Deferred spending knocks sales and profits at NCC
MANCHESTER IT security firm NCC has warned that profits and sales will come in below market expectations for the year to May, sending its shares down 10% to 127p.
In an interim management statement the business stressed that it had seen strong growth during the year but a number of “small, unrelated factors” had held back the overall rate of expected growth over the past four months.
Group revenue for the year to May 31 is now expected to come in at around £99m (2012: £87.7m) and adjusted pre-tax profit at £23m (2012: £22.6m), which is 3% and 4% respectively below current market expectations.
The business has two main divisions, escrow and assurance. Escrow provides software insurance services which allow companies to protect against the collapse of a software developer by placing vital information, such as the software source codes, with NCC. The assurance business protects IT systems from hackers.
NCC said the market in escrow continues to be challenging as customers delay spending on new upgrades and applications.
Revenue growth fell from 7% last year to 2%. In the UK growth was down to 3% from 7% and Europe performed well. It was a mixed picture in the US where NCC’s Atlanta operation recorded revenue growth of 15% but San Francisco saw a 6% decline. Escrow renewals are forecast to be £17.8m for the current financial year (March 2012: £17.3m).
Assurance delivered 16% year-on-year growth but NCC said parts of the US business have “disappointed by failing to deliver the expected levels of revenue”. The UK Assurance business delivered 17% growth in security testing and 11% in web performance testing.
The integration of the New York-based Intrepidus, which NCC bought last year for £7.1m, “has not proved as successful to date as the other 14 acquisitions completed by the group”. Major client sales were slower than expected and as a consequence no earn-out will be paid in the first year.
Chief executive Rob Cotton said: “We have continued to grow the business and generate cash, albeit slightly below our initial expectations for the year – the first time in 10 years.
“Our growth prospects continue to remain extremely sound – businesses need to have software and other IP assurance systems in place through our software escrow services, whilst the demand for information security continues to be very strong internationally.”
Net debt stands at £30.7m, up from £25.4m last year, and the group has just agreed a £40m three-year revolving credit facility, and an additional £5m overdraft facility. Results for the 12 months to May 31 2013 will be published on July 4.
