securing
tomorrow,
today
NCC Group plc
Annual Report and Accounts
for the year ended 31 May 2017
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www.nccgroup.trust
Stock Code: NCC
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BUSINESS OVERVIEW
Why
we exist
NCC Group is a 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 from over
30 offices across the UK, continental Europe,
North America, Australia, Canada, Singapore
and the United Arab Emirates.
NAVIGATING THE REPORT
For further information within this
document and relevant page numbers
Additional information available online
Visit us online at
www.nccgroup.trust
www.nccgroup.trust
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Financial
highlights (1)
Revenue
(£m)
Adjusted EBIT
(£m)
244.5
209.1
38.4
Contents
BUSINESS OVERVIEW
Financial highlights
Executive Chairman’s statement
Group at a glance
A day in the life…
STRATEGIC REPORT
Highlights
The strategic review and
target operating model
The market opportunity
Business model
Our strategy
23.9
26.0
26.4
27.6
Q&A with Chris Stone and Brian Tenner
99.2
110.7
133.7
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Operating Profit/Loss
(£m)
Adjusted EPS
(pence)
24.1
22.6
19.8
11.4
11.2
9.3
9.4
8.4
Interim Chief Executive’s review
Group performance review for 2017
Principal risks and uncertainties
Corporate social responsibility
GOVERNANCE
Chairman’s letter
Governance framework
Board of Directors
CONTENTS
LISTING HERE
Operations board
Board composition and division of
responsibilities
Shareholder relations
6.7
Audit committee report
(53.4)
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Investment
case
z NCC Group operate in high growth markets
z Our expertise is highly valued by our customers
z We are at the forefront of thought leadership in cyber security
z NCC Group Escrow is an attractive niche business
z Self-help measures to improve margins through an updated Target
Operating Model and efficient business processes in both divisions
z In a highly fragmented market, NCC Group’s scale creates opportunity
for significant value creation through targeted acquisitions.
(1) All from continuing operations
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
Nomination committee report
Cyber security committee report
Remuneration committee report
Directors’ report
Directors’ responsibilities statement
FINANCIAL STATEMENTS
Independent auditor’s report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Consolidated statement of cash flows
Company statement of cash flows
Statements of changes of equity
Notes to the accounts
ADDITIONAL INFORMATION
Glossary of terms
Company information
1
2
6
14
16
17
18
20
24
26
28
30
44
48
54
58
•• 59
61
62
64
65
71
74
82
84
86
108
112
113
114
118
119
120
122
124
125
127
170
172
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BUSINESS OVERVIEW
Executive
Chairman’s
statement
Introduction
My first statement to shareholders as
Executive Chairman reflects on two
strong but contradictory themes. Firstly,
the past year has been very challenging,
both operationally and financially.
Business performance has fallen short
of expectations, we have outgrown some
of our business processes and controls,
and we have experienced significant
changes to our Board.
Equally, and more importantly, it is
already clear that the years ahead
present significant upside opportunities.
Strong value creation will result if we
effectively implement our new strategy
and successfully manage NCC Group
through the transitional period in which
we now find ourselves. Our business is
not broken – indeed it has some notable
strengths, both financial and operational.
We still enjoy significant organic
growth in our core markets and have
a strong balance sheet. Furthermore,
in a constantly evolving and complex
market, our unique market leading skills
and capabilities are keeping us at the
forefront of thought leadership. This is
recognised by customers, who reward us
with high levels of repeat business. If we
improve our organisation and how we go
to market, we will also see material value
creation.
NCC Group has a unique
opportunity: we hold
leading positions in
growing markets around
the world, our customers
value us and our workforce
is exceptionally skilled.
However, we need to
change how we organise
ourselves and improve
our internal business
processes. Only by doing
this will we be able to
capture the significant
value available to us
Business performance
The financial performance for the year
was clearly disappointing, though in
line with revised expectations. Despite
delivering revenue growth of almost
£35.4m (up 17 per cent), adjusted* EBIT
went backwards to £27.5m from £39.7m
in the prior year. Operating profit fell
from £11.4m in the prior year to a loss
of £53.4m. This outcome reflected a
number of historical weaknesses in our
operating model.
Our business performance is shown in
more detail in the Strategic Report on
pages 16 to 57.
Strategic review and
strategic plan
Following the trading update on
21 February 2017, the Board
commissioned a Strategic Review. The
Review focused on three key areas.
Firstly, to develop a better understanding
of our marketplace, our competitors
and our customers. Secondly, to assess
the relative strengths and weaknesses
of NCC Group in the market. Thirdly, to
assess the value created by the current
portfolio of businesses.
The Review confirmed that our markets
remain attractive and, more importantly,
that customers regard NCC Group as a
very strong competitor in these markets
with a strongly differentiated proposition.
The strong cyber security theme (or
“golden thread”) that runs through the
Assurance Division represents a unique
set of competencies and capabilities
that we can leverage to deliver greater
customer value in a highly complex and
fragmented market. Our sector and
application specific product offerings
are leading edge and our solutions
capabilities are highly valued and sought
after.
The Review also confirmed the current
financial logic of the relationship between
Assurance and Escrow. Escrow itself is
an attractive business and provides a
stabilising influence on the Group.
*
This is a non-GAAP or Alternative Performance
Measure (APM). Adjusted figures exclude the
amortisation of acquired intangibles, individually
significant items, share-based charges,
the unwinding of discount on deferred and
contingent consideration, the results of the exited
Domain Services business and any associated tax
thereon.
www.nccgroup.trust
Stock Code: NCC
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Finally, the Review identified two of the
smaller Assurance businesses that sit
outside the cyber golden thread whose
future would be better served under
alternative ownership. These businesses,
Web Performance and Software Testing,
will be disposed of in due course.
Subsequently, we initiated the
development of a new three-phase
Strategic Plan and revised Target
Operating Model in order to underpin our
“go to market” and delivery strategies.
In the next 12 to 24 months, we intend
to focus more of our efforts on internal
self-help measures than has been the
case historically.
This should ensure that we reverse
the margin compression seen in both
trading divisions and across most
territories in the last two years. The
Group will then benefit from further
organic growth with foundations built
on scalable products and business
processes. These new foundations will
also significantly enhance our ability to
leverage acquisition related growth when
the Group returns to being acquisitive.
Acquisition activity, if any, is therefore
likely to be limited during this period to
smaller “bolt-ons”.
The results of the Strategic Review are
set out further in the Strategic Report on
pages 18 to 23.
Dividends
The Board has reviewed the business
performance in the current year
alongside our historical progressive
dividend policy. While mindful of the
need for investment over the next few
years, the Board is confident in our
prospects and hence recommends that
the dividend is maintained at the current
level.
Governance
During the year, the Board has
undertaken a major review of some of
the Group’s governance structures. In
part, this was prompted by a combination
of shareholder and employee feedback.
In addition, there was also the realisation
that rapid growth in recent years had
taken the Group beyond the design
limits of the previous operating model.
A final dividend of 3.15p is therefore
being recommended by the Board,
making a total for the year of 4.65p,
equal to the prior year. If approved, the
final dividend in respect of the year
ended 31 May 2017 will be paid on
29 September 2017 to shareholders
on the register as at 1 September 2017
with an ex-dividend date of 31 August
2017.
As a matter of note, an administrative
non-compliance issue has been
identified with respect to distributable
reserves and the payment of historical
dividends. At all times the Group had
adequate returns within subsidiary
companies to meet these dividends. We
expect to remedy the position by means
of shareholder resolutions at the AGM in
September.
The Board remains committed to high
standards of corporate governance.
We are working actively to enhance
governance as well as our business
processes and internal controls to match
our ambitions for the Group’s future. The
results of the Governance Review are
set out in the Governance Report on
pages 59 to 60.
Board composition
There have been a number of changes
to the Board during the year. I joined
the Board on 6 April 2017 as a Non-
Executive Director, becoming Executive
Chairman in April when Paul Mitchell
stood down as Chairman.
Last year we noted our intention to
strengthen the team further with an
additional independent Non-Executive
Director. As a result, Jonathan Brooks
joined the Board as a Non-Executive
Director on 13 March 2017. Jonathan
brings significant valuable experience of
the technology sector.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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BUSINESS OVERVIEW
Executive
Chairman’s
statement
Brian Tenner was appointed Chief
Financial Officer on 1 February 2017
following a search process prompted by
the resignation of Atul Patel on
10 August 2016. He became Interim
CEO on 1 March 2017, following the
decision of Rob Cotton to step down
as CEO.
The current model of an Executive
Chairman working closely with Brian
as Interim CEO and CFO has been
a necessary and effective bridge to
deliver the Strategic Review and also
maintain stability in the management
of the business. Recognising that this
is not a sustainable long-term solution,
the Board has commenced a process
to identify a permanent CEO using a
firm of independent executive search
consultants.
Board effectiveness
As Executive Chairman, I am responsible
for the leadership of the Board and
ensuring its effectiveness in all aspects
of its performance. During the year, the
Board has reviewed its performance and
effectiveness in accordance with the
requirements of the Code. We note that
the recent and significant changes in
membership and new strategic direction
represent a transition period for the
Board as well as the Group.
Our business is entirely
reliant on the skills and
experience of our staff.
We are fortunate to have
them choose to build
their careers with NCC
Group, and I look forward
to working with all of them
as we take our business
forward
The Board will work to enhance
oversight of the Group’s strategic
development, monitoring the delivery
of its business objectives and the
development of the new Target
Operating Model. We will also work
hard to ensure that we maintain
an effective, corporate governance
framework that keeps pace with the rate
of growth and change inside and outside
of NCC Group.
Employees
Our staff are the foundation for most
of the value inherent in NCC Group. In
developing and implementing our new
Strategic Plan and Target Operating
Model we will work to ensure that we
create a working environment that
values the individual and allows each one
of us to contribute to our full potential.
This will include creating organisational
values and clearer structures, roles and
responsibilities. The coming financial
year will also see a greater focus on
personal development and training.
I would like to record my own and
the Board’s sincere thanks to all of
the Group’s employees, who have
maintained their focus on delivering
excellent service to our customers.
This has been achieved against a
backdrop of uncertainty caused by
the Group’s volatile financial and
share price performance, particularly
in the latter quarters of the year. Our
business is entirely reliant on the skills
and experience of our staff. We are
fortunate to have them choose to build
their careers with NCC Group, and I look
forward to working with all of them as
we take our business forward.
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Current trading and outlook
All businesses go through transitional
phases as they grow and mature. NCC
Group is no exception. Where we are
different, and at a significant advantage
to many, is that change has not been
forced upon us by mounting losses, a
stretched balance sheet, technological
obsolescence or a sudden shrinkage
in our markets. We are operating in a
rapidly growing international market in
which our core skills and competencies
will allow us to lead rather than follow.
Our challenge is to manage the
transition from one business model
to another, as the growth in scale and
complexity has made our early stage
model ineffective. We now need to
create structures and products that
allow us to benefit from our scale and
deliver additional value for our customers
while never losing sight of our core
competencies and strengths, most
notably represented in our staff, their
energy and their commitment.
So while there is a lot of work to do to
implement new processes, systems and
structures, the outlook for NCC Group
remains very positive. In fast growing
international markets with a range of
innovative products and services, the
challenge is to execute effectively
the planned changes in strategy and
operating model. The Board is confident
that the Group can deliver sustainable
earnings growth and enhanced
shareholder value once it has more
robust foundations in place. We are not
only “securing tomorrow, today” for our
customers, but for all of our long-term
stakeholders.
In terms of trading for the current
financial year, the Board expects
Escrow to return to low single digit
revenue growth and see some margin
improvement. The Assurance business is
expected to see high single-digit organic
revenue growth as we build from the
low point of the second half of last year.
Assurance gross margins will improve as
we implement our new operating model
over the course of the new financial year.
Set against these gains in gross profit
are some cost headwinds arising from
higher overheads linked to property
costs and the amortisation and
depreciation of capital spend in 2017.
Finally, the disposal of the Web and
Software Testing businesses will reduce
EBIT on a pro rata basis by £2.7m based
on 2017 results. Overall, the Group’s
expectations for adjusted EBIT in 2018
are unchanged.
Chris Stone
EXECUTIVE CHAIRMAN
18 July 2017
There is a lot of work to
do to implement new
processes, systems and
structures but the outlook
for NCC Group remains very
positive
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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BUSINESS OVERVIEW
Group at
a glance
NCC Group is a global expert in cyber security and
risk mitigation, providing organisations worldwide
with market leading business continuity services
focused on the digital world.
We aim to innovate and continually
develop new products and services to
match the rapidly evolving and complex
digital world. Our goal is to stay at the
forefront of thought leadership and
delivery in our current markets while
expanding geographically
where appropriate.
The Group now operates in two distinct but complementary divisions: Assurance and Escrow.
A short summary of the activities of each is set out below and on the following pages.
ASSURANCE KEY FACTS
z One of the leading pure play cyber security businesses
focusing on services as opposed to products
z Customers in 50+ different countries
z Largest customer is 4 per cent of sales
z Services sold across multiple industry sectors (see across)
ESCROW KEY FACTS
z Leading provider of Escrow services in the UK
z Growing positively in the US and Europe
z Customers in 85 different countries
z Top ten customers represent 7.6 per cent of sales
z Largest customer is 1.2 per cent of sales
z Revenue by industry sector shown opposite
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USA
£58.5m
UK
£144.2m
Europe
£37.2m
Rest of
World
£2.0m
Where NCC Group operates
We have a significant market presence in
the UK, the USA, Continental Europe, and
a smaller footprint in a number of other
international locations. All of our geographical
markets present opportunities for growth by
leveraging our core competencies.
Revenue split
Escrow revenue £37.1m
Assurance revenue £204.7m
Adjusted Revenue
Adjusted EBIT
Total staff
Adjusted EBITDA
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BUSINESS OVERVIEW
Group at
a glance
ASSURANCE DIVISION OVERVIEW
The Assurance Division operates in two
discreet segments as described below.
Security consulting
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 and systems.
The Assurance Division brings together
a number of diverse product and service
offerings in a number of different
business lines. The “golden thread”
running through the core businesses is
“cyber security” – whether through the
provision of consulting and professional
services, managed services or hardware
and software products. These core areas
all focus on cyber security – in other
words – how to maintain and protect our
customers’ data and critical business
systems from interruption by malicious
or accidental events.
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.
In conjunction with this creativity, the
business is committed to listening to
its clients’ requirements. 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.
Historically, Assurance Division
acquisitions have been 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 cryptography is the most recent
example of this, where the Group
acquired a business, Fox-IT, to fill directly
a product and service need. While
progress in rolling these services out to
a much broader range of multinational
customers has been much slower than
expected, the opportunity remains an
attractive one if we can reorganise
ourselves effectively to deliver on it.
Threat intelligence is one of the most
important tools in an organisation’s
armoury to help prevent and mitigate
cyber-attack.
Our future acquisition strategy will
be reviewed and developed after
a necessary period of stabilisation
and rebuilding of strong foundations
in scalable business systems and
processes.
Following the acquisition of Accumuli plc,
the Group has the opportunity to offer
an integrated managed scanning service
as a single client solution (hence now
referred to as MSS). A project is also
underway to put all of our internal and
external monitoring services on to the
“CTMp” platform acquired with Fox-IT.
While the Group will continue to be open
to the sale of third party products, our
focus will be on instances where we can
offer value added after sales services.
Not all of the Group’s sales of products
are third party products. Particularly
through the Fox business, we offer some
very high-end products to customers
that combine hardware and software in
one package. This includes “DetACT”
(for use by transactional financial
services companies) and Data Diodes
(a product range that helps secure
one-way data communications such
as a utility meter). Both products are
sufficiently differentiated that they can
attract better margins than third party
product reselling.
As one of the world’s largest service
led security consultancies, the Group is
capable of leading all cyber security bids
rather than having to look for support
from larger third parties.
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 levels and spikes
in online traffic can throw websites
offline. Currently, NCC Group undertakes
more than three million web page tests
per day for clients worldwide.
Employees globally
(2016: 1,323)
Average monthly no. of
Associates globally
(2016: 176)
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ASSURANCE
ACQUISITIONS
CURRENT YEAR ACQUISITIONS
PSC
PSC was acquired in September 2016 as part of the Group’s
strategy of acquiring relatively small bolt-on consulting
businesses. The maximum price that will be paid is $18.75m in
cash ($15.0m up front and $3.75m contingent on performance
over two years).
VSR
VSR was acquired in November 2016, again as part of the
Group’s strategy of acquiring relatively small bolt-on consulting
businesses. The maximum price that will be paid is $6.0m in
cash ($4.0m up front and $2.0m contingent on performance
over two years).
PSC is a leading provider of cyber security, payment
and compliance-related consulting services to the global
payments industry. PSC also serves the financial and retail
sectors and fits well with similar services the Group delivers
for a number of global customers around the world
(www.paysw.com).
Key statistics for PSC
z Based in Silicon Valley, with presence in 29 states in the US
z Employs 37 staff
z Service lines include a cyber security practice and PCI
(Payment Card Industry) sector services that complement
the existing NCC Group PCI business in the UK
z Broad range of blue chip clients with relationships at
Board level including major financial institutions and other
businesses across the payment sector
PSC financial information
Constant fx
Revenue
EBIT
Pre-acquisition
Year ended
31 December
2015
Post
acquisition
7 months
ending 31 May
2017
£7.4m
£1.2m
£5.9m
£1.2m
It is estimated that approximately 85 per cent of PSC’s
revenue is annually repeating in nature.
Acquisition rationale
PSC is one of a very small group of companies that can
provide expert services and solutions to organisations that
require specialist compliance, consulting and cyber security
testing services in the substantial and growing global
payments industry.
VSR is an information, network and application security
consultancy. It provides expert value added services to US
corporate clients. Several are in the Fortune 500 and are mainly
in the technology and financial services sectors.
(www.vsecurity.com).
Key statistics for VSR
z Established in 2004 in Boston, Massachusetts
z Employs 11 staff
z Earnings enhancing and financed from existing debt
facilities and internally generated cash flow
VSR financial information
Constant fx
Revenue
EBIT
Pre-acquisition
Year ended
31 December
2015
Post
acquisition
6 months
ending 31 May
2017
£1.6m
£0.6m
£1.1m
£0.5m
It is estimated that approximately 83 per cent of VSR’s revenue
is annually repeating in nature.
Acquisition rationale
Strong technical ability of senior security consultants and the
high quality of its services. VSR is based in Boston’s financial
district and is an important addition to the Group’s technical
skill set as well as being a valuable extension of NCC Group’s
US office network. VSR will provide a foundation stone into
Boston and that part of the north-eastern region of North
America.
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BUSINESS OVERVIEW
Group at
a glance
ASSURANCE
CORE CAPABILITIES
Identify
Understand your current
security posture and maturity,
which will assist in prioritising
your investment
Respond
Rapid access to cyber incident
containment, investigation &
crisis management
Mitigate
Managing and maintaining
control of your business
enabling you to focus on
strategic priorities
Assess
Deliver assessment on
how to improve your
maturity and mitigation
In today’s threat landscape, understanding the risks that
organisations and their customers are exposed to is more
important than ever.
Understanding the impact and the steps that organisations can
undertake to make themselves resilient is key to protecting
their brand, reputation and sensitive customer information.
Building a cyber-resilient organisation can be a complex
process but it is not impossible.
Through an extensive suite of services, NCC Group
provides organisations with peace of mind that that their most
important assets are protected, available and operating as they
should be, at all times.
With extensive technical depth and strategic vision, NCC
Group is ideally placed to help organisations identify, assess,
mitigate and respond to the risks they face.
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A WIDE RANGE OF SERVICES
Identify
Assess
Mitigate
Identify strategic improvement
z Strategic advice and planning
z Data risk identification
z Enabling digital transformation
z Compliance accreditation
Examples
Æ M&A technical due diligence
Æ Incident response planning
Æ Data mapping
Æ Payment card compliance gap analysis
Æ Web advisory services
Technical assessments to enable effective mitigation
z Threat identification
z Vulnerability identification
z Digital performance
z Planning for change
z Strategic advice and planning
z Data risk identification
z Government and industry compliance
z Software development life cycle
Examples
Æ Penetration testing
Æ Reverse engineering
Æ Cryptographic review
Æ Static code analysis
Æ Policy review
Effective solutions to business challenges
z Software assurance
z Web performance
z Implementing change
z NCC Group products
z Asset verification
z Industry standards compliance
z Hosted and managed services
z Virtual security team
Examples
Æ Managed threat protection
Æ Technology solutions
Æ Security analytics
Æ User acceptance testing
Æ First responder training
Respond
Trusted services for effective recovery
z Cyber incident response
z Post incident analysis
z Asset recovery
Examples
Æ Cyber incident helpline
Æ Cyber forensics
Æ Software escrow
Æ Takedown services
Æ Trusted advisor
Identify
Services designed to help organisations understand their
current security posture, allowing strategic improvements to
be identified and investment prioritised. These solutions aim
to help an organisation understand what the Board’s cyber
security strategy is or should be, the data and assets they
have, where high value data resides and if they are meeting
regulatory obligations.
Assess
Technical assessments to enable effective mitigation. This
allows organisations to conduct informed risk mitigation
planning and understand how to improve their cyber maturity.
These services help organisations to understand their:
z Digital performance
z Cyber threats
z Vulnerability exposure
z Regulatory obligations and whether they are compliant
z Applications security and functionality
z Change plan
Mitigate
Mitigating organisations’ cyber risks through a complete
spectrum of consultancy and managed services which can
help organisations to:
z Ensure their software and applications meet business
requirements
z Comply with industry standards
z Implement change effectively
z Improve online performance
z Manage and monitor their cyber infrastructure effectively
z Understand staff training and support needs
z Protect investment in business critical software
Respond
Trusted discreet services for effective recovery support. An
end-to-end response solution, from incident planning to
investigation, crisis management and asset recovery. With
one of the largest incident response teams in the world,
NCC Group is equipped to reduce the likelihood of a breach
becoming a greater problem than it ought to be. NCC Group
offers services across the entire incident response life cycle.
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BUSINESS OVERVIEW
Group at
a glance
ESCROW
San
Francisco
Atlanta
Manchester
Amsterdam
Switzerland
Munich
Dubai
Where Escrow operates
The business began in the UK where
we now see a mature market. We have a
growing presence in the USA and have
a foothold in a number of European
markets as well as in the Middle East.
Escrow background
The Escrow Division offers a high
value product to customers who rely
on mission critical applications and
software packages for the day-to-day
running of their business functions and
processes. In today’s integrated business
world, these applications typically extend
well beyond accounting and reporting
systems into Enterprise Resource
Planning (ERP) tools and even deeper
into an organisation’s service delivery
capability such as design tools in an
advertising agency or manufacturing
equipment in an engineering company.
These applications are often supplied
by third party vendors. 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 hence business continuity
is potentially put 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.
Core services
Both through contractual arrangements
and through verification testing services,
Escrow’s service offering is to provide
a safe and independent environment
in which customers and their software
suppliers can entrust NCC Group with
source code that will allow continued
access to key systems in the event of an
interruption in supply.
Revenue by
geography
UK £25.4m
USA £7.9m
Europe £3.9m
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Employees globally
(2016: 181)
51.3%
EBIT Margin
(2016: 56.9%)
19.1m*
Adjusted EBIT
(2016: £20.1m)
* Operating Profit £18.1m
The potential benefits include the
continued operation of the customers’
core business systems at a relatively low
cost. Escrow services are provided in both
the traditional software market as well as
in all iterations of the outsourced model.
We continue to develop our SaaS service
to respond to the continuing evolution of
our marketplace, as well as developing
server testing services in order to
enhance the proposition.
Further, we provide registry data escrow
services (a regulatory requirement) for all
registrars and registries of domains. The
IP address of each domain registered
within a TLD is safely secured along with
Registrar Data Escrow.
Due to its importance to clients, Escrow
provides the Group with excellent
recurring revenues along with good
margins and cash generation. Escrow
can be provided both in the traditional
on-premise software market as well as
in the cloud, as the basic underpinnings
are the same; protection from an event
that disrupts the relationship between
the owner and licensee of a software
product.
The Escrow Division remains a key
cornerstone 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 all parties in the
contractual relationship.
While there are limited cross linkages
or shared sales opportunities with
the Assurance Division, Escrow does
offer services that complement those
in Assurance to protect customers
against the full range of cyber risks.
A good example of this has been the
development of offering SAST (static
application security testing) services to
software vendors on source code that
has been deposited and verified with the
Group’s Escrow Division.
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, combining
longevity and trust with technical
expertise. The expertise contained
within the Escrow Division, along with its
credentials, offerings, global scale and
reputation, sets NCC Group apart from
other escrow providers.
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BUSINESS OVERVIEW
A day
heading one
in the life...
7.30pm
6.30pm
5.10pm
1.00pm
12.45pm
12.30pm
ATM
£
12.20am
9.15am
11.00am
9.25am
7:10am
7:50am
A walk through a typical day reveals an array of areas where
NCC Group helps create a more cyber resilient world as we
support our customers in millions of daily interactions with
their own customers. This work is never finished but our
impact is felt everywhere which makes our staff proud to
help create a safer world, both online and more generally.
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7.30pm
6.30pm
5.10pm
1.00pm
12.45pm
12.30pm
ATM
£
12.20am
9.15am
11.00am
9.25am
7:10am
7:50am
5:10pm
HEALTH CHECK
see page 33 for a
related case study
The medical imaging system used at
the doctors was assessed by NCC
Group technical experts. When the
recent ransomware outbreak occurred,
NCC Group’s cyber defence operation
and response specialists supported
the hospital to continue operating with
minimal disruption.
6:30pm
COOK DINNER
see page 37 for a
related case study
The distribution supply chains which
provide the food to your door have
been assessed by NCC Group
risk management and governance
experts and benefited from security
improvement programmes undertaken
by the retailers who deliver them.
7:20pm
RECYCLE RUBBISH
The recycling centre is protected
by a cyber insurance policy that is
supported by NCC Group experts.
7:30pm
PUT BABY
TO BED
The Internet-of-Things baby monitor
has been subject to assessment by
NCC Group’s hardware labs.
7:30pm
WATCH AN
ON-DEMAND MOVIE
From the setup box you use to the
service you use. NCC Group risk and
technical experts have ensured that
piracy risk is minimised while ensuring
your data is safe.
ATM
7:10am
MORNING ROUTINE
NCC Group protects the critical
national infrastructure that provides
power, water and gas 24/7 through its
Security Operations Centres. Its data
diode products allow these providers
to connect their most sensitive
networks to the Internet, powering
smart grids. The smart meter in your
house has been through NCC Group’s
government approved hardware
testing laboratories.
7:50am
DRIVE TO WORK
see page 39 for a
related case study
The car you drive has benefited
from NCC Group’s transport security
practice who has worked with the
manufacturer and their supply chain
to identify and mitigate risks through
threat modelling, applied research,
and ethical hacking before it has even
rolled off the production line.
9:15am
CROSS THE
STREET
The traffic lights and traffic control
systems have been subjected to
technical assessment and risk advice
by NCC Group consultants.
9:25am
TAKE THE
ELEVATOR TO
THE OFFICE
The building management system
that controls the modern offices in
which you work has been assessed for
novel attack and defence approaches
by NCC Group researchers. This
knowledge has allowed the building
owner to minimise the risk that a
building outage can be caused by a
cyberattack.
11:00am
WORK ON THE
INTERNET
From the software on your desktop,
laptop or mobile device through the
carriers that connect you to the cloud
and the cloud providers themselves,
NCC Group has worked with the
largest firms to produce more resilient
environments. NCC Group’s web
performance team has tested the
website to ensure it was working at
optimal performance levels.
12:20pm
MAKE CASH
MACHINE
WITHDRAWAL
see page 38 for a
related case study
The cash machine, the networks upon
which it operates and the financial
system fabric is assessed regularly by
Red Team technical specialists at NCC
Group on behalf of the institutions
and their regulators. When incidents
occur, NCC Group’s Cyber Incident
Response team provides experts in
intrusion and malware analysis to
supplement an organisation’s own
capabilities.
12:30pm
BUY LUNCH
NCC Group’s threat intelligence tipped
off the point-of-sale operator that their
systems were breached. This allowed
the organisation to respond and
minimise impact on their customers
while ensuring commerce can occur
with confidence.
12:45pm
BUY SHOES
see page 43 for a
related case study
NCC Group’s software testing team
worked on the roll-out of the new
EPOS system and loyalty scheme
application across the store’s network
of shops.
1:00pm
BOOK A HOLIDAY
see page 42 for a
related case study
NCC Group’s Escrow Division hold
the software that is required to run
the travel agent’s reservations system
in escrow, which would be released
in the event of certain trigger events
where the software owner was unable
to perform its contractual duties. This
helps ensure minimal disruption to
the travel agent’s business critical
software.
4:00pm
PICK CHILD UP
FROM NURSERY
The biometrics used to gain access
to the nursery benefits from
research and advice provided to the
manufacturer, avoiding a system which
could be bypassed with a selfie.
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STRATEGIC REPORT
Contents
The strategic review and target
operating model
The market opportunity
Business model
Our strategy
Q&A with Chris Stone
and Brian Tenner
Interim Chief Executive’s review
Group performance review
for 2017
Principal risks and uncertainties
Corporate social responsibility
18
20
24
26
28
30
44
50
54
The Strategic Report includes an overview of our strategy
and business model as well as our markets and competitive
position. We explain our performance over the financial year
ending 31 May 2017 and also outline the principal risks we
face and how we manage them. In addition to the Financial
Review included within this section, we provide additional
analysis and commentary on the overall performance of the
Group as well as our two operating segments.
16
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Highlights
Financial highlights
z Group revenue grew by 17 per cent to £244.5m (2016: £209.1m) made up of:
— Organic growth of 3 per cent (excluding the impact of FX and acquisitions)
— Impact of acquisitions (prior year and current year): £21.1m (all in Assurance)
— Impact of changes in foreign exchange rates: £9.8m
z In terms of business segments, underlying organic growth can be broken down as follows:
— Assurance – UK Security Consulting: 19.4 per cent; US Assurance: 13.9 per cent
— Assurance – Software Testing and Web Performance: down 11.3 per cent
— Escrow: 0.3 per cent rise
z Adjusted1 EBIT: £27.5m (2016: £39.7m)
z Operating loss: £53.4m (2016: £11.4m profit)
— Assurance Adjusted EBIT down to £16.6m (2016: £25.8m)
— Escrow Adjusted EBIT down to £19.1m (2016: £20.1m)
— Head office costs increased to £8.2m (2016: £5.7m)
z Individually significant charges of £71.0m, including intangible asset write downs of £62.0m
z Adjusted EBITDA: £36.2m (2016: £45.0m)
z Adjusted basic earnings per share: 6.7p (2016: 11.8p)
z Total dividend maintained at 4.65p per share with final dividend of 3.15p per share
z Net debt reduced to £43.7m from half-year level of £48.8m
Strategic and operational highlights
z Strategic Review of the Group, its portfolio, market and competitive position completed (see pages 18 to 23)
z Strategic Plan created, based on output from the Strategic Review
z Work ongoing on Target Operating Model designed to improve organisational clarity and efficiency as well as margin
improvement (see pages 19 and 23)
z Significant changes to the Board and Executive management team
z Acquisitions completed of two small bolt-on businesses in the US to enhance the product offering of our existing Assurance
businesses and expand our US footprint.
Outlook for 2017/18
z Implement new Target Operating Model to drive more effective “Go to market” strategies and operational efficiencies.
z Leverage high value products and services from acquisitions through the NCC Group global footprint and sales channels by
lowering internal barriers to Group-wide co-operation.
z Short-term focus on internal self-help measures and efficiencies in a buoyant market will deliver margin growth
1 This is a non-GAAP or Alternative Performance Measure (APM). Adjusted figures exclude the amortisation of acquired intangibles,
individually significant items, share-based charges, the unwinding of discount on deferred and contingent consideration, the results of
the exited Domain Services business and any associated tax thereon.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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STRATEGIC REPORT
The strategic review
and target operating model
The Group began a Strategic Review
in February 2017. The objectives of the
review fell into three broad categories:
z Assessing our marketplace and
customers’ buying preferences and
criteria
z Customer and market views of NCC
Group and our capabilities, strengths
and weaknesses
z Assessing the commercial and
portfolio logic of the current business
lines within the Group
As findings began to emerge from the
initial scope of work in the Strategic
Review, we began a parallel work stream
to consider:
z Assessing how we currently organise
ourselves to address and capture
the opportunities presented in
our markets by best leveraging
our strengths and unique selling
propositions
Key findings from the
Strategic Review
The key findings from the Strategic
Review are set out in more detail in the
later sections of this report but can be
summarised as follows:
Marketplace: Our markets continue to
grow strongly at or around a double-digit
rate. Companies’ buying decisions are
more about technical expertise and value
for money than a simple price basis. See
page 21 for more detail.
Our customers: NCC Group scores
well on the issues that matter to
customers: technical expertise, value for
money and speed of delivery. The quality
of customer service does appear to be
an issue for the industry generally and
NCC Group is similar in this regard. Our
customers want to buy more from us
and value our brand and reputation for
excellence. See page 21 for more detail.
Our portfolio: The two divisions
of Assurance and Escrow see little
crossover in customer purchasing.
However, Escrow is a robust stabilising
influence on the Group. Within
Assurance, we have identified two
service lines that would have a better
opportunity to flourish under alternative
ownership and these will be sold in due
course. See pages 8 and 29 for more
detail.
As we digested the emerging outputs
from the Strategic Review it became
clear that to reach our full potential we
would need to reorganise how we go
to market and how we do business (in
terms of our internal processes and
structures). We have therefore started
work on developing and implementing a
new Target Operating Model (TOM), as
further described on page 19.
18
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Target Operating Model
CEO
ASSURANCE
ESCROW
MD
NORTH
AMERICA
MD
UK (& ROW)
MD
NETHERLANDS
MD
DENMARK
HEAD OF
ESCROW
Sales & Marketing
Sales & Marketing
Sales & Marketing
Sales & Marketing
Operations
Sales
Software
verification
UK Sales
Escrow
contracts
(legal)
US Sales
Europe
Sales
I
G
N
T
L
U
S
N
O
C
I
E
C
V
R
E
S
D
E
G
A
N
A
M
T
C
U
D
O
R
P
HEAD OF
ASSURANCE
DELIVERY
Consulting
including
RMG
TSC
IR / CDO
Consulting
including
RMG
TSC
IR / CDO
Consulting
including
RMG
TSC
IR / CDO
Consulting
including
RMG
TSC
IR / CDO
Managed Security
Services
Managed Security
Services
Managed Security
Services
Managed Security
Services
Threat Intelligence
Threat Intelligence
Threat Intelligence
Threat Intelligence
Products
Products
Products
Products
Research and Thought Leadership
Finance
Internal IT
Legal
HR
CTO
CFO
CISO
CHRO
KEY:
Management
Sales & Marketing
Consulting
Managed Service
Product
Central Service
Escrow
Not currently offered
19
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STRATEGIC REPORT
The market
opportunity
Introduction
Fundamentally, NCC Group is operating
in a dynamic and fast growing market.
Or rather, a series of related but
separate fast growing markets. These
statements apply whether one considers
the marketplace from a product and
service perspective, from a geographical
perspective, or from an industry vertical
perspective. Change is literally the one
constant in almost all aspects of the
market.
Today, cyber crime is one of the
single biggest threats to businesses
and individuals around the world.
The average cost to recover from a
DDoS attack is £275,000 and more
than 90 per cent 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.
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 per cent of
consumers are more worried than ever
before about protecting their personal
and financial information online should
certainly confirm the threat as one of the
greatest to face businesses today.
Online security still seems to be behind
the curve in failing to keep pace with
the numerous types of organisations
and individuals that seek to disrupt
the Internet and organisations’ use of
systems and data. The threat of being
hacked or having valuable data stolen
continues to evolve rapidly and at a
seemingly unstoppable pace. Attacks
using phishing, fake payment requests
and ransomware are now everyday
events. These attacks often cause
significant operational disruption whose
economic consequences can vastly
outweigh any cost of remediation or
prevention. Our challenge is to ensure
that customers understand that a
relatively modest up front investment
in advice or other cyber services can
ultimately save significant sums in
remediation costs or arising from
reputational damage.
The world in which we live cannot be
made completely safe from cybercrime.
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.
Market dynamics
The relevant sub-segments that NCC Group’s core cyber offering competes in are shown below:
SIZE $BN*
MARKET SEGMENT
NCC GROUP OFFERING
Fully Outsourced IT Security
NCC GROUP PROVIDES LIMITED
SERVICES IN THIS SEGMENT
Managed Security Services
MONITORING
Advisory, Governance & Assessment
PROCESS & GOVERNANCE
Forensic & Legal Response
SECURITY TESTING
Operational
SECURITY TESTING
E
C
N
E
G
L
L
E
T
N
I
I
T
A
E
R
H
T
7.0
11.0
6.0
4.0
10.0
*OC&C estimated
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Stock Code: NCC
Customers buying behaviours and key
purchasing criteria (KPCs)
Customers made clear that their key buying criteria focus more
on quality of technical expertise and advice as opposed to
price. While value for money (effectively a ratio or a comparison
of quality and cost) is very important, that reflects more on the
demand for quality than low cost.
This is highlighted in the chart below that shows the relative
importance of customers’ Key Purchasing Criteria (i.e the
factors that influence their buying decisions).
Interestingly, customers did not place as high a value on the
ability to source internationally. Even in those customers who
did buy in multiple territories.
In summary, on the items that matter most to customers in
their buying decisions, NCC Group scores well or very well
with the exception of customer service, which appears to be an
industry-wide issue.
UK
9.5%
USA
12.1%
Estimated CAGR 2016-20
NL
7.4%
Rest of
World
8.5%
The addressable market is clearly very large at $38 bn
in total and very fragmented. Management estimate that
NCC Group is one of the largest “pure play” cyber security
companies focusing on services as opposed to products
but yet has relatively low market shares in most segments
and geographies. Once we have developed robust and
scalable internal structures and processes, this will
represent a significant opportunity to grow the business
profitably though bolt-on acquisitions.
Market research as part of the Strategic Review also
confirmed that market growth is likely to continue and that
customers’ propensity to pay more for high quality advice
and solutions is growing.
E
C
N
A
T
R
O
P
M
I
G
N
I
S
A
E
R
C
N
I
Technical
Expertise
Consistently noted as having top-tier
technical talent, Fox-IT seen as most
technically advanced player in NL.
Customer
Service
UK and US customers often feel
NCC Group too transactional. Fox-
IT customers value their trusted
partnership.
Value for
Money
NCC Group and Fox-IT generally
perceived as good value. Customers
very willing to pay more for quality.
Speed of
Delivery
Seen as “mid-sized”, competing with
boutique pure-plays, NCC Group
advantages include wider capabilities
and flexibility.
Brand /
Reputation
Well known by security professionals
in the UK and US. Fox-IT highly regarded
in NL (Dutch government work).
Low
Price
Seen to be expensive but price rarely
the deciding factor. NCC Group rated
highly as good “value for money”.
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STRATEGIC REPORT
The market
opportunity
Our competitive position
We must continue to drive innovation and thought leadership
in our key market segments. The key is to ensure that our
thought leadership also leads to practical new solutions to
apply to the challenges and issues that our customers face. We
must find the right balance of “blue sky” thinking and ideas that
can be rapidly commercialised.
Innovation and creativity are two key foundations for the
Group’s continued development and growth. Our new Target
Operating Model is designed to ensure that these remain a
core feature of the business. The recent and well publicised
cyber attacks on a wide range of public and private enterprises
around the world are a reminder of the need to constantly
innovate.
The graphic below shows the current range and scale of the
services and products offered by NCC Group in the cyber
security market. Our aim is to shift more of our business to the
right and upwards; that is, more repeat business of a highly
differentiated nature.
During the Strategic Review we assessed the Group’s “Net
Promotor Score” (NPS). This metric is widely used across a
range of industries where customer satisfaction is a critical
performance indicator. What NPS measures, quite simply, is
whether or not a customer, on the basis of its experiences with
a service provider, would recommend that service provider to
another organisation. The measurement scale in NPS is itself
a challenge – a positive score is counted if it rates a nine or
ten out of ten. Conversely, a negative score is recorded for any
outcome ranging from zero to six. What this means is that if a
company received 100 scores of its service, with 10 ratings in
each category, its NPS score would be negative 40.
The results of the NPS survey found NCC Group with a score
of “positive 26”. As noted above in the explanation of the
methodology, achieving any sort of positive score is difficult
and a positive score of 26 means the significant majority of
ratings by customers had to be above six out of ten and with a
high proportion of those scoring the top two marks.
What the survey did show was that NCC Group scored better
than many of its direct competitors in the Big Four or in the
pure play cyber services companies. The business only rated
less strongly compared to large Systems Integrators, defence
contractors or product-based cyber companies. It is clear, when
combined with direct interview feedback from customers, that
NCC Group is well regarded for our technical expertise and
its ability to help its customers overcome their cyber security
challenges.
INCIDENT RESPONSE
HIGH ASSURANCE
PROCESS &
GOVERNANCE
Premium products with
recurring revenues
THREAT
INTELLIGENCE
MONITORING
e
e
e
e
e
e
e
e
e
u
u
u
u
u
u
u
u
u
n
n
n
n
n
n
n
n
n
e
e
e
e
e
e
e
e
e
v
v
v
v
v
v
v
v
v
e
e
e
e
e
e
e
e
e
r
r
r
r
r
r
r
r
r
PRODUCTS
Commoditised products with low
levels of recurring revenue
SECURITY TESTING
ESCROW
FREQUENCY OF PURCHASE
7
7
7
7
7
7
7
7
7
1
1
1
1
1
1
1
1
1
Y
Y
Y
Y
Y
Y
Y
Y
Y
F
F
F
F
F
F
F
F
F
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
N
N
N
N
N
N
N
N
N
s
s
s
s
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s
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e
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i
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:
:
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Y
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Ongoing
www.nccgroup.trust
Stock Code: NCC
I
I
N
O
T
A
T
N
E
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E
F
F
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One-off
22
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Target Operating Model
(TOM)
Our current organisational structures
and operating model have reached
the limits of their design tolerances. In
many cases the overlay of our business
processes on those organisational
design features creates a “spaghetti
wiring diagram” that is complex,
delivers unclear accountabilities and
is undoubtedly inefficient at delivering
business processes and services to
customers. The recent addition of
some relatively large acquisitions has
emphasised further the need for a clear
and transparent operating model that
delivers a number of key objectives, the
principal ones being as set out below.
TOM OBJECTIVE 1: Align the
business to how our customers want
to buy
The Strategic Review revealed that even
our global customers tend to want to
buy local services for delivery in country.
This is true even for customers who have
a central technology input to sourcing
decisions. This finding drives the
conclusion of a TOM that has a primary
dimension of geographical business
units and P&L accountability.
TOM OBJECTIVE 2: Leverage NCC
Group value between business units
The business has historically operated
within silos. This has been the case even
inside individual business units where
our structures have not encouraged
service or product line leaders to cross
sell or provide fully integrated solutions
to our customers. Our historical Go-
To-Market model was identified by
customers as being too transactional in
many cases. While initiatives to address
this issue began during the year, the old
operating model barriers to collaboration
were not removed.
Our customers value our technical
expertise and the wide range of services
that we offer. Therefore, in order to
leverage value across the geographies
and service lines, we concluded that a
matrix structure would be appropriate
for the TOM. Therefore, the secondary
dimension of the TOM is based around
key service and product lines with key
leadership and accountability roles
identified within each to ensure sharing
of best practice. To avoid unnecessary
cost increases or duplication of roles,
there will be some “double-hatting” in
smaller businesses as they grow.
TOM OBJECTIVE 3: Deliver an
integrated Go-To-Market proposition
Our customers value our expertise
and range of services. They would like
to buy more from us. But our current
Go-To-Market approach can make
this difficult. The challenges flow from
disparate accountabilities and targets
for different teams within the business
units. We are therefore creating aligned
sales and delivery teams with single
leaders within each geography. Critically,
sales leadership for strategic accounts,
transactional sales activities, inside
sales, bid preparation and management,
and supporting marketing activities will
report to one person in each territory.
This will allow us to join up our offerings
at a more strategic purchasing level
within customers while also ensuring
that our current successful transactional
sales generation machine continues to
perform.
TOM OBJECTIVE 4: Create
scalable structures that facilitate
profitable growth
Our historical ways of working and focus
on certain services and products prevent
benefits of scale from being realised.
