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NCC Group plc
ANNUAL REPORT AND ACCOUNTS
for the year ended 31 May 2018
www.nccgroup.com l Stock Code: NCC
Why we exist
NCC Group is a global expert in cyber
security and risk mitigation, working with
businesses to protect their brands, their
data, their value and even their reputations
against the ever evolving threat landscape.
The Group’s independence, knowledge, experience and global footprint
ensures that we can help businesses identify, assess, mitigate and
respond to the risks they face within this fluid and hostile environment.
NCC Group is passionate about making the internet a safer place
for all members of our society and revolutionising the way in which
organisations think about cyber security.
OUR VISION
We have a vision to:
1 Grow our business
2 Become the leading cyber security advisor
in the markets of our choice
3 Be recognised as trusted leaders in our field
OUR STRUCTURE
SHARE OF
REVENUE
Assurance £194.4m (83.4%)
Escrow £38.8m (16.6%)
NAVIGATING THE REPORT
For further information within this
document and relevant page numbers
Additional information available online
Image captions
INVESTMENT CASE
{ We operate in high growth markets
{ Our expertise is highly valued by
our customers
{ We are at the forefront of thought
leadership in cyber security
{ Our Escrow business holds a strong
position in an attractive niche
{ In a highly fragmented market, our
scale creates opportunity for significant
value creation through targeted bolt-on
acquisitions
{ We are targeting mid-teens adjusted*
operating margins by 2020, through a
combination of self-help measures and
maintaining double digit growth
READ MORE ABOUT OUR BUSINESS MODEL AND STRATEGIC
ALIGNMENT GOALS ON PAGES 22 TO 25
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
VISIT US ONLINE AT
WWW.NCCGROUP.COM
Financial highlights
GAAP Measures
Alternative
Performance*
Measures
Revenue (£m)
Adjusted EBIT (£m)
109.3
110.0
174.7
215.3
233.2
25.8
22.9
35.1
25.5
31.0
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Profit/Loss before tax (£m)
Adjusted EPS (pence)
18.1
16.8
6.3
(56.6)
6.9
9.2
8.2
9.8
6.2
8.3
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Basic EPS (pence)
Cash Conversion (%)
8.7
8.0
2.5
(20.5)
2.5
55
55
51
88
91
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Operational highlights
{ Relocated 400+ staff to new Group headquarters in Manchester, UK
{ Organisational restructure completed around geographical units and
customer segments
{ Completed portfolio rationalisation with sales of Web Performance and
Software Testing
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
Stock Code: NCC
www.nccgroup.com
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CONTENTS
BUSINESS OVERVIEW
Why we exist
Financial highlights
Chairman’s statement
Chief Executive’s review
Group at a glance
IFC
1
2
4
6
STRATEGIC REPORT
15
Highlights
16
The market landscape
The market opportunity
18
Strategic review and transformation 20
22
Business model
Our strategy
24
Group performance review for 2018 26
40
Principal risks and uncertainties
45
Corporate social responsibility
50
51
52
54
GOVERNANCE
Chairman’s letter
Governance framework
Board of Directors
Executive committee
Board composition and
56
division of responsibilities
62
Shareholder relations
65
Audit committee report
72
Nomination committee report
74
Cyber security committee report
76
Remuneration committee report
95
Directors’ report
Directors’ responsibilities statement 97
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 financial statements
ADDITIONAL INFORMATION
Glossary of terms
Company information
99
105
106
107
109
111
112
114
157
159
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NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Chairman’s statement
Business performance
The financial performance for the year
represented a strong recovery from the
declining trajectory experienced at the end of
the prior financial year. We delivered 13.8%
Adjusted organic* growth in our retained
assurance businesses while Escrow delivered
the expected more modest Adjusted organic*
growth of 2.7%, in line with its more mature UK
market position (excluding the impact of prior
year revenue correction).
Improving our Group GM% ratio was a key
strategic objective following significant
declines in the last few years. I am pleased to
say that both divisions improved strongly in the
year: Assurance GM% grew by 5.3% points to
34.2% and Escrow by 4.5% points to 76.3%.
Both results were largely due to improved cost
control and utilisation gains. There is more to
be achieved in this area.
Adjusted Operating Profit* from continuing
operations grew by 21.6%, to £31.0m (2017:
£25.5m). Operating profit* grew significantly
to a profit of £13.7m compared to the loss of
£42.9m in the prior year, primarily reflecting
improved business performance and lower
exceptional costs in the current year.
Our business performance is shown in more
detail in the Strategic Report on pages 14 to 48.
