TURNING
AWARENESS
INTO ACTION
NCC Group plc
Annual Report and
Accounts for the year
ended 31 May 2016
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www.nccgroup.trust CONTENTS
2016 Performance Highlights
About NCC Group
Chairman’s Statement
The Strategic Report
- Strategy, Markets and Positioning
- Revenue
- Principal Risks and Uncertainties
Corporate Social Responsibility
- Environment and Sustainability
Governance Statements
- Board of Directors
- Directors’ Report
- Corporate Governance Report
- Audit Committee Report
- Nomination Committee Report
- Remuneration Committee Report
Financial Statements
- Statement of Directors’ Responsibilities
- Independent Auditor’s Report to the Members of NCC Group plc
- Consolidated Group Financial Statements
- Notes to the Financial Statements
Additional Information
- Shareholder Information
- Company Locations
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NCC GROUP ANNUAL REPORT AND ACCOUNTS
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS HIGHLIGHTS
Financial
56%
Group revenue grew by 56% to
£209.1m (2015: £133.7m) with
organic growth of 19%
£38.4m
Group adjusted operating profit**
£38.4m (2015: £26.4m)
74%
52%
Assurance revenue grew by 74%
to £169m, organic growth 25%
Assurance operating profit up
52% to £25.8m (2015: £17.0m)
10%
6%
Escrow revenue grew organically
by 10% to £35.3m
Escrow operating profit up 6%
to £20.1m (2015: £18.9m)
£43.7m
45%
Group EBITDA* £43.7m (2015: £29.5m)
before an exceptional charge of £18.9m
Group adjusted profit before tax***
increased by 45% (2015: 1%) to
£37.0m (2015: £25.5m)
£11.5m
Group reported operating profit £11.5m (2015: £22.6m)
11.2p
4.65p
Adjusted fully diluted earnings per share
11.2p (2015: 9.4p)
Total dividend up 17% to 4.65p
(2015: 3.98p)
*
Group EBITDA adjusted for exceptional items of £18.9m (2015: £0.6m), share based payment charges of £1.2m (2015: £1.0m),
depreciation £3.7m (2015: £2.6m) and amortisation of intangibles £8.4m (2015: £2.7m)
** Group adjusted operating profit is adjusted for amortisation of acquired intangibles of £6.8m (2015: £2.2m), exceptional items of £18.9m
(2015: £0.6m) and share based payment charges of £1.2m (2015: £1.0m)
*** Group adjusted pre-tax profit is Group adjusted operating profits excluding the unwinding of the discount on the acquisitions’ deferred
consideration of £0.6m (2015: £0.3m)
Operational
On Track
Fully Integrated
Fox-IT integration on track – global roll
out of services expected to start during
2016/2017 financial year
Accumuli fully integrated - focus on
substantial cyber security market
opportunities
Strongest Growth
1,857 employees
Escrow revenue growth the strongest
in 10 years
Group employee numbers increased by
40% to 1,857 worldwide (2015: 1,388)
Withdrawal from Domain Services but domain security capability retained
- Open Registry to be realised and other assets written down
- Exceptional charge of £13.7m including £0.9m cash cost
Outlook for 2016/2017
£104.6m
£48.5m
Total of Group’s forecast contracted
recurring revenue and the current
order book up 67% to £104.6m
(2015: £62.7m)
Group contracted recurring revenues
are £48.5m
Group’s global reach and product range remains
tightly focused on sustained long-term growth
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NCC GROUP ANNUAL REPORT AND ACCOUNTS
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
ABOUT NCC GROUP
NCC Group is a FTSE 250 listed, global expert in
cyber security and risk mitigation, working with
businesses to protect their brand, data including
intellectual property, value and reputations
against the ever evolving threat landscape.
The Group’s independence, knowledge, experience and global footprint, ensures that NCC Group can help
businesses identify, assess, mitigate and respond to the risks they face within this fluid and hostile environment.
NCC Group is passionate about changing the shape of the Internet to make it safer and revolutionising the way
in which organisations think about cyber security.
NCC Group currently operates two distinct but complementary divisions, Assurance and Escrow. The Group
operates from over 30 offices across the UK, continental Europe, North America and Australia. It provides
comprehensive end-to-end information assurance for more than 15,000 organisations worldwide.
Assurance Services
Security and Risk Consulting Services. The
cyber landscape presents an ever increasing and
ever changing threat to security as cyber intruders
develop increasingly sophisticated ways to attack
corporate networks, thereby gaining access to
organisations’ sensitive and valuable data.
The Group has a range of complementary services
including expert security assurance and penetration
testing, cyber defence operations, incident response
and forensics, managed security services and
security operations centres as well as risk mitigation
and governance.
NCC Group has one of the world’s largest security
consulting teams. It delivers over 112,000 testing
days per year to organisations worldwide. The
Group’s global presence offers clients skilled and
experienced expert services, complemented by a
world-renowned research team.
The Division also provides 24 hours, 365 days,
frontline support to major organisations as well as
steering them through the myriad of different
security and data products that are available and
suitable for their needs.
Software Testing and Website Performance.
Essential websites, software and infrastructure that
support an organisation do not just need protection
from malicious attacks, they also need guaranteed
performance levels. Flaws in code can prevent
software from operating at optimum level and spikes
in online traffic can throw websites offline. Currently
NCC Group tests more than six million web pages
for clients worldwide annually.
Expert software testing provided on-site or from one
of the Group’s European facilities complements
directly the services offered to key clients by
providing critical support through all aspects of
a security-led application development lifecycle.
JUST 33% OF BOARDS
CLEARLY UNDERSTAND
THEIR APPETITE FOR
CYBER RISK.
THAT’S A SIGNIFICANT
PROBLEM FOR THE
OTHER 67%.
The Group is one of the world’s leading and
most established software escrow providers, with
more than 35 years’ experience and protects over
15,000 organisations worldwide with the most
comprehensive escrow solutions available. The
expertise contained within the Escrow Division,
along with its credentials, offerings, global scale
and reputation is unparalleled.
Escrow
Organisations rely on third party supplied
applications and software packages every day to
carry out key business functions and processes.
These applications allow them to operate more
effectively and efficiently and to produce high
quality, innovative products and services. However,
if a software or Software as a Service (‘SaaS’)
supplier goes out of business and/or changes
hands, the continuing availability of these
applications could be in doubt and business
continuity is at risk.
NCC Group’s escrow and verification services
assure the long-term availability of these
applications, protecting both end users and
software suppliers. Working with all parties involved
in the development, supply and use of business
critical software applications, NCC Group assures
that source code, data and other information is
constantly accessible and can be properly rebuilt
from its components, if required.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS CHAIRMAN’S STATEMENT
Results and strategic progress
I am delighted to report that
2016 was yet another year of
strong and consistent growth
for NCC Group. Notably during
the year, the Group joined the
FTSE 250 index. This is yet another
milestone for the Group, which
demonstrates how far the business
has grown and developed over
the last 12 years.
During the last 12 months Group revenues grew
by 56% to £209.1m (2015: £133.7m). Adjusted
pre-tax profits and adjusted fully diluted earnings
per share were up to £37.0m (2015: £25.5m)
and 11.2p (2015: 9.4p) respectively. The Group
continues to be highly cash generative with
operating cash conversion representing
107% of operating profit (2015: 107%).
We also witnessed a year of tangible progress,
strategically, operationally and financially. The Group
raised £126.3m by way of a firm placing and a
placing and an open offer in November and
December 2015, which helped fund the acquisition
of Fox-IT, who we welcomed to the Group.
Operationally, we completed the integration
of Accumuli plc, which has been rebranded
NCC Group Managed Security Services and
have commenced the integration process with
Fox-IT. Both are performing in accordance
with our expectations.
Following a strategic review after the year-end, the
Group Board have taken the disappointing decision
to divest and reallocate some of the assets in the
Domain Services division. The Group continues to
believe that safe, controlled open or branded
domains will play a major part in the Internet
landscape in the years to come, but has recognised
that other opportunities will provide a faster return
on Group assets and investments.
As a result, certain parts of the Division will be
divested in due course, although the capability to
provide a secure domain environment will be
retained. Further details are in the strategic report
and the associated costs are shown in the business
and financial review.
As a company, the Group is committed to leading
the push to make the Internet a safer place for
all and as our markets continue to quickly evolve,
we remain active in innovating and creating
new services to address the numerous emerging
opportunities.
The continued investment means that the Group is
well placed to lead the move for changes to make
the Boards of all companies truly accountable for
the security of their organisations.
Both the Assurance and Escrow divisions have
continued to grow strongly. Assurance has yet
again shown stellar revenue growth of 74%, of
which 25% was organic, while Escrow achieved
record organic growth of over 10%, all of which
translated into Group adjusted pre-tax profit growth
of over 45%.
Dividends
Reflecting the Board’s commitment to its
shareholders and following our progressive dividend
policy, which at least tracks earnings growth, a final
dividend of 3.15p is being recommended by the
Board, making a total for the year of 4.65p, up 17%.
Governance
The Board takes its responsibility to maintain sound
governance seriously. It is committed to high
standards of corporate governance and supports
the principles laid down in The UK Corporate
Governance Codes published in September 2014
by the Financial Reporting Council (“Code”).
The Corporate Governance Report together with the
Audit Committee Report, Nomination Committee
Report and the Directors’ Remuneration Report on
pages 56 to 95 describe how the principles of the
Code are applied by the Group and reports on the
Group’s compliance with the Code’s provisions.
In line with our acquisition strategy, we added
another security technology company to the Group.
Fox-IT provides complementary security consulting
services in Europe and offers advanced threat
analytics, cryptography services and products,
which the Group was previously lacking.
This enables us to supply a wider range of security
related services to its customers globally and
ensures that the Group is a comprehensive one-stop
consultancy-led security services company that
caters for all of a client’s requirements.
Overall, our strategy remains fundamentally
unchanged. The Group aims to develop both
complementary divisions organically and by
acquisition to deliver excellent service and value
for money to our customers. This will continue
to drive growth across the Group.
The Group will continue to actively seek services-led
businesses to acquire in both Europe and North
America to complement its geographical and
technical presence. In addition, new offices will be
opened in Singapore and Dubai, with consideration
being given to a significant central London office.
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CHAIRMAN’S STATEMENT
Board composition
and diversity
Board effectiveness
We have a strong and balanced Board, with a range
of complementary skills to support the strategic and
operational direction of the Group. As a Group, we
recognise the importance of diversity and our Board
members have a wide range of skills and
experiences from a variety of business backgrounds.
This year we plan to further strengthen the team with
an additional independent Non-Executive Director.
As Chairman, I am responsible for the leadership of
the Board and ensuring its effectiveness in all
aspects of its performance. The Board is
responsible for the Group’s strategic development,
monitoring achievement of its business objectives,
oversight of risk and maintaining a system of
effective corporate governance.
Cyber Security Committee
We have stated on a number of occasions that
the responsibility for cyber security rests directly
with the Board and should be approached and
managed with the same vigour and transparency
as audit, remuneration, health and safety and CSR.
To that end, this year the Board will form a Cyber Security Committee,
led by the Senior Independent Non-Executive Director and comprising
the Non-Executive Directors and the CEO. The CEO will report monthly
to the Committee on the performance of the Group’s internal security
and defences. We believe we are the first listed company to create
a Cyber Security Committee at board level.
With the ever increasing threat of cyber-attacks, all listed companies
should have a board-led Cyber Security Committee.
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The Group’s recurring income is significant and
has increased. The start to the year sees Escrow
renewals at £20.5m up from £19.3m in the year
to 31 May 2016 and Assurance has £28.0m
(2015: £6.8m) of managed services, threat
intelligence and monitoring renewals forecast
for the current financial year.
The Assurance division order books have improved
to £53.1m (2015: £32.3m) and Escrow verification
orders total £3.1m (2015: £2.4m).
The Group’s total renewals
and order books now stand
at £104.6m (2015: £62.7m).
In summary, the outlook for NCC Group remains
very positive. The Group is operating in a number
of fast growing international markets with a range
of new and innovative products and services as
well as the existing extensive capabilities.
As a consequence of all these factors, alongside the
integration and roll out of Fox-IT products and
services, the Board is confident that the Group can
continue to deliver sustainable growth and enhanced
shareholder value.
Employees
The talent, dedication and experience of the people
we employ is vital to our success. The motivation
and retention of our staff remains key for the
Group’s future. We aim to be the employer of
choice. We proactively monitor staff retention and
manage all aspects of individuals’ roles,
responsibilities and aspirations.
I would like to record my own and the Board’s
thanks to all of the Group’s employees who have
made this another successful year. This year very
sadly Alex Lander-Brown who was a long serving
security consultant in the Assurance team passed
away, he is a great loss and our thoughts are very
much with his family.
The Group now employs 1,857
people across the world, including
194 associates.
Details of the Group’s diversity policy can be found
on page 35.
Outlook
The whole organisation is focused on client risk
mitigation and delivering peace of mind, through a
complementary range of services offered to an
increasing range and number of multinational clients
to address their business issues.
NCC Group has established itself as one of the
leading pure-play cyber security services businesses
with an extremely wide geographical footprint and
has the largest number of industry experts.
Across the Group the current financial year has
started well and the market for our services remains
as strong as ever. It is still too early to assess how
the decision made by the United Kingdom to leave
the European Union will affect the Group but this is
being carefully monitored.
Paul Mitchell
Non-Executive Chairman
6 July 2016
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Our strategy - delivering sustained
growth based on innovation,
expertise & independence
Both divisions are tasked with and measured on
providing the best client service, allied to offering
appropriate services to help mitigate risk. The Group
is cautiously and diligently looking for acquisition
opportunities of complementary businesses that
either further strengthen our market position,
geographic presence or appropriately extend the
service offering.
Each division has a common
objective, to innovate and develop
further its product sets, to ensure
that it remains at the forefront of
thought leadership and delivery, as
well as to expand geographically
where appropriate.
NCC Group is a global expert in cyber security and
risk mitigation providing organisations worldwide
with market leading escrow and verification, security
consulting and web performance solutions.
The Group set about building its future around the
software escrow business while looking for new
areas of growth in the then uncharted territory of
information and cyber security. Since then, through
carefully constructed, controlled and sustainable
organic growth along with a carefully planned and
well-executed strategic acquisitions programme, the
Group has developed into a leading multinational
provider in both areas.
The Group now operates in two distinct but
complementary divisions, Assurance and Escrow,
having taken the decision to withdraw from providing
Domain Services following this year end.
The two Divisions do not actively cross-sell.
However, they do share information, intelligence
and relationships to ensure that the appropriate
products across our portfolio are made available
to all our clients.
Markets and positioning
Our markets continue to evolve quickly and we
remain active in innovating and creating new
services to address the numerous emerging
opportunities. Innovation, creation and research and
development are the key touchstones of the Group’s
development and growth. Never has this been more
important as the world finally wakes up to the cyber
threat that is now an everyday occurrence for
businesses and individuals alike.
The Group is committed to making
the Internet a safer place for all.
NCC Group’s continued investment
in people and research led
initiatives means that it is well
placed to call for changes to make
Boards truly accountable for the
security of their organisations.
Online security continues to fail to keep up with the
numerous types of individual and indeed
organisations that transgress the Internet. The threat
of being hacked or having valuable data stolen
continues to evolve rapidly and it is growing at a
seemingly unstoppable pace. Phishing, fake
payment requests and ransomware attacks are
every day events and have increased massively,
which provide lucrative rewards to the miscreants
who perpetrate these attacks.
The world in which we live cannot be made
completely safe from cyber crime. As the number
and range of threats proliferate, being innovative and
using our experience and skills to protect against
attacks becomes more important than ever. NCC
Group is doing this by providing the best security
consultants to world leading clients as well as
conducting world-renowned security research.
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THE STRATEGIC REPORT
Assurance Division
Information security
& security consulting
The strategic direction and cultural philosophy of the
Assurance Division is about constant evolution and
therefore research is key to being successful in the
market place. Information security and cyber
security continue to change at a rapid pace with
new areas of concern or vulnerabilities frequently
and regularly discovered. To stay ahead in the
cyber-arms race, our global corporate culture is
aligned with this rapid and constant change. We
have created boutique ways of working with cultural
values that encourage individuals to fulfil their full
creative potential.
Apart from determining security weaknesses, the
Group is also committed to making the Internet a
safer place for the world to interact, communicate
and transact. While combatting the threat of cyber
crime is a clearly stated objective, so is finding a
safe way for the world to navigate, communicate
and transact on the Internet.
Today, cyber crime is the single biggest threat to
businesses and individuals around the world. To put
this into perspective, a recent Kaspersky survey
stated that the damage from cyber-attacks costs UK
business more than £27 billion each year. The
average cost to recover from a DDoS attack is
£275,000 and more than 90% of businesses have
experienced some form of cyber security threat. On
average, it takes almost 120 days for an organisation
to find out that it has been compromised.
In the UK, the public is still largely in the dark about
what data of theirs has been compromised or how
poor companies are at safeguarding their data.
Individuals should have the right to expect their data
to be protected to the highest standards and if it is
not, they should be made aware of what has
happened to it.
Furthermore, from our own research into the safety
of the Internet, almost two-thirds of consumers
believe an online data breach will compromise their
financial information within the next year. The fact
that some 60% of consumers are more worried than
ever before about protecting their personal and
financial information online should certainly confirm
the threat as the greatest to face business today.
Business performance
measures
The Group manages the business using the
Key Performance Indicators shown on the
following pages. Reporting is daily, weekly and
monthly and has different levels of granularity
according to each manager’s responsibility.
The provision of accurate and quickly
produced management information has
always been integral to the Group.
Group
Revenue
+56%
Group Escrow
Revenue
+10%
Group Assurance
Revenue
+74%
£209.1m
£35.3m
£32.0m
£168.9m
£133.7m
£97.0m
Board responsibility
Cyber security and the associated risk mitigation
should be the Board’s responsibility and in particular
that of the CEO. All Directors must be fully
accountable and a lack of understanding or
knowledge is not an acceptable excuse.
A recent government cyber survey of FTSE 350
companies indicated that only 33% of boards
understood their appetite for cyber risk, so 67%
do not. The Group is committed to putting cyber
security onto companies’ main board agenda.
Currently companies do not have any responsibility
to report on cyber breaches or the costs spent
mitigating or remediating after a breach has
occurred. Boards fully discuss and become expert
on accounting policies, health & safety, CSR and
executive remuneration and report on them in detail
in their Annual Report and Accounts. This is not the
case with a company’s most valuable assets, its
data and information.
While the measure and assessment of cyber risk
can be contracted out to third parties, the
determination and judgement of what is an
acceptable level of risk and what appropriate
mitigations can be used to reduce or minimise that
risk, cannot be outsourced.
It is no longer acceptable for cyber
security to be passed down to an
IT director or risk manager.
It is the responsibility of the CEO and the main
board as it is the most significant issue facing
businesses today.
No FTSE 350 company currently has a separate
Cyber Security Committee that reports to the Board
monthly. Most, incorrectly, believe that this
responsibility is that of the Audit Committee which
usually meet at most, on a quarterly basis.
Audit committees do not always have the necessary
skill, gravitas, capability or mandate to deal with
what is a daily threat. It is also unclear what
expertise and know-how a non-executive accountant
would bring. Nor is it clear why cyber risk would be
managed in a domain where the CEO is not the key
member of a committee since it is the biggest risk
on his watch.
A cultural change is needed as the majority of
boards do not have executives with the necessary
IT skills, let alone an understanding of cyber
security. Most board directors who have extensive
operational and financial expertise in their industries
and the corporate world, have minimal, if any,
formal education in IT.
As directors undergo training for anti-bribery or
health and safety, they should also undertake
training for cyber security, as without it they will not
be able to judge or score the threat on the corporate
risk register.
Group Domain
Services Revenue
+5%
£4.9m
£4.7m
Escrow operating
profits
+6%
Assurance
operating profits
+52%
£20.1m
£18.9m
£25.8m
Domain Services
operating losses
65%
(£4.9m)
£17.0m
(£1.7m)
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2015
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THE STRATEGIC REPORT
Division’s strategy and positioning
The Division’s strategy is to constantly demand the
generation of new ideas and initiatives. Not all ideas
make it to product development or design but each
is critically, technically and commercially appraised
before any financial commitment is made.
In conjunction with this creativity, the organisation is
committed to remaining independent and listening to
its clients’ requirements as well as looking to supply
complementary Group capabilities and services that
are currently not supplied to them.
To that end, new product or service lines are
reviewed from a make or buy standpoint.
Acquisitions are carefully analysed and decisions
to acquire Assurance businesses are based upon
culture, fit and service but never on the basis of
profit enhancement by cost reduction or the ability
to turn around an ailing business.
Threat intelligence and cryptology is the most
recent example of this, where the Group acquired
a business, Fox-IT, to directly fill a product and
service need and will be rolling its services out to
multinational customers during 2016/2017. Threat
intelligence is one of the most important tools in an
organisation’s armoury to help prevent and mitigate
cyber-attack.
The Group has been product agnostic and avoided
being a reseller of third parties’ products, software
or services, but this can in certain situations
compromise the Group’s ability to effectively deliver
client solutions. The acquisitions of Accumuli and
Fox-IT required the Group to ensure that these
businesses’ channel and product models did not
blur the Group’s product independence positioning,
nor its independent service capabilities.
Following a detailed due diligence process, the
Group is satisfied that its clients are being supplied
the right set of products from a controlled process
of recommendation even if the product is not sold
by the Group.
As one of the world’s largest service led security
consultancies, the Group is capable of leading
all bids rather than having to look for support
from larger third parties. NCC Group does not
provide white label solutions for third parties
to resell, nor does it enter into any strategic
alliances that compromise the Group’s objectivity
or independence.
Integrity and credibility, alongside
technical capability, are the leading
cultural values of the Group and
the fundamental underpinning
of its strategy to innovate,
create and make safe.
This will ensure the Group remains an independent,
unbiased organisation and maintains its place
as the trusted provider of choice in the security
services marketplace.
Since much of the work carried out by the Group is
research based, in order to maintain its equitable
and ethical disclosure policies, research paid for by
third parties and customers is not disclosed, unless
requested by the paying organisation.
Self-funded research by the Group will always be
provided to the organisation that it affects in full, free
of charge and without disclosure, until such time as
the vulnerability has been resolved in a reasonable
timeframe. This does not preclude the Group
making a full public disclosure if there is a threat to
life or to the general public’s online security, and the
third party is unwilling to remediate the issue.
Corporate
overheads
+24%
Adjusted
operating profits
+46%
£5.7m
£38.4m
£4.6m
Group EDITDA
+48%
£43.7m
Adjusted profit
before tax
+45%
£37.0m
£26.4m
£29.5m
£25.5m
Reported profit
before tax
(56%)
£21.4m
£9.4m
Adjusted basic
earnings per share
19%
11.34p
9.52p
Group Escrow
margins
(4%)
57%
59%
Group Assurance
margins
(13%)
18%
15%
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2015
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THE STRATEGIC REPORT
Escrow
The Escrow Division remains the foundation of the
Group and is the platform upon which the
organisation has been built. The fundamentals of the
Group are fully encapsulated in this division, which
is based around the very highest standards of
customer care and equitable treatment to both
customers in the contractual relationship.
Escrow offers a high value product for a low, in
comparison, investment. Due to its importance to
clients, it provides the Group with excellent recurring
revenues along with good margins and cash
generation. Escrow can be provided both in the
traditional software market as well as in all iterations
of the outsourced model, as the basic underpinnings
are the same, protection from an event that disrupts
the relationship between the owner and licensee of
a software product.
Escrow is also a requirement for all registrars and
registries of domains. The Group provides registry
data escrow services, where the IP address of each
domain registered within a TLD is safely secured
along with Registrar Data Escrow particularly to
support European customers.
The Escrow business has continued to develop its
SaaS service and although not yet a major
contributor to profitability, it is a very important tool
in providing a complete service for clients as they
seek to mitigate risk.
This year has been very successful as the team has
worked hard to consolidate the positive
performances of previous years in both Europe and
the US. The performance is underpinned by a stable
management team that has driven success from the
UK to the rest of the world.
The cash flow and profitability of Escrow are
reinvested to produce not only better Escrow
products and services but also other areas of
complementary services across the Group to
help clients mitigate their information and cyber
security risks.
Domain Services
Following a strategic review, the Group has decided
to withdraw from the Domain Service marketplace
and reinvest some of the assets and resources in
areas that will provide a more suitable return in the
near term.
While this will involve the diminution and realisation
of assets, the Group is still committed to the
concept behind domain services and has retained
the ability to provide a secure, managed environment
when the market place changes, with the objective
being to create a safer Internet for all who traverse
and use it. The Internet will only survive as a usable
vehicle for commerce and industry if there are
radical changes to operators’ and users’ behaviours.
It is clear that the open generic domains and city
codes have not been taken up by businesses and
consumers as well as expected with all of these
falling well short of their initial registration targets.
Coupled with the fact that the branded domains are
still either undelegated or those that are, are unused,
it is clear that the market is not ready for the very
necessary changes that need to happen to
strengthen security on the Internet. As it appears
that the process for new applications is unlikely to
happen in the near term, so actual use of those
newly applied for domains is still years away, the
Group has decided to cut its losses at this stage.
The Group will maintain and continue to publish the
.trust security standards since these are
fundamental to a safer Internet regardless and will
continue to use .trust as the Group’s domain.
Escrow
termination rates
0%
Group headcount
including associates
34%
Assurance headcount
including associates
41%
Escrow headcount
+25%
11%
11%
1,857
1,529
1,388
1,087
181
145
Domain Services
headcount
(74%)
Net debt
(75%)
Cash
conversion ratio
-%
61
£50.6m
107%
107%
16
£12.7m
2015
2016
2015
2016
2015
2015
2015
2016
2015
2016
2015
2015
2016
2015
2015
2016
2015
2015
2016
2015
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NCC GROUP ANNUAL REPORT AND ACCOUNTS
www.nccgroup.trust
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
THE STRATEGIC REPORT
Revenue
For the financial year ended 31 May 2016, the
Group increased revenue by 56% to £209.1m
(2015: £133.7m) with the revenue split being H1
45%: H2 55% (2015: H1 47%: H2 53%) between
the first and second halves of the year. Organic
revenue growth was 19% (2015: 18%).
On a constant currency basis, the Group revenue
growth would have been 54% (2015: 19%) as both
the dollar and euro exchange rates against the
pound varied considerably during the year. Due to
the natural hedging through the intercompany loans,
the impact on the Group’s operating profits was
minimal. The Group does not hedge against
currency fluctuations.
In the year, 58% (2015: 54%) of revenue, £122.0m
(2015: £72.1m) was derived from the UK.
Continental Europe contributed £34.2m (2015:
£13.5m) or 16% of Group revenue, with the Rest of
the World revenue increasing to £52.9m (2015:
£48.1m), some 25% of Group revenue.
Assurance accounted for 81% of the Group’s
revenue (2015: 73%) as it continues to see faster
organic growth as well as benefiting from six
month’s revenue from the newly acquired Fox-IT.
Domain Services saw revenues reach £4.9m (2015:
£4.7m). The Group expects to withdraw from the
sector by the end of the financial year 2017.
The Group’s recurring income is significant and has
increased. Assurance, benefiting from the
acquisition of Fox-IT, saw 94% of its revenues
renewed (2015: 83%), representing 61% of all
customers (2015: 52%). In addition, 90% (2015:
91%) of the performance monitoring revenues
renewed and are recurring.
The increasing number of customers that are
renewing in Assurance has resulted in renewing
Assurance customers’ annual expenditure increasing
from £73.7k to £83.2k with total average customer
spend moving to £51.9k from £53.7k.
In Escrow UK nearly 90% of all contracts renewed
(2015: 89%).
The Group continued to have minimal reliance on
any one customer or sector. Within Assurance the
largest customer represents 4% of Assurance
revenue which is 3% of Group revenue. The largest
customer in Escrow is 1% of total Escrow revenue.
The majority of revenue for Domain Services came
from the withdrawal of the application for .secure
and so has not been included in the sector analysis.
Local Government 2%
Education 2%
Housing 2%
Manufacturing 2%
Professional &
Support Services 4%
Other 4%
Travel 3%
Healthcare 1%
Utilities 1%
Leisure 1%
Financial 38%
Top three
sectors by
Division
Assurance
38%
Finance Sector
Escrow
42%
Finance Sector
19%
Software &
Computer
Services
8%
Retail
20%
Software &
Computer
Services
9%
Telecoms
Telecoms 8%
Retail 7%
National Government 5%
Software &
Computer Services 19%
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NCC GROUP ANNUAL REPORT AND ACCOUNTS
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS THE STRATEGIC REPORT
Assurance Division
Escrow Division
Domain Services
The Division was established in May 2012, in
California, but has now been wound down due to
the slow take up of the new domains and the lack
of awareness of customers and businesses about
the changes in the domain world. The division was
set up to develop the critical infrastructure and
know-how to create a universal environment for
end users to operate and navigate the Internet with
complete safety and security. In January 2015 the
Group acquired Open Registry to provide the
technical know-how and software to operate as
a secure registry and registrar in order to offer
a complete end to end service for all of a client’s
ICANN related and domain requirements.
Domain Services accounted for less than 2%
(2015: 3%) of Group revenues.
The domain, .trust, and associated capital assets
valued at £4.2m continue to be used elsewhere in
the Group and have not been written down in value.
Impairment and other charges for the remainder of
the Division are shown in the Exceptional items
section on page 25.
The Group’s Escrow business, the cornerstone of
NCC Group, produced another very solid year’s
performance with a substantial margin and very
strong cash conversion, as well as a high degree of
recurring revenue, due to the consistent contract
renewal rate of almost 90%.
The Escrow division increased revenue by 10% to
£35.3m (2015: £32.0m).
Group Escrow recurring revenue renewals, grew
to £20.0m (2015: £18.5m). Group Verification
revenues grew by 20% in the year to £10.0m
(2015: £8.3m).
Escrow UK
Escrow UK revenue was £25.7m (2015: £23.7m).