Selling more of a particular service
would lead to an equal and proportionate
increase in our costs and hence no
positive operational leverage to drive
improving margins.
Our staff management and work
allocation processes have been less
efficient than we would like. This has led
to under-selling of key technical skills
in that they are used on activities that
attract a lower day rate than they should.
As well as more accurate matching of
our staff skills to the value of the work
being performed for customers, we also
intend to increase our focus on platform-
based sales such as monitoring services
and after sales value added services. In
particular, these will be driven from our
Security Operations Centres in Delft
(Fox) and Leeds (MSS) and will include
services such as Threat Intelligence,
DetACT, Managed Security Services, and
our CTMp platform.
TOM OBJECTIVE 5: Design and
implement effective and efficient
business processes that support
operating leverage
Over the last few years our support costs
have been rising steadily, creating a
further erosion of operating leverage or
in some cases even leading to negative
operating leverage. This reflects the
fact that in many cases our business
processes and systems have not been
upgraded to keep pace with the size
and complexity of the Group. The Group
has been slow in rolling out its preferred
core systems and this has caused undue
delays, cost increases and inefficiency in
how we work. These issues extend from
finance and reporting systems to CRM
systems to work and staff planning and
management processes and beyond.
A key part of implementing the TOM
is to embed effective and efficient
business processes and systems within
it. Over the next two years we will
therefore be focusing on designing and
implementing standardised business
processes and making sure that they,
and the underpinning systems, are rolled
out across all of our business units.
These systems and processes will often
be designed and monitored centrally to
ensure shared disciplines and effective
control of the business.
Underpinning all of the objectives for
the TOM will be a series of direct and
specific key performance indicators
and other metrics that drive the desired
behaviours and outcomes. For example,
we will be focusing on realisation for
our consultants’ time as opposed to
the more simple but less informative
utilisation measure. Realisation will focus
on a combination of hours worked but
also, critically, on the amount of work
that is actually billed and the rate at
which it is billed. These are currently
areas where we believe there is value
leakage from the Group and plugging
these leaks will help to generate
improved margins in future.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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N
O
I
T
A
I
T
N
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INCIDENT RESPONSE
HIGH ASSURANCE
Premium products with
recurring revenues
THREAT
INTELLIGENCE
PROCESS &
GOVERNANCE
MONITORING
PRODUCTS
Commoditised products with low
levels of recurring revenue
SECURITY TESTING
ESCROW
FREQUENCY OF PURCHASE
One-off
Ongoing
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n
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1
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STRATEGIC REPORT
Business
model
HOW WE ADD VALUE
DRIVING VALUE
AND CAPABILITY
• Threat • Risk • Defence
• Capability • Technology
• Scaling & efficiency
STRATEGY,
RISK & TECHNOLOGY
• Educating • Advising
• Assessing • Responding
Research &
Innovation
Professional
Services
Managed
Security Services
Products &
Cloud Services
OUTSOURCED
EXPERTISE WITH
GLOBAL AWARENESS
• Managing • Monitoring
• Alerting • Responding
STRATEGY,
RISK & TECHNOLOGY
• Safeguarding • Informing
• Defending
24
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Research & Innovation
Research & Innovation forms a critical cornerstone of NCC
Group’s cyber security offering. Our world-class research
allows us to continually understand, discover, exploit and
mitigate threats in technology, people and processes.
Innovation allows us to deliver services and ensures we
productise our research and development activities to be at
the forefront of premium markets whilst efficiently delivering
legacy commoditised services.
Professional Services
NCC Group’s security experts provide professional services
including end-to-end services in all facets of cyber security to
our clients.
Educating people on topics from GDPR and crisis
management to malicious code analysis
We educate business leaders in cyber security, executives
in compliance issues and technical teams in the lowest level
facets of attack and defence. Our Netherlands training facility
sees military and civilians from across the globe take part in
comprehensive training programmes.
Assessing strategy, maturity, people, processes and
technology
Our consultants work with our clients to assess their end-to-
end business needs to identify and quantify risk. Our unique
offering sees us work with a full spectrum of clients from
cyber security transformation to assessing the technology in
autonomous next generation vehicles.
Responding to incidents
NCC Group is recognised by both the UK and Dutch
governments as a trusted partner to respond to incidents of
national importance. For our commercial customers, we provide
a world-class service in cyber incident response from situation
management through to technical analysis and remediation.
Products & Cloud Services
By virtue of being exposed to a broad spectrum of client needs
coupled with a culture of research and innovation, NCC Group
continually looks for intellectual property development and
commercialisation opportunities to create further value within
the Group. This pursuit has seen us develop and acquire a rich
portfolio of products and cloud services.
Safeguarding: Escrow, DDI Guard
Our products help ensure our clients’ data is safe with
our escrow cloud service meeting modern day demands
for continual deposits. Our DNS, DHCP and IP Address
Management (DDI) Guard product help safeguard the
network infrastructure of clients ranging from national
telecommunications providers to international financial
services firms.
Informing: InTELL, Domain Intelligence, Cloud Security
Scanning, Piranha Phishing Simulation, SOCAlive
We have developed a range of managed services to
proactively monitor, report and respond to issues in clients’
environments. From threat intelligence such as InTELL and
Domain Intelligence through to cloud scanning of network
infrastructure, we provide unique insights and cost effective
solutions. Our cloud services also enable our clients to
measure the performance of their cyber security investment.
Examples include our Piranha Phishing Simulation platform
and Security Operations Centre solutions. As investment
increases with regard to cyber security, senior management
are increasingly looking for key performance indicators which
can be quantified.
Defending: Data Diode, DDoS Protect, CTMp, Signify
We have a broad range of defence products and services.
Our Data Diode is accredited to levels allowing governments
and critical national infrastructure to connect their networks
in a safe and secure manner. Our Cyber Threat Management
platform (CTMp) is the platform which NCC Group uses for its
own Security Operations Centres but is available to customers
who also wish to build their own. For clients looking for
multi-factor authentication to mitigate weak or compromised
passwords, our Signify 2 factor authentication solution
provides a cost effective solution.
Managed Security Services
Our Security Operations Centres (SOCs)
Our Security Operations Centres in the UK and the
Netherlands process over 1 billion events a year across a
range of managed security services. Ranging from highly
sophisticated network and endpoint threat detection and
response through to security infrastructure management and
operations, our reach spans the globe with equipment in six of
the world’s seven continents.
NCC Group has leveraged its 24/7 SOCs to provide a number
of new services this financial year, including providing a cyber
support line to over 750,000 small and medium enterprises
in the UK and various emergency response lines for cyber
insurers.
Managed vulnerability scanning services
Our managed scanning services cover networks, applications
and their source code. We provide cost effective services to
our clients and their business as usual requirements, both
on demand and as ongoing, annually renewing services. Our
offerings scale from SMEs looking for basic accreditation
and certification through to large multinationals who wish to
outsource their external and internal scanning requirements to
a trusted provider.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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STRATEGIC REPORT
Our strategy
STRATEGIC PRIORITIES AND KEY PERFORMANCE INDICATORS
Our new Strategic Plan is designed to deliver more sustainable
revenue growth at improved margins, increases in shareholder
value, and an improved service and product offering to customers.
Strategic Priorities
Rationale and current status
KPIs and our performance in 2017
Focus and goals for 2018
1 Grow
At a managed pace and
in areas of core strength
In attractive and growing markets where NCC Group enjoys strong competitive
differentiators, we aim to deliver medium-term growth in excess of market rates. By
focusing on higher value added services we will avoid growth for its own sake while
simultaneously protecting our margins.
Underlying* organic* revenue growth
2017: 3 per cent (2016: 19 per cent)
Æ Implement new Go-To-Market strategy and team
structures
Stripping out the impact of acquisitions and changes in foreign currency exchange
Æ Growth may therefore lag behind the market
rates, we aim to deliver growth in the short-term broadly in line with market rates.
during the year
Æ Develop a clearer understanding of our pipeline
and ordering processes
2 Implement
Our new Target
Operating Model
The Strategic Review identified that we do not organise ourselves in a way that brings
simplicity and efficiency to our service delivery.
We will implement a new and clear operating model that delivers better customer service
at an improving gross margin.
Adjusted* Gross margin to improve
2017: 34.7 per cent (2016: 38.5 per cent)
Æ Implement the organisation design concepts in
the TOM
Measured as a percentage of gross margin to annual revenue. Gross margin
Æ Develop role descriptions for named
being revenue less direct costs of sales and service delivery. This will be one
management posts
measure that shows the effectiveness and efficiency of our new TOM.
Æ Implement a staff appraisal system
3 Improve
Business processes
and systems
Our existing business processes are inefficient, and in many cases, difficult to scale. They
often rely on manual activity and disparate information systems that can lead to a lack of
clarity in decision-making.
We will design and implement improved business processes with reduced manual
interventions to lower our costs to serve.
SG&A ratio to improve
2017: 23.4 per cent (2016: 19.0 per cent)
Æ Focus will be on implementing new processes
and systems roll out
Sales and General Administration costs as a percentage of annual revenue.
Æ Expect benefit to flow in the following year
This KPI reflects the efficiency of our business processes and our “cost to serve”.
Æ Operational leverage gains driven by more basic
cost control
4 Lead
Technical thinking and
product development
In a rapidly evolving and
dynamic market sector
5 Develop
Our people to allow
them to reach their full
potential and contribute
fully to NCC Group
The market is evolving so quickly that we need to be at the forefront of developing new
services and responses to address emerging threats. Our customers’ needs are also
changing; not just in response to new threats but also in respect of how and where
they carry out their business. We need to respond to those changes in how we position
ourselves and our services.
Engagement with thought leadership content across all mediums and
Æ Continued demonstration that NCC Group has a
resulting inbound activity.
holistic view of cyber security
Æ Understanding of opportunities and risk
associated with emerging technologies
Æ Brand growth with non-traditional audiences
All of our key strategic goals will rely fundamentally on our people and their skills
so we need to ensure that we attract and retain high quality staff. We need to ensure
they are properly trained, gain the right experience and are also properly incentivised – by
recognition and the working environment as much as by reward.
Employee turnover 21.8 per cent
Employee engagement survey data from June 2017 will be used to develop
some additional, appropriate KPIs here.
Æ We will develop and implement employee
performance appraisal and development systems
26
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Stock Code: NCC
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We are developing a new set of KPIs that align more closely to our strategic
priorities. Some of these are still under development as noted below. We will
report on each one as we implement our strategy.
Strategic Priorities
Rationale and current status
KPIs and our performance in 2017
Focus and goals for 2018
1 Grow
At a managed pace and
in areas of core strength
In attractive and growing markets where NCC Group enjoys strong competitive
differentiators, we aim to deliver medium-term growth in excess of market rates. By
focusing on higher value added services we will avoid growth for its own sake while
simultaneously protecting our margins.
Underlying* organic* revenue growth
2017: 3 per cent (2016: 19 per cent)
Æ Implement new Go-To-Market strategy and team
structures
Stripping out the impact of acquisitions and changes in foreign currency exchange
rates, we aim to deliver growth in the short-term broadly in line with market rates.
Æ Growth may therefore lag behind the market
during the year
Æ Develop a clearer understanding of our pipeline
and ordering processes
2 Implement
Our new Target
Operating Model
The Strategic Review identified that we do not organise ourselves in a way that brings
simplicity and efficiency to our service delivery.
We will implement a new and clear operating model that delivers better customer service
at an improving gross margin.
Adjusted* Gross margin to improve
2017: 34.7 per cent (2016: 38.5 per cent)
Measured as a percentage of gross margin to annual revenue. Gross margin
being revenue less direct costs of sales and service delivery. This will be one
measure that shows the effectiveness and efficiency of our new TOM.
Æ Implement the organisation design concepts in
the TOM
Æ Develop role descriptions for named
management posts
Æ Implement a staff appraisal system
3 Improve
Business processes
and systems
4 Lead
Technical thinking and
product development
In a rapidly evolving and
dynamic market sector
5 Develop
Our people to allow
them to reach their full
potential and contribute
fully to NCC Group
Our existing business processes are inefficient, and in many cases, difficult to scale. They
often rely on manual activity and disparate information systems that can lead to a lack of
SG&A ratio to improve
2017: 23.4 per cent (2016: 19.0 per cent)
Æ Focus will be on implementing new processes
and systems roll out
clarity in decision-making.
We will design and implement improved business processes with reduced manual
interventions to lower our costs to serve.
Sales and General Administration costs as a percentage of annual revenue.
This KPI reflects the efficiency of our business processes and our “cost to serve”.
Æ Expect benefit to flow in the following year
Æ Operational leverage gains driven by more basic
cost control
The market is evolving so quickly that we need to be at the forefront of developing new
services and responses to address emerging threats. Our customers’ needs are also
changing; not just in response to new threats but also in respect of how and where
they carry out their business. We need to respond to those changes in how we position
ourselves and our services.
NEW
Engagement with thought leadership content across all mediums and
resulting inbound activity.
Æ Continued demonstration that NCC Group has a
holistic view of cyber security
Æ Understanding of opportunities and risk
associated with emerging technologies
Æ Brand growth with non-traditional audiences
All of our key strategic goals will rely fundamentally on our people and their skills
so we need to ensure that we attract and retain high quality staff. We need to ensure
they are properly trained, gain the right experience and are also properly incentivised – by
recognition and the working environment as much as by reward.
Employee turnover 21.8 per cent
NEW
Employee engagement survey data from June 2017 will be used to develop
some additional, appropriate KPIs here.
Æ We will develop and implement employee
performance appraisal and development systems
* Terms defined in the Glossary
KEY:
Performance below prior year
Performance in line with prior year
Performance above prior year
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
27
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STRATEGIC REPORT
Q&A
WITH CHRIS STONE
AND BRIAN TENNER
You are both new to the business. What
have been your strongest first impressions?
Chris: Firstly, I would like to record my own and the Board’s
sincere thanks to all of the Group’s employees who have
maintained their focus on delivering excellent service to our
customers.
Meeting the unique and brilliant staff at NCC Group has
strongly reinforced my belief in the inherent untapped potential
in this business – potential that has been suppressed by a
failure to scale business process with our growing capabilities.
Our business is not broken – indeed it has some notable
strengths, both financial and operational – which I have
stressed with all the staff I have met. We have a business with
enormous potential.
Brian: Our staff are the foundation of the value inherent in the
business and I have been endlessly impressed by all those who
I have met since joining, their passion and their expertise.
We address exciting markets which continue to grow strongly
at or around a double-digit rate.
What has been clear to me since joining is that our technical
expertise and reputation for excellence to address these
markets is unparalleled.
It’s been a difficult year. What have been
the toughest challenges?
Brian: The past year has been very challenging, both
operationally and financially. Business performance has fallen
short of expectations and we have outgrown some of our
business processes and controls.
The outlook for the business remains very positive in fast
growing international markets. Our challenge now is to
manage the transition from one business model to another, as
the growth in scale and complexity has made our early stage
model ineffective.
Chris: Substantial acquisitions and overlaying business
processes has made our operating model a “spaghetti wiring
diagram” that we have needed to unravel for the benefit of
ourselves, our shareholders and our clients.
One of the key challenges that we face is transforming this
operating model and our reporting, to disclose fully and in
as transparent a way as possible, the value held within our
business and the potential that has been suppressed by
inefficient and outdated processes.
What are the priorities for the new
financial year?
Chris: There is a lot of work to do to implement new
processes, systems and structures. We have a tremendous
opportunity in fast growing international markets, with a range
of innovative products and services.
The challenge is to execute effectively the planned changes
in strategy and operating model. We are confident that the
Group can deliver sustainable earnings growth and enhanced
shareholder value, once more robust foundations are in place.
Brian: Our priority for the new financial year is to efficiently
implement the Strategic Plan and new Target Operating Model
that was born out of the Strategic Review of the business.
We now need to create structures and products that allow us
to benefit from our scale and deliver additional value for our
customers while never losing sight of our core competencies
and strengths, most notably represented in our staff, their
energy and their commitment.
28
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What are the objectives for the new Target
Operating Model (TOM)?
Brian: Our TOM has five objectives.
z First, align the business to how our customers want to buy.
z Second, leverage our value between our business units.
z Third, deliver an integrated Go-To-Market proposition.
z Fourth, create scalable structures that facilitate profitable
growth.
z Fifth, design and implement effective and efficient business
processes that support operating leverage.
Once the TOM is in place, we are confident that we can deliver
sustainable earnings growth and enhanced shareholder value.
Chris: Innovation and creativity are two key foundations for
our continued development and growth. Our new TOM is
designed to ensure that these remain a core feature of the
business.
Our aim is to shift the current range and scale of the services
and products offered by the business in the cyber security
market to more repeat business of a highly differentiated
nature.
How will the new TOM work?
Chris: A key part of implementing the TOM is to embed
effective and efficient business processes and systems
within it.
Over the next two years we will therefore be focusing on
designing and implementing standardised business processes
and making sure that they, and the underpinning systems, are
rolled out across all of our business units.
These systems and processes will often be designed and
monitored centrally to ensure shared disciplines and effective
control of the business.
Brian: Underpinning all of the objectives for the TOM will be
a series of direct and specific key performance indicators and
other metrics that drive the desired behaviours and outcomes.
For example, we will be focusing on realisation for our
consultants’ time as opposed to the more simple but less
informative utilisation measure.
Realisation will focus on a combination of hours worked but
also, critically, on the amount of work that is actually billed and
the rate at which it is billed.
These are currently areas where we believe there is value
leakage from the business and plugging these leaks will help
to generate improved margins in future.
Which business processes and systems
need closing?
Brian: Our historical ways of working, and focus on certain
services and products, prevent benefits of scale from being
realised.
Selling more of a particular service would lead to an equal
and proportionate increase in our costs and hence no positive
operational leverage to drive improving margins.
As well as more accurate matching of our staff skills to the
value of the work being performed for customers, we also
intend to increase our focus on platform-based sales such as
monitoring services and after sales value added services.
Chris: The years ahead present significant upside
opportunities. Strong value creation will result if we effectively
implement our new strategy and successfully manage the
Group through the transitional period in which we now find
ourselves.
Our business is not broken and we will not be closing but
optimising the processes that are in place.
Within Assurance, the Web Performance and Software Testing
businesses were found to have little cross over with the core
consulting business and will be sold over the next year.
What are the plans for developing our
people in the years ahead?
Chris: Our business is entirely reliant on the skills and
experience of our staff.
We are fortunate to have them choose to build their careers
with NCC Group, and I look forward to working with all of them
as we take it forward.
Brian: Our staff are the foundation for most of the value
inherent in the business.
In developing and implementing our new Strategic Plan
and TOM we will work to ensure that we create a working
environment that values the individual and allows each one of
us to contribute to our full potential.
This will include creating organisational values and clearer
structures, roles and responsibilities. The coming financial year
will also see a greater focus on personal development and
training.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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09/08/2017 16:04:38
STRATEGIC REPORT
Interim Chief
Executive’s review
OUR PERFORMANCE
Group revenue
For the financial year ended 31 May 2017, the Group increased
reported revenue by 17 per cent to £244.5m (2016: £209.1m).
Excluding Domain Services business that was exited during
the year, the growth was £37.7m or 18 per cent.
The table below shows the proportions of growth that were
organic (net sales growth in businesses that were owned for
equivalent periods in the current and prior year), acquisitions
growth (includes the full year impact of prior year acquisitions),
and growth resulting from the impact of FX rates. Growth from
changes in FX rates is calculated by restating the prior year
revenue figures at current year rates.
Growth driver (excluding Domain)
Organic
Acquisition
FX
Total growth
2017
£m
6.8
21.1
9.8
37.7
2017
% growth
3
10
5
18
Note: the Group’s current information systems do not report the impact of foreign
exchange movements as a matter of course. The figures above are therefore
calculated at year end using assumed weighted average exchange rates for
each relevant currency for each year in question. This is being addressed in the
Group’s new consolidation system which is being implemented in the first quarter
of the new financial year.
The FX growth above is driven by increases in the weighted
average exchange rates of both the US$ and €uro against
£GBP, both of which strengthened by around 15 per cent.
The geographical breakdown of revenue by the location of the
delivering business for the current and past year is as follows
(Domain excluded):
2017
2016
£m
147.1
58.4
36.4
%
61
24
15
£m
144.4
39.2
20.6
%
71
19
10
UK
US
Europe and RoW
Total revenue
241.9
100
204.2
100
Note: some businesses sell a modest amount of services in other countries and
report that revenue as being within their own geography.
The amount of Group revenue earned outside the UK
increased by £35.0m and reflects the impact of the Fox-
IT acquisition in the Netherlands half way through the last
financial year and also strong growth in our US Assurance
business. Both of these factors occurred within the Assurance
division where the share of Group revenue has now risen to
85 per cent (2016: 83 per cent).
Underlying organic revenue growth in the first half of the
financial year was 19 per cent but in the second half fell by
5 per cent compared to the prior year periods. The second half
of the current year actually saw revenue fall compared to the
first half, contrary to the historical trends the business has
delivered.
Weakness in the second half compared to the prior year and
the first half of the current year was particularly focused in
MSS third party product sales which were £6.5m down in the
second half compared to the first half.
30
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Revenue
by location
2017
Total Revenue
£241.9m
UK £147.1m 60.8%
US £58.4m 24.1%
Europe and RoW £36.4m 15.0%
2016
Total Revenue
£204.2m
UK £144.4m 70.7%
US £39.2m 19.2%
Europe and RoW £20.6m 10.1%
The table below sets out the reconciliation between reported
statutory measures and the non-GAAP measures of Adjusted
EBIT and Adjusted EBITDA.
Reported operating (loss) /
profit
Results of Domain Services
(exited)
Individually significant items
(detailed below)
Amortisation of acquired intangible
assets
Share based payments
Adjusted EBIT
Depreciation
Amortisation of software and
capitalised development costs
Adjusted EBITDA
2017
£m
(53.4)
(1.0)
71.0
10.3
0.6
27.5
5.2
3.5
36.2
2016
£m
11.4
1.4
18.9
6.8
1.2
39.7
3.7
1.6
45.0
Fox High Assurance product sales were also down £1.2m in
the second half. Between them these reductions accounted for
85 per cent of the fall in sales between the first and second
halves.
A more detailed breakdown of the revenue performance of
the Group in each of the operating segments is shown earlier
in this announcement in the Assurance and Escrow divisional
reports.
The Group is currently reviewing the basis on which revenue
analysis is further reported. This review will include concepts
such as recurring revenues, contracted revenues and repeat
business. The Group may need to implement systems changes
to accurately capture this analysis across all business units.
Some further analysis is set out in the divisional reviews.
The Group continued to have minimal reliance on any one
customer or sector. Within Assurance the largest customer
represents approximately 4 per cent of Assurance revenue.
The largest customer in Escrow is just over 1 per cent of total
Escrow revenue.
Group profitability and margins
The Board and Executive management use a number of
non-GAAP measures in their day-to-day management of
the business. The Group’s primary financial profitability
measure will be Adjusted EBIT. Last year the Group used
Adjusted EBITDA for this purpose. It is management’s view
that Adjusted EBIT is more closely aligned to the underlying
performance of the business. The majority of our peers and
stakeholders use this metric, and hence it is therefore a more
appropriate KPI for use in the business and in our external
communications.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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STRATEGIC REPORT
Interim Chief
Executive’s review
OUR PERFORMANCE
During the year, despite delivering growth in most of our
business units, each business unit and the Group as a whole
have seen a contraction in our margins. The main cause relates
to cost increasing both before and at a faster rate than the
growth in our revenues in each business unit.
Margins contracted due to increases in both direct and indirect
costs. Salary related costs represent approximately 70 per cent
of the Group’s cost base. Cost increases were largely driven
by a significant increase in headcount (16 per cent) combined
with average salary increases of 6-7 per cent to give total
salary-based cost increases of approximately 23 per cent, or
around 16 per cent of sales.
This compares with total organic and acquisition-based
revenue growth of 15 per cent and led to a consequent
reduction in utilisation and realisation from our professional
service delivery staff.
We also made investments in new sales structures that have
not yet born fruit in proportionately increased revenues.
Other indirect cost increases reflect £3.4m of additional
depreciation and amortisation of tangible and intangible assets
linked to a number of systems having entered service, and
hence these have started amortising. In addition, there was
a £1.3m acquisition impact on these costs. Premises costs
increased by £1.4m, partly to accommodate extra staff and
also in upgrading facilities. Marketing spend rose £1.3m as the
Group sought to raise its profile in a number of areas.
As a result, Adjusted EBIT in the year fell from £39.7m to
£27.5m despite the benefit of a positive foreign exchange
impact of £0.6m. At the same time, our Adjusted EBIT margin
fell from 19.4 per cent to11.4 per cent. The following shows the
key drivers for the reduction in year-on-year profitability.
The Group’s overall EBIT result included £0.2m of losses from
the now closed Domain Services operating segment (2016:
operating losses of £1.4m). The current year charge was then
offset by a £1.2m profit on disposal of Open Registry (also
treated as an adjusting item).
The Group’s reported pre-tax loss was £55.3m (2016:
£9.4m profit).
Adjusted EBIT bridge
£m
50.0
45.0
40.0
35.0
30.0
25.0
20.0
39.7
0.6
2.5
2.6
7.5
2016
FX
Acq’ns
Organic
GM%
G&A
D&A
2017
7.7
2.7
27.5
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How we are
part of your daily life
ASSURANCE — SAFEGUARDING HEALTHCARE
HOW NCC GROUP’S SECURITY
OPERATIONS CENTRE
RESPONDED TO A GLOBAL
RANSOMWARE OUTBREAK.
One of the biggest ransomware attacks in recent history started somewhere in
Europe on the morning of Friday 12 May 2017.
Over the course of the WannaCry attack, our Security Operations Centres carried
out the following activities:
Unnoticed for several hours, it circulated itself across the globe, infecting
computers by exploiting a weakness in Windows operating systems that allows
malicious code to be spread through file-sharing structures without a user’s
consent.
In the UK, the National Health Service (NHS) was the most high-profile victim.
Nearly one-third (30 per cent) of all NHS Trusts were affected, with staff being
forced to turn patients away and cancel appointments.
Victims in other countries include US delivery service FedEx, French car maker
Renault and Russia’s Interior Ministry.
The malware, called WannaDecrypter, WannaCry or WCry, spread easily due to
its ability to self-propagate; an instruction in the malicious code told it to jump
to other vulnerable machines if it cannot connect to a specified address. This is
reminiscent of the worm outbreaks of the early 2000s.
How our business model enables this
In these crisis situations, NCC Group’s 24/7 Security Operations Centres and
managed services capability demonstrate their worth. Working around the clock,
the team consistently delivers value and reassurance to customers across
the globe, taking proactive steps to protect our customers and enhance our
monitoring as new information and Indicators of Compromise (IoCs) become
available.
z Provided expert analysis of the threat and offered pragmatic advice to all our
SOC customers
z Developed and then enhanced advanced SIEM correlation logic to monitor
for attacks on customer networks, using IoC information provided from the
Threat Intelligence (TI) research by NCC Group analysts
z Used NCC Group’s threat sensors to proactively monitor for IoCs
z Ensured commercial Intrusion Protection Systems (IPS) signature sets were
up-to-date and monitored for the latest threats
z Delivered 24/7 security monitoring, proactively watching for attacks and
infection
z Updated our SOC customers on a regular basis, including direct telephone
calls to ensure that they were aware of the attack and to give them
reassurance and assurance
How we will leverage this moving forward
As large-scale cyber attacks continue to occur on an ever-more frequent basis,
it is important that your organisation is protected by utilising NCC Group’s
24/7 Security Operations Centres and range of protective monitoring managed
services.
As a result of these proactive steps and measures, NCC Group’s SOC received
the following feedback and praise:
“We have indeed received a note from the NCC Group SOC as
part of the Network Threat Monitoring service, outlining the
details of the attack and what to do to prevent damage – greatly
appreciated. As always, we value the services that NCC Group
brings to the table and are confident that our layered defense
would offer the necessary resilience in this situation.”
INTERNATIONAL EDUCATIONAL FOUNDATION, NCC GROUP NTM CLIENT
Read more online at
www.nccgroup.trust/uk/our-services/security–consulting/
technical–security–consulting
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STRATEGIC REPORT
Interim Chief
Executive’s review
OUR PERFORMANCE
ASSURANCE DIVISION – BUSINESS PERFORMANCE REVIEW
Assurance revenue
Assurance now accounts for 85 per cent of Group revenue
and the impact of foreign exchange rates contributed £8.0m
to the growth in the division. In addition, Assurance benefited
from the full year effect of the prior year acquisition of Fox-IT
(impact in 2017: £14.0m) and acquisitions in the year just
completed (PSC £5.9m and VSR £1.1m). Net organic growth
was £6.8m which represented year-on-year growth of 4.0 per
cent with the balance due to changes in foreign exchange
rates (£8.0m impact). The table below shows the revenue
split between Security Consulting and a combined Web
Performance and Software Testing.
The Assurance division saw very mixed revenue results during
the year. While the headline growth rate for the Security
Consulting activities is very attractive, some business lines saw
better performance than others. The underlying performance
of the Security Consulting business lines is much easier to
understand by using constant currency and also by splitting
performance between organic and acquisition based growth.
Assurance revenue is broken down into more detail in the table
below in terms of the impact of changes in foreign exchange
rate, the impact of acquisitions in both the prior year and the
year under review, and the “organic” performance of a number
of operating units within Security Consulting:
Assurance revenue
31 May
2017
£m
31 May
2016
£m % Change
Security Consulting
178.1
138.9
Web Performance and
Software Testing
Total
26.6
30.0
204.7
168.9
28
(11)
21
Revenues in our Web Performance and Software Testing
businesses fell by £0.5m (5 per cent) and £2.9m (14 per
cent) respectively. In Web Performance we felt the impact of a
slower take up than expected for a new service line and have
taken an impairment charge on this business. In Software
Testing the loss of a project that was already underway at
the start of the year, following a strategic decision to cancel
a divestment by the customer, had a negative impact on both
revenue and costs as utilisation rates for permanent staff fell.
Towards the end of the financial year, both Web Performance
and Software Testing businesses saw a pick up in sales
pipeline opportunities and also in some longer term contract
wins.
The table above can act as a guide to the impact on revenue of
the proposed disposals of the Web Performance and Software
Testing businesses during the course of the new financial year
ending 31 May 2018. Neither business is particularly seasonal
and therefore any reduction to the Group total turnover
following the disposals is likely to be pro rated to the point in
the new year when the businesses are sold.
Assurance revenue bridge
Revenue for the year ended
31 May 2016
Impact of FX changes
Full year of owning Fox-IT
PSC acquisition this year
VSR acquisition this year
Net revenue growth from
FX and acquisitions
UK Consulting organic growth
US Consulting organic growth
Fox-IT – excluding High
Assurance
Fox-IT – High Assurance
MSS – excluding product
sales
MSS – product sales
Other including Web
Performance and
Software Testing
Net organic growth
Total Assurance
revenue growth
Revenue for the year
ended 31 May 2017
Growth
£m
£m
Growth
%
8.0
14.0
5.9
1.1
11.0
5.3
1.6
(3.6)
2.8
(7.4)
(2.9)
168.9
29.0
6.8
35.8
204.7
17
19
24
17
(53)
17
(48)
5
21
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We have not pursued these sorts of sales as strongly as in
previous years. Instead, where we continue to sell third party
products, we will aim to link those purchases to implementation
consulting advice and after sales services such as monitoring
in our Leeds based Security Operations Centre (SOC). While
the revenue would have helped the year’s results, we are not
overly concerned as we seek to deliberately rebalance the
business away from single transaction reselling of third party
products. Similar to Fox, in the areas of the business where we
do see longer term value and growth potential, the service lines
grew by 17 per cent year-on-year.
The summary of the Assurance revenue is:
z Good growth was delivered in those areas where we want
to place our future focus as this is where scalable margin
recovery can be created.
z Fox-HA will start to recover in the coming year.
z Reselling third party products in MSS in the medium-term
will be continued if we can create linkages to our own value
added after sales services.
z Acquisitions and FX also played a strong supporting role in
the revenue growth story.
15%
Assurance
revenue by
service type
Professional
services 45%
Managed Security
Services 25%
Own product
and other 20%
Third party
product 15%
The table on the opposite page highlights the number and
variety of moving parts in explaining this year’s revenue
performance. The impact of changes in FX rates and
acquisitions are clearly shown in the top half of the table. For
the purposes of this analysis, given that Fox-IT was acquired
at the end of November 2015, the whole of the first half of
the current financial year’s revenue has been attributed to the
impact of the acquisition.
Growth in UK and US consulting revenues was very
healthy, representing growth of 19 per cent and 24 per cent
respectively on a constant currency basis. This was driven
by a combination of market growth and our ability to capture
share due to our scale. In addition, we have been bringing new
products to market and continuing to expand our focus areas
beyond transactional activity. Within Fox-IT we saw two strong
opposing forces. As previously announced, a key customer for
Fox High Assurance products (Fox-HA) significantly slowed
down its purchases from the business following the change
in ownership of the company. It is clear that we should have
engaged with this customer in a transparent way ahead of
the acquisition to allay some of their concerns. However, we
have since been working hard and collaboratively to allay the
concerns of the customer and we are starting to see some
new orders coming in for Fox-HA products from this critical
customer. If momentum is maintained we should see some
growth in this service line in the new financial year compared
to the year ending 31 May 2017.
In sharp contrast to Fox-HA, the other Fox service lines saw
organic growth of 17 per cent in the second half of the year
compared to the same period of ownership in the prior year.
In particular, our CTMp platform and Threat Intelligence made
promising progress. This is particularly pleasing in that both
of these are key service lines that we aim to expand within
the Netherlands and then to leverage in other NCC Group
locations. The scalability of the CTMp platform will also support
margin recovery. It is for this reason and the emerging recovery
in Fox-HA, that while the execution challenges for the business
are reflected in the impairment of around 30 per cent of the
goodwill associated with the acquisition, we remain confident
about the prospects for the Fox-IT business and its capability
to support a broader platform of scalable high value add
services across NCC Group.
In MSS we also saw two conflicting but slightly different
themes from those in Fox. The negative force there has
been in the resale of third party products which fell by £7.4m
compared to the prior year, equating to a fall of 48 per cent,
and a fall in 2017 second half sales of products of almost
90 per cent to £0.7m. The fall partly reflects the end of an
earn-out period that had been put in place when the business
was acquired by the previous owners and subsequently
extended by NCC Group . In addition, we are trying to change
our focus to higher value add activities and the building of
long-term relationships with our customers.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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STRATEGIC REPORT
Interim Chief
Executive’s review
OUR PERFORMANCE
ASSURANCE DIVISION – BUSINESS PERFORMANCE REVIEW
The table below is based on an estimated split of our
Assurance revenue streams based on currently available
information. As noted elsewhere, we will be improving the
quality and granularity as well as the relevance of our internal
management information systems over the coming years. The
data is, however, accurate enough to give a broad indication of
the split of revenue streams.
Assurance revenue
2017
2016
£m
% of
total
£m
% of
total
Consulting services
156.1
76.2
122.4
72.5
Managed services
Product sales
Total
24.9
23.8
12.1
11.6
11.8
34.7
7.0
20.5
204.7
100.0
168.9
100.0
While revenue grew in total by £35.8m (21 per cent), the
absolute level of operating profit fell year-on-year by £9.1m
(35 per cent). The fall in operating profit is all the more stark
because it is after the positive impact of foreign exchange
gains of £0.4m and the benefit of acquisitions. The acquisition
benefits were from a full year of ownership of Fox-IT (£0.5m)
and part year ownership of PSC and VSR (£1.7m benefit).
The underlying business performance in the Assurance
division generated £11.3m less operating profit than last
year (down 44 per cent) on £6.8m organic revenue growth.
Adjusted EBIT margins fell to 8.2 per cent (2016: 15.3 per
cent). The most significant driver for this was the increase in
overall salary costs.
Our consulting businesses in the UK and US both saw a
fall in absolute profitability as a lack of control over the cost
base meant that it grew faster than our revenue streams. In
particular, this reflected a strategy to build sales and delivery
teams ahead of equivalent revenue growth and that led to
margins being compressed in both businesses at a gross
margin and EBIT margin level. At the same time, the Group
was starting to develop its strategic sales capability to allow us
to move further up our customers’ internal purchasing decision
chains to become less transactional and more strategic in
approach. That investment has been slower than anticipated in
bearing fruit.
The Assurance business will typically see one or two major
unplanned contract wins in any particular year. These can
be related to the reaction to a major event at a customer or
a specific proactive project such as corporate activity. In the
year to May 2017, the division did not have a material benefit
Revenue
‘type’
Consulting services 76%
Managed services 12%
Product sales 12%
from any such contracts and actually suffered from the loss
of some. In one specific case, a large-scale Software Testing
project (referenced above) was already underway with staff
deployed on the ground. When the customer discontinued the
contract the revenue stream stopped very quickly in the first
half, whereas it had been expected to run for most of the year.
A second large-scale project was cancelled before it began.
In the third, which had not become a contracted order but
had been a firm prospect as NCC Group was the preferred
supplier for that type of work, the customer decided not to
proceed with the work. The estimated potential revenue from
the three contracts was around £14-17m and £6-7m of gross
margin (based on a gross margin assumption of 40 per cent).
Approximately £7-10m of this revenue had been included in
the Group’s operating plan at the start of the year.
The most challenged part of the Assurance division was MSS
which saw a fall in revenue of £4.6m (14 per cent). As noted
earlier, while much of the revenue fall related to less attractive
sales of third party products, the gross margin delivered would
still have been a helpful contribution towards the overhead
base.
Similarly to the consulting businesses, in MSS the Group
set about rebalancing the sales efforts and teams towards
strategic and higher value added sales of customer solutions,
comprising product, professional services and managed
services. While we are confident that this is the correct
approach in the medium-term, the short term impact was to
increase our cost base at a time when revenues were falling.
There was also the impact of ongoing integration challenges
for the MSS service lines (acquired under the Accumuli plc
transaction).
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How we are
part of your daily life
ASSURANCE — SECURING SUPPLY CHAINS
Consulting services 76%
Managed services 12%
Product sales 12%
HOW SUPPLIER ASSURED
SERVICES HELP ENSURE SECURE
AND ROBUST SUPPLY CHAINS
Supplier Assured
Effective information security comprises a number of internal factors that
are directly within an organisation’s control – e.g. technologies, governance,
processes and people. Other factors can be outside of an organisation’s control
such as interactions with suppliers.
Third party suppliers can be an attractive way for cyber criminals to gain access
to data and networks that would otherwise be beyond their reach. A huge range
of external suppliers, from marketing to accountants to legal firms, may all hold
intellectual property or sensitive personal information on employees and clients
or may provide access into an organisation’s environment.
In order to avoid costly damage to customer confidence, reputation and
ultimately the share price, organisations must ensure comprehensive security
audits of third party suppliers and partners are carried out and that all necessary
security measures are being implemented and maintained.
The service is made up of four key pillars:
1. Supplier Landscape Assessment: We will conduct a questionnaire based
risk assessment on your entire supplier landscape to help you identify your
high risk suppliers and quantify how they impact your organisation’s data and
technologies.
2. Supplier Audit: Suppliers will be asked to complete a 14 domain control
self-assessment to ensure they have appropriate security controls to
mitigate key risks. We will review the results of this self-assessment and
select suppliers for on-site audits to ensure that risks are captured fully and
effectively.
3. Supplier Remediation Management: We can help manage supplier risk
remediation programmes by advising on measurable solutions that allow client
continued assurance that risks are managed in line with business objectives.
Lessons learnt from all remediation activities will be passed throughout the
client organisation and its supply chain.
4. Supplier Management Strategy and Remediation: We can help
strengthen the effectiveness of your supplier management programmes
by providing assistance where you need it. We can help assess and build
security controls, policies and procedures, on-boarding security requirements,
off-boarding requirements etc. and assist in embedding this in your target
operating model.
NCC Group understands that organisations are using an increased number
of suppliers, and on-site audits for the whole supply chain is not financially
or operationally feasible. NCC Group has therefore developed a risk based
approach to help organisations gain assurance that information security risks
and requirements such as GDPR are managed effectively for their suppliers.
NCC Group works with a number of large organisations to successfully deliver
this service in a modular fashion. Its Supplier Assured managed service is based
on a secure portal platform to pseudo-automate the supplier review process and
remove the traditional email and spreadsheet supplier review approach which
can quickly become unmanageable for a large number of suppliers.
How our business model enables this
NCC Group has worked for a number of years auditing and assessing our
clients’ supply chains to ensure that they are secure and robust. As such,
we have made a significant investment in people, processes and technology
associated with this. More recently, we have developed an end-to-end “Supplier
Assured” managed service utilising a combination of on-site assessments and
a remote questionnaire and evidence based validation to deliver a cost effective
solution to our clients’ third party security.
For one well known supermarket chain we have recently undertaken a proof of
concept exercise prior to a full roll out of the service, enabling the client to gain a
clear understanding of the supplier risk landscape and also develop, implement
and manage an appropriate remediation approach. Over 2,000 suppliers were
ranked and the top 50 were selected for assessment by NCC Group. To ensure
new suppliers were included within the tracker, a short-term due diligence
process was developed with a strategic plan to fully mature the process.
How we will leverage this going forward
As the supply chain threat continues to increase, NCC Group will place more
emphasis on our Supplier Assured service. Utilising well established processes,
procedures and tooling we will be able to onboard more clients into the service,
enabling our clients to gain benefit from both cost savings and a well established
and experienced team. We will also continue to revise, amend and improve our
Supplier Assured framework, utilising the experience we gain from delivering in
excess of 1,000 assessments.
Read more online at
www.nccgroup.trust/uk/our-services/security–
consulting/information–risk–management-and-
governance/supplier–assured
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STRATEGIC REPORT
How we are
part of your daily life
ASSURANCE — FINANCIAL NETWORKS
HOW THREAT INTELLIGENCE,
FRAUD DETECTION, INCIDENT
RESPONSE AND RED TEAMING
SERVICES INCREASE RESILIENCE
OF FINANCIAL SERVICES
The financial services sector has dealt with online criminal threats for nearly
two decades yet the threats are ever increasing. Various types of criminals, and
at times, nation states, have targeted their continuously evolving techniques for
financial gain at banks and other financial institutions and their customers across
the globe.
In addition, espionage is a real and continuous threat for many organisations
including financial services and governments. A defining feature of espionage is
that it involves stealing of confidential or sensitive information such as intellectual
property or PII and that it is designed to go unnoticed. The information may be
used for competitive advantage or to support geopolitical goals. The damage
resulting from espionage campaigns is often material and the impact can
sometimes only be gauged after time.
How our business model enables
resilient finance
NCC Group’s Dutch based subsidiary, Fox-IT, has tracked criminal threat groups
ever since the first attacks on online banking, giving us unique insight into
criminal organisations, their modus operandi and the tools that they use. We use
this insight and our knowledge to provide financial institutions with very specific
and real-time information to detect and mitigate attacks along with contextual
information about the individuals that may be unwittingly involved in fraud.
In 2010, one of the largest banks in the Netherlands approached Fox-IT to
help tackle the problem of fraud. Together, Fox-IT and the bank developed
an innovative fraud detection platform (DetACT) as a means to directly
operationalise our threat intelligence in order to help combat attacks such as
Internet banking and credit card fraud.
Other banks in the Netherlands joined later in our efforts to reduce damages
as a result of Internet banking fraud, which peaked to €33m in 2012. Last year,
fraud damages were less than €1m for the first time since 2007 in the Dutch
market. Fox-IT is proud to have significantly contributed to this successful
reduction in risk to the Dutch banking system.
Globally, financial regulators are increasing the scrutiny of their markets with
regards to demonstrated cyber resilience with the UK and the Netherlands
leading these efforts today. NCC Group, as a Bank of England approved provider
under the CBEST scheme, and Fox-IT, with wider NCC Group support as a De
Nederlandsche Bank for TIBER scheme, is well placed in the market. These
accreditations have resulted in NCC Group performing red team engagements
for some of the most prolific financial market infrastructure providers and
institutions in the UK, the Netherlands and the wider European market.
How we will leverage this going forward
Fox-IT continues to track criminal groups in order to understand how they
work and predict what they will do next. The more recent blending of criminal
and espionage operations shows the importance of following these threats
closely. This in turn helps continuously improve Fox-IT’s fraud detection platform
and it also feeds its Managed Detection and Response (MDR) platform with
threats intelligence in order to provide rapid detection of these threats at earlier
stages, when criminals infect systems that they can later use to carry out fraud.
