There was a mixed trading update from escrow and assurance provider NCC Group this morning as several unrelated factors impacted performance. Although it is still delivering growth, the rate has slowed over the past four months. The result is that revenue for the year to 31 May 2013 is expected to be not less than £99m and adjusted profit before tax not less than £23m (2012: £22.6m), which would put it at 3% and 4% respectively below current market expectations. For the first 10 months of the financial year, group revenues were 12% ahead of the same period last year at £80.4m, which is a 7% organic growth rate.
Escrow had a “challenging” half year as customers delayed spending on new applications and upgrades. As a result revenue to date is up 2% vs. 14%, or 7% organically, for the similar period to March 2012. Assurance is still growing strongly overall - 16% yoy, 9% on an organic basis - boosted by increased security awareness but there is diversity within the business sector with the US failing to meet expectations, while the UK Assurance business saw 17% growth in Security Testing and 11% in Web Performance Testing.
The iSEC business was negatively impacted by the departure of its founding commercial partner, while the integration of the Intrepidus security research and testing services business for the mobile telecommunications sector has not been particularly successful.
This trading update follows a January note indicating a drop in profits (see here). NCC is a sound business but it comprises several parts which are moving at different rates and are affected by different market forces. These factors have combined to cause what we expect is a blip but it does indicate the management challenge of keeping the business on course.