This 8% growth in revenue (2015: 5%) was
delivered through contract growth and verifications,
with only a limited amount coming from the effects
of the price increase introduced during the year.
Escrow UK recurring revenues increased to
£13.7m (2015: £13.2m) and terminations remain
below 11%.
Escrow Europe and Escrow US
Escrow US revenues grew by 20% to £6.2m
(2015: £5.2m) and Escrow Europe revenues
grew by 9% to £3.4m (2015: £3.2m).
Escrow UK now has 107 employees (2015: 99),
Escrow Europe has 15 employees (2015: 14)
and the North American Escrow businesses have
59 employees (2015: 32).
Assurance now accounts for 81% (2015: 73%) of
Group revenues with total divisional revenues
increasing by 74%, 25% organically, to £168.9m
(2015: £97.0m).
Security consulting revenues grew 87% to £138.9m
(2015: £74.4m). Included within this was £14.0m of
revenue from Fox-IT for the period December 2015
to the year end.
Software Testing and Web Performance revenues
grew by 33% to £30.0m (2015: £22.6m)
with a recurring revenue of £7.0m within
Web Performance which is of 90% (2015: 91%)
of customers, which continues its strong track
record of client retention.
The Assurance division primarily provides expert
security assurance and penetration testing, cyber
defence operations, incident response and
forensics, managed security services and security
operations centres as well as risk management and
governance. Fox-IT complements these services and
provides a number of them as well as providing
threat intelligence services and cryptography based
products to clients.
Following the integration of Accumuli the Group’s
Managed Scanning Service (MSS) offerings have
been consolidated so that there is a single client
solution. Accumuli has been rebranded NCC Group
and the majority of services offered are either
security consulting or MSS, although the Group also
sells a limited number of security and big data
related third party products.
Software Testing delivers secure UK based testing
to clients. Web performance testing involves
continuously monitoring the performance and load
capability of organisations’ websites. This is a
SaaS-based service that relies heavily on a
world-class product with the highest levels of
customer support.
The business unit employs 1,323 employees globally
(2015: 929) and uses 206 associates (2015: 158).
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS THE STRATEGIC REPORT
Profitability and margins
Exceptional items
Taxation
Reported profit before tax
Amortisation of acquired intangible assets
Share-based payments
Exceptional items
Unwinding of discount on contingent consideration
Adjusted profit before tax
Net financing costs
Adjusted operating profit
Depreciation
Amortisation
Group EBITDA
2016
£000
9,428
6,833
1,191
18,945
621
37,018
1,407
38,425
3,682
1,578
43,685
2015
£000
21,421
2,207
991
588
262
25,469
929
26,398
2,623
515
29,536
Reported operating profit
11,456
22,609
As product development, intellectual property
and tool development are now such integral parts
of the Group, especially following the acquisition
of Fox-IT, the impact of amortisation and
depreciation has a material effect on NCC Group’s
financial statements.
The Assurance division’s margin was 15% (2015:
18%) due to the effects of a full year of NCC Group
MSS product sales. This is over 1% better than at
the half year. The underlying margin will continue to
improve, ultimately achieving the division’s medium
term objective of 20%.
Accordingly, in line with many of its peers in the UK
and the US, the Board has decided to publish the
Group EBITDA (earnings before interest, tax,
depreciation, amortisation and exceptional charges.)
The Escrow division’s operating margins remained
strong at 57% (2015: 59%), almost 1% better than
in the first half of the year.
Group EBITDA is £43.7m (2015: £29.5m).
NCC Group continues to generate strong margins
despite the increased percentage of revenue from
the non-escrow businesses and the effects of the
Domain Services operational loss, overall adjusted
operating margins remained strong at 18% (2015:
20%). Excluding Domain Services operating
margins would have been 19%.
Assurance’s profitability grew by 52% to £25.8m
(2015: £17.0m) and Escrow’s by 6% to £20.1m
(2015: £18.9m).
Adjusted Group operating profit grew to £38.4m
(2015: £26.4m), including a net operational loss of
£1.7m (2015: loss £4.9m) in Domain Services and
excluding the amortisation of acquired intangibles,
exceptional charges and share-based charges
£27.0m (2015: £3.8m).
Adjusted Group pre-tax profit improved to £37.0m
(2015: £25.5m) after an interest charge of £1.4m.
The Group’s reported pre-tax profit was £9.4m
(2015: £21.4m), after the inclusion of the unwinding
of the discount on the acquisitions’ deferred
consideration, amortisation of acquired intangible
assets, share based payment charges and the
exceptional items.
The Group’s effective tax rate is 22% (2015: 22%),
which is marginally above the average standard UK
rate of 20% (2015: 21%). The higher effective rate
reflects the higher tax rates incurred in the overseas
businesses.
As a result of the acquisition of Accumuli in April
2015 the Group, as previously reported became
responsible for paying retention bonuses to a large
number of employees and former employees of
Accumuli as well as the costs of a fundamental
restructure and reorganisation of the company.
This resulted in an exceptional charge of £1.7m.
In November and December 2015, the Group raised
£126.3m through a firm placing and a placing and
open offer and simultaneously acquired Fox-IT on 27
November 2015 for €133.25m (£93.5m). The costs
associated with the fund raising and acquisition
were £3.5m, which is comprised of fees of £2.3m
and related foreign exchange exposure of £1.2m on
the deferred consideration.
Following a strategic review, the Group decided in
June 2016 to withdraw from the Domain Services
marketplace, the Group has taken a number of one
off charges, totalling net £13.7m, of which £0.9m is
a cash cost relating to Domain Services that will be
paid in the financial year ending 31 May 2017.
These include:
•
•
The impairment of capitalised assets, the critical
infrastructure and know-how to create a universal
environment for end users to operate and
navigate the Internet with complete safety and
security is £6.9m.
The net impairment in the goodwill in Open
Registry is £5.9m. This includes the £5.9m of
deferred consideration that will not be paid as
the earnings targets have not been achieved.
•
A further £0.9m for headcount and associated
restructuring costs related to winding down the
Division.
Total Group exceptional charges were £18.9m
(2015: £0.6m.)
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS THE STRATEGIC REPORT
Earnings per share
The adjusted basic earnings per share from operations was 11.3p (2015: 9.5p).
The table shows the effect on the Group’s basic earnings per share of the amortisation of acquired
intangibles, share based payment charges, unwinding of the discount on the contingent consideration for
acquisitions and the effect of the exceptional items.
Basic EPS as per the income statement
Amortisation of acquired intangibles
Exceptional items
Unwinding of the discount on the contingent consideration
of the acquisitions
Share-based payments
Adjusted basic EPS
2016
Pence
2.5
2.1
6.1
0.2
0.4
11.3
2015
Pence
8.0
0.8
0.2
0.1
0.4
9.5
The adjusted fully diluted earnings per share from continuing operations was 11.2p (2015: 9.4p) while
reported fully diluted earnings per share was 3.2p (2015: 7.8p).
Dividends
The Board is recommending a final dividend of
3.15p per ordinary share, making a total for the year
of 4.65p. This represents cover of 2.4 times (2015:
2.4 times) based on basic adjusted earnings per
share from continuing operations.
Since the Group’s flotation in July 2004, the
dividend has increased from 0.42p to 4.65p, a
compound annual growth rate of 25%.
Cash
The Group continues to be highly cash generative
with an operating cash flow before interest and tax
of £23.1m (2015: £24.3m), which gives a
normalised cash conversion ratio of 107% of
operating profit before interest and tax (2015:
107%) after adjusting for exceptional Accumuli
working capital movements associated with
acquisition related payments and the non-cash
exceptional items in the cashflow.
It is expected as the mix of business continues to
change due to the increase in Assurance revenues,
the percentage will be closer, normally, to 100%.
After accounting for net cash inflows of £123.8m
from the fund raisings and after the outflows for the
acquisitions and deferred acquisition payments, the
Group ended the year, as expected, with net debt of
£12.7m (2015: £50.6m).
In November 2015, the Group increased its banking
facilities to £110m (May 2015: £78m) with a new
five year multi bank facility, comprising a £80m (May
2015: £78m) revolving credit facility and a £30m
(May 2015: nil) five-year term loan and completed a
firm placing for £63.1m. In December 2015 a
placing and open offer for a further £63.2m was
completed.
In November 2015, the Group completed the
acquisition of Fox-IT for £93.5m (€133.25m) of
which £76.6m (€108.3m) was paid on completion.
At the year end contingent payments relate to
Fort Consult of £1.8m, which was paid in full
in June 2016 and ArmstrongAdams of £1.7m due
in August 2016. A non-contingent amount of
£18.5m is due to be paid to Fox IT comprising
of €10m in cash and €2.5m shares in
November 2016 and November 2017.
The deferred payments of £5.9m to Open Registry
are now no longer due as the profit targets cannot
be achieved.
In the financial year to May 2016, due to the
refurbishment and opening of new offices, the
development of new security products and tools as
well as the roll-out of the new IT solution, the Group
spent as planned £13.5m (2015: £12.9m) on capital
expenditure.
In the financial year to May 2017, the investment
programme capital expenditure is expected to
increase to about £18.0m representing the
development of the Group’s new head office in
Manchester and other facilities around the world.
Particular consideration is being given to a
significant central London facility.
26
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
THE STRATEGIC REPORT
Principal risks and uncertainties
Risk Areas
Potential Impact
Mitigation
The Group faces operational risks and uncertainties, which the Directors take all reasonable steps to
mitigate, however, the Directors recognise that they can never be eliminated completely. Managing risk
sensibly is key to the success of any Company.
A robust review of those risks which could seriously affect the Group’s performance, future prospects
and reputation has been performed.
A Group Risk Register is maintained which is reviewed in depth by the Operational Board on a bi-annual
basis. The Risk Register is then reviewed by the Audit Committee for an independent and objective
assessment before being circulated to the Board. Day-to-day risks faced by the Group are mitigated by
management processes and procedures embedded in the Group’s Quality system. The Board and senior
management also encourage a culture of transparency and openness to ensure that issues are escalated
promptly to them when required.
The following table sets out the principal operational risks and uncertainties facing the business, in no
order of priority, their potential impact and the principal mitigating factors.
Risk Areas
Potential Impact
Mitigation
Information Technology
The Group is heavily reliant on continued
and uninterrupted access to its IT
systems. If such systems failed, this
could affect the Group’s ability to
provide services, result in the loss of
sensitive data and compromise the
Group’s reputation.
Failing to successfully implement new
IT systems could similarly cause business
disruption.
Loss of Key Management
Loss of key managers could result in a
lack of necessary expertise or continuity
to execute the Group’s strategy
The Group has made significant
investment in its IT infrastructure to
ensure it continues to support the
growth of the organisation.
NCC Group has appropriate controls
in place in order to mitigate the risk of
systems failure and data loss, including
systems back-up procedures and disaster
recovery plans and also has appropriate
malware protection, network security
controls and encryption of mobile devices.
NCC Group has learnt valuable lessons
from previous system implementations.
New IT solutions are carefully scoped and
implementation is closely managed.
Existing key management, new hires or
management teams that are recruited
through acquisitions are tied in through
rewarding career structures and
attractive salary packages, which include
participation in share schemes.
In addition, succession plans have been
developed or are being developed for
key members of the management team,
including through acquisitions, which are
regularly reviewed.
Recruitment & Retention
An inability to attract and retain sufficient
high-calibre employees could become
a barrier to the continued success and
growth of NCC Group.
Conduct risk
Cyber risk
Conduct risk can arise from a number of
areas such as failing to maintain discipline
and meet customer expectations on
project delivery, testing assignments
or source code handling or from rogue
employees who could maliciously
disrupt the business and steal customer
information. All such instances could
result in damage to reputation, loss of
repeat business and potentially lead to
litigation and/or claims against NCC
Group.
As a provider of security services,
the Group is a high profile target and
could therefore be targeted by attacks
specifically designed to disrupt the
Group’s business and harm the Group’s
reputation. If such an attack was
successful, it could adversely affect the
market’s perception of the Group as well
as causing business disruption.
This is mitigated with a clear human
resources (HR) strategy, which is aligned
to the business strategy and focused on
attracting, developing and retaining the
best people for NCC Group.
Consistent, continuous assessment and
management of employees underpin it
and excellent opportunities for further
career training and development.
In addition, there is a continual review
of compensation and benefits to ensure
sector and geographic competitiveness.
NCC Group operates a system of policies
and procedures which are regularly
audited as part of the quality system.
These, combined with comprehensive
management oversight, the risk
management process, project reviews
and customer feedback, mitigate the risk
to successful service and project delivery.
All staff are trained regularly and backups
are taken wherever possible before testing
assignments begin.
Employees are vetted before joining and
robust controls and processes are in place
to manage employees such as accounting
controls, IT monitoring large downloads of
data and controls on client site operations.
The Board has constituted a Cyber
Security Committee chaired by the the
Senior Non-Executive Director to whom
the CEO reports monthly the risks, threats
and issues facing the Group.
Security testing is regularly carried
out on the Group’s infrastructure and
there are extensive measures in place
to assist in identifying and dealing with
security incidents.
The Group has a dedicated Information
Security Management Forum which
meet regularly to discuss security risks
to the Group. Staff also have regular
security training.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS THE STRATEGIC REPORT
Risk Areas
Acquisitions
Potential Impact
Mitigation
A failure to execute, complete and
successfully integrate targeted, value-
enhancing acquisitions represents a risk
to the Group’s growth.
The Board remains committed to
making value-enhancing acquisitions.
The process adopted by the Board
in identifying and completing such
acquisitions is well established and
includes a robust due diligence and
integration planning process.
Competitive environment and failure
to respond to market trends
New lower priced competitors could enter
the marketplace.
Emphasis is put on providing a high
quality, efficient service.
Investing in new areas
Ethical and legal breaches
Failure to protect intellectual property
Competitors could also respond faster to
market trends.
A failure to keep pace with changes in the
cyber security industry could compromise
the Group’s brand and lead to a loss of
business.
All directors regularly review services
offered by competitors and report to the
Board accordingly.
Discussion groups are held regularly to
ensure new opportunities to improve or
extend the Group’s existing product and
service offerings are taken.
A new product or service area could
require significant investment and
take time to deliver a return or deliver
disappointing returns.
Major new services are only introduced
after extensive review and consideration.
All new significant investments require
Board approval.
A substantive ethical breach and/or
non-compliance with laws or regulations
could potentially lead to damage to NCC
Group’s reputation, fines, litigation and
claims for compensation.
There are a number of intellectual
property rights that are relevant to the
Group’s services such as trademarks,
patents and valuable know-know. If such
rights are not sufficiently protected,
it could result in a loss of competitive
advantage.
NCC Group has various policies and
operational controls in in place across the
Group to mitigate this risk.
There is continued investment in people,
processes and training to assist the
Group in meeting its legal and regulatory
requirements.
Patents are applied for where appropriate
and intellectual property is only
disclosed under a licence agreement or
confidentiality agreement.
30
There are no persons with whom the Company
has contractual or other arrangements that are
deemed to be essential to the Group.
The principal financial risks faced by the
Group are:
Credit Risk.
This is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument
fails to meet its contractual obligations and arises
principally from the Group’s receivables from
customers. The Group’s exposure to credit risk is
influenced mainly by the individual characteristics
of each customer.
Liquidity Risk.
This is the risk that the Company will not be
able to meet its financial obligations as they
fall due. The Group manages liquidity risks
by regular reviews of forecast cash flows in
line with contractual maturities of financial
liabilities and the revolving credit facility available.
Forecast cash flows are reported to the Board
on a monthly basis.
Currency Risk.
The Group is exposed to currency risk on sales,
purchases and borrowings that are denominated
in a currency other than the respective functional
currencies of the Group entities. The Group’s
management review the size and probable timing
of settlement of all financial assets and liabilities
denominated in foreign currencies.
Interest Rate Risk
The Group and Company finances its operations
through a mixture of retained profits and bank
borrowings. The Group borrows and invests
surplus cash at floating rates of interest based
upon bank base rates.
On behalf of the Board
Rob Cotton
Chief Executive
6 July 2016
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
CORPORATE SOCIAL RESPONSIBILITY
NCC Group takes its corporate
social responsibilities very seriously
and recognises the important
contributions to the business
made by the wider community of
stakeholders, in particular investors,
employees, clients, suppliers and
the local communities in which
it operates. It recognises that
by acting responsibly it can deliver
a sustainable business, while
contributing to the community
and preserving the environment.
The Group supports the UN Declaration of Human Rights and this underpins
its policies and actions.
The Board takes into account social, environmental, human rights and
ethical issues in its discussions and decision-making, as well as the health
and safety of employees.
ON AVERAGE, IT TAKES
ALMOST 120 DAYS FOR
AN ORGANISATION TO
FIND OUT THAT IT HAS
BEEN COMPROMISED.
32
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NCC GROUP ANNUAL REPORT AND ACCOUNTS
www.nccgroup.trust
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
CORPORATE SOCIAL RESPONSIBILITY
Stakeholders
Investors.
The investors in the Group need to be comfortable
that their capital is being responsibly used to provide
them with sustainable returns. The Group
communicates regularly with the investors in
meetings and road shows to keep them up to date
with both the opportunities and challenges faced
by the Company.
Employees.
People are at the heart of the Group’s business
and the support and involvement of the talented
individuals who form its team is vital to the continued
success of the Group overall. The Head of HR
reports directly to the CEO, Rob Cotton, to ensure
high level visibility and control of all employment
related issues.
The Group aims to attract and retain the brightest
and best people in its industry and to make sure
they are given the opportunity to develop their
talents. The Group is committed to providing a
productive working environment and recognises
the importance of training and career development.
Each employee has a training record and is
positively encouraged to up-skill. All roles where an
additional professional qualification can be achieved
are actively supported and rewarded. The Group
employs a training manager who ensures all relevant
staff have the necessary training plans in place.
On a daily basis the Group provides relevant
technical, administrative and sales training. Most
of the training is provided in-house although external
courses and trainers are used where it is
appropriate so to do.
A considerable amount of training support is through
on the job side-by-side coaching, internal workshops
or as part of a research team. It is not possible to
directly quantify the total amount spent on training
within the Group, as this is part of the normal
working week.
The Group has a policy of keeping employees
informed of, and engaged in, its business strategy
through the Intranet, regular employee briefings and
divisional meetings. Information is cascaded from
the Board downward to ensure that relevant Group
targets are communicated, as well as ensuring that
cultural values are aligned.
Comments and suggestions from employees on the
Group’s performance and management are actively
encouraged and a free flow of information between
the Directors, managers and employees ensures
that everyone has an opportunity to contribute.
Direct access to the senior management team is
actively promoted and encouraged.
Stakeholders
Modern Slavery.
The Group recognises that modern slavery is
a crime and a violation of fundamental human
rights. The term modern slavery includes not only
slavery but also servitude, forced and compulsory
labour and human trafficking, all of which have in
common the deprivation of a person’s liberty by
another in order to exploit them for personal or
commercial gain.
The Company has a zero-tolerance approach to
modern slavery and is committed to acting ethically
and with integrity in all of its business dealings and
relationships and to implementing and enforcing
effective systems and controls to ensure modern
slavery is not taking place anywhere in its business
or in any of its supply chains. The Company
communicates its zero tolerance approach to all its
suppliers, contractors and business partners at the
outset of the relationship and regularly thereafter. It
expects high standards from all of its contractors,
suppliers and other business partners, and also
expects that its suppliers will hold their own
suppliers to the same standards.
Diversity.
The Group is committed to diversity and offers equal
opportunities to all. No employee or potential
employee receives more or less favourable treatment
due to his or her gender, age, race, national or
ethnic origin, religion or belief, disability, sexual
orientation, or marital status. As part of this we work
to ensure that all employees, whatever their personal
circumstances receive the same opportunities for
training, career development and promotion.
Approximately 81% of our employees are male and
19% female. In our senior leadership team,
approximately 89% of the team are male and 11%
female while on our plc Board, 71% are male and
29% female.
The Board recognises the need to positively support
gender diversity in a technology business, which has
traditionally and historically attracted more men.
While this is desirable, the root cause stems from
the teaching of IT and Technology in our schools
and colleges where it is historically seen as an
all-male preserve. The Group is endeavouring to
engage with local schools and universities to help
educate and instil the benefits and opportunities of
careers in IT and cyber security for all genders.
The Group is committed to its employees and
actively attempts to improve their health and
wellbeing and morale by encouraging fitness based
activities and taking part in charitable events.
The Group has its own football and netball teams
that play weekly and organises cycling sportives
encouraging mass employee and business
participation. NCC Group also has a very active
track cycling club, cricket team, running club and
triathlon club.
The Group takes Health and Safety in the work
place seriously and complies with all relevant
legislation and best practice. There have been no
work place fatalities since the Group was formed
and no reported workplace accidents in the year.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS CORPORATE SOCIAL RESPONSIBILITY
Stakeholders
Clients.
NCC Group values each and every client and is
proud of the long-standing nature of its client
relationships. Continuing client satisfaction is central
to its on-going success and is regularly measured
and monitored through the ISO 9001 certified
quality programme. This includes written and
telephone satisfaction surveys each month.
Rare instances of negative feedback are treated with
the utmost seriousness and dealt with swiftly by
management through to resolution. Each
Operational Director takes direct responsibility for
customer satisfaction, with the CEO investigating
directly if a Division’s performance fails to meet the
75% threshold. No investigations were required in
the year reported on.
The Group recognises and understands that its
relationships with those with whom it deals are the
key to its success and, as such, takes its
obligations and commitments to those people and
organisations very seriously. The Group’s
independence, reputation as a supplier of quality
services and the trust of its clients are all key
assets that it aims to protect at all times. It aims to
engender in its employees principles of honesty
and integrity and the desire to work to the best of
their ability. To ensure best service for the Group’s
clients all employees are required both to comply
with the Company’s Code of Ethics and to undergo
annual anti-bribery and equality and diversity
refresher training.
The Community.
NCC Group believes in supporting good causes
and encourages its staff to get involved too with
considerable success to date.
The Group has donated £200,000 to good causes
this year, with a number of local and national
charities benefiting. The Group’s main charity
remains Macmillan Cancer Support. Additionally, the
Group provided security consulting services on pro
bono basis to Comic Relief and has supported a
number of employee related smaller charity
initiatives. A similar policy has been introduced in
North America where the Group is looking to donate
up to $100,000 to charitable causes.
The Group believes in community and as importantly
likes to encourage its staff to do the same. Again
this year the Group has continued to sponsor local
junior football teams by buying their football kit and
trophies to encourage children to take an interest in
sport and keeping fit. The Group also has
co-sponsored cycle team BikeHaus NCC Group
who are based in Manchester and race throughout
the UK and Europe.
Every year NCC Group staff members have
participated in and organised football tournaments,
silent auctions, raffles, bake days and sport days
and many more fund raising activities.
NCC Group is supporting GCHQ’s CyberFirst Girls
Competition in a bid to encourage young women to
consider cyber as a career. The competition, aimed
at 14 and 15 year olds girls is part of the National
Cyber Security Programme and is designed to
inspire a new generation of females. A team of
female security consultants from the Group have
been working on the initiative, producing videos with
tips on how to avoid becoming a victim of a cyber
attack and also speaking at roadshows in
Universities up and down the country.
The Group is apolitical and does not support any
political party in any jurisdiction nor has it ever made
a political donation.
Suppliers.
The Group’s policy is to pay suppliers in accordance
with terms and conditions agreed when orders are
placed. Although the Group does not follow any
code or standard on payment policy, where terms
have not been specifically agreed, invoices dated in
one calendar month are paid close to the end of the
following month. At 31 May 2016, the Group had an
average of 42 days purchases outstanding in trade
creditors (2015: 52 days).
An Ethical Supplier’s Policy has been adopted to
ensure that all suppliers to the Group comply with
Health and Safety law, have an environmental policy,
an anti-bribery policy and behave ethically towards
their employees.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
CORPORATE SOCIAL RESPONSIBILITY
Environment and sustainability
As a service provider with no manufacturing facilities
the impact of the Group’s operations on the
environment is limited compared with other industries,
however it recognises its responsibility to respect and
limit damage to the environment in every way it can.
The Group sought third party advice for initiatives
that could be implemented and followed as well as
for staff education to ensure that they are thinking
about the environment both in work and at home. In
the coming year the Group is planning to make the
selection of a hybrid or electric vehicles considerably
more attractive to all company car drivers.
Presently due to the size of the Group, external
audit is not practical but once the organisation’s
size becomes such that a significant impact
can be made, it will be introduced to verify
achievements made.
Accordingly, the Group’s Environmental Policy aims
to reduce the energy our business uses by:
•
Conserving energy and other natural resources
and improving efficient use of those resources;
•
Improving the efficiency of materials used;
•
•
Reducing waste and increasing reuse and
recycling wherever possible;
Encouraging the use of alternative means of
transport, for example, via the Cycle to Work
scheme and car sharing; and
•
Providing all staff with relevant environmental
guidance.
Initiatives that have been put in place
•
•
•
•
Energy efficient lighting in the newly refurbished
areas and lighting which switches off
automatically;
Expanding the use of recycling in all offices
- there are paper recycling bins throughout the
offices and bottles, cans and plastics recycling
bins in the kitchens;
On demand boiling water and cold water taps
have been introduced into the kitchens to reduce
wastage of water and power;
Dual flush cisterns have been installed in the
WCs as part of the refurbishment to reduce
excess water usage;
• Cycle to work scheme;
• Re-cycling of printer cartridges in all offices;
•
Printer replacements featuring double sided
printing as standard;
•
Re-cycling of redundant IT equipment;
•
•
Addition of low emission car options into the
company car scheme;
Video conferencing facilities available in main
offices. This reduces the need for travelling so
helping the environment and improving
productivity;
•
Teleconferencing facilities available for all staff;
•
•
Printer review to enable more double sided
printing; and
Increase staff awareness of environmental
issues.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
CORPORATE SOCIAL RESPONSIBILITY
Greenhouse Gas Emissions
Total tCO2e by emission type
This section includes our mandatory reporting of greenhouse gas emissions pursuant to the Companies Act
2006 (Strategic Report and Directors’ Report) Regulations 2014 (“The Regulations”).
The greenhouse gas report period is aligned with our financial reporting year and so runs from 1 June to 31 May
for each reported year.
The method we have used to calculate GHG emissions is the GHG Protocol Corporate Accounting and
Reporting Standard (revised edition), together with the latest emission factors from recognised public sources
including, but not limited to, Defra, the International Energy Agency, the US Energy Information Administration,
the US Environmental Protection Agency and the Intergovernmental panel on Climate Change.
Our emissions cover scope 1 and scope 2 and we have used revenue as the intensity ratio as it best reflects the
size and scale of the business. Our aim is to reduce the overall carbon intensity for the group by at least 10%
over the next three years.
Global Greenhouse gas emissions data
Absolute carbon emissions (tCO2e)
Group Revenue (£m)
Carbon intensity for whole Group
Year on year carbon intensity change
2016
2264
209.1
10.8
(0.4)
2015
1449
129.8
11.2
0.4
2014
1194
110.7
10.8
(3.0)
Cumulative % change
(22)%
(18)%
(22)%
Combustion of fuel
1 9 4
40
2070
Electricity, heat
and cooling purchases
for own use
On behalf of the Board
Rob Cotton
Chief Executive
6 July 2016
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS GOVERNANCE STATEMENTS
Board of Directors
The plc and Executive Board comprises the following Directors.
Paul Mitchell
Non-Executive Chairman
Chairman of Nomination Committee
Rob Cotton
Chief Executive
Member of Nomination Committee
Atul Patel
Group Finance Director
Paul was appointed
Non-Executive Chairman
of NCC Group in 1999. He is
Non-Executive Chairman
of Rickitt Mitchell & Partners
Limited, a corporate financial
advisory firm based in
Manchester. He is also
Non-Executive Chairman of
Styles & Wood Group plc and
a Non-Executive Director of
Little Greene Limited.
He is a qualified chartered
accountant.
Rob was appointed Chief
Executive in 2003, having joined
the Group as Finance Director
and Managing Director of
Escrow in 2000.
He steered the Group through
its move to the London Stock
Exchange’s main market in July
2007 following admission to
AIM in July 2004, and through a
management buy-out in April
2003. As well as delivering
consistent organic growth in
revenue and profits, he has
instigated and overseen a series
of strategic expansion plans
including the acquisition of
complementary businesses
worldwide.
A qualified Chartered Accountant,
he previously held a number of
director and senior management
positions in industry.
Atul joined the Group initially on
an interim basis on 18 February
2011 before being appointed to
the Board on a full time basis on
19 April 2011. He was formerly
a Divisional Finance Director
within Tribal Group plc, being
responsible for the Government
and Health division, operating
the finance and support
functions as well as advising
on business transformation
and business integration.
A qualified Chartered Accountant,
Atul joined the management
consultancy division of
PricewaterhouseCoopers after
qualifying, where he focused on
performance improvement and
business transformation within
global organisations.
Debbie Hewitt MBE
Senior Independent
Non-Executive Director
Chair of Remuneration Committee,
Member of Audit and Nomination
Committees
Debbie joined NCC Group
in September 2008 as a
Non-Executive Director.
She has an MBA, is a Fellow
of the Chartered Institute of
Personnel Development and
was awarded an MBE for
services to Business and the
Public Sector in 2011. She is
Non-Executive Chairman of Moss
Bros plc and The Restaurant
Group plc and Non-Executive
Director of White Stuff Ltd, Visa
UK Limited, BGL Group Limited,
Domestic and General Group
Ltd and Redrow plc.
Thomas Chambers
Non Executive Director
Chair of Audit Committee,
Member of Remuneration and
Nomination Committees
Chris Batterham
Non Executive Director
Member of Audit, Remuneration
and Nomination Committees
Chris is a qualified chartered
accountant and was Finance
Director of Unipalm plc,
before becoming CFO of
Searchspace Limited until 2005.
He is currently Non-Executive
Chairman of Eckoh plc and a
non-executive director of SDL
plc, Iomart Group plc, Blue
Prism Group plc and Toumaz
Group Ltd.
