statement includes two month's post
acquisition trading, with PSC Inc contributing GBP1.6m revenue and
GBP0.4m operating profit.
Virtual Security Research LLC
NCC Group Inc acquired Virtual Security Research LLC, a company
based in Boston, Massachusetts, USA, on 11 November 2016. VSR is an
information, network and application security consulting company
based in Boston, Massachusetts providing services to corporate
clients of varying sizes primarily in the US Technology and
Financial Services sectors.
The consideration paid was $3.7m initial cash consideration with
contingent consideration payments of $0.9m due on earn out periods
to 31 December 2017 and 31 December 2018. The two contingent
payments are payable in cash on the achievement of specific profit
based performance targets.
Fair values
Acquiree's identifiable net assets GBP'000 GBP'000
at the acquisition date:
Plant and equipment 28
Trade and other receivables 234
Cash 62
Creditors & accruals (311)
Net identifiable assets 13
Goodwill on acquisition 4,160
--------------------------------------------------- ------- -----------
Total consideration 4,173
--------------------------------------------------- ------- -----------
Satisfied by: Initial cash consideration 2,929
--------------------------------------------------- ------- -----------
Deferred cash consideration 1,312
--------------------------------------------------- ------- -----------
Finance discount on deferred
consideration (69)
--------------------------------------------------- ------- -----------
4,173
-------------------------------------------------- ------- -----------
Net cash outflow 2,929
--------------------------------------------------- ------- -----------
Cash acquired (62)
--------------------------------------------------- ------- -----------
Net cash outflow excluding cash
acquired 2,867
--------------------------------------------------- ------- -----------
The goodwill of GBP4.2m represents the benefits expected to be
generated from sales and profit growth from the wider NCC Group
customer base in the US market. The goodwill is not expected to be
deductible for tax purposes. Acquisition costs relating to
professional fees totalling GBP0.2m were incurred and are
recognised as exceptional costs in the income statement (note 3).
The Group's consolidated income statement includes one partial
month's post acquisition trading, with PSC Inc contributing
operating profit of GBP32,000.
The balances of deferred and contingent consideration on
acquisitions are presented below at fair value and are stated at
the maximum amount payable.
Contingent consideration
2016 2015 2016
30 November 30 November 31 May
GBP000 GBP000 GBP000
FortConsult A/S - 1,632 1,807
Open Registry Group - 1,629 -
Payment Software Company 2,851 - -
Virtual Security Research 1,312 - -
ArmstrongAdams Limited 96 1,865 1,664
4,259 5,126 3,471
--------------------------- ------------- ------------- --------
Deferred consideration 2016 2015 2016
30 November 30 November 31 May
GBP000 GBP000 GBP000
Fox-IT Holdings B.V. 10,369 16,022 18,526
10,369 16,022 18,526
--------------------------- ------------- ------------- --------
13 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 GBP287,000 (30
November 2015: GBP787,500). Rickitt Mitchell provides an outsourced
corporate finance service, which facilitates the delivery of
acquisition targets, which have been identified and approved by the
Board.
14 Post balance sheet events
On 3 January 2017, NCC Group (Solutions) Limited sold the Open
Registry group of companies, comprising Open Registry SA,
ClearingHouse for Intellectual Property SA, Nexperteam CVBA and
Sensirius CVBA, for total consideration of EUR3.75m (subject to
customary closing adjustments). EUR2m of the total consideration
was paid in cash at completion with EUR1.75m deferred for 18
months. The deferred consideration attracts interest.
15 Called up share capital
Number 2016 2015 2016
of shares Six months Six months Year
ended ended ended
30 November 30 November 31
May
GBP'000 GBP'000 GBP'000
Allotted, called up
and fully paid
Ordinary shares of
1p each at the beginning
of the period 275,939,764 2,759 2,293 2,293
Ordinary shares of
1p each issued in the
period 512,286 5 235 466
Ordinary shares of
1p each at the end
of the period 276,452,050 2,764 2,528 2,759
-------------------------- ----------- ------------ ------------ -------
The share capital issued in the period is in respect of share
based payment transactions.
Responsibility statement of the Directors in respect of the half
year 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 half-year management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance 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 Guidance 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
19 January 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EAPFPFSKXEFF
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January 19, 2017 02:00 ET (07:00 GMT)
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