Recurring revenue key at NCC

5th Jul 2010 08:22

Successful acquisitions provided the icing on the cake last year for software escrow and assurance testing outfit NCC, which saw both organic revenues and profits increase."Boring old NCC just keeps on growing," was the story headline jokingly suggested by NCC chief executive officer Rob Cotton when he spoke to Sharecast on Monday morning.Group revenue rose by 15% to £53.7m in the year to 31 May from £46.8m, and even with acquisitions excluded revenue growth was 11%.The group has seen its strongest growth rates in its escrow business in Europe although Cotton conceded it was easier to achieve eye-catching growth rates from a relatively small base, "though my account managers won't thank me for saying that".UK revenue from software escrow - a practice whereby NCC stores and verifies mission critical software code for customers in case their software supplier falls down on the job - rose 8% despite the company putting a freeze on prices in what is the biggest part of its business."We usually use our market position to push through price rises but last year we took the decision to freeze prices in the UK, as more of a sentiment thing," explained Cotton. The group's UK customers should not count on this situation lasting, however. Cotton said he is confident the company will be able to push through price rises this year that are "above the consumer price index or the retail price index, whichever is the higher."On the Assurance Testing side Cotton was pleased with the level of recurring revenues that are being achieved at around 75%. "We're the UK's largest independent security advisor. Clients are pretty sticky, in fact once they get the service they invariably want more," Cotton said, adding that the company's cyber-crime fighters open their clients' eyes to the number of ways in which their business could be compromised. "It's non-discretionary expenditure. They [the clients] are going to do the maximum they can to protect themselves," Cotton suggested. It's an example of the sort of recurring revenue that Cotton regards as key to the company's success.Group adjusted pre-tax profits rose 18% to £14.5m from £12.3m. while statutory profit before tax advanced to £13.17m from £10.87m a year earlier.Net debt rose to £11.9m from £5.6m the year before but the company is strongly cash generative and in any case recently renegotiated its loan facility "at better rates than previously" giving it "£25m available to us should we wish to make acquisitions," Cotton said.The company is constantly talking to "companies we admire," Cotton said, and would probably make one or two acquisitions this year like it has the last four years, though Cotton stressed that the company does not need to make purchases to grow.One of the areas where the company is looking to scale up is the USA. With a higher rate of capital gains tax soon to come into effect Stateside Cotton said that the owners of a number of potential acquisitions are currently "realigning their sale price expectations". A final dividend of 7.25p has been proposed, making a total dividend payment for the year of 10.75p, up from 9.25p the year before."The dividend is very important to us. I think that since we floated some six years ago we have increased the dividend by 330%," Cotton said.