NCC thrives while staving off cybergeddon

Both divisions of technology services firm NCC had a solid year despite the disappointment of the company's bought-in new information technology not coming up to snuff.

The company has two main divisions: Escrow and Assurance. The Escrow unit holds mission critical software in escrow on behalf of NCC's clients to ensure that even if the client's software supplier goes out of business, support will be maintained, while the Assurance division, in the words of Chief Executive Officer (CEO) Rob Cotton, fights the good fight to stave off "cybergeddon", as 'hacktivists', corporate spies and unscrupulous foreign governments increasingly try to get their hands on intellectual property of corporate clients, while cyber-criminals try to hold companies to ransom with "denial of service" attacks on their web sites.

Broadly speaking, Escrow is the high margin steady-Eddie business while Assurance is the faster-growing but lower-margin unit.

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Revenue in the year to May 31st rose 24% to £87.7m from £71.0m the year before. Some of that growth was the result of acquisitions, but organic growth was still an impressive 17%.

"It's the eighth year in a row of double-digit growth," CEO Rob Cotton reminded Sharecast.

The Escrow division saw revenue grow 12% to £27.9m from £24.9m the year before, with organic revenue growth of 6%. The Assurance business grew revenue 30% (organic growth: 23%) to £59.8m from £46.1m the previous year.

"The organic growth is really important but at the same time margins have grown substantially; the margin improvement in the Assurance [cyber-security] business is outstanding in the current environment," Cotton observed.

The group's operating margin improved to 27% from 26% the year before with the Assurance division's margin improving to 17% from 14%, largely as a result of the group getting more premium rate work such as operational response, managed services and forensics.

Adjusted group pre-tax profit increased 27% to £22.6m (2011: £17.8m), while the reported pre-tax profit figure was £10.6m (2011: £12.8m), after the group took a mostly non-cash charge of £7.11m relating to the aforementioned ill-starred information technology system upgrade.

"The new system would have delivered cost reductions, if it had worked. We could have used it to integrate new companies into a standard system, but it slowed down the processes as soon as it went live," Cotton told Sharecast.

"Some of the bits we really wanted to use just did not work, so we took the brave decision to abandon it and move on," he added.

Quizzed over whether the person who made the decision to buy-in the new system had taken any flack, Cotton maintained that the research on the decision could not have been more thoroughly researched.

"We specced it back in 2009; we did a lot of work on it, we really did. I can't fault the selection process," Cotton maintained.

The company, which flagged the problems with the new system back in May, has now reverted to its old system and business continues as before.

Looking ahead, the company will be seeking to continue the trend of reducing reliance on its home market. Last year, 69% of revenue came from the UK, down from 74% the year before.

One area that NCC won't be touching is Russia and China.

"We don't want to go to Russia or China, or places like that. They are too perilous. when you are dealing with them you leave yourself too open," Cotton cautioned.

"Without wishing to cast aspersions on an entire nation, there is a reason why all their products look the same as ones in the West. They are like magpies, or at least the hacktivist elements are," according to Cotton.

Seeing as a part of NCC's business is guarding against industrial espionage, he probably knows what he is talking about.

"When the US sets up a task force to wage war in the fifth dimension [cyberspace], well, that tells you how serious things are.

"Even MI5, not an organisation known for public pronouncements, has said that UK companies really need to take cyber-protection seriously," Cotton noted.

NCC ended its fiscal year with net debt of £22.7m, up from £20.5m the year before, after accounting for net cash outflows of £7.5m for acquisition and contingent acquisition payments during the year.

"The start to the [new financial] year sees Group Escrow renewals at £17.9m, up from £17.3m in the year to 31st May 2012 and a verification order book of £1.7m of which £0.5m relates to Escrow Europe and Escrow US," the company said.

"The Assurance division order books have improved to £19.7m (2011: £17.8m) and have £5.8m of monitoring renewals forecast for the current financial year (2011: £5.3m)," the statement added.

JH