Thomas joined NCC Group in
September 2012. Thomas was
CFO of smartphone operating
systems developer Symbian
Limited from 2001 until its sale to
Nokia Oyj in 2009. Prior to that
he was CFO of First Telecom.
He is a chartered accountant and
has held roles with Kleinwort
Benson, the European Bank for
Reconstruction and Development
and Price Waterhouse. He is
also Non-Executive Chairman at
recruitment company Propel Ltd
and a Non-Executive Director of
Kings Arms Yard VCT plc and
Niu Solutions Ltd.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS GOVERNANCE STATEMENTS
Senior management
The senior management team detailed below is responsible for the operation of the Group’s divisions.
The members of the senior management team include:
Roger Rawlinson
Group Managing Director,
Assurance
Rob Horton
European Managing Director,
Assurance
Daniel Liptrott
Group Managing Director,
Escrow
Roger is responsible for the
operational management of the
Group’s Assurance Division.
He has worked for NCC Group
for over 20 years in a variety
of testing and consultancy roles
and was appointed a Director
in 2004.
Rob is the Managing Director of
NCC Group’s European Security
Consulting division. He joined
the Group in 2008 and has
managed and grown Security
Consulting services in the
Assurance Division, as well as
overseeing the integration of
a number of the acquired
security consulting companies
in to the Group.
Rob was a director of NGS
Software, a security consulting
company he co-founded from its
formation in 2001 through to its
acquisition by and successful
integration into the Group.
Daniel is responsible for the
management and strategic
development of the Escrow
Division globally. Daniel joined
the Group in November 2014
from private practice where he
had been a corporate partner at
a number of international law
firms. From 2006 until 2011 he
had been the Group’s outside
counsel at Eversheds LLP and
advised on a range of issues
including its move to the Main
Market of the London Stock
Exchange in 2007 and each of
the Group’s subsequent
acquisitions until 2011.
Helen Nisbet
Group Company Secretary,
Corporate
Helen is a qualified solicitor
and was appointed Company
Secretary in 2015.
This senior management
team is part of an operational
board, which meets monthly.
Senior members of the
executive team are invited
to make presentations on
specific topics or to discuss
particular operational issues.
The meetings are chaired
by the Chief Executive and
attended by the Chairman.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS DIRECTORS’ REPORT
The Directors present their report and the
Group and Company Financial Statements
of NCC Group plc (the ‘Company’) and its
subsidiaries (together the ‘Group’) for the
financial year ended 31 May 2016.
Principal activities
UK Corporate
Governance Code
The Company is a public limited company
incorporated in England, registered number
4627044, with its registered office at Manchester
Technology Centre, Oxford Road, Manchester
M1 7EF.
The principal activity of the Group is the provision of
independent advice and services to customers by
way of the provision of escrow and assurance
services. The principal activity of the Company is
that of a holding company.
The Company’s statement on corporate governance
can be found in the Corporate Governance Report,
the Audit Committee Report, the Nomination
Committee Report and the Directors’ Remuneration
Report on pages 56 to 95. The Corporate
Governance Report, the Audit Committee Report,
the Nomination Committee Report and the Directors’
Remuneration Report form part of this Directors’
Report and are incorporated into it by reference.
Strategic report
Results and dividends
Pursuant to sections 414A-D Companies Act 2006,
the business review has been replaced with a
strategic report, which can be found on pages
13 to 31. This report sets out the development and
performance of the Group’s business during the
financial year, the position of the Group at the end of
the year and a description of the principal risks and
uncertainties facing the Group.
The Group’s and Company’s audited Financial
Statements for the financial year ended 31 May
2016 are set out on pages 96 to 154.
The Directors propose a final dividend of 3.15p
per ordinary share, which together with the
interim dividend of 1.5p per ordinary share
paid on 26 February 2016 makes a total dividend
of 4.65p for the year.
The final dividend will, if approved by shareholders
at the Annual General Meeting (AGM), be paid on
30 September 2016 to shareholders on the register
at the close of business on 2 September 2016.
The ex-dividend date will be 1 September 2016.
Going concern
Viability statement
In adopting the going concern basis for preparing
the financial statements, the Directors have
considered amongst other matters, the Group’s
principal risks and uncertainties as set out on pages
28 to 31. Based on the Group’s cash flow forecasts
and financial projections, the Board is satisfied that
the Group will be able to operate within the level of
its facilities for the foreseeable future. For this
reason and as detailed in note 1 to the Financial
Statements (Basis of preparation), the Directors
consider it appropriate to continue to adopt the
going concern basis in preparing the Annual Report
and Financial Statements.
The Directors have assessed the viability of the
Group over a three year period, in accordance with
provision C2.2 of the UK Corporate Governance
Code 2014, taking into account the Group’s
current position and the potential impact of the
principal risks documented on page 28 to 31
of the Annual Report.
Based on this assessment, the directors confirm
that they have a reasonable expectation that the
Company will be able to continue in operation
and meet its liabilities as they fall due over the
period to May 2019.
The Directors determined that a three-year period
to 31 May 2019 is an appropriate period over which
to provide its viability statement taking account the
nature of the business and a reasonable foreseeable
planning horizon.
In making their assessment, the Directors have
considered the Group’s current strong financial
position and undertaken a sensitivity analysis over
the key trading assumptions combined with the
potential impact of one or more of the principle
risks on the business materialising within the three
year period.
Based on the results of the analysis outlined above,
the Directors have a reasonable expectation that the
Group will be able to continue in operation and meet
its liabilities as they fall due over the three-year
period of their assessment.
The process of identifying, assessing and managing
the principal risks are as described in the Audit
Committee Report on pages 62 to 69.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS DIRECTORS’ REPORT
Post balance
sheet events
Other than completing the strategic review of
Domain Services Division there have been no
balance sheet events that either require adjustment
to the Financial Statements or are important in the
understanding of the Company’s current position.
Major shareholders
As at the date of this report, the Company had been
notified of the following significant holdings of voting
rights in its ordinary shares in accordance with the
Financial Conduct Authority’s Disclosure and
Transparency Rules:
Shareholder
Mawer Investment Management
Montanaro Asset Management
Aviva Investors
Capital Research Global Investors
Liontrust Asset Management
There were no notifications received under DTR 5
between the information in this table and 6 July 2016
when the accounts were signed.
Number of ordinary
shares notified
Percentage of
ordinary share
capital notified
as at 31 May 2016
28,524,156
21,464,591
16,920,658
13,890,000
13,766,509
10.34%
7.78%
6.13%
5.04%
4.09%
The holders of ordinary shares are entitled, amongst
other rights, to receive the Company’s annual
reports and accounts, to attend and speak at
general meetings of the Company, to appoint
proxies and to exercise voting rights.
Details of the movements of the called up share
capital of the Company are set out in note 23
to the financial statements.
All rights and obligations attaching to the Company’s
ordinary shares are set out in the Company’s
Articles of Association (Articles), copies of which
can be obtained from the Companies House
website or by writing to the Company Secretary.
Unless otherwise provided in the Articles or the
terms of issue of any shares, any shareholder may
transfer any or all of his shares. The Directors may
refuse to register a transfer of shares in certificated
form that are not fully paid-up or otherwise in
accordance with the Articles.
Share capital and control
At the Company’s Annual General Meeting held on
15 September 2015, the directors were granted
authority to allot up to 76,399,866 ordinary shares
representing approximately a third of the
Company’s issued share capital. In addition, the
directors were granted authority to allot a further
76,399,866 ordinary shares, again representing
approximately a third of the Company’s issued
share capital, solely to be used in connection with
a pre-emptive rights issue.
In November and December 2015, the Group
raised £126.3m through a firm placing and a
placing and open offer. At a general meeting on
16 December 2015, the directors were granted
authority to allot (a) up to 22,986,307 shares in
connection with the placing and open offer (b) such
amount of shares required to satisfy the deferred
consideration payable under the acquisition
agreement in relation to Fox-IT and (c) up to a
nominal amount of £919,331 representing
approximately one third of the enlarged share
capital following the firm placing and placing and
open offer and a further third solely to be used in
connection with a pre-emptive rights issue.
45,936,293 new shares were issued in relation to
the firm placing and the placing and open offer.
As at 31 May 2016, the Company’s issued ordinary
share capital comprised of 275,939,764 ordinary
shares with a nominal value of 1 penny each, of
which 116,714 ordinary shares are held in treasury.
During the year ended 31 May 2016, 687,158
shares in the Company were issued further to the
exercise of options pursuant to the Company’s
share option schemes. 121,472 shares were
transferred out of treasury in order to satisfy options
exercised under the Company’s Long Term
Incentive Plan for Executive directors and senior
management.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
DIRECTORS’ REPORT
Authority to purchase
own shares
Directors’
remuneration
Corporate social
responsibility
Change of control
At the Company’s Annual General Meeting held
on 15 September 2015, shareholders authorised
the Company to make market purchases of up
to 22,919,959 ordinary shares representing
approximately 10% of the issued share capital.
This authority was not used during the financial
year ended 31 May 2016. At the 2016 Annual
General Meeting, shareholders will be asked to
give a similar authority.
The Company currently holds 116,714 ordinary
shares in treasury which will be used to satisfy LTIP
liabilities that will fall due to the Executive Directors
and Senior Management in July 2016.
Directors
Details of the Company’s current Directors, together
with brief biographical details are set out on pages
42 to 45.
Subject to law and the Company’s Articles of
Association, the Directors may exercise all of the
powers of the Company and may delegate their
power and discretion to committees.
The Company’s Articles of Association give the
Directors power to appoint and replace Directors.
Under the terms of reference of the Nomination
Committee, any appointment to the Board of the
Company must be recommended by the Nomination
Committee for approval by the Board. The Articles
of Association also require two Directors to retire by
rotation each year end and each Director must offer
himself for re-election at least every three years.
However, in accordance with previous years and in
accordance with best practice all Directors will
submit themselves for re-election each year.
The Remuneration Committee, on behalf of the
Board, has adopted a policy that aims to attract
and retain the Directors needed to run the Group
successfully. Details of the Directors’ remuneration
are set out in the Remuneration Report on pages
72 to 95.
Directors’ interests
Directors’ interests in shares and share options
in the Company are detailed in the Directors’
Remuneration Report set out on pages 72 to 95.
Directors’ and officers’
insurance and
indemnities
The Company maintains Directors’ and Officers’
liability insurance, which provides appropriate
cover for any legal action brought against its
Directors. The Directors of the Company have also
entered into individual deeds of indemnity with the
Company which constitute as qualifying third party
indemnity provisions for the purposes of section
234 of the Companies Act 2006.
The deeds were in effect during the course of the
financial year ended 31 May 2016 for the benefit of
the Directors and, at the date of this report, are in
force for the benefit of the Directors in relation to
certain losses and liabilities which they may incur
(or have incurred) in connection with their duties,
powers or office.
The Corporate Social Responsibility Report on
pages 32 to 41 provides an update on the Group’s
policies and activities in respect of its wider
stakeholders, employees, clients, suppliers,
charities and the community, environmental, ethical
and health and safety issues and modern slavery.
During the year the Company made no political
donations (2014: £Nil).
Greenhouse Gas
Emissions
The Board is committed to maintaining the
environment and limiting wherever possible its
greenhouse gas emissions, this is covered on
pages 40 to 41 in the Corporate Social
Responsibility Report.
The Group and each lender shall enter into
negotiation for a period to determine how the
facility may continue and if after that there is no
agreement the lender has the right to cancel the
commitment.
There are no agreements between the Company
and its directors or employees providing for
compensation for loss of office or employment
(whether through resignation, purported
redundancy or otherwise) that occurs because of a
takeover bid.
Disclosure of information
to auditors
The Directors who held office at the date of
approval of this Directors’ report confirm that so far
as they are each aware, there is no relevant audit
information of which the Company’s auditors are
unaware; and each Director has taken all the steps
that they ought to have taken as a Director to make
themselves aware of any relevant audit information
and to establish that the Company’s auditors are
aware of that information.
A resolution to re-appoint KPMG LLP as auditors
will be put to the members at the Annual General
Meeting.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS DIRECTORS’ REPORT
Annual General Meeting
The notice of the Company’s Annual General
Meeting to be held at the Manchester Technology
Centre, along with details of the business to be
proposed and explanatory notes, will be available
on the Group’s website together with the annual
report. All shareholders will be notified by post or
email, at their request, when the documents have
been made available.
Information to be disclosed under LR 9.8.4R
Listing Rule
LR 9.8.4 (1)
LR 9.8.4 (2)
LR 9.8.4 (4)
LR 9.8.4 (7)
LR 9.8.4 (10)
Detail
Capitalised interest
Publication of unaudited information
Long term incentive schemes
Allotment of equity securities for cash
Contracts of significance which a director is
interested in
LR 9.8.4 (5–6) (8-9) & (11-14) (A)(B) Not applicable
Capitalised interest
During the period, £105,000 of interest was
capitalised by the Group, the tax benefit on this
amount is £23,000.
Page Ref
52
53-55
73-94
53
153
N/A
Allotment of equity
securities for cash
Publication of unaudited
financial information
On 24 November 2016, the company published
a prospectus in connection with the acquisition of
Fox-IT (Prospectus). A copy of the Prospectus is
available for inspection at www.morningstar.co.uk/
uk/NSM
In accordance with LR 9.2.18R, if the company
has published unaudited financial information in a
prospectus, the company must reproduce that
information in its annual report and accounts and
also disclose the actual figures for the same period.
Accordingly, set out below is the unaudited
information extracted from the Prospectus. For the
purposes of LR 9.2.18R (2), the figures below as
published in the Prospectus are the actual figures
for the same period.
In connection with its acquisition of Fox-IT Holding
B.V, on 24 November 2015 the Company
undertook a firm placing pursuant to which it
issued an aggregate 22,949,986 new ordinary
shares of £0.01 each to certain institutional and
qualified professional investors at an issue price
of 275 pence per ordinary share. The aggregate
nominal value of ordinary shares issued pursuant
to the firm placing was £229,499.86.
The aggregate gross consideration received
by the company in respect of the Firm Placing
was £63,112,561.50. The closing price of an
ordinary share on 23 November 2015 (being
the business day that the date that the Issue
Price was fixed) was 286.25 pence.
In accordance with the Pre-Emption Group’s
Statement of Principles (2015), the directors
confirm that the actual level of discount achieved
in respect of the firm placing was 3.9%.
The net proceeds raised were £62,416,000
and all proceeds were used to satisfy the
consideration payable in relation to the acquisition
of Fox-IT Holding B.V. No shares were issued
for cash in the three year period preceding the
firm placing (other than in respect of shares
issued pursuant to the Company’s employee
share schemes).
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
DIRECTORS’ REPORT
Liquidity and capital resources
The capitalisation and indebtedness, distinguishing between guaranteed and unguaranteed, secured and
unsecured indebtedness, of the Group are set out below. These figures are as of 31 August 2015, and
have been extracted from the Group’s unaudited management accounts. There has been no significant
change to the liquidity and capital resources of the Group since 31 August 2015.
Indebtedness
Total current debt
Guaranteed
Secured
Unguaranteed/Unsecured
Total Non-Current Debt
(excluding current portion of long-term debt)
Guaranteed
Secured
Unguaranteed/Unsecured
Total indebtedness as at 31 August 2015
Capitalisation
31 August 2015
(£m)
–
–
–
–
–
69.0
–
69.0
Net indebtedness of NCC Group
in the short and medium term
The following table shows the net indebtedness of NCC Group as at 31 August 2015.
Cash
Liquidity
Current financial debt
Net current financial liquidity
Non-current bank loans
Non-current financial indebtedness
Net funds
31 August 2015
(£m)
7.5
7.5
–
7.5
(69.0)
(69.0)
(61.5)
The Group has a strong capital structure as at 23 November 2015 (being the latest practical date prior
to the date of this document), the total amount outstanding under Royal Bank of Scotland facilities was
£76.4m and cash was £13.3m.
This information is as at 31 August 2015 and has been extracted from the Group’s unaudited management
accounts. There has been no material change to the capitalisation of the Group since 31 August 2015.
On behalf of the Board
Shareholders’ Equity
Share Capital
Share Premium
Merger Reserve
Other Reserves
Total Shareholders’ Equity
Capital and reserves do not include the retained earnings reserve.
54
31 August 2015
(£m)
2.3
24.0
42.3
(1.0)
67.6
Rob Cotton
Chief Executive
6 July 2016
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS CORPORATE GOVERNANCE REPORT
The Board is committed to good corporate
governance principles and practices. In respect
of the year ended 31 May 2016, NCC Group
has been in full compliance with the provisions
of the Corporate Governance Code published
by the Financial Reporting Council in
September 2014 (see www.frc.org.uk) except
as stated in the below.
The effectiveness of the Board is measured by
individual director assessments and a rigorous
annual board evaluation exercise. This year the
matters considered as part of the board evaluation
were the composition of the board including its
range of knowledge and skills, the independence of
its members, its diversity policy, its contribution to
Company strategy, the effectiveness of its
Committees, its ability to communicate, its attitude
to risk and its overall efficiency.
The board review was positive, with useful ideas
being generated, which will be acted upon in the
forthcoming year. It is recognised that the Board
needs constantly to develop its knowledge and skills
so that it can respond to evolving market conditions
and new business challenges and opportunities.
The different parts of the Company’s governance
framework are listed below and how it operates in
practice.
Provision A.3.1.
The Company did not comply with the requirement
that the Chairman meets the independence
criteria set out below (note 27 to the financial
statements and the section entitled independence
of the Chairman and the Non-Executive Directors
on page 60).
The Board strongly believes that good corporate
governance is more than just adherence to a set of
rules. It is about ensuring that the Company is run
efficiently and effectively within a defined framework
of systems and controls with clearly defined
authority and accountability. There is a clear division
between the running of the Board and the running of
the Company’s business, however the Board is very
conscious of its responsibility to review the strategy
of the Company and to challenge, where
appropriate, decisions made by the executive team
in a frank, open and constructive manner.
The Board also reviews the Company’s appetite for
risk and understands the processes for reviewing
risks and the judgments made as a result. Its review
ensures that the Company is identifying the correct
risks on which to focus and taking any appropriate
actions to mitigate those risks.
Responsibilities
The Board.
The Board provides leadership and is responsible
for the overall management of NCC Group, its
strategy and long term objectives. It ensures the
right company structure is in place to deliver long
term value to shareholders and other stakeholders.
Committees of the Board.
The following formally constituted committees deal
with specific aspects of the Group’s affairs in
accordance with their written terms of reference,
which are reviewed regularly and are available on
the Group’s website www.nccgroup.trust.
The Audit Committee.
The Audit Committee’s primary function is to assist
the Board in fulfilling its financial and risk
responsibilities. It also reviews financial reporting,
risk management, the internal controls in place and
the external audit process.
The Nomination Committee.
The Nomination Committee is responsible for
considering the Board’s structure, size, composition
and for succession planning.
The Remuneration Committee.
The Remuneration Committee is responsible for
determining the remuneration of the executive
directors and approving the remuneration of senior
managers.
Cyber Security Committee.
The Cyber Security Committee is responsible for
assessing the current threats and incidents, the
mitigations in place and to report monthly on the
performance of the Group’s internal security and
defences.
Operational Board.
The Operational Board is responsible for assisting
the Chief Executive in the performance of his duties
including:
• developing the annual operating plan;
•
monitoring the performance of the different
divisions of the company against the plan;
• carrying out a formal risk review process;
•
reviewing the Company’s policies and
procedures;
• prioritisation and allocation of resources; and
•
overseeing the day-to-day running of the
Company.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS CORPORATE GOVERNANCE REPORT
Operation of Governance Framework
Role of the Board
The Board is responsible to shareholders for the
proper management of the Company, for its system
of corporate governance and for the long-term
success of the Company. Its role is to provide
entrepreneurial leadership within a framework of
prudent and effective controls. It is responsible for
determining the nature and extent of risks it is willing
to take to achieve the Group’s strategic objectives.
It receives information on, at least a monthly basis to
enable it to review trading performance, forecasts
and strategy and it has a schedule of matters
specifically reserved for its decision. The most
significant of these are:
•
•
•
•
•
•
•
•
•
changes to the structure, size and composition
of the Board;
consideration of the independence of Non-
Executive Directors;
consideration of the balance of interests between
shareholders, employees, customers, the
community and the environment;
review of the management structure and senior
management responsibilities taking into
consideration prudent succession planning;
with the assistance of the Remuneration
Committee, approval of remuneration policies
across the Group;
approval of strategic plans, annual operating
plans and budgets and any material changes to
them;
oversight of the Group’s operations ensuring
competent and prudent management, sound
planning, an adequate system of internal control
and adequate accounting and other records;
maintaining an appropriate relationship with the
Group’s auditors;
reviewing the Group’s risk management and
internal control principles;
•
health and safety matters;
•
approval of corporate policies such as the Code
of Ethics and Open Door Policy;
•
approval of the Group’s professional advisors;
.• final approval of annual accounts and accounting
policies;
•
approval of treasury and banking policies;
•
approval of the dividend policy;
•
changes to the Group’s capital structure;
•
•
•
•
major changes to the Group’s corporate
structure or any change to its status as a public
company;
approval of the acquisition or disposal of
subsidiaries and major investments and capital
projects;
delegation of the Board’s powers and authorities,
including the division of responsibilities between
the Chairman, the Chief Executive and other
Executive Directors; and
receiving reports on the views of the Company’s
shareholders and approval of all documents put
to shareholders at a general meeting or
circulated to shareholders.
Operational management of the Group is delegated
to the Operational Board of NCC Group. The Board
also delegates other matters to Board committees
and management as appropriate.
Procedures exist to allow Directors to seek
independent legal and professional advice in respect
of their duties at the Company’s expense where the
circumstances are appropriate.
The Board normally meets on a monthly basis.
During the year, the Board met on twelve scheduled
occasions, with three additional Board meetings
being convened in relation to the acquisition
of Fox-IT and the placing and open offer.
The attendance of individual Directors at the
scheduled Board meetings is shown in the table
opposite. The Non-Executive Directors are
contracted to spend a minimum of 24 days per
annum on NCC Group affairs and on average spent
30 days on Company business during the year.
Paul Mitchell
Rob Cotton
Atul Patel
Debbie Hewitt
Thomas Chambers
Chris Batterham
Non-Executive Chairman
Chief Executive
Group Finance Director
Senior Non-Executive Director
Non-Executive Director
Non-Executive Director
Board meetings
attended
12/12
12/12
12/12
12/12
12/12
10/12
During the year there were three telephone Board meetings associated with the acquisition of Fox-IT.
The Chief Executive in conjunction with the Chairman and other Board members plan the agendas, which are
issued with the supporting board papers during the week before the meeting. These supporting papers
provide appropriate information to enable the Board to discharge its duties.
Composition of the Board
The Board currently comprises two Executive
Directors and four Non-Executive Directors. The
proportion of women Directors and Officers of the
Board currently stands at 29% and women in senior
management positions across the Group account
for 11% as a whole. The Company’s policy is to
find, develop and keep a diverse workforce at all
levels and it is committed to developing a culture
where women can retain senior positions.
All Directors will submit themselves for re-election
at the AGM every year.
The Chairman.
Role profiles are in place for the Chairman
and Chief Executive Officer, which clearly set
out the duties of each role. The Non-Executive
Chairman, Paul Mitchell, is responsible for the
running of the Board and promoting a culture
of openness and debate.
Executive responsibility for the running of the
Group’s business rests with the Chief Executive
Officer who is supported in this by the Group
Finance Director and the Operational Board of
NCC Group.
The Senior Independent Director.
Debbie Hewitt is the Senior Independent
Non-Executive Director. The role of the Senior
Independent Director is to provide a sounding board
for the Chairman and to serve as an intermediary for
other Directors when necessary. Her main
responsibility is to be available to the shareholders
should they have concerns that they have been
unable to resolve through normal channels or when
such channels would be inappropriate.
Company Secretary.
The role of the Company Secretary is to ensure
good information flows within the Board and its
Committees and between senior management and
Non-Executive Directors. The Company Secretary is
responsible for facilitating the induction of new
directors and assisting with their professional
development as required. All directors have access
to the advice and services of the Company
Secretary to enable them to discharge their duties
as directors.
The Company Secretary is responsible for ensuring
that Board procedures are complied with and for
advising the Board through the Chairman on
governance matters. The appointment and removal
of the Company Secretary is a matter for the Board
as a whole.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS CORPORATE GOVERNANCE REPORT
Independence of the
Chairman and the
Non-Executive Directors
After careful review, the Board has concluded that
Debbie Hewitt, Thomas Chambers and Chris
Batterham are independent. In coming to this
assessment the Board considered the character
of the individuals concerned and the fact that none
of them:
• has ever been an employee of the Group;
•
•
•
has ever had a material business relationship
with the Group or receives any remuneration
other than their salary or fees;
has close family ties with advisors, other
Directors or senior management of the Group
that could reasonably be expected to cause a
conflict;
holds cross-directorships or has significant links
with other Directors through involvement with
other companies or bodies;
• represents a significant shareholder; or
•
has served on the NCC Group Board for more
than nine years from the date of their first
election.
The Board recognises that the Chairman does not
comply with this assessment as he has served as
Chairman for 16 years and so does not meet the
requirements for the Chairman to be independent.
The Board has considered this and has put
safeguards in place where this could impact his role.
For areas where independence is deemed to be key
to any decision making, the Senior Independent
Non-Executive Director is able to assume that
position of responsibility where necessary and has
the casting vote.
Terms and conditions of appointment of Non-
Executive Directors are available for inspection at
the Company’s registered office during normal
business hours.
Conflicts of Interest
Board Effectiveness
Diversity
The Companies Act 2006 requires directors to
avoid situations where they have, or could have, a
direct or indirect interest that conflicts or potentially
conflicts with the interests of the Company. The
Company’s Articles of Association require any
director with a conflict or potential conflict to
declare this to the Board. That director will not then
be involved in the discussions relating to the
proposal, transaction, contract or arrangement in
which they have an interest, unless agreed
otherwise by the Directors of the Company in the
limited circumstance specified in the Articles of
Association, nor will they be counted in the quorum
or be permitted to vote on any issue in which they
have an interest.
This approach has been followed throughout the
year and the Board considers it to have operated
effectively.
The performance of the Board is a fundamental
component of the Company’s success and therefore
the Board recognises the importance of reviewing
its practices regularly. During the year, each of the
Audit Committee, Remuneration Committee and
Nomination Committee carried out an internal
self-evaluation on their effectiveness and concluded
that they continue to be effective and that no
significant amendments are required to their
operating procedures.
A detailed questionnaire on the performance of the
Board was also circulated to all members of the
Board for completion. A summary of the results and
the resulting recommendations were then prepared
and circulated to the Board. The main outcome of
the evaluation was to put focus on the Board’s main
objectives for the coming year in particular the
Group’s succession planning in general, greater
exposure of the Non-Executives to the Operational
Board and focusing on monitoring and mitigating
risks. Areas of strength included the performance of
the Committees, the open and inclusive culture and
the quality of information circulated to the Board.
During the financial year, the Group joined the FTSE
250 index. Therefore the Board will ensure that an
externally facilitated performance evaluation is
conducted at least every three years.
The Senior Independent Non-Executive Director
evaluated the performance of the Chairman and the
Chairman evaluated the performance of each
director. In addition, the Non-Executive Directors
met independently from the Executive Directors to
discuss with the Chairman the overall functioning of
the Board and his contribution in making it effective.
The Board values the aims and objectives of the
Davies report on women on boards. When
considering appointments to the Board and other
senior executive positions a thorough review of the
skills, experience and knowledge of the candidates
is carried out and appointment made on merit and
appropriateness.
At present 17% of the directors on the Board are
women. Given the relatively small size of the board it
would not seem appropriate to impose specific
formulaic targets but it is the Company’s intention to
increase the gender and ethnic diversity of the board
and senior management team as opportunities arise.
Woman
20%
Total
Men
80%
Senior management
Woman
15%
The Non-Executive Directors provide a strong
independent element on the Board and are well
placed to constructively challenge and help develop
proposals on strategy and succession planning.
Between them they bring an extensive and broad
range of experience to the Group.
Men
85%
Board
Woman
17%
Men
83%
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS AUDIT COMMITTEE REPORT
Composition
Meeting Frequency
and Attendance
The Audit Committee’s Objectives and Responsibilities
The Audit Committee is chaired by Thomas
Chambers, a Chartered Accountant, who has
previously worked as the CFO of two
telecommunications companies and held roles with
Kleinwort Benson and Price Waterhouse. He is
therefore considered by the Board to have the
recent and relevant experience required by the UK
Corporate Governance Code 2014.
The other members of the Committee are the
senior independent Non–Executive Director,
Debbie Hewitt, who has a wide range of relevant
business experience and Chris Batterham, a
Chartered Accountant who has previously worked
as a Finance Director. The Committee is
comprised of three independent Non-Executive
Directors.
The Committee is required by its Terms of
Reference to meet at least three times per year.
During this financial year the Committee met four
times. As well as the members of the Committee,
the meetings are usually attended by the Chairman,
Chief Executive and Finance Director. The external
auditors also attend each meeting. During the year
the Committee also meets with the external
auditors without the executives present.
The attendance of individual Committee members
at Audit Committee meetings is shown in the table
below:
Summary biographies of each member of the
Committee are included on pages 42 to 43.
Each Committee member has significant
experience of financial matters through their
past and present business activities.
Thomas Chambers
Debbie Hewitt
Chris Batterham
Meetings
attended
4/4
4/4
3/4
• to develop and implement policy on the
engagement of the external auditors to supply
non-audit services and to approve any fees
for non-audit work paid to the auditors in
excess of £10,000 (ten thousand pounds)
in any 12 month period;
• to monitor the Company’s whistle-blowing
procedures;
• to review the Company’s procedures for
detecting fraud and the systems of control for
the prevention and detection of bribery;
• to review regularly the need for an internal audit
function;
• to review the audit findings with the external
auditor including discussing any major issues
which arise during an audit, the accounting
and audit judgments made, the level of errors
identified during the audit and the effectiveness
of the audit; and
• to give due consideration to laws and regulations,
the provisions of the UK Corporate Governance
Code and the requirements of the UK Listing
Authority’s Listing, Prospectus and Disclosure
and Transparency Rules and any other applicable
rules as appropriate.