Additionally, our fraud detection platform gained traction in other parts of Europe,
where we are currently helping banks fight fraud.
Incident Response assignments are opportunities to see attackers live at
work. They provide valuable information about the attacker’s means, motives
and technical indicators of successful attacks. Fox-IT and NCC Group use
information gained from such cases in multiple ways.
First and foremost, we use it to detect new attacks with our MDR platform that
protects all our customers. We also use the information for historic analysis to
determine if any of our other customers has been the victim of an attack similar
in nature. The insights we obtained during the IR case often lead to innovations
in our MDR platform, thus continuously improving the platform. Lastly, any
information about the attackers is used by our threat analysts as a starting point
for further investigation into that attacker.
For red teaming in the financial sector, as Singapore, Hong Kong, the European
Central Bank and other regulators implement robust resilience programmes,
NCC Group’s experience, global reach, scale and technical investment means we
are well placed to capitalise on market opportunities.
38
Read more online at
www.nccgroup.trust/uk/our–services/security–consulting/
cyber-defence-operations
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How we are
part of your daily life
ASSURANCE — AUTOMOTIVE SPECIALISM
HOW NCC GROUP AUTOMOTIVE
CYBER SECURITY SERVICES
HELP SECURE THE EVOLVING
AUTOMOTIVE LANDSCAPE
The Metrocab is London’s first zero emission capable taxi, developed by Frazer-
Nash Research and Ecotive. The vehicle uses an electric battery and a petrol
engine, which extends the range of the battery. NCC Group works as a cyber
security and assurance partner to Frazer-Nash Research to independently advise
on the security of in-vehicle networks and systems.
Automotive cyber security
Many people talk about modern connected cars as “computers on wheels”. This
analogy is not technically correct – a better one would be “complex networks on
wheels”, comprising multiple network technologies and segments, connecting
a range of different embedded computers from many different suppliers to
sensors, actuators and display interfaces. Many of the embedded computers
present within vehicles have been connected to each other for years in closed
on-board vehicle networks. However, the big change that has prompted cyber
security concerns in recent years has been the connectivity between the
on-board vehicle network and the public mobile phone network, connecting
vehicles to Telematics Service Providers and to the wider Internet. This change
has required much greater scrutiny of the design and implementation of vehicle
systems than has previously been deemed necessary, to ensure that remote
attacks against connected cars cannot result in data theft or safety concerns.
“The knowledge and expertise of NCC Group
has provided us with invaluable support
to ensure our products and services have
an unprecedented level of security for the
automotive landscape.”
How our business model enables this
NCC Group has been providing cyber security advice and guidance to
the automotive industry since 2012. Our dedicated Transport Assurance
Practice constantly updates assessment methodologies, tools and techniques
through a research-led approach to consultancy. By having specialist technical
teams, whose cyber security experience is augmented by domain-specific
knowledge, we are able to provide world-leading services to the global
automotive supply chain.
How we will leverage this moving forward
We already work as cyber security and assurance partners to many of the
world’s leading vehicle manufacturers and their suppliers. With our research-led
approach we are able to foresee new challenges facing the automotive industry,
from vehicle-based ransomware and security concerns around autonomous
vehicles, to the impact of GDPR legislation on car manufacturers.
Read more online at
www.nccgroup.trust/uk/our-services/security-consulting
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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STRATEGIC REPORT
Interim Chief
Executive’s review
OUR PERFORMANCE
ESCROW DIVISION - BUSINESS PERFORMANCE REVIEW
Revenue performance
The Escrow division now accounts for 15 per cent of Group
revenues (2016: 17 per cent). Escrow revenue for the year grew
by £1.8m (5 per cent) to £37.1m (2016: £35.3m). Excluding the
impact of FX, at constant currency rates underlying growth was
£0.1m (0.3 per cent).
Escrow revenue
UK
USA
Europe
Total Escrow revenue
31 May
2017
£m
31 May
2016
£m % Change
25.4
7.9
3.9
37.2
25.7
6.2
3.4
35.3
(1)
27
13
5
Escrow UK
Escrow UK revenue was £25.4m (2016: £25.7m). During
the second half of the year we identified that some invoices
had been recognised as revenue ahead of the related service
delivery. The correction of this issue reduced reported revenue
in the year by £1.0m with an almost equivalent EBIT impact.
The issue had built up over three years and no individual year
required a material adjustment and hence the full impact
was recognised as a one-off, non-recurring, non-cash item
in the current year. While there was never any question of
not delivering the service, and in many cases payment was
received in advance, this revised approach is deemed to be a
more appropriate application of the Group’s unchanged policy
on revenue recognition.
The reported 1 per cent reduction in revenue (2016: 8 per cent
growth) would have been growth of 3 per cent if not for the
one-off adjustment.
Escrow UK recurring revenues increased to £14.1m (2016:
£13.7m) and terminations remain at around 11 per cent with
nearly 90 per cent of all contracts renewed (2016: 90 per
cent).
We expect UK growth to remain modest given the relative
market maturity and our market share.
Escrow USA
Escrow USA revenues grew by 27 per cent to £7.9m (2016:
£6.2m) with recurring revenues of £4.5m. Approximately half
of this related to the impact of changes in FX rates with the
balance all being organic growth. In the fourth quarter we
restructured our senior management and sales team in Escrow
USA to build further on the significant opportunity we have in
that country.
Escrow Europe
Escrow Europe revenues grew by 13 per cent to £3.9m
(2016: £3.4m) with recurring revenues of £2.1m. However,
all of this and more was the result of changes in FX rates. On
an underlying organic basis the business actually shrank by
3 per cent. This reflects significant management change in our
European Escrow team that are being addressed in the first
half of the new financial year.
Escrow Rest of the World
The division has recently established an office in Dubai to take
advantage of the Group’s reputation and expertise in a region
that has good demand potential for escrow services and in
which we have a number of existing clients, allowing us to build
a larger footprint in anticipation of Expo 2020.
Revenue
geography
UK 65%
USA 22%
Europe 10%
Rest of the World 3%
Our short-term goals for the Escrow division as a whole are:
z To maintain our market leading position in the UK, delivering
modest annual organic growth
z To continue to develop evolving solutions for customers in a
SaaS and cloud based world
z To build on our scalable capability in the US
z To stabilise our relatively small footholds in a number
of European territories (the Netherlands, Germany, and
Switzerland)
z To begin to build out from our new positions in our “Rest of
the World” offices in Dubai and Singapore
Escrow UK now has 111 employees (2016: 107), Escrow
Europe has 12 employees (2016: 15) and the North American
Escrow businesses have 41 employees (2016: 59).
40
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The £1.0m impact on profitability of the revenue recognition
issue has been noted above. Because the revised approach was
adopted in the second half of the financial year but applied to
the year as a whole, it has had a disproportionate impact on the
reported results in the second half. Excluding this adjustment,
EBIT for Escrow would have been flat year-on-year.
The division experienced some of the same increases in
the cost base as seen in the Assurance division but to a
lesser degree. As a result, EBIT margins in the division fell
by 5.6 per cent to 51.3 per cent (2016: 56.9 per cent) with
revenue recognition being a one-off 2.6 per cent reduction.
The revised operating model that is already in place for the
Escrow teams around the world mean that the division should
deliver an improvement in margins in the new financial year
ending May 2018.
Escrow revenues and growth can be further analysed as
follows:
Escrow contracts
Verification testing
Other services
Total Escrow revenue
2017
£m
26.3
9.6
1.3
37.2
2016
£m % Change
24.6
9.7
1.0
35.3
7
(1)
30
5
Escrow profitability analysis
The table below shows the split of EBIT by Escrow region. For
reporting purposes, RoW EBIT is included within the UK.
EBIT
UK
USA
Europe
Share of corporate costs
Total Escrow EBIT
31 May
2017
31 May
2016 % Change
17.4
3.7
1.9
(3.9)
19.1
18.3
3.0
2.0
(3.2)
20.1
(5)
23
(5)
(22)
(5)
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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STRATEGIC REPORT
How we are
part of your daily life
ESCROW — BUSINESS CRITICAL
SOFTWARE CONTINUITY
HOW NCC GROUP’S ESCROW
SERVICES HELP ENSURE
CONTINUITY OF BUSINESS
CRITICAL SOFTWARE
A leading holiday operator decided to introduce a new reservations system to
enable all of its high street outlets and businesses to have online access to the
same real time price information for holiday packages.
As a way of facilitating the real time availability of hotels, flights and car rental
information the system was key to the holiday operator’s strategy of improving its
service in line with its customers’ expectations and booking behaviour.
The holiday operator began the process of replacing its legacy systems with a
system that could communicate with the myriad of reservation systems used in
the travel market and enable agents to give customers instant availability and
reservation details.
The system was also designed for use on multiple channels including websites,
retail shops and call centres.
The holiday operator takes business continuity for its critical reservation
infrastructure seriously, so when planning for the new platform it wanted to
ensure that provisions were in place to protect itself should an event occur that
had the potential to disrupt the ongoing service of the application and affect
customer experience.
How our business model enables this
Following a review of the marketplace and the protection solutions on offer,
the holiday operator decided to partner with one of the world’s leading
escrow providers, NCC Group. NCC Group’s software escrow solutions are
a smart, simple way of managing risk by protecting the huge investment that
organisations make in software each year.
Under the terms of an escrow agreement, NCC Group holds a copy of the
source code behind the business critical application or platform and commits
to release the material if a “trigger event” should occur that would render the
software supplier incapable of fulfilling its contractual obligations. If such an
event occurs, the holiday operator can apply for the material to be released
quickly and safely, minimising cost and disruption. This would then enable it to
maintain and support the application in-house or appoint a qualified contractor
to do so.
As part of all its escrow agreements, NCC Group carries out an Integrity Test on
the material received to ensure it is virus free, accessible and of the expected
type. This process ensures that any obvious mistakes in the deposit are detected
and resolved.
42
However, due to the nature of the software in question and the uncertain
economic climate, NCC Group recommended that as well as ensuring that
the source code is stored and regularly updated, the holiday operator should
commission Full Verification testing of the application to ensure that the source
code deposited could be built into the working system if needed.
NCC Group’s range of verification services are specifically designed to
remove any uncertainty of what is held in escrow and test the accessibility and
completeness of the material.
The verification process gives both end users and suppliers complete peace
of mind. Initially, the verification consultant worked with the supplier through a
complete build of the source code and then worked with the team at the holiday
operator to test that the correct application was created. The entire process was
detailed in a comprehensive report, which the holiday operator can then use as a
step-by-step manual to build the source code into the working application.
When its software supplier unfortunately went into administration, the holiday
operator needed to invoke the escrow agreement and requested a source code
release from NCC Group. The fact that the holiday operator had taken steps to
mitigate risk, and had ownership of the build reports for the reservation system,
played a crucial part in the legal negotiations that followed with its supplier’s
administrators.
Only because the holiday operator had carried out verification of the source
code through NCC Group’s Full Verification and Build Assured Verification did
it have a full build report for the business critical reservation infrastructure that
enabled it to carry on maintaining and supporting the application by appointing
an alternative contractor to do so.
How we will leverage this going forward
Most businesses rely on IT applications to run important and critical functions
within their organisation. As the use of IT across organisations continues to grow
it is increasingly important to ensure that businesses have a plan in place to
mitigate against the risk of software supplier failure. NCC Group will continue to
engage with both software providers and our customers to help and form part of
an organisation’s business continuity plan.
Read more online at
www.nccgroup.trust/uk/our-services/software-escrow-
and-verification
www.nccgroup.trust
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How we are
part of your daily life
SOFTWARE TESTING — NEW SYSTEMS IMPLEMENTATION
HOW SOFTWARE TESTING
SERVICES HELP IMPLEMENT
NEW SYSTEMS INITIATIVES
NCC Group’s client, a major luxury fashion retailer, required a testing partner
who could manage the complex implementation of two third party solutions,
maintaining the quality standards in parallel development.
The main challenge was the integration of the transformed EPOS system and
the new loyalty offering, from both a technical and process perspective, into its
current business model with minimum disruption.
These two projects were of the upmost importance as they will ultimately
strengthen the client’s position in the retail industry and help it to maintain
customer loyalty while meeting key strategic goals.
Software is not the client’s core business and it needed a quality partner to bring
a strong approach as well as a complete testing solution.
How our business model enables this
Given the scale of the EPOS transformation, the client needed absolute clarity
about how the validation and testing effort would ensure that both technical and
business requirements were delivered as expected to fully support its business
strategy and activities.
NCC Group put together a joined-up approach to deliver testing across the
various transformation areas, ensuring that the solution delivered business value
for the client. This included:
z Leveraging NCC Group’s Delivery Centre to provide a remote, on-shore
capability, with a local test manager to ensure tight communication and
accountability.
z Testing of the EPOS system and devices from NCC Group’s Delivery Centre,
evaluating functionality from front of store to back end systems without
taking up space in the client’s offices.
z Testing of the loyalty solution across a range of browsers and devices,
ensuring consistent customer experience and supporting incentivisation by
the client.
z With NCC Group’s support at all stages of the process, the client
successfully implemented two new key initiatives. The transformed EPOS
system is now live in one of the main store locations and being rolled out at
other locations.
z The new loyalty application is currently being used by its customers and
the international website and new marketplace have also successfully gone
live. This allows the client to deliver a competitive retail experience to its
customers on a global scale.
How we will leverage this going forward
z The transformation enabled the client to deliver value to customers and
NCC Group looks forward to working closely with the client as the company
continues to expand and refine its retail offering.
z This valued NCC Group client had a number of challenges, including lack of
expert test consultant skills, shortage of desk space in prime London territory
and expertise in delivering similar sized, business critical projects. The project
was both demanding and critical to the continual success of this client both
online and in store and failure to deliver was not an option. We partnered at
the most critical stage where business requirements were being determined,
we introduced testing early into every phase of development, and provided
this client with a robust strategy to deliver and go live without fault. Key
delivery points and objectives are below:
— Previous expertise in sector and project type
— Ability to scale with the exact skills at speed
— Flexible on-site / off-site model (but all on-shore)
— Develop a strategy that would be agreeable by the Board for budget
approval and sanction
— Ability to manage all test phases and manage stakeholders to
Board level
z Testing of the international version of the client’s website, validating orders
— Drive down costs where appropriate but without affecting test quality
across 117 countries into its fulfilment capability.
z Testing of the client’s marketplace functionality, allowing customers to order
directly through to suppliers through the client’s website and ensuring that
the expansion of this marketplace delivered value to customers.
— Shared responsibility to meet demanding timescales
— Secure, highly confidential off-site facilities
Read more online at
www.nccgroup.trust/uk/our-services/software-testing
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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STRATEGIC REPORT
Group performance
review for 2017
OUR PERFORMANCE
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FINANCIAL MATTERS
Individually significant items
The carrying value of all of our goodwill and intangible assets
were assessed as part of our normal year end process. As a
result, there have been a number of impairments recognised
in respect of goodwill and other intangible assets. The Fox and
former Accumuli businesses (the latter now known as MSS)
have underperformed in the year compared to our original
acquisition forecasts. They have also encountered integration
challenges that have slowed the pace of commercial leverage
of the different new service and product lines across the rest
of the Group. In MSS we are also shifting focus away from one
part of the business that previously concentrated on simply
reselling third party products often without value added after
sales services.
The net result of these factors is to recognise an impairment
of the goodwill that arose on the acquisition of Accumuli plc
by £24.3m. This equates to around 50 per cent of the goodwill
attributable to what is now known as MSS. It is worth noting
that one part of the Accumuli business has been successfully
and fully integrated with our UK Security Consulting business
and its share of goodwill (£14.3m) is now considered as part of
that cash generating unit (CGU).
In Fox-IT we have recognised an impairment of £24.3m of
goodwill, representing around 30 per cent of the goodwill that
arose on acquisition. While we are confident that the Fox-IT
business and service lines and the MSS business refocused
on value added managed services and advisory services are
attractive business in the medium to long-term, there is much
to be done to realise this potential. The length of time needed
to realise this potential and the execution risks involved
over that period mean that it is appropriate to recognise the
impairment of these assets.
In our Web Performance business we have reviewed the
carrying value of both internally generated intangible assets
and the goodwill associated with the acquisition of that
business. While we do see longer term value in this business,
some of the revenue generating intangible assets have been
slower than originally anticipated to generate revenues and a
retained customer base. The slower ramp up in revenue has
therefore led to the recognition of impairments over two assets
amounting to £3.0m and over goodwill of £5.7m.
In the prior year it was announced that the Group was
withdrawing from the Domain Services operating segment.
At that time two assets were retained with carrying values of
£2.0m and £2.7m in respect of the .trust TLD and a software
application for use in Domain and potentially in other retained
parts of the Group.
Given the inherent uncertainties in realising any value from the
.trust TLD it has been decided to write that asset off in full. The
Group will seek to maximise any value from the asset. It has
now been identified that the retained Domain software system
does not have a role in the business going forward and it too
has been fully impaired.
Other individually significant items in the year are set out in
note 3 to the accounts and include:
z Adjustments to deferred and contingent consideration due
to changes in FX rates of £2.9m;
z Holiday pay accrual relating to previous financial periods of
£1.8m. This is described in more detail in note 3;
z Restructuring costs of £1.3m relate to professional fees for
the Strategic Review, the Target Operating Model project,
exit payments to the former CEO, and retention bonuses
paid to former employees of Accumuli plc;
z Double running and exit costs of £1.3m for empty
properties;
z Impairment of property, plant and equipment (£0.9m) on the
planned relocation of the Group’s Manchester Head Office
in September 2017; and
z Acquisition costs of £0.8m.
Prior year individually significant charges are also set out in
note 3.
Taxation
The Group’s adjusted effective tax rate is 29.3 per cent
(2016: 22 per cent), which is marginally above the average
standard UK rate of 20 per cent (2016: 21 per cent). The
higher effective rate reflects the higher tax rates incurred in
the overseas businesses. It had been earlier reported that the
tax rate for the year would rise to around 31 per cent. This
was based on an estimated position at the time of the Interim
Results in January 2017 and included certain assumptions
about the level and geographical origin of pre-tax profits.
The actual results were lower than those estimates and a
significant part of the reduction was in higher tax territories.
The Group expects to maintain the effective P&L tax rate at
around 30 per cent for the next few years, assuming a similar
split of profitability compared to the current year.
The Group has recently hired a tax and treasury manager whose
tasks will include developing a longer term strategy for tax and
treasury matters. In both of these areas the Board has a low risk
appetite and the new strategies will operate inside that.
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STRATEGIC REPORT
Group performance
review for 2017
OUR PERFORMANCE
Earnings per share
The adjusted basic earnings per share from operations was
6.7p (2016: 11.8p).
The table below reconciles basic EPS to Adjusted EPS on the
Group’s definitions of adjusting items including their tax impact.
2017
Pence
2016
Pence
Basic EPS as per the income
statement
Domain exit
Amortisation of acquired
intangibles (note 11)
Individually significant items
(note 3)
Share based payments (note 22)
Unwinding discount on deferred
consideration (note 7)
Adjusted basic EPS
(20.4)
(0.6)
2.7
24.8
0.1
0.1
6.7
2.5
0.4
2.1
6.2
0.4
0.2
11.8
The adjusted fully diluted earnings per share from continuing
operations was 6.7p (2016: 11.2p) while reported fully diluted
loss per share was 20.4p (2016: earnings of 2.5p).
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 a dividend equal to that paid in the prior year. While
dividend cover is negative (2016: 2.4 times based on basic
adjusted earnings per share from continuing operations) the
Board is confident that the Group’s new Strategic Plan will be
a source of long-term sustainable growth in earnings, cash
flow and shareholder value.
An administrative non-compliance issue has been identified
with respect to distributable reserves and the payment of
previous dividends. We expect to remedy the position by
means of shareholder resolutions at the AGM in September.
Cash
We are aiming to disclose in as transparent a way as possible
the key moving parts in our cash flows. We also publish a
new definition and calculation of free cash flow and cash
Conversion ratio that is more closely aligned to market
practice.
The table below summarises the Group’s cash flow for the
year:
Cash inflow before changes in
working capital
Changes in working capital
Interest paid
Income taxes paid
Net cash from operating
activities
Net capital expenditure
Capitalised development costs
Free cash flow
Acquisitions
Disposals
Dividends
Share issues
Net cash flow before financing
Opening net debt
Foreign exchange impacts
Closing net debt
2017
£m
33.8
(2.1)
(1.9)
(1.8)
28.0
(10.6)
(3.7)
13.7
(26.7)
0.2
(12.8)
0.7
(24.9)
(12.7)
(6.1)
(43.7)
2016
£m
37.3
(14.2)
(2.0)
(7.3)
13.8
(11.6)
(1.9)
0.3
(76.7)
–
(10.3)
123.7
37.0
(50.6)
0.9
(12.7)
The Group generated a net £25.9m of cash from operating
activities. This was before deducting £3.7m costs of internally
capitalised development costs.
Working capital saw a reduction in accrued income as our
billing processes became more effective and timely in the
fourth quarter. While the natural consequence of this is then
an increase in trade debtors, the net impact is to shorten the
working capital life cycle and accelerate cash conversion. The
net working capital cash outflow was the result of deliberate
management action to improve supplier relations by improving
the profile of creditor payments compared to prior years.
Interest and tax cash costs remained modest and the latter
reflects in part the lower profitability of our overseas higher tax
rate territories.
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FINANCIAL MATTERS
Net capital expenditure of £11.0m was a mix of discretionary
and maintenance capex. No breakdown of discretionary versus
maintenance capex is available as yet. However, maintenance
spend includes costs of new hardware and software for use in
the business. Discretionary spend includes a number of new
office locations that have either been acquired or moved into in
the year ending 31 May 2017.
The largest one-off “discretionary” capex spend in 2017 was the
£3.8m cost of Category A and B fit out costs of the Group’s new
headquarters building in Manchester that will be occupied in the
summer of 2017.
The move was occasioned by the end of the existing lease and
the need for more space to accommodate current and future
business growth. The fit out costs in the year were almost fully
funded by a landlord contribution of £3.7m. The estimate to
complete the project is £4.0m and the final cash costs will be
paid in the 2018 financial year.
Given the number of office moves completed or started in
the 2017 financial year, we do not expect to incur similar
significant capex or costs during the new financial year.
Conversely, we expect our annual premises costs which
include depreciation, rent, and rates to increase in the new
financial year by £1.9m, which will be an annualised £2.2m in
the following year.
Acquisitions are discussed in more detail in the Assurance
Division review.
The calculation of the cash conversion ratio for the last two
years is set out below and referenced to the various notes in
the Annual Report.
Net cash generated from
operating activities
Adjusted EBITDA
Cash conversion ratio (A) / (B)
2017
£m
28.0
36.2
77%
2016
£m
13.8
45.0
31%
One of the main drivers for the difference between operating
cash flow and EBITDA are the capitalised development cash
costs in the year of £3.7m which if charged against EBITDA
would give a cash conversion ratio of 86 per cent in 2017.
Financing facilities
In November 2016, the Group increased its banking facilities
to £110m (May 2016: £78m) with a new five-year multi-bank
facility, comprising an £80m (May 2016: £78m) revolving credit
facility and a £30m (May 2016: nil) five-year term loan. The
term loan amortises at £2.5m every six months until maturity
and at the end of the year the term facility stood at £25.0m.
The Group’s primary banking covenants are:
z Leverage limit of 2.5 times and this is calculated as
Adjusted EBITDA / net debt. For the purposes of the
covenant test, net debt includes deferred consideration on
acquisitions (but not contingent consideration).
As at 31 May 2017, leverage for banking purposes stood
at 1.5 times, comfortably below the Group’s maximum 2.5
times covenant limit.
Cash
conversion
ratio
70%
70%
70%
71.5%
z Net interest cover which is calculated as Adjusted EBITDA
/ net interest payments and has a limit of 3.5 times.
z As at 31 May 2017, net interest cover was 25.9 times, again
comfortably above the minimum level.
31.0%
2013
2014
2015
2016
2017
At the year end, outstanding contingent payments relate to
PSC of £2.8m and VSR of £1.3m. The payments to the former
owners are due in two equal instalments and are measured on
December 2017 and December 2018 by reference to profit
targets set at the time of the acquisitions.
Also outstanding is non-contingent deferred consideration in
respect of the acquisition of Fox-IT comprising €10m in cash
and €2.5m shares due to be paid in November 2017. The
Group has the option to make the share based payment in
cash instead.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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Principal risks
and uncertainties
RISK MANAGEMENT
As the business grows in scale
and complexity, it is important
that we evolve our risk
management processes. During
the last year we implemented
some new and enhanced
processes and controls around
our risk management activities.
Governance
Overall responsibility for the risk framework and definition of
risk appetite rests with the Board, who through regular review
of risks, ensure that risk exposure is matched with an ability to
achieve the Group’s strategic objectives. Risks are identified
primarily by the management team and by using a structured
risk framework, with non-executive review being carried out by
the Board.
Risk management processes and controls
The Board, with input from the Audit Committee, monitors the
ongoing process by which critical risks to the business are
identified, evaluated and managed. On a biannual basis, the
Board reviews the detailed risk register that has been prepared
and updated within the business by the Operations Board
which has responsibility for day-to-day risk management within
the business.
In addition, during 2016, the Board formed a specialist
Cyber Security Committee to evaluate the specific risks
associated with its cyber risk environment. We expect to
evolve our risk management processes and controls further
in the new financial year in order to embed further risk
management processes within the business. This will include
the development of online risk and action tracking systems.
We plan to carry this out in parallel with the creation of a new
Internal Audit and Assurance function, reflecting the growing
complexity of our business.
Evaluation of risk
The design and ongoing effectiveness of the key controls
over the Group’s principal risks are documented using an
“assurance map”. This includes an assessment of the net
impact of each risk and the likelihood of its occurrence once
mitigating controls are taken into account. The key controls
over the Group’s identified principal risks are reviewed twice a
year by management, the Audit Committee and the Board.
However, the Group’s risk management programme can only
provide reasonable, not absolute, assurance that principal risks
are managed to an acceptable level.
Ranking of the Group’s risks is conducted by combining the
economic, operational or environmental impact of risks and the
likelihood that they may occur. Those risks that are considered
to pose the greatest threat to the Group and score the highest
are identified as “principal risks”. The operations of the Group,
and the implementation of its objectives and strategy, are
subject to a number of principal risks and uncertainties. Where
more than one of the risks to occur together, the overall impact
on the Group would be greater.
Risk register
The Group maintains a risk register, which:
The CEO chairs the Operations Board and the other members
include senior business unit and functional heads. The
business has put in place:
z Sets out the Group’s risk appetite;
z Identifies the key risks faced by the Group and assesses
their likelihood and impact; and
z Ongoing procedures to identify, evaluate and manage
z Identifies the processes and controls in place to mitigate
principal risks;
these risks.
z Procedures to monitor the control systems in place to
reduce these risks to an acceptable level;
z A biannual detailed Group-wide risk review; and
z A process to consider progress made against significant
business risks at monthly operational Board meetings.
The Group Risk Register is the primary reporting vehicle used
by the Operations Board in performing its risk management
duties. It is reviewed in depth by the Operations Board on
a biannual basis. The Risk Register is then reviewed by the
Board. Day-to-day risks faced by the Group are mitigated by
management processes and procedures embedded in the
Group’s Quality System.
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T
C
A
P
M
I
5
9
6
3
8
4
1
2
7
10
PROBABILITY
Principal risks and uncertainties
The Group operates in a particularly dynamic and evolving
market-place. As new events occur or the business transitions
into new activities or phases of its development, the risk
register is updated accordingly.
For example, reflecting the changing nature of the business,
during 2016-17, we had to complete the integration of two new
and sizeable acquisitions into our risk management processes.
As a result of these acquisitions, the Group now has a larger
proportion of its revenue coming from hardware or other
product sales and also from key strategic customers, with the
consequence of there being less predictable sales cycles and,
in some cases, larger but less frequent sales.
During the year, we saw a slowing in purchase activity by a
key strategic customer in the Netherlands. We also incurred
customer losses while professionalising the contracts
management activities in one of the businesses we recently
acquired, as well as having to bear increased costs.
Furthermore, as a result of these recent large acquisitions, the
scale and complexity of the Group increased and enhanced
controls and processes needed to be put in place. In order to
address this, the Board authorised the creation of the roles of
Director of Risk and Assurance, and a Group Tax and Treasury
Manager. The former is in the process of being recruited while
the latter post has been very recently filled.
The Directors have carried out a robust assessment of the
principal risks facing the Group including those that would
threaten its business model, future performance, solvency or
liquidity. Detailed descriptions of the current principal risks and
uncertainties faced by the Group, their potential impact and
mitigating processes and controls are set out below. The tables
also highlight whether the risk is assessed as increasing or
decreasing with a similar assessment for the position last year.
This includes identifying new principal risks and uncertainties.
Risk heat map
T
C
A
P
M
I
5
9
6
3
8
4
1
2
7
10
PROBABILITY
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STRATEGIC REPORT
Principal risks
and uncertainties
RISK MANAGEMENT
Risk Areas
Potential Impact
Mitigation
1 Strategy
As the Group and its operating environment
change, so too must its strategy if it is
to continue to succeed and generate
increasing shareholder value.
The Group is in the process of changing and
developing a new strategy that will need to
take root.
A poor strategy or ineffective execution of
a strategy would have a material negative
impact on the Group’s financial performance
and value. It would potentially weaken the
Group compared to its competitors and
risk the Group’s established position in the
marketplace.
2 Management of change
As the Group adapts and changes its
strategy there are a number of complex
projects and initiatives that not only need to
be delivered but also require understanding
and support from all staff.
Poor change management could lead to
ineffective implementation of projects that
then cost more to deliver, take longer to
deliver, and result in fewer benefits being
realised (or all three).
3 Information Technology
The Group is heavily reliant on continued
and uninterrupted access to its IT systems.
The Group is a natural target for individuals
who may seek to disrupt the Group’s
commercial activities.
If the Group’s systems failed, this could
affect the Group’s ability to provide services
to our customers. If a system failure was the
result of a successful external cyber attack,
this could result in the loss of sensitive data
and compromise the Group’s reputation as a
leader in the field of cyber security.
Failing to successfully implement new IT
systems could similarly cause business
disruption.
2017
NEW
2016
Members of the Board have significant
experience in evolving business strategies.
This experience has been complemented
by the use of external consultants who have
participated in the recent Strategic Review.
2017
NEW
2016
The Board has been enhanced during the
last six months by the appointment of an
Executive Chairman and Interim CEO, both
of whom have extensive experience of
implementing change on organisations.
Through regular engagement with all levels
of staff the Group will ensure that the
Group’s vision and strategy is shared with
and understood by all staff.
2017
2016
The Group has made significant investment
in its IT infrastructure to ensure it continues
to support the growth of the organisation.
The 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. The Group also deploys appropriate
malware protection, network security
controls and encryption of mobile devices.
The Group is currently reviewing high
priority systems changes to ensure that
projects are well managed and deliver the
required targeted benefits in an appropriate
timeframe.
TREND EFFECT
TREND DIRECTION
High Impact
Medium Impact
Low Impact
Increasing
Unchanged
Decreasing
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Risk Areas
Potential Impact
Mitigation
4
Recruitment and retention
of key personnel
The Group would be adversely impacted if
it were unable to attract and retain the right
calibre of skilled staff.
Some roles within the Group operate in
highly technical and extremely specialised
areas in which there are shortages of skilled
people.
Loss of key managers could result in a
lack of necessary expertise or continuity to
execute the Group’s strategy.
An inability to attract and retain sufficient
high-calibre employees could become a
barrier to the continued success and growth
of NCC Group.
5
Conduct and
reputational risk
Damage can result to our reputation or
business by a combination of unanticipated
events or by the acts of a single employee.
Conduct risk can arise from a number of
areas such as failing to meet customer
expectations on project delivery, testing
assignments or source code handling or
from 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.
6 Cyber risk
This is the risk that is faced by many of
our customers, that external agents will
successfully access and harm NCC Group
data and operating systems, inspired by
either the pursuit of financial gain or malice.
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.
2017
2016
Key personnel are tied in through rewarding
career structures and attractive salary
packages, which can include participation in
share schemes.
Succession plans are being finalised for key
members of the management team where
they are not already in place.
The Group is reviewing our assessment
and development processes to ensure that
our employees can enjoy opportunities for
further career training and development.
2017
2016
NCC Group operates a system of policies
and procedures which are regularly audited
as part of the Quality System.
These, combined with 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.
2017
2016
The Board has constituted a Cyber Security
Committee chaired by the Senior Non-
Executive Director.
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 meets
regularly to discuss security risks to the
Group. Employees also receive regular
security training and updates.
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Principal risks
and uncertainties
RISK MANAGEMENT
Risk Areas
Potential Impact
Mitigation
7 Acquisitions and disposals
Acquisitions and disposals can be costly
to complete and complex to deliver the
targeted benefits. Risks range from deal
execution (including price negotiations,
due diligence, and contracting) to transition
and integration into (or separation from)
NCC Group.
Well-executed acquisitions and disposals
with an appropriate purchase price can
create significant value. Poorly executed
acquisitions and disposals or those with
excessive purchase prices can destroy
shareholder value.
8
Competition and failure to
respond to market trends
Barriers to market entry are relatively low in
some of our lower value service offerings.
Equally, in such a dynamic and fast evolving
technology space, products or services can
be rendered obsolete by new technologies
or platforms.
A major change in the technology landscape
could lead to a decline in an individual
service line’s revenue stream. One example
of a recent change that needs a response is
the move to more cloud-based applications
and data storage.
9
Failure to protect
intellectual property
A number of the Group’s service offerings
depend on intellectual property rights that
need to be registered, maintained and
protected in various jurisdictions. Examples
include trademarks, patents and valuable
know-how.
If such rights are not sufficiently protected,
the Group could potentially no longer be
able to offer a particular service in some or
all countries.
2017
2016
As part of its medium-term strategy, the
Board remains committed to making value-
enhancing acquisitions.
The need to establish a robust and scalable
Target Operating Model for the Group,
including integrated ways of working,
processes and systems, means that the
Group is less likely to make any material
acquisitions for the next year or two while
that TOM is put in place.
Furthermore, the significant write down in
the carrying values of goodwill following
the acquisition of Accumuli and Fox-IT
has led the Board to commence a review
of our acquisition process and disciplines
to identify areas for improvement and
ways in which to reduce the risk of future
impairments on any new acquisitions. This
includes developing a more robust post-
acquisition integration process to deliver
targeted benefits.
2017
2016
The Group employs a number of industry
leading experts and thought leaders in our
marketplace. This puts us at the forefront
of change and allows us early insight into
emerging trends. This in turn allows us to
anticipate or pre-empt a number of potential
risks.
Group-wide technology and technical
forums are used to disseminate and share
market intelligence and trends, as well as to
formulate responses, on a regular basis.
2017
2016
Patents are applied for where appropriate
and intellectual property is only disclosed
under a licence agreement or confidentiality
agreement. The Group also takes steps to
differentiate its IP as far as possible to lower
the risk of any potential infringement claims.
TREND EFFECT
TREND DIRECTION
High Impact
Medium Impact
Low Impact
Increasing
Unchanged
Decreasing
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Risk Areas
Potential Impact
Mitigation
10
Liquidity, foreign exchange
and banking facilities
The Group requires access to adequate
banking facilities to fund its daily operations,
capital investments and potential
acquisitions.
Furthermore, as the Group’s international
footprint expands, there is an inherent risk
of adverse foreign exchange movements
affecting profitability.
Inability to refinance the Group’s core
banking facilities could call into doubt the
Group’s longer term viability. Equally, if those
facilities lacked the appropriate flexibility and
structure, this could inhibit delivery of the
Group’s strategy.
The absence of any currency hedging in
2016-17 resulted in an exchange loss of
£3.7m.
2017
2016
The Group’s current banking facilities cover
all of its expected needs of the Group for the
period of such facilities and are sufficiently
flexible to allow the Group to function
effectively.
The Group has recently appointed a Tax and
Treasury Manager for the first time. Part of
their role is to support the CFO in developing
a Treasury strategy and overseeing its
implementation.
The Board is currently reviewing a new
Foreign Exchange hedging strategy that is
primarily based on net cash flow hedging.
Impact of Brexit on the Group
The Group currently has relatively little inter-territorial trade
from the UK into Europe and vice versa. While Brexit has
already had an impact on exchange rates which the Group has
leveraged, there is inevitably some uncertainty around the likely
impact of Brexit on businesses. The Group does not believe
that Brexit will have a significant impact on its operations
as currently structured. UK cyber regulation is likely to stay
closely attuned to evolving regulation in Europe, such as
GDPR where implementation will proceed in both Europe and
the UK as envisaged.
Viability Statement
In accordance with the requirements of the 2014 revisions to
the UK Corporate Governance Code, the Directors assessed
the longer term prospects of the Group. The assessment took
into account the Group’s current competitive and financial
position as well as the potential impact of the principal
risks documented above on pages 48 to 53 of the Annual
Report. The assessment emphasised those risks that could
theoretically threaten the Group’s ability to operate or to
continue in existence.
As a result, the Directors determined that a three-year period
to 31 May 2020 was an appropriate time frame for the viability
assessment based on the historic performance of the Group.
The rapid changes occurring in our marketplaces mean
that a longer period would not have an acceptable level of
forecasting accuracy. The Directors note that even a three-
year period in a rapidly evolving marketplace can present
challenges for forecasting accuracy. The three-year time frame
also takes account of the Group’s core banking facilities which
have an expiry date in November 2020 and that are likely to be
renewed ahead of that date, in line with market practice.
In making their assessment, the Directors have considered the
Group’s current financial position and cash flow generation
and undertaken a sensitivity analysis over the key trading
assumptions combined with the potential impact of one or
more of the principal risks on the business materialising within
the three-year period.
The Directors used the principal risks noted above to develop
a set of plausible scenarios that could have a potentially high
impact on the longer term viability of the business. These
were then used as sensitivity analysis against the baseline
projections above. The key risks included:
z Product obsolescence;
z Loss of key people;
z Significant loss of business systems (whether through
malignant design or misadventure);
z Conduct risk; and
z Failure to comply with all appropriate laws and regulations.
The probability and potential impact of these risks
crystallising was used to assess their possible impact on the
Group’s financial resources and liquidity. At the same time,
consideration was given to mitigating actions in response
to these risks and the ability of the Group’s financing
arrangements to absorb any such impacts. In addition, comfort
was taken from the distributed nature of many of the Group’s
operations as well as diverse income generating product lines.
Based on the results of the analysis outlined above, the
Directors confirm that they have a reasonable expectation
that the Group will remain viable and be able to continue in
operation and meet its liabilities as they fall due over the three-
year period of their assessment. Furthermore, the Directors
have no reason to doubt that the Group will continue in
existence beyond the three-year period under assessment.
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STRATEGIC REPORT
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 local
communities.
It recognises that by acting responsibly it can deliver a
sustainable business, while contributing to the community and
preserving the environment.
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.
Stakeholders
Investors
The investors in the Group need to trust that their capital
is being responsibly used to provide them with sustainable
returns. The Group communicates regularly with its investors
in meetings and roadshows to keep them up-to-date with both
the opportunities and challenges faced by the Company.
During this year, the Directors maintained engagement with
investors through various meetings and telephone calls, details
of which can be found on page 71 of the Governance Report.
Employees
People are fundamental to 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 Chief Executive Officer
to ensure high level visibility and control of all employment
related issues.
The Group endeavours 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.
54
On a daily basis, the Group provides relevant technical,
administrative and sales training and each employee is
required to dedicate a certain amount of time each month
to research and development. The majority of the training is
provided in-house (through on the job side-by-side coaching,
internal workshops or as part of a research team) although
external courses and trainers are used where it is appropriate
to do so.
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. Direct
access to the senior management team is actively promoted
and encouraged and the Group maintains an Open Door Policy.
Every employee and contractor has access to an external
whistle-blowing helpline pursuant to the Group’s Whistle-
blowing Policy.
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 and this message
is reiterated in its “Anti-Slavery and Human Trafficking
Statement”on the Group’s website. 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.
Equality and diversity
The Group is committed to equality and diversity and offers
equal opportunities to all and maintains an Equality and
Diversity Policy which aims to create a working environment
free from unlawful discrimination, victimisation and harassment
in which all employees are treated with dignity and respect.
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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.
The Board recognises the need to positively support gender
diversity in a technology business, which has traditionally
and historically attracted more men due to, in our view, the
teaching of IT and Technology in our schools and colleges
where the subject has historically been viewed as a primarily
male preserve. The Group is endeavouring to engage with local
schools, colleges and universities to help educate and instil the
benefits and opportunities of careers in IT and cyber security
for all genders.
NCC Group supports GCHQ’s CyberFirst Girls Competition in
a bid to encourage young women to consider cyber security
as a career. The competition, aimed at 14 and 15 year-old
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.
Approximately 80 per cent of our employees are male
and 20 per cent female. In our team of senior managers,
approximately 92 per cent of the team are male and 8 per
cent female while on our plc Board, 83 per cent are male
and 17 per cent female. A “senior manager” is defined in the
legislation as an employee who has responsibility for planning,
directing or controlling the activities of the Company or a
strategically significant part of the Company.
The Group is committed to its employees and actively attempts
to improve their health, well-being and morale by encouraging
fitness-based activities and taking part in charitable events.
The Group has its own football, cricket and netball teams that
play regularly, and organises cycling events encouraging mass
employee and business participation.
Health and safety
The Group takes health and safety in the workplace seriously
and complies with all relevant legislation and best practice.
There have been no workplace fatalities in the Group’s history
and no reported workplace accidents in the year.
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 ongoing 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 per cent 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 £65,000 to good causes this year,
with its main charity being Macmillan Cancer Support, and
with a number of local and national charities also benefiting.
Additionally, the Group provided security consulting services on
a 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.
The Group believes in community and encourages 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 has also co-sponsored the cycle
team Torelli, an elite female team from the North West.
Every year NCC Group staff members participate in and
organise football tournaments, silent auctions, raffles, bake
days, sport days and many more fundraising activities.
NCC Group has signed up to become a platinum sponsor of
Cyber Security Challenge UK as it looks to bring more talent
into the industry. The Challenge features a series of national
competitions, learning programmes and networking initiatives
designed to identify, inspire and enable more people to work in
the cyber security industry. NCC Group’s cyber security experts
will be closely involved in a number of competitions and events
in the coming year.
NCC Group has also committed to offering student bursaries
as part of the government-backed CyberFirst initiative in a bid
to encourage more youngsters to take up careers in cyber
security. The CyberFirst programme, which was set up by
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STRATEGIC REPORT
Corporate social
responsibility
GCHQ’s National Cyber Security Centre (NCSC), aims to
provide secondary school-aged students with the tools and
knowledge to live and work securely online while highlighting
the wide range of career options available to them.
The Group is apolitical and does not support any political party
in any jurisdiction nor has it ever made a political donation.
Human rights
The Board has an overall responsibility for ensuring the Group
upholds and promotes respect for human rights and supports,
through the Group’s Human Rights Policy, the UN Declaration
of Human Rights which underpins its policies and actions.
Suppliers
The Group’s policy is to pay suppliers in accordance with the
agreed terms and conditions. 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 2017, the Group had an average of 34.82
days purchases outstanding in trade creditors (2016: 42 days).
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 has in the past 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. During the year
the Group made available the selection of hybrid or electric
vehicles though its company car scheme.
Presently, due to the size of the Group, an external
environmental audit is not practical but this will be reassessed
if the Group grows to such a size where an external audit
would have merit.
The Group’s Environmental Policy aims to reduce the energy
our business uses by:
z Conserving energy and other natural resources and
improving efficient use of those resources;
z Improving the efficiency of materials used;
z Reducing waste and increasing reuse and recycling
wherever possible;
z Reducing the need for travel and encouraging the use of
alternative means of transport, for example, via the Cycle to
Work scheme and car sharing; and
z Providing all staff with relevant environmental training and
guidance.
Initiatives that the Group has put in place to reflect the above:
z Energy efficient lighting in refurbished areas of the office
and lighting which switches off automatically;
z Use of recycling in all offices – there are paper recycling
bins throughout the offices and bottles, cans and plastics
recycling bins in the kitchens;
z On-demand boiling water and cold water taps to reduce
wastage of water and power;
z Cycle to Work scheme;
z Recycling of printer cartridges in all offices;
z Printer replacements featuring double-sided printing as
standard;
z Recycling of redundant IT equipment;
z Addition of low emission car options into the company car
scheme;
z Video conferencing facilities available in main offices. This
reduces the need for travelling so helping the environment
and improving productivity;
z Teleconferencing facilities available for all staff;
z Printer review to enable more double-sided printing; and
z Increase staff awareness of environmental issues.