Strategy update
The results of the Strategic Review were
announced in our final results presentation
in July 2017. Since then we have been busy
implementing the plans that we set out to
address the findings of the review. Firstly, we
implemented a new organisational approach
to our market places and sectors of operation
with a new Target Operating Model. Secondly,
we started to mobilise a number of initiatives,
both tactical and strategic, to make long-term
process improvements which are expected
to deliver returns in the coming years. Thirdly,
the non-core Web Performance and Software
Testing businesses were both sold to different
purchasers for net cash consideration of
£9.2m after disposal costs and £0.7m of cash
disposed of.
Further details on our strategic plan and
progress against our objectives are set out in
the Strategic Report on pages 24 to 25.
Dividend
The Board has reviewed business performance
in the current year alongside our historical
progressive dividend policy. The Board is
mindful of balancing the improving trend in
performance with the clear need for investment
over the next few years. The Board therefore
recommends that the dividend is maintained at
the current level.
A final dividend of 3.15p is therefore being
recommended by the Board, making a total for
the year of 4.65p. If approved, the final dividend
in respect of the year ended 31 May 2018 will
be paid on 5 October 2018 to shareholders
on the register as at 7 September 2018 (ex-
dividend date of 6 September 2018).
Board composition
There have been a number of changes to the
Board during the year. On 1 December 2017
we announced Adam Palser as the Group’s
new Chief Executive Officer. Adam brings a
track record of success in the professional
services, B2B and cyber security sectors.
At that time, Brian Tenner stood down from
his role as interim Chief Executive Officer
and returned full-time to his duties as Chief
Financial Officer.
During the year we were pleased to welcome
Mike Ettling and Jennifer Duvalier to the
Board as Non-Executive Directors. Mike
brings with him a wealth of experience of both
the digital and cloud sectors. Jennifer adds
invaluable experience in corporate culture and
organisational matters – factors which are
critical to NCC Group’s future success.
In line with best practice, after nine years’
tenure, Debbie Hewitt MBE, Senior
Independent Director, stepped down from the
Board on 28 March 2018. In addition, as part
of the broader Board succession planning,
Thomas Chambers, Non-Executive Director,
relinquished his role as Chairman of the Audit
Committee in April 2018. After six years’ tenure
he will resign from the Board following the
Company’s AGM on 26 September 2018. We
thank Debbie and Thomas for their valuable
contributions during their tenures. The Board
is appreciative of the roles that Debbie and
Thomas have both played and wish them well
for the future.
NCC Group has a unique
opportunity; we hold
leading positions in
growing markets around
the world, our customers
value us and our staff are
exceptionally skilled. These
foundations will allow us to
create significant value for
all of our stakeholders.”
CHRIS STONE NON-EXECUTIVE CHAIRMAN
Introduction
In my second annual statement to
shareholders, I am pleased to report that good
progress has been made against the strategic
goals we set for ourselves at the start of the
year. The business has been successfully
stabilised following a period of volatility. We
have reorganised our senior management
teams to improve our go-to market strategy.
We have also maintained double digit Adjusted
organic* growth in our Assurance division,
improved our Group Gross Margin ratio (GM%)
and completed the divestment of the two
business units identified as non-core in the
Strategic Review.
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
Stock Code: NCC
www.nccgroup.com
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ADJUSTED*
ORGANIC
ASSURANCE
GROWTH
13.8%
ASSURANCE
GM% GREW
5.3%
ESCROW
GM% GREW
4.5%
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In terms of the trading outlook for the
financial year ending 31 May 2019, the Board
expects Escrow to maintain its low single
digit Adjusted organic* revenue growth while
investing in additional sales and delivery
capability as well as a new client portal to
enhance our customers’ experience. The
Assurance business will continue to deliver
steady double digit Adjusted organic* revenue
growth with improving net margins.
The combination of double digit Adjusted
organic* growth and steadily improving
margins in the two operating divisions are
expected to deliver improvements in Adjusted
Operating Profit* margins of c.1% p.a. for
the next two years in line with the Board’s
current expectations, while also allowing us to
make considered and targeted investments
to support the business transformation
programme.
There remains a lot of
work to do to implement
new processes, systems
and structures but the
opportunity and outlook
for the Group remains
very positive”
Chris Stone
NON-EXECUTIVE CHAIRMAN
17 July 2018
Chris Batterham, Non-Executive Director,
became Senior Independent Director from
29 March 2018 and Chairman of the Audit
Committee from 1 April 2018. Jonathan
Brooks, Non-Executive Director, became
Chairman of the Remuneration Committee as
of 29 March 2018.
