The alignment of internal and external factors means escrow and testing provider NCC Group has delivered the goods for the first half of the year (to November 30 2011). Revenue was up 28% to £42.4m, of which 20% was organic. With revenue normally biased towards H2, the outlook for the full year is good but remains in line with NCC’s expectations. Confidence is high however, as indicated by the 23% increase on the interim dividend.
Internally NCC appears to have sorted out the staff retention problems that have dogged the Assurance division, and turnover across the group is now below 2%. It has also rebuilt the Escrow UK management team and reduced staff turnover in the UK – these factors, plus an average 3.6% price increase (no mean feat in the current economic environment) contributed to 6% growth in UK escrow division revenue (to £9.8m). Group escrow revenue grew by 13% (to £13.5m) so the UK still has some ground to make up in terms of growth but there is progress. At the group level adjusted operating profits from the Escrow division came in at £7.6m, a more than creditable 13% increase.
Externally NCC is benefitting from rising demand for security, which is unlikely to be impacted by economic downturn. The effect was a 37% hike in revenue for the Assurance division (to £28.9m), 28% if the iSEC acquisition is excluded. This result was complemented by adjusted operating profits that soared 87% although only to £4.6m, so profit margins have scope for improvement. Organic growth was 58%. Assurance now represents 68% of group revenue, up from 64% a year ago.
The business is growing internationally, with 31% of revenue now coming from outside the UK - aided by the iSEC (see NCC tests the US with iSEC) and Escrow Associates (see NCC sticks to its knitting) acquisitions which have provided NCC with a good entry point into the US market. Further strategic acqu isitions are planned and we expect these will be used to further drive the US business.
The outlook is promising but there are still some areas where performance could be improved, namely profitability margins (especially in Assurance). The acquired SDLC business (now part of the Assurance division) which has performed poorly in the past (see SDLC still testing NCC) appears to be doing somewhat better with NCC stating there has been a “significant” improvement in SDLC’s operating margins. They are still lagging but have facilitated cross-selling opportunities and according to NCC that makes the lower margins acceptable.