NCC Group’s new HQ – XYZ Building,
Manchester
The Group’s new Manchester headquarters at the XYZ
Building has been successful in addressing broader aspects
of sustainability and has achieved a strong BREEAM 2011 NC
“Excellent” certification. Key sustainability factors include:
z Primary energy consumption reduced by 28 per cent
through the utilisation and careful specification of a
combination of high-efficiency, low NOx CHP and
commercial boiler units with high-efficiency chiller and
distribution units.
z Low energy lighting is installed throughout, which is
particularly important for reducing energy consumption
within an office building.
z All materials specified for the building had a reduced
life cycle impact in terms of their CO2 emissions and
environmental degradation potential.
z All major materials were responsibly sourced with
supporting certification evidence.
z Full FSC certification achieved for all timber products used,
both in the constructed asset and site works.
z Careful specification of water consuming components
resulted in a 42.13 per cent improvement in water
consumption compared to the BRE baseline, supported by
installation of flow control devices and water leak detection
which tie in with the goals of the UK Government’s “Future
Water” Strategy for England.
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Total tCO2e
by emission
type
Electricity, heat and cooling
purchased for own use
Combustion of fuel
Greenhouse gas emissions
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 per cent over the next
three years.
Absolute carbon
emissions
(tCO2e)
Group revenue
(£m)
Carbon intensity
for whole Group
Year-on-year
carbon intensity
change
Year-on-year
carbon intensity
change (as a %)
2017
2016
2015
1550
2264
1449
233.3
209.1
129.8
6.6
10.8
11.2
(4.2)
(0.4)
0.4
(38.8)
(3.57)
3.7
On behalf of the Board
Brian Tenner
INTERIM CHIEF EXECUTIVE
18 July 2017
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GOVERNANCE
Contents
Chairman’s letter
Governance framework
Board of Directors
Operations board
Board composition and division
of responsibilities
Shareholder relations
Audit committee report
Nomination committee report
Cyber security committee report
Directors’ remuneration report:
Annual statement
Director’s remuneration policy
Annual report on remuneration
Directors’ report
Directors’ responsibilities
statement
Glossary of terms
Company information
59
61
62
64
65
71
74
82
84
86
86
87
96
108
112
170
172
The UK Corporate Governance Code embodies core
principles of accountability, transparency, probity and a
focus on long-term success. The Board firmly believes
that a business that is governed in accordance with these
principles will be a successful and well-managed business
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Chairman’s
letter
The Board is committed to creating
and maintaining a culture where strong
levels of governance thrive throughout
the organisation, specifically ensuring
that we send out consistent messages
on the core values of the Company and
acceptable behaviours from our people,
our suppliers and our advisers. We have
made good progress in moving towards
best practice and we will regularly review
the context, progress and maintenance
of these standards, for the benefit of all
of our stakeholders.
2017 Review
Governance Standards
During the latter part of the year,
shareholder and employee feedback led
the Board to carry out a comprehensive,
independent review of all aspects of
its governance. This review was led
by the Senior Independent Director,
who was supported by independent
external advisers. The review included
a comprehensive analysis of the
Company’s governance systems and
procedures.
The review highlighted that there
were weaknesses in the Company’s
governance systems and procedures
particularly in the application of many
of the Company’s policies including, but
not exclusively, expenses and social
media, the process for the instigation
and authorisation of legal claims,
where conflicts of interest existed, the
perceived independence of advisers
and the perceived lack of an open and
transparent leadership culture.
We have made good
progress in moving
towards best practice
in governance
It resulted in the creation of a
Governance Committee, chaired by the
Senior Independent Director, which
has overseen a number of changes to
the governance processes adopted
throughout the business. Actions have
included:
z changes to the composition of the
Board, including the recruitment of
an independent Chairman and an
additional Non-Executive Director
and the decision to commence an
external search for a new Chief
Executive Officer;
z a review of, and in some cases
change to, external advisers and other
suppliers;
z the initiation of a review of a number
of internal policies, including
expenses, reporting of legal cases,
use of social media and handling of
conflicts of interest.
The actions noted above will be
completed by December 2017. The
Committee also agreed a strengthening
of the senior management team and, in
consultation with the Chairman of the
Audit Committee, it was agreed that
now was the appropriate time to move
forward with the creation of an Internal
Audit and Risk Management function.
The Governance Committee has
completed its role and has now handed
over the oversight of actions to the full
Board.
Board Changes
The year ended May 2017 has been a
significant year of change for the Board.
Atul Patel, Chief Finance Officer,
resigned in August 2016 and left
the business in February 2017. In
January 2017, Paul Mitchell, Chairman,
announced his intention to resign from
the Board as Chairman of the Company
and to step down from the Board in
May 2017. Rob Cotton, Chief Executive
Officer, left the business in March
2017. An external search to appoint his
replacement has commenced.
There followed a number of new
Executive and Non-Executive Director
appointments.
Brian Tenner was appointed as Chief
Financial Officer in February 2017,
bringing substantial listed company
experience. He stepped up to interim
Chief Executive Officer, when Rob
Cotton left the business. Chris Stone
became Chairman of the Board in April
2017, initially taking on the mantle of
Executive Chairman, until a new Chief
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GOVERNANCE
Chairman’s
letter
Executive Officer is appointed. Chris
brings substantial experience of listed
and private equity owned technology
businesses. Jonathan Brooks was
appointed as Non-Executive Director in
March 2017. He has added substantial
non-executive experience in a listed
environment, as well as tech industry
experience.
Strategic Review
Alongside these changes to the Board
and in light of the deterioration in
trading in the Assurance Division during
the financial year, the Board initiated
a comprehensive Strategic Review of
NCC Group’s markets, capabilities,
opportunities and operating model. This
included a review of how the assets
and resources of the Group can be
more efficiently deployed and utilised.
The review was led by the Board and
supported by externally appointed
consultants. The results of the Strategic
Review and resulting actions plans are
set out in more detail in the Strategic
Report on pages 18 to 27.
Statement of compliance
with the UK Corporate
Governance Code
The Company measures itself against
the requirements of the UK Corporate
Governance Code 2014 (“Code”), which
is available on the Financial Reporting
Council website (www.frc.org.uk).
As noted in last year’s Directors’ report,
from June 2016 to March 2017, the
Company complied with the Code
except for:
z Provision B.2.1. The Company did not
comply with the requirement that the
Nomination Committee had a majority
of members who were independent
Non-Executive Directors. During this
time, the Senior Independent Non-
Executive Director did, however, have
a casting vote.
From April 2017 until 31 May 2017,
the Company complied with all of the
principles set out in the Code. The
exceptions noted above were addressed
with the appointment of Chris Stone
as Chairman (although he will initially
take on the role of Executive Chair
until a new CEO is appointed) and
the appointment of Debbie Hewitt,
Senior Independent Director, to Chair
the Nomination Committee, which will
continue whilst Chris Stone continues as
Executive Chair.
Chris Stone
EXECUTIVE CHAIRMAN
18 July 2017
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Governance
framework
The different parts of the Company’s governance framework
are shown in the diagram below, with a description of how they
operate and the linkages between them.
Board
The Board provides leadership and is responsible for the overall management of NCC Group, its strategy, long-term objectives and risk
management. It ensures the right Company structure is in place to deliver long-term value to shareholders and other stakeholders.
For further detail of the role of the Board see page 62-70.
Board Committees
Support the Board in its work with specific areas of review and oversight objectives and risk management. It ensures the right company structure
is in place to delivery long-term value to shareholders and other stakeholders.
Audit Committee
Primary function is to assist the
Board in fulfilling its financial and
risk responsibilities. It also reviews
financial reporting and the internal
controls in place and the external
audit process.
Nomination
Committee
Responsible for considering
the Board’s structure, size,
composition and succession
planning.
Remuneration
Committee
Responsible for determining the
overall remuneration of the
Executive Directors and the
remuneration of senior manager,
within the broader institutional
context of remuneration practice.
Cyber Security
Committee
Responsible for overseeing and
advising on cyber risk exposure of
the Group and its future cyber risk
strategy, the Group’s cyber security
breach response and crisis
management plan and the review
of reports on any cyber security
incidents.
For further information
see pages 74-75
For further information
see pages 82-83
For further information
see pages 86-88
For further information
see pages 84-85
Chief Executive
Has responsibility for managing the business and overseeing the implementation of the strategy agreed by the Board.
Operations Board
The Operations Board currently comprises the Group’s most senior business and operational executives.
It is responsible for assisting the Chief Executive in the performance of its 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
• overseeing the day-to-day running of the Company
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GOVERNANCE
Board of
Directors
Chris Stone
Executive Chairman
Brian Tenner
Interim Chief Executive Officer
Chris joined the Board as Executive Chairman
on 6 April 2017. Chris is the Chairman of
AIM listed CityFibre plc, a national alternative
provider of wholesale fibre network
infrastructure. Chris has also held various
non-executive director and chief executive
roles of listed and private equity-backed
technology companies, including being a
non-executive director of CSR plc from 2012
until its acquisition by Qualcomm in 2015.
From 2013 to 2016, he was CEO of Radius
Worldwide. Prior to this, Chris was CEO of
Northgate Information Solutions plc, a UK
listed company, from 1999 to 2011.
It is intended that Chris will become Non-
Executive Chairman once a Chief Executive
Officer has been appointed (currently
anticipated to occur in September 2017).
Brian joined the Board as Chief Financial
Officer on 1 February 2017 and was
appointed as interim Chief Executive Officer
on 1 March 2017 following the departure
of the previous Chief Executive Officer Rob
Cotton. Prior to joining NCC Group Brian held
a number of senior finance positions with
both publicly listed and private multinational
companies. Brian was previously Group
Finance Director at Renold plc from 2010
to 2016, Scapa plc from 2007 to 2010 and
British Nuclear Group from 2003 to 2007.
Brian also held a number of senior finance
roles at National Grid from 2002 to 2003.
Brian qualified as a Chartered Accountant
with PwC in 1994.
It is intended that Brian will become Chief
Financial Officer once a Chief Executive
Officer has been appointed (currently
anticipated to occur in September 2017).
Debbie Hewitt MBE
Senior Independent
Non-Executive Director
R N C A
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 is also a
Non-Executive Director of Redrow plc and
Visa Europe Limited, a subsidiary of Visa Inc.
She also holds a Non-Executive Director role
in private companies White Stuff Ltd, BGL
Group Limited and Domestic and General
Group Ltd. She was previously the managing
Director of RAC plc.
KEY:
R Member of
Remuneration Committee
N Member of
Nomination Committee
C Member of Cyber
Security Committee
A Member of
Audit Committee
Chairman
of Committee
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The Board sets the tone of the Company’s values and ethical
standards and manages the business to best meet its obligations
to shareholders and other stakeholders. The NCC Group plc Board
comprises the following Directors.
Thomas Chambers
Non-Executive Director
Christopher Batterham
Non-Executive Director
Jonathan Brooks
Non-Executive Director
A R N
A R N C
R C
A
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 Chairman
of residential energy provider Impello Plc
(trading as First Utility) and recruitment
company Propel London Ltd and a non-
executive director of Kings Arms Yard Plc
and The Universities and Colleges
Admissions Service.
Chris is a qualified chartered accountant and
was Finance Director of Unipalm plc, before
becoming CFO of Searchspace Limited until
2005. He is currently Chairman of Eckoh plc
and a non-executive director of Blue Prism
Group plc and Frontier Smart Technologies
Group Ltd.
Jonathan joined the Board on 16 March
2017. Jonathan was Chief Financial Officer
of ARM Holdings plc from 1995 until 2002
and has been a non-executive director of IP
Group plc since August 2011. He has also
held a number of senior finance and non-
executive director positions with other listed
and private multinational companies including
directorships with Aveva Group plc and FDM
Group (Holdings) plc.
The Directors who held office during FY 2017 were as follows:
Director
Role
Details
Chris Stone
Executive Chairman
Appointed April 2017. Will revert to Non-Executive Chairman when a new CEO is appointed.
Brian Tenner
Chief Financial Officer
Appointed February 2017. Became Interim Chief Executive Officer on 1 March 2017 and will revert to CFO
when a new CEO is appointed.
Debbie Hewitt
Senior Independent Director
Appointed September 2008
Chairman of Remuneration Committee
Chairman of Nominations Committee
Chairman of Cyber Security Committee
The Board notes that she will have completed nine years of service in September 2017 and in line with
best practice, she will step down from the Board when a replacement has been recruited and a handover
completed. The Board will update the market on the timing of this in due course.
Thomas Chambers Non-Executive Director
Appointed September 2012
Chairman of Audit Committee
Chris Batterham
Non-Executive Director
Appointed May 2015
Jonathan Brooks
Non-Executive Director
Appointed March 2017
Atul Patel
Chief Financial Officer
Resigned August 2016 and left the Company February 2017
Paul Mitchell
Chairman
Resigned January 2017 and left the Board May 2017
Rob Cotton
Chief Executive Officer
Resigned from the Board March 2017 and will leave the Company on 31 October 2017.
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GOVERNANCE
Operations board
ASSURANCE
This senior management team is part
of an Operations board, which typically
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.
Senior management
The senior management team detailed
right 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.
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.
ESCROW
COMPANY SECRETARY
Daniel Liptrott
Group Managing Director,
Escrow.
Helen Nisbet
Company Secretary
Helen Nisbet – Group Company Secretary.
Helen is a qualified solicitor and was
appointed as Company Secretary in 2015.
Daniel is responsible for the management and
strategic development of the Escrow Division
globally. Daniel joined the Group in November
2013 from private practice where he had
been a corporate partner at a number of
international law firms. From 2006 until 2013
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 2013.
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Board composition
and division
of responsibilities
Role profiles are in place for the Chairman and Chief Executive Officer, which clearly set out the duties of each role.
Role
Responsibilities
The Chairman
of the Board
(Chris Stone)
Is responsible for the running of the Board and promoting a culture of openness and debate.
This role is currently filled by the Executive Chair, who will become Non-Executive Chair on
the appointment of a new Chief Executive Officer. The Chairman, in conjunction with the Chief
Executive and other Board members, plans the agendas, which are issued with the supporting
Board papers in advance of the Board meetings. These supporting papers provide appropriate
information to enable the Board to discharge its duties which include monitoring, assessing
and challenging the executive management of the Group.
The Chief
Executive Officer
(Brian Tenner – Interim)
Together with the senior management team, is responsible for the day-to-day running of the
Group and regularly provides performance reports to the Board. This role is currently filled by
a combination of the Executive Chair and interim Chief Executive, with the former focusing on
external relationships and the Strategic Review and the latter on the operational management
of the business with the support of the Operations Board. The Company has initiated an
external search to recruit a new Chief Executive Officer.
The Chief
Financial Officer
(Brian Tenner)
Works closely with the CEO with specific responsibility for all financial matters including
Group accounting policies, financial control, tax and treasury management, risk management
and financial probity. The CFO is responsible for the Group’s Information Systems and
Property portfolio. The CFO is also accountable for the transparency and appropriateness of
management information and key performance indicators, internally and externally.
The Senior
Independent Director
(Debbie Hewitt)
The Senior Independent Director provides a sounding board for the Chairman and serves
as an intermediary for other Directors, employees and shareholders when necessary. The
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.
The other Non-
Executive Directors
(Thomas Chambers, Chris
Batterham and Jonathan Brooks)
Company Secretary
(Helen Nisbet)
Maintain an ongoing dialogue with the Executive Directors which includes constructive
challenge of performance and the Group’s strategy.
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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GOVERNANCE
Board composition
and division
of responsibilities
Experience of the Board
The members of the Board bring a wide range of skills and
experience to the Group. This diverse skill set allows the Board
to appropriately challenge and lead the Group’s strategy. As
noted previously, the Board consciously chose a new Non-
Executive Director with specific digital market experience in
order to meet an identified gap. The chart below summarises
their key areas of significant experience.
Strategy
development
Sales and
marketing
Human
resources
Corporate
governance
Financial
management
M&A
Professional
services
Chris Stone
Brian Tenner
Debbie Hewitt
Thomas Chambers
Chris Batterham
Jonathan Brooks
Meetings and attendance
The Board considers that each Director is able to
allocate sufficient time to the Company to discharge their
responsibilities effectively. The Non-Executive Directors are
contracted to spend a minimum of 24 days per annum on NCC
Group affairs and on average spent 40 days on Company
business during the year. Over and above this, a number of
additional days were committed by the Senior Independent
Director during the year and specifically from the period from
October 2016 to May 2017, when she led the Company’s
consultation with key shareholders, chaired the newly created
Governance Committee, which comprehensively reviewed
the standards of Corporate Governance across all aspects of
the business, chaired the Nominations Committee, as well as
overseeing the initiation of the Strategic Review. During this
period, she also led the recruitment of the new Chairman and
an additional Non-Executive Director.
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A summary of each current Director’s attendance at meetings that they were eligible to attend of the Board and its Committees
during 2017 is shown below. Unless otherwise indicated, all Directors held office throughout the year:
Board
#
Attended
Unattended
Chris Stone1
Brian Tenner2
Debbie Hewitt
Thomas Chambers
Chris Batterham
Jonathan Brooks4
Paul Mitchell5
Rob Cotton6
Atul Patel7
Audit
Remuneration
Nomination
Cyber
Governance3
#
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
#
#
*
*
n/a
n/a
n/a
n/a
n/a
*
n/a
n/a
n/a
#
#
n/a
n/a
n/a
* By Invitation.
# Committee Chair.
1
2
3
Appointed Executive Chair 6 April 2017. He will revert to Non-Executive Chair on the appointment of the new CEO.
Appointed Chief Financial Officer 1 February 2017 and interim CEO 1 March 2017 until the appointment of the new CEO.
Governance Committee created to oversee the governance review. Following the assessment of a final report and agreement of the resulting action plan,
the Committee handed responsibility for monitoring the implementation of the action plan to the main Board in April 2017, on the appointment of an
Independent Chairman.
Appointed 16 March 2017.
4
5 Chairman until 5 April 2017. Chair of Remuneration Committee until 18 January 2017.
6 CEO until 1 March 2017.
7 CFO until 1 February 2017. Stepped down from Board following resignation on 10 August 2016.
Independent advice
All Directors have access to the advice and services of
the Company Secretary and Directors are entitled to take
independent professional advice if necessary, at the expense
of the Company.
Conflicts of Interest
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.
During the year, the Audit Committee approved corporate
finance fees payable to Rickitt Mitchell & Partners Ltd of £0.3m
(2016: £0.8m) in relation to disposal of the OpenRegistry Group
of companies and other M&A activity. Paul Mitchell, who was
Chairman of NCC Group plc until April 2017 and who is the
Non-Executive Chairman of Rickitt Mitchell, was excluded from
all discussions on the approvals of fees.
Directors’ and Officers’ liability (D&O)
insurance
The Company maintains D&O insurance to cover the cost
of defending civil proceedings brought against them in their
capacity as a Director or Officer of the Company (including
those who served as Directors or Officers during 2016).
Board independence
As required by the Code, at least 50% of the Board, excluding
the Chairman, are independent Non-Executive Directors; the
Board comprises two Executive Directors, four independent
Non-Executive Directors and the Non-Executive Chairman
(currently an Executive Chairman and one of the Executive
Directors referred to above).
Paul Mitchell, the Chairman from June 2016 to April 2016,
did not comply with the assessment of independence as he
had served as Chairman for 17 years and did not meet the
requirements for the Chairman to be independent. The Board
considered this and put safeguards in place where this could
impact his role. For areas where independence was deemed
to be key to any decision making, the Senior Independent
Non-Executive Director was able to assume that position of
responsibility where necessary and had the casting vote in the
event of a split decision.
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GOVERNANCE
Board composition
and division
of responsibilities
Chris Stone was recruited as independent Non-Executive
Chairman in April 2017, and has temporarily taken up the role
of Executive Chairman, whilst the Company recruits a new
Chief Executive. The Board is satisfied that on appointment
Chris Stone was independent as he met the criteria specified
below.
The Board has debated and considers that all of the other
current Non-Executive Directors are independent, and in so
doing considered the profile of all of the individuals, concluding
that none of them:
z has ever been an employee of the Group;
z has ever had a material business relationship with the
Group or receives any remuneration other than their salary
or fees;
z has close family ties with advisers, other Directors or
senior management of the Group that could reasonably be
expected to cause a conflict;
z holds cross-directorships or has significant links with other
Directors through involvement with other companies or
bodies;
z represents a significant shareholder; or
z has at the point of this report, served on the NCC Group
Board for more than nine years from the date of their first
election.
The Board notes that Debbie Hewitt, Senior Independent
Director will have completed nine years on the Board in
September 2017. The Board considers Debbie to remain fully
independent in her character, judgement and approach. It is
the Board’s intention that she will remain in role to provide
continuity whilst any changes that come from the strategy
review are implemented, which is currently anticipated as some
time during 2018. In the meantime, the Company will continue
to search for an additional Non-Executive Director to provide
for her succession.
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 experience to the Group.
Details of the Directors’ respective experience is set out in
their biographical profiles on pages 62 to 63.
The terms and conditions of appointment of Non-Executive
Directors are available for inspection at the Company’s
registered office during normal business hours.
Diversity
The principle of Board diversity is strongly supported by the
Board. It is the Board’s policy that appointments to the Board
will always be based on merit so that the Board has the right
balance of individuals in place. The Board recognises that
diversity of thought, approach and experience is an important
consideration and is therefore one of the selection criteria
used to assess candidates prior to any Board appointments.
The Company’s policy is to find, develop and maintain a diverse
workforce at all levels and it is committed to developing a
culture where women can achieve and retain senior positions.
The table below sets out the current position of the Company
on a gender basis:
Main Board
Operations
Board
Male 83%
Female 17%
Male 92%
Female 8%
Direct
Reports to
Operations
Board
NCC
Employees at
31 May 2017
Male 78%
Female 22%
Male 80%
Female 20%
Given the relatively small size of the Board, it would not seem
appropriate to impose specific formulaic gender or diversity
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.
Annual re-election
In accordance with the Code, the Directors appointed in the
financial year ended 31 May 2017 are subject to election by
shareholders at the AGM in September 2017 and, in line with
best practice, all others are subject to re-election annually.
Director induction, training and
development
Brian Tenner, Jonathan Brooks and Chris Stone joined the
Board during the year and were provided with an induction on
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Stock Code: NCC
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appointment, which included visits to the Group’s operations
and meetings with operational and executive management.
Each Director’s induction is tailored to their experience and
background with the aim of enhancing their understanding
of the Group’s business, the operating divisions, employees,
customers, suppliers and advisers and the role of the Board in
setting the tone of our culture and governance standards.
The Company acknowledges the importance of developing
the skills of the Directors to run an effective Board. To
assist in this, Directors are given the opportunity to attend
relevant courses and seminars to acquire additional skills
and experience to enhance their contribution to the ongoing
progress of the Group. All of the Directors attend sessions
which are aimed at updating the Board on trends and
developments in corporate governance.
Board and Committee effectiveness review
The performance of the Board and its committees are
appraised annually and in 2017, it was scheduled for an
independent review of the Board to be completed. However,
due to the number of Director changes in the year, it was
agreed that an independent committee evaluation would be
deferred until the Board has had time to form and establish
performance and behavioural norms. An internal effectiveness
review was completed instead for the year ending 2017.
The evaluation identified changes which would improve the
working of the Board, including:
z Board succession and the need to manage NED
succession over the coming year, including the
enhancement of the Board with two additional Non-
Executives:
— one with Audit Committee experience;
— one with Remuneration Committee experience; and
— ideally one of these also to have specific ‘digital’ industry
experience.
z The appointment of Jonathan Brooks in March 2017 met
the objectives in respect of Audit Committee experience
and digital industry experience.
Director being appraised
Appraiser
z Strengthening of the Senior Management team, to reflect
the outputs of the Governance Committee. The specific
actions, including the appointment of an HR Director to the
Operations Board, will be developed and implemented on
the appointment of a Chief Executive Officer.
z Enhancement to the Board Management Information
pack, to more closely align with the strategy, customer and
operational metrics of the business.
— This new structure will be developed in line with the
new Target Operating Model set out on pages 19 to 23
of the Strategic Report. It will include aligned KPIs that
map to our short and medium-term strategic goals and
objectives.
During the year, each of the Audit Committee, Remuneration
Committee, Nomination Committee and Cyber Security
Committee carried out an internal self-evaluation on their
effectiveness. A number of recommendations were made,
including the creation of an internal Audit function by the
Audit Committee, the initiation of a process to provide for
the Remuneration Committee Chair succession by the
Remuneration Committee. The Nomination Committee
recommended that the Board should undertake a broader
review of management talent and succession planning across
the business in 2017/18 and the Cyber Security Committee
concluded that the committee should be renamed the Risk
Committee and that its terms of reference should embrace all
aspects of risk, not just cyber risk, as operational elements of
risk are inextricably linked to cyber. As such, this Committee
will be renamed the Risk Committee going forward.
Individual Director appraisals process
During the year, 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.
Going forward, appraisals have been or will be carried out by
the following individuals:
Chairman
Reviewed by the Non-Executive Directors, excluding the Chairman, and feedback facilitated by the
Senior Independent Non-Executive Director.
Chief Executive Officer
Reviewed by all of the Non-Executive Directors and CFO and feedback facilitated by the Chairman.
Chief Financial Officer
Non-Executive Directors
Reviewed by all of the Non-Executive Directors and feedback facilitated by the Chief Executive
Officer and Chairman.
Reviewed by the Executive Directors and by their Non-Executive Director peers and feedback
collated and given by the Chairman.
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GOVERNANCE
Board composition
and division
of responsibilities
Operation of Governance Framework
Role of the Board
The Board is responsible for reviewing, challenging and
approving the strategic direction of the Group, whilst providing
strong values based leadership of the Company, within a
framework of prudent and effective controls, which enable risk
to be assessed and appropriately managed. The Board reviews
the Group’s business model and strategic objectives to ensure
that the necessary financial and human resources are in place
to achieve these objectives, to sustain them over the long-term
and to review management performance in their delivery.
Risk Management
The Board has ultimate responsibility for ensuring the business
risks are effectively managed. The Board has delegated
regular review of the risk management procedures to the Audit
Committee and collectively reviews the overall risk environment
on an annual basis. The day-to-day management of business
risks is the responsibility of the senior management team
through the Operations Board. For a more detailed review of
risk management processes, the principal risks faced by the
Group and their mitigation, as well as a risk ‘heat map’ see
pages 48 to 53.
Internal control
The Group has a system of internal controls which aim to
support the delivery of the Group’s strategy by managing the
risk of failing to achieve business objectives and to protect the
stewardship of the Group’s assets. As such the Group can only
provide reasonable and not absolute assurance.
In addition, the Group insures against various risks, but certain
risks remain difficult to insure, due to the breadth and cost
of cover. In some cases, external insurance is not available at
all, or not at an economical price. The Group regularly reviews
both the type and amount of external insurance that it buys
and in 2017 retendered the Group’s insurance policies.
Executive Remuneration
During the year, we continued to operate within the
Remuneration Policy that was put to a binding shareholder
vote at the 2014 AGM. This policy was adopted for three
years. As this period is coming to an end, the Committee has
now reviewed the policy to assess its appropriateness and
alignment to the business strategy and has consulted with
shareholders and shareholder advisory groups on its proposed
changes. These proposed changes are summarised in the
Remuneration Committee report on pages 88 to 91.
The Board sets the tone of the Company’s values and ethical
standards and manages the business in a manner to meet its
obligations to shareholders and other stakeholders.
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:
z approval of strategic plans, annual operating plans and any
material changes to them;
z oversight of the Group’s operations ensuring competent and
prudent management, sound planning, an adequate system
of internal control and governance;
z through the Audit Committee, oversight of financial
reporting systems and information and adherence to
appropriate accounting policies;
z changes to the structure, size and composition of the Board
and Operating Board, oversight of the Company culture and
ethical standards of the leadership and the independence
of Non-Executive Directors, taking into consideration
prudent succession planning;
z approval of the acquisition or disposal of subsidiaries and
major investments and capital projects;
z approval of the dividend, treasury and banking policies,
including the Group’s capital structure;
z through the Remuneration Committee, the delivery of an
effective Executive Remuneration Policy;
z 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; and appointment of key advisers.
The Board has reviewed this schedule during the year and
added specific matters where they feel it is critical to the
ongoing success of the business.
As noted above, the operational management of the Group
is delegated to the Operations Board of NCC Group. The
Board also delegates other matters to Board committees and
management as appropriate.
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Shareholder
relations
Share capital structure
The Company’s issued share capital at 1 June 2017 consisted
of 276,510,137 ordinary shares of one pence each. There are
no special control rights or restrictions on share transfer or
special rights pertaining to any of the shares in issue and the
Company does not have preference shares. During the year
452,589 new shares were issued under the Company’s all
employee Save As You Earn scheme.
As far as is reasonably known to management, the Company
is not directly or indirectly owned or controlled by another
Company or by any government.
Board engagement with shareholders
Communications with shareholders are given high priority.
There is a regular dialogue with institutional investors including
presentations after the Company’s year-end and half year
results announcements. A programme of meetings take place
throughout the year with major institutional shareholders and
private shareholders have the opportunity to meet the Board
face-to-face and ask questions at the Annual General Meeting.
During the financial year the Directors held the following
meetings with shareholders:
In addition to the Board’s regular engagement with
shareholders in 2017, the Senior Independent Director
consulted with major shareholders on the Board structure,
the performance of key executives and the decision to
implement a full strategic review. The Senior Independent
Director held 18 one-on-one meetings and 26 phone calls with
investors on such matters during the year. The Remuneration
Committee consulted with 15 institutional shareholders and
three shareholder advisory groups during April and May 2017
to discuss the future Remuneration Policy and subsequently
advised shareholders in writing of the proposed changes.
Board shareholder updates
Feedback from major institutional shareholders is provided to
the Board on a regular basis and, where appropriate, the Board
takes steps to address their concerns and recommendations.
Substantial shareholdings
As at 17 July 2017, the Company had been notified of the
following interests of 3% or more in the issued share capital
of the Company under the UK Disclosure and Transparency
Rules:
Investor meetings
(FY2016/17 results roadshows)
One-to-one
meetings
81
Conference
calls
13
Group
meetings
3
Number of meetings
per institutional investor
1-2
meetings
42
3+
meetings
21
150+ investor meetings
and calls during FY2016/17
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GOVERNANCE
Shareholder
relations
Shareholder
Montanaro Asset Management
Neptune Investment Management
Number of
ordinary shares
2017
% of NCC’s total
share capital
2017
% of NCC’s total
share capital
2016
2016
21,745,000
21,060,760
17,632,559
–
Legal And General Investment Management
15,207,286
12,221,443
RWC Partners
Schroder Investment Management
Baillie Gifford & Co
Artemis Investment Management
Aberforth Partners
Fidelity Management & Research
Fidelity Management & Research
Total above
13,784,443
5,413,992
11,508,326
2,175,000
11,389,759
7,046,188
10,439,726
971,009
10,118,502
9,735,500
9,065,956
120,891,557
–
–
–
–
7.86
6.38
5.50
4.99
4.16
4.12
3.78
3.66
3.52
3.28
7.64
–
4.43
1.96
0.79
2.55
0.35
–
–
–
40.45
17.72
There have been no notifications under DTR 5 between the date of the information in this table and 18 July 2017 when the
Annual Report and Accounts were signed.
As at 1 June 2017
Location of investors
Type of investor
UK
North
America
Europe
(ex UK)
8.53%
4.75%
Unidentified
0.31%
Unanalysed
-5.83%
Rest of World
0.0%
80.92%
92.94%
Domestic
Institutions
Foreign
Institutions
Private
Stakeholders
/Investors
Hedge
Funds
Domestic
Brokers
Employees
etc.
Foreign
Brokers
13.07%
5.60%
5.97%
2.95%
0.42%
0.17%
Unanalysed
-9.42%
Unidentified
0.31%
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Directors’ shareholdings
For details of Directors’ shareholdings, remuneration and
interests in the Company’s shares and options, together with
information on service contracts see pages 86 to 107 of the
Directors’ remuneration report.
Annual General Meeting
The Annual General Meeting (AGM) is an opportunity for
shareholders to vote on certain aspects of Group business
and provides a useful forum for one-to-one communication
with private shareholders. At the AGM shareholders receive
presentations on the Company’s performance and may ask
questions of the Board. The Chairman seeks to ensure that
the Chairmen of the Audit, Remuneration and Nomination
Committees are available at the meeting to answer questions
and for all Directors to attend.
The table below shows the different resolutions proposed at
the 2016 AGM, the proportions of possible votes that were
cast and the proportions in favour and against each resolution
(resolutions 1 to 11 and resolution 16 were passed as ordinary
resolutions and resolutions 13 to 15 were passed as special
resolutions).
1. To receive the report and accounts
212,807,417
99.14
1,842,830
2. To approve the Directors’ remuneration
212,330,807
98.92
2,312,857
Votes for
% Votes against
%
0.86
1.08
Total votes
cast
214,650,247
214,643,664
report (other than the Directors’
remuneration policy)
3. To declare a final dividend of 3.15p
212,869,790
99.16
1,792,830
0.84
214,662,620
per share
4. To reappoint the auditors
5. To authorise the Audit Committee to
determine the auditors’ remuneration
214,662,235 100.00
214,662,235 100.00
0
0
0.00
0.00
214,662,235
214,662,235
6. To re-elect Rob Cotton as a Director
213,897,646
99.64
764,589
0.36
214,662,235
% of issued
share capital
voted
77.77
77.76
77.77
77.77
77.77
77.77
Votes
withheld
12,373
18,955
0
385
385
385
7. To re-elect Paul Mitchell as a Director
206,311,727
98.99
2,094,840
1.01 208,406,567
75.51 6,256,052
8. To re-elect Debbie Hewitt as a Director
204,777,479
99.34
1,355,128
0.66
206,132,607
74.68 8,530,013
9. To re-elect Thomas Chambers a Director
214,607,951
99.99
25,410
0.01
214,633,361
77.76
29,259
10. To elect Chris Batterham as a Director
202,718,418
96.97
6,329,999
11. To authorise the Directors to allot shares
196,451,231
91.52
18,211,004
13. To authorise the Directors to disapply
209,195,089
97.45
5,467,146
3.03
8.48
2.55
209,048,417
214,662,235
214,662,235
75.74 5,614,203
77.77
77.77
385
385
pre-emption rights up to 5% of the issue
share capital
14. To authorise the Directors to disapply
187,846,573
87.51
26,800,482 12.49
214,647,055
77.77
15,565
pre-emption rights for an additional 5%
in relation to an acquisition or capital
investment
15. To authorise the purchase of own shares
pursuant to s.701 of the Companies Act
2006
211,548,597
98.55
3,114,023
1.45
214,662,620
77.77
16. To reduce the notice period required for
209,001,515
97.36
5,661,104
2.64
214,662,619
77.77
General Meetings
17. To approve the adoption of the NCC Group
0
0
International Sharesave Plan
214,653,473 100.00
2,162
0.00
214,655,635
77.77
6,985
The 2017 AGM will be held at 9.00 am on Thursday 21 September 2017 at the offices of DLA Piper UK LLP, 1 London Wall,
London, EC2Y 5EA. The notice convening this meeting has been sent to shareholders at the same time as publication of this
Annual Report and Accounts and is available at www.nccgroup.trust/uk/about-us/investor-relations/.
By order of the Board
Chris Stone
EXECUTIVE CHAIRMAN
18 July 2017
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GOVERNANCE
Audit
committee report
The Audit Committee has had a
busy year helping the business and new
management team get to grips with the
complexities of the Group
The Audit Committee’s Key Objectives
The purpose of the Audit Committee is to assist the Board
in the discharge of its fiduciary duties of stewardship of
the Group’s assets. The Committee particularly focuses on
systems and processes of management control, the reporting
of internal management information, and externally reported
financial information. The Committee also provides a forum for
reporting by the external auditors.
an audit, the accounting and audit judgements made,
the level of any errors identified during the audit and the
effectiveness of the audit process itself;
z Reviewing the effectiveness of the Group’s internal control
systems;
z Reviewing the nature and extent of significant financial
risks and how they can be mitigated;
z Making recommendations to the Board in relation to the
appointment of the external auditors, approving their
remuneration and terms of engagement;
z Overseeing the relationship with the external auditors
including, but not limited to, assessing their independence,
objectivity and effectiveness; and
z Reporting to the Board on the procedures for responding to
whistle-blowing, fraud or potential breaches of anti-bribery
legislation.
A full copy of the Committee’s Terms of Reference can be
found in the Investor Relations section of the Group’s website
at www.nccgroup.trust/uk/about-us/investor-relations.
The Audit Committee’s Responsibilities
The Committee’s main responsibilities include:
Activities during the Year
This year, the Committee:
z Monitoring the integrity of the financial statements and any
formal announcements relating to the Group’s financial
performance and their compliance with the provisions of
IFRS, the UK Corporate Governance Code, Disclosure and
Transparency Rules and other regulations;
z Reviewing material information and significant accounting
judgements contained in it;
z Advising the Board on the continuing appropriateness of
the Group’s existing accounting policies and the application
of any new or modified accounting and reporting standards;
z Advising the Board on the effectiveness of the processes
undertaken to ensure that the Annual Report and
Accounts, when taken as a whole, is fair, balanced and
understandable;
z Reviewing the audit findings with the external auditors
including discussing any major issues that arise during
z Reviewed and challenged a number of additional trading
statements;
z Supported new Board members in their onboarding process
as well as assisting employees carrying on additional
interim duties;
z Sponsored additional review and detailed testing of financial
components identified as of concern to stakeholders (such
as revenue recognition and accrued income);
z Supported management in the overhaul and upgrade of
our Annual Report and Accounts and financial disclosures
generally.
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Composition
The Audit Committee is chaired by me, a Chartered
Accountant of 30 years’ standing. I have previously served
as the Chief Financial Officer of two companies operating
in the telecommunications sector including Symbian Limited
(developer of operating systems for Smartphones). I also have
experience as a Director of publicly listed entities. My earlier
career included roles with Kleinwort Benson corporate finance
and accountants Price Waterhouse. The Board considers that
I have the recent and relevant experience required by the UK
Corporate Governance Code 2014.
The other members of the Committee who served throughout
the year are the senior independent Non-Executive Director,
Debbie Hewitt, who has a wide range of relevant business
experience in a number of publicly listed entities and Chris
Batterham, a Chartered Accountant who has served as a Chief
Financial Officer in a number of companies, including some
in the digital world. In addition, Jonathan Brooks, who joined
the Board in March 2107, was appointed to the Committee
at the end of June 2017. All members of the Committee are
considered to be independent.
Summary biographies of each member of the Committee are
included on pages 62 to 63.
Meeting Frequency and Attendance
The Terms of Reference for the Committee require at
least three meetings per year. During this financial year
the Committee met 3 times. As well as the members of
the Committee, the meetings are usually attended by the
Chairman, the other Non-Executive Directors, the Chief
Executive and the Chief Financial Officer. The external auditors
also attend each meeting. During the year the Committee met,
on a number of occasions, with the external auditors without
the Executive Directors being present.
The attendance of individual Committee members at Audit
Committee meetings is shown in the table below:
Attended
Unattended
Meetings attended
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:
z the appropriateness of the accounting policies used;
z significant areas of management judgement or estimation;
z compliance with external and internal financial reporting
standards and policies;
z disclosure and presentation of GAAP and non-GAAP
information;
z the requirement for a formal internal audit function; and
z whether the Annual Report and Accounts taken as a
whole is fair, balanced and understandable and provides
the information necessary to assess the Group’s financial
position, 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 judgements included in the financial statements.
Significant accounting areas and areas of
significant management judgement
The table below summarises some of the significant
accounting issues and judgements that the Committee
considered during the year in relation to the Financial
Statements. These are identified as recurring items that the
Committee regularly reviews and items of current year focus.
The table also sets out the financial context and potential
impact of each item as well as the impacted KPIs. Finally, the
table shows the degree of judgement that the Committee
feels has to be applied for each item. Items with a significant
impact but with a “low” judgement level will typically have
extensive independent third party evidence of the bases for
any judgement. Areas assessed as requiring a “high” level of
judgement tend to rely more heavily on management estimates
and historical trends than extensive independent third party
evidence.
Thomas Chambers
Debbie Hewitt
Chris Batterham
Jonathan Brooks
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GOVERNANCE
Audit
committee report
Review items
Goodwill carrying values
(recurring)
Relevance to the
Financial Statements
Group net assets £212.1m
Goodwill value £198.7m
Related KPIs
Net assets
Intangible asset carrying values
(recurring)
Group net assets £212.1m
Intangible assets value £267.6m
Net assets
EBIT margin, Adjusted results
Accounting for business combinations
(recurring)
Acquisition consideration £20m
Fair value adjustments £0.5m
Exceptional charges
Asset valuations
Revenue recognition and accrued
income
(current year focus)
Revenue £244.5m
EBIT (£53.4m)
Accrued income £17.7m
Individually significant items
(recurring)
Net charges (£71.0m)
EBIT loss (£53.4m)
Recoverability of working capital
(current year focus)
Total working capital £2.5m
Net assets £221.1m
Taxation
(current year focus)
Tax charge £1.3m
Loss after tax (£56.6m)
Holiday pay provision
(current year focus)
EBIT (£53.4m)
Holiday pay provision £3.3m
Net assets £212.4m
Revenue and growth rates
EBIT and EBIT margin
Adjusted results
EBIT and EBIT margin
Net working capital ratio
Free cash flow
Profit after tax
Earnings per share
Effective tax rate
EBIT and EBIT margin
Net Assets
Judgement
required
High
High
Medium
Low
Medium
Low
Low
Low
A more detailed explanation of each item is included in the
paragraphs below.
Goodwill carrying value
(recurring item: see note 11 to the financial statements)
The Group has made a number of acquisitions in recent years,
including two in 2016-17 and one more of significant scale
in each of the previous two years. At the start of the current
financial year, the Group had Goodwill of £224.3m.
In accordance with IAS 36, management has determined
appropriate cash generating units (CGUs) on which to base
the annual impairment review for goodwill and indefinite-lived
intangible assets by comparing the recoverable amount to the
carrying value. Impairment reviews are based on discounted
future cash flow models that can contain a significant degree
of management judgement in terms of the basis of the CGUs,
the associated forecast cash flows, the appropriate growth
rates to apply to revenues and margins, and the discount rates
to be used.
The Committee has reviewed the rationale used to determine
the cash generating units and assumptions used in future cash
flows that underpin the valuation of goodwill. The CGUs used
in the review of Goodwill changed during the year. This reflects
the outcome of the Strategic Review that led to an updated
management view of the lowest appropriate level of asset
groupings that generate separately identifiable cash inflows.
This is set out in more detail in note 11 to the Accounts.
The Committee is satisfied that the revised CGU
categorisation is an accurate reflection of both the
independently generated cash inflows and the way that
the businesses are now managed and reported within the
Group. The Committee is also satisfied that the cash flows
and discount rates used in the valuations are neither overly
optimistic nor overly conservative and represent management’s
best estimate of the recoverable value of the goodwill in the
relevant CGUs.
The conclusion of this year’s review was to impair the goodwill
relating to the Accumuli acquisition by £24.3m (of the
acquisition total of £51.6m) and in respect of the acquisition
of Fox-IT by £24.3m (of the acquisition total of £70.9m).
Historical goodwill of £7.9m in respect of the acquisition of our
Web Performance business was also impaired by £5.7m. More
details on the background to the performance and prospects
of the Fox-IT and Accumuli acquisitions can be found in the
Strategic Report on page 44 and in note 11 to the financial
statements.
Intangible assets carrying value
(Including acquired intangibles, software and capitalised
development costs) (recurring item: see Note 11 to the
financial statements).
The total value of acquired intangible assets at the start of the
year was £49.7m. The movements in this balance during the
year are set out in note 11 to the financial statements. While
certain amounts were written off the carrying value of goodwill
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in the Web Performance, Accumuli and Fox-IT businesses, no
impairments were needed in respect of the acquired intangible
assets in these businesses or in any other CGU.
The Group continues to incur external and internal costs on
the Group’s own information systems including a Group-wide
finance system. These are referred to as ‘Software intangibles’.