With Adam and Brian in their permanent roles,
I relinquished my executive responsibilities
on 1 December 2017 and reverted to my role
of Non-Executive Chairman with additional
responsibilities as Chairman of both the
Nomination Committee and the Cyber
Security Committee.
Finally, following the year end, we announced
that Brian Tenner would be leaving the Group
in August 2018 to pursue other interests. I
would like to thank Brian for the enormous
contribution he made at NCC Group. He
joined at a critical time, combining his role as
CFO with that of interim CEO to great effect
during the 2017 Strategic Review and the
months that followed.
I am pleased to announce that Brian’s
successor will be Tim Kowalski, an
experienced public company finance director,
who will join the Group and the Board on 23
July 2018 and assume the responsibilities of
the CFO when Brian leaves the Company.
Board effectiveness
As Chairman, I am responsible for the
leadership of the Board and ensuring
its effectiveness in all aspects of its
performance. We note that the recent
changes in membership represent an ongoing
transition period for the Board as well as the
Group.
The Board continues to actively oversee the
Group’s strategic development, monitoring
the delivery of its business objectives and the
evolving implementation of new organisational
and management structures. We maintain our
focus on an effective corporate governance
framework that keeps pace with the rate of
growth and change inside and outside of
NCC 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, as we take our
business forward”
Employees
Our employees continue to show their
commitment to our business and to delivering
excellent service to our customers. We have
seen active engagement in our internal
projects and many great ideas for improving
our systems and processes.
We acknowledge that it is only through
offering rewarding career paths for our staff
that we can expect to attract and retain the
very best talent.
On behalf of the Board I therefore offer our
sincere thanks and appreciation to all of
the Group’s employees for their continued
dedication in delivering excellent service
to our customers while rebuilding the
foundations of NCC Group.
Current trading and outlook
Shareholders will remember that last year,
I reflected on a very challenging period in
the Group’s history with operational and
financial performance having been well
below expectations. This was accompanied
by significant Board and management
change. While much remains to be done, I am
confident that the building blocks for long-
term sustainable improvement in business
performance and shareholder returns are
starting to be put in place.
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
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NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Chief Executive’s review
We want to maximise
sustainable and profitable
growth by being a sought-
after, strategic, full-
spectrum advisor in cyber
security to clients across
the globe.”
ADAM PALSER CHIEF EXECUTIVE OFFICER
Introduction
Following my appointment as CEO of NCC
Group in December 2017, I am pleased to
report on a period which has seen considerable
progress towards the goals set out a year ago.
The fundamental conclusions of the 2017
Strategic Review remain the right ones.
Put simply, NCC Group has a great market
opportunity, but the business had outgrown
its operating model. The strategic plan that
was put in place had five key priorities: Grow,
Implement, Improve, Lead and Develop. Those
priorities are still essentially the right ones, but
how we go about implementing some of them
will change.
It has been a year of recovery. The results
delivered in the period demonstrate NCC
Group’s ability to grow revenue in our
continuing operations (Adjusted organic*
growth 11.8%). This was accompanied by
improved cashflow with our cash conversion
ratio* up 3.0% points to 90.0% and a GM%
gain of 4.9% points to 41.2%.
The impact of overhead increases committed
in prior years meant the Operating Profit*
margin gain was only 1.5% points but this
is an important contrast to the years leading
up to this one, in which NCC Group revenue
grew strongly but at the expense of margins
and cashflow. There remains plenty to do
operationally to consolidate this performance
but it is a very positive start.
A growing, dynamic market for
cyber services
The Assurance division operates in markets
which are experiencing a growing demand
for cyber resilience service, driven by the
increased awareness of individuals, businesses
and governments around the world of the
breadth, importance and potential impact of
cyber threats. Growth in the year reflects the
global trends of growing connectivity, increased
complexity, greater regulation and rising
costs of compliance. These factors continue
and should sustain the double-digit growth
rates we’ve seen in recent years in our core
Assurance markets.
A renewed focus on Escrow
While Adjusted organic* growth in our Escrow
division was aligned more closely with GDP
type growth rates at 2.7%, this was in line with
previously stated ambitions and the division
continues to generate strong profits and
cashflow. Increasingly, we view the lengthy
client list and high-performing sales teams of
our Escrow division as assets for the Group
and intend to promote cross-working and lead
generation between the Escrow and Assurance
divisions of NCC Group.
