NCC Group has confirmed the positive FY results presaged in its last trading update in April (NCC: retaining skills and growing the business) with strong increases in revenue, even at the organic level. And with staff attrition in the testing business down from the unsustainable c30% of a couple of years ago to just 2% it has got this aspect of the business in order.
In terms of the numbers for YE May 31 2012, revenue was up 24% to £87.7m, a healthy 17% of which was organic. Adjusted pre tax profit was up 27% to £22.6m, but reported profit before tax was down on the previous year (£10.6m vs £12.8m). CEO Rob Cotton confirmed this was due to the £7m write-off on a failed ERP implementation (see NCC’s system problems stem from SAP project). Reading between the lines it looks like there was a catastrophic mismatch between what the software was designed to do and the professional services management-type role NCC wanted it for, which begs the question of how the procurement and sales process could go so wrong.
Despite this major problem the escrow and testing provider increased the operating margin by 1% to 27% (despite higher growth levels in the lower margin Assurance side of the business), while adjusted operating profit grew 27% to £23.4m.
Although most of the business comes from the UK, the proportion is declining (for positive reasons) as NCC expands its international business. The UK represented 69% of revenue (£60.4m) vs 74% in the previous year. US revenues grew 70%, thanks to a full years’ contribution from the acquired iSec business.
With eight years of double digit growth behind it and the strongest start to the year it has ever seen according to Cotton, the CEO was in buoyant mood. Looking forward, Escrow renewals are forecast to increase by 4% to £17.9m over the year, with the Assurance Division order book and renewals up by 10% to £25.5m. However, the UK software market softened over the last year Cotton said, especially in H2, and he has been surprised by the slower than expected take-up of cloud solutions. That could mean there is demand that will start to be released but is certainly worth monitoring. Nevertheless, with trends like cyber security, cloud adoption, and BYOT, there are further growth opportunities for NCC.