Total costs of £3.7m have been capitalised in the year offset by
amortisation charges of £1.7m and a reclassification of £6.6m to
produce a net book carrying value, including software licences,
at the end of the financial year of £9.0m (2016: £17.7m).
The Group is also undertaking a number of development
projects aimed at producing new products and services. These
activities are collectively referred to as ‘Development’ costs
and where IFRS recognition criteria are met, costs incurred
are capitalised. Total costs of £3.7m have been capitalised in
the year plus a reclassification of £6.6m offset by amortisation
charges of £1.7m and impairment charges of £7.8m (see below
for more detail) to give a closing net book value of £10.2m.
A key part of the investment in the current year has been
the continued development of the Fox-IT and NCC Group
technologies to expand the High Assurance range of products
and to operate the Threat Intelligence and Managed Services
Platforms. These products and platforms are in use in the
business today and generate returns that support their carrying
values.
The Web Performance business has a number of capitalised
development projects driven by income generating services
sold in the market. In two of these, revenue growth has been
slower than anticipated and therefore impairments have been
recognised totalling £3.2m. In one case, due to the expected
time to reach a break-even cash flow, the entire asset has
been impaired and in future no further costs in relation to the
project will be capitalised. Instead they will be charged in full
to the P&L. The estimated impact on EBIT in the new financial
year will be an additional operating charge of £0.6m.
In the prior year, £6.9m of capitalised developments costs,
infrastructure and know-how were written off in respect of
the discontinued Domain Services division. At the time of
the disposal of the Open Registry businesses in January
2017 and the associated exit from Domain Services, certain
specific assets were retained within the Group. The total value
of retained assets as at 31 May 2016 was £4.2m of which
£2.3m related directly to the ownership of the TLD .trust
with the balance relating to a software tool (‘CMS’) that was
originally intended for use in Domain Services. Following the
cessation of Domain Services, the carrying value of TLD .trust
is in question. Given uncertainty as to any recoverable value,
the decision has therefore been take to write the asset value
down to zero. At the same time, it is not felt that CMS tool will
be used in the business in future and has similarly been written
off in full.
Accounting for business combinations
(recurring item: see note 16 to the financial statements)
The Group is required to identify the fair value of all assets
and liabilities at the time of acquisition including assets and
liabilities that were not necessarily included on the acquired
business’s balance sheet. The process of assessing fair value
involves estimates and judgements based on expected future
cash flows. These estimates are therefore inherently uncertain
to a greater or lesser extent.
In the current year the Group acquired PSC in September
2016 and VSR in November 2016. Management completed
the exercises to determine the fair value of intangible assets
and other net assets acquired in both of these acquisitions in
accordance with IFRS 3.
The Committee has reviewed a summary of the key
assumptions adopted and compared these to other recent
acquisitions. We have also discussed with our external
auditors, KPMG, the accounting for acquisitions and the
related disclosures to ensure that they are complete, accurate,
understandable and compliant with IFRS 3. The Committee
is satisfied that the values and disclosures around the
acquisitions are appropriate.
Revenue recognition and accrued income
(current year focus item: see note 1 to the financial
statements)
During the year, reflecting the upcoming change in revenue
recognition rules in 2019 (FRS 15) the reliance on manual
processes and controls within the business, and the inherent
risks around revenue recognition more generally, the
Committee decided to review the basis and methodologies
used to recognise revenue in the Group.
The Committee commissioned a detailed data analytics
exercise by an independent firm of chartered accountants to
review the underlying transactions for revenue recognition
and the movements in and out of accrued and deferred
income. Revenue transactions were also traced through to
cash receipts. The broad conclusion of this exercise was that
despite the over-reliance on manual systems and processes,
no material systematic issues or errors were identified with the
substance of reported revenue in the major business units in
the current and previous years.
However, it was noted that on occasional instances in the
Escrow Division, where invoices had already been issued
and paid by the customer, that revenues had been incorrectly
recognised in advance of the provision of the service. The
impact of these instances on the financial statements was not
considered material and more robust procedures have since
been established.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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GOVERNANCE
Audit
committee report
Individually significant items
(current year focus item: see note 3 to the financial
statements)
Taxation
(current year focus item: see note 8 to the financial
statements)
Exceptional items by their nature and scale could have a
significant impact on the reporting of ‘adjusted’ items such
as Adjusted EBITDA, Adjusted EBIT and Adjusted EPS. It is
critical that these are properly categorised in order to allow a
user of the financial statements to form an accurate picture of
the underlying performance of the business. The Committee
challenged management to provide the rationale for the
treatment of certain costs as exceptional. The Committee
has also challenged management on the use of ‘Adjusted’
or non-GAAP reporting metrics. All ‘Adjusted’ metrics are
fully disclosed and reconciled to GAAP measurements in the
Financial Statements.
Following this review and challenge to management,
the Committee concluded that the items that have been
designated as exceptional and hence excluded from ‘Adjusted’
measures of performance, were sufficiently material and
unrelated to the underlying business to be properly classified
in this way.
Recoverability of working capital
(current year focus item: see note 21 to the financial
statements)
During the year, the Committee decided to perform some
additional reviews of the Group’s working capital balances.
In part, this reflected external stakeholder concerns over
a perceived deterioration in cash flows relating to working
capital, including accrued and deferred income. The
Committee’s review therefore considered two different
questions: firstly, were the working capital balances expected
to be fully recoverable and, secondly, was the management
of working capital as effective as it might be for a Group
of this size.
On the first question, the Committee concluded that the
Group’s working capital balances were fully recoverable at
their stated amounts. On the second, measures were identified
to improve the effective management of working capital and
these are discussed further in the Strategic Report.
As part of the publication of the Interim Results in January
2017, a significant rise was projected for the Group’s full year
Adjusted Effective Tax Rate, from the prior year rate of 22% to
a new level of 31%. The actual Adjusted Effective Tax Rate for
the year ended 31 May 2017 was 29.3% (2016: 22%).
The projected and actual rates differ in part due to reported
performance in different tax jurisdictions varying against
expectations at the time of the Interim Results.
However, in addition, it has been identified that the scale
and complexity of the Group requires an improvement in the
management and control of the Group’s tax affairs.
Executive management have now appointed a Group Tax and
Treasury Manager to look after the Group’s international tax
affairs. The role will continue to be supported by the incumbent
tax advisory firms, to target two objectives:
z firstly, to ensure that the Group’s more complex and growing
international footprint is fully compliant with all local
legislation and transfer pricing regulations; and
z secondly, that the Group’s tax affairs are managed in as
effective a way as possible while adhering to a low risk
appetite for tax planning activities.
Holiday pay provision
(current year focus item: see note 3 to the financial
statements)
During the year, the Committee was made aware that there
was an inconsistency in the application of the requirements
of IAS 19R Employee Benefits across the Group. A number
of major business units were not making provision for earned
but not taken holiday entitlement for employees at the balance
sheet date. This inconsistency had been previously highlighted
by the auditors, though at that time the additional provisions
required were considered not to be material to the Group and
so were not adjusted for.
After due consideration, the Committee recommended the
consistent application of IAS 19R across the Group henceforth.
This had the effect of creating an opening IAS 19R provision of
£1.8m. This has been disclosed as an exceptional item since
it does not relate to the underlying business performance in
the current year. When added to the £0.7m normal operating
charge in the current year and the amount already accrued, the
total closing balance sheet provision as at 31 May 2017
is £3.3m.
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z regular internal audits of key processes and procedures
under the Group’s ISO 9001 and ISO 27001 accredited
quality assurance process;
z 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 Group’s non cyber security risks are monitored by the
Board which sets aside time for an in-depth discussion
of notable or changing risks to the business. A detailed
description of the Group’s Risk Management processes and
controls is set out in the Strategic Report on pages 48 to 53.
Whistle-blowing and confidential reporting
procedures
The Group operates a confidential reporting and whistle-
blowing procedure (known as our ‘Open Door Policy’). The
policy aims to support the stewardship of the Group’s assets
and the integrity of the financial statements as well as
protecting staff welfare. The procedure is reviewed annually by
the Committee to ensure that it remains fit for purpose.
During the current year review, the Committee has decided
to enhance the procedure by appointing an independent third
party reporting agent to be the first point of contact for those
who do not wish to use normal internal line management
channels for reporting their concerns. This will be advertised
internally via staff notice boards and our intranet.
The Committee reviews any whistle-blowing or confidential
reporting of concerns raised during the year with respect
to their nature, scale and any associated or consequential
risks. During the year, the Committee reviewed the results
of an independent review of whistle-blowing matters carried
out under the direction of the Senior Independent Director.
The Committee discussed the outcome of that review and
was satisfied that the Company’s response in each case was
appropriate. The Committee was also satisfied that there
were no implications for the integrity of the Group’s Financial
Statements and that no other changes were needed to the
policy and procedure besides the adoption of a third party
reporting mechanism.
Internal Audit
Historically, whilst the Group did not consider it necessary to
have its own internal audit function, this position was being
reviewed annually. In consultation with executive management,
it has been decided that the scale and complexity of the
Group’s operations means that now is an appropriate time to
create an internal audit function. The Group has appointed
a Director of Risk and Assurance, who joins us in the new
financial year and will be responsible for internal audit, the
assurance of other quality systems and processes, and
further embedding risk management processes throughout
our operations. In the short term, the role will also focus on
advising management in the design of appropriate internal
controls that support the implementation of our new business
processes and systems.
During the financial year, the main item of internal audit type
work undertaken was in respect of revenue recognition as
discussed earlier in this report.
Internal controls and Risk Management
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
but 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
Committee and Board:
z defined management structure and delegation of authority
to Committees of the Board, subsidiary boards and
associated business units;
z recruitment standards and career development and training
to ensure the integrity and competence of staff;
z anti-bribery, security and compliance training;
z information provided to management covering financial
performance and key performance indicators, including
non-financial measures;
z a detailed budgeting process where business units prepare
plans for the coming year;
z procedures for the approval of capital expenditure and
investments and acquisitions;
z monthly operational reviews to monitor and re-forecast
results as required against the annual operating plan, with
major variances followed up and management action taken
where appropriate;
z clearly documented internal procedures set out in the
Group’s ISO 9001:2008 accredited quality manual;
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GOVERNANCE
Audit
committee report
Review of the Audit Committee’s
effectiveness
The Committee has reviewed and considered the effectiveness
of its performance during the year. The review included the
views of members of the Committee and of regular attendees
at the various meetings (including the Executive Directors). I
am satisfied that the degree of rigour and challenge applied
in performing the Committee’s responsibilities is appropriate,
effective and continues to improve.
External auditors effectiveness and
appointment
The Committee reviews and makes recommendations
regarding the reappointment of the external auditors
following a formal review of the auditors’ performance
following the June Audit Committee meeting. In making these
recommendations the Committee considers:
z the experience, industry knowledge and expertise of the
auditors;
z the scope and planning of the audit and any variations from
the plan;
z the quality of the processes adopted;
z the fees charged;
z their attitude to and handling of key audit judgments;
z their ability to challenge and communicate effectively with
management; and
z the quality of the final report.
During the financial year, I attended regular meetings with
KPMG’s engagement partner without management being
present. This provided the opportunity for open dialogue. The
engagement partner demonstrated their understanding of
the Group’s business risks and the consequential impact on
the financial statements. Feedback on the conduct of the
audit from the engagement partner’s perspective is used to
determine if any challenges in the prior year audit would be
sufficiently addressed in the next audit cycle.
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
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 ten years.
In the prior year it was proposed that the external audit
contract again be subject to a formal tender exercise during
2017 with a view to appointing the successful audit firm
with effect from 1 June 2018. Given the number of recent
changes in the membership of the Board and ongoing
changes in the structure of the Group as the new Strategic
Plan is implemented, it has been decided that a change in
external auditors may not be of benefit to the Group at this
time. The Group will therefore review this position during the
new financial year. The Group does fully intend to remain in
compliance with the requirement to carry out a formal tender
every ten years and the position and timing of such a tender
will remain under review.
Therefore, having fully considered the performance,
independence and objectivity of the external auditors and the
reports they have produced in the current financial year, the
Committee has concluded that it is appropriate to recommend
to the Board the reappointment of KPMG LLP as the Group’s
external auditors for the next financial year.
Auditors’ independence and objectivity
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. A copy of the full policy on the payment
of fees to the external auditors for non-audit services can be
found on the company website at www.nccgroup.trust
During this financial year £17,500 (2016: £10,000) non-audit
fees were paid to the external auditors for the half year review.
All significant pieces of non-audit work are put to informal
tender to suitable parties that, if appropriate, can include
the external auditors. Upon review as to suitability and
price, the work will then be placed with the service provider
recommended. If this is the external auditors then Audit
Committee approval is required in accordance with the policy
noted above.
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Fair, balanced and understandable process
FINANCIAL
INFORMATION
NARRATIVE
DISCLOSURES
INDEPENDENT
REVIEWERS
AUDIT
COMMITTEE CHAIR
• Senior members
of the Operations
Board
• Those who have
not been major
contributors
• Review of
detailed verification
documents
• Review of findings
and observations
from independent
reviewers
The independent reviewers noted above were not major
contributors to the Annual Report and Accounts but at the
same time, as members of the Operations Board, are deemed
to be sufficiently well informed on the Group’s activities to be
able to give appropriate feedback on the FBU criteria.
Taking all of the inputs and subsequent amendments
into account, the Committee was satisfied that taken as
a whole the Report and Accounts are fair, balanced and
understandable.
Thomas Chambers
CHAIRMAN, AUDIT COMMITTEE
18 July 2017
• Prepared by
individual
buisiness units
Group finance team
• Consolidated by
• Reviewed by Group
Financial Controller
and CFO
Group Finance team
• Prepared by
• Various reports
prepared by
Committee Chairs,
CEO and CFO
Related Party Transactions and other fees
approved by the Committee
The former Non-Executive Chairman, Paul Mitchell, was also
the Non-Executive Chairman of Rickitt Mitchell. During the
year the Audit Committee approved corporate finance fees
payable to Rickitt Mitchell & Partners Ltd of £0.3m (2016:
£0.8m) in relation to the completed acquisitions PSC and VSR
and the disposal of the Open Registry businesses. The fees in
the prior year related to the acquisition of Fox-IT and the equity
fundraising that accompanied it.
The Non-Executive Chairman was excluded from all
discussions on the approval of fees payable to Rickitt Mitchell
& Partners Ltd.
Fair, balanced and understandable
At the request of the Board, the Committee considered
whether the 2017 Annual Report and Accounts, when taken
as a whole, was fair, balanced and understandable (‘FBU’) and
whether it provided the necessary information for shareholders
to assess NCC Group’s position and performance, business
model and strategy.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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GOVERNANCE
Nomination
committee report
The Committee has had a
busy year with a significant
number of Executive and
Non-Executive changes
to the Board
Paul Mitchell was Chairman of the Nomination Committee
until January 2017 when he announced his intention to resign
as Chairman of the Board. He remained a member of the
Committee until he left the Board on 31 May 2017.
Debbie Hewitt, Senior Independent Director, became Chairman
of the Nominations Committee in January 2017. Other
members of the Committee are the three independent Non-
Executive Directors, Thomas Chambers, Chris Batterham and
Jonathan Brooks, the latter of whom joined the Committee
when he joined the Board in March 2017.
The Nomination Committee’s objectives and
responsibilities.
The Nominations Committee is responsible for reviewing the
size, structure, balance, composition and progressive refreshing
of the Board and its committees and as such its duties include:
z reviewing the structure of the Board;
z evaluating the balance of skills, knowledge, experience and
diversity on the Board;
z making recommendations for further recruitment to the
Board or proposing changes to the existing structure of the
Board, or individual Directors;
z reviewing the leadership needs of the Company, both
Executive and Non-Executive;
z succession planning for Directors and other senior
Executives within the business;
z recruiting, appointing and exiting of Directors;
z overseeing membership of, and succession to, the various
Board committees and;
z reviewing the time commitment required from the Non-
Executive Directors on NCC business.
The Chairman of the Board leads the process for the
appointment of new Non-Executive Directors to the Board and
for the appointment of the Chief Executive Officer. The Chief
Executive, in conjunction with the Chairman, leads the process
for the Chief Finance Officer. The Senior Independent Director
leads the process for a new Chairman of the Board.
In relation to an appointment to the Board, the Committee
draws up a specification and assesses the capabilities and
experience required for such a role, including an assessment
of the time commitment required. Candidates are sought by
third party advisers and where appropriate through assessment
of internal candidates and are then formally considered by
the Nomination Committee. Extensive external referencing is
completed.
All appointments are made on merit and against objective
criteria with due regard for the benefits of diversity on the
Board, including gender and race.
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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
pages 54-55.
No formal measurable objectives for female and ethnic
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 per cent of the
Directors and officers on the Board are women and there is no
ethnic representation.
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.
During the new financial year 2018, the Board will recruit a
new Chief Executive Officer and will provide for its succession
requirements by the appointment of a new Non-Executive
Director.
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/investor-relations
The terms of reference are reviewed annually and updated
when necessary.
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 nine times.
The attendance of individual Committee members at
Nomination Committee meetings is shown in the table below.
Unless otherwise indicated, all Directors held office throughout
the year.
Attended
Unattended
Meetings attended
Debbie Hewitt (Chair)
Thomas Chambers (member)
Chris Batterham (member)
Paul Mitchell3 (member)
Rob Cotton1 (by invitation)
Jonathan Brooks2 (by invitation)
1
2
Left the Board in March 2017.
Appointed Non-Executive Director and member of the Audit and
Remuneration Committees in March 2017.
3 Left the Board in May 2017.
Committee Effectiveness
During the year, the Nomination Committee carried out an
internal self-evaluation on its effectiveness. A small number of
recommendations were made, including the Board undertaking
a broader review of management talent and succession
planning across the business in 2017/18.
External search consultancies
In accordance with B.2.4 of the Code, during the year the
Committee engaged Independent Search in the recruitment of
Chris Stone (Executive Chairman), Stark Brooks in relation to
Brian Tenner (Chief Financial Officer) and Norman Broadbent
in relation to the recruitment of Jonathan Brooks (Non-
Executive Director).
None of the above companies have any connection with the
Company.
Debbie Hewitt
CHAIRMAN, NOMINATION COMMITTEE
18 July 2017
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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GOVERNANCE
Cyber security
committee report
The Group increased its capability to
detect and react to potential incidents to
ensure it keeps up with the ever
evolving cyber threat landscape
The Cyber Security Committee was formed as a new
committee of the Board in November 2016 to assess the
Group’s internal cyber security policy and defences.
Debbie Hewitt, Senior Independent Director, was appointed as
Chairman of the Cyber Security Committee on inception. Non-
executive Directors Chris Batterham and Jonathan Brooks
are also members of the Committee, with Chris joining the
Committee on formation and Jonathan joining the Committee
in May 2017.
The Group’s Chief Cyber Risk Officer (“CCRO”) and the
Group’s Information Security Officer are standing invitees of
the Committee. The Executive Directors are invited to attend
Committee meetings when the Committee considers it to be
appropriate.
84
The Cyber Security Committee’s objectives
and responsibilities
The Cyber Security Committee is responsible for assessing the
performance of the Group’s internal security and defences and
as such its duties are to:
1.1
1.2
1.3
oversee and advise the Board on the current cyber risk
exposure of the Group and future cyber risk strategy;
review at least annually the Group’s cyber security
breach response and crisis management plan;
review reports on any cyber security incidents and the
adequacy of proposed action;
1.4
receive and consider the regular reports from the CCRO;
1.5
1.6
1.7
1.8
ensure the CCRO is given the right of direct access to
the Committee;
consider and recommend actions in respect of all cyber
risk issues escalated by the CCRO, head of IT and the
compliance function;
keep under review the effectiveness of the Company’s
controls, services and products to analyse potential
vulnerabilities that could be exploited;
regularly assess what are the Group’s most valuable
intangible assets and the most sensitive Group and
customer information and assess whether the controls in
place sufficiently protect those assets and information;
1.9
review the Group’s ability to identify and manage new
cyber risks;
1.10 assess the adequacy of resources and funding for cyber
security activities;
1.11
regularly review the cyber risk posed by third parties
including outsourced IT and other partners;
1.12 oversee cyber security due diligence undertaken as
part of an acquisition and advise the Board of the risk
exposure; and
1.13 annually assess the adequacy of the Group’s cyber
insurance cover.
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The Board leads the process for the appointment of new
members to the Committee on the recommendation of the
Nomination Committee and in consultation with the Chairman
of the Committee.
Committee Meetings
The Committee is required, in accordance with its terms of
reference, to meet at least three times per year. During this
financial year, the Committee met three times.
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/investor-relations. The terms of
reference are reviewed annually and updated when necessary.
Committee activities during the year
During the financial year the Committee assessed the Group’s
short-term tactical requirements, including the introduction of a
new Cyber Security Breach Response and Crisis Management
Plan, while simultaneously addressing longer term strategic
goals around ensuring the Group’s resilience to potential
cyber attacks of all levels. The Group increased its capability
to detect and react to potential incidents with the additional
of new, or enhanced, security controls and its intention is
to continue to invest in the Group’s infrastructure to ensure
that the Group keeps up with the ever evolving cyber threat
landscape.
The Committee also reviewed the Company’s cyber risk
insurance and initiated an external benchmarking exercise
to understand the robustness of its performance and risk
processes relative to other external organisations. The output
of this will set the priorities for the Committee to review
in 2018.
The attendance of individual Committee members at the Cyber
Security Committee meetings is shown in the table below.
Unless otherwise indicated, all Directors held office throughout
the year.
Attended
Unattended
Meetings attended
Debbie Hewitt (Chair)
Chris Batterham (member)
Rob Cotton1 (by invitation)
Jonathan Brooks2 (member)
1 Left the Board in March 2017.
2
Appointed Non-Executive Director and member of the Cyber Security
Committee in May 2017.
Committee Effectiveness
During the year, the Cyber Security Committee carried out an
internal self-evaluation on its effectiveness, noting that the
Committee is still in its formative stages. As an output of this
evaluation, the Committee, along with the Board, resolved
in May 2017 to extend the scope of the Cyber Security
Committee to include assessment of wider risk matters across
the Group. During the next financial year the Cyber Security
Committee will be renamed as the ‘Cyber Security and Risk
Committee’ and its terms of reference will be extended to
include overall responsibility for risk management, policy and
internal control systems across the Group (except for those
areas that are within the scope of the Audit Committee, as
summarised on pages 74 to 75).
Debbie Hewitt
CHAIRMAN, CYBER SECURITY COMMITTEE
18 July 2017
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GOVERNANCE
Remuneration
committee report
ANNUAL STATEMENT
The committee has reviewed
the Group’s remuneration policy to
assess its appropriateness and
alignment with business strategy
I present the Directors’ Remuneration Report for the year
ended 31 May 2017. The Report is split into three sections,
namely, this Annual Statement, the Directors’ Remuneration
Policy and the Annual Report on Remuneration.
During the year, we continued to operate within the
Remuneration Policy that was put to a binding shareholder
vote at the 2014 AGM. This policy was adopted for three
years. As this period is coming to an end, the Committee has
now reviewed the policy to assess its appropriateness and
alignment to the business strategy and has consulted with
shareholders and shareholder advisory groups on its proposed
changes. The proposed changes are summarised at the end of
this statement.
2016/7 has been a very challenging year for the Group.
Although sales continued to grow, EBITDA fell back by 20
per cent to £36.2m. This disappointing performance has been
reflected in the performance-related elements of Executive
remuneration and as such, no payment was made to any
departing or current Executive for the annual bonus for the
year ended 31 May 2017.
In addition, the target set for adjusted EPS over the last three
years was missed and the Long Term Incentive Plan (LTIP)
awarded in the year ended 31 May 2014 lapsed, for both of
the Chief Executive and Finance Director.
There was considerable change in the composition of the
Board. The Chief Executive Officer, Chief Finance Officer and
Chairman all stepped down from the Board this year. Their exit
terms are set out in detail on pages 100-101 of the Annual
Remuneration Report.
We appointed a new CFO, Chairman and an additional Non-
Executive Director.
Brian Tenner, Chief Finance Officer, joined the business on
1 February 2017. He was awarded a base salary of £250k
and benefits and incentives in line with policy, the detail of
which is included in the Annual Report on Remuneration on
page 101. He was appointed to the position of interim Chief
Executive on 1 March 2017 and was awarded a base salary
of £350k for this role, which he retains whilst holding this
interim position. His base salary will revert to £250k when he
relinquishes his responsibility as interim CEO. No other terms
and conditions were changed. He was awarded a nil per cent
salary review from 1 June 2017 (as he joined the Company in
February 2017). The general salary review awarded to all other
employees was 2.5 per cent (for supporting functions) and
4.5 per cent (for frontline staff). There were, however, market
related adjustments to a number of roles across the business
and increases for promotions.
Chris Stone joined the business on 6 April 2017 as Executive
Chairman. His fees for this role are £350k. Once a permanent
Chief Executive Officer has been appointed Chris Stone will
become Non-Executive Chairman and his fee will reduce to
£135k.
Non-Executive Director fees are due for review every three
years and these were reviewed with effect from 1 June 2017.
Details of these increases are given in the Annual Report on
Remuneration on page 96. The Board (with the exception of
the Non-Executives), is proposing to change the Policy on
Non-Executive Director fees to move to an annual review.
This reflects the approach for other staff and prevents Non-
Executive fees getting significantly out of line with market,
which could be a limiting factor to the attraction of new Non-
Executive Director candidates and could also result in large,
albeit irregular, adjustments.
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In line with best practice, we are also proposing to increase our
Executive shareholding guideline from 100 per cent of base
salary to 200 per cent, with the individuals required to hold
on to all vested shares until the guideline has been achieved,
except shares sold to meet any tax liability arising from vesting
shares.
The Committee will be asking for the Policy to be approved for
a further three years, though recognises that there may be a
need to bring further changes next year, once the output of the
strategy review is clear. The Committee will of course consult
with shareholders if that is the case.
At the Annual General Meeting in September 2016, 98.92
per cent of shareholders voted in favour of the adoption of
the Annual Report on Remuneration. The Remuneration
Committee appreciated the support for our approach. The
2017 Annual Statement and Annual Report on Remuneration
will be put to an advisory vote at the Annual General Meeting
in September 2017, providing shareholders with the opportunity
to voice their opinions on how the Committee has implemented
the Remuneration Policy this year. The new three year Policy
will also be put to the vote. We look forward to receiving your
support on our approach to Remuneration at the Annual
General Meeting.
Debbie Hewitt
CHAIR OF THE REMUNERATION COMMITTEE
18 July 2017
The Board has undertaken a comprehensive review of the
business strategy, a summary of the output is contained on
pages 17 to 23.
The Committee has reviewed the Executive Remuneration
Policy in this context. It has consulted on its proposals with
major shareholders and shareholder advisory groups and
has decided that no changes are proposed to the structure
of remuneration or the quantum of incentives but that it will
make some changes to ensure we reflect most recent best
practice. This includes adding a holding period to the long-
term incentive and increasing the shareholding guidelines for
Executive Directors from 100 per cent of salary to 200 per
cent of salary.
Looking forward, the Committee intends to keep the same
annual bonus structure in 2017/18, but will add strategic
performance objectives alongside profit targets, which is
allowed within the current Remuneration Policy. These
objectives will include measures coming from the key priorities
identified from the strategy review. The strategic targets will
account for 25 per cent of the bonus entitlement. As in prior
years, the bonus will continue to be self-funding and as such,
no bonus will be payable, even for strategic targets, unless the
minimum profit target is met. The profit target will be based
on actual rather than adjusted PBT. Thirty-five per cent of any
bonus earned will be deferred into nominal cost share options
and once vested after two years shares must be retained until
the shareholding guideline is achieved. Clawback and malus
provisions are in place for the annual bonus.
The Committee recognises that annual bonus target disclosure
is a key issue for shareholders. Our Policy going forward will be
to disclose annual bonus targets in the year in which payment
is made. For example, financial year 2017/18 targets will be
disclosed in the 2017/18 Remuneration Report, subject to the
Committee being comfortable that the targets are no longer
commercially sensitive. We intend to adopt this approach with
immediate effect so the targets for 2014/15, 2015/16 and
2016/17 are all disclosed in this report.
In relation to the LTIP for 2017–20, the Committee intends to
make awards of up to 100 per cent of base salary and these
will vest after three years if a demanding EPS performance
target is satisfied. We will also add a measure of Total
Shareholder Return (TSR) and a cash metric, for the first time
this coming year, to further align Executive incentives with
outcomes for shareholders. Up to 60 per cent of the potential
will relate to EPS, 30 per cent to the cash metric and 10 per
cent to TSR. Clawback and malus provisions are in place for
the LTIP. A holding period has been added to the long-term
incentive requiring Executives to retain any vested shares (net
of tax) for a period of two years or until their shareholding
guideline has been met (whichever is the later) to further align
Executives with shareholders.
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GOVERNANCE
Remuneration
committee report
DIRECTORS’ REMUNERATION POLICY
The Remuneration Committee determines the Company’s
policy on the remuneration of the Executive Directors and
other senior Executives. The principles which underpin the
remuneration policy for the Company are to:
z ensure Executive Directors’ rewards and incentives are
directly aligned with the interests of the shareholders
in order to reinforce the strategic priorities of the
Group, optimise the performance of the Group and
create sustained growth in shareholder value, without
encouragement to take excessive undue risk;
z provide the level of remuneration required to attract, retain
and motivate Executive Directors and senior Executives of
an appropriate calibre;
z ensure a proper balance of fixed and variable performance
related components, linked to short and longer-term
objectives; and
z reflect market competitiveness, taking account of the total
value of all the benefit elements.
Our Remuneration Strategy has been designed to reflect the
needs of a large multinational organisation, which is growing
both organically through the innovation of products and
services and with value enhancing 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.
Remuneration for the Executive Directors is structured so
that the variable pay elements (annual bonus and long-term
incentives) form a significant proportion of the overall package.
This provides a strong link between the remuneration paid
to Executive Directors and the performance of the Company.
This also provides a strong alignment of interest between the
Executive Directors and shareholders, particularly as 35 per
cent of the annual bonus and all of the long-term incentive is
payable in the form of shares.
For the purposes of section 226D(6)(b) of the Companies Act
2006, this policy will take effect from the date of the 2017
AGM, which is scheduled to be held on 21 September 2017.
Future Policy Table for Executive Directors
Purpose and link to short and
long-term strategic objectives
Operation (including framework to
assess performance)
Maximum opportunity
Change to position under
current remuneration policy
SALARY
Attract, retain and
reward high calibre
Executive Directors.
The Remuneration Committee reviews
salaries for Executive Directors annually
unless responsibilities change.
Details of current salaries are
set out in the Annual Report on
Remuneration (page 101).
No change
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.
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.
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Purpose and link to short and
long-term strategic objectives
Operation (including framework to
assess performance)
Maximum opportunity
Change to position under
current remuneration policy
BENEFITS
Attract, retain and
reward high calibre
Executive Directors.
PENSION
To provide a
competitive benefit,
which attracts high
calibre Executives
and which allows
flexible retirement
planning to suit
individual needs.
ANNUAL BONUS
Drive and reward
sustainable business
performance.
Benefits in kind include the provision
of a car or car allowance, payment of
private fuel, car insurance, private medical
insurance, life assurance and permanent
health insurance.
Executive Directors may be invited to
participate in the Sharesave Scheme
approved by HMRC.
Market competitive benefits.
No change
SAYE Sharesave Scheme
subject to HMRC approved
limits.
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 per cent of
base salary.
10 per cent of basic salary into
the Group Scheme, providing
they make a contribution of
not less than 5 per cent of
basic salary, or a basic salary
supplement of 10 per cent of
base salary.
No change
Chief Executive Officer 100
per cent of base salary.
Chief Finance Officer 100 per
cent of base salary.
Based on a range of stretching targets
measured over one year. This might
include, but not exclusively, profit
measures and other strategic objectives
such as cash management, brand
development, customer satisfaction and
retention, business unit sales growth
and employee engagement.
Performance below the minimum
performance target results in no
bonus. No more than 20 per cent
of the maximum opportunity is paid
for achievement of the threshold
performance targets.
Payments rise from the threshold
payment to 100 per cent of the
maximum opportunity for levels of
performance between the threshold and
maximum targets. The rate of the rise
and the various payment targets are
determined annually by the Committee.
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 per cent of any bonus payment is
invested in nominal cost share options
and deferred for a two year period.
Dividend equivalents are paid on vesting
share options. Malus and claw back
provisions are in place for both cash
and deferred elements.
Introduction of strategic
targets, which account for up
to 25 per cent of the annual
bonus potential. This will
ensure focus on delivery of
the KPIs underpinning the
strategy.
Strategic targets will have
a gateway of the minimum
profit hurdle before they can
be payable.
No more than 20 per cent of
the maximum opportunity is
paid for achievement of the
threshold performance target
– this has been reduced
from 25 per cent under the
previous policy.
Disclosure of annual bonus
targets will be made in
the year in which payment
is made, subject to the
Committee being comfortable
that the targets are no longer
commercially sensitive.
Executives will be required
to retain all deferred bonus
shares (except any tax
payment related to their
vesting) until they have
attained the minimum
shareholding guideline.
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GOVERNANCE
Remuneration
committee report
DIRECTORS’ REMUNERATION POLICY
Purpose and link to short and
long-term strategic objectives
Operation (including framework to
assess performance)
Maximum opportunity
Change to position under
current remuneration policy
LONG TERM INCENTIVE PLAN
To drive long-term
performance in line
with Group strategy
and incentivise
through share
ownership.
Expand the performance
metrics to include a measure
of EPS, a cash flow metric
and relative TSR to provide a
more balanced assessment
of Company performance.
Shares will in future be
required to be held for a
further minimum period of
two years after vesting.
Awards have a performance period of
three years.
Award over shares with a face
value at grant of:
100 per cent of salary p.a. for
the Chief Executive Officer.
100 per cent of salary p.a. for
the Chief Finance Officer.
The level of vesting is determined by
measures appropriate to the strategic
priorities of the business. At least half
of any award will be subject to financial
performance measures. Measures
might include, but not exclusively, EPS,
cash flow and relative TSR metrics.
Initially, the targets will represent
maximum 60 per cent of potential for
EPS, 30 per cent for cash flow and
10 per cent for relative TSR.
The Remuneration Committee has the
discretion to determine the number of
measures to be used.
Performance below the threshold target
results in no vesting. For performance
between the threshold target and
maximum performance target, vesting
starts at 20 per cent and rises to
100 per cent of the shares vesting.
Any awards granted under this policy
to Executive Directors which vest and
are exercised after the completion of
the three year performance period must
be held for a further two years after
vesting, even if the Director has met the
200 per cent shareholding guideline.
Should a change in control of the
Group occur, crystallisation of any LTIP
awards is within the discretion of the
Remuneration Committee.
Malus and clawback provisions are in
place.
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Purpose and link to short and
long-term strategic objectives
Operation (including framework to
assess performance)
Maximum opportunity
Change to position under
current remuneration policy
EXECUTIVE DIRECTOR SHAREHOLDING GUIDELINE
To align the interests
of Executive Directors
with the interests of
all of the Company’s
shareholders.
The Executive Directors are expected
to build and retain a shareholding in the
Group at least equivalent to 200 per
cent of base salary. Executives will be
required to retain all vested deferred
bonus shares and LTIP shares released
from the holding period until they have
attained the minimum shareholding
guideline and even then they may only
sell when they have held vested LTIP
shares for a minimum period of two
years.
For the avoidance of doubt, Executive
Directors are permitted to sell sufficient
shares in order to meet any tax
obligation arising from vesting shares.
Further align shareholder
and Executive interests by
increasing the Executive
shareholding guideline from
100 per cent of base salary
to 200 per cent.
Executives will be required
to retain all vested LTIP
shares (except to meet
the tax obligation relating
to their vesting) until they
have attained the minimum
shareholding guideline and
even then, only when they
have held vested LTIP shares
for a minimum period of two
years.
Choice of performance measures
and target setting
For both the annual bonus and LTIPs, our policy is to choose
performance measures which 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.
Targets for each performance measure are set by the
Committee with reference to internal plans and external
expectations. Performance is generally measured on a ‘sliding
scale’ so that incentive payouts increase pro rata for levels
of performance in between the threshold and maximum
performance targets.
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.
With regard to the LTIP, the Committee believes in setting
demanding objectives, which reward steady, progressive
growth, in order to incentivise and encourage long-term growth
and enhance shareholder value. 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-term aims of the Group.
Performance measures and targets are disclosed in the
Annual Report on Remuneration. In cases where targets are
commercially sensitive, for example annual profit targets for
the annual bonus, they will be disclosed retrospectively in the
year in which the bonus is paid.
Differences in pay policy for employees and
Executive Directors
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:
z 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 similar business objectives;
z Participation in the LTIP is extended to other Senior
Executives ensuring consistency in policy; and
z The pension scheme is operated for all permanent
employees.
The main difference between pay for Executive Directors and
employees is that Executive Director pay is structured so that
the variable pay element forms a significant proportion of
the overall package and the total remuneration opportunity is
higher to reflect the increased responsibility of the role.
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GOVERNANCE
Remuneration
committee report
DIRECTORS’ REMUNERATION POLICY
Executive shareholding guidelines
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.
In any event, 35 per cent of the value awarded as part of the
annual bonus scheme will be awarded as nominal cost deferred
share options, to be held for a period of no less than two years
and share options vesting under the LTIP scheme, if exercised,
are to be held for a minimum of two years after the vesting date.
Non-Executive Director policy table
Furthermore, Executive Directors are required to build and
retain a shareholding in the Group at least equivalent to
200 per cent of base salary. Executives will be required to
retain all vested deferred bonus shares and LTIP shares
released from the holding period until they have attained the
minimum shareholding guideline and even then they may only
sell when they have held vested LTIP shares for a minimum
period of two years (subject to the below paragraph).
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.
Purpose and link to strategy
Operation
Maximum opportunity
FEES
Attract, reward and
retain experienced
Non-Executive
Directors.
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.
There will be separate disclosure of fees paid for
Chairing the Audit and Remuneration Committees
and for acting as Senior Independent Director.
Fees for the Non-Executive Directors are reviewed
annually.
Any reasonable business related expenses (including
tax thereon) can be reimbursed if determined to be a
taxable benefit.
Current fee levels are set out in the Annual Report
on Remuneration on page 96.
Overall fee limit will be within the current £300,000
limit set out in the Company’s Articles of Association,
approved on 21 September 2010, which is subject
to increase on 21 September each year by the same
percentage increase as the percentage increase in
the General Index of Retail Prices for all items (or
such other comparable index as may be substituted
for it from time to time before such anniversary) in
the 12 months immediately preceding such date.
Approach to recruitment
The principles applied in the recruitment of a new Executive
Director is for the remuneration package to be set in
accordance with the terms of the approved remuneration
policy for existing Executive 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. These
would all be disclosed.
Incentive opportunity. The aggregate ongoing 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.
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‘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.
The Committee also has the discretion to determine whether
any nominal cost deferred share options 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 prorated to reflect time served since the beginning of the
deferral date. The same discretionary principle would apply
to the payment of dividends on any shares that have been
deferred, but not yet vested. This too would be prorated to
reflect tenure.
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 prorated to reflect time served since the date of grant
and based on the achievement of the performance criteria. The
holding period detailed above will apply to such incentives.
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
between six and twelve months exercisable by either party. 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 ongoing 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. The Company may also pay an amount considered to
be reasonable by the Committee where loss of office is due
to redundancy or in respect of fees for legal advice for the
outgoing Director.
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:
z prorated 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
z subject to the normal bonus targets, tested at the end of
the year, and would take into account performance over the
notice period; and
z subject to deferral of 35 per cent of the value.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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GOVERNANCE
Remuneration
committee report
DIRECTORS’ REMUNERATION POLICY
Illustration of remuneration scenarios
The chart below details the hypothetical composition of the
Chief Finance Officer’s remuneration package and how it
could vary at different levels of performance under the policy
set out above. The chart only shows the scenarios for the Chief
Finance Officer as the Group is currently in the process of
recruiting a new Chief Executive.
800
700
600
500
400
300
200
100
0
£797,500
31.5%
31.5%
£397,500
12.5%
12.5%
£297,500
100%
75%
37%
Fixed
Target
CHIEF FINANCE OFFICER
Maximum
Total Fixed
Annual Bonus
Long-term incentives
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.
z Minimum. Fixed remuneration only salary, benefits and
pension. Salary based on 2017/18 salary and benefits
based on 2016/17 disclosed benefit amounts.
z Target. Fixed remuneration plus minimum annual bonus
opportunity of £50,000 for the Chief Finance Officer, which
is equivalent to 20 per cent of salary for the Chief Finance
Officer, plus 20 per cent vesting of the maximum award
under the Long Term Incentive Plan.
z Maximum. Fixed remuneration plus maximum annual
bonus opportunity, £250,000 for the Chief Finance Officer,
which is equivalent to 100 per cent of salary for the Chief
Finance Officer plus 100 per cent vesting of the maximum
award under the Long Term Incentive Plan which is 100 per
cent of salary for the Chief Finance Officer.
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 (save for the contribution entitlements)
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. There has been
significant consultation on the proposed changes to the
Remuneration Policy this year.
Key areas of discretion
in the remuneration policy
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:
z Whether annual bonus is paid to Executives once notice
has been served.
z Discretion in exceptional circumstances to amend
previously set incentive targets or to adjust the proposed
payout to ensure a fair and appropriate outcome.
z Certain decisions relating to the LTIP awards for which
the Committee has discretion as set out in the rules of
the relevant share plans which have been approved by
shareholders.
z The decisions on exercise of clawback rights.
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Legacy arrangements
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 of
outstanding incentive awards, even where it is not consistent
with the policy prevailing at the time such commitment is fulfilled.
The Chief Finance Officer is currently standing in as Interim
Chief Executive Officer and receives a temporary salary
supplement of £100k, making a total salary of £350k, which
will revert to £250k when the new Chief Executive Officer is
appointed.
The Executive Chairman will revert to becoming Non-Executive
Chairman when a new Chief Executive Officer is appointed
and his fees will revert to £135k.
Details of any payments to former Directors will be set out in
the Annual Report on Remuneration as they arise.
External Directorships for Executive
Directors
Executive Directors may accept one external Non-Executive
Directorship 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 fee from external directorships.
During the financial year, Chris Stone held more than one
external Non-Executive Directorship with the consent of
the Board on the basis that such external Non-Executive
Directorships did not conflict with or impact on his ability to
perform his role as Executive Chairman and as Chris’s role will
revert to becoming Non-Executive Chairman when a new Chief
Executive Officer is appointed.
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.
The following report will be subject to an advisory shareholder
vote at the 2017 AGM, which is scheduled to be held
21 September 2017. The information on pages 97 to 105 has
been audited where indicated.
How will the remuneration policy
be implemented in the year ended
31 May 2018?
Executive Directors’ Base Salaries. As the Chief Finance
Officer was appointed in February 2017 and the Executive
Chairman in April 2017, the Committee has decided not to
award any salary increases with effect from 1 June 2017. With
regard to all other employees, the general increase has been
2.5 per cent (for support staff) and 4.5 per cent (for frontline
staff), except those who have been promoted or where market
adjustments were made to employees who were out of line with
the general market, where larger increases have been made.
This compares to the awards made last year to the previous
Chief Executive Officer, Rob Cotton, of 6.02 per cent to £528k
and to the previous Chief Finance Officer, Atul Patel, of 6.03
per cent to £246k.
Base salary
at 31 May
2017
Base
salary/fee
following the
appointment
of a new CEO
%
Increase
£350k
£135k
N/A
£350k
£250k
N/A
£000
Executive
Chairman1
Chief Finance
Officer2
1
2
Executive Chair fees will reduce to £135k when a new Chief Executive Officer
is appointed and Chirs Stone becomes Non-Executive Chairman.
Chief Finance Officer is currently paid a supplement to be Interim Chief
Executive and will revert to £250k when a new Chief Executive Officer is
appointed and the role reverts to Chief Finance Officer.
Pension and Benefits. There will be no changes to pension
or benefits provision.
Annual Bonus. The annual bonus maximum for the Chief
Executive Officer and the Chief Finance Officer in 2017/18 will
be 100 per cent of salary. Any bonus due to the Chief Executive
Officer will be prorated to reflect full months worked in the year.
The bonus due to the Chief Finance Officer will be based on his
average salary for the year, including the supplement paid for his
additional responsibilities as interim Chief Executive Officer.