The road ahead
Our ambition is to retain our status as a leading
expert in cyber resilience: knowledgeable
about the impact that the latest technology or
regulatory changes will have on the risk profile
of individuals, businesses and society. We will
achieve this by continuing to invest in research
and attracting high-calibre individuals.
Over the past 12 months, NCC Group has
delivered value to clients across multiple
sectors, geographies and technologies. Our
services have supported the highest business
priorities (including due diligence for M&A
transactions and working with boards and
executive teams to define risk appetite and
best practice) through to the deepest technical
issues (including, for example, cryptography,
leading-edge hardware and transport systems).
We already work with over half of the FTSE350
companies across the lifecycle of cyber.
However, in aggregate, it is true to say that
today we are very transactional in our approach
to working with many clients. We don’t yet
provide an end-to-end services solution for any
of them. This is a significant opportunity for us
to pursue.
In order to fulfil our potential there remains
much to be done: upgrading our sales
capability, making our delivery engine more
efficient, developing our people and – crucially
– implementing fit-for-purpose systems and
processes as opposed to the patchwork of
working practices inherited from years of
acquisitions and forced growth.
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
Stock Code: NCC
www.nccgroup.com
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In the last six months we have already taken
actions which include:
{ Upgrading our leadership with the
appointment of key individuals at the
executive level and throughout the business
{ The introduction of best-in-class training
in commercial skills to complement the
technical excellence for which we are
already known
{ Investing in Escrow to upgrade our product
offering and sales capability in North
America as the first steps towards returning
Escrow to confident growth
{ Accelerating the integration of our 2016
acquisition in the US, VSR
{ Changing incentive schemes to align with
group priorities
{ Introducing a focus on profit and cash
alongside revenue growth.
Securing Growth Together
These are some examples of ongoing
initiatives. But in order to build the foundations
of success in a structured and relentless
way we launched in May our transformation
programme – Securing Growth Together – with
four core workstreams:
— Win Business
— Deliver Business
— Support the Business
— Develop our People
In the immediate future we will focus on
organic improvements to the business while
we will always be vigilant for opportunistic
acquisitions in the near term. Within 12-18
months we intend to actively resume Adjusted
organic* growth.
Measuring success
We’re not setting formal targets at this stage,
but our direction of travel is clear: good top
line growth, improving margins and operational
efficiency, continued innovation, all enabled by
further developing our people. We expect to
show clear progress on all of these, together
with a more focused, agile and streamlined
business.
Success will come through working together
with a shared set of values which are tangible
and meaningful rather than just lofty and noble.
In essence I want our culture to be one in
which our people have fun, make money and
do great things for our clients.
Furthermore, we intend to provide more
comprehensive and joined-up support to clients
so that they can focus on their core activities
and continue to thrive while we take away the
pain and challenge of cyber risk.
Adam Palser
CHIEF EXECUTIVE OFFICER
17 July 2018
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
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NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Group at a glance
STRONG FOUNDATIONS
Multiple sectors, geographies
and technologies
OFFERINGS
• Escrow & Verification
• M&A Due Diligence
• Board coaching
• Risk & compliance
• Cyber resilience
• Software evaluation
• Hardware testing
CLIENTS
• >50% of FTSE 350
• Tech titans
• Banking giants
• Governments
• SMEs
TALENTED
PEOPLE
• >1600 people across
34 offices in 13 countries
Stock Code: NCC
www.nccgroup.com
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NCC Group helps clients at all stages of their business lifecycle and with any security or risk challenge they face. We are on hand whether a
client be; conducting an acquisition and require cyber due diligence services; investing in a mission critical business system; looking to prepare
for the advent of a new regulation; or needing hands on incident response in the aftermath of a breach.
CASE STUDY
CASE STUDY
M&A CYBER DUE DILIGENCE
INCIDENT RESPONSE
Working closely with our client, we carried out a critical
cyber security due diligence programme covering
technology, operations and compliance.
At very short notice, we responded to a request to support the
due diligence activities of a proposed acquisition.
Assembling a team of specialists covering advisory, technical
security consulting, GDPR compliance and breach detection, we
delivered 145 days of effort within a two week window to support
our client’s decision making process.
As well as looking at the inherent acquisition risk, we also
identified the level of latent technical debt and the remediation
activities necessary to bring the target company in line with the
cyber security and privacy requirements of our client.
Once the deal was announced publically we moved to a second
phase of engagement to supporting the acquirer’s further
understanding and integration planning activities.
We responded to an unknown breach which was later
attributed to a nation state.
