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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Ncc Group Plc | LSE:NCC | London | Ordinary Share | GB00B01QGK86 | ORD 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.40 | 0.32% | 124.40 | 124.40 | 124.80 | 125.60 | 124.00 | 124.00 | 490,364 | 16:24:53 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Business Consulting Svcs,nec | 335.1M | -4.6M | -0.0147 | -84.63 | 389.98M |
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
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The company news service from the London Stock Exchange
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(END) Dow Jones Newswires
January 19, 2017 02:00 ET (07:00 GMT)
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