Measures will be based 75 per cent on the achievement of
actual operating profit (EBIT) targets and 25 per cent on the
achievement of strategic objectives. To ensure that the bonus
is self-funding, no bonus, including any due for achievement
of strategic targets, will be payable if the minimum EBIT target
is not met. 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.
In addition, to ensure that this bonus opportunity also results in
shareholder alignment and provides greater retention value, 35
per cent of any bonus payment will be deferred in shares for
two years. The bonus, deferred share options and associated
dividends are also subject to malus and clawback provisions.
The performance measures, together with the level of
performance against each objective, will be disclosed in the
2017/18 Annual Report on Remuneration.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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GOVERNANCE
Remuneration
committee report
ANNUAL REPORT ON REMUNERATION
The targets relating to the 2016/17 bonus payments (of which
there were none) are shown below and as this is a transition
year to our new policy on disclosure, we are also disclosing
2015/16 and 2014/15 bonus targets and achievement against
those targets.
Long Term Incentive Plan (LTIP). It is expected that
awards of 100 per cent of base salary will be made under
the LTIP in September 2017, following the completion of the
Strategic Review and the Company’s 2017 AGM at which
the new remuneration policy will be tabled for approval on
the same terms as set out in the policy table. These will be
subject to a two-year post vesting holding period for Executive
Directors. As well as the holding period, the Executives have
to achieve a shareholding guideline of 200 per cent of salary
(post shares sold to cover any tax) before they can sell any
shares that vest. The awards are also subject to malus and
clawback provisions.
The vesting of LTIP awards will be based on performance
of Earnings Per Share (60 per cent), a Cash flow metric
(30 per cent) and a relative Total Shareholder Return
metric (10 per cent). The Committee believes that these
three measures are transparent, easy to understand, easy
to track and communicate, cost-effective to measure and
fundamentally aligned to the strategic ambitions that have
been communicated to the market.
The performance conditions will be set once the Strategic
Review and Target Operating Model have been completed.
Non-Executive Directors’ Remuneration
In line with the current Policy, Non-Executive Director fees are
due for review every three years and these were last reviewed
in June 2014. The fees have been benchmarked in line with
companies of a similar scale and complexity and it is proposed
that the base fee is increased from £38,000 to £45,000,
to apply with effect from 1 June 2017. Additional fees for
chairing the Audit Committee, the Remuneration Committee
and performing the duties of Senior Independent Director will
remain unchanged at £7,000, £7,000 and £6,000 respectively.
In addition to the above, the Board (without Debbie Hewitt’s
participation) considered the additional hours committed by
her in her capacity as Senior Independent Director during
the year and specifically from the period from October 2016
to May 2017, when she led the Company’s consultation with
key shareholders, chaired the newly created Governance
Committee, set up to comprehensively review standards of
Corporate Governance across all aspects of the business,
chaired the Nominations Committee, chaired the newly created
Disclosure Committee, as well as overseeing the initiation
of the strategy review. During this period, she also led the
recruitment of the new Chairman and an additional Non-
Executive Director. The Board decided that in recognition of
the significant increase in time and the diligence with which
she tackled these considerable tasks that she should be paid
an additional one-off fee of £35,000. Such a payment is within
the scope of our NED fee policy.
In addition, the Board is proposing to move to an annual
review of fees for Non-Executive Directors, including the
Chairman. This reflects the approach with general staff and
prevents Non-Executive Director fees getting significantly out
of line with market, which could result in significant irregular
adjustments to NED fees and which could be a limitation to
the attraction of new appointments.
Annualised Fees
£000s
Chris Stone*
Debbie Hewitt
Thomas Chambers
Chris Batterham
Jonathan Brooks
2016/17
2017/18
£350
£350
£86
£43
£38
£38
£58
£52
£45
£45
* Executive Chair fees will reduce to £135k when a new Chief Executive Officer
is appointed and Chris Stone becomes Non-Executive Chairman
How has the remuneration policy been implemented in
the year ended 31 May 2017?
This section sets out how the remuneration policy was
implemented in 2016/17. The key implementation decisions
during the year related to:
z Determination of annual bonus outcomes for the 2016/17
performance period.
z Determination of the vesting level of LTIP awards which
related to the three year performance period ending on
31 May 2017.
z Terms of the exiting Directors, including the Chairman, Chief
Executive Officer and Chief Finance Officer.
z Terms of the new Directors appointed to the Board,
including the Chairman and Chief Finance Officer.
z The performance targets of the annual bonus scheme,
which will apply for the YE 31 May 2018.
z The performance targets and value of awards to be granted
under the LTIP, which will vest in 2020.
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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Single Total Figure of Remuneration (Audited)
The detailed emoluments received by the Executive and Non-Executive Directors for the year ended 31 May 2017 are below. No
payments were made for loss of office, as indicated in the notes.
Director
£000
Rob Cotton6
Atul Patel8
Brian Tenner10
Paul Mitchell11
Chris Stone12
Debbie Hewitt13
Year ended
31 May 2017
31 May 2016
31 May 2017
31 May 2016
31 May 2017
31 May 2017
31 May 2016
31 May 2017
31 May 2017
31 May 2016
Thomas Chambers
31 May 2017
31 May 2016
Chris Batterham
31 May 2017
Jonathan Brooks14
31 May 2017
31 May 2016
Base Salary /
Non-Executive
Director Fees
Benefits1
Pension
Benefits2
Annual
Bonus3
Long-term
incentive4
Other5
Total
£528
£498
£164
£232
£108
£75
£75
£52
£86
£51
£43
£43
£38
£38
£8
£29
£31
£18
£28
£5
–
–
–
–
–
–
–
–
–
–
£53
£50
£17
£23
£11
–
–
–
–
–
–
–
–
–
–
£0
£3487
£0
£1629
£0
£164
£215
£76
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£610
£1,091
£200
£521
£124
£75
£75
£52
£86
£51
£43
£43
£38
£38
£8
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. Thirty-five per cent 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 100.
5 The value of the awards vesting under the SAYE.
6 Rob Cotton, Chief Executive Officer, stepped down from the Board on 1 March 2017. Details of his exit terms are described on page 100 of this report.
7 The deferred elements of this bonus and associated dividends will lapse as part of Rob Cotton’s exit terms.
8 Atul Patel, Chief Finance Officer, resigned and stepped down from the Board on 10 August 2016 and left the Company as an employee after working his notice
period until 3 February 2017. No payments were made for loss of office.
9 The deferred element of this bonus and the associated dividends will be prorated to complete months of service that Atul Patel will have completed since the date of
the award.
10 Brian Tenner was appointed as Chief Finance Officer to the Board on 1 February 2017. He was paid a supplement of £100k from 1 March 2017 to recognise his
appointment as Interim Chief Executive Officer. This supplement will cease on appointment of the new Chief Executive Officer.
11 Paul Mitchell stepped down from his role as Chairman on the 6 April 2017 and stepped down from the Board on 31 May 2017. No payments were made for loss
of office.
12 Chris Stone was appointed as Chairman of the Board on 6 April 2017. He has been appointed initially as Executive Chairman, paid a total fee of £350k. He will remain
as Executive Chairman until a new Chief Executive Officer is appointed, at which point he will become Non-Executive Chairman and his fees will revert to £135k.
13 Debbie Hewitt was paid an additional fee of £35k to recognise the additional hours committed from the period from October 2016 to May 2017, when she chaired
a number of additional Committees, led the recruitment of new Executive and Non-Executive Directors and oversaw the initiation of the strategy review.
14 Jonathan Brooks was appointed as Non-Executive Director on 16 March 2017.
15 Atul Patel was entitled to a prorata dividend in respect of the deferred share options granted under the DB Plan in respect of FY14/15 and which vested on 31 May
2017 of an amount equal to the value of dividends that would have be paid on the deferred shares in relation to dividend record dates occurring between the date of
grant and the date that the awards vest, amounting to £1,721.59.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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GOVERNANCE
Remuneration
committee report
ANNUAL REPORT ON REMUNERATION
Additional information in respect of the Single Total Figure of Remuneration
Annual Bonus
Our previous policy was to disclose annual bonus targets retrospectively after two years. Following a review of that policy, the
Committee has decided to disclose annual bonus targets in the annual report to which the annual bonus payment relates. As a
result, this year is a transition year, in which we are disclosing the targets for three annual bonus awards: the 2016/17 annual
bonus, the 2015/16 annual bonus and the 2014/15 annual bonus. These disclosures are set out below:
2016/17 Annual Bonus (Audited)
For the year ended 31 May 2017, the maximum potential bonus opportunity for Rob Cotton was 100 per cent of salary
(£528,000), for Atul Patel 100 per cent of salary (£246,000) and for Brian Tenner 100 per cent of salary but prorated to reflect
that he joined part way through the year (£40,000).
No annual bonus was paid to any departing or current Executive Director for the year ended 31 May 2017, recognising the
significant underperformance of the business in relation to market expectations.
The performance measures and targets are set out below:
31 May 2017
adjusted
EBITDA
31 May 2017 Potential Annual Bonus payments
Rob Cotton
Atul Patel
Brian Tenner
Performance condition
Threshold
£41.9m
£132,000
£61,500
Target
£46.5m
£369,600
£172,200
£40,000
Maximum
£55.8m
£528,000
£246,000
Actual performance/Bonus payments
£25.9m
£0
£0
£0
2015/16 Annual Bonus (Audited)
For the year ended 31 May 2016, the maximum bonus opportunity for Rob Cotton was 100 per cent of salary (£498,000), and
for Atul Patel 100 per cent of salary (£232,000).
A total bonus of 70 per cent of potential was paid to each Executive Director, 35 per cent of which was deferred in shares for a
further two years.
The performance measures, targets and payments are set out below:
31 May 2016
adjusted
Profit
Before Tax
31 May 2016 Potential Annual
Bonus payments
Rob Cotton
Atul Patel
Performance condition
Threshold
£32.7m
£124,500
£58,000
Target
£36.3m
£348,600
£162,400
Maximum
£43.6m
£498,000
£232,000
Actual performance/Bonus payments
£37.0m
£348,600
£162,400
In relation to the deferred share option granted to Rob Cotton on 15 July 2016, for 41,357 shares, all outstanding deferred share
options under the DB Plan, relating to the 2016 annual bonus awards (totalling 41,357 shares), and the cash equivalent relating
to the dividends due to be paid on those shares, will lapse at the cessation of Rob Cotton’s employment on 31 October 2017, as
part of his exit arrangements. The cash equivalent on the dividends at 31 May 2017 is £1,923.10.
Atul Patel resigned and left the Company on 3 February 2017. In relation to the deferred share option granted to Atul Patel on 15
July 2016, for 19,266 shares, the Committee determined that these awards should vest on a prorata basis to reflect time worked
since the date of the grant. This will result in 6,422 shares vesting on 31 May 2018 in relation to the awards granted in July 2016.
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Participants in the DB Plan are also entitled to a cash payment of an amount equal to the value of dividends that would have
been paid on the deferred share options in relation to dividend record dates occurring between the date of grant and the date
that the awards vest. Accordingly, the Committee determined that Atul Patel will be entitled to a prorata dividend accrual payment
when the deferred share options vest, which as at 31 May 2017 amounts to £298.62.
The awards and dividends will continue to be subject to the relevant malus and clawback provisions.
2014/15 Annual Bonus (Audited)
For the year ended 31 May 2015, the maximum bonus opportunity for Rob Cotton was 100 per cent of salary (£470,000), and for
Atul Patel 100 per cent of salary (£209,000).
A total bonus of 72.8 per cent of potential was paid to each Executive Director, 35 per cent of which was deferred in shares for a
further
two years.
The performance measures, targets and payments are set out below:
Performance condition
31 May 2015
adjusted
Profit
Before Tax
£22.5m
£25.0m
£30.0m
31 May 2015 Potential Annual
Bonus payments
Rob Cotton
£117,500
Atul Patel
£52,250
£329,600
£146,300
£470,000
£209,000
Threshold
Target
Maximum
Actual performance/Bonus payments
£25.47m
£342.141
£152,144
In relation to the deferred share option granted to Rob Cotton on 28 July 2015, for 52,614 shares, while he was still employed by
the Company when the deferred share options were due to vest on 31 May 2017, notwithstanding the rules of the DB Plan and
the terms of the option certificate in relation to those deferred shares, he agreed, as part of his exit arrangements, not to exercise
his option. These deferred share options and the associated dividend of £4,645.82 lapsed.
Atul Patel resigned and left the Company on 3 February 2017. In relation to the deferred share option granted to Atul Patel on 28
July 2015, for 23,396 shares, the Committee determined that these awards should vest on a prorata basis to reflect time worked
since the date of the grant. This resulted in 19,497 shares vesting on 31 May 2017 in relation to the awards granted in July 2015.
Participants in the DB Plan are also entitled to a cash payment of an amount equal to the value of dividends that would have
been paid on the deferred shares in relation to dividend record dates occurring between the date of grant and the date that the
awards vest. Accordingly, the Committee determined that Atul Patel was entitled to a prorata dividend accrual payment when the
deferred share options vest, which amounted to £1,721.59.
The awards and dividends will continue to be subject to the relevant malus and clawback provisions.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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GOVERNANCE
Remuneration
committee report
ANNUAL REPORT ON REMUNERATION
Long-term incentive plan vesting (Audited)
LTIP awards vesting based on performance for the period
June 2014 up to the end of the year ended 31 May 2017 were
based on demanding three-year EPS growth performance
conditions.
Group EPS performance missed the performance target, which
resulted in the LTIPs awarded to Rob Cotton in 2014 lapsing.
LTIP awards held by Rob Cotton granted in 2015 and 2016 will
lapse on cessation of his employment on 31 October 2017, as
part of his exit terms.
The LTIP award held by Atul Patel, in respect of the 2014–17
award, along with 2015 and 2016 awards (totalling 288,161
shares under option), lapsed on cessation of his employment
on 3 February 2017.
Number of
LTIP shares
awarded
2014 – 2017
228,432
101,579
% of shares
vesting
Value of
shares lapsing
0
0
£303,815
£135,100
Executive
Rob Cotton
Atul Patel
The value shown in the last column is based on the average
share price over March, April and May 2017 of £1.33.
The detail on the performance condition relating to these
awards is set out below:
Growth in adjusted
EPS over the period
1 June 2014 to
31 May 2017
% of LTIP award
which will vest
Exit terms for departing Directors (Audited)
Chief Executive Officer
Rob Cotton, Chief Executive Officer, stepped down from
the Board and was put on garden leave from 1 March 2017.
Although Rob Cotton’s Service Agreement provides for a 12
month notice period, it was mutually agreed that this would
be reduced to a period of eight months’ garden leave, during
which he would receive payment by monthly instalments
equating to eight months’ salary, pension and car allowance
(total of £399,600). It was also agreed that he would continue
to receive other benefits as usual during this garden leave
period. He will cease being an employee of the Company on
31 October 2017.
No payment was made in lieu of annual bonus in respect of
the financial year ended 31 May 2017 or during the garden
leave period and no further LTIP grant will be made.
In relation to the LTIP option granted to Rob Cotton on
6 August 2014 totaling 228,432 shares under option, the
performance condition was not achieved and the option lapsed.
All outstanding LTIPs in respect of the 2015 and 2016 awards,
totalling 400,490 shares under option, will lapse (in the case
of the 2016 awards) or will not be exercised as agreed by Rob
Cotton (in relation to the 2015 awards) at the cessation of his
employment on 31 October 2017.
In relation to the deferred shares granted to Rob Cotton
on 28 July 2015, which were due to vest on 31 May 2017,
totalling 52,614 shares, notwithstanding the rules of the DB
Plan and the terms of the option certificate in relation to those
deferred shares, he agreed not to exercise his option (the cash
equivalent relating to the dividends totalled £4,645.82).
Performance
condition
Less than 9% on
average per annum
9% on average per annum
At or above 15% on
average per annum
0
20
100
All other outstanding deferred shares under the DB Plan,
relating to the 2016 annual bonus awards, totalling 41,357
shares and the cash equivalent relating to the dividends due
to be paid on those shares, will lapse at the cessation of Rob
Cotton’s employment on 31 October 2017. The cash equivalent
as at 1 April 2017 is £1,923.10.
Between 9% and 15%
per annum
Between 20% and 100%
on a straight-line basis.
Any Save As You Earn awards outstanding at cessation of his
employment on 31 October 2017 will lapse.
Actual
performance
-8.8% per annum
0
No further payments for loss of office will be made.
In addition to the above, Rob Cotton reimbursed the Company
with a cash sum of £19,596.70 in relation to expenses claimed.
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Chief Finance Officer
Atul Patel, the previous Chief Finance Officer, resigned and
stepped down from the Board on 10 August 2016 and left the
Company on 3 February 2017, after working his notice.
His salary, pension and car allowance was paid in monthly
instalments as usual, including other benefits until 3 February
2017. He was not eligible for an annual bonus in respect of the
financial year ended 31 May 2017.
All Long Term Incentive Share Plan (‘LTIP’) awards held by Atul
Patel (in respect of the 2014, 2015 and 2016 awards, totalling
288,161 shares under option) lapsed on cessation of his
employment on 3 February 2017.
Under the Deferred Bonus Plan (‘DB Plan’), he deferred a total
of 42,662 shares relating to the 2015 and 2016 annual bonus
awards. The Committee determined that these awards should
vest on a prorata basis to reflect time worked since the date of
the grant. This resulted in 19,497 shares vesting on
31 May 2017 in relation to the awards granted in July 2015
and 6,422 shares vesting on 31 May 2018 in relation to the
awards granted in July 2016.
Participants in the DB Plan are also entitled to a cash payment
of an amount equal to the value of dividends that would have
be paid on the deferred shares in relation to dividend record
dates occurring between the date of grant and the date that
the awards vest. Accordingly, the Committee determined that
he will be entitled to a prorata dividend accrual payment when
the deferred shares vest.
The awards and dividends will continue to be subject to the
relevant malus and clawback provisions.
His outstanding Save as Your Earn awards lapsed on the
cessation of his employment on 3 February 2017.
Chairman
Paul Mitchell, Non-Executive Chairman, announced his
intention to step down as Chairman on 18 January 2017. He
stepped down from his role as Chairman on 6 April 2017 and
stepped down from the Board on 31 May 2017. No payments
for loss of office were made.
Appointment terms for new Directors
Chief Finance Officer
Brian Tenner, Chief Finance Officer, joined the business on
1 February 2017. The remuneration arrangements provided to
him were in accordance with the current approved Policy and
are as follows:
z Base salary of £250,000.
z Maximum annual bonus potential of 100 per cent of salary,
with 35 per cent of any payment deferred in shares, for
two years.
z Annual grant under the LTIP of 100 per cent of salary.
z Employer pension contribution of 10 per cent of salary.
z Benefits of monthly car allowance of £1,100 per month,
private fuel, life assurance of 4 × salary and private medical
insurance for self and family.
z Notice period of six months.
He was appointed to the position of Interim Chief Executive on
1 March 2017 and was awarded a base salary of £350,000,
which he retains while holding this position. No other terms
and conditions were changed. His base salary will revert to
£250,000 when he relinquishes his responsibility as Interim
CEO. His salary will be reviewed again on 1 June 2018, in line
with the current approved policy.
Chairman
Chris Stone joined the business on 6 April 2017 as Executive
Chairman. His fees for this role are £350k. Once a permanent
Chief Executive Officer has been appointed, Chris Stone will
become Non-Executive Chairman and his fee will reduce to
£135k.
He has no entitlement to any benefits or incentives and he has
a notice period of three months.
Scheme interests awarded during the year (Audited)
LTIP awards granted in the year. On 15 July 2016, the
Executive Directors were granted awards which were due to
vest on 31 May 2019, subject to the performance conditions
that were set out in last year’s Report on Remuneration. The
awards are set out below. The awards for Rob Cotton will lapse
when he leaves the Company on 31 October 2017 and for Atul
Patel, they lapsed when he resigned and left the Company on
3 February 2017.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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GOVERNANCE
Remuneration
committee report
ANNUAL REPORT ON REMUNERATION
Executive
Rob Cotton
Number of
LTIP awards1
Basis
Face
Value2
Performance
condition
182,069
100% of base salary
£528,000
Vesting was to be determined
by growth in adjusted EPS
over the performance period.
Performance
period
1 June 2016 to
31 May 2019
1 June 2016 to
31 May 2019
Atul Patel
84,828
100% of base salary
£246,000
1
2
LTIP awards are structured as nominal-cost options (£1 being payable upon each exercise).
Based on a share price of £2.90 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 2016 to 31 May 2019
% of LTIP award
which will vest
Performance condition
Less than 9% on average per annum
9% on average per annum
At or above 15% on average per annum
0
20
100
Between 9% and 15% on average per annum Between 20% and 100% on a straight-line basis.
SAYE options granted and exercised in the year. The Group operates an 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
Rob Cotton opted to participate in this scheme but as his participation in the 2016 scheme will lapse upon termination of his
employment on 31 October 2017, he elected, as part of his exit terms, to withdraw from the 2016 scheme. On his departure from
the Company, Atul Patel’s participation in the 2014 scheme lapsed.
On 17 November 2016 Rob Cotton exercised 7,945 options under the 2013 scheme at an exercise price of £1.13. Rob Cotton
made an aggregate gain of £6,175.65 on the exercise of these options.
These awards have been included in the other column of the single figure table in the 2016/17 annual remuneration report, as
they have vested.
Executive
Date of
Grant
Number of
options
Basis
Face
Value
Exercise
price
Performance
condition
Vesting
Date
Rob Cotton
4 Aug 2014
Atul Patel
4 Aug 2014
Rob Cotton
31 Aug 2016
5,933 £250 per month
contribution over
a 3 year period
11,867 £500 per month
contribution over
a 3 year period
3,437 £250 per month
contribution over
3 year period
£12,4591
£1.5167
£24,9211, 2
£1.5167
£8,9983
£2.618
October 2017
October 2017
October 2019
Awards vest
subject to
continued
employment
Awards vest
subject to
continued
employment
Awards vest
subject to
continued
employment
1
2
3
Calculated on the price of £2.10, which was the average midmarket share price over the three days preceding the date of grant.
Awards lapsed on Atul’s departure from the Company.
Calculated on the price of £2.62, which was the average midmarket share price over the three days preceding the date of grant. Rob withdrew his participation in
the scheme on 30 March 2017.
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Directors’ interests in shares (Audited)
The tables below set out details of the Executive Directors’ share awards which vested in 2016–17 and those which lapsed, due
to the Executive Directors leaving the Company.
LTIP – maximum awards granted
Date of awards
Maximum
number
of options
granted
Rob Cotton
8 July 2013
312,7272
6 Aug 2014
228,432
28 July 2015
218,421
15 July 2016
182,069
Atul Patel
8 July 2013
145,4543
6 Aug 2014
28 July 2015
15 July 2016
101,579
101,754
84,828
Performance
period
Exercise
period
Share price on
date of grant £
Exercise
price £1
Status
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
1.375
2.058
2.28
3.02
1.375
2.058
2.28
3.02
£1
Partly vested on 31.5.16
£1
£1
£1
Lapsed on 31.5.17
Will lapse on 31.10.17
Will lapse on 31.10.17
£1
Partly vested on 31.5.16
£1
£1
£1
Lapsed on 3.2.17
Lapsed on 3.2.17
Lapsed on 3.2.17
1 Total exercise price of £1.00 on each occasion.
2 61,295 of these awards vested to Rob Cotton in 2016. The remainder lapsed.
3 28,509 of these awards vested to Atul Patel in 2016. The remainder lapsed.
Summary of maximum awards outstanding
Total LTIP
Options held at
31 May 2016
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 2017
Rob Cotton
Atul Patel
759,580
182,069
348,787
84,828
61,295
28,509
£2.973
£2.974
251,432
688,9221
405,1062
0
1 The Company has agreed with Rob Cotton that these options will lapse when he leaves the Company on 31 October 2017.
2 288,161 of this sum lapsed upon Atul Patel’s departure from the Group on 3 February 2017.
3 Rob Cotton’s aggregate gain on the exercise of the LTIPs was £182,046.15.
4 Atul Patel’s aggregate gain on the exercise of the LTIPs was £84,671.73.
All awards granted under the LTIP were subject to continued employment and the satisfaction of the performance conditions as
set out below. The awards were all nominal cost options.
Performance conditions for the above awards
The outstanding awards from the period 1 June 2014 disclosed above were subject to the following performance conditions. If
adjusted EPS growth was equal to 15 per cent or more per annum, then 100 per cent of the award will vest. If, however, growth
was less than 9 per cent per annum, none of the award governed by the EPS condition will vest. Performance between the two
points of measure was to be determined between 20 per cent and 100 per cent on a straight-line basis.
The outstanding awards up to the period 31 May 2014 disclosed above were subject to the following performance conditions.
If adjusted EPS growth was equal to 25 per cent or more per annum, then 100 per cent of the award would have vested. If,
however, growth was less than 10 per cent per annum, none of the award governed by the EPS condition would have vested.
Performance between the two points of measure would have been determined on a straight-line basis.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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GOVERNANCE
Remuneration
committee report
ANNUAL REPORT ON REMUNERATION
Share ownership (Audited)
The beneficial and non-beneficial interests of the current directors in the share capital of NCC Group at 31 May 2017 are
set out below.
Beneficial Interests in
ordinary shares1
Maximum Share awards subject to
performance conditions
Share options
Total
31 May
2016
31 May
2017
31 May
2016
31 May
2017
31 May
2016
31 May
2017
31 May
2016
31 May
2017
Brian Tenner
–
–
Debbie Hewitt
37,389
37,389
Thomas Chambers
20,900
20,900
Chris Batterham
22,000
22,000
Chris Stone
Jonathan Brooks
–
–
–
–
1 This information includes holdings of any connected persons.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
37,389
37,389
20,900
20,900
22,000
22,000
–
–
–
–
The beneficial and non-beneficial interests of the Directors who departed from the Group during the year in the share capital of
NCC Group at 31 May 2017 are set out below.
Beneficial Interests in
ordinary shares1
Maximum Share awards subject to
performance conditions2
Share options
Total
31 May
2016
31 May
2017
Rob Cotton
5,487,033
5,652,406
Atul Patel
105,284
120,367
Paul Mitchell
650,000
700,000
31 May
2016
759,580
348,787
–
31 May
2017
31 May
2016
31 May
2017
31 May
2016
31 May
2017
400,4905
13,8783
5,9333
6,260,491
6,058,829
–6
–
11,8774
19,4977
465,948
139,864
–
–
650,000
700,000
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 97.
3 Represents the SAYE scheme interest, of which 7,945 vested in October 2016 and 5,933 vest in October 2017.
4 Represents the SAYE scheme interest granted in October 2014. All SAYE interests held by Atul Patel lapsed on his departure from the Group on 3 February 2017.
5 Represents LTIP interests awarded in July 2015 and July 2016 which will lapse upon cessation of Rob Cotton’s employment on 31 October 2017.
6 All LTIP interests held by Atul Patel during the year lapsed on 3 February 2017.
7 Represents the pro rata amount of deferred share options granted on 28 July 2015. All SAYE interests held by Atul Patel during the year lapsed on 3 February 2017.
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Shareholding Requirements (Audited)
This year, the Remuneration Committee has decided to adopt a new guideline with regard to Executive shareholding. The
Executive Directors are expected to build and retain a shareholding in the Group at least equivalent to 200 per cent of base
salary. Executives will be required to retain all vested deferred bonus shares and LTIP shares released from the holding period
until they have attained the minimum shareholding guideline and even then, only when they have held vested LTIP shares for a
minimum period of two years. For the avoidance of doubt, Executive Directors are permitted to sell sufficient shares in order to
meet any tax obligation arising from vesting shares.
Brian Tenner
Shareholding
requirements
(% of current
salary)
Current
shareholding
(% of salary)
Requirement
met
200
0
No
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 costs1
Dividends2
31 May 2017
£m
31 May 2016
£m
% Change
136.3
12.8
100.1
10.3
36
24
1
2
Based on the figure shown in note 5 to the Financial Statements.
Based on the cash returned to shareholders in the year ended 31 May 2017 through dividends as shown in note 9 to the Financial Statements.
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
Taxable benefits
Annual Bonus
* Nil bonus was paid in respect of the year ended 31 May 2017
Chief Executive
Employees
Chief Executive (% of salary)
Employees (% of salary)
Chief Executive (% of salary)
Employees (% of salary)
% increase
6.0
6.0
5.5
11.2
–*
7.7
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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GOVERNANCE
Remuneration
committee report
ANNUAL REPORT ON REMUNERATION
Performance graph and table
The following graph shows the total shareholder return, with dividends reinvested, from 31 May 2010 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 £3.68 and £1.07 and ended the year at £1.66.
Eight year historical TSR performance growth in the value of a hypothetical £100 holding over eight years FTSE All Share
comparison based on spot value.
900%
800%
700%
600%
500%
400%
300%
200%
100%
0%
01 June 09
01 June 10
01 June 11
01 June 12
01 June 13
01 June 14
01 June 15
01 June 16
01 June 17
NCC GROUP PLC
FTSE ALL-SHARE INDEX
The share price was £2.86 on 1 June 2016 and £1.66 on 31 May 2017 a decrease of 42 per cent in the year. The table below
shows the total remuneration for the Chief Executive over the same eight year period including share awards valued at the date
they vested.
Year Ended
31 May 2017
31 May 2016
31 May 2015
31 May 2014
31 May 2013
31 May 2012
31 May 2011
31 May 2010
Chief Executive
Rob Cotton1
Rob Cotton
Rob Cotton
Rob Cotton
Rob Cotton
Rob Cotton
Rob Cotton
Rob Cotton
Total Remuneration
(£000)
Annual Bonus
(% of max)2
Long-term incentives
(% of max)3
£610
£1,091
£993
£1,089
£1,118
£1,074
£1,222
£836
0
70
73
73
04
85
67
71
0
20
15
50
63
70
54
72
1 Rob Cotton stepped down from the Board and was put on garden leave from 1 March 2017. He will leave the Company on 31 October 2017.
2
Note that this shows the annual bonus payments as a percentage of the maximum opportunity.
Shows the number of shares, which vested as a percentage of the maximum number of shares, which could have vested.
In 2012/13 Rob Cotton waived his right to a bonus, which would have been equal to 32 per cent of salary. This was equivalent to 50 per cent of the maximum
bonus opportunity.
3
4
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Membership and attendance
The Remuneration Committee membership consists solely
of Non-Executive Directors and comprises Debbie Hewitt as
Chairman, Thomas Chambers, Chris Batterham and Jonathan
Brooks.
The Executive Chairman, Chief Finance Officer 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:
Dilution
The LTIP has a dilution limit, for new and treasury shares,
of 10 per cent of the issued ordinary share capital of the
Company in any ten year period for any share option scheme
operated by the Company. As at 31 May 2017 the Company
had utilised 17,752,848 (31 May 2016: 19,727,431) ordinary
shares through LTIP, SAYE, EMI, CSOP, ISO and ESPP awards
counting towards the 10 per cent limit which represents
6.42 per cent (2016: 7.15 per cent) of the issued ordinary
share capital of the Company.
Statement of shareholder voting
At the 2014 AGM, the Directors’ Remuneration policy received
the following votes from shareholders.
Debbie Hewitt
Thomas Chambers
Chris Batterham
Jonathan Brooks1
Meetings attended
For
Against
Total number
of votes
%
of votes cast
163,136,669
83,317
99.95
0.05
Total votes cast (for and against
excluding withheld votes)
163,219,986
100.0
1 Appointed Non-Executive Director and member of the Remuneration
Votes withheld1
9,377,487
Committee in March 2017.
Advisers 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 2016/17 was £700. Aon Hewitt did not
provide any other services to the Company during the year.
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 current
Directors include the following terms.
For1
Against
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 Report
received the following votes from shareholders.
Total number
of votes
%
of votes cast
212,330,807
2,312,857
98.92
1.08
Executive
Date of contract
Notice period
Brian Tenner
1 February 2017
6 months
Non-Executive
Chris Stone1
6 April 2017
Debbie Hewitt
18 September 2008
Thomas Chambers
20 September 2012
Chris Batterham
9 April 2015
Jonathan Brooks
13 March 2017
3 months
3 months
3 months
3 months
3 months
1
Appointed initially as Executive Chairman and Chris will remain as Executive
Chairman until a new Chief Executive Officer is appointed, at which point he
will become Non-Executive Chairman.
Total votes cast (for and against
excluding withheld votes)
Votes withheld
214,643,664
18,955
100.0
(excluding
withheld votes)
Total votes cast (including withheld
votes)
214,662,619
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
CHAIRMAN, REMUNERATION COMMITTEE
18 July 2017
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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Going concern
In adopting the going concern basis for preparing the financial
statements, the Directors have considered, among other
matters, the Group’s principal risks and uncertainties as set out
on pages 48 to 53. 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.
Viability statement
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, as set out on page 53.
Post balance sheet events
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. After the
year end the Group decided to dispose of two business units,
Software Testing and Web Peformance. This is disclosed in
more detail in the Strategic Report.
GOVERNANCE
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 2017.
Principal activities
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. In August 2017, the headquarters of
the Company will be relocating from Manchester Technology
Centre to XYZ Building, 2 Hardman Boulevard, Spinningfields,
M3 3AQ.
The principal activity of the Group is the provision of
independent advice and services to customers through
the provision of escrow and cyber assurance services. The
principal activity of the Company is that of a holding company.
Strategic report
Pursuant to sections 414A-D Companies Act 2006, the
strategic report can be found on pages 16 to 57. 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.
UK Corporate Governance Code
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 58 to 111.
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.
Results and dividends
The Group’s and Company’s audited Financial Statements for
the financial year ended 31 May 2017 are set out on pages
113 to 169.
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 24 February 2017 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 29 September
2017 to shareholders on the register at the close of business
on 1 September 2017. The ex dividend date will be 31 August
2017.
An administrative non-compliance issue has been identified
with respect to distributable reserves and the payment of
previous dividends. The Company expects to remedy the
position by means of shareholder resolutions at a general
meeting to follow the AGM in September.
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Share capital and control
At the Company’s Annual General Meeting held on
22 September 2016, the Directors were granted authority
to allot up to 91,987,383 ordinary shares representing
approximately a third of the Company’s issued share capital. In
addition, the Directors were granted authority to allot a further
91,987,383 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.
As at 31 May 2017, the Company’s issued ordinary share
capital comprised 276,510,137 ordinary shares with a nominal
value of
1 penny each, of which no ordinary shares were held in
treasury.
During the year ended 31 May 2017, 570,373 shares in the
Company were issued further to the exercise of options
pursuant to the Company’s share option schemes. 116,714
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.
The holders of ordinary shares are entitled, among 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.
Authority to purchase own shares
At the Company’s Annual General Meeting held on
22 September 2016, shareholders authorised the Company to
make market purchases of up to 27,596,215 ordinary shares
representing approximately 10 per cent of the issued share
capital. This authority was not used during the financial year
ended 31 May 2017. At the 2017 Annual General Meeting,
shareholders will be asked to give a similar authority.
The Company currently holds nil ordinary shares in treasury.
Directors
Details of the Company’s current Directors, together with brief
biographical details are set out on pages 62 to 63. In addition,
the following were Directors of the Company in the financial
year: Atul Patel until 3 February 2017, Rob Cotton until1March
2017 and Paul Mitchell until 31 May 2017.
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 at the AGM
each year.
Directors’ remuneration
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
86 to 107.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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GOVERNANCE
Directors’
report
Directors’ interests
Directors’ interests in shares and share options in the
Company are detailed in the Directors’ Remuneration Report
set out on page 104.
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 2017 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.
Corporate social responsibility
The Corporate social responsibility report on pages 54 to 57
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
(2016: £Nil).
Greenhouse Gas Emissions
The Board is committed to maintaining the environment and
limiting wherever possible its greenhouse gas emissions, this
is covered on page 57 in the Corporate Social Responsibility
report.
Change of control
In the event of a change of control of the Company, the Group
and each of its lenders shall enter into negotiation for a period
to determine how the Group’s loan facilities may continue and
if after negotiation 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 reappoint KPMG LLP as auditors will be put to
the members at the Annual General Meeting.
Annual General Meeting
The notice of the Company’s Annual General Meeting to be
held on 21 September 2017 at the offices of DLA Piper UK
LLP, 1 London Wall, London, EC2Y 5EA, 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.
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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
Page Ref
111
N/A
87-107
N/A
N/A
N/A
Capitalised interest
During the period, £nil (2016: £105,000) of interest was capitalised by the Group the tax benefit on this amount is £nil
(2016: 23,000).
On behalf of the Board
Brian Tenner
INTERIM CHIEF EXECUTIVE OFFICER
18 July 2017
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GOVERNANCE
Directors’ responsibilities
statement
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
z 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
z the strategic report/Directors’ report includes 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.
For and on behalf of the Board
Brian Tenner
INTERIM CHIEF EXECUTIVE OFFICER
18 July 2017
Statement of Directors’ responsibilities
in respect of the Annual Report and the
financial statements
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:
z select suitable accounting policies and then apply them
consistently;
z make judgements and estimates that are reasonable and
prudent;
z state whether they have been prepared in accordance with
IFRSs as adopted by the EU; and
z 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.
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.
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FINANCIAL STATEMENTS
Contents
Independent auditor’s report
114
Consolidated income statement 118
Consolidated statement
of comprehensive income
Consolidated statement of
financial position
Consolidated statement
of cash flows
Company statement
of cash flows
Statements of changes
of equity
Notes to the accounts
Glossary of terms
Company information
119
120
122
124
125
127
170
172
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FINANCIAL STATEMENTS
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
is unmodified
We have audited the financial statements of NCC Group plc
for the year ended 31 May 2017 set out on pages 134 to 169.
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 2017 and of the Group’s loss 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.
Overview
Materiality:
Group financial
statements as a
whole
£0.74m (2016: £1.20m)
4.7% (2016: 5.0%) of the Group profit
before tax normalised to exclude
individually significant items
Coverage
96% (2016: 99%) of Group profit before tax
Risks of material misstatement
vs 2016
Recurring
risks
Recoverability of goodwill
Capitalisation of software and
development costs as intangible assets
Business combinations accounting
The risk in relation to the recoverability of goodwill has
reduced following the impairment of £54.3m recognised
during the year.
2. Our assessment of risks of material misstatement
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 (unchanged from 2016):
The risk
Our response
Recoverability
of goodwill
(Goodwill
£198.7m,
2016: goodwill
£224.3m)
Refer to page 76
(Audit Committee
Report),
page 128
(accounting
policy) and
page 132
(financial
disclosures).
Subjective valuation
Our procedures included:
The trading environment in the year has been
challenging for NCC Group plc resulting in
a change in Directors and a Group wide-
strategic review. The resultant change in
operating structure has led to a reassessment
of the Group’s cash generating units (CGUs).
The assessment of the recoverability of
goodwill could vary significantly depending on
the determination of CGUs.
Forecast-based valuation
Due to the inherent uncertainty involved
in forecasting and discounting future cash
flows which are the basis of the assessment
of recoverability, the outcome could vary
significantly if different assumptions were
applied in the model.
Goodwill balances have increased significantly
over recent years following a number of
acquisitions, some of which involve early start-
up businesses.
During the year ending 31 May 2017
impairment of £54.3m has been recognised in
respect of goodwill.
z Testing application: Reviewing the Group’s determination of CGUs against
our interpretation of the requirements of the relevant accounting standard,
particularly in regards to whether the CGUs are capable of generating
independent cash inflows.
z Historical comparison: Assessing the Group’s forecasting accuracy by
comparing actual results in the period to what was previously forecast for the
year.
z Our sector experience: Assessing the reasonableness of future cash
flow forecasts for each CGU having regard to actual trends and known future
orders.
z Benchmarking assumptions: With assistance from our own valuation
specialists we critically evaluated the risk adjusted discount rates, with regard
to market observable data of risk free rates, returns on equity for comparable
companies and company size premium. We also evaluated the assumptions for
cost inflation and terminal growth rate, having regard to market data.
z Comparing valuations: Comparing the sum of the discounted cash
flows to the Group’s market capitalisation adjusted for debt to assess the
reasonableness of the value in use calculations.
z Sensitivity analysis: Performing break-even analysis on the assumptions
noted above for CGUs where no impairment had been identified by the Group.
z Assessing transparency: Assessing the Group’s disclosures about the
sensitivity of the outcome of the impairment assessment to changes in key
assumptions reflect the risks inherent in the valuation of goodwill. We also
assessed the adequacy of the Group’s disclosures in respect of the changes
made in identifying the Group’s CGUs.
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The risk
Our response
Accounting treatment
Our procedures included:
z Testing application: Agreeing a sample of costs to supporting
documentation to understand the nature of the items and evaluate the
appropriateness of their classification as capitalised costs, having regard to the
relevant accounting standards. This included assessing whether major projects
are technically feasible and commercially viable by reference to existing and
future orders.
z Personnel interviews: Corroborating the costs capitalised with information
from the project teams regarding the nature of work performed in the year for
which costs have been capitalised.
z Historical comparison: Assessing the Group’s forecasting accuracy by
comparing actual results in the period to what was previously forecast for the
year for each significant project. Critically evaluating the assumptions for future
customer sign up rates, having regard to actual rates in previous years.
z Benchmarking assumptions: Critically evaluating the discount rates,
revenue and cost inflation having regard for market observable data.
z Assessing transparency: Considering the adequacy of the Group’s
disclosures in respect of the capitalisation of software and development
intangible assets.
The Group capitalises internal and external
costs in respect of software and development
projects. The Group has also capitalised costs
in relation to the finance and operational
systems upgrades that represent substantial
improvements to these assets. The Directors
apply judgement in the classification of
expenditure as capital in nature rather than
ongoing operational expenditure.
Forecast-based valuation
Revenues have been falling short of
business plans, due to a challenging trading
environment. As a result, the Group has
tested previously capitalised software and
development costs for impairment. 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 timing and amount of
capital expenditure, customer sign up rates
and related cost of sales, and discount rate
applied to future cash flows require significant
estimation and judgement.
During the year ended 31 May 2017 the
Group has impaired capitalised development
costs by £7.7m in relation to certain specific
projects where the generation of future
economic benefits is no longer probable.
Accounting treatment
Our procedures included:
The Group made two acquisitions during the
year. Judgement is involved, in relation to the
identification of assets and liabilities acquired,
particularly separately recognised intangible
assets.
z Accounting analysis: Assessing the judgements taken around fair value
adjustments having regard to relevant accounting standards. Considering
the separately identified intangible assets acquired through gaining an
understanding of the business acquired and applying our professional
experience and judgement.
Subjective valuation
The most subjective area relates to the
fair value valuation of assets and liabilities
acquired, especially acquired intangibles such
as customer contracts and relationships.
z Methodology choice: Comparing the methodology used in the valuation of
acquired intangibles using the expertise of our internal valuation specialists.
z Benchmarking assumptions: Critically evaluating assumptions such as
discount rates, growth rates and customer churn rates applied in the valuation
of acquired intangibles, having regard to internal and external data.
z Assessing transparency: Considering the adequacy of the Group’s
disclosures in respect of the business combinations accounting.
Capitalisation
of software and
development
costs as
intangible
assets
(Additions in
the year: £7.4m;
2016: £8.8m)
(Net book
value: £19.2m;
2016: £21.9m)
Refer to page 76
(Audit Committee
Report), page
128 (accounting
policy) and
page 77 (financial
disclosures).
Business
combinations
accounting
(Acquired
intangibles £7.7m;
2016: acquired
intangibles
£25.4m)
Refer to page 77
(Audit Committee
Report),
page 128
(accounting
policy) and
page 77 (financial
disclosures).
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Independent
auditor’s report
TO THE MEMBERS OF NCC GROUP PLC ONLY
3. Our application of materiality and an
overview of the scope of our audit
Materiality for the Group financial statements as a whole was
set at £0.74m (2016: £1.20m), determined with reference to a
benchmark of Group profit before tax of £15.7m (normalised to
exclude the individually significant items as disclosed in note 3),
of which it represents 4.7 per cent (2016: 5.0 per cent).
We reported to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £37,000
(2016: £60,000), in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Of the Group’s 21 (2016: 20) reporting components, we
subjected 11 (2016: 10) to audits for Group reporting
purposes. We conducted reviews of financial information
(including enquiry) at a further five (2016: seven) non-
significant components 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: 96
per cent of the Group’s profit before tax, 91 per cent of the
Group’s profit before tax normalised to exclude individually
significant items, 96 per cent of Group revenues and 97 per
cent of Group total assets (2016: 99 per cent of the Group’s
profit before tax, 96 per cent of the Group’s profit before tax
normalised to exclude individually significant items, 97 per cent
of Group revenues and 91 per cent of Group total assets).