The purpose of the Committee is to assist the
Board in the discharge of its responsibilities for
financial reporting and corporate control, including
risk and to provide a forum for reporting by the
external auditors. The Committee’s Terms of
Reference can be found in the Group’s Investors’
section of the Company’s website www.nccgroup.
trust/uk/about-us/investorrelations.
The Terms of Reference are reviewed annually and
have been updated to reflect the changes to the
UK Corporate Governance Code 2014, requiring a
determination of whether the Annual Report and
Accounts, taken as a whole, is fair balanced and
understandable.
The Committee’s main responsibilities can be
summarised as follows:
• to monitor the integrity of the financial statements
and any formal announcements relating to the
Group’s financial performance, reviewing the
material information and significant financial
reporting judgements contained in them;
• to review the Group’s internal financial control
system and risk management systems;
• to review the nature and extent of significant
financial and business risks to NCC Group and
the mitigation of these risks;
• to make recommendations to the Board in relation
to the appointment of the external auditor and to
approve the remuneration and terms of
engagement of the external auditors;
• to oversee the relationship with the external
auditors including, but not limited to,
independence, objectivity and effectiveness;
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS AUDIT COMMITTEE REPORT
Significant issues
considered during the
year in relation to the
Financial Statements
During the year, the Committee reviewed and
considered the following areas in respect of
financial reporting and the preparation of the
interim and annual financial statements:
•
•
•
the appropriateness of the accounting
policies used;
the significant areas of judgment in the
financial statements;
compliance with external and internal
financial reporting standards and policies;
• disclosures and presentations;
•
•
the requirement for a formal internal
audit function; and
whether the Annual Report and Accounts
taken as a whole are fair balanced and
understandable and provide the information
necessary to assess the Company’s position
and performance, business model and strategy.
In carrying out this review the Committee
considered the advice of the Group’s finance team
and the external auditors’ reports setting out their
views on the accounting treatments and judgments
included in the financial statements.
The significant accounting areas and judgments
considered by the Committee were:
Software and
development costs
The Group is undertaking a number of development
projects aimed at producing new products and
services while there is also the on-going investment
in the Group’s finance systems. As a result, total
costs of £6.0m (excluding domain services) have
been capitalised in the year.
Given the significant value of the assets, there is an
element of judgment in respect of the recoverability
of the asset values and also in the classification of
the expenditure as to whether it is capital rather
than on going operational in nature.
A key part of this investment has been the
continued development of the Fox-IT and NCC
Group technologies to create the High Assurance
products and to operate the threat intelligence and
managed services platforms.
Until this year the continued development of the
products and tools to administer and manage both
branded and .trust domains had been capitalised
however following a strategic review, £6.9m of costs
that had been treated as capitalised development
spend in accordance with IAS38 have now been
written off. The total value of assets that were
created and are to be reused and remain capitalised
as at 31 May 2016 is £4.2m of which £2.3m relates
directly to the ownership the TLD .trust.
The Committee has addressed this issue through
examining the reports received from management
outlining the future plans for the business and its
approach to classifying costs as capital in nature.
The Committee receives regular updates from
the Board regarding project progress and costs
incurred. The Committee gains additional comfort
that the business plans have received Board
approval.
This is an area of significant risk for the external
auditors who have also obtained and challenged
the latest business plans and the treatment of a
sample of costs to ensure that only development
costs have been capitalised.
Accounting for Business
Combinations
Revenue Recognition
The Group completed the acquisition of Fox-IT in
November 2015. Management completed the
exercise to determine the fair value of intangible
assets and other net assets acquired in
accordance with IFRS3.
The Committee has reviewed a summary of
the key assumptions adopted, compared these
assumptions to other recent company acquisitions
and discussed with our external auditors,
KPMG, the accounting for acquisitions and
the completeness of related disclosures to
ensure that they are complete, accurate,
understandable and compliant with IFRS3.
Goodwill and
intangible assets
The Group has and will continue to develop both
the Esrow and Assurance divisions organically and
by the acquisition of complementary businesses.
As a result of this the Group has Goodwill of
£224m and carrying value of acquired intangible
assets of £51.1m.
In accordance with IAS36, management have
determined appropriate cash generating units
on which to base the annual impairment review
for goodwill and indefinite lived intangible assets
by comparing the recoverable amount to the
carrying value.
The Committee have reviewed the rationale used to
determine the cash generating units and assumptions
used in future cash flows which underpin the
valuation of goodwill other intangible assets.
The conclusion of this year’s review was to impair
the goodwill of Open Registry by £11.9m.
Revenue recognition, which was identified by the
auditors as a significant risk last year, is now no
longer deemed a significant risk by the auditors.
Internal Audit
The Group again formally considered the need
for its own Internal Audit function and while it
was satisfied it was not necessary, the Group
contracted an independent third party firm of
Chartered Accountants to complete a full Internal
Audit of the North American finance function and
control environment. It is planned that going
forward an Internal Audit programme will be
developed and delivered by a third party
independent qualified auditor.
The CFO in the US, who had held a senior position
in finance in the UK has reported to the Board on
his observations on the internal controls in the US
and regular visits are made to the US offices by
members of the senior management team including
the Group Finance Director.
Additional comfort is drawn from the internal
controls and the Quality and Security procedures
that are in place to support the regular internal and
external audits that are conducted under the
Group’s ISO 9001 accredited quality assurance
process. Further as the Group has expanded
through organic growth and acquisitions, the
external auditors KPMG, have extended their audit
scope to ensure consistent audit coverage. All
acquisitions are independently audited before their
acquisition and undergo a comprehensive due
diligence process.
These current arrangements are deemed sufficient
given the structure of the Group’s accounting
function and the size of the Group, but it will
continue to be reviewed each year.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS AUDIT COMMITTEE REPORT
Internal controls and Risk Management
Review of effectiveness
The Board is responsible for establishing,
maintaining and monitoring the Group’s system
of internal control and reviewing its effectiveness.
Internal control systems are designed to meet
the particular needs of the Group and the risks
to which it is exposed. By their nature however,
internal control systems are designed to manage
rather than eliminate the risk of failure to achieve
business objectives and can provide only
reasonable and not absolute assurance against
material misstatement or loss. Key elements of the
internal control system are described below. These
have all been in place throughout the year and up
to the date of this report and are reviewed regularly
by the Board:
• clearly defined management structure and
delegation of authority to Committees of the
Board, subsidiary boards and associated
business units;
• clearly documented internal procedures set out
in the Group’s ISO 9001:2008 accredited
quality manual;
• high recruitment standards and formal career
development and training to ensure the integrity
and competence of staff;
• regular anti-bribery, security and compliance
training;
• regular and comprehensive information provided
to management, covering financial performance
and key performance indicators, including
non-financial measures;
• a detailed budgeting process where business
units prepare plans for the coming year;
• procedures for the approval of capital
expenditure and investments and acquisitions;
• monthly operational reviews to monitor and
re-forecast results against the annual operating
plan, with major variances followed up and
management action taken where appropriate;
• regular internal audits of key processes and
procedures under the Group’s ISO 9001 and
ISO 27001 accredited quality assurance
process;
• on-going procedures to identify, evaluate
and manage principal risks faced by the
business and procedures to monitor the
control systems in place to reduce these
risks to an acceptable level;
• a bi-annual detailed Group wide risk review
supplemented by formal consideration of
progress made against significant business risks
at monthly operational board meetings; and
• monitoring of any whistle blowing or fraud
reports.
The external auditors provide independent advice
on those areas of internal control which they
assess during the course of their work for the
Group and whose findings are regularly reported to
the Board and the Audit Committee.
The Board, with advice of the Audit Committee has
reviewed and considered the effectiveness of the
risk management and system of internal controls in
place and is satisfied that the Group has in place
effective risk management and control systems.
The Board through the Audit Committee monitors
the on-going process by which critical risks to the
business are identified, evaluated and managed.
The Company maintains a risk register, which:
• sets out the Group’s risk appetite;
• identifies the key risks faced by the Group and
assesses their likelihood and impact; and
• identifies the processes and controls in place
to mitigate these risks.
Regular reporting of risk management ensures that
each risk is evaluated on a timely basis to ensure
that all relevant risks are identified and managed
appropriately and that the Board is focused on
principal risks.
From 1 June 2016 the Group formed a Cyber
Security Committee that will evaluate the risk
environment that the Group operates in and report
to the main Board accordingly.
The current principal risks and uncertainties to the
Group are set out on page 28 to 31.
The Group’s non cyber security risks are monitored
by the Committee and then assessed by the Board
which sets aside time for in depth discussion of
notable risks to the business.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
AUDIT COMMITTEE REPORT
External Auditor Appointment
The Group’s current auditors, KPMG LLP, have
been in place since 1 November 2013 with a
competitive audit tender process having last been
undertaken in November 2011. The Committee
have considered the performance of the external
auditors and the reports they have produced and
have concluded it is appropriate to recommend to
the Board the re-appointment of KPMG LLP as the
Group’s external auditor for the next financial year.
The UK Competition and Markets Authority’s
(CMA) Statutory Audit Services Order (Order)
states, amongst other matters, that FTSE 350
listed companies should put their external audit
contract out to public tender at least every
10 years. The Company’s audit contract will
be put to competitive tender during 2018,
with a view to appointing an external auditor
for the financial year commencing 1 June 2018.
The Committee believes that such a competitive
tender exercise will be in the best interest of the
shareholders as it will ensure continuing scrutiny
and objectivity of the audit. The choice of external
auditor may be reviewed earlier if the Committee
considers it appropriate.
The Committee confirms the Company is in
compliance with the provision of the CMA Order.
The Committee reviews and makes
recommendations with regard to the
re-appointment of external auditors following
a formal review of the auditor’s performance
following the June Audit Committee meeting.
In making these recommendations the
Committee considers:
• the experience, industry knowledge and
expertise of the auditors;
• the scope and planning of the audit and any
variations from plan;
• the quality of the processes adopted;
• the fees charged;
• their attitude to and handling of key audit
judgments;
• their ability to challenge and communicate
effectively with management; and
• the quality of the final report.
During the financial year, the Committee Chair
attended regular meetings with KPMG’s
engagement partner without management being
present. This provided the Committee Chair with
an opportunity for open dialogue. The engagement
partner demonstrated their understanding of the
Group’s business risks and the consequential
impact on the financial statement risks. The
Committee Chair was also able to obtain feedback
on the conduct of the audit firm from the
engagement partner’s perspective to determine if
any challenges in the prior year audit would be
sufficiently addressed in the next audit cycle.
Auditor’s Independence
The Committee received a formal statement of
independence from the external auditors.
The Company also operates a rigorous policy
designed to ensure that the auditors’ independence
is not compromised by their undertaking
inappropriate non-audit work. The Audit
Committee’s approval is therefore required for any
fees for non-audit work paid to the auditors in
excess of £10,000 (ten thousand pounds) in any
financial year. However, the Company recognises
that it can receive particular benefit from certain
non-audit services provided by the external auditors
due to their technical skills and detailed
understanding of the Company’s business.
During this financial year £10,000 (2015: £28,750)
non-audit fees were paid to the external auditor for
the half year review.
All significant pieces of non-audit work are put to
informal tender to suitable parties, this includes if
appropriate the auditors. Upon review as to
suitability and price the work will then be placed to
the provider recommended after approval by the
Audit Committee, if such approval is necessary, in
accordance with the rules set out above.
Related Party
Transactions and other
fees approved by the
Committee
During the year the Audit Committee approved
corporate finance fees payable to Rickitt Mitchell &
Partners Ltd of £750,000 (2015: £748,500) in
relation to the fund raise and the successful
acquisition of Fox-IT in November 2015.
All of the fees are related directly to the execution
and project management of the fund raising
processes and the acquisition. Rickitt Mitchell &
Partners Ltd neither seeks nor recommends
potential acquisition targets to the Group and the
Non-Executive Chairman, who is the Non-Executive
Chairman of Rickitt Mitchell, is excluded from all
discussions on fees.
Fair, balanced and
understandable
At the request of the Board, the Committee
considered whether the 2016 Annual Report and
Accounts was fair balanced and understandable
and whether it provided the necessary information
for shareholders to assess NCC Group’s position
and performance, business model and strategy.
The Committee was satisfied that taken as a whole
the Report and Accounts are fair balanced and
understandable.
68
Thomas Chambers
Chairman,
Audit Committee
6 July 2016
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
NOMINATION COMMITTEE REPORT
Paul Mitchell, Chairman of the Board, is Chairman
of the Nomination Committee. Other members
of the Committee are the three independent
Non-Executive directors, Debbie Hewitt,
Thomas Chambers and Chris Batterham
and the Chief Executive, Rob Cotton.
The Nomination Committee’s objectives
and responsibilities.
The Committee is responsible for reviewing the size,
structure, balance, composition and progressive
refreshing of the Board and as such its duties include:
All appointments are made on merit and against
objective criteria with due regard for the benefits
of diversity on the Board, including gender.
• reviewing the structure of the Board;
•
•
•
•
•
evaluating the balance of skills, knowledge,
experience and diversity on the Board;
making recommendations for further recruitment
to the Board or proposing changes to the
existing Board;
reviewing the leadership needs of the Company,
both executive and non-executive;
succession planning for directors and other
senior executives within the business; and
reviewing annually the time required from the
non-executive directors.
The Non-Executive Chairman leads the process for
the appointment of new Non-Executive Directors to
the Board. For Executive Director positions, the
Chief Executive leads the process.
In relation to an appointment, the Committee draws
up a specification and assesses the capabilities
required for such a role, including an assessment of
the time commitment required. Candidates are
sought by third party advisors, internal recruitment
processes and where appropriate through
assessment of internal candidates and are then
formally considered by the Nomination Committee.
It is intended during the new financial year that the
Board will be strengthened by the appointment of
an additional Non-Executive Director.
The Company and the Committee value the aims
and objectives of the Davies report on women on
boards and support and apply the Group’s diversity
policy set out on page 35.
No formal measurable objectives for female
representation at board level have currently been set
as the Committee is committed, while having regard
to the diversity policy, to recommend only the most
appropriate candidates for appointment to the
Board. Currently 17% of the directors and officers
on the Board are women.
When a new director is appointed they receive a full,
formal and tailored induction into the Company and
discuss with the Chairman any immediate training
requirements.
The Committee’s terms of reference can be found in
the Group’s Investors’ section of the Company’s
website, www.nccgroup.trust/uk/about-us/
investorrelations. The terms of reference are
reviewed annually and updated when necessary.
70
Committee Meetings
The Committee is required, in accordance with
its terms of reference to meet at least twice per
year. During this financial year the Committee met
two times.
Paul Mitchell
Rob Cotton
Debbie Hewitt
Thomas Chambers
Chris Batterham
Meetings
attended
2/2
2/2
2/2
2/2
2/2
Paul Mitchell
Chairman,
Nomination Committee
6 July 2016
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS REMUNERATION COMMITTEE REPORT
Statement by the Chairman
of the Remuneration Committee
I am pleased to present the Directors’
Remuneration Report for the year ended 31 May
2016. The Report is split into three sections,
namely, this Annual Statement, the Directors’
Remuneration Policy and the Annual Report on
Remuneration.
The Directors’ Remuneration Policy was approved
at the 2014 Annual General Meeting held on 16
September 2014. The Remuneration Committee is
not permitted to deviate from the approved policy
for three years, unless it gains shareholder
approval for an amended policy.
This approved policy reflects our overall philosophy
of adopting clear, simple and market competitive
remuneration schemes. The alignment of Executive
remuneration with the objectives of the
shareholders has been the principal focus,
ensuring remuneration structures are fully attuned
to the business strategy. We aim to balance the
short, medium and long term components of our
remuneration, to ensure that we motivate and retain
our Executives and keep them focused on
delivering long term, sustainable growth.
The Remuneration Strategy has been designed to
reflect the needs of a large multi-national
organisation, which is growing both organically
through the innovation of products and services
and with acquisitions, which enable us to leverage
our access to new capabilities and products. The
annual bonus incentivises sustainable growth
across all areas of the business and the Long Term
Incentive Plan (LTIP) reflects our longer term
growth ambitions, particularly in new markets and
new products.
It has been another strong year for the Group, with
good organic growth across many areas of the
business and two successful acquisitions adding to
the product and geographical portfolio of the
Group. Adjusted operating profits have grown by
45% to £37.0m before the operational expenditure
for Domain Services. This is slightly ahead of
market consensus. This level of performance has
been reflected in the performance-related elements
of Executive remuneration.
The annual bonus for the year ended 31 May 2016
was based on the satisfaction of stretching pre-tax
profit targets and performance over the year
resulted in a payment of 70% of basic salary for
both of the Chief Executive and Finance Director.
35% of this bonus will be deferred in shares and
held for two years.
In addition, the growth in adjusted EPS over the
last three years has resulted in the vesting of
19.6% of the LTIP awarded in the year ended 31
May 2013, for both of the Chief Executive and
Finance Director. This reflects the very stretching
targets that the Committee set for this period of
growth. The target range for future LTIPs is set out
on page 83 of this report.
Clawback provisions are in place for the Annual
Bonus and the LTIP.
In addition to these performance related elements,
the Committee has decided to award a salary
increase of 6.02% to the Chief Executive and a
salary increase of 6.03% to the Finance Director.
These percentage increases are in line with the
overall salary review awarded to all other employees.
In calculating the increase for all other employees,
the impact of promotions has been excluded.
The salary reviews of our two key Executives are
compliant with our Remuneration Policy and will be
effective from 1 June 2016.
Our Executive shareholding guideline is 100% of
base salary within five years from the later of (i) the
date of their respective appointment; and (ii) 25
June 2015 (being the date the guidelines were
initially adopted) to attain their minimum
shareholding. The Chief Executive and Finance
Director meet this criterion.
At the Annual General Meeting in September 2015,
96.41% of shareholders voted in favour of the
adoption of the Annual Report on Remuneration.
The Remuneration Committee appreciated the
support for our approach. The 2016 Annual
Statement and Annual Report on Remuneration will
be put to an advisory vote at the Annual General
Meeting in September 2016, providing
shareholders with the opportunity to voice their
opinions on how the Committee has implemented
the Remuneration Policy this year. The year ended
31 May 2016 was another good year of progress
for NCC Group and in this context, we look
forward to receiving your support on our approach
to Remuneration at the Annual General Meeting.
72
Debbie Hewitt
Chair of the Remuneration
Committee
6 July 2016
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REMUNERATION COMMITTEE REPORT
Remuneration Policy Report
The Directors’ Remuneration Policy, approved at the
2014 AGM, has been reproduced on pages 74 to
81, save that the remuneration illustrations on page
79 have been updated to accurately reflect the
Directors’ remuneration for 2016/17.
All variable elements of remuneration are subject to
claw back or repayment by any Executive, where
achievement is deemed by the Committee to have
been based upon fraud, deliberate error, or gross
misrepresentation.
The Committee has adopted a policy that ensures
an appropriate balance between fixed remuneration
and performance related incentives. The
performance related elements have clearly defined
stretching targets that link rewards to business
performance in the short, medium and long term.
For the purposes of section 226D (6) (b) of the
Companies Act 2006, the following policy took
effect from 16 September 2014, the date of the
2014 AGM.
Current Policy Table for Executive Directors
Element
Salary
Purpose
and link to
strategy
Attract,
retain and
reward.
Benefits
Attract,
retain and
reward.
Annual
Bonus
Drive and
reward
sustainable
business
performance.
Operation (including framework to assess performance)
Maximum opportunity
Details of current
salaries are set out in
the Annual Report on
Remuneration (page 82).
Salary increases
are normally in line
with those for other
employees but also take
account of other factors
such as changes to
responsibility and the
complexity of the role.
Market competitive
benefit level.
SAYE Sharesave
Scheme subject to
HMRC approved limits.
Chief Executive 100%
of salary.
Finance Director 100%
of salary.
The Remuneration Committee reviews salaries for Executive
Directors annually unless responsibilities change.
Pay reviews take into account Group and personal
performance and externally benchmarked market data for
companies operating in IT services, management consulting
and relevant high-tech sectors, which although not directly
comparable, provides an indicative range.
In setting appropriate salary levels the Committee takes
into account pay and employment conditions of employees
elsewhere in the Group, alongside the impact of any increase
to base salaries on the total remuneration package
Any changes are effective from 1 June each year.
Benefits in kind include the provision of a car or car
allowance, payment of private fuel, car insurances, private
medical insurance, life assurance and permanent health
insurance.
Executive Directors may be invited to participate in the
Sharesave Scheme approved by HMRC.
Based on a range of stretching targets measured over one
year. This may include, but not exclusively, profit measures
and strategic objectives.
Performance below the minimum performance target results
in no bonus.
No more than 25% of the maximum opportunity is paid for
achievement of the minimum performance target.
The Committee has discretion to reduce the formulaic
bonus outcome if individual performance is determined to be
unsatisfactory or if the individual is the subject of disciplinary
action.
35% of any bonus payment is deferred in shares for 2 years.
Claw back provisions are in place.
Award over shares with
a face value at grant of
100% of salary p.a.
Long
Term
Incentive
Plan
Incentivise
share
ownership
and
long-term
performance
in line with
Group
strategy.
Awards have a performance period of three years.
The level of vesting is determined by financial measures
appropriate to the strategic priorities of the business, such
as EPS and other measures considered appropriate. The
Remuneration Committee has the discretion to determine the
number of measures to be used.
Performance below the minimum performance target results
in no vesting. Performance between the minimum and
maximum performance targets results in 20% to 100% of the
award vesting.
Should a change in control of the Group occur, crystallisation
of any LTIP awards is within the discretion of the
Remuneration Committee.
Clawback provisions are in place.
Pension
Attract,
retain and
reward.
Executive Directors are entitled to a company pension
contribution, which is paid into the Group defined contribution
personal pension scheme.
They can also opt to have the same level of contribution made
as a % of salary.
10% of basic salary,
providing they make a
contribution of not less
than 5% of basic salary.
Choice of performance measures and target setting
For both the annual bonus and LTIPs, our policy is
to choose performance measures that help drive
and reward the achievement of our strategy and
which also provide alignment between Executives
and shareholders. The Committee reviews metrics
annually to ensure they remain appropriate and
reflect the future strategic direction of the Group.
With regard to the annual bonus, the Remuneration
Committee believes that a simple and transparent
scheme with sufficiently stretching targets and an
element of bonus deferral prevents short-term
decisions being made and ensures that the
Executive is entirely focused on the delivery of
sustainable business performance, which
significantly enhances shareholder value.
In setting targets, the Committee aims to reward
steady, progressive growth. It is the Committee’s
view that inappropriately high targets can
encourage inappropriate risk taking and in a Group
where innovation and research is key to Group
Strategy, it could result in these areas being
dispensed with, thereby jeopardising the long
terms aims of the Group.
With regard to the Long Term Incentive Plan, the
Committee believes in setting demanding objectives
in order to motivate and encourage long-term growth
and enhance shareholder value.
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Differences in pay policy
for employees and
Executive Directors
Executive shareholding
guidelines
The remuneration policy for Executive Directors is
replicated throughout the Group and aims to attract
and retain the best staff and to focus their
remuneration on the delivery of long term sustainable
growth by using a mix of salary, benefits, bonus and
longer term incentives.
As a result, no element of Executive Director
remuneration policy is operated exclusively for
Executive Directors:
• The annual performance related pay scheme for
Executive Directors is largely the same as that of
the Operational Directors and Senior Managers
within the business and all are aligned with
business objectives
• Participation in the LTIP was extended in 2005
to other Senior Executives ensuring consistency
in policy and
• The pension scheme is operated for all permanent
employees.
The Committee considers that each Executive
Director of the Company should retain a personal
holding of shares in the Company, the rationale
being that this will expose those directors to the
same risks and rewards enjoyed by the Company’s
shareholders and as such align the interests of
Executive Directors with the interests of the
Company’s shareholders.
The Executive Directors are expected to build and
maintain a minimum holding of Company shares
worth at least 100% of their base salary. They have
five years from the later of (i) the date of their
respective appointment; and (ii) the 25 June 2015
(being the date the guidelines were initially adopted)
to attain their minimum shareholding.
For the avoidance of doubt, Executive Directors are
permitted to sell sufficient shares in order to the
meet any tax obligation arising from vesting shares,
notwithstanding that the Executive Director has not
attained their minimum shareholding.
Both Executive Directors have holdings in the
Company, as do a significant majority of the
Operational Directors.
Non-Executive Director policy table
Element
Fees
Purpose
and link to
strategy
Attract,
retain and
reward
Operation
Maximum opportunity
Fees for the Non-Executive Directors are
determined by the Board within the limits
set by the Articles of Association and are
based on information on fees paid in similar
companies taking into account the experience
of the individuals and the relative time
commitments involved.
Fees for the Non-Executive Directors are
reviewed every three years.
Current fee levels are
set out in the Annual
Report on Remuneration
page 84.
Overall fee limit will be
within the £300,000 limit
set out in the Company’s
Articles of Association.
Approach to recruitment
The principles applied in the recruitment of a new
Director is for the remuneration package to be set in
accordance with the terms of the approved
remuneration policy for existing Directors in force at
the time of appointment. Further detail of this policy
for each element of remuneration is set out below:
Salary.
Salaries for new hires, including internal promotions,
will be set to reflect their skills and experience, the
Company’s intended pay positioning and the market
rate for the applicable role.
Where it is appropriate to offer a below median
salary initially, the Committee will have the discretion
to allow phased salary increases over a period of
time for newly-appointed Directors, even though this
may involve increases in excess of the rate for the
wider workforce and inflation.
Benefits.
Benefits will be provided in line with those offered to
other Executive Directors, taking account of local
market practice, with relocation expenses or
arrangements provided if necessary. Tax equalisation
may also be considered if an executive is adversely
affected by taxation due to their employment with the
Company. The Company may also pay legal fees
and other costs incurred by the individual.
Incentive opportunity.
The aggregate on going incentive opportunity
offered to new recruits will be no higher than that
offered under the annual bonus plan and the LTIP to
the existing Executive Directors. Different
performance measures and targets may be set
initially for the annual bonus plan, taking into account
the responsibilities of the individual and the point in
the financial year at which they join.
‘Buyout’ awards.
Sign-on bonuses are not generally offered by
NCC Group but at Board level, the Committee
may offer additional cash and/or share-based
‘buyout’ awards when it considers these to be in
the best interests of the Company and, therefore,
shareholders, including awards made under Listing
Rule 9.4.2 R. Any such ‘buyout’ payments would
be based solely on remuneration lost when leaving
the former employer and would reflect the delivery
mechanism such as cash, shares, options, time
horizons and performance requirements attaching
to that remuneration.
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Long Term Incentive Plan.
Under the LTIP, unvested awards will normally lapse
upon cessation of employment. However, in line with
the plan rules, the Committee has discretion to allow
awards to vest at the normal vesting date, or earlier.
If the Committee exercises this discretion, awards
are normally pro-rated to reflect time served since
the date of grant and based on the achievement of
the performance criteria.
All Employee Share Schemes.
The Executive Directors, where eligible for
participation in all employee share schemes,
participate on the same basis as for other
employees.
Approach to service contracts
and letters of appointment.
The Committee’s policy is to offer service contracts
for Executive Directors with notice periods of six to
twelve months. In addition, the Executive Directors
are subject to a non-compete clause from the date
of termination, where enforceable.
All Non-Executive Directors’ appointments are
terminable on at least three months’ notice on
either side.
The Executive Directors and Non-Executive
Directors offer themselves for re-election every year.
Transitional arrangements for
internal appointments to the Board.
In the case of an internal appointment, any variable
pay element awarded in respect of the prior role may
be allowed to pay out according to its terms on
grant, adjusted as relevant to take into account the
appointment. In addition, any other on-going
remuneration obligations existing prior to
appointment may continue, provided that they are
put to shareholders for approval at the first AGM
following their appointment.
Policy on payment for loss of office.
Payments on termination for Executive Directors are
restricted to the value of salary and contractual
benefits for the duration of the notice period. It is the
policy of the Remuneration Committee to seek to
mitigate termination payments and pay what is due
and fair. There are no predetermined special
provisions for Executive Directors with regard to
compensation in the event of loss of office.
Elements of variable remuneration would be treated
as follows:
Annual bonus.
The treatment of annual bonus payments upon
cessation of employment is determined on a case by
case basis. When the Committee determines that
the payment of an annual bonus is appropriate, the
annual bonus payment is typically:
• payable in cash without deferral pro-rated for the
period of time served from the start of the
financial year to the date of termination and not for
any period in lieu of notice or garden leave and
• subject to the normal bonus targets, tested at the
end of the year, and would take into account
performance over the notice period.
The Committee also has the discretion to determine
whether any deferred shares from previous annual
bonus payments will vest at the normal vesting date
or earlier on leaving or whether they lapse. If the
Committee exercises this discretion, they can also
determine if the vesting should be pro-rated to
reflect time served since the beginning of the
deferral date.
Illustration of remuneration scenarios
The chart below details the hypothetical composition of each Executive Director’s remuneration package
and how it could vary at different levels of performance under the policy set out above.
1,800
1,600
1,400
1,200
1,000
800
600
400
200
Total Fixed
Annual Bonus
Long-term incentives
£1,668
32%
£1,087
8%
£612
34%
32%
100%
Fixed
57%
Target
37%
Maximum
£792
31%
31%
£521
8%
34%
58%
Target
38%
Maximum
£300
100%
Fixed
Chief Executive Officer
Finance Director
Amounts shown in the chart are in £000
Note that the charts are indicative, as share price movement has been excluded. Assumptions made for each
scenario are as follows.
• Minimum.
Fixed remuneration only salary, benefits and pension. Salary based on 2016/17 salary and benefits based
on 2015/16 disclosed benefit amounts.
• Target.
Fixed remuneration plus target annual bonus opportunity, £370,000 for the Chief Executive and £172,000
for the Finance Director, which is equivalent to 70% of salary for the Chief Executive and for the Finance
Director, plus 20% vesting of the maximum award under the Long Term Incentive Plan.
• Maximum.
Fixed remuneration plus maximum annual bonus opportunity, £528,000 for the Chief Executive and
£246,000 for the Finance Director, which is equivalent to 100% of salary for the Chief Executive and
100% of salary for the Finance Director plus 100% vesting of the maximum award under the Long Term
Incentive Plan which is 100% of salary for both the Chief Executive and Finance Director.
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
REMUNERATION COMMITTEE REPORT
Statement of
consideration of
employment conditions
elsewhere in the Group
The Remuneration Committee does not consult
directly with employees when determining
remuneration policy for Executive Directors.
However, as stated above, the annual bonus and
LTIP are operated for other employees to ensure
alignment of objectives across the Group and the
terms of the pension scheme are the same for all
permanent employees. In addition, the Committee
compares information on general pay levels and
policies across the Group when setting Executive
Director pay levels.
How shareholder views
are taken into account
The Remuneration Committee considers
shareholder feedback received on the Directors’
Remuneration Report each year and guidance from
shareholder representative bodies more generally.
Shareholders’ views are key inputs when shaping
remuneration policy. When any material changes are
proposed to the remuneration policy, the
Remuneration Committee Chairman will inform
major shareholders in advance and will generally
offer a meeting to discuss these.
Key areas of discretion in
the remuneration policy
Legacy arrangements
The Committee operates the Group’s variable
incentive plans according to their respective rules
and in accordance with HMRC rules where relevant.
To ensure the efficient administration of these plans,
the Committee will apply certain operational
discretions. These discretions are implicit in the
policy stated above, but we have listed them for
clarity. These include, but are not limited to:
For the avoidance of doubt, in approving this
Policy Report, authority is given to the Company to
honour any commitments entered into with current
or former Directors before the current legislation on
remuneration policies came into force or before an
individual became a Director, such as the payment
outstanding incentive awards, even where it is not
consistent with the policy prevailing at the time such
commitment is fulfilled.
• Whether annual bonus is paid to Executives once
notice has been served
Details of any payments to former Directors will
be set out in the Annual Report on Remuneration
as they arise..
• Discretion in exceptional circumstances to amend
previously set incentive targets or to adjust the
proposed pay-out to ensure a fair and appropriate
outcome
• Certain decisions relating to the Long Term
Incentive Plan awards for which the Committee
has discretion as set out in the rules of the
relevant share plans which have been approved
by shareholders; and
• The decisions on exercise of claw-back rights.
External Directorships
for Executive Directors
Executive Directors may accept Non-Executive
Directorships with the prior agreement of the Board
provided it does not conflict with the Group’s
interests and the time commitment does not impact
upon the Executive Director’s ability to perform their
primary duty. The Executive Directors may retain the
fees from external directorships.
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Annual Report on Remuneration
Pension and Benefits.
There will be no changes to pension or benefits
provision.
Annual Bonus.
The annual bonus maximum for the Chief Executive
and Finance Director in 2016/17 will be 100%
of salary. In addition, to ensure that this bonus
opportunity also results in shareholder alignment
and provides greater retention value, 35% of
any bonus payment will be deferred in shares
for 2 years. The bonus is also subject to claw
back provisions.
Payments under the bonus will be based upon
the achievement of profit targets set by the
Remuneration Committee. The profit target will
be based on delivery of the Group’s own internal
plans, which are comprehensively set, scrutinised
and agreed by the Main Board overlaid on to the
financial forecasts and expectations in the investor
community.
Profit targets will be disclosed retrospectively in
the 2018/19 Annual Report on Remuneration.
The following report will be subject to an advisory
vote at the September 2016 AGM. It sets out how
NCC Group’s remuneration policy will be
implemented in 2016/17 and how it has been
implemented in 2015/16. This part of the report has
been prepared in accordance with Part 3 of The
Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations
2013 and 9.8.8R of the Listing Rules.
How will remuneration policy be
implemented in the year ended
31 May 2017?
Executive Directors’ Base Salaries
Since the last salary review in the year ended
31 May 2016, the business has continued to
grow in the UK and internationally and continues
to widen its geographical coverage for its clients.
The Committee has decided to award a salary
increase of 6.02% to the Chief Executive and a
salary increase of 6.03% to the Finance Director.
These percentage increases are in line with the
overall salary review awarded to all other employees.
In calculating the increase for all other employees,
the impact of promotions has been excluded.
The salary reviews of these two Executives are
compliant with our Remuneration Policy and will
be effective from 1 June 2016. They compare to
the awards made last year to the Chief Executive
of 5.96% and to the Finance Director of 11.0%.
Further detail on these increases is set out below:
Salary to
31 May
2016
Salary to
31 May
2017
%
Increase
£498k
£528k
£232k
£246k
6.02%
(5.96% LY)
6.03%
(11.0% LY
Chief
Executive
Finance
Director
Long-term Incentive Plan (LTIP)
Awards of 100% of base salary will be made under
the LTIP in August 2016 on the same terms as set
out in the policy table. The performance conditions
are as follows:
Non-Executive Directors’ Remuneration
The fees for Non-Executives reflect a core fee for
all Non-Executives then additional fees for the
Chairman, those that Chair a Committee and also
for the Senior Independent Director. The next review
of fees will be in the year ended 31 May 2018.
Growth in adjusted
EPS over the period
1 June 2016 to
31 May 2019
Less than 9%
per annum
At or above 15%
per annum
Between 9% and
15% per annum
% of LTIP award
which will vest
£000
0%
100%
Between 20%
and 100% on a
straight-line basis
Paul Mitchell
Debbie Hewitt
Thomas Chambers
Chris Batterham
Fees Year
ended
31 May
2016
Fees Year
ended
31 May
2017
£75k
£51k
£43k
£38k
£75k
£51k
£43k
£38k
The Committee continues to consider, but has
decided not to use, Total Shareholder Return
as a measure, as there are no appropriate or
sufficiently similar comparable organisations
to compare the Group against.
Comparing the share performance against such
a diverse sector as the Software and Services
sector or the All Share Index, is outside the sphere
of influence of the Executives. If this criterion had
been included in the past, the rewards for the
participating Executives and Senior Managers
would have been considerably higher.
How has the remuneration policy
been implemented in the year
ended 31 May 2015?
This section sets out how the remuneration policy
was implemented in 2015/16. The key
implementation decisions during the year related to:
• Determination of annual bonus outcomes for the
2015/16 performance period
• Determination of the vesting level of LTIP awards
which related to the 3 year performance period
ending on 31 May 2016 and
• The value of awards to be granted under the
LTIP, which will vest in 2019, based on a
demanding 3-year EPS performance target.
Further detail on these decisions, together with
other information on payments made to Directors,
is set out in the following sections.
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REMUNERATION COMMITTEE REPORT
Single Total Figure of Remuneration (Audited)
The detailed emoluments received by the Executive and Non-Executive Directors for the year ended 31 May
2016 are below. No payments were made for loss of office, and no payments were made to past Directors.
Base
Salary /
Non
Executive
Director
Fees Benefits1
£498
£470
£232
£209
£75
£75
£51
£51
£43
£43
£38
£3
£31
£29
£28
£26
-
-
-
-
-
-
-
-
Director
£000
Rob
Cotton
Atul
Patel
Paul
Mitchell
Debbie
Hewitt
Thomas
Chambers
Chris
Batterham6
Year
ended
31 May
2016
31 May
2015
31 May
2016
31 May
2015
31 May
2016
31 May
2015
31 May
2016
31 May
2015
31 May
2016
31 May
2015
31 May
2016
31 May
2015
Pension
Contributions2
Annual
Bonus3
Long-
term
incentive4 Other5
Total
£50
£348
£164
£47
£342
£105
£23
£162
£76
-
-
-
£1,091
£993
£521
£21
£152
£49
£11
£468
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
£75
£75
£51
£51
£43
£43
£38
£3
1
Taxable benefits include the provision to every Executive Director of a car or car allowance, payment of private fuel, car insurances, private
medical insurance, life assurance and permanent health insurance.
2 Pension benefits include employer contributions to the Group pension scheme and payments in lieu of pension contributions.
3 Annual Bonus payments for performance in the relevant financial year. 35% of this bonus is deferred in shares for two years.
4 Long term incentive awards vesting under the LTIP. Further detail is set out on page 86.
5 The value of the awards vesting under the SAYE.
6 Chris Batterham was appointed as a Non-Executive Director to the Board on 1 May 2015.
Annual Bonus
For the year ended 31 May 2016, the maximum bonus opportunity for Rob Cotton was £498,000 (100% of
salary), and for Atul Patel £232,000 (100% of salary). The actual bonus pay out of £348,600 for Rob Cotton
and £162,400 for Atul Patel represented 70% of the maximum opportunity for Rob Cotton and Atul Patel and
was determined by performance against profit targets established at the start of the financial year. 35% of
each payment will be deferred in shares for two years.
The Committee has determined that performance targets for the year ended 31 May 2016 annual bonus are
market sensitive and has committed to disclosing these targets in the 2017/2018 annual report on
remuneration. In line with this policy, we have set out below performance against the profit targets for the year
ended 31 May 2014 annual bonus.
Performance
condition
Threshold
Target
Maximum
Actual performance
31 May 2014
adjusted Profit
Before Tax
31 May 2014
Annual Bonus payments
£24.4m
£27.1m
£32.5m
£27.3m
Rob Cotton
Atul Patel
£70,000
£200,000
£280,000
£205,609
£26,250
£75,000
£135,000
£77,203
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REMUNERATION COMMITTEE REPORT
Long-term incentive plan vesting
LTIP awards vesting based on performance up to the end of the year ended 31 May 2016 were based
on an extremely demanding 3 year EPS growth performance condition. Group EPS performance met
the performance target, which resulted in 61,295 shares vesting to Rob Cotton and 28,509 shares
vesting to Atul Patel. As shown in the table below, this represents 19.6% of the total award.
Executive
Rob Cotton
Atul Patel
Number of LTIP
shares awarded
312,727
145,454
% of shares vesting
Value of shares vesting
19.6%
19.6%
£163,780
£76,176
The value shown in the single figure is based on the average share price over March, April and May.
Further detail on the performance condition relating to these awards is set out below:
Growth in adjusted EPS over the
period 1 June 2013 to 31 May 2016 % of LTIP award which will vest
Performance condition
Less than 10% per annum
At or above 25% per annum
Between 10% and 25% per annum
0%
100%
Between 0% and 100% on a
straight-line basis.
Actual performance
12.9% per annum
19.6%
Scheme interests awarded during the year (Audited)
LTIP awards granted in the year.
On 6 August 2015, Executive Directors were granted awards, which will vest in 2018 subject
to the demanding performance conditions that were set out in last year’s Report on Remuneration.
The value of these awards will be included in the single figure table in the year ended 31 May 2018
remuneration report following the end of the performance period. The awards are set out below:
Executive
Number of
LTIP awards1
Rob Cotton
218,421
Atul Patel
101,754
Basis
Face Value2
100% of base
salary
100% of base
salary
£498,000
£232,000
Performance
condition
Performance
period
31 May 2015 to
31 May 2018
31 May 2015 to
31 May 2018
Vesting will
be determined
by growth
in adjusted
EPS over the
performance
period
1 LTIP awards are structured as nil-cost options.
2 Based on a share price of £2.28 which was the closing mid-market price of the Company’s shares on the day before the date of grant.
The performance condition for these awards is set out below:
Average annual growth in adjusted
EPS over the period 1 June 2015 to
31 May 2018
% of LTIP award which will vest
Performance condition
Less than 9% per annum
At or above 15% per annum
Between 9% and 15% per annum
0%
100%
Between 20% and 100% on a
straight-line basis.
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REMUNERATION COMMITTEE REPORT
SAYE options granted and exercised in the year
The Group operates a HMRC approved SAYE scheme. All eligible employees, including Executive Directors,
may be invited to participate on similar terms for a fixed period of three years. During the year both Executive
Directors opted to participate in this scheme.
These awards will be included in the other column of the single figure table in the 2016/17 and in the 2017/8
annual remuneration reports, once they have vested.
Executive
Rob Cotton
Date of
Grant
Number of
options
5 Aug
2013
7,945
Rob Cotton
4 Aug
2014
5,933
Atul Patel
4 Aug
2014
11,867
Face
Value
Exercise
price
Performance
condition
Vesting
Date
£11,2481
£1.1327
£12,4592
£1.5167
£24,9212
£1.5167
October
2016
October
2017
October
2017
Awards vest
subject to
continued
employment
Awards vest
subject to
continued
employment
Awards vest
subject to
continued
employment
Basis
£250 per
month
contribution
over a 3 year
period
£250 per
month
contribution
over a 3 year
period
£500 per
month
contribution
over a 3 year
period
1
Calculated on the price of £1.4158, which was the average midmarket share price over the three days preceding the date of grant.
2 Calculated on the price of £2.10, which was the average midmarket share price over the three days preceding the date of grant.
Directors’ interests in shares (Audited).
The tables below set out details of Executive Directors outstanding share awards, which will vest in future
years’ subject to performance and/or continued service.
LTIP - maximum awards granted
Maximum
number of
options
granted
Date of
awards
Performance
period
Exercise
period
Share price
on date of
grant £
Exercise
price £1
Rob Cotton
9 July 2012
321,4922
8 July 2013
6 Aug 2014
28 July 2015
312,727
228,432
218,421
Atul Patel
9 July 2012
149,5323
8 July 2013
6 Aug 2014
28 July 2015
145,454
101,579
101,754
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
1 year
1 year
1 year
1 year
1 year
1 year
1 year
1 year
1.337
1.375
2.058
2.28
1.337
1.375
2.058
2.28
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
1 Total exercise price of £1.00 on each occasion
2 49,510 of these awards vested to Rob Cotton in 2015. The remainder lapsed.
3 23,028 of these awards vested to Atul Patel in 2015. The remainder lapsed.
Summary of maximum awards outstanding
Total LTIP
Options held
at 31 May
2015
Granted
during the
period
Exercised
during the
period
Share price
on date of
exercise
Lapsed
during the
period
Total LTIP
Options held
at 31 May
2016
Rob Cotton
Atul Patel
862,651
396,565
218,421
101,754
49,510
23,028
£2.19
£2.19
271,982
126,504
759,580
348,787
All awards granted under the LTIP are subject to continued employment and the satisfaction of the
performance conditions as set out below. The awards are all nil cost options.
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REMUNERATION COMMITTEE REPORT
Performance conditions for the above awards.
The outstanding awards from the period 1 June 2014 disclosed above are subject to the following
performance conditions. If adjusted EPS growth is equal to 15% or more per annum, then 100% of the
award will vest. If, however, growth is less than 9% per annum, none of the award governed by the EPS
condition will vest. Performance between the two points of measure will be determined between 20% and
100% on a straight-line basis.
The outstanding awards up to the period 31 May 2014 disclosed above are subject to the following performance
conditions. If adjusted EPS growth is equal to 25% or more per annum, then 100% of the award will vest. If,
however, growth is less than 10% per annum, none of the award governed by the EPS condition will vest.
Performance between the two points of measure will be determined on a straight-line basis.
Share ownership.
The beneficial and non-beneficial interests of the directors in the share capital of NCC Group at 31 May 2016
are set out below.
Beneficial Interests in
ordinary shares
Maximum Share
awards subject to
performance
conditions2
Share options
31 May
2015
31 May
2016
31 May
2015
31 May
2016
31 May
2015
31 May
2016
31 May
2015
Total
31 May
2016
Rob Cotton
5,396,555
5,487,033
862,651
759,580
13,8783
13,8783
6,273,084
6,260,491
Shareholding Requirements
Last year, the Remuneration Committee decided to adopt a guideline with regard to Executive shareholding.
The Executive Directors are expected to build and maintain a minimum holding of Company shares worth at
least 100% of their base salary. They have five years from the later of (i) the date of their respective
appointment; and (ii) the 25 June 2015, the date that the guidelines were initially adopted, to attain their
minimum shareholding.
Rob Cotton
Atul Patel
Shareholding
requirements
(% of current salary)
100%
100%
Current
shareholding
(% of salary)
2957%
122%
Requirement met
Yes
Yes
Relative importance of the spend on pay
The following table sets out the percentage change in distributions to shareholders and employee
remuneration costs.
Employee remuneration costs (£m)1
Dividends (£m)2
100.2m
10.3m
73.2m
7.6m
37%
36%
31 May 2016
31 May 2015
% Change
Atul Patel
83,530
105,284
396,565
348,787
11,8674
11,8774
491,962
465,948
1 Based on the figure shown in note 5 to the Financial Statements.
Paul Mitchell
629,600
650,000
Debbie Hewitt
33,990
37,389
Thomas Chambers
19,000
20,900
Chris Batterham
20,000
22,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
629,600
650,000
33,990
37,389
19,000
20,900
20,000
22,000
1 This information includes holdings of any connected persons
2 These awards represent the outstanding LTIP interests, which are included in the table on page 89
3 Represents the SAYE scheme interest, which will vest in October 2016 and 2017
4 Represents the SAYE scheme interest, which vested in October 2017
2 Based on the cash returned to shareholders in the year ended 31 May 2016 through dividends as shown in note 8 to the Financial Statements.
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REMUNERATION COMMITTEE REPORT
Percentage increase in the remuneration of the Chief Executive.
The table below shows the movement in the salary, benefits and annual bonus for the Chief Executive
between the current and previous financial year compared to all employees of the Company.
Element of remuneration
Salary
Chief Executive
Employees
Taxable benefits
Chief Executive (% of salary)
Employees (% of salary)
Annual Bonus
Chief Executive (% of salary)
Employees (% of salary)
% increase/(decrease)
6.0%
6.2%
10.0%
4.0%
2.0%
5.0%
Performance graph and table
The following graph shows the total shareholder return, with dividends reinvested, from 31 May 2009 against
the corresponding changes in a hypothetical holding in shares in the FTSE All Share Index.
The FTSE All Share represents broad equity indices’ in which the company is a constituent member and gives
a market capitalisation-based perspective.
During the year the Company’s share price varied between £2.07 and £3.24 and ended the year at £2.88.
Seven year historical TSR performance growth in the value of a hypothetical £100 holding over seven
years FTSE All Share comparison based on spot value
NCC Group plc
FTSE All-share Index
700
600
500
400
300
200
100
0
-100
01 Jun 09
01 Jun 10
01 Jun 11
01 Jun 12
01 Jun 13
01 Jun 14
01 Jun 15
01 Jun 16
The share price was £2.11 on 1 June 2015 and £2.88 on 31 May 2016 an increase of 36% in the year. The
table below shows the total remuneration for the Chief Executive over the same seven year period including
share awards valued at the date they vested.
Year Ending
31 May 2016
31 May 2015
31 May 2014
31 May 2013
31 May 2012
31 May 2011
31 May 2010
Chief Executive
Total
Remuneration
(£000)
Annual Bonus
(% of max)1
Long-term
incentives
(% of max)2
Rob Cotton
Rob Cotton
Rob Cotton
Rob Cotton
Rob Cotton
Rob Cotton
Rob Cotton
£1,091
£993
£1,089
£1,118
£1,074
£1,222
£836
70%
73%
73%
0%3
85%
67%
71%
20%
15%
50%
63%
70%
54%
72%
1 Note that this shows the annual bonus payments as a percentage of the maximum opportunity.
2 Shows the number of shares, which vested as a percentage of the maximum number of shares, which could have vested.
3
In 2012/13 Rob Cotton waived his right to a bonus, which would have been equal to 32% of salary.
This was equivalent to 50% of the maximum bonus opportunity.
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REMUNERATION COMMITTEE REPORT
Membership and attendance
The Remuneration Committee membership consists
solely of Non-Executive Directors and comprises
Debbie Hewitt as Chairman, Thomas Chambers and
Chris Batterham.
The Non-Executive Chairman, Chief Executive and
Company Secretary attend the Remuneration
Committee by invitation of the Chairman of the
Committee from time to time and assist the
Committee with its considerations. No Director is
involved in setting their personal remuneration plan.
The attendance of individual Committee members
at Remuneration Committee meetings is shown in
the table below:
Debbie Hewitt
Thomas Chambers
Chris Batterham
Meetings attended
3/3
3/3
2/3
Adviser to the Committee
During the year, the Committee received advice on
senior executive remuneration from Aon Hewitt
Consultants and was comfortable that the advice
was objective and independent. The total fee
charged 2015/16 was £4,000.
The Committee reviews the performance and
independence of its advisers on an annual basis.
Service contracts and letters of appointment
The service contracts and letters of appointment
of the Directors include the following terms.
Executive
Rob Cotton
Atul Patel
Non-Executive
Date of
contract
Notice
period
8 July 2004
1 year
19 April 2011
6 months
Paul Mitchell
26 June 2007
3 months
Debbie Hewitt
18 September 2008
3 months
Thomas
Chambers
20 September 2012
3 months
Chris Batterham
9 April 2015
3 months
Dilution
The LTIP has a dilution limit, for new and treasury
shares, of 10% of the issued ordinary share capital
of the Company in any 10 year period for any share
option scheme operated by the Company. As at 31
May 2016 the Company had utilised 19,727,431 (31
May 2015: 18,294,498) ordinary shares through
LTIP, SAYE, EMI, CSOP, ISO and ESPP awards
counting towards the 10% limit which represents
7.15% (2015: 7.98%) of the issued ordinary share
capital of the Company.
94
Statement of shareholder voting
At the 2014 AGM, the Directors’ Remuneration policy received the following votes from shareholders.
For
Against
Total votes cast (for and against excluding withheld votes)
Votes withheld1
Total number of votes % of votes cast
163,136,669
83,317
163,219,986
9,377,487
99.95%
0.05%
100.0%
Total votes cast (including withheld votes)
172,597,473
100.0%
1 A vote withheld is not a vote in law and is not counted in the calculation of the proportion of votes cast “for” and “against” a resolution.
At last year’s AGM, the Directors’ Remuneration policy received the following votes from shareholders.
For!
Against
Total votes cast (for and against excluding withheld votes)
Votes withheld
Total number of votes % of votes cast
176,986,522
6,592,541
183,579,063
75,000
96.41%
3.59%
100.0%
Total votes cast (including withheld votes)
183,654,063
100.0%
1 Any proxy appointments which give discretion to the Chairman at the meeting have been included in the “for” total.
Approved by the Board
and signed on its behalf:
Debbie Hewitt
Chair of the Remuneration
Committee
6 July 2016
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FINANCIAL STATEMENTS
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN RESPECT OF THE ANNUAL REPORT AND THE
FINANCIAL STATEMENTS
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the parent company’s transactions and
disclose with reasonable accuracy at any time the
financial position of the parent company and enable
them to ensure that its financial statements comply
with the Companies Act 2006. They have general
responsibility for taking such steps as are
reasonably open to them to safeguard the assets
of the Group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the directors
are also responsible for preparing a Strategic
Report, Directors’ Report, Directors’ Remuneration
Report and Corporate Governance Statement that
complies with that law and those regulations.
The directors are responsible for preparing the
Annual Report and the Group and parent company
financial statements in accordance with applicable
law and regulations.
Company law requires the directors to prepare
group and parent company financial statements
for each financial year. Under that law they are
required to prepare the Group financial statements
in accordance with IFRSs as adopted by the
EU and applicable law and have elected to
prepare the parent company financial statements
on the same basis.
Under company law the directors must not approve
the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of
the Group and parent company and of their profit or
loss for that period. In preparing each of the Group
and parent company financial statements, the
directors are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and estimates that are
reasonable and prudent;
• state whether they have been prepared in
accordance with IFRSs as adopted by the EU;
and
• prepare the financial statements on the going
concern basis unless it is inappropriate to
presume that the Group and the parent company
will continue in business.
Responsibility statement of the directors in
respect of the annual financial report
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance
with the applicable set of accounting standards,
give a true and fair view of the assets, liabilities,
financial position and profit or loss of the company
and the undertakings included in the consolidation
taken as a whole; and
• the Strategic Report and Directors’ Report
include a fair review of the development and
performance of the business and the position of
the issuer and the undertakings included in the
consolidation taken as a whole, together with a
description of the principal risks and uncertainties
that they face.
We consider the annual report and accounts, taken
as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders
to assess the Group’s position and performance,
business model and strategy.
By Order of the Board
Rob Cotton
Chief Executive
6 July 2016
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INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF NCC GROUP PLC ONLY
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements
2. Our assessment of risks of material
is unmodified
misstatement
We have audited the financial statements of NCC
Group plc for the year ended 31 May 2016 set out
on pages 104 to 155. In our opinion:
• the financial statements give a true and fair view
of the state of the Group’s and of the parent
company’s affairs as at 31 May 2016 and of the
Group’s profit for the year then ended;
• the Group financial statements have been
properly prepared in accordance with
International Financial Reporting Standards as
adopted by the European Union (IFRSs as
adopted by the EU);
• the parent company financial statements have
been properly prepared in accordance with IFRSs
as adopted by the EU and as applied in
accordance with the provisions of the Companies
Act 2006; and
• the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the
IAS Regulation.
In arriving at our audit opinion above on the financial
statements, the risks of material misstatement that
had the greatest effect on our audit, in decreasing
order of audit significance, were as follows:
Recoverability of software and development
intangibles £21,934k (2015: £19,427k)
Risk vs 2015: ◄◄
Refer to page 64 (Audit Committee report), pages
116-117 note 1 (accounting policies) and pages
129-131 note 11 (financial disclosures)
• The risk – The Group capitalises internal and
external costs in respect of software and
development projects. The Group has continued
to develop assets in respect of the NCC Group
Domain Services projects, Web Performance
projects and Security Services projects during the
year, some of which have become operational in
the year with revenue generated from both the
Domain Services projects and some Web
Performance projects. The Group expects to
generate further revenue from these projects
during the next year and beyond, although there
remains a degree of uncertainty around whether
expected revenues and profits will be realised and
be sufficient to ensure the recoverability of the
assets recognised on the balance sheet. Certain
of the key inputs, specifically customer sign up
rates, revenue growth, timing and amount of
capital expenditure and cost of sales, and
discount rate applied to future cash flows require
significant estimation and judgement. The Group
has also capitalised costs in relation to the finance
and operational systems upgrades that represent
substantial improvements to the assets, some of
which became operational in the year. The
Directors also apply judgement in the
classification of expenditure as capital in nature
rather than on-going operational expenditure.
• Our response – Our audit procedures included
detailed testing of the inputs into the Group’s
project forecasts, assessment of the historical
accuracy of the Directors’ forecasting and the
success rates of past projects, and interviews
with key operational personnel. For the key
inputs to the forecast calculations, including
customer sign up rates, revenue growth and
discount rates, we critically assessed the
reasonableness of the assumptions with
reference to internal and external information.
We assessed whether costs had been
appropriately capitalised in respect of significant
projects by inspecting source documents and
the accompanying descriptions of costs and
comparing to the recognition criteria of relevant
accounting standards for a sample of costs.
Business combinations: Total consideration
£93,956k, acquired intangibles £25,393k,
goodwill £70,929k (2015: Total consideration
£66,021k, acquired intangibles £24,712k,
goodwill £62,680k)
Risk vs 2015: tu
Refer to page 65 (Audit Committee report),
page 115 note 1 (accounting policies) and
pages 134-137 note 16 (financial disclosures)
• The risk – The Group made one significant
acquisition during the year. This is a significant
risk area due to the judgements involved,
including in relation to the identification and fair
value measurement of assets and liabilities
acquired, particularly separately recognised
intangible assets. Additionally, there have been
acquisitions in the prior year and earlier, where
judgements continue to be required in
determining the fair value of contingent
consideration payable.
• Our response – Our audit procedures included
using our own valuation specialists’ knowledge
to assist us in challenging the methodology used
to identify the intangibles acquired and the
approach to the valuation thereof. We assessed
the cash flows applied within the valuation
models and the key assumptions applied to the
cash flows, such as the discount and growth
rates, using internal and external data. In
respect of fair value adjustments we considered
whether the fair value adjustments made were
relevant and complete. We also assessed the
Group’s assumptions used in the valuation of
contingent consideration associated with
previous acquisitions including challenging
management’s forecasts for the contingency
outcomes using our knowledge of the business
and reviewing payments made post year end.
We considered the adequacy of the Group’s
disclosures in respect of accounting for business
combinations.
98
99
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF NCC GROUP PLC ONLY
For recently acquired businesses we critically
assessed post acquisition trading compared to
the forecasts at acquisition and have discussed
current trading prospects with local operational
management to evaluate the reasonableness of
the revenue growth estimates applied in the cash
flow forecasts. We compared the sum of the
discounted cash flows across the CGUs to the
Group’s market capitalisation to assess the
reasonableness of those discounted cash flows.
We also assessed the appropriateness of the
Group’s disclosures about the sensitivity of the
outcome of the impairment assessment of each
CGU to changes in key assumptions and that
these disclosures reflected the risks inherent in
the valuation of goodwill.
We continue to perform procedures over revenue
recognition. However, given that revenue contracts
have a relatively limited number of variations,
revenue recognition involves minimal manual
intervention and judgement, and there has been a
limited history of audit adjustments to revenues, we
have not assessed this as one of the risks that had
the greatest effect on our audit and, therefore, it is
not separately identified in our report this year.
Recoverability of goodwill and other intangible
assets £275,343k (2015: £185,509k)
Risk versus 2015: p (New risk)
Refer to page 65 (Audit Committee report), page
116-117 note 1 (accounting policies) and pages
129-131 note 11 (financial disclosures)
• The risk – Goodwill and intangible assets
carrying value has increased significantly
following acquisitions in 2016 and 2015. Due to
the inherent uncertainty involved in forecasting
and discounting future cash flows, which are the
basis of the assessment of recoverability, this is
identified as a significant risk. The outcome of
this assessment could vary significantly if
different assumptions were applied. In addition,
there are significant judgements made in
determining the cash generating units (CGUs) of
the Group, the allocation of operating net assets
across the CGUs and in the allocation of central
assets and central costs that are also
incorporated into the impairment assessment.
• Our response – Our audit procedures included
challenging the analysis to determine CGUs and
detailed testing of the inputs into the Group’s
CGUs forecasts, assessment of the historical
accuracy of the Directors’ forecasting, and
testing the arithmetic accuracy of the discounted
cash flow model. Certain of the key inputs,
specifically increase in profitability and discount
rate applied to future cash flows, require
significant estimation and judgement. For these
key inputs we critically assessed the
reasonableness of the assumptions with
reference to internal and external information.
We involved our own valuation specialists to
assist in assessing the discount rates applied to
future cash flows.
For the remaining 3 (2015: 3) components,
we performed analysis at an aggregated Group
level to re-examine our assessment that there
were no significant risks of material misstatement
within these.
Group profit before tax normalised for non-recurring
exceptional items.
The audits undertaken for Group reporting
purposes were performed to materiality levels which
ranged between £250,000 and £500,000 (2015:
between £200,000 and £800,000), having regard
to the mix of size and risk profile of the Group
across the components.
3. Our application of materiality and an overview
of the scope of our audit
The materiality for the Group financial statements as
a whole was set at £1.2 million (2015: £1.3 million),
determined with reference to a benchmark of Group
profit before tax normalised for non-recurring
exceptional items, of £23.9 million (2015: £22.0
million), of which it represents 5.0% (2015: 5.9%).
We reported to the Audit Committee any corrected
or uncorrected identified misstatements exceeding
£60,000 (2015: £60,000), in addition to other
identified misstatements that warranted reporting on
qualitative grounds.
Of the Group’s 20 (2015: 19) reporting components,
audits for Group reporting purposes were performed
by the Group audit team for 10 (2015: 12)
components which have significant operations in the
UK and US. For 7 (2015: 4) of the Group’s
components we performed a review (including
enquiry) of financial information as these components
were not individually financially significant enough to
require an audit for Group reporting purposes but a
review was performed to provide further coverage
over the Group’s results. The components within the
scope of our work accounted for the following
percentages of the Group’s results.
Number of
components
Group
revenue
Total profits
and losses that
make up Group
profit before tax
Group total
assets
Audits for Group reporting purposes
Reviews of financial information
(including enquiry)
Total
Total (2015)
10
7
17
16
68%
29%
97%
99%
85%
14%
99%
98%
88%
8%
96%
98%
100
101
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF NCC GROUP PLC ONLY
4. Our opinion on other matters prescribed by the
6. We have nothing to report in respect
Companies Act 2006 is unmodified
of the matters on which we are required
to report by exception
In our opinion:
• the part of the Directors’ Remuneration report to
be audited has been properly prepared in
accordance with the Companies Act 2006; and
• the information given in the Strategic Report and
the Directors’ Report for the financial year for
which the financial statements are prepared is
consistent with the financial statements.
5. We have nothing to report on the disclosures
of principal risks
Based on the knowledge we acquired during our
audit, we have nothing material to add or draw
attention to in relation to:
Under ISAs (UK and Ireland) we are required to
report to you if, based on the knowledge we
acquired during our audit, we have identified other
information in the annual report that contains a
material inconsistency with either that knowledge or
the financial statements, a material misstatement of
fact, or that is otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies
between the knowledge we acquired during
our audit and the Directors’ statement that they
consider that the annual report and financial
statements taken as a whole is fair, balanced and
understandable and provides the information
necessary for shareholders to assess the
Group’s position and performance, business
model and strategy; or
• the Directors’ viability statement on page 47,
• the Audit Committee Report does not
appropriately address matters communicated
by us to the Audit Committee.
concerning the principal risks, their management,
and, based on that, the Directors’ assessment
and expectations of the Group’s continuing in
operation over the three years
to May 2019; or
• the disclosures in note 1 of the financial
statements concerning the use of the going
concern basis of accounting.
Under the Companies Act 2006 we are required to
report to you if, in our opinion:
Scope and responsibilities
As explained more fully in the Directors’
Responsibilities Statement set out on pages 96-97,
the Directors are responsible for the preparation
of the financial statements and for being satisfied
that they give a true and fair view. A description
of the scope of an audit of financial statements
is provided on the Financial Reporting Council’s
website at www.frc.org.uk/auditscopeukprivate.
This report is made solely to the Company’s
members as a body and is subject to important
explanations and disclaimers regarding our
responsibilities, published on our website at
www.kpmg.com/uk/auditscopeukco2014a,
which are incorporated into this report as if set
out in full and should be read to provide an
understanding of the purpose of this report,
the work we have undertaken and the basis
of our opinions.
• adequate accounting records have not been kept
by the parent company, or returns adequate for
our audit have not been received from branches
not visited by us; or
• the parent company financial statements and the
part of the Directors’ Remuneration Report to be
audited are not in agreement with the accounting
returns and records; or
• certain disclosures of Directors’ Remuneration
specified by law are not made; or
• we have not received all the information and
explanations we require for our audit.
Under the Listing Rules we are required to review:
• the Directors’ Statement, set out on page 47,
in relation to going concern and longer-term
viability; and
• the part of the Corporate Governance Statement
on pages 57 to 61 relating to the company’s
compliance with the eleven provisions of the 2014
UK Corporate Governance Code specified for
our review.
We have nothing to report in respect of the above
responsibilities.
Stuart Burdass (Senior Statutory Auditor)
for and on behalf of KPMG LLP,
Statutory Auditor
Chartered Accountants
1 St Peter’s Square
Manchester
M2 3AE
6 July 2016
102
103
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MAY 2016
FOR THE YEAR ENDED 31 MAY 2016
Profit for the year
Items that may be reclassified subsequently to profit or loss (net of tax)
Foreign exchange translation differences
Total comprehensive income for the year, net of tax
Attributable to:
Equity holders of the parent
Notes
2016
£000
2015
£000
6,283
16,788
9,713
(388)
15,996
16,400
15,996
16,400
Revenue
Cost of sales
Gross profit
Administrative expenses before amortisation of acquired intangible
assets, share-based payments and exceptional items
Operating profit before amortisation of acquired intangibles,
share-based payments and exceptional items
Amortisation of acquired intangible assets
Share-based payments
Exceptional items
Total administrative expenses
Operating profit
Financial income
Finance expense excluding unwinding of discount
Net financing costs excluding unwinding of discount
Unwinding of discount relating to consideration on business combinations
Financial expenses
Net financing costs
Profit before taxation
Taxation
Profit for the year
Notes
2016
£000
2015
£000
2
209,102
133,696
(150,537)
(92,828)
58,565
40,868
(20,140)
(14,473)
38,425
26,395
(6,833)
(1,191)
(18,945)
22
3
(2,207)
(991)
(588)
(47,109)
(18,259)
2, 4
11,456
22,609
6
6
6
5
(1,412)
(1,407)
(621)
10
(936)
(926)
(262)
(2,033)
(1,198)
(2,028)
(1,188)
9,428
21,421
7
(3,145)
(4,633)
6,283
16,788
Attributable to equity holders of the parent company
6,283
16,788
Earnings per share from continuing operations
9
Basic earnings per share
Diluted earnings per share
2.5p
2.4p
8.0p
7.8p
104
105
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
COMPANY STATEMENT
OF FINANCIAL POSITION
AT 31 MAY 2016
AT 31 MAY 2016
Non-current assets
Intangible assets
Plant and equipment
Investments
Deferred tax assets
Total non-current assets
Current assets
Trade and other receivables
Inventories
Cash and cash equivalents
Total current assets
Total assets
Equity
Issued capital
Share premium
Merger reserve
Reserve for own shares
Retained earnings
Currency translation reserve
Total equity attributable to equity holders of the parent
Non-current liabilities
Other financial liabilities
Deferred tax liability
Finance leases
Consideration on acquisitions
Interest bearing loans
Total non-current liabilities
Current liabilities
Trade and other payables
Interest bearing loans
Consideration on acquisitions
Deferred revenue
Current tax payable
Total current liabilities
Total liabilities
Total liabilities and equity
Notes
2016
2015
£000
£000
£000
£000
11
12
13
17
14
15
23
297,277
12,686
608
5,285
66,467
334
20,663
2,759
147,324
42,308
(230)
62,490
8,274
20
17
20
20, 21
394
15,492
-
18,526
33,395
18
21
18
19
31,647
-
3,471
36,313
1,157
204,936
9,376
553
4,318
315,856
219,183
44,429
-
16,353
87,464
60,782
403,320
279,965
2,293
23,964
42,308
(464)
65,064
(1,439)
262,925
131,726
392
10,119
64
7,998
57,155
67,807
75,728
25,862
9,750
1,546
31,861
3,492
72,588
140,395
403,320
72,511
148,239
279,965
These financial statements were approved by the Board of Directors on 6 July 2016 and were signed on its behalf by:
106
Rob Cotton
Chief Executive
NCC Group plc
4627044
6 July 2016
Non-current assets
Investments in subsidiaries
Total non-current assets
Current assets
Intercompany receivables
Cash and cash equivalents
Total current assets
Total assets
Equity
Issued capital
Share premium
Merger reserve
Reserve for own shares
Retained earnings
Total equity
Current liabilities
Intercompany payables
Total current liabilities
Total liabilities
Total liabilities and equity
Notes
2016
2015
£000
£000
£000
£000
28
87,458
86,323
87,458
86,323
14
130,245
40
8,741
62
130,285
217,743
8,803
95,126
23
2,759
147,324
42,308
(230)
14,940
2,293
23,964
42,308
(464)
15,535
207,101
83,636
18
10,642
11,490
10,642
10,642
217,743
11,490
11,490
95,126
These financial statements were approved by the Board of Directors on 6 July 2016 and were signed on its behalf by:
Rob Cotton
Chief Executive
NCC Group plc
4627044
6 July 2016
107
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
CONSOLIDATED STATEMENT
OF CASH FLOWS
CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE YEAR ENDED 31 MAY 2016
FOR THE YEAR ENDED 31 MAY 2016
Cash flow from operating activities
Profit for the year
Adjustments for:
Equity dividends received
Share-based charges (net of national insurance contributions)
Income tax expense
Cash outflow for the year before changes in working capital
(Increase)/decrease in intercompany balances
Cash generated from operating activities before interest and tax
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of business acquired
Net cash used in investing activities
Cash flows from financing activities
Purchase of own shares
Notes
2016
£000
2015
£000
10
8,784
7,506
(8,800)
(8,100)
22
16
-
-
(16)
(122,352)
(122,352)
(122,368)
-
-
-
546
-
(48)
9,682
9,682
9,634
(9,994)
(9,994)
(414)
335
Proceeds from the issue of ordinary share capital
123,826
Equity dividends received
Equity dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
8,800
8,100
(10,280)
(7,634)
122,346
387
(22)
62
40
27
35
62
Cash flow from operating activities
Profit for the year
Adjustments for:
Depreciation charge
Share-based charges (net of national insurance contributions)
Amortisation of intangible assets
Net financing costs
Profit on sale of plant and equipment
Adjustments to contingent consideration
Impairment of intangible assets
Impairment of goodwill
Income tax expense
Cash inflow for the year before changes in working capital
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Exceptional payables
Cash generated from operating activities before interest and tax
Interest paid
Income taxes paid
Net cash generated from operating activities
Cash flows from investing activities
Interest received
Acquisition of plant and equipment
Software and development expenditure
Acquisition of businesses
Cash acquired with subsidiaries
Net cash used in investing activities
Cash flows from financing activities
Purchase of own shares
Proceeds from the issue of ordinary share capital
Draw down of borrowings
Equity dividends paid
Net cash used in financing activities
Notes
2016
£000
2015
£000
6,283
16,788
12
22
11
4
3
3
3
7
3,682
1,135
8,409
2,028
(148)
(5,940)
6,858
11,877
3,145
2,623
885
2,723
1,188
(43)
-
-
-
4,633
37,329
28,797
(15,055)
(511)
2,860
(4,000)
(2,049)
-
23,085
24,286
(2,029)
(7,291)
(1,072)
(3,417)
13,765
19,797
12
11
16
16
5
(4,649)
(8,863)
10
(4,788)
(8,175)
(78,427)
(19,831)
1,769
5,676
(90,165)
(27,108)
(98)
123,826
(414)
429
(33,509)
20,443
(10,280)
(7,634)
79,939
12,824
Net increase in cash and cash equivalents
24
3,539
5,513
Cash and cash equivalents at beginning of year
Effect of foreign currency
Cash and cash equivalents at end of year
16,353
11,212
771
(372)
20,663
16,353
108
109
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS STATEMENTS OF CHANGES OF EQUITY
STATEMENTS OF CHANGES OF EQUITY
FOR THE YEAR ENDED 31 MAY 2016
FOR THE YEAR ENDED 31 MAY 2016
Group
Issued
share
capital
Share
premium
Merger
reserve
Currency
translation
reserve
Reserve
for own
shares
Retained
earnings
£000
£000
£000
£000
£000
£000
Total
£000
Company
Share
capital
£000
Share
premium
Merger
reserve
Reserve for
own shares
Retained
earnings
£000
£000
£000
£000
Total
£000
Balance at 1 June 2014
2,085
23,634
Balance at 1 June 2014
2,085
23,634
Profit for the year
Foreign currency translation differences
Total comprehensive income for the year
Transactions with owners recorded
directly in equity
Dividends to equity shareholders
Share-based payment transactions
Current and deferred tax on
share-based payments
Shares issued
Purchase of own shares
Total contributions by and distributions
to owners
-
-
-
-
-
-
208
-
208
-
-
-
-
-
-
330
42,308
-
-
330
42,308
-
-
-
-
-
-
-
(1,051)
(1,075)
56,003
79,596
-
(388)
(388)
-
-
-
-
-
-
-
-
-
-
-
-
16,788
16,788
-
(388)
16,788
16,400
(7,634)
(7,634)
885
47
-
885
47
42,846
611
(1,025)
(414)
611
(7,727)
35,730
Profit for the year
Foreign currency translation differences
Total comprehensive income for the year
Transactions with owners recorded
directly in equity
Dividends to equity shareholders
Share-based payment transactions
Current and deferred tax on
share-based payments
Increase in subsidiary investment
for share-based charges
Shares issued
Purchase of own shares
Total contributions by and distributions
to owners
-
-
-
-
-
-
-
208
-
208
-
-
-
-
-
-
-
-
(1,075)
15,803
40,447
-
-
-
-
-
-
-
-
611
611
7,506
7,506
-
-
7,506
7,506
(7,634)
(7,634)
546
546
-
339
-
-
339
42,846
(1,025)
(414)
(7,774)
35,683
-
-
-
-
-
-
-
330
-
42,308
-
330
42,308
Balance at 31 May 2015
2,293
23,964
42,308
(1,439)
(464)
65,064
131,726
Balance at 31 May 2015
2,293
23,964
42,308
(464)
15,535
83,636
Issued
share
capital
Share
premium
Merger
reserve
Currency
translation
reserve
Reserve
for own
shares
Retained
earnings
£000
£000
£000
£000
£000
£000
Total
£000
Balance at 1 June 2015
2,293
23,964
42,308
(1,439)
(464)
65,064
131,726
Profit for the year
Foreign currency translation differences
Total comprehensive income for the year
Transactions with owners recorded
directly in equity
Dividends to equity shareholders
Share-based payment transactions
Current and deferred tax on
share-based payments
Shares issued
Purchase of own shares
Total contributions by and distributions
to owners
-
-
-
-
-
-
-
-
-
-
-
-
466
123,360
-
-
466
123,360
-
-
-
-
-
-
-
-
-
-
9,713
9,713
-
-
-
-
-
-
-
-
-
-
-
-
-
6,283
-
6,283
9,713
6,283
15,996
(10,280)
(10,280)
1,135
1,135
620
620
-
123,826
234
(332)
(98)
234
(8,857)
115,203
Balance at 31 May 2016
2,759
147,324
42,308
8,274
(230)
62,490
262,925
Share
capital
£000
Share
premium
Merger
reserve
Reserve for
own shares
Retained
earnings
£000
£000
£000
£000
Total
£000
Balance at 1 June 2015
2,293
23,964
42,308
(464)
15,535
83,636
Profit for the year
Foreign currency translation differences
Total comprehensive income for the year
Transactions with owners recorded
directly in equity
Dividends to equity shareholders
Share-based payment transactions
Current and deferred tax on
share-based payments
Increase in subsidiary investment
for share-based charges
Shares issued
Purchase of own shares
Total contributions by and distributions
to owners
-
-
-
-
-
-
-
-
-
-
-
-
-
-
466
-
123,360
-
466
123,360
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
234
234
8,784
8,784
-
-
8,784
8,784
(10,280)
(10,280)
-
-
-
-
1,135
1,135
-
123,826
(234)
-
(9,379)
114,681
Balance at 31 May 2016
2,759
147,324
42,308
(230)
14,940
207,101
110
111
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS NOTES
FORMING PART OF THE FINANCIAL STATEMENTS
1 Accounting policies
Basis of preparation
NCC Group plc (“the Company”) is a company
incorporated in the UK. The Group financial
statements consolidate those of the Company and
its subsidiaries (together referred to as the
“Group”). The parent company financial statements
present information about the Company as a
separate entity and not about the Group.
These financial statements have been approved for
issue by the Board of Directors on 6 July 2016.
Both the parent and the Group financial statements
have been prepared by the Directors in accordance
with International Financial Reporting Standards as
adopted by the EU (“Adopted IFRS”). On publishing
the parent company financial statements here
together with the Group financial statements, the
Company is taking advantage of the exemption in
s408 of the Companies Act 2006 not to present its
individual income statement and related notes that
form a part of these approved financial statements.
The accounting policies set out below have, unless
otherwise stated, been applied consistently to all
periods presented in these Group financial
statements.
Basis of measurement
The consolidated financial statements have been
prepared on the historical cost basis except for
consideration payable on acquisitions which are
measured at fair value.
Functional and presentation currency
The Group and Company financial statements are
presented in Sterling and all values are rounded to
the nearest thousand pounds (£000) except when
otherwise indicated.
Going concern
The Group’s business activities, together with
the factors likely to affect its future development,
performance and position are set out in the
Strategic Report on pages 12 to 31. The financial
position of the Group, its cash flows, liquidity
position and borrowing facilities are described
in the Business and Financial Review on pages
14 to 22. In addition, note 21 to the financial
statements includes the Group’s objectives,
policies and processes for managing its capital,
its financial risk management objectives, details
of its financial instruments and hedging activities
and its exposures to credit risk and liquidity risk.
The Group funds its strategic acquisitions and
meets its day-to-day working capital requirements
via a multi-currency revolving credit facility of £80m,
a £30m multi-currency term loan and an overdraft
of £5m. At 31 May 2016, the amount drawn down
under the facilities was £33.3m. This facility was
agreed in November 2015 and is due for renewal
in November 2020.
The Directors have reviewed the trading and
cashflow forecasts of the Group as part of their
going concern assessment and have taken into
account reasonable downside sensitivities which
reflect uncertainties in the current operating
environment. The possible changes in trading
performance show that the Group is able to operate
within the level of the banking facilities and as
a consequence, the Directors believe that the
Group is well placed to manage its business risks
successfully. After making enquiries, the Directors
have a reasonable expectation that the company and
the Group have adequate resources to continue in
operational existence for the foreseeable future.
Accordingly, they continue to adopt the going
concern basis in preparing the annual report
and accounts.
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113
NOTES
FOR THE YEAR ENDED 31 MAY 2016
1 Accounting policies (continued)
New standards
The following Adopted IFRSs have been issued and applied by the Group in these financial statements
for the first time.
New standards: None
Amendments and interpretations:
1 Accounting policies (continued)
Business combinations
Business combinations are accounted for by applying the acquisition method at the acquisition date, which is
the date on which control is transferred to the Group. The Group controls an entity when the Group is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity.
Acquisitions on or after 1 June 2010
•
Amendments to IAS19 ‘Defined benefit plans: Employee contributions’
For acquisitions on or after 1 June 2010, the Group measures goodwill at the acquisition date as:
•
Annual Improvements to IFRSs 2010-12 cycle
•
Annual Improvements to IFRSs 2011-13 cycle
Their adoption does not have a material effect on the financial statements.
New IFRS and amendments to IAS and interpretations
There are a number of standards and interpretations issued by the International Accounting Standards Board
that are effective for financial statements after this reporting period but have not yet been adopted as follows:
Effective for accounting
periods starting on or after
IFRS14 ‘Regulatory Deferral Accounts’
Amendments to IFRS10, IFRS12 and IAS28 ‘Investment Entities: Applying the
Consolidation Exception’
Amendments to IAS16 and IAS28 ‘Clarification of Acceptable Methods of
Depreciation and Amortisation’
Amendments to IFRS11 ‘Accounting for Acquisitions of Interests in Joint
Operations’
IFRS15 ‘Revenue from Contracts with Customers’
IFRS9 ‘Financial Instruments’
IFRS16 ‘Leases’
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2018
1 January 2018
1 January 2019
The application of these standards and interpretations is not anticipated to have a material effect on the
Group’s financial statements.
• the fair value of the consideration transferred; plus
• the recognised amount of any non-controlling interests in the acquiree; plus
• if the business combination is achieved in stages, the fair value of the existing equity interest in the
acquiree; less
• the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships.
Such amounts generally are recognised in the income statement.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are
expensed as incurred.
Any deferred or contingent consideration payable is recognised at fair value at the acquisition date. If the
contingent consideration is classified as equity, it is not re-measured and settlement is accounted for within
equity. Otherwise, subsequent changes to the fair value of contingent consideration are recognised in the
income statement.
On a transaction-by-transaction basis, the Group elects to measure non-controlling interests either at its fair
value or at its proportionate interest in the recognised amount of the identifiable net assets of the acquiree at
the acquisition date.
Acquisitions before 1 June 2010
For acquisitions before 1 June 2010, goodwill represents the excess of the cost of the acquisition over the
Group’s interest in the recognised amount (generally fair value) of the identifiable assets, liabilities and
contingent liabilities of the acquiree. When the excess was negative, a bargain purchase gain was recognised
immediately in profit or loss.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group
incurred in connection with business combinations were capitalised as part of the cost of the acquisition.
Contingent consideration on business combinations was recognised only to the extent that it could be reliably
estimated and it was probable that the consideration would be paid. Any subsequent changes to the carrying
value of the contingent consideration were recognised as adjustments to goodwill.
Subsidiaries
Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases
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FOR THE YEAR ENDED 31 MAY 2016
1 Accounting policies (continued)
Intangible assets and goodwill
Goodwill
Goodwill represents amounts arising on acquisition of subsidiaries. In respect of business acquisitions that
have occurred since 1 June 2004, goodwill represents the difference between the cost of the acquisition
and the fair value of the net identifiable assets acquired including identifiable intangible assets. Identifiable
intangibles are those which can be sold separately or which arise from legal rights regardless of whether
those rights are separable.
In respect of acquisitions prior to 1 June 2004, goodwill is included at its deemed cost, which represents
the amount recorded under UK GAAP at 31 May 2004 which was broadly comparable, save that only
separable intangibles were recognised and goodwill was amortised.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating
units and is not amortised but is tested annually for impairment. In respect of equity accounted investees,
the carrying amount of goodwill is included in the carrying amount of the investment in the investee.
Research and development
Expenditure on research activities is recognised in the income statement as an expense as incurred.
Expenditure on development activities is capitalised if the product or process is technically and
commercially feasible and the Group intends, has the technical ability and has sufficient resources
to complete development, future economic benefits are probable and if the Group can measure reliably
the expenditure attributable to the intangible asset during its development. Development activities involve
a plan or design for the production of new or substantially improved products or processes.
The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly
attributable to preparing the asset for its intended use and capitalised borrowing costs. Other development
expenditure is recognised in the income statement as an expense as incurred. Capitalised development
expenditure is stated at cost less accumulated amortisation and less accumulated impairment losses.
Other intangible assets
Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense
as incurred.
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation
and less accumulated impairment losses.
Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied
in the specific asset to which it relates. All other expenditure, including expenditure on internally
generated goodwill and brands, is recognised in profit or loss as incurred.
1 Accounting policies (continued)
Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of
intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill
are systematically tested for impairment at each balance sheet date. Other intangibles are amortised from the
date they are available for use. The estimated useful lives are as follows:
Acquired customer contracts and relationships – between 3 and 20 years
Software – 3 years
Capitalised development costs – between 3 and 10 years
Impairment excluding deferred tax assets
Financial assets (including receivables)
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine
whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence
indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a
negative effect on the estimated future cash flows of that asset that can be estimated reliably.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference
between its carrying amount and the present value of the estimated future cash flows discounted at the
asset’s original effective interest rate. Interest on the impaired asset continues to be recognised through the
unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the
decrease in impairment loss is reversed through profit or loss.
Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than deferred tax assets, are reviewed at
each reporting date to determine whether there is any indication of impairment. If any such indication exists,
then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite
useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same
time. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair
value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested
individually are grouped together into the smallest group of assets that generates cash inflows from continuing
use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating
unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to
cash-generating units, or (“CGU”). Subject to an operating segment ceiling test, for the purposes of goodwill
impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which
impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes.
Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from
the synergies of the combination.
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated
recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in
respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units,
and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses
recognised in prior periods are assessed at each reporting date for any indications that the loss has
decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates
used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortisation, if no impairment loss had been recognised.
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FOR THE YEAR ENDED 31 MAY 2016
1 Accounting policies (continued)
Related party transactions
Details of related party transactions are set out in note 27 to these financial statements.
Plant and equipment
Plant and equipment assets are carried at cost less accumulated depreciation and any recognised impairment
in value. To the extent that borrowing costs relate to the acquisition, construction or production of a qualifying
asset, borrowing costs are capitalised as part of the cost of that asset. Depreciation is charged to the income
statement on a straight line basis over the estimated useful lives of each part of an item of plant and
equipment. The rates applied are as follows:
Computer equipment – 20% to 33%
Plant and equipment – 20%
Fixtures and fittings – 10% to 20%
Motor vehicles – 25%
Plant and equipment is also tested for impairment whenever there is an indication of potential impairment.
Investments
Investments in subsidiaries are carried at cost less impairment. Investments in property and unlisted shares
are carried at cost less impairment which is based on the fair value at acquisition.
Inventory
Inventory is held at the lower of cost or net realisable value.
Revenue recognition
Revenue represents the value of services provided during the period, excluding VAT and similar taxes.
Assurance
The results of partially completed contracts whether fixed price or on a time and materials basis are
recognised on a percentage completion basis according to the number of days worked in comparison to
the total contracted number of days by including the profit or loss earned on work completed to the balance
sheet date. Provisions are made for any losses on uncompleted contracts expected to be incurred after
the balance sheet date. For certain Assurance services, higher set up costs are incurred in the first month
of the contract. Where this is the case the revenue associated with this is recognised at the same time
as the costs, with the remainder deferred over the life of the contract.
Escrow and website monitoring
Other than fees attributable to initial setup of a new project/contract and verifications, which are recognised
upon completion, maintenance and escrow agreement revenue is deferred and released to the income
statement on a straight-line basis over the life of the related agreement, on the basis that the performance
is deemed to fall evenly over the contract period.
Domain services
Trademark Clearinghouse (TMCH) fees are deferred and released to the income statement on a straight-line
basis over the life of the related agreement. Agreements are for durations of one, three or five years.
Domain name registry fees are recognised on a straight line basis over the period specified in the customer
agreement. Revenue from the contracted sale of domain names is recognised when the full title and rights
to the domain name have transferred to the customer.
1 Accounting policies (continued)
Determination and presentation of operating segments
The Group determines and presents operating segments based on the information that is provided
to the CEO, who is the Group’s chief operating decision maker in order to assess performance
and to allocate resources.
An operating segment is a component of the Group that engages in business activities from which it may
earn revenues and incur expenses, including revenues and expenses that relate to transactions with any
of the Group’s other components. An operating segment’s results are reviewed regularly by the CEO
to make decisions about resources to be allocated to the segment and to assess its performance.
For the year ended 31 May 2016, the Group has three reportable segments (2015: three), Group Escrow,
Assurance and Domain Services. Escrow, Assurance and Domain Services are the Group’s strategic
business units offering different services and they are managed separately because they require different
technology and marketing strategies. For each of the strategic business units, the CEO (the chief operating
decision maker) reviews internal management reports on a monthly basis.
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated using
the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included
in the income statement.
The assets and liabilities of overseas subsidiaries denominated in foreign currencies are translated at
the closing rate and income statements of overseas subsidiary undertakings are translated at the average
exchange rates. Gains and losses arising are taken to the currency translation reserve. They are released
to the income statement upon disposal of the subsidiary to which they relate.
Operating leases payments
Operating lease rentals are charged to the income statement on a straight-line basis over the period of
the lease. Lease incentives received are recognised in the income statement as an integral part of the
total lease expense, over the term of the lease.
Employee benefits – defined contribution plans
The Group operates a defined contribution pension scheme. The assets of the scheme are kept separately
from those of the Group in an independently administered fund. The amount charged as an expense in the
income statement represents the contributions payable to the scheme in respect of the accounting period.
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the
related service is provided. A liability is recognised for the amount expected to be paid under short-term cash
bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount
as a result of past service provided by the employee and the obligation can be estimated reliably.
Share-based payment transactions
Share-based payment arrangements in which the Group receives goods or services as consideration
for its own equity instruments are accounted for as equity-settled share-based payment transactions,
regardless of how the equity instruments are obtained by the Group.
The grant date fair value of share-based payment awards granted to employees is recognised as an employee
expense, with a corresponding increase in equity, over the period that the employees become unconditionally
entitled to the awards.
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FOR THE YEAR ENDED 31 MAY 2016
1 Accounting policies (continued)
Share-based payment transactions (continued)
The fair value of the options granted is measured using an option valuation model, taking into account
the terms and conditions upon which the options were granted. The amount recognised as an expense
is adjusted to reflect the actual number of awards for which the related service and non-market vesting
conditions are expected to be met, such that the amount ultimately recognised as an expense is based
on the number of awards that do meet the related service and non-market performance conditions at
the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value
of the share-based payment is measured to reflect such conditions and there is no true-up for differences
between expected and actual outcomes.