When our client discovered that it had been the victim of a
breach, we deployed a range of collection apparatus and
tooling in order to acquire a rich understanding of the breach
environment.
Our incident, malware and threat intelligence analysts
collaborated to identify the source, scale and impact of the
breach.
In conjunction with Government partners we were able to
attribute the attack to a sophisticated nation state actor and
gain understanding of their areas of interest through data they
ex-filtrated.
We then worked with the organisation to remediate the issues
that were initially exploited resulting in improved and enhanced
resilience to future incidents.
CASE STUDY
CASE STUDY
PREPARATION FOR ADVENT OF
NEW REGULATION
CONTINUITY OF BUSINESS
CRITICAL SOFTWARE
We worked with our client, a global travel company to
assess its readiness to meet the requirements of the
General Data Protection Regulation (GDPR).
We worked with our client to ensure that its investment in a
new business critical system was protected with software
escrow and verification.
We mapped the flow of data into the organisation, how it was
used, stored and shared with external stakeholders, including
retention and security of data across in excess of 20 locations.
This helped us to identify areas where there were gaps in
meeting the requirements of the new regulation. We then
performed targeted ISO 27001:2001 gap analysis at key
locations that had the highest complexity of data processing
and requested that the remaining locations conducted self-
assessments for us to analyse further.
Upon completion of our work, the client had a good
understanding of how data flows into, around and out of the
organisation, a comprehensive data asset inventory and record of
processing activities for the organisation to maintain.
Additionally, the findings and recommendations from the
remaining aspects of the review were aligned to good practice
and prioritised using a risk-based approach to develop a roadmap
showing practical steps required to reduce risk and meet the
requirements of GDPR.
Our client, a leading holiday operator, decided to introduce a
new reservations platform to replace its legacy systems. With an
escrow and software verification solution, we worked with them
to ensure that provisions were in place to protect it should an
event occur that had the potential to disrupt the ongoing service
of the application and affect customer experience.
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
system and was able to carry on maintaining and supporting the
application by appointing an alternative contractor to do so.
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NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Group at a glance
NCC Group is a leading independent cyber security advisor, sought after for our expert
solutions that enable individuals, businesses and society to thrive. We are trusted to
protect and secure our customers’ critical assets.
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.
Our Group operates in two distinct but complementary divisions: Assurance and Escrow.
The two divisions are also disclosed in the Financial Statements as our two Reporting Segments. While these are managed
and reported internally as similar groups of activities, throughout this report we are able to disclose additional revenue
information at a geographical level but also at a sub-level of similar services. This additional analysis is to aid the users of the
accounts in understanding our different types of revenue.
ASSURANCE KEY FACTS
{ One of the leading pure play cyber security businesses focusing
on services as opposed to products
{ Customers in 50+ different countries
{ Largest customer is 4.0% of sales
{ Broad range of professional services (81.9%) of Assurance
revenue) and rapidly growing managed services (13.1%)
delivered by integrated teams across many virtual markets
{ Balance of Assurance revenue (5%) generated by the sale
of products
{ Deep specialism in a number of industry sectors
ESCROW KEY FACTS
{ Leading provider of Escrow services in the UK
{ Growing positively in the USA and Europe
{ Customers in 85 different countries
{ Top ten customers represent 7.6% of sales
{ Largest customer is 1.2% of sales
READ MORE ON OUR PERFORMANCE
ON PAGES 26 TO 39
Stock Code: NCC
www.nccgroup.com
9
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.
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USA
£68.4m
UK
£100.3m
Europe
& ROW
£64.5m
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KEY:
ASSURANCE ESCROW
OUR
REVENUE*
SPLIT
ESCROW CONTRACTS £26.3M
ESCROW PROFESSIONAL SERVICES £12.5M
ASSURANCE
PROFESSIONAL SERVICES £159.1M
MANAGED SERVICES £25.5M
PRODUCTS £9.8M
* Types of revenue groupings within the Escrow and Assurance divisions, they are not management units or profit centres.
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NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Group at a glance
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 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.
Stock Code: NCC
www.nccgroup.com
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Identify strategic improvement
{ Strategic advice and planning
Identify
{ Data risk identification
{ Compliance accreditation
Examples
Æ M&A technical due diligence
Æ Incident response planning
Æ Data mapping
Æ Payment card compliance gap analysis
Technical assessments to enable effective mitigation
Assess
{ Threat identification
{ Vulnerability identification
{ Planning for change
{ Strategic advice and
planning
{ Data risk identification
{ Government and industry compliance