For the remaining five 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.
The Group audit team instructed component auditors as to
the significant areas to be covered, including the relevant
risks detailed above and the information to be reported back.
The Group audit team approved the component materialities,
which ranged from £0.15m to £0.45m (2016: £0.25m to
£0.50m), having regard to the mix of size and risk profile of
Group profit before tax
normalised for individually
significant items
£15.7m
(2016: £23.9m)
PBT normalised for ...
Group materiality
Materiality £0.74m (2016: £1.20m)
£0.74m
Whole financial
statements materiality
(2016: £1.20m)
£0.45m
Range of materiality
at 11 components
(£0.15m-£0.45m)
(2016: £0.25m to £0.50m)
£37,000
Misstatements reported to the
Audit Committee (2016: £60,000)
Group profit before tax
normalised to exclude
individually significant items
Group revenue
Group profit before tax
Group total assets
8
29
96%
(2016: 97%)
68
88
11
14
96%
(2016: 99%)
16
10
97%
(2016: 91%)
85
85
81
81
22
22
91%
(2016 96%)
74
69
Full scope for Group audit
purposes 2017
A review of financial
information 2017
Full scope for Group audit
purposes 2016
A review of financial
information 2016
Residual components
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the Group across the components. The work on one of the
21 components (2016: none of the 20 components) was
performed by component auditors and the rest by the Group
audit team. The Group audit team performed procedures on
the items excluded from normalised Group profit before tax.
The Group audit team visited one (2016: n/a) component
location in Delft, Netherlands (2016: n/a), including to assess
the audit risk and strategy. Telephone conference meetings
were also held with this component auditor. At this visit and
in these meetings, the findings reported to the Group audit
team were discussed in more detail, and any further work
required by the Group audit team was then performed by the
component auditor.
4. Our opinion on other matters prescribed
by the Companies Act 2006 is unmodified
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 is consistent with the
financial statements.
Based solely on the work required to be undertaken in the
course of the audit of the financial statements and from
reading the Strategic Report and the Directors’ Report:
— we have not identified material misstatements in those
reports; and
— in our opinion, those reports have been prepared in
accordance with the Companies Act 2006.
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:
— the viability statement on page 53, 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 2020; or
— the disclosures in note 1 of the financial statements
concerning the use of the going concern basis of
accounting.
6. We have nothing to report in respect of
the matters on which we are required to
report by exception
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 Audit Committee Report does not appropriately address
matters communicated by us to the Audit Committee.
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
— 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 records and returns; 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’ statements, set out on page 108, in relation
to going concern and longer term viability; and
— the part of the Corporate Governance Statement on
page 60 relating to the Company’s compliance with the
11 provisions of the 2014 UK Corporate Governance Code
specified for our review.
We have nothing to report in respect of the above
responsibilities.
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities
Statement set out on page 112, 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.
Stuart Burdass (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One St Peter’s Square
Manchester
M2 3AE
18 July 2017
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FINANCIAL STATEMENTS
Consolidated
income statement
FOR THE YEAR ENDED 31 MAY 2017
Note
2, 6
Revenue
Cost of sales
Reclassification of costs
4
Gross profit
Administration expenses
Administration expenses
comprises:
General & administrative
expenses
Profit on sale of subsidiary
companies
Amortisation of acquired
intangible assets
Individually significant items
Share based payments
6
11
3
22
Operating (loss)/profit
2, 4
Net interest expense
Discount on acquisition
consideration
Net financing costs
(Loss)/profit before
taxation
Taxation
7
8
Attributable to equity holders of
the parent Company
Earnings per share from
continuing operations
10
2017
Total
£m
2017
Adjustments
(Note 3)
£m
2017
Adjusted
£m
244.5
(160.2)
–
84.3
(137.7)
(2.6)
2.3
–
(0.3)
81.2
241.9
(157.9)
–
84.0
2016
Total
£m
209.1
(150.6)
21.2
79.7
(56.5)
(68.3)
(57.0)
0.5
(56.5)
(41.4)
1.2
(1.2)
(10.3)
(71.0)
(0.6)
(53.4)
(1.4)
(0.5)
(1.9)
(55.3)
(1.3)
10.3
71.0
0.6
80.9
–
0.5
0.5
81.4
(6.3)
–
–
–
27.5
(1.4)
–
(1.4)
26.1
(7.6)
–
(6.8)
(18.9)
(1.2)
11.4
(1.4)
(0.6)
(2.0)
9.4
(3.1)
2016
Adjustments
(Note 3)
£m
(4.9)
3.8
–
(1.1)
29.4
2.5
–
6.8
18.9
1.2
28.3
–
0.6
0.6
28.9
(5.2)
2016
Adjusted
£m
204.2
(146.8)
21.2
78.6
(38.9)
(38.9)
–
–
–
–
39.7
(1.4)
–
(1.4)
38.3
(8.3)
(56.6)
75.1
18.5
6.3
23.7
30.0
Basic earnings per share
(20.4)p
2.5p
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Consolidated statement
of comprehensive income
FOR THE YEAR ENDED 31 MAY 2017
(Loss)/profit for the year
Items that may be reclassified subsequently to profit or loss (net of tax)
Foreign exchange translation differences
Total comprehensive (loss)/income for the year, net of tax
Attributable to:
Equity holders of the parent
2017
£m
(56.6)
17.9
(38.7)
2016
£m
6.3
9.7
16.0
(38.7)
16.0
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Consolidated statement
of financial position
AT 31 MAY 2017
Notes
£m
2017
£m
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
Current liabilities
Trade and other payables
Provisions
Consideration on acquisitions
Deferred revenue
Current tax payable
Total current liabilities
Non-current liabilities
Deferred tax liability
Provisions
Consideration on acquisitions
Interest bearing loans
Total non-current liabilities
Net assets
Equity
Issued capital
Share premium
Merger reserve
Retained earnings
Reserve for own shares
Currency translation reserve
11
12
13
17
14
15
24
18
18
18
19
17
20
20
21, 22
23
267.6
18.3
0.4
4.2
66.7
1.1
12.3
29.7
1.5
12.9
35.6
3.0
14.2
3.5
2.1
56.0
2.8
148.0
42.3
(7.1)
–
26.1
2016
£m
£m
297.3
12.7
0.6
5.3
290.5
315.9
80.1
370.6
82.7
75.8
212.1
87.4
403.3
72.6
67.8
262.9
66.4
0.3
20.7
31.6
–
3.5
36.3
1.2
15.5
0.4
18.5
33.4
2.8
147.3
42.3
62.5
(0.2)
8.2
Total equity attributable to equity holders of the parent
212.1
262.9
These financial statements were approved by the Board of Directors on 18 July 2017 and were signed on its behalf by:
Brian Tenner
INTERIM CHIEF EXECUTIVE
NCC Group plc
4627044
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Stock Code: NCC
Company statement
of financial position
AT 31 MAY 2017
Notes
£m
2017
£m
Non-current assets
Goodwill
Investments in subsidiaries
Total non-current assets
Current assets
Intercompany receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Intercompany payables
Total current liabilities
Net assets
Equity
Issued capital
Share premium
Merger reserve
Reserve for own shares
Retained earnings
Total equity
29
30
14
14.4
60.7
149.5
0.2
2016
£m
£m
–
87.5
75.1
87.5
130.2
–
149.7
224.8
130.2
217.7
10.6
207.1
18
–
10.6
–
224.8
23
2.8
148.0
42.3
–
31.7
2.8
147.3
42.3
(0.2)
14.9
224.8
207.1
These financial statements were approved by the Board of Directors on 18 July 2017 and were signed on its behalf by:
Brian Tenner
INTERIM CHIEF EXECUTIVE
NCC Group plc
4627044
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FINANCIAL STATEMENTS
Consolidated statement
of cash flows
FOR THE YEAR ENDED 31 MAY 2017
Cash inflow for the year before changes in working capital
Increase in trade and other receivables
Decrease in trade and other 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
Purchase of plant and equipment
Capital contribution for property, plant and equipment
Proceeds from disposal of property
Software and development expenditure
Acquisition of businesses
Cash acquired with subsidiaries
Cash disposed of from sale of subsidiaries
Proceeds from sale of subsidiaries
Net cash generated in investing activities
Cash flows from financing activities
Purchase of own shares
Proceeds from the issue of ordinary share capital
Drawdown/(repayment) of borrowings
Equity dividends paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign currency exchange rate changes
Cash and cash equivalents at end of year
Notes
24
12
20
11
16
6
6
9
24
2017
£m
33.8
(2.3)
0.2
31.7
(1.9)
(1.8)
28.0
2016
£m
37.3
(15.1)
0.9
23.1
(2.0)
(7.3)
13.8
(11.0)
(4.6)
3.7
0.4
(7.4)
(28.4)
1.9
(1.7)
1.7
–
–
(8.9)
(78.5)
1.8
–
–
(40.8)
(90.2)
–
0.7
18.9
(12.8)
6.8
(6.0)
20.7
(2.4)
12.3
(0.1)
123.8
(33.5)
(10.3)
79.9
3.5
16.4
0.8
20.7
122
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Consolidated statement
of cash flows
FOR THE YEAR ENDED 31 MAY 2017
Reconciliation of net change in cash and cash equivalents to movement in net debt
(Decrease)/increase in cash and cash equivalents
Change in net debt resulting from cashflows
Effect of foreign currency on cashflows
Foreign currency translation differences on borrowings
Change in net debt during the year
Net debt at start of year
Net debt at end of year
Net debt comprises
Cash and cash equivalents
Total borrowings
Change in net debt during the year
2017
£m
(6.0)
(18.9)
(2.4)
(3.7)
(31.0)
(12.7)
(43.7)
2017
£m
12.3
(56.0)
(43.7)
2016
£m
3.5
33.5
0.9
–
37.9
(50.6)
(12.7)
2016
£m
20.7
(33.4)
(12.7)
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FINANCIAL STATEMENTS
Company statement
of cash flows
FOR THE YEAR ENDED 31 MAY 2017
Cash flow from operating activities
Profit for the year
Adjustments for:
Impairment of investments
Equity dividends received
Cash outflow for the year before changes in working capital
(Increase)/decrease in intercompany balances
Net cash generated from operating activities
Cash flows from investing activities
Equity dividends received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from the issue of ordinary share capital
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
Notes
25
30
9
2017
£m
2016
£m
29.0
8.8
13.0
(42.0)
–
12.3
12.3
–
–
0.7
(12.8)
(12.1)
0.2
–
0.2
–
(8.8)
–
(122.4)
(122.4)
8.8
8.8
123.8
(10.3)
113.5
–
0.1
–
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Statements of changes
of equity
FOR THE YEAR ENDED 31 MAY 2017
Group
Issued
share
capital
£m
Share
premium
£m
Merger
reserve
£m
Currency
translation
reserve
£m
Reserve
for own
shares
£m
Retained
earnings
£m
Balance at 1 June 2015
2.3
24.0
42.3
(1.5)
(0.5)
Profit for the year
Adjustment to currency translation reserve
from sale of subsidiary companies
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
Balance at 31 May 2016
–
–
–
–
–
–
–
0.5
–
0.5
2.8
–
–
–
–
–
–
–
123.3
–
123.3
147.3
–
–
–
–
–
–
–
–
–
–
–
0.1
9.6
9.7
–
–
–
–
–
–
42.3
8.2
Total
£m
131.7
6.3
0.1
9.6
65.1
6.3
–
–
6.3
16.0
(10.3)
(10.3)
1.1
0.6
–
1.1
0.6
123.8
–
–
–
–
–
–
–
–
0.3
(0.3)
–
0.3
(0.2)
(8.9)
115.2
62.5
262.9
Issued
share
capital
£m
Share
premium
£m
Merger
reserve
£m
Currency
translation
reserve
£m
Reserve
for own
shares
£m
Retained
earnings
£m
Total
£m
Balance at 1 June 2016
(Loss)/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
2.8
147.3
42.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.7
–
0.7
–
–
–
–
–
–
–
–
–
8.2
–
17.9
17.9
–
–
–
–
–
–
Balance at 31 May 2017
2.8
148.0
42.3
26.1
(0.2)
62.5
262.9
–
–
–
–
–
–
–
0.2
0.2
–
(56.6)
(56.6)
–
17.9
(56.6)
(38.7)
(12.8)
(12.8)
0.2
(0.4)
–
–
0.2
(0.4)
0.7
0.2
(13.0)
(12.1)
(7.1)
212.1
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FINANCIAL STATEMENTS
Statements of changes
of equity
FOR THE YEAR ENDED 31 MAY 2017
Company
Balance at 1 June 2015
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
Increase in subsidiary investment for share based charges
Shares issued
Purchase of own shares
Total contributions by and distributions to owners
Balance at 31 May 2016
Balance at 1 June 2016
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
Increase in subsidiary investment for share based charges
Shares issued
Purchase of own shares
Total contributions by and distributions to owners
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Reserve
for own
shares
£m
Retained
earnings
£m
2.3
24.0
42.3
(0.5)
15.6
–
–
–
–
–
0.5
–
0.5
2.8
–
–
–
–
–
123.3
–
123.3
147.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.3
0.3
42.3
(0.2)
14.9
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Reserve
for own
shares
£m
Retained
earnings
£m
2.8
147.3
42.3
(0.2)
(10.3)
(10.3)
Total
£m
83.7
8.8
–
8.8
1.1
123.8
–
114.6
207.1
Total
£m
207.1
29.0
–
8.8
–
8.8
1.1
–
(0.3)
(9.5)
14.9
29.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.7
–
0.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
0.2
–
29.0
29.0
(12.8)
(12.8)
0.6
–
0.6
0.7
0.2
(12.2)
(11.3)
31.7
224.8
Balance at 31 May 2017
2.8
148.0
42.3
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Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
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 18 July 2017.
Both the parent Company and the Group financial statements
have been prepared 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 that is measured at fair value.
Functional and presentation currency
The Group and Company financial statements are presented in
millions of Pounds Sterling (£m) and all values are rounded to
one decimal place 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 16 to 57. The financial
position of the Group, its cash flows, liquidity position and
borrowing facilities are described in the Business and Financial
Review on pages 2 to 15. In addition, note 21 to the financial
statements includes the Group’s policies and processes for
managing its capital, its financial risk management objectives,
details of its financial instruments 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 £80.0m, a £25.0m multi-currency
term loan that amortises by £2.5m every six months and an
overdraft of £5m. At 31 May 2017, the amount drawn down
under the facilities was £56.0m. This facility was agreed in
November 2015 and is due for renewal in November 2020.
The Directors have reviewed the trading and cash flow
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
a period of at least 12 months. Accordingly, they continue to
adopt the going concern basis in preparing the annual report
and accounts.
New standards
No new standards have been adopted for the first time that
affect the reported results or financial position.
New IFRS and amendments to IAS and interpretations
At the date of authorisation of these financial statements, the
following Standards and Interpretations which have not been
applied in these financial statements were in issue but not
yet effective (and in some cases had not yet been adopted
by the EU). The Group does not intend to early adopt these
standards:
z IFRS 15 Revenue from Contracts with Customers will
be effective from the year ending 31 May 2019 onwards.
Management continues to assess the likely impact of this
standard.
z IFRS 9 Financial Instruments – Recognition and
Measurement will be effective from the year ending 31 May
2019 onwards. Management is still considering the impact
of this new standard.
IFRS 16 Leases will be effective from the year ending 31 May
2020 onwards and the impact on the financial statements will
be significant to NCC Group plc. IFRS 16 requires lessees
to recognise a lease liability reflecting future lease payments
and a right-of-use asset for all lease contracts. Therefore,
the substantial majority of the Group’s operating lease
commitments (some £56.4m on an undiscounted basis, as
shown in note 26) would be brought on to the balance sheet
and amortised and depreciated separately. There will be no
impact on cash flows although the presentation of the cash
flow statement will change significantly. Management is still
considering the impact of this new standard and is as yet
unable to quantify its likely impact.
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
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
For acquisitions on or after 1 June 2010, the Group measures
goodwill at the acquisition date as:
z the fair value of the consideration transferred; plus
z the recognised amount of any non-controlling interests in
the acquiree; plus
z if the business combination is achieved in stages, the fair
value of the existing equity interest in the acquiree; less
z 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
remeasured 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.
Intangible assets and 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 as “development costs” 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.
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Software costs
The Group capitalises “software costs” in accordance with
the criteria of IAS 38. Software costs comprise two elements,
IT licences for periods of one year or more, and the third
party and internal employee time costs for internal system
developments. Capitalised costs are initially measured at cost
and amortised on a straight-line basis over the licence term or
the period for which the developed system is expected to be in
use as a business platform.
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 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, is recognised in the income
statement as an expense as incurred.
Amortisation
Amortisation is charged to the income statement on a
straight-line basis over the estimated useful economic
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
– between three and ten years
contracts and relationships
Software
– between one and seven years
Capitalised development costs – between three and ten 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, (“CGUs”). 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 the income statement.
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
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
1 Accounting policies (continued)
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.
Related party transactions
Details of related party transactions are set out in note 28 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 economic lives of
each part of an item of plant and equipment as follows:
Computer equipment
Plant and equipment
Furniture
Fixtures and fittings
Motor vehicles
– between thee and five years
– between thee and five years
– between thee and five years
– term of the lease
– four years
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 goods and services provided
during the period, excluding VAT and similar taxes. The
application of this policy in each of the operating segments is
as follows:
Assurance services
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, a
higher proportion of the total costs can be incurred in the first
month due to set-up costs . Where this is the case, a greater
proportion of the associated revenue is also recognised at the
same time as the costs, with the remainder deferred over the
life of the contract.
Escrow and website monitoring
Fees are recognised on completion of the services attributable
to the initial set-up of a new project, contract and also in
respect of verification services. 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. This
revenue recognition policy applies to the Open Registry Group
which was disposed of during the financial year.
Sale of products
Revenue is recognised when the significant risks and rewards
of ownership of the products have passed to the buyer, which
is considered to be upon delivery under the contractual terms,
and when the amount of revenue can be measured reliably.
Determination and presentation of operating segments
The Group determines and presents operating segments
based on the information that is provided to the Board, whom
acts as the Group’s chief operating decision-maker (“CODM”)
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 CODM to make decisions about resources to
be allocated to the segment and to assess its performance.
The Group reports its business in two key segments: The
Escrow division and the Assurance division. Within the Escrow
division we manage some aspects of the day-to-day business
on a geographical basis and this allows us to disclose revenue
and operating profit for those geographies. However, while we
can manage and disclose some aspects of those as individual
operating segments, they are all managed under the Escrow
division’s senior executive team. That team takes the decisions
on resource allocation, product development, marketing and
areas for focus and investment. For this reason, the Escrow
division is regarded as the appropriate reporting segment with
additional operating segment disclosures presented to give the
user of the accounts a further level of granularity.
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Within the Assurance division, the business has historically
differentiated between its core cyber security and consulting
activities on the one hand and on the other its Web
Performance activity and its Software Testing activity. However,
similar to Escrow, the different activities came together under
an Assurance management team for strategic and resource
allocation decision-making. The new Target Operating Model
for the Assurance division going forward confirms that
clustering of activities around a central theme or “golden
thread” of cyber security.
Individually significant items
The Group separately identifies items as individually significant
if the item is considered unusual by its nature or scale, and
is of such significance that separate disclosure is relevant to
understanding the Group’s financial performance and therefore
requires separate presentation in the financial statements in
order to fairly present the financial performance of the Group.
Such items are referred to as “individually significant items”
and are described in note 3.
Foreign currencies
Transactions in foreign currencies are recorded using the
appropriate monthly exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in
foreign currencies are retranslated using the exchange rate
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 retranslated at the exchange rate
ruling at the balance sheet date. The income statements
of overseas subsidiary undertakings are translated at the
weighted average exchange rates for the financial year.
Gains and losses arising on the retranslation of opening net
assets are taken to the currency translation reserve. They
are released to the income statement upon disposal of the
subsidiary to which they relate.
Operating lease 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 separate 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 payments 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. They are treated as an adjusting item in
arriving at the non-GAAP “Adjusted” Metrics.
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.
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 remeasured
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 is recognised in respect of that subsidiary in
its consolidated financial statements with the corresponding
credit being recognised directly in equity.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
1 Accounting policies (continued)
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 are recognised in the income statement as they
accrue, using the effective interest method. Interest is
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.
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 taxation. 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 taxation
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.
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
ongoing 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:
Impairment of goodwill
The Group has significant balances relating to goodwill at
31 May 2017 as a result of acquisitions of businesses. The
carrying value of goodwill at 31 May 2017 is £198.7m (2016:
£224.3m) following the impairment recorded during the
year. Goodwill balances are tested annually for impairment.
Tests for impairment are primarily based on the calculation
of a value in use for each cash-generating unit. This involves
the preparation of discounted cash flow projections, which
require an estimate of both future operating cash flows and
an appropriate risk adjusted discount rate. Such estimates are
inherently subjective and can have a material impact on the
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result of the impairment test.
A cash-generating unit (CGU) is the smallest identifiable
group of assets that generate cash inflows that are largely
independent of the cash inflows from other assets or groups
of assets. Identification of a CGU does involve judgement. The
Directors have made judgements in determining the cash-
generating units (“CGUs”) within the Group and in allocating
goodwill to these CGUs. As a result of the strategic review
undertaken during the year, management have reconsidered
the cash-generating units within the Group, this is discussed
further in note 11.
Capitalisation of development costs
Development activities involve a plan or design for the
production of new or substantially improved products or
processes. Judgement is required in determining whether the
project is technically and commercially feasible; estimation
is required in assessing the future economic benefit. Such
estimates are inherently subjective and can have a material
impact on determining the viability of the project and ultimately
whether the costs should be capitalised.
For projects where development costs have been capitalised,
impairment assessments require an estimate of both future
operating cash flows and an appropriate risk adjusted discount
rate. Such estimates are inherently subjective and can have a
material impact on the result of the impairment test.
Business combinations
During the current and prior year the Group has made a
number of significant acquisitions. The acquisition price in
some cases includes an element of contingent consideration;
the assessment of the fair value of the contingent
consideration requires estimating the fair value based on the
expected future cash outflow. Such estimates are inherently
subjective and can have a material impact on the reported
values.
For each acquisition, judgement is required in determining
the separately identifiable intangible assets acquired and
estimation is used to determine the fair value of the separately
identifiable assets. Estimation involves the preparation of
discounted cash flow projections, which require an estimate
of both future operating cash flows and an appropriate
risk adjusted discount rate to arrive at the fair value. Such
estimates are inherently subjective and can have a material
impact on the reported values.
In addition, the Group has sold its interest in the Open Registry
Group. An element of the consideration to be received is
contingent upon the future performance of the business. The
assessment of the fair value of the contingent consideration
requires estimating the fair value based on the expected future
cash inflow. Such estimates are inherently subjective and can
have a material impact on the reported values.
2 Segmental information
The Group is organised into the following two (2016: three)
reporting segments, Escrow and Assurance, 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 segment 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.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
2 Segmental information (continued)
Segmental analysis 2017
Revenue
Cost of sales
Gross profit
G&A before adjustments
Operating profit
Adjustments*
Adjusted operating profit
Depreciation of PP&E
Amortisation of software and capitalised
development costs
Adjusted EBITDA
Escrow
£m
Assurance
£m
Domain
£m
37.2
(2.0)
35.2
(17.1)
18.1
1.0
19.1
0.2
–
19.3
204.7
(155.9)
48.8
(104.4)
(55.6)
72.2
16.6
2.9
1.7
21.2
2.6
(2.3)
0.3
(4.5)
(4.2)
4.2
–
–
–
–
* Adjustments includes the results of Domain Services, individually significant items and other adjustments (note 3).
Segmental analysis 2016
Revenue
Cost of sales
Gross profit
G&A before adjustments
Operating profit
Adjustments*
Adjusted operating profit
Depreciation of PP&E
Depreciation of software and capitalised
development costs
Adjusted EBITDA
Escrow
£m
Assurance
£m
Domain
£m
35.3
(1.7)
33.6
(14.4)
19.2
0.9
20.1
0.2
–
20.3
168.9
(123.9)
45.0
(30.7)
14.3
11.5
25.8
2.0
0.7
28.5
4.9
(3.8)
1.1
(17.2)
(16.1)
15.6
(0.5)
–
–
(0.5)
There are no customer contracts which account for more than 10 per cent of segment revenue.
* Adjustments includes the results of Domain Services, individually significant items and other adjustments (note 3).
Head
Office
£m
–
–
–
(11.7)
(11.7)
3.5
(8.2)
2.1
1.8
(4.3)
Head
Office
£m
–
–
–
(6.0)
(6.0)
0.3
(5.7)
1.5
0.9
(3.3)
Group
£m
244.5
(160.2)
84.3
(137.7)
(53.4)
80.9
27.5
5.2
3.5
36.2
Group
£m
209.1
(129.4)
79.7
(68.3)
11.4
28.3
39.7
3.7
1.6
45.0
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Revenue by geographical destination
UK
Rest of Europe
Rest of the World
Total revenue
2017
£m
2016
£m
140.1
37.5
66.9
244.5
122.2
34.1
52.8
209.1
3 Individually significant items
Individually significant items and other adjustments have been presented in a separate column in the consolidated income
statement to provide users of the accounts with a reconciliation to the Group’s separately reported non-GAAP results.
The Group separately identifies items as “individually significant items”. As permitted by IAS 1 Presentation of financial statements,
an item is disclosed separately if it is considered unusual by its nature or scale, and is of such significance that separate
disclosure is required in the financial statements in order to fairly present the financial performance of the Group.
Adjustments
Domain Services results (note 6)
Profit on sale of subsidiary companies (note 6)
Amortisation of acquired intangible assets (note 11)
Individually significant items (see below)
Share based payments (note 22)
Discount on acquisition consideration (note 7)
Adjustment to loss before taxation
2017
£m
0.2
(1.2)
10.3
71.0
0.6
0.5
81.4
2016
£m
1.4
–
6.8
18.9
1.2
0.6
28.9
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
3 Individually significant items (continued)
The revenue, cost of sales and general and administrative expenses presented as adjustments in the current and prior year relate
to Domain services (note 6). The profit on sale of subsidiary companies relates to the disposal of the Open Registry Group in
January 2017 for a net profit £1.2m (note 6).
Individually significant items
Goodwill impairment:
– Fox-IT
– Accumuli
– Web Performance
– Open Registry
Intangible asset impairment:
– Capitalised development costs
– Software costs
Impairment of intangible assets
Acquisition related costs
Adjustments to consideration
Restructuring costs
Onerous property leases
Vacation pay
Impairment of fixtures and fittings
Other
Total – individually significant items
2017
£m
2016
£m
(24.3)
(24.3)
(5.7)
–
(5.7)
(2.0)
(62.0)
(0.8)
(2.9)
(1.3)
(1.3)
(1.8)
(0.9)
(9.0)
(71.0)
–
–
–
(11.9)
(6.8)
–
(18.7)
(2.3)
4.7
(2.6)
–
–
–
(0.2)
(18.9)
Acquisition related costs of £0.8m (2016: £2.3m) consist of fees incurred in relation to the acquisitions of Payment Software
Company Inc. on 28 September 2016 and Virtual Security Research LLC on 11 November 2016 (note 16). In the prior period, the
costs relate to fees incurred in relation to the acquisition of Fox-IT Holdings BV.
The adjustment to consideration of a £2.9m charge relates to foreign exchange revaluation differences on the carrying value
of consideration. In the prior year the £4.7m income relates to the net gains related to the reassessment of the Open Registry
contingent consideration and an adjustment to the consideration payable for a previous Accumuli plc acquisition.
A goodwill impairment of £54.3m (2016: £11.9m) has been recognised in respect of the CGUs for Fox-IT Holdings BV,
Accumuli plc and Web Performance (note 11). The Fox and former Accumuli businesses (the latter now known as MSS) have
underperformed in the year compared to our original acquisition forecasts and also encountered integration challenges that have
slowed the pace of commercial leverage of the different new service and product lines across the rest of the Group. In respect of
Web Performance, revenue generating intangible assets have been slower than originally anticipated to generate revenues and
the slower ramp-up in revenue has therefore led to the recognition of the impairment.
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The Directors have assessed the carrying value of intangible
assets and concluded that the carrying values of certain
capitalised development and software costs are impaired (note
11). Accordingly, a write down of £5.7m (2016: £6.8m) has
been recognised in respect of capitalised development costs
(£3.2m) and in respect of the .trust domain name (£2.5m).
In addition, residual Domain Services software with a book
value of £2.0m has been written off in full. In the prior year, the
intangible asset write down of £6.8m relates to the impairment
of capitalised costs for redundant technology.
The Group has incurred restructuring costs of £1.3m (2016:
£2.6m) relating to the exit payments to the former Chief
Executive (as shown in the Remuneration Report) and other
members of senior management, professional fees in relation
to the Strategic Review and retention bonuses paid to former
employees of Accumuli plc. As previously reported, NCC
Group became responsible for paying these bonuses on
acquisition of the Accumuli group. In the year to 31 May 2016,
restructuring costs included Accumuli plc retention bonuses,
severance costs and other costs associated with the wind
down of the Domain Services division.
The onerous property lease charge of £1.3m (2016: £nil) is
in respect of double running costs of empty properties. The
£1.8m charge for vacation pay relates to previous financial
periods and this is described in more detail in the Audit
Committee Report. Of the total charge, £0.5m relates to the
prior year with the balance relating to prior years up to 31 May
2015 with no significant charge in any one year. The £0.9m
(2016: £nil) impairment of fixtures and fittings relates to items
in the current head office which will be obsolete after the
relocation later this year.
The tax effect in the income statement relating to the individually significant items recognised is:
Goodwill impairment
Intangible asset impairment (breakdown shown below):
– Capitalised development costs
– Software costs
Impairment of intangible assets
Acquisition related costs
Adjustments to deferred and contingent consideration
Restructuring costs
Onerous property leases
Vacation pay
Impairment of fixtures and fittings
Other individually significant items
Total
2017
£m
–
(1.4)
–
(1.4)
(0.3)
0.1
(0.3)
(0.2)
(0.5)
–
(1.2)
(2.6)
2016
£m
–
(2.3)
–
(2.3)
(0.2)
–
(0.6)
–
–
–
(0.8)
(3.1)
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
4 Expenses and auditors’ remuneration
(Loss)/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
Total fees
Depreciation of property, plant and equipment (note 12)
Impairment of fixtures and fittings* (note 12)
Amortisation and other amounts written off intangible fixed assets:
Amortisation of development costs (note 11)
Amortisation of software costs (note 11)
Amortisation of acquired intangibles (note 11)
Impairment of goodwill* (note 11)
Impairment of capitalised development costs*
Impairment of software costs*
Operating lease rentals charged:
– Hire of property, plant and equipment
– Other operating leases
Research and development expenditure
Profit on sale of subsidiary companies*
Profit on disposal of plant and equipment
* Included within individually significant items, note 3.
2017
£m
2016
£m
–
0.2
0.2
–
0.2
5.2
0.9
1.5
2.0
10.3
54.3
5.7
2.0
3.2
1.6
1.7
1.2
–
0.1
0.1
–
0.1
3.7
–
–
1.6
6.8
11.9
6.8
–
3.9
1.4
2.2
–
(0.1)
(0.1)
The reclassification of costs relates to administrative salaries and travel costs that were reported within cost of sales in the prior
year but have been reclassified to general and administrative expenses in this year’s consolidated income statement.
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5 Staff numbers and costs
Directors’ emoluments are disclosed in the Remuneration Committee report. Total aggregate emoluments of the Directors in
respect of 2017 were £1.2m (2016: £1.8m). Employer contributions to pensions for Executive Directors for qualifying periods
were £0.1m (2016: £0.1m). The aggregate net value of share awards granted to the Directors in the period was £0.1m (2016:
£0.7m). 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, 89,804 share options were exercised by Directors (2016: 72,538) with a market value
of £0.3m.
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 27)
Number of employees
2017
1,042
655
1,697
2017
£m
118.2
0.6
11.7
5.8
2016
837
565
1,402
2016
£m
88.4
1.1
8.1
2.5
136.3
100.1
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
6 Domain Services
In June 2016, the Board took the decision to close down the activities of the Domain Services operating segment. During the
prior year, the development activities of Domain Services were severely curtailed and the assets and business activities were
either shut down or sold in the current financial year. This included the sale of the Open Registry group of companies comprising
Open Registry SA, ClearingHouse for Intellectual Property SA, Nexperteam CVBA and Sensirius CVBA to external buyers
for a combined total consideration of €3.75m in January 2017, €2.0m receivable in immediate cash and €1.75m as deferred
consideration, receivable in July 2018 at a fixed interest rate of 4 per cent. A profit on disposal of £1.2m is recognised in the
consolidated income statement within individually significant items (note 3).
The tables below provide an analysis of Domain Services activities for revenue, EBITDA and profit before tax as these are
considered to be the most relevant to understanding underlying business performance.
Results of Domain services
Revenue
Expenses
EBITDA
Individually significant items
Depreciation and amortisation
Operating profit
Gain recognised on sale
Profit for the year before tax
Effect of the Open Registry Group sale on assets and liabilities
Intangible assets
Plant & Equipment
Trade and receivables
Cash and cash equivalents
Trade payables
Net liabilities
Consideration received, satisfied in cash
Cash disposed of
Net cash inflow
2016
£m
4.9
(6.3)
(1.0)
(18.7)
(0.4)
(20.1)
–
(20.1)
2016
£m
0.1
0.1
2.5
1.3
(4.1)
(0.1)
2017
£m
2.6
(2.7)
(0.1)
–
(0.1)
(0.2)
1.2
1.0
2017
£m
0.1
0.1
3.2
1.6
(5.2)
(0.2)
1.7
(1.7)
–
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7 Net financing costs
Interest payable on bank loans and overdrafts
Unwinding discount on deferred consideration
Financial expenses
2017
£m
1.4
0.5
1.9
2016
£m
1.4
0.6
2.0
The unwinding discount on deferred consideration payable relates to the acquisition of a subsidiary undertaking that has been
discounted to its present value.
8 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
(Loss)/profit before taxation
Current tax using the UK corporation tax rate of 19.83% (2016: 20%)
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
2017
£m
2016
£m
3.1
–
0.9
4.0
(2.7)
1.3
2017
£m
(55.3)
(11.0)
12.3
(0.4)
0.2
0.6
(0.4)
1.3
4.4
(0.5)
0.8
4.7
(1.6)
3.1
2016
£m
9.4
1.9
2.0
(0.2)
(0.5)
–
(0.1)
3.1
Current and deferred tax recognised directly in equity was a charge of £0.2m (2016: charge of £0.6m). The UK Government
enacted Finance Act 2016 in September 2016 included provisions to reduce the main rate of corporation tax to 17% with effect
from 1 April 2020. Accordingly, the UK deferred tax balances which were valued at the rate of 19% in the 31 May 2016 accounts
have been revalued at the 17% rate in these accounts where relevant.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
9 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
10 Earnings per share
The calculation of adjusted earnings per share is based on the following:
(Loss)/profit for the year from continuing operations used for basic and
diluted earnings per share
Amortisation of acquired intangible assets (note 11)
Domain Services – results
Individually Significant Items (note 3)
Unwinding of discount (note 7)
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
2017
£m
10.3
(1.0)
71.0
0.5
0.6
(6.3)
2017
£m
(56.6)
75.1
18.5
Number
of shares
m
276.3
–
276.3
2017
£m
12.8
8.7
4.65p
3.15p
2016
£m
6.8
1.4
18.9
0.6
1.2
(5.2)
2016
£m
10.3
8.7
4.18p
3.15p
2016
£m
6.3
23.7
30.0
Number
of shares
m
254.6
3.5
258.1
In the prior year, 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. The prior year did not treat Domain
Services as an adjusting item as the decision to exit the business was taken after the end of the financial year. To be consistent
with the current year, the prior year adjusting items have been amended to include the results of Domain Services. The net impact
was to increase the prior year Adjusted EPS by 0.4p.
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11 Intangible assets
Cost:
At 1 June 2015
Acquisitions through business combinations
Additions – internally developed
Costs write-down
Effects of movements in exchange rates
At 31 May 2016
Acquisitions through business combinations
Reclassification
Additions – internally developed
Disposal of subsidiaries
Effects of movements in exchange rates
At 31 May 2017
Accumulated amortisation and impairment
losses:
At 1 June 2015
Charge for year
Impairment charge
Effects of movements in exchange rates
At 31 May 2016
Reclassification
Charge for year
Impairment charge
Effects of movements in exchange rates
At 31 May 2017
Net book value:
At 31 May 2017
At 31 May 2016
Software
£m
Development
costs
£m
Customer
contracts and
relationships
£m
Goodwill
£m
Total
£m
18.4
1.7
6.9
–
–
27.0
–
(11.1)
3.7
–
0.6
20.2
7.7
1.6
–
–
9.3
(2.1)
2.0
2.0
–
11.2
9.0
17.7
8.7
–
1.9
(6.8)
0.4
4.2
–
11.1
3.7
(0.1)
0.4
19.3
–
–
–
–
–
2.1
1.5
5.7
(0.2)
9.1
10.2
4.2
47.8
25.4
–
–
3.0
76.2
7.7
–
–
(3.4)
6.5
87.0
17.8
6.8
–
0.5
25.1
–
10.3
–
1.9
37.3
49.7
51.1
155.7
72.9
–
–
7.6
236.2
12.1
–
–
–
16.6
264.9
–
–
11.9
–
11.9
–
–
54.3
–
66.2
198.7
224.3
230.6
100.0
8.8
(6.8)
11.0
343.6
19.8
–
7.4
(3.5)
24.1
391.4
25.5
8.4
11.9
0.5
46.3
–
13.8
62.0
1.7
123.8
267.6
297.3
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
11 Intangible assets (continued)
Cash generating units (CGUs): Goodwill and intangible assets are allocated to CGUs in order to be assessed for potential
impairment. CGUs are defined by accounting standards as the lowest level of asset groupings that generate separately
identifiable cash inflows that are not dependent on other CGUs. Following the Strategic Review, the Directors have reconsidered
the CGUs within the Group. The CGUs and the allocation of goodwill to those CGUs is shown in the table below. The table also
includes the discount rate used to assess the NPV of the future cash flows of each CGU:
Cash generating units
Escrow UK
Escrow Europe
Escrow USA
Total Escrow
Assurance USA
PSC
VSR
UK Security Consulting
Fox-IT
Software Testing
Web Performance
Accumuli (known internally as MSS)
Total Assurance
Total Group
2017
Pre-tax
Discount
rate
%
11.4
11.8
14.9
14.6
14.5
14.5
12.6
17.0
12.5
15.2
15.4
2017
£m
22.9
8.3
7.3
38.5
28.1
9.8
2.3
18.5
62.7
8.0
2.2
28.6
160.2
198.7
In the prior year, the goodwill allocation and pre-tax discount rates (WACC) for each CGU (in brackets) were: Escrow UK £21.2m
(10.1%), Escrow Europe £6.4m (10.7%), Escrow USA £7.3m (12.9%), Assurance USA £24.6m (15.0%) and European Security
Services £164.8m (11.2%).
The composition of the MSS business noted above (formerly known as Accumuli) is slightly different from the Accumuli Group
at acquisition. One part of the Accumuli business, known as RandomStorm, carried on identical activities to some parts of UK
Security Consulting. Those activities and their cash flows were transferred to UK Security Consulting during the year and are
no longer separately managed or independent cash flows associated with MSS. Those cash flows and their associated share of
goodwill is therefore included in the UK Security Consulting CGU.
During the year, the Group acquired Payment Software Company Inc, a global payment and security consulting company, and
Virtual Security Research LLC (VSR), an information network and application security consulting company.
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 costs to forecast years two to five which are forecasts which have been approved by the
Board. 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 five years are forecast using an estimated long-term growth rate of 2.5% (2016:
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 in the macroeconomic environment.
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The discount rates used are based on management’s calculation of the WACC using the capital asset pricing model to calculate
the cost of equity. Specific rates are used for each CGU in the value in use calculation and the rates reflect management’s
assessment on the level of relative risk in each respective CGU. The pre-tax discount rates used in the value in use calculations
are shown above.
The Directors have considered a range of sensitivities. If the discount rates used in each CGU were decreased or increased by
1 per cent, the total Net Present Value of future cash flows would increase by £105m and decrease by £81m respectively.
In the specific case of the CGUs where goodwill has been impaired in the current year, or where an impairment would potentially
arise, the impairment amounts would increase/(decrease) as follows:
Fox-IT
MSS
Web Performance
Total for units with impairments
Software Testing
Total for units with impairments and Software Testing
Discount
rate 1%
increase
2017
£m
Discount
rate 1%
decrease
2017
£m
9.1
2.6
0.8
12.5
0.2
12.7
(11.2)
(3.1)
(1.1)
(15.4)
(1.9)
(17.3)
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
12 Plant and equipment
Computer
equipment
£m
Plant and
equipment
£m
Fixtures and
fittings
£m
Motor
vehicles
£m
Cost:
At 1 June 2015
Additions
Acquired as part of business
combination
Disposals
Movement in foreign exchange rates
At 31 May 2016
Additions
Acquired as part of business
combination
Disposals
Movement in foreign exchange rates
At 31 May 2017
Depreciation:
At 1 June 2015
Charge for year
Disposals
Movement in foreign exchange rates
At 31 May 2016
Charge for year
Impairment
Acquired as part of business
combination
Disposals
Movement in foreign exchange rates
At 31 May 2017
Net book value:
At 31 May 2017
At 31 May 2016
14.6
3.2
0.9
(0.3)
0.2
18.6
4.2
0.5
(0.3)
0.8
23.8
11.3
1.9
(0.2)
(0.1)
12.9
3.3
–
0.4
(0.3)
0.6
16.9
6.9
5.6
0.4
–
–
–
–
0.4
0.1
–
(0.4)
–
0.1
0.4
–
–
–
0.4
–
–
–
(0.4)
–
–
0.1
–
9.7
1.3
1.0
–
0.2
12.2
6.6
–
(0.2)
1.0
19.6
3.9
1.7
–
(0.1)
5.5
1.9
0.9
–
(0.2)
0.4
8.5
11.1
6.7
0.4
0.1
–
–
–
0.5
0.1
–
(0.2)
–
0.4
0.1
0.1
–
–
0.2
–
–
–
(0.1)
–
0.1
0.2
0.3
Total
£m
25.1
4.6
1.9
(0.3)
0.4
31.7
11.0
0.5
(1.1)
1.8
43.9
15.7
3.7
(0.2)
(0.2)
19.0
5.2
0.9
0.4
(1.0)
1.0
25.5
18.3
12.7
The £0.9m impairment of fixtures and fittings in the current head office property which is due for relocation later in the year is
recognised as an Individually significant item in the consolidated income statement, note 3.
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13 Investments
Property
Interest in unlisted shares
Group
2017
£m
–
0.4
0.4
Group
2016
£m
0.3
0.3
0.6
The investment in unlisted shares relates to a 3.35 per cent ordinary shareholding in an unlisted company acquired as part of the
Accumuli acquisition. The investment’s carrying value at acquisition date was considered appropriate as the fair value and the
investment continues to be carried at this value.
14 Trade and other receivables
Trade receivables
Prepayments
Other receivables
Accrued income
Amounts owed by Group undertakings
The ageing of trade receivables at the end of the reporting period was:
Group
Not past due
Past due 0–30 days
Past due 31–90 days
Past due more than 90 days
Group
2017
£m
Group
2016
£m
Company
2017
£m
Company
2016
£m
40.9
6.6
1.5
17.7
–
66.7
39.4
7.2
–
19.8
–
66.4
–
–
–
–
–
–
149.6
149.6
130.2
130.2
Gross
2017
£m
Impairment
2017
£m
Gross
2016
£m
Impairment
2016
£m
19.8
12.1
7.7
2.0
41.6
–
–
–
(0.7)
(0.7)
25.0
9.0
4.7
1.4
40.1
–
–
–
(0.7)
(0.7)
The Company had no trade receivables (2016: £Nil).