Share-based payment transactions in which the Group receives goods or services by incurring a liability
to transfer cash or other assets that is based on the price of the Group’s equity instruments are accounted
for as cash-settled share-based payments. The fair value of the amount payable to employees is recognised
as an expense, with a corresponding increase in liabilities, over the period in which the employees
become unconditionally entitled to payment. The liability is re-measured at each balance sheet date
and at settlement date. Any changes in the fair value of the liability are recognised as personnel expense
in profit or loss.
Where the Company grants options over its own shares to the employees of a subsidiary it recognises,
in its individual financial statements, an increase in the cost of investment in that subsidiary equivalent to
the equity-settled share-based payment charge recognised in respect of that subsidiary in its consolidated
financial statements with the corresponding credit being recognised directly in equity.
Interest bearing borrowings
Interest bearing borrowings are recognised initially at fair value less attributable transaction costs.
Subsequent to initial recognition interest bearing borrowings are stated at amortised cost with any
difference between cost and redemption value being recognised in the income statement over the
period of the borrowings on an effective interest basis.
Net financing costs
Net financing costs comprise interest payable and interest receivable on funds invested.
Interest income and interest payable is recognised in the income statement as they accrue and capitalised
when interest charges are incurred in relation to the purchase of capitalised assets. To the extent that
borrowing costs relate to the acquisition, construction or production of a qualifying asset, borrowing
costs are capitalised as part of the cost of that asset.
Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest
method. Dividend income is recognised in the income statement on the date the entity’s right to receive
payments is established.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income
statement except to the extent that it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax
rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in
respect of previous years.
1 Accounting policies (continued)
Deferred taxation
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. The following temporary
differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or
liabilities that affect neither accounting nor taxable profit other than in a business combination, and
differences relating to investments in subsidiaries to the extent that they will probably not reverse in the
foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted
at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future
taxable profits will be available against which the temporary difference can be utilised.
Intra-group financial instruments
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other
companies within the Group, the Company considers these to be insurance arrangements and accounts for
them as such. In this respect the Company treats the guarantee contract as a contingent liability until such
time as it becomes probable that the Company will be required to make a payment under the guarantee.
Trade and other receivables
Trade and other receivables are stated at their nominal amount less impairment losses.
Cash and cash equivalents
Cash and cash equivalents comprise of cash in hand and deposits repayable on demand. Bank overdrafts
that are repayable on demand form part of the Group’s cash management and are included as a
component of cash and cash equivalents for the purpose only of the statement of cash flows.
Treasury Shares
NCC Group plc shares held by the Group are deducted from equity as “treasury shares” and are
recognised at cost. Consideration received for the sale of such shares is also recognised in equity, with
any difference between the proceeds from sale and the original cost being taken to reserves. No gain or
loss is recognised in the income statement on the purchase, sale, issue or cancellation of equity shares.
Use of estimates and judgements
The preparation of financial statements requires management to exercise judgement in applying the
Group’s accounting policies. It also requires the use of estimates and assumptions that affect the reported
amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an on-going basis, with revisions recognised in the
period in which the estimates are revised and in any future periods affected.
The areas involving a higher degree of judgement or complexity are set out below and in more detail in the
related notes:
Note 1 – Assessment of intangible carrying value (including development projects)
Note 15 – The valuation of intangible assets arising on acquisitions
Other sensitive estimates and assumptions that are significant to the financial statements are included in
the following notes;
Note 1 – Assessment of intangible assets useful economic lives
Note 11 – Key assumptions used in discounted cash flow projections
Note 16 – Measurement of deferred and contingent consideration
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FOR THE YEAR ENDED 31 MAY 2016
2 Segmental information
The Group is organised into three operating segments (2015: three) Escrow, Assurance and Domain
Services each of which is separately reported. While revenue and profitability are monitored by individual
business units within these operational segments it is only at the operating level that resource allocation
decisions are made. Performance is measured based on segment profit, which comprises segment
operating profit excluding amortisation of intangible assets, share based payment charges and exceptional
items. Interest and tax are not allocated to business segments and there are no intra-segment sales.
Revenue by business segment
Escrow UK
Escrow Europe
Escrow US
Group Escrow
Security Consulting
Software Testing and Web Performance
Assurance
Domain Services
Total revenue
All revenue is in relation to services provided.
2016
£000
2015
£000
25,680
23,729
3,434
6,187
3,152
5,151
35,301
32,032
138,903
29,963
168,866
4,935
74,381
22,582
96,963
4,701
209,102
133,696
2 Segmental information (continued)
Operating profit by business segment
Group Escrow
Assurance
Domain Services
Segment operating profit
Head office costs
Operating profit before amortisation of acquired intangibles,
charges for share-based payments and exceptional items
Amortisation of acquired intangible assets Group Escrow
Amortisation of acquired intangible assets Assurance
Amortisation of acquired intangible assets Domain Services
Share-based payments
Operating profit before exceptional items
Exceptional items
Operating profit
2016
£000
2015
£000
20,064
25,762
18,891
16,990
(1,712)
(4,913)
44,114
30,968
(5,689)
(4,573)
38,425
26,395
(732)
(722)
(5,599)
(1,257)
(502)
(1,191)
(228)
(991)
30,401
23,197
(18,945)
(588)
11,456
22,609
There are no customer contracts which account for more than 10% of segment revenue. Exceptional items
includes goodwill impairment of £11,877,000 attributable to the Domain Services segment, see note 3.
Revenue by geographical destination
UK
Rest of Europe
Rest of the World
Total revenue
2016
£000
2015
£000
122,014
34,242
52,846
72,121
13,503
48,072
209,102
133,696
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FOR THE YEAR ENDED 31 MAY 2016
3 Exceptional items
The Group identifies separately items as “exceptional”. These are items which in management’s judgement,
need to be disclosed by virtue of their size or incidence in order for the user to obtain a proper understanding
of the financial information. Subsequent revisions of estimates for items initially recognised as exceptional
provisions are recorded as exceptional items in the year that the revision is made.
Operating exceptional items
Acquisition related costs
Adjustments to deferred and contingent consideration
Goodwill impairment
Intangible asset write down
Restructuring costs
IT claim net income
Total
2016
£000
2015
£000
(2,295)
(2,387)
4,712
(11,877)
(6,858)
(2,627)
-
(18,945)
-
-
-
-
1,799
(588)
In November and December 2015, the Group raised £126.3m through a firm placing and a placing and open
offer, part of which was used to fund the initial cash consideration to acquire Fox-IT Holdings B.V. The costs
associated with the fund raising and acquisition were £2,295,000.
Following a strategic review, the Group decided in June 2016 to withdraw from the Domain Services market
place, the Group has taken a number of one off charges, totalling net £13,709,000. These include:
• The write down of capitalised assets, the critical infrastructure and know-how to create a universal
environment for end users to operate and navigate the Internet with complete safety and security is
£6,858,000.
• The impairment of goodwill in Open Registry of £11,877,000.
• A credit of £5,940,000 in respect of contingent consideration that will not be paid as the earnings targets
have not been achieved.
• A charge of £914,000 for headcount and associated restructuring costs related to winding down
the Division.
As a result of the acquisition of Accumuli in April 2015 the Group, as previously reported became responsible
for paying retention bonuses to a large number of employees and former employees of Accumuli as well as
the costs of a fundamental restructure and reorganisation of the company. This resulted in an exceptional
charge of £1,713,000.
During last year, the Group received a settlement of £2,000,000 in respect of a claim to recover costs
incurred on an IT system termination in May 2012. Associated legal costs amounting to £201,000 were
incurred in that financial year. In addition, acquisition costs in respect of the acquisition of Open Registry and
Accumuli totalling £2,387,000 were included as exceptional charges in the prior year.
3 Exceptional items (continued)
The tax effect in the income statement relating to the exceptional items recognised is:
Exceptional items and acquisition related costs
Acquisition related costs
Adjustments to deferred and contingent consideration
Goodwill impairment
Intangible asset write down
Restructuring costs
IT claim net income
Total
4 Expenses and auditors’ remuneration
Profit before taxation is stated after charging/(crediting):
Amounts receivable by auditors and their associates in respect of:
Audit of these financial statements
Audit of financial statements of subsidiaries pursuant to legislation
Total audit
Review of interim financial statements
Other assurance services
Total fees
Depreciation and other amounts written off tangible and intangible fixed assets:
Owned
Amortisation of intangible assets
Exceptional items (note 3)
Exchange losses
Operating lease rentals charged:
Hire of property, plant and equipment
Other operating leases
Research and development expenditure
Profit on disposal of plant and equipment
2016
£000
2015
£000
(160)
(497)
-
-
(2,289)
(640)
-
(3,089)
-
-
-
-
375
(122)
2016
£000
2015
£000
50
75
125
10
-
135
3,682
8,409
18,945
(46)
3,925
1,377
2,200
38
50
88
10
18
116
2,623
2,723
588
(864)
2,588
1,206
1,900
(148)
(43)
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NOTES
FOR THE YEAR ENDED 31 MAY 2016
5 Staff numbers and costs
Directors’ emoluments are disclosed in the Remuneration Committee Report on pages 72 to 95.
Total aggregate emoluments of the directors in respect of 2016 were £1,819,000 (2015: £1,633,000).
Employer contributions to pensions for executive directors for qualifying periods were £73,000
(2015: £68,000). The aggregate net value of share awards granted to the directors in the period
was £730,000 (2015: £679,000). The net value has been calculated by reference to the closing
mid-market price of the Company’s shares on the day before the date of grant. During the year,
72,538 share options were exercised by directors (2015: 279,561) with a market value of £159,000.
Group
The average monthly number of persons employed by the Group during the year, including Directors
is analysed by category as follows:
Operational
Administration, sales and marketing
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Share-based payments (note 22)
Social security costs
Other pension costs (note 26)
6 Net financing costs
Financial income
Interest on short term deposits
Financial expenses
Interest payable on bank loans and overdrafts
Amortisation of deal fees on term loans
Deferred consideration finance expense
Number of employees
2016
2015
837
565
1,402
593
385
978
2016
£000
2015
£000
88,432
63,834
1,135
8,081
2,479
885
6,642
1,840
100,127
73,201
2016
£000
2015
£000
5
5
(1,412)
-
(621)
10
10
(863)
(73)
(262)
(2,033)
(1,198)
Deferred consideration relating to the acquisition of subsidiary undertakings has been discounted to its
present value.
7 Taxation
Recognised in the income statement
Current tax expense
Current year
Adjustment to tax expense in respect of prior periods
Foreign tax
Total current tax
Deferred tax (note 17)
Tax in income statement
Reconciliation of effective tax rate
Profit before taxation
Current tax using the UK corporation tax rate of 20% (2015: 20.83%)
Effects of:
Items not taxable for tax purposes
Adjustment to tax charge in respect of prior periods
Differences between overseas tax rates
Movements in temporary differences not recognised
Effect of rate change
Total tax expense
2016
£000
2015
£000
4,374
(478)
839
4,735
(1,590)
4,408
(1,366)
591
3,633
1,000
3,145
4,633
2016
£000
9,428
1,885
2015
£000
21,421
4,462
2,005
(187)
(536)
31
(53)
755
(628)
9
58
(23)
3,145
4,633
Current and deferred tax recognised directly in equity was a credit of £619,000 (2015: charge of £47,000).
The UK Government has announced that it intends to reduce the rate of corporation tax to 17%
with effect from 1 April 2020. As this legislation was not substantively enacted as at year end the
impact of the anticipated rate change is not reflected in the tax provisions reported in these accounts.
Finance Act 2015 (No.2), which was substantively enacted in October 2015, included provisions
to reduce the rate of corporation tax to 19% with effect from 1 April 2017 and 18% from 1 April 2020.
Accordingly, the UK deferred tax balances have been revalued to the rate of 19% in these accounts
which has resulted in a credit to the profit & loss account of £53,000 and a debit to reserves of
£11,000. To the extent that the deferred tax reverses after 1 April 2020 then the impact on the
net deferred tax liability will be increased.
126
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FOR THE YEAR ENDED 31 MAY 2016
8 Dividends
Dividends paid and recognised in the year
Dividends proposed but not recognised in the year
Dividends per share paid and recognised in the year
Dividends per share proposed but not recognised in the year
9 Earnings per share
2016
£000
10,280
8,692
p
4.18
3.15
2015
£000
7,634
6,147
p
3.66
2.68
Profit for the year from continuing operations
used for basic and diluted earnings per share
Amortisation of acquired intangible assets
Exceptional items (note 3)
Unwinding of discount (note 6)
Share-based payments (note 22)
Tax arising on the above items
Adjusted profit from continuing operations
used for adjusted earnings per share
Basic weighted average number of shares in issue
Dilutive effect of share options
Diluted weighted average shares in issue
2016
2015
£000
£000
£000
£000
6,283
16,788
6,833
18,945
621
1,191
(4,854)
2,207
588
262
991
(818)
22,736
29,019
Number
of shares
000s
254,625
3,459
258,084
3,230
20,018
Number
of shares
000s
210,421
3,601
214,022
The average market value of the Company’s shares for purposes of calculating the dilutive effect of share
options was based on quoted market prices for the period during which the options were outstanding.
10 Profit attributable to members of the parent company
The profit for the year dealt with in the accounts of the parent company was £8,784,000
(2015: £7,506,000).
11 Intangible assets – Group
Cost:
At 1 June 2014
Acquisitions through
business combinations
Additions – internally
developed
Effects of movements in
exchange rates
At 31 May 2015
Acquisitions through
business combinations
Additions – internally
developed
Costs write down
Effects of movements in
exchange rates
Development
Software
£000
costs
£000
Customer
contracts and
relationships
Goodwill
£000
£000
Total
£000
12,943
4,974
23,018
91,651
132,586
340
-
24,581
62,680
87,601
5,075
3,100
-
-
8,175
-
18,358
1,706
667
8,741
257
1,189
2,113
47,856
155,520
230,475
-
25,393
72,915
100,014
6,944
1,919
-
(18)
(6,858)
390
4,192
At 31 May 2016
26,990
Accumulated amortisation and impairment losses:
At 1 June 2014
Charge for year
Effects of movements in
exchange rates
At 31 May 2015
Charge for year
Impairment charge
Effects of movements in
exchange rates
7,156
516
-
7,672
1,576
-
-
At 31 May 2016
9,248
-
-
-
-
-
-
-
-
-
-
-
-
8,863
(6,858)
2,958
7,705
11,035
76,207
236,140
343,529
15,366
2,207
294
17,867
6,833
-
-
-
-
-
-
11,877
22,522
2,723
294
25,539
8,409
11,877
427
-
427
25,127
11,877
46,252
Net book value:
At 31 May 2016
At 31 May 2015
17,742
10,686
4,192
8,741
51,080
29,989
224,263
297,277
155,520
204,936
Management have used business forecasts in determining the recoverability of the asset value of
software and development costs relating to the creation of new products and services. The remaining
useful economic life of customer contracts and relationships is between 2 and 10 years.
For the purpose of impairment testing, goodwill has been allocated to the Group’s three operating
divisions, which are also operating segments, as these represent the lowest level at which goodwill
is monitored for internal management purposes.
128
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NOTES
FOR THE YEAR ENDED 31 MAY 2016
11 Intangible assets – Group (continued)
11 Intangible assets – Group (continued)
Goodwill considered significant in comparison to the Group’s total carrying amount of such assets has
been allocated to cash generating units for the purposes of impairment testing as follows:
Cash generating units
Escrow UK
Escrow Europe
Escrow USA
Total Group Escrow
Assurance USA
European Security Services
Assurance Testing
Domain Services
Total
Goodwill
2016
£000
2015
£000
21,177
21,177
6,368
7,315
34,860
24,641
164,762
6,046
6,990
34,213
23,553
87,135
189,403
110,688
-
10,619
224,263
155,520
When assessing impairment, the recoverable amount of each CGU is based on value in use calculations.
These calculations require the use of estimates, specifically: pre-tax cash flow projections; long-term
growth rates; and a pre-tax market discount rate.
Cash flow projections are based on the Group’s detailed annual operating plan for the forthcoming financial
year with assumptions applied for expected revenue growth and gross margins to forecast years two to
three. The judgement on these assumptions is based on management’s past experience of growth and
knowledge of the industry sectors and markets. The projections beyond three years are forecast using an
estimated long-term growth rate of 2.5% (2015: 2.5%) which represents management’s best estimate of a
long term annual growth rate in EBITDA. A different set of assumptions may be more appropriate in future
years dependent on changes to the macro-economic environment.
The discount rates used are based on management’s calculation of the weighted average cost of capital
using the capital asset pricing model to calculate the cost of equity. Specific rates are used for each CGU
sector in the value in use calculation and the rates reflect management’s assessment on the level of relative
risk in each CGU. The discount rate has been calculated to reflect the latest market assumptions for the
risk-free rate, the Equity Risk Premium and the net cost of debt. The pre-tax discount rates used in the
value in use calculations are:
Pre-tax discount rates
Cash generating units
Escrow UK
Escrow Europe
Escrow USA
Assurance USA
European Security Services
Domain Services
2016
%age
10.1
10.7
12.9
15.0
11.2
10.6
2015
%age
10.1
10.8
12.7
12.5
10.2
n/a
The Directors do not believe that a reasonably possible change of assumptions would cause the
recoverable amounts to fall below book value for any of the cash generating units due to the significant
levels of headroom, with the exception of Domain Services.
The Domain Services CGU value in use calculation, based on conservative forecasts of future growth,
resulted in a value significantly below the carrying value of the CGU net operating assets at 31 May 2016
and the Directors have concluded that the goodwill is fully impaired. The business forecasts are below the
initial expectations due to the slow market development for the use of domain names. Accordingly, the
goodwill balance of £11,877,000 has been fully impaired and the impairment charge is included in
exceptional items in the income statement (note 3). For sensitivity, based on a change in discount rate of
1%, this would impact the discounted future cash flows by £0.3m, and a 10% change in forecast profits
would have an impact of less than £0.1m.
During the year, the Group acquired Fox-IT Holding B.V., a group of companies based in the Netherlands
with a principal activity of delivering cybersecurity and assurance services to customers. The goodwill of
Fox-IT Holdings B.V. has been included in the European Security Services CGU for the purpose of annual
impairment testing.
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NOTES
FOR THE YEAR ENDED 31 MAY 2016
12 Plant and equipment – Group
Cost:
At 1 June 2014
Additions
Acquired as part of business
combination
Disposals
Movement in foreign
exchange rates
At 31 May 2015
Additions
Acquired as part of business
combination
Disposals
Movement in foreign
exchange rates
At 31 May 2016
Depreciation:
At 1 June 2014
Charge for year
Disposals
Movement in foreign
exchange rates
At 31 May 2015
Charge for year
Disposals
Movement in foreign
exchange rates
At 31 May 2016
Net book value:
At 31 May 2016
At 31 May 2015
Computer
equipment
equipment
Plant and
Fixtures and
£000
£000
11,849
2,000
545
-
194
14,588
3,223
914
(314)
154
409
-
-
-
5
414
-
-
-
-
fittings
£000
6,695
2,629
53
-
322
9,699
1,333
984
-
214
18,565
414
12,230
9,651
1,566
-
47
11,264
1,946
(166)
(109)
409
-
-
5
414
-
-
-
2,872
986
-
66
3,924
1,685
-
(100)
Motor
vehicles
£000
378
159
-
(181)
10
366
93
-
-
12
471
155
71
(139)
2
89
51
-
(4)
Total
£000
19,331
4,788
598
(181)
531
25,067
4,649
1,898
(314)
380
31,680
13,087
2,623
(139)
120
15,691
3,682
(166)
(213)
12,935
414
5,509
136
18,994
5,630
3,324
-
-
6,721
5,775
335
277
12,686
9,376
13 Investments
Property
Interest in unlisted shares
Group
Group
2016
£000
285
323
608
2015
£000
285
268
553
The investment property comprises a leasehold property owned on a 999 year lease granted in 1989. The
investment in shares is a 3.35% holding in an unlisted company.
14 Trade and other receivables
Trade receivables
Prepayments and accrued income
Amounts owed by group undertakings
15 Inventory
IT hardware
Group
Group Company Company
2016
£000
39,410
27,057
-
2015
£000
26,002
18,427
2016
£000
-
-
-
130,245
66,467
44,429
130,245
2015
£000
-
-
8,741
8,741
Group
Group
2016
£000
334
334
2015
£000
-
-
132
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS NOTES
FOR THE YEAR ENDED 31 MAY 2016
16 Acquisitions
Fox-IT Holdings BV
NCC Group (Solutions) Limited acquired Fox-IT Holdings BV, a company based in the Netherlands, on 27
November 2015. Fox-IT has a leading market position in Europe for high-end Cyber Security solutions and
is a leading European provider of Advanced Incident Response Services. Fox-IT’s activities of Advanced
Threat Protection, Threat Intelligence and Web/Mobile Event Analytics, High Assurance and Secure
Infrastructure, provide further depth to NCC Group’s cyber and assurance services and growth
opportunities from new markets.
The consideration for the acquisition of Fox-IT was €108,250,000 initial cash, with deferred payments due
on each of the first and second anniversaries of completion comprising, €10,000,000 cash and €2,500,000
newly issued NCC Group plc shares each.
The acquisition had the following effect on the Group’s assets and liabilities:
Fair Values
£000
£000
16 Acquisitions (continued)
Accumuli plc
On 30 April 2015, the Group acquired 100% of the share capital of Accumuli plc for consideration of
£52.5m in a share for share exchange plus cash consideration agreement. NCC Group plc issued
20,389,472 new ordinary shares of 1 pence with a closing share price of 208.5p amounting to a share
issue valuation of £42.5m. £10.0m cash consideration was paid on a pro-rata basis to the Accumuli
shareholders under the Scheme Arrangement.
Accumuli is a leading, rapidly growing, UK based independent specialist in IT security and risk
management, providing industry leading solutions and services. The Group’s business activities are in the
Assurance business segment. Prior to the acquisition, Accumuli was a public company quoted on the AIM
market of the London Stock Exchange.
The acquisition had the following effect on the Group’s assets and liabilities:
Fair Values
£000
£000
Acquiree’s identifiable net assets at the acquisition date:
Acquiree’s identifiable net assets at the acquisition date:
Plant and equipment
Intangible assets – development
Intangible assets - acquired
Trade and other receivables
Inventory
Deferred tax liability
Cash
Creditors & accruals
Deferred revenue
Net identifiable assets
Goodwill on acquisition
Total consideration
Satisfied by: Initial cash consideration
Deferred cash consideration
Deferred issue of equity shares consideration
Finance discount on deferred consideration
Net cash outflow
Cash acquired
Net cash outflow excluding cash acquired
1,898
1,706
25,393
7,295
370
(5,972)
1,769
(7,463)
(2,071)
22,925
70,931
93,856
76,583
(1,769)
74,814
76,583
14,439
3,610
(776)
93,856
The fair value of trade and other receivables represents £7,511,000 of gross contractual receivables and
a provision for doubtful debts of £216,000.
The goodwill of £70.9m represents the value expected to be generated from cross-selling Fox-IT products
and services to existing Group customers, sales growth from new customers in wider geographic markets and
from future product development using the knowledge and expertise of the Fox-IT technical team. The goodwill
is not expected to be deductible for tax purposes. Acquisition costs relating to professional fees totalling
£1.9m were incurred and are recognised as exceptional costs in the income statement account (note 3).
The Group’s consolidated income statement includes six month’s post acquisition trading, with Fox-IT
contributing £14.0m revenue and £1.3m operating profit. The combined results of NCC Group and
Fox-IT B.V. for the twelve month period ending 31 May 2016 are revenue of £218.2m and pre-exceptional
operating profit of £30.5m.
Plant and equipment
Investments
Trade and other receivables
Stock
Deferred costs
Cash
Creditors & accruals
Other creditors
Deferred revenue
Current tax liability
Deferred tax liability
Bank loan
Intangible assets acquired
Net identifiable assets
Goodwill on acquisition
Total consideration
Satisfied by: Issue of new 1p ordinary shares
Cash consideration
Net cash outflow
Cash acquired
Net cash outflow excluding cash acquired
42,512
9,994
52,506
487
553
8,418
36
3,279
3,980
(9,298)
(4,413)
(9,486)
(50)
(3,501)
(9,750)
20,668
923
51,583
52,506
9,994
(3,980)
6,014
The goodwill represents the profitable sales growth expected from the cross-selling opportunities using
shared product knowledge, expertise, and customer markets, the value of the workforce’s industry
knowledge and technical skills, and some central cost saving synergy. In the financial year to 31 May 2016,
the goodwill value has increased by £1,368,000. This represents a £1,100,000 increase in contingent
consideration liability for an acquisition previously made by Accumuli plc and a £268,000 adjustment
to the fair value of Accumuli plc’s acquired balance sheet relating to additional working capital liabilities
and provisions. The goodwill is not expected to be deductible for tax purposes.
134
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www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS 16 Acquisitions (continued)
The balances presented below are valued at the fair value of amounts payable for deferred and contingent
consideration on acquisitions. The contingent consideration is stated at the maximum amount payable.
Contingent consideration
FortConsult A/S
Open Registry Group
Eqalis Limited
ArmstrongAdams Limited
Deferred consideration
Fox-IT Holdings B.V.
2016
£000
1,807
-
-
1,664
3,471
2016
£000
18,526
18,526
2015
£000
1,640
5,794
810
1,300
9,544
2015
£000
-
-
NOTES
FOR THE YEAR ENDED 31 MAY 2016
16 Acquisitions (continued)
Open Registry Group
On 20 January 2015, the Group acquired the entire share capital of Open Registry S.A (Luxembourg),
CHIP S.A. (Luxembourg), Nexperteam C.V.B.A (Belgium) and Sensirius C.V.B.A (Belgium) for total
consideration of €19.5m. Of this amount, €10.1m was paid in cash immediately and €0.2m was paid as a
retention in June 2015. Additionally, the acquisition agreement provided for contingent consideration of
€9.2m payable in cash depending on specific profit based performance targets on the second and third
year anniversaries of the completion date.
Open Registry S.A.(Open Registry) is the leading European Registry Service Provider for global brands.
Clearinghouse for Intellectual Property S.A. (CHIP) is one of three key service providers that form the
consortium that has been authorised by ICANN to operate the Trademark Clearinghouse (TMCH).
Nexperteam CVBA (Nexperteam) is an accredited registrar for several TLDs managing over 8,000 domain
names. The Company provides domain registrar services ranging from domain name registration, name
serving to email and web hosting.
The goodwill on acquisition represented the expected future customer growth in the Domain Name Registry
and TMCH services, incremental revenue from cross-selling opportunities with NCC Group’s developing
domain services activity, and the value of the workforce’s industry knowledge and technical skills.
The acquisition had the following effect on the Group’s assets and liabilities:
Fair Values
£000
£000
Acquiree’s identifiable net assets at the acquisition date:
Plant and equipment
Intangible assets
Investments
Trade and other receivables
Cash
Creditors & accruals
Deferred revenue
Current tax liability
Deferred tax liability
Intangible assets acquired
Net identifiable assets
Goodwill on acquisition
Total consideration
Satisfied by: Initial cash consideration
Contingent consideration (discounted)
Net cash outflow
Cash acquired
Net cash outflow excluding cash acquired
7,577
5,938
13,515
111
209
34
3,494
1,696
(1,814)
(4,129)
(14)
(1,213)
4,044
2,418
11,097
13,515
7,577
(1,696)
5,881
The Directors performed an annual goodwill impairment assessment on 31 May 2016 and re-assessed the
fair value of the contingent consideration using the latest business forecasts. Resulting from these reviews,
the £11.9m carrying values of goodwill (note 11) and contingent consideration of £5.9m have been written
off to the income statement as exceptional items (note 3).
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FOR THE YEAR ENDED 31 MAY 2016
17 Deferred tax assets and liabilities
18 Trade and other payables
Group
Recognised deferred tax assets and liabilities are attributable to the following:
Plant and equipment
Short term temporary differences
Intangible assets
Share-based payments
Tax losses
Deferred tax asset/(liability)
Assets
Liabilities
Net
2016
£000
-
1,738
-
842
2,705
5,285
2015
£000
-
520
-
493
3,305
4,318
2016
£000
(2,230)
-
(13,262)
-
-
(15,492)
2015
£000
(426)
-
(9,693)
-
-
(10,119)
2016
£000
(2,230)
1,738
(13,262)
842
2,705
(10,207)
2015
£000
(426)
520
(9,693)
493
3,305
(5,801)
Movement in deferred tax during the year:
1 June
2015
Recognised
in income
differences
Exchange
Recognised
Plant and equipment
Short term temporary differences
Intangible assets
Share-based payments
Tax losses
£000
(426)
520
(9,693)
493
3,305
(5,801)
£000
(1,804)
814
3,303
(123)
(600)
1,590
£000
-
28
(524)
-
-
(496)
in equity Acquisitions
£000
-
-
-
472
-
472
£000
-
376
(6,348)
-
-
(5,972)
Plant and equipment
Short term temporary differences
Intangible assets
Share-based payments
Tax losses
Exchange
Recognised
1 June
2014
£000
(4)
178
(2,440)
579
1,542
(145)
Recognised
in income
£000
(337)
201
(1,837)
(67)
1,040
(1,000)
differences
£000
(53)
12
(69)
-
187
77
in equity Acquisitions
£000
(32)
129
(5,347)
-
536
(4,714)
£000
-
-
-
(19)
-
(19)
31 May
2016
£000
(2,230)
1,738
(13,262)
842
2,705
(10,207)
31 May
2015
£000
(426)
520
(9,693)
493
3,305
(5,801)
Trade payables
Contingent consideration on acquisitions
Non trade payables
Finance lease
Accruals
Intercompany payables
19 Deferred revenue
Deferred revenue
Group
Group Company Company
2016
£000
7,906
3,471
7,560
38
2015
£000
9,039
1,546
3,589
111
16,143
13,123
-
-
35,118
27,408
2016
£000
2015
£000
-
-
-
-
-
-
-
-
-
-
10,642
10,642
11,490
11,490
Group
Group
2016
£000
2015
£000
36,313
36,313
31,861
31,861
Deferred revenue consists of: Escrow agreements £13,209,000 (2015: £12,954,000), Assurance
contracts £17,084,000 (2015: £11,968,000), Website monitoring and load testing agreements of
£3,397,000 (2015: £3,348,000) and Domain services contracts of £2,623,000 (2015: £3,591,000).
The revenue has been deferred to be released to the income statement over the contract term in
accordance with the Group’s accounting policy. The balance relating to the acquisition of Fox-IT
is included in the European Security Services segment.
The Group have recognised a deferred tax asset of £2,705,000 (2015: £3,305,000) on tax losses as
management consider it probable that future taxable profits will be available against which they can be
recognised. The Group have not recognised a deferred tax asset on £5,679,000 (2015: £6,218,000)
of tax losses carried forward due to uncertainties over recovery.
Included in recognised and unrecognised tax losses are losses of £2,021,000 that will expire in 2034,
£3,522,000 that will expire in 2034. Other losses may be carried forward indefinitely.
No deferred tax liability is recognised on temporary differences of £243,000 (2015: £359,000) relating
to the unremitted earnings of overseas subsidiaries as the Group is able to control the timing of the reversal
of these temporary differences and it is probable that they will not reverse in the foreseeable future.
138
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NOTES
FOR THE YEAR ENDED 31 MAY 2016
20 Non-current liabilities
Secured bank loan
Issue costs
Amortisation of issue costs
Interest bearing loans
Deferred tax (note 17)
Deferred consideration
on acquisitions (note 16)
Finance leases
Other financial liabilities
Total non-current liabilities
Group
Group
2016
£000
2015
£000
33,395
57,240
-
-
(244)
159
33,395
57,155
15,492
18,526
10,119
7,998
-
394
64
392
67,807
75,728
For more information about the contractual terms of the Group’s interesting bearing secured bank loan,
see note 21. Other financial liabilities of £394,000 relates to the balance of a rent-free period
(2015: £392,000) which is released to the income statement over the term of the lease.
Finance lease maturity
Within one year or less
Between one and five years
The finance leases relate to IT equipment.
Group
Group
2016
£000
38
-
38
2015
£000
111
64
175
21 Financial instruments
Financial risk management
The Group has exposure to the followings risks from its use of financial instruments:
• Credit risk
• Liquidity risk
• Currency risk
•
Interest rate risk
The Board has overall responsibility for establishing appropriate management of exposure to risk.
The Audit Committee oversees how management identify and address risks to the Group.
Capital management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by
total capital. Net debt is calculated as total interest bearing loans as shown in the consolidated balance
sheet, less cash and cash equivalents. Total capital is calculated as equity, as shown in the consolidated
balance sheet, plus net debt. As at 31 May 2016 the Group’s gearing ratio was 5% (2015: 22%).
2016
2015
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
£000
£000
Trade receivables
Cash and cash equivalents
Interest bearing loans
Trade and other payables
Consideration on
acquisitions
£000
-
-
-
-
-
£000
39,410
20,663
(33,395)
(31,647)
-
-
-
-
-
(21,997)
£000
26,002
16,353
(66,905)
(25,862)
£000
-
-
-
-
-
(7,434)
-
-
-
-
-
The consideration on acquisition liability reflects the calculated cash outflows and is discounted using a
risk-adjusted discount rate.
Financial instruments policy
All instruments utilised by the Company and Group are for financing purposes. The financial management
and treasury activities of the Group are controlled centrally for all operations with local finance teams
responsible for day-to-day banking activities.
Fair value of financial instruments
As at 31 May 2016 the Group and Company had no other financial instruments other than those disclosed
below. The carrying value of contingent consideration on acquisitions, held at the year end is valued using a
level 3 valuation method as defined by IFRS 13 Fair Value measurement. There have been no transfers
between levels in the year.
The following table presents the Group’s financial assets and liabilities that are measured at fair value by
level of fair value hierarchy:
- quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
- inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and
- inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
The loan is held at amortised cost which is considered to equate to fair value. All other assets and liabilities
are held at either fair value or their carrying value which approximates to fair value.
140
141
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
NOTES
FOR THE YEAR ENDED 31 MAY 2016
21 Financial instruments (continued)
21 Financial instruments (continued)
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument
fails to meet its contractual obligations and arises principally from the Group’s receivables from customers.
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer.
Exposure to credit risk
The carrying value of financial assets represents the maximum credit exposure. The maximum exposure to
credit risk at the reporting date was:
Trade receivables
Cash and cash equivalents
Group
Group Company Company
2016
£000
39,410
20,663
60,073
2015
£000
26,002
16,353
42,355
2016
£000
-
40
40
2015
£000
-
62
62
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Debtors by geographical segment
UK
Rest of Europe
Rest of the World
Group
Group Company Company
2016
£000
2015
£000
2016
£000
2015
£000
27,687
20,607
4,499
7,224
969
4,426
39,410
26,002
-
-
-
-
-
-
-
-
The maximum exposure to credit risk at the reporting date by business segment was:
Debtors by business segment
Group Escrow
Assurance Testing
Domain Services
Group
Group Company Company
2016
£000
7,514
2015
£000
6,696
31,896
19,306
-
-
39,410
26,002
2016
£000
2015
£000
-
-
-
-
-
-
-
-
The trade receivables of the Group typically comprise of smaller amounts due from a large number
of customers. The Group’s customer base, while concentrated largely in the UK, represents a spread
of industry sectors. The largest amount due from a single customer at the reporting date represented
6.4% of total Group receivables (2015: 4.4%). All of the Group’s cash is held with financial institutions
of high credit rating.
Impairment losses
The ageing of trade receivables at the end of the reporting period was:
Group
Gross
Impairment
Gross Impairment
Not past due
Past due 0-30 days
Past due 31-90 days
Past due more than 90 days
2016
£000
24,987
9,023
4,730
1,410
40,150
2016
£000
-
-
-
(740)
(740)
2015
£000
15,497
6,427
3,796
538
26,258
2015
£000
-
-
-
(256)
(256)
The Company had no trade receivables (2014: £Nil). The Group establishes an allowance for impairment
that represents its estimate of incurred losses in respect of specific trade receivables. The movement in the
allowance for impairment was:
Balance at 1 June
Credit for the year
Balance at 31 May
Group
Group
2016
£000
256
484
740
2015
£000
243
13
256
The allowance accounts in respect of trade receivables are used to record impairment losses unless the
Group is satisfied that no recovery of the amounts owing is possible; at that point the amount is considered
irrecoverable and is written off against the financial asset directly. The Group reviews all debt more than 90
days past due and provides for impairment losses, net of any revenue which has been deferred, based on
trading experience with that customer. The allowance is all for debts older than 90 days (2015: older than 90
days). The ageing of Group debt and associated impairment loss is reported to the Board on a monthly basis.
142
143
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS NOTES
FOR THE YEAR ENDED 31 MAY 2016
21 Financial instruments (continued)
21 Financial instruments (continued)
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The
Group manages liquidity risks by regular reviews of forecast and actual cash flows in line with contractual
maturities of financial liabilities and the Revolving Credit Facility available. Forecast cash flows are reported
to the Board on a monthly basis. The following are the contractual maturities of financial liabilities, including
interest payments of the Group:
At 31 May 2016
Carrying
amount
Contractual
cash flows
6 months
or less
6-12
months
£000
£000
£000
£000
Secured bank borrowings
(33,395)
(33,395)
-
Trade and other payables
(31,647)
(31,647)
(31,647)
Deferred consideration
(18,526)
(19,086)
Contingent consideration
(3,471)
(3,471)
(9,538)
(3,471)
At 31 May 2015
Secured bank borrowings
(66,905)
(66,990)
(9,975)
Trade and other payables
(25,862)
(25,862)
(25,862)
Contingent consideration
(7,434)
(8,423)
-
-
-
-
-
-
-
-
1-2
years
£000
-
-
(9,538)
-
(57,015)
-
2+
years
£000
(33,395)
-
-
-
-
-
(1,701)
(6,722)
The financial liabilities of the Company all have contractual maturities within 6 months
(2015: within 6 months).
Currency risk
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated
in a currency other than the respective functional currencies of the Group entities. The Group’s
management review the size and probable timing of settlement of all financial assets and liabilities
denominated in foreign currencies. The Group’s exposure to currency risk is as follows:
2016
2015
Sterling Euros
USD
AUD
DKK Sterling Euros
USD
AUD
DKK
£000
£000
£000
£000
£000
£000
£000
£000
£000
£000
Receivables
27,688
3,947
6,640
584
551
20,508
451
4,268
258
517
Cash and
cash
equivalents
Bank
borrowings
Trade and
other
payables
12,491
4,991
1,796
(4) 1,389
10,251
2,570
2,668
35
829
(6,869)
- (26,526)
-
-
(39,915)
- (26,990)
-
-
(20,972)
(7,519)
(2,468)
(114)
(574)
(21,350)
(1,152)
(2,865)
(49)
(446)
A change in exchange rates of 10% would not have a significant impact on these financial statements.
144
Interest rate risk
The Group and Company finances its operations through a mixture of retained profits and bank borrowings.
The Group borrows and invests surplus cash at floating rates of interest based upon bank base rate. The
financial assets of the Group at the end of the financial year were as follows:
Sterling denominated financial assets
Euro denominated financial assets
US dollar denominated financial assets
AU dollar denominated financial assets
DKK denominated financial assets
Current trade and other receivables
The financial assets of the Company at the end of the financial year were as follows:
Sterling denominated financial assets
Amounts owed by Group undertakings
2016
£000
12,491
4,991
1,796
(4)
1,389
39,410
60,073
2016
£000
40
118,503
118,543
2015
£000
10,251
2,570
2,668
35
829
26,002
42,355
2015
£000
62
8,741
8,803
A change of 100 basis points in interest rates would result in a difference in annual pre-tax profit of
£565,000 (2015: £476,000).
The financial liabilities of the Group and their maturity profile are as follows:
2016
20154
Sterling Euros
£000
£000
USD
£000
AUD
£000
DKK Sterling Euros
£000
£000
£000
USD
£000
AUD
£000
DKK
£000
1,664
9,263
-
-
-
6,869
-
9,263
-
-
- 26,527
-
-
-
-
1,807
-
-
-
-
-
-
41,155
-
-
3,000
2,794
-
26,990
-
-
-
-
-
-
-
-
-
-
20,972
7,519
2,468
114
574
21,350
1,152
2,865
49
446
Less than
one year
1-2 years
2-3 years
3-5 years
Current
trade and
other
payables
The financial liabilities of the Company and their maturity profile are as follows:
Maturity
Current trade and other payables
Sterling denominated financial liabilities
2016
£000
-
-
2015
£000
11,490
11,490
As at 31 May 2016 the Group had a funding facility comprising a multi-currency revolving credit facility of
£80m (2015: £78m), a £30m multi-currency term loan (2015: £Nil) and an overdraft of £5m (2015: £2m).
The interest payable on drawn down funds ranges from 0.9% to 2.0% above LIBOR subject to the
Group’s net debt and interest to EBITDA ratios. At 31 May 2016 the amount drawn down under the
facilities was £33.3m. This facility was agreed in November 2015 and is due for renewal in November
2020. At the end of May 2016, the effective rate was 2.0% (2015: 1.6%).
145
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS
NOTES
FOR THE YEAR ENDED 31 MAY 2016
22 Share-based payments
The Company has a number of share option schemes under which options to subscribe for the
Company’s shares have been granted to directors and staff, details of which are illustrated in the tables
below. Expected term of options represents the period over which the fair value calculations are based.
The share based payment charge for the year was £1,191,000 (2015: £991,000).
Approved EMI scheme
Under the Approved EMI Scheme, options granted will be subject to performance criteria.
Options will vest if the average EPS growth for the 3 years following their grant is greater
than 3% above RPI per annum. The options are to be settled in equity.
Date of grant
Expected term
of options
Exercisable
between
Exercise
Price
2016 Number
Outstanding
August 2007
February 2008
6 years
6 years
July 2010 - July 2017
Feb 2011 - Feb 2018
£0.64
£0.65
34,825
2,862
CSOP scheme
Under the CSOP Scheme, options granted will be subject to performance criteria. Options will vest if the
average EPS growth for the 3 years following their grant is greater than 10% per annum. The options are
to be settled in equity.
Date of grant
Expected term
of options
Exercisable
between
Exercise
Price
2016 Number
Outstanding
July 2012
July 2013
August 2015
6 years
6 years
6 years
July 2015 - July 2022
July 2016 - July 2023
August 2018 - August 2025
£1.36
£1.40
£2.45
157,508
28,504
325,401
LTIP Schemes
The vesting condition for the award of the LTIP schemes relates to growth in the Group’s EPS over the
performance period. If growth is equal to 25% or more per annum then 100% of the award will vest. If,
however, growth is less than 10% per annum, none of the award will vest. Between these two points,
vesting is determined on a straight line basis. The options are to be settled in equity.
Date of grant
Expected term
of options
Exercisable
between
Exercise
Price
2016 Number
Outstanding
July 2013
July 2014
July 2015
3 years
3 years
3 years
June 2016 - July 2017
June 2017 - July 2018
June 2018 - July 2019
Nil*
Nil*
Nil*
767,262
638,636
698,464
*The option exercise price is nil however £1 is payable on each occasion of exercise.
146
22 Share-based payments
Sharesave scheme
The Company operates a Sharesave scheme, which is available to all UK based employees and full time
Executive Directors of the Company and its subsidiaries who have worked for a qualifying period. All
options are to be settled by equity.
Under the scheme the following options have been granted and are outstanding at year end.
Date of grant
Expected term
of options
Exercisable
between
Exercise
Price
2016 Number
Outstanding
August 2013
3.25 years
August 2014
3.25 years
August 2015
3.25 years
October 2016
- February 2017
October 2017
- February 2018
October 2018
- February 2019
Deferred Share Scheme
£1.13
£1.51
£1.87
457,436
1,055,882
1,087,209
Date of grant
Expected term
of options
Exercisable
between
Exercise
Price
2016 Number
Outstanding
July 2015
1 year
July 2017 – July 2019
Nil*
94,382
*The option exercise price is nil however £1 is payable on each occasion of exercise.
Employee Stock Purchase Plan
The Company operates a stock purchase plan, which is available to all US based employees who have
worked for a qualifying period. All options are to be settled by equity.
Under the scheme the following options have been granted and are outstanding at year end.
Date of grant
Expected term
of options
Exercisable
between
Exercise
Price
2016 Number
Outstanding
February 2016
1 year
February 2017
£2.50
92,820
ISO scheme
Under the ISO Scheme, options granted will be subject to performance criteria. Options will vest if the
average EPS growth for the 3 years following their grant is greater than 10% per annum. The options are
to be settled in equity.
Date of grant
Expected term
of options
Exercisable
between
Exercise
Price
2015 Number
Outstanding
January 2013
3 years
January 2014
3 years
January 2015
3 years
August 2015
3 years
January 2016
3 years
January 2016
- January 2023
January 2017
- January 2024
January 2018
- January 2025
August 2018
- August 2025
January 2019
- January 2026
£1.48
£2.00
£2.00
£2.46
£3.24
40,676
45,111
50,000
142,121
19,476
147
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS NOTES
FOR THE YEAR ENDED 31 MAY 2016
22 Share-based payments (continued)
22 Share-based payments (continued)
The following tables illustrate the number of share options for the schemes.
Number of
instruments as
at 1 June 2015
Instruments
granted during
the year
Options
exercised
in the year
Forfeitures
in the year
Number of
instruments as
at 31 May 2016
61,939
5,640
327,144
28,504
-
-
-
-
-
341,671
417,096
482,542
1,189,141
-
-
-
(13,326)
(13,788)
34,825
-
(2,778)
2,862
(169,636)
-
-
(412,440)
-
-
(16,270)
(4,656)
157,508
28,504
325,401
-
(5,517)
(19,589)
457,436
(2,142)
(131,177)
1,055,822
-
1,201,312
-
(114,103)
1,087,209
94,856
-
61,014
45,111
14,284
60,000
-
-
788,778
767,262
638,636
-
-
-
(63,759)
(31,097)
92,820
-
-
-
-
150,242
19,476
-
-
-
698,464
94,382
-
(20,338)
-
-
-
-
-
-
-
-
(14,284)
(10,000)
(8,121)
-
(121,472)
(667,306)
-
-
-
-
-
-
-
-
-
92,820
40,676
45,111
-
50,000
142,121
19,476
-
767,262
638,636
698,464
94,382
Scheme
Approved EMI
scheme
Approved EMI
scheme
CSOP scheme
CSOP scheme
CSOP scheme
Sharesave
scheme
Sharesave
scheme
Sharesave
scheme
Sharesave
scheme
ESPP scheme
ESPP scheme
ISO scheme
ISO scheme
ISO scheme
ISO scheme
ISO scheme
ISO scheme
LTIP
LTIP
LTIP
LTIP
Deferred
shares
The options outstanding at 31 May 2016 have an exercise price in the range of £Nil to £3.24 (2015: £Nil to
£2.04) and a weighted average contractual life of 3 years (2015: 3 years). The weighted average share
price at the time the share options were exercised in the year was £2.60 and weighted average share price
at the time the share options were forfeited in the year was £2.33.
Scheme
Approved EMI
scheme
Approved EMI
scheme
CSOP scheme
CSOP scheme
Sharesave
scheme
Sharesave
scheme
Sharesave
scheme
Sharesave
scheme
ESPP scheme
ESPP scheme
ISO scheme
ISO scheme
ISO scheme
ISO scheme
LTIP
LTIP
LTIP
LTIP
Number of
instruments as
at 1 June 2014
Instruments
granted during
the year
95,375
5,640
352,872
42,756
380,910
506,040
539,904
-
-
-
-
-
-
-
-
1,304,554
Options
exercised
in the year
(33,436)
-
-
-
(376,620)
Forfeitures
in the year
Number of
instruments as
at 31 May 2015
-
-
(25,728)
(14,252)
(4,290)
61,939
5,640
327,144
28,504
-
-
-
-
(88,944)
417,096
(57,362)
482,542
(115,413)
1,189,141
81,795
-
61,014
45,111
-
-
1,139,076
908,400
956,361
-
(46,163)
(35,332)
94,856
-
-
14,284
60,000
-
-
-
-
-
-
-
-
-
-
-
-
-
(571,814)
-
-
-
(567,262)
(119,622)
(189,099)
(157,958)
-
94,856
61,014
45,111
14,284
60,000
-
788,778
767,262
638,636
-
796,594
148
149
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS NOTES
FOR THE YEAR ENDED 31 MAY 2016
22 Share-based payments (continued)
23 Called up share capital
The fair value of services received in return for share options is calculated with reference to the fair value of
the award on the date of grant. The fair value is spread over the period during which the employee
becomes unconditionally entitled to the award, adjusted to reflect actual and expected levels of vesting.
Black-Scholes and Binomial models have been used to calculate the fair values of options on their grant
date for all options issued after 7 November 2002, which had not vested by 1 January 2005. The
assumptions used in the model are illustrated in the table below:
Fair value at
measurement
date
Grant Date
Exercise
price
Expected
volatility
Option
expected
term
Risk-free
interest rate
EMI
EMI
CSOP
CSOP
CSOP
SAYE
SAYE
SAYE
SAYE
ESPP
ESPP
ISO
ISO
ISO
ISO
ISO
ISO
LTIP
LTIP
LTIP
LTIP
DEFERRED
SHARES
Aug-07
Feb-08
Aug-12
Jul-13
Aug-15
Aug-12
Aug-13
Aug-14
Aug-15
Feb-15
Feb-16
Jan-13
Jan-14
Jul-14
Jan-15
Aug-15
Feb-16
Jul-12
Jul-13
Jul-14
Jul-15
Jul-15
£0.20
£0.21
£0.35
£0.25
£1.45
£0.45
£0.32
£0.68
£1.53
£0.46
£1.28
£0.33
£0.35
£0.42
£0.43
£1.45
£1.91
£1.25
£1.28
£1.92
£2.14
£2.21
£0.64
£0.65
£1.36
£1.40
£2.46
£1.09
£1.13
£1.51
£1.87
£1.91
£2.50
£1.48
£2.00
£2.04
£2.00
£2.46
£3.24
£nil*
£nil*
£nil*
£nil*
£nil*
25%
25%
35%
32%
103%
35%
32%
32%
103%
35%
103%
35%
35%
32%
32%
103%
103%
35%
32%
32%
103%
103%
6 years
6 years
6 years
6 years
6 years
3.25 years
3.25 years
3.25 years
3.25 years
1 year
1 year
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
2 years
6.00%
6.00%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
2.75%
* The option exercise price is nil however £1 is payable on each occasion of exercise.
The expected volatility is based on the historical volatility, adjusted for any expected changes to future
volatility due to publicly available information. For the options granted in the year ending 31 May 2016,
dividend yield assumed at the time of option grant is 2.1% (2015: 2.4%).
A charge of £1,191,000 (2015: £991,000) has been made to administrative expenses in the Group income
statement in respect of share based payment transactions, including £56,000 of provision for National
Insurance contributions (2015: £106,000). A charge of £nil (2015: £546,000) has been made to cost of
sales in the Company income statement in respect of share based payment transactions, including £nil
provision for National Insurance contributions (2015: £nil)
Number of shares
Allotted, called up and fully paid
Ordinary shares of 1p each at the beginning of the year
Ordinary shares of 1p each issued in the year
Ordinary shares of 1p each at the end of the year
229,316,313
46,623,451
275,939,764
2016
£000
2,293
466
2,759
2015
£000
2,085
208
2,293
On 27 November 2015, NCC Group plc issued 22,949,986 new ordinary shares of 1 pence to fund
the acquisition of Fox-IT Holdings B.V. In addition, on 18 December 2015, the Group issued a further
22,986,307 of new ordinary shares as a result of the successful placing and open offer of shares.
Both issues resulted in a combined 459,000 par value of shares and £122,519,000 to share premium
after deduction of the costs associated with the issue of shares.
During the year, 687,158 new ordinary shares of 1 pence were issued as a result of exercise of
share options.
As at 31 May 2016, 116,714 shares were held in treasury (2015: 238,186). The total consideration paid
for the shares was £230,000 (2015: £464,000), which has been deducted from equity in the period.
These shares are held with the sole purpose of the settling any future share based basement obligations.
24 Cash and cash equivalents
At beginning
of year
£000
16,353
Cash
flow
£000
3,539
16,353
3,539
Non cash
items
£000
771
771
At end
of year
£000
20,663
20,663
Cash and cash equivalents per
balance sheet
Cash and cash equivalents
per cash flow statement
Non-cash items principally relate to the effects of foreign currency.
150
151
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS NOTES
FOR THE YEAR ENDED 31 MAY 2016
25 Other financial commitments
and contingent liabilities
Non-cancellable operating lease rentals are payable as follows:
Within one year or less
Between one and five years
Over five years
2016
2015
Land and
Buildings
£000
3,502
7,255
905
11,662
Other
£000
576
476
-
1,052
Land and
Buildings
£000
3,002
10,869
1,630
15,501
Other
£000
371
163
-
534
There are no contingent liabilities not provided for at the end of the financial year.
26 Pension scheme
The Group operates a defined contribution pension scheme that is open to all eligible employees.
The pension cost charge for the year represents contributions payable by the Group to the fund
and amounted to £2,479,000 (2015: £1,840,000).
For the Company, the pension cost charge for the year represents contributions payable by the
Company to the fund and amounted to £nil (2015: £nil).
27 Related party transactions
The Group’s key management personnel comprise the Directors of the Group. The Group and Company’s
transactions with those Directors are disclosed in the Directors’ Remuneration Report.
During the year corporate finance fees of £750,000 (2015: £748,000) and professional fees for
services of Paul Mitchell of £37,500 (2015: £75,000) as Non-Executive Chairman were paid to
Rickitt Mitchell & Partners Ltd. Paul Mitchell is Non-Executive Chairman of both the Group and
Rickitt Mitchell & Partners Ltd.
28 Investments in subsidiary undertakings
Company
At 1 June 2014
Increase in subsidiary investment for share-based charges
Acquisition of subsidiary
At 31 May 2015
At 1 June 2015
Increase in subsidiary investment for share-based charges
At 31 May 2016
Shares in Group undertakings
£000
33,478
339
52,506
86,323
86,323
1,135
88,458
In the prior year, the acquisition of subsidiary relates to the purchase of Accumuli plc (Note 16).
Fixed asset investments are recognised at cost.
152
153
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS NOTES
FOR THE YEAR ENDED 31 MAY 2016
28 Investments in subsidiary undertakings (continued)
28 Investments in subsidiary undertakings (continued)
The undertakings in which the Company has a 100% interest at the year end are as follows:
The undertakings in which the Company is less than 100% at the year end are as follows:
Tracks Inspector B.V.
Deposit AB Escrow Europe
Porttracker Limited
35%
25%
35%
Netherlands
Sweden
% age
interest
Country of
incorporation
Principle
activity
Assurance
Assurance
England
Assurance
and Wales
Subsidiary undertakings
NCC Group (Solutions) Limited
NCC Services Limited
NCC Group Escrow Limited
Artemis Internet Limited
NCC Group Employees’ Trustees Limited
Escrow 4 Software Limited
NCC Group Performance Testing Limited
NCC Group Security Services Limited
NCC Group Audit Limited
NCC Group SDLC Limited
Axzona Limited
NCC Group Escrow Europe B.V.
NCC Group Escrow Europe (Switzerland) AG
NCC Group GmbH
FortConsult A/S
FC Holding Lithuania ApS
FC Holding Russia ApS
FortConsult UAB
FortConsult Rus 000
NCC Group Security Services, Inc.
NCC Group Escrow Associates LLC
NCC Group Secure Registrar, Inc.
NCC Group Domain Services, Inc.
NCC Group Inc.
NCC Group Pty Limited
Accumuli Limited
Accumuli (Holdings) Limited
Armstong Adams Limited
Randomstorm Limited
Eqalis Limited
Edgeseven Limited
Accumuli Security Services Limited
NCC Group Signify Solutions Limited
Fujin Technology Limited
Accumuli Security Systems Limited
Accumuli Security Technology Limited
Accumuli Security ASH Limited
NCC Group Accumuli Security Limited
Accumuli Debenture Limited
Accumuli B.V.
Accumuli Managed Services Limited
Boxing Orange MSS Limited
OpenRegistry S.A.
ClearingHouse for Intellectual Property S.A.
Nexperteam CVBA
Sensirius CVBA
Fox-IT Holding B.V.
Fox-IT Group B.V.
Fox-IT B.V.
Fox-IT Operations B.V.
Fox-IT Crypto B.V.
Country of incorporation
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Netherlands
Switzerland
Germany
Denmark
Denmark
Denmark
Lithuania
Russia
USA
USA
USA
USA
USA
Australia
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Netherlands
England and Wales
England and Wales
Luxembourg
Luxembourg
Belgium
Belgium
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Principal Activity
Holding company
Escrow & Assurance
Dormant
Dormant
Dormant
Dormant
Assurance
Assurance
Assurance
Assurance
Dormant
Escrow
Escrow
Escrow
Assurance
Assurance
Assurance
Assurance
Assurance
Assurance
Escrow
Domain Services
Domain Services
Escrow & Assurance
Assurance
Holding company
Holding company
Assurance
Non-trading
Non-trading
Non-trading
Non-trading
Assurance
Non-trading
Non-trading
Non-trading
Non-trading
Assurance
Dormant
Holding company
Dormant
Dormant
Domain Services
Domain Services
Domain Services
Domain Services
Assurance
Assurance
Assurance
Assurance
Assurance
154
155
www.nccgroup.trustNCC GROUP PLC ANNUAL REPORT AND ACCOUNTS SHAREHOLDER INFORMATION
Directors
Paul Mitchell – Non-Executive Chairman
Rob Cotton – Chief Executive
Atul Patel – Group Finance Director
Debbie Hewitt MBE – Senior Independent Non-Executive Director
Thomas Chambers – Non-Executive Director
Chris Batterham – Non-Executive Director
Secretary
Helen Nisbet
Registered office
Manchester Technology Centre
Oxford Road
Manchester
M1 7EF
Registered number
4627044
Joint brokers and corporate finance advisers
Jefferies International Limited
Peel Hunt LLP
Vintners Place
Moor House
68 Upper Thames Street
120 London Wall
London
EC4V 3BJ
London
EC2Y 5ET
Corporate finance advisers
Rickitt Mitchell & Partners Limited
Centurion House
129 Deansgate
Manchester
M3 3WR
Auditors
KPMG LLP
1 St Peter’s Square
Manchester
M2 3AE
Solicitors
Eversheds LLP
70 Great Bridgewater Street
Manchester
M1 5ES
Bankers
The Royal Bank of Scotland plc
HSBC Bank plc
Lloyds Bank plc
6th Floor
2nd Floor
8th Floor
1 Spinningfields Square
4 Hardman Square
40 Spring Gardens
Spinningfields
Manchester
Manchester
M3 3EB
M2 1EN
Manchester
M3 3AP
Registrars
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
156
NCC GROUP ANNUAL REPORT AND ACCOUNTS
www.nccgroup.trust
157
COMPANY LOCATIONS
UK
Europe
Manchester - Head Office
Belgium
Basingstoke
Cambridge
Cheltenham
Edinburgh
Glasgow
Leatherhead
Leeds
London
Milton Keynes
USA
Atlanta, GA
Austin, TX
Chicago, IL
New York, NY
San Francisco, CA
Seattle, WA
Sunnyvale, CA
Denmark
Germany
Lithuania
Luxembourg
Spain
Sweden
Switzerland
The Netherlands
Canada
Kitchener, ON
Australia
Sydney
158
NCC GROUP ANNUAL REPORT AND ACCOUNTS
www.nccgroup.trust
159
WWW.NCCGROUP.TRUST