The Group establishes a provision for impairment that represents its estimate of incurred losses in respect of specific trade
receivables. The movement in the provision for impairment was:
Balance at 1 June
(Utilised)/created
Balance at 31 May
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
Group
2017
£m
0.7
–
0.7
Group
2016
£m
0.3
0.4
0.7
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
15 Inventory
IT hardware for resale
Group
2017
£m
1.1
1.1
Group
2016
£m
0.3
0.3
16 Acquisitions
Payment Software Company Inc
NCC Group Inc acquired Payment Software Company Inc (PSC), a company based in California, USA, on 28 September 2016.
PSC is a global payment and security consulting company, providing services to organisations that require specialist compliance,
forensics and consulting support.
The consideration paid was $16.6m initial cash consideration with contingent consideration payments of $1.9m, where the fair
values are based on the estimated cash outflows discounted using a risk-adjusted discount rate, due on earn-out periods to
31 December 2017 and 31 December 2018. The two contingent payments are payable in cash on the achievement of specific
profit based performance targets which we expect to be achieved based on current business forecasts. Accordingly, the full
contingent consideration liability has been recognised at its fair value.
Acquiree’s identifiable net assets at the acquisition date:
£m
Intangible assets – acquired
Trade and other receivables
Deferred tax liability
Cash
Creditors & accruals
Net identifiable assets
Goodwill on acquisition
Total consideration
Satisfied by:
Initial cash consideration
Deferred cash consideration
Finance discount on deferred consideration
Net cash outflow
Cash acquired
Net cash outflow excluding cash acquired
12.8
3.0
(0.2)
15.6
Fair values
£m
5.7
1.5
(2.0)*
1.8
(1.2)
5.8
9.8
15.6
12.8
(1.8)
11.0
* Deferred tax liabilities include deferred tax arising on intangible assets acquired.
The goodwill of £9.8m represents the benefits expected to be generated from sales and profit growth from the wider NCC Group
customer base in the US market. The goodwill is not expected to be deductible for tax purposes. Acquisition costs relating to
professional fees totalling £0.4m were incurred and are recognised as individually significant items in the income statement (note
3). The Group’s consolidated income statement includes eight months’ post acquisition trading, with PSC Inc contributing £5.9m
revenue and £1.2m operating profit.
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Virtual Security Research LLC
NCC Group Inc acquired Virtual Security Research LLC (VSR), a company based in Boston, Massachusetts, USA, on
11 November 2016. VSR is an information, network and application security consulting company providing services to corporate
clients of varying sizes primarily in the US Technology and Financial Services sectors.
The consideration paid was $3.7m initial cash consideration with contingent consideration payments of $0.9m, where the fair
values are based on the estimated cash outflows discounted using a risk-adjusted discount rate, due on earn-out periods to
31 December 2017 and 31 December 2018. The two contingent payments are payable in cash on the achievement of specific
profit based performance targets which we expect to be achieved based on current business forecasts. Accordingly, the full
contingent consideration liability has been recognised at its fair value.
Acquiree’s identifiable net assets at the acquisition date:
Intangible assets – acquired
Trade and other receivables
Cash
Creditors & accruals
Net identifiable assets
Goodwill on acquisition
Total consideration
Satisfied by:
Initial cash consideration
Deferred cash consideration (no impact from discounting)
Net cash outflow
Cash acquired
Net cash outflow excluding cash acquired
£m
2.9
1.3
4.2
Fair values
£m
2.0
0.5
0.1
(0.7)
1.9
2.3
4.2
2.9
0.1
2.8
The goodwill of £2.3m represents the benefits expected to be generated from sales and profit growth from the wider NCC
Group customer base in the US market. The goodwill is expected to be deductible for tax purposes. Acquisition costs relating
to professional fees totalling £0.2m were incurred and are recognised as individually significant items in the income statement
(note 3). The Group’s consolidated income statement includes six full month’s of post-acquisition trading, with VSR contributing
revenue of £1.1m and operating profit of £0.5m.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
16 Acquisitions (continued)
Fox-IT Holdings BV
In the prior year, NCC Group (Solutions) Limited acquired Fox-IT Holdings BV, a company based in the Netherlands. 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 €108.3m initial cash, with deferred payments due on each of the first and
second anniversaries of completion comprising €10.0m cash and €2.5m newly issued NCC Group plc shares each. The first
deferred payment was paid in November 2016 and the Directors agreed to make this payment fully in cash consideration.
Accordingly, a payment of €12.5m was made to the former owners.
The acquisition had the following effect on the Group’s assets and liabilities:
Acquiree’s identifiable net assets at the acquisition date:
£m
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
76.6
14.4
3.6
(0.8)
93.8
Fair values
£m
1.9
1.7
25.4
7.3
0.4
(6.0)
1.8
(7.5)
(2.1)
22.9
70.9
93.8
76.6
(1.8)
74.8
The fair value of trade and other receivables represents £7.5m of gross contractual receivables and a provision for doubtful debts
of £0.2m.
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The goodwill of £70.9m represents the value 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 individually significant items in the income
statement account (note 3).
The Group’s prior year consolidated income statement includes six months’ 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 12 month period ended
31 May 2016 were revenue of £218.2m and operating profit before individually significant items of £30.5m.
The balances presented below are valued at the fair value of amounts payable and in respect of contingent consideration on
acquisitions. The contingent consideration is stated at the maximum amount payable as it is believed that on current trading
performance the full contingent consideration will be due.
Contingent consideration
FortConsult A/S
Payment Software Company
Virtual Security Research
Armstrong Adams Limited
2017
£m
2016
£m
–
2.8
1.3
–
4.1
1.8
–
–
1.7
3.5
The amounts outstanding in May 2016 in respect of FortConsult A/S and Armstrong Adams Limited were paid in full during
the year.
Deferred consideration
Fox-IT Holdings B.V.
2017
£m
10.7
10.7
2016
£m
18.5
18.5
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
17 Deferred tax assets and liabilities
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)
Movement in deferred tax during the year:
Plant and equipment
Short-term temporary differences
Intangible assets
Share based payments
Tax losses
Plant and equipment
Short-term temporary differences
Intangible assets
Share based payments
Tax losses
Assets
2017
£m
–
1.4
–
0.3
2.5
4.2
2016
£m
–
1.8
–
0.8
2.7
5.3
Liabilities
Net
2017
£m
(1.9)
–
(12.3)
–
–
2016
£m
(2.2)
–
(13.3)
–
–
2017
£m
(1.9)
1.4
(12.3)
0.3
2.5
2016
£m
(2.2)
1.8
(13.3)
0.8
2.7
(14.2)
(15.5)
(10.0)
(10.2)
1 June
2016
£m
Recognised
in income
£m
Exchange
differences
£m
Recognised
in equity
£m
Acquisitions
£m
31 May
2017
£m
(2.2)
1.8
(13.3)
0.8
2.7
(10.2)
0.3
(0.4)
3.1
(0.1)
(0.2)
2.7
–
–
(0.9)
–
–
(0.9)
–
–
–
(0.4)
–
(0.4)
–
–
(1.2)
–
–
(1.9)
1.4
(12.3)
0.3
2.5
(1.2)
(10.0)
1 June
2015
£m
Recognised
in income
£m
Exchange
differences
£m
Recognised
in equity
£m
Acquisitions
£m
31 May
2016
£m
(0.4)
0.5
(9.7)
0.5
3.3
(5.8)
(1.8)
0.8
3.3
(0.1)
(0.6)
1.6
–
0.1
(0.5)
(0.1)
–
(0.5)
–
–
–
0.5
–
0.5
–
0.4
(6.4)
–
–
(2.2)
1.8
(13.3)
0.8
2.7
(6.0)
(10.2)
The Group has recognised a deferred tax asset of £2.5m (2016: £2.7m) on tax losses as management consider it probable that
future taxable profits will be available against which it can be utilised. The Group has not recognised a deferred tax asset on
£6.2m (2016: £5.7m) of tax losses carried forward due to uncertainties over their future recovery.
Included in recognised and unrecognised tax losses are losses of £2.9m that will expire in 2034 (2016: £3.5m). Other losses
may be carried forward indefinitely.
No deferred tax liability is recognised on temporary differences of £nil (2016: £0.2m) 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.
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18 Trade and other payables
Trade payables
Non trade payables
Accruals
Consideration on acquisitions (note 16)
Property provisions (note 20)
Intercompany payables
19 Deferred revenue
Deferred revenue
Group
2017
£m
Group
2016
£m
Company
2017
£m
Company
2016
£m
4.3
6.7
18.7
12.9
1.5
–
44.1
7.9
7.6
16.1
3.5
–
–
35.1
–
–
–
–
–
–
–
Group
2017
£m
35.6
35.6
–
–
–
–
–
10.6
10.6
Group
2016
£m
36.3
36.3
Deferred revenue consists of: Escrow agreements £13.5m (2016: £13.2m), Assurance contracts £19.2m (2016: £17.1m),
Website monitoring and load testing agreements of £2.9m (2016: £3.4). There are no Domain Services deferred revenue
contracts as the entity was disposed of during FY17 (2016: £2.6m). The revenue has been deferred and is released to the
income statement over the contract term in accordance with the Group’s accounting policy.
20 Non-current liabilities
Secured and interest bearing bank loan
Deferred tax (note 17)
Consideration on acquisitions (note 16)
Property provisions
Total non-current liabilities
Group
2017
£m
56.0
14.2
2.1
3.5
75.8
Group
2016
£m
33.4
15.5
18.5
0.4
67.8
For more information about the contractual terms of the Group’s interesting bearing secured bank loan, see note 21. Total
Property provisions of £5.0m represents capital contributions of £3.7m towards fit-out costs on the new Manchester Head
Office building and a rent free allowance of £1.3m which is being amortised over the period of the lease. The capital contribution
provision of £3.7m will be released to the Income Statement over the same period as the assets in question are being
depreciated (i.e. 10 years).
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
21 Financial instruments
Financial risk management
The Group has exposure to the followings risks from its use of financial instruments:
z Credit risk
z Liquidity risk
z Currency risk
z 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 2017 the Group’s gearing
ratio was 17.1 per cent (2016: 5 per cent).
2017
2016
Level 1
£m
Level 2
£m
Level 3
£m
Level 1
£m
Level 2
£m
Level 3
£m
Investments
Trade receivables
Other receivables
Cash and cash equivalents
Interest bearing loans
Trade and other payables
Contingent consideration on acquisitions
–
–
–
–
–
–
–
0.4
40.9
1.5
12.3
(56.0)
(29.7)
–
–
–
–
–
–
–
(4.1)
–
–
–
–
–
–
–
0.6
39.4
–
20.7
(33.4)
(31.6)
–
–
–
–
–
–
–
(3.5)
The contingent consideration on acquisitions reflects the estimated 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.
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Fair value of financial instruments
As at 31 May 2017 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:
z quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
z 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
z 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.
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
2017
£m
40.9
12.3
53.2
Group
2016
£m
39.4
20.7
60.1
Company
2017
£m
Company
2016
£m
–
–
–
–
–
–
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Debtors by geographical segment
UK
USA
Rest of Europe
Rest of the World
Group
2017
£m
Group
2016
£m
Company
2017
£m
Company
2016
£m
21.6
10.9
6.4
2.0
40.9
27.7
–
4.5
7.2
39.4
–
–
–
–
–
–
–
–
–
–
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
21 Financial instruments (continued)
The maximum exposure to credit risk at the reporting date by business segment was:
Debtors by business segment
Group Escrow
Assurance
Group
2017
£m
8.9
32.0
40.9
Group
2016
£m
7.5
31.9
39.4
Company
2017
£m
Company
2016
£m
–
–
–
–
–
–
The trade receivables of the Group typically comprise many small amounts due from a large number of customers. The Group’s
customer base, whilst concentrated largely in the UK, represents a spread of industry sectors. The largest amount due from
a single customer at the reporting date represented of 8.6 per cent of total Group receivables (2016: 6.4 per cent). All of the
Group’s cash is held with financial institutions of high credit rating.
The provisions in respect of trade receivables are used to record probable impairment losses unless the Group is satisfied that
no recovery of the amounts owing is possible. If the amount is considered irrecoverable, it is written off against the financial
asset directly and any provision for impairment is released at the same time. The Group has a dedicated credit control team who
regularly review customer debt balances to assess the risk of recovery. The allowance is all for debts older than 90 days (2016:
older than 90 days). The ageing of Group debt and associated impairment loss is reported to the Board on a monthly basis.
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 2017
Secured bank borrowings
Trade and other payables
Deferred consideration
Contingent consideration
At 31 May 2016
Secured bank borrowings
Trade and other payables
Deferred consideration
Contingent consideration
Carrying
amount
£m
Contractual
Cash flows
£m
6 months
or less
£m
6–12
Months
£m
1–2
Years
£m
(56.0)
(29.7)
(10.7)
(4.1)
(33.4)
(31.6)
(18.5)
(3.5)
–
(29.7)
(10.9)
(4.3)
(33.4)
(31.6)
(19.2)
(3.5)
–
(29.7)
(10.9)
–
–
(31.6)
(9.6)
(3.5)
–
–
–
–
–
–
(2.1)
(2.1)
–
–
–
–
–
–
(9.6)
–
2+
Years
£m
(56.0)
–
–
–
(33.4)
–
–
–
The financial liabilities of the Company all have contractual maturities within six months (2016: within six months).
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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:
2017
2016
Sterling
£m
EUR
£m
USD
£m
Other
£m
Sterling
£m
EUR
£m
Receivables
Cash and cash equivalents
Bank borrowings
25.1
2.1
(12.4)
3.6
3.8
–
9.9
5.3
(43.6)
Deferred consideration
–
(10.7)
–
2.2
1.1
–
–
27.7
12.5
(6.9)
(18.5)
3.9
5.0
–
–
USD
£m
6.6
1.8
(26.5)
–
Other
£m
1.1
1.4
–
–
Trade and other payables
(18.4)
(6.3)
(3.6)
(1.4)
(21.0)
(7.5)
(2.5)
(0.7)
A change in exchange rate of 10 per cent would have an impact of £9.5m on revenue, £1.4m on operating profit, £8.7m on net
assets and £3m on borrowings.
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
Other 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
2017
£m
2.1
3.8
5.3
1.1
40.9
53.2
£m
0.2
149.6
149.8
2016
£m
12.5
5.0
1.8
1.4
39.4
60.1
£m
–
118.5
118.5
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
21 Financial instruments (continued)
A change of 100 basis points in interest rates would result in a difference in annual pre-tax profit of £0.5m (2016: £0.6m).
The financial liabilities of the Group and their maturity profile are as follows:
Less than one year
1–2 years
2–3 years
3–5 years
Current trade and other payables
2017
2016
Sterling
£m
–
–
–
12.4
18.4
EUR
£m
10.9
–
–
–
6.3
USD
£m
Other
£m
Sterling
£m
EUR
£m
USD
£m
–
2.1
2.1
43.6
3.6
–
–
–
–
1.4
1.7
–
–
6.9
21.0
9.3
9.3
–
–
7.5
–
–
–
26.5
2.5
Other
£m
1.8
–
–
–
0.7
As at 31 May 2017 the Group had a funding facility comprising a multi-currency revolving credit facility of £80m (2016: £80m), a
£25m multi-currency term loan (2016: £30m) and an overdraft of £5m (2016: £5m). The term loan amortises at a rate of £2.5m
every six months. 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 2017 the amount drawn down under the facilities was £56.0m (2016: £33.4m).
This facility was agreed in November 2015 and is due for renewal in November 2020. At the end of May 2017, the effective rate
was 2.0% (2016: 2.0%).
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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 £0.6m (2016: £1.1m).
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 three years following their grant is greater than 3 per cent above RPI per annum. The options are to be settled in
equity.
Date of grant
August 2007
February 2008
Expected term
of options
Exercisable
between
Exercise
Price
2017 Number
Outstanding
6 years
July 2010 – July 2017
6 years February 2011 – February 2018
£0.64
£0.65
10,908
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 three years following their grant is greater than 10 per cent per annum. The options are to be settled in equity.
Date of grant
July 2012
July 2013
August 2015
July 2016
Expected term
of options
Exercisable
between
Exercise
Price
2017 Number
Outstanding
6 years
6 years
July 2015 – July 2022
July 2016 – July 2023
6 years
August 2018 – August 2025
6 years
July 2019 – July 2026
£1.36
£1.40
£2.45
£3.28
110,780
14,252
325,401
234,820
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 per cent or more per annum then 100 per cent of the award will vest. If, however, growth is less than 10 per
cent 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
July 2014
July 2015
July 2016
Expected term
of options
Exercisable
between
Exercise
Price
2017 Number
Outstanding
3 years
3 years
3 years
June 2017 – July 2018
June 2018 – July 2019
June 2019 – July 2020
Nil*
Nil*
Nil*
308,625
378,289
377,586
* The option exercise price is nil; however, £1 is payable on each occasion of exercise.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
22 Share based payments (continued)
Sharesave schemes
The Company operates Sharesave schemes, which are available to all UK and Netherlands 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 schemes the following options have been granted and are outstanding at year end.
Date of grant
August 2014
August 2015
August 2016
August 2016
March 2017
Deferred Share Scheme
Date of grant
July 2015
July 2016
Expected term
of options
Exercisable
between
Exercise
Price
2017 Number
Outstanding
3.25 years October 2017 – February 2018
3.25 years October 2018 – February 2019
3.16 years
October 2019 – March 2020
3 years
August 2019 – August 2023
3 years
May 2020 – October 2020
£1.51
£1.87
£2.62
£3.37
£0.92
683,424
614,751
440,094
59,280
1,057,848
Expected term
of options
Exercisable
between
Exercise
Price
2017 Number
Outstanding
1 year
1 year
July 2017 – July 2019
July 2018 – July 2020
Nil*
Nil*
37,869
27,183
* 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
February 2017
Expected term
of options
Exercisable
between
Exercise
Price
2017 Number
Outstanding
1 year
February 2018
£0.92
592,592
ISO scheme
Under the ISO Scheme, options granted will be subject to performance criteria. Options will vest if the average EPS growth for
the three years following their grant is greater than 10 per cent per annum. The options are to be settled in equity
Date of grant
January 2013
January 2014
January 2015
August 2015
January 2016
July 2016
160
Expected term
of options
Exercisable
between
Exercise
Price
2017 Number
Outstanding
3 years
January 2016 – January 2023
3 years
January 2017 – January 2024
3 years
January 2018 – January 2025
3 years
August 2018 – August 2025
3 years
January 2019 – January 2026
3 years
July 2019 – July 2022
£1.48
£2.00
£2.00
£2.46
£3.24
£3.26
20,338
30,074
50,000
129,940
19,476
202,709
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The following tables illustrate the number of share options for the schemes.
Scheme
Approved EMI scheme
Approved EMI scheme
CSOP scheme
CSOP scheme
CSOP scheme
CSOP scheme
Sharesave scheme
Sharesave 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
Deferred shares
Number of
instruments
as at 1 June
2016
Instruments
granted during
the year
Options
exercised in
the year
Forfeitures in
the year
Number of
instruments
as at 31 May
2017
34,825
2,862
157,508
28,504
325,401
–
–
–
–
–
–
234,820
(23,917)
–
(46,728)
(14,252)
–
–
–
–
–
–
–
–
10,908
2,862
110,780
14,252
325,401
234,820
457,436
1,055,822
1,087,209
–
–
–
(406,024)
(51,412)
–
(14,038)
(358,360)
683,424
(13,040)
(459,418)
614,751
–
–
–
59,280
897,390
1,057,848
92,820
–
–
592,592
40,676
45,111
50,000
142,121
19,476
–
–
–
–
–
–
202,709
767,262
638,636
698,464
–
–
–
–
644,483
94,382
–
–
81,384
–
–
–
–
–
(20,338)
–
–
–
–
–
59,280
(457,296)
440,094
–
1,057,848
(92,820)
–
–
–
–
592,592
20,338
30,074
50,000
(12,181)
129,940
–
–
19,476
202,709
(12,549)
(2,488)
(150,385)
(616,877)
–
–
–
–
–
–
(330,011)
308,625
(320,175)
378,289
(266,897)
377,586
(56,513)
(54,201)
37,869
27,183
The options outstanding at 31 May 2017 have an exercise price in the range of £Nil to £3.37 (2016: £Nil to £3.24) and a
weighted average contractual life of three years (2016: three years). The weighted average share price at the time the share
options were exercised in the year was £3.07 and weighted average share price at the time the share options were forfeited in
the year was £2.23.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
22 Share based payments (continued)
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
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
–
(2778)
2,862
(169,636)
–
–
–
–
157,508
28,504
(16,270)
325,401
(412,440)
(4,656)
–
(5,517)
(19,589)
457,436
(2,142)
(131,177)
1,055,822
–
1,201,312
–
(114,103)
1,087,209
94,856
–
(63,759)
(31,097)
–
92,820
–
61,014
45,111
14,284
60,000
–
–
–
–
–
–
150,242
19,476
788,778
767,262
638,636
–
–
–
–
–
698,464
94,382
–
–
–
(14,284)
–
92,820
40,676
45,111
–
(10,000)
50,000
(8,121)
142,121
–
19,476
(20,338)
–
–
–
–
–
(121,472)
(667,306)
–
–
–
–
–
–
–
–
–
767,262
638,636
698,464
94,382
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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:
EMI
EMI
CSOP
CSOP
CSOP
CSOP
SAYE
SAYE
SAYE
SAYE
SAYE
SAYE
SAYE
ESPP
ISO
ISO
ISO
ISO
ISO
ISO
LTIP
LTIP
LTIP
LTIP
Deferred shares
Deferred shares
Grant Date
August 07
February 08
August 12
July 13
August 15
July 16
August 12
August 13
August 14
August 15
August 16
August 16
March 17
February 17
January 13
January 14
January 15
August 15
February 16
July 16
July 13
July 14
July 15
July 16
July 15
July 16
Fair value at
measurement
date
Exercise price
Expected
volatility
Option
expected term
Risk-free
interest rate
£0.20
£0.21
£0.35
£0.25
£1.45
£0.65
£0.45
£0.32
£0.68
£1.53
£0.66
£0.95
£0.43
£0.00
£0.33
£0.35
£0.43
£1.45
£1.91
£0.64
£1.28
£1.92
£2.14
£2.75
£2.21
£3.14
£0.64
£0.65
£1.36
£1.40
£2.46
£3.28
£1.09
£1.13
£1.51
£1.87
£3.37
£2.62
£0.92
£0.92
£1.48
£2.00
£2.00
£2.46
£3.24
£3.26
£nil*
£nil*
£nil*
£nil*
£nil*
£nil*
25%
25%
35%
32%
103%
31%
35%
32%
32%
6 years
6 years
6 years
6 years
6 years
3 years
3.25 years
3.25 years
3.25 years
103%
3.25 years
31%
31%
46.6%
46.8%
35%
35%
32%
103%
103%
31%
32%
32%
103%
31%
103%
31%
3 years
3.16 years
3 years
1 year
3 years
3 years
3 years
3 years
3 years
3.16 years
3 years
3 years
3 years
3 years
2 years
3 years
6.00%
6.00%
2.75%
2.75%
2.75%
1.50%
2.75%
2.75%
2.75%
2.75%
1.50%
1.50%
1.50%
1.13%
2.75%
2.75%
2.75%
2.75%
2.75%
1.50%
2.75%
2.75%
2.75%
1.81%
2.75%
1.81%
* The option exercise price is nil; however, £1 is payable on each occasion of exercise.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
22 Share based payments (continued)
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 ended 31 May 2016, dividend yield assumed at the time of option grant
is 2.1% (2016: 2.1%).
A charge of £0.6m (2016: £1.1m) has been made to administrative expenses in the Group income statement in respect of share
based payment transactions including the provision for National Insurance contributions.
23 Called up share capital
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
Number of
shares
2017
£m
2016
£m
275,939,764
570,373
276,510,137
2.8
–
2.8
2.3
0.5
2.8
During the year, 570,373 new ordinary shares of 1 pence were issued as a result of exercise of share options. As at 31 May
2017, no shares were held in treasury (2016: 116,714).
24 Cash and cash equivalents
Cash flow from operating activities
(Loss)/profit for the year
Adjustments for:
Depreciation
Depreciation – individually significant item
Share based charges
Amortisation of intangible assets
Net financing costs
Profit on sale of plant and equipment
Impairment of intangible assets
Impairment of goodwill
Individually significant items
Profit on disposal of subsidiaries
Income tax expense
Cash inflow for the year before changes in working capital
164
Notes
12
3
22
11
7
4
3
3
3
6
8
2017
£m
(56.6)
5.2
0.9
0.6
13.8
1.9
(0.1)
7.7
54.3
6.0
(1.2)
1.3
33.8
2016
£m
6.3
3.7
1.1
8.4
2.0
(0.1)
6.9
11.9
(6.0)
–
3.1
37.3
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Cash and cash equivalents per balance sheet
Cash and cash equivalents per cash flow statement
20.7
20.7
(6.0)
(6.0)
(2.4)
(2.4)
12.3
12.3
At beginning
of year
£m
Cash flow
£m
Non cash
items
£m
At end of
year
£m
Non-cash items relates to the effects of foreign currency.
25 Profit attributable to members of the Parent Company
The profit for the year dealt with in the accounts of the Parent Company was £29.0m (2016: £8.8m).
26 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
2017
Land and
Buildings
£m
4.5
22.5
27.0
54.0
Other
£m
1.3
1.1
–
2.4
2016
Land and
Buildings
£m
3.5
7.3
0.9
11.7
Other
£m
0.6
0.5
–
1.1
There are no contingent liabilities not provided for at the end of the financial year.
27 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 £5.8m (2016: £2.5m).
For the Company, the pension cost charge for the year represents contributions payable by the Company to the fund and
amounted to £nil (2016: £nil).
28 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 £0.3m (2016: £0.8m) and professional fees for services of Paul Mitchell of £nil (2016:
£37,500) as Non-Executive Chairman were paid to Rickitt Mitchell & Partners Ltd. Paul Mitchell held the positions of Non-
Executive Chairman of NCC Group until 31 May 2017 and is a Non-Executive Chairman of Rickitt Mitchell & Partners Ltd.
29 NCC Group plc company goodwill
The goodwill addition of £14.3m (2016: £nil) is a transfer from investments of the value attributable to the continuing business,
assets and liabilities of RandomStorm Limited, which hived up to a fellow NCC Group subsidiary company, NCC Group Security
Services Limited, in June 2016.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
30 Investments in subsidiary undertakings
Company
At 1 June 2015
Increase in subsidiary investment for share based charges
At 31 May 2016
At 1 June 2016
Transfer to goodwill
Impairment charge
Increase in subsidiary investment for share based charges
At 31 May 2017
Shares
in Group
undertakings
£m
86.4
1.1
87.5
87.5
(14.4)
(13.0)
0.6
60.7
Fixed asset investments are recognised at cost. The transfer of £14.4m relates to the value of the Accumuli plc investment
cost which can be attributed to RandomStorm Limited, a subsidiary company of the Accumuli group. The continuing business,
assets and liabilities of RandomStorm Limited were hived up to a fellow NCC Group subsidiary company, NCC Group Security
Services Limited, in June 2016. The impairment of £13m (2016: £nil) relates to the investment cost of Accumuli plc and has been
calculated by comparing the discounted future cash flows of the continuing business with the carrying value of the investment,
further details on the method for calculating the discounted cash flows are described in Note 11.
166
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The undertakings in which the Company has a 100 per cent interest at 31 May 2017 are as follows:
Subsidiary undertakings
Country of
incorporation
Principal Activity
Registered Office
NCC Group (Solutions) Limited
England and Wales
Holding company
Manchester Technology Centre, Oxford Road,
Manchester, M1 7EF (“MTC”)
NCC Services Limited
England and Wales
Escrow & Assurance
MTC
NCC Group Escrow Limited
England and Wales
Dormant
Artemis Internet Limited
England and Wales
Dormant
NCC Group Performance Testing Limited
England and Wales
Assurance
NCC Group Security Services Limited
England and Wales
Assurance
NCC Group Audit Limited
England and Wales
Assurance
NCC Group SDLC Limited
England and Wales
Assurance
NCC Group Pte Limited
Singapore
Assurance
NCC Group FZ-LLC
United Arab Emirates
Escrow
Axzona Limited
England and Wales
Dormant
NCC Group Escrow Europe BV
Netherlands
Escrow
NCC Group Escrow Europe
(Switzerland) AG
Switzerland
Escrow
NCC Group GmbH
Germany
Escrow
FortConsult A/S
Denmark
Assurance
FC Holding Lithuania ApS
FC Holding Russia ApS
FortConsult UAB
Denmark
Denmark
Lithuania
Assurance
Assurance
Assurance
FortConsult Rus 000
Russia
Assurance
NCC Group Security Services, Inc.
USA
Assurance
MTC
MTC
MTC
MTC
MTC
MTC
112 Robinson Road, #12-01, Robinson 112,
Singapore (068902)
Office 15, Building 16, Dubai Internet City
Dubai, UAE
Ground Floor, 37 York Place, Edinburgh,
EH1 3HP
Van Heuven Goedhartlaan 13
1181 LE Amstelveen
The Netherlands
Ibelweg 18A
CH-6300 Zug
Switzerland
Leibnizstrasse 1
85521 Ottobrunn
Germany
2nd Floor
Svanevej 12
DK-2400
København NV, Denmark (“FC HQ”)
FC HQ
FC HQ
Kareiviu˛ g. 19-188
LT - LT – 09133
Vilnius, Lithuania
127204 Moscow, Dmitrovskoye Shosse 165D,
Housing 5, Apartment 52
123 Mission Street
Suite 900
San Francisco, CA 94105 (“US HQ”)*
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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FINANCIAL STATEMENTS
Notes to
the accounts
FOR THE YEAR ENDED 31 MAY 2017
30 Investments in subsidiary undertakings (continued)
Subsidiary undertakings
Country of
incorporation
Principal Activity
Registered Office
NCC Group Escrow Associates LLC
NCC Group Secure Registrar, Inc.
NCC Group Domain Services, Inc.
NCC Group Inc.
USA
USA
USA
USA
Escrow
US HQ*
Domain Services
US HQ*
Domain Services
US HQ*
Escrow & Assurance
US HQ*
NCC Group Pty Limited
Australia
NCC Group Security Services Corporation Canada
Assurance
Assurance
Level 17, 383 Kent Street, Sydney NSW 2000
51 Breithaupt Atreet, Suite 100, Kitchener,
Ontario N2H 5G5, Canada
Accumuli Limited
England and Wales
Holding company
Accumuli (Holdings) Limited
England and Wales
Holding company
ArmstrongAdams Limited
England and Wales
Assurance
Randomstorm Limited
England and Wales
Non-trading
Eqalis Limited
England and Wales
Non-trading
Accumuli Security Services Limited
England and Wales
Non-trading
NCC Group Signify Solutions Limited
England and Wales
Assurance
Fujin Technology Limited
England and Wales
Non-trading
Accumuli Security Systems Limited
England and Wales
Non-trading
Accumuli Security Technology Limited
England and Wales
Non-trading
Accumuli Security ASH Limited
England and Wales
Non-trading
NCC Group Accumuli Security Limited
England and Wales
Assurance
MTC
MTC
MTC
MTC
MTC
MTC
MTC
MTC
MTC
MTC
MTC
MTC
Accumuli B.V.
Netherlands
Holding company
Doezastraat 1, 2311GZ, Leiden,
The Netherlands
Boxing Orange MSS Limited
England and Wales
Dormant
MTC
Fox-IT Holding B.V.
Netherlands
Assurance
Olof Palmestraat 6, 2616 LM Delft
The Netherlands (“Fox HQ”)
Fox-IT Group B.V.
Fox-IT B.V.
Fox-IT Operations B.V.
Fox-IT Crypto B.V.
Netherlands
Netherlands
Netherlands
Netherlands
Payment Software Company Inc
USA
Assurance
Assurance
Assurance
Assurance
Assurance
Payment Software Company Limited
England and Wales
Assurance
Fox HQ
Fox HQ
Fox HQ
Fox HQ
591 West Hamilton Avenue, Suite 200,
Campbell, California 95008
Upper Deck Admirals Quarters, Portsmouth
Road, Thames Ditton, Surrey
Virtual Security Research LCC
USA
Assurance
76 Sumner St, 4th Floor, Boston, MA 02110
* Principal place of business.
168
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The following dormant subsidiaries were dissolved during the financial year:
Name of company
Edgeseven Limited
Accumuli Managed Services Limited
Accumuli Debenture Limited
NCC Group Employees’ Trustees Limited
Escrow4Software Limited
The following subsidiaries were disposed of during the financial year (on 3 January 2017):
Name of company
OpenRegistry S.A
ClearingHouse for Intellectual Property S.A.
Nexperteam CVBA
Sensirius CVBA
Country of
incorporation
Date of
dissolution
England and Wales
21 March 2017
England and Wales
21 March 2017
England and Wales
21 March 2017
England and Wales
21 March 2017
England and Wales
21 March 2017
Country of
incorporation
Principal
activity
Luxembourg
Domain Services
Luxembourg
Domain Services
Belgium
Domain Services
Belgium
Domain Services
The undertakings in which the Company hold less than a 100 per cent interest at the year end are as follows:
Undertaking
Tracks Inspector B.V.
Deposit AB Escrow Europe
The C I Group Holdings Limited
% interest
Country of
incorporation
Principal
activity
35%
25%
Netherlands
Assurance
Sweden
Assurance
3.35% England and Wales
Insurance
31 Post balance sheet events
Subsequent to the balance sheet date, the Board approved a decision to sell the NCC Group Performance Test Limited (“Web
Performance”) and NCC Group SDLC Limited (“Software Test”) companies.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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ADDITIONAL INFORMATION
Glossary of terms
Term
2014 Code
Adjusted
AGM
Definition and usage
Guidance, issued by the Financial Reporting Council in 2014, on how companies should be governed,
applicable to UK listed companies including NCC Group.
Any result described as adjusted excludes the impact of exceptional items, share based payments, unwinding
of discount on deferred or contingent consideration, amortisation of acquired intangible assets and any tax on
any of these items.
Annual General Meeting of shareholders of the Company held each year to consider ordinary and special
business as provided in the Notice of AGM.
Average working capital % of
sales
Calculated as the average of each months’ closing working capital divided by rolling 12 month’s sales in each
month.
Board
CAGR
The Board of Directors of the Company (for more information see pages 62 to 63).
Compound Annual Growth Rate (usually with a specified period over which it has been calculated).
Cash conversion ratio
Calculated as net cash from operating activities divided by Adjusted EBITDA as a percentage.
CDO
CEO
CFO
CHRO
CISO
Cyber Defence Operations
Chief Executive Officer
Chief Financial Officer
Chief Human Resources Officer
Chief Information Security Officer
Company, Group, NCC, we, our
or us
We use these terms, depending on the context, to refer to either NCC Group plc the individual company or to
NCC Group plc and its subsidiaries collectively.
CTO
Chief Technology Officer
Directors/Executive Directors/
Non-Executive Directors
The Directors/Executive Directors and Non-Executive Directors of the Company whose names are set out on
pages 62-63 of this Report.
EBIT
Earnings before interest and tax.
EBIT Margin%
EBIT Margin is calculated as follows: adjusted EBIT divided by revenue.
EBITDA
EPS
FCA
Earnings before interest, tax, depreciation and amortisation. Calculated as operating profit before exceptional
items and adding back depreciation and amortisation charged.
Earnings per share. Profit for the year attributable to equity shareholders of the parent allocated to each
ordinary share.
Financial Conduct Authority.
Financial Year
For NCC Group this is an accounting year ending on 31 May.
FRC
Financial Reporting Council.
Free cash flow
Net cash from operating activities less capital expenditure.
FRS
A UK Financial Reporting Standard as issued by the UK Financial Reporting Council (FRC).
170
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Term
Gross Margin
Definition and usage
Gross Margin is revenue less direct costs of sale. It excludes costs considered to be overheads that are
supporting the business as a whole as opposed to a specific revenue item.
Gross Margin%
Gross Margin% is calculated as follows: Gross Margin divided by revenue.
HMRC
IAS or IFRS
Her Majesty’s Revenue & Customs, the tax collecting authority of the UK.
An International Accounting Standard or International Financial Reporting Standard, as issued by the
International Accounting Standards Board (IASB). IFRS is also used as the term to describe international
generally accepted accounting principles as a whole. Financial statements are prepared in independence with
IFRS as adopted by the EU.
Individually significant items
Items that the Directors consider to be material in nature, scale or frequency of occurrence that need to be
excluded when calculating some non-GAAP performance measures in order to allow users of the Financial
Statements to gain a full understanding of the underlying businesses performance.
KPMG
LTIP
MD
MSS
The Company’s external auditors, KPMG LLP.
Long Term Incentive Plan established to align the interests of senior and Executive management with those
of shareholders. The plan is formally known as the NCC Group Long Term Incentive Plan 2013 (approved by
shareholders in 2013).
Managing Director
Managed Security Services
Ordinary shares
Voting shares entitling the holder to part ownership of a company.
Organic Growth
The increase or decrease in current financial year revenue or profit (as specified) compared to the
comparative prior year revenue or profit, excluding the results of acquisitions and disposals and expressed in
value or percentage terms
Reasonable certainty
Deferred tax assets are recognised if they can be utilised within three years of the balance sheet date unless
there are specific circumstances making it more or less likely that these assets will be utilised.
RMG
ROCE%
Risk, Management and Governance
Return on Capital Employed is calculated as follows: adjusted operating profit divided by average operating
assets and goodwill. Operating assets include tangible and intangible fixed assets, working capital and other
non-current assets.
ROS%
Return on sales is calculated as follows: adjusted operating profit divided by revenue.
Sales working capital
The sum of trade debtors and accrued income used in calculating the KPI of sales working capital ratio to
rolling 12 month revenue.
SAYE
Subsidiary
TSC
TSR
UK GAAP
Save As You Earn, being a tax efficient scheme to encourage employee share ownership.
A company or other entity that is controlled by NCC Group.
Technical Security Consulting
Total Shareholder Return which is share price growth plus dividends reinvested (where applicable) over a
specified period of time, divided by the share price at the start of the period.
United Kingdom Generally Accepted Accounting Practice. Generally accepted accounting principles in the
UK. These differ from IFRS and from US GAAP.
Underlying
Restate prior period information at current year exchange rates to give a like for like comparison.
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
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ADDITIONAL INFORMATION
Company
information
– Executive
Directors
Chris Stone
Chairman
Brian Tenner
Executive
Debbie Hewitt MBE – Senior
– Interim Chief
Independent
Non-Executive
Director
Thomas Chambers – Non-Executive
Director
Chris Batterham
Director
Jonathan Brooks
Director
– Non-Executive
– Non-Executive
Company Secretary
Helen Nisbet
Registered Office
Manchester – Head Office
(until 31 July 2017)
Manchester Technology Centre
Oxford Road
Manchester
M1 7EF
XYZ Building – Head Office
(from 1 August 2017)
2 Hardman Boulevard
Spinningfields
Manchester
M3 3AQ
Registered Number
4627044
Joint Brokers and
Corporate Finance Advisers
Jefferies International Limited
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
Peel Hunt LLP
Moor House
120 London Wall
London
EC2Y 5ET
Auditors
KPMG LLP
St Peter’s Square
Manchester
M2 3AE
Solicitors
DLA Piper UK LLP
1 St Peter’s Square
Manchester
M2 3DE
Bankers
The Royal Bank of Scotland plc
6th Floor, 1 Spinningfields Square
Manchester
M3 3AP
HSBC Bank plc
2nd Floor
4 Hardman Square
Spinningfields
Manchester
M3 3EB
Lloyds Bank plc
8th Floor
40 Spring Gardens
Manchester
M2 1EN
Registrars
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
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CONTACT US
UK
Manchester – Head Office
(until 31 July 2017)
Manchester Technology Centre
Oxford Road
Manchester
M1 7EF
XYZ Building – Head Office
(from 1 August 2017)
2 Hardman Boulevard
Spinningfields
Manchester
M3 3AQ
Cambridge
Endeavour House
Chivers Way
Vision Park
Histon
Cambridge
CB24 9ZR
Cheltenham (until October 2017)
Suite 902, Part Ninth Floor
Eagle Tower
Montpellier Drive
Cheltenham
GL50 1TA
Cheltenham (from November 2017)
Part Fourth Floor
Jessop House
Jessop Avenue
Cheltenham
GL50 3SH
Edinburgh
37 York Place
Edinburgh
EH1 3HP
Leatherhead
Kings Court
Kingston Road
Leatherhead
KT22 7SL
Leeds
2150 Thorpe Park
Leeds
LS15 8ZB
London
Floor 4
Tavistock House North
London
WC1H 9HR
Milton Keynes
Suites 526 and 528
Second Floor
Elder House
Eldergate
Milton Keynes
MK9 1LR
Reading
Part 2nd Floor
No.3 Forbury Place
Reading
RG1 3JH
Slough
268 Bath Road
Slough
Berkshire
SL1 4DX
Europe
Denmark
2nd Floor
Svanevej 12
DK-2400
København NV
Denmark
Germany
Leibnizstrasse 1
85521 Ottobrunn
Germany
Lithuania
Kareiviu˛ g. 19-188
LT - LT – 09133
Vilnius
Lithuania
Spain
Calle Serrano Galvache, 56
Edificio Abedul
4ª planta
28033
Madrid
Spain
Sweden
Norra Vallgatan 20
Sverige - 211 25
Malmö
Sweden
Switzerland
Ibelweg 18A
CH-6300 Zug
Switzerland
The Netherlands
Olof Palmestraat 6
2616 LM Delft
The Netherlands
Olof Palmestraat 10
2616 LR Delft
The Netherlands
Wilhelmina van Pruisenweg 104,
2595 AN
The Hague
The Netherlands
Van Heuven Goedhartlaan 13
1181 LE Amstelveen
The Netherlands
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
173
NCC AR2017 proof 8- Back.indd 173
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09/08/2017 16:01:57
Dubai
Dubai Internet City
Unit E015
Building 16
DIC
Dubai
United Arab Emirates
Singapore
Singapore
20 Collyer Quay
19-07 Singapore
049319
Australia
Sydney
Suite 1
Level 13
92 Pitt Street
Sydney
New South Wales 2000
Sydney
Level 20
Tower 2
Darling Park
201 Sussex Street
Sydney
New South Wales 2000
Canada
Kitchener, Ontario
Office 114
Workplace One Business Centre
51 Breithaupt Street
Suite 100
Kitchener
Ontario N2H 5G5
Toronto, Ontario
Bloor and Yonge Building
2 Bloor Street West
Suite 7000
Toronto
Ontario M4W 3R1
ADDITIONAL INFORMATION
Company
information
USA
Atlanta, GA
11605 Haynes Bridge Road
400 Northwinds, Suite 550
Alpharetta
GA 30009
Austin, TX
115 Wild Basin Road
Suite 110
Austin
TX 78746
Boston, MA
76 Summer Street
4th Floor
Boston
Suffolk County
Massachussetts 02110
Campbell, CA
591 West Hamilton Avenue
Suite 200
Campbell
Santa Clara
California
Chicago, IL
11 East Adams
Suite 400
Chicago
IL 60603
New York, NY
48 W 25th Street
4th Floor
New York
NY 10010
San Francisco, CA
123 Mission Street
Suite 900
San Francisco
CA 94105
Seattle, WA
720 3rd Avenue
Suite 2101
Seattle
WA 98104
Sunnyvale, CA
111 West Evelyn Avenue
Suite 101 – 103
Sunnyvale
CA 94086
174
www.nccgroup.trust
Stock Code: NCC
NCC AR2017 proof 8- Back.indd 174
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09/08/2017 16:01:58
Shareholder notes
NCC Group plc Annual Report and Accounts for the year ended 31 May 2017
175
NCC AR2017 proof 8- Back.indd 175
25546.04 9 August 2017 4:01 PM Proof Six
09/08/2017 16:01:58
ADDITIONAL INFORMATION
Shareholder notes
176
www.nccgroup.trust
Stock Code: NCC
NCC AR2017 proof 8- Back.indd 176
25546.04 9 August 2017 4:01 PM Proof Six
09/08/2017 16:01:58
NCC AR2017 - proof 8-Front.indd 6
8/9/2017 4:41:47 PM
25546.04 9 August 2017 4:40 PM Proof Six
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Manchester – Head Office
(until 31 July 2017)
Manchester Technology Centre
Oxford Road
Manchester
M1 7EF
XYZ Building – Head Office
(from 1 August 2017)
2 Hardman Boulevard
Spinningfields
Manchester
M3 3AQ
www.nccgroup.trust
NCC AR2017 - proof 8-Front.indd 1
25546.04 9 August 2017 3:58 PM Proof Six
09/08/2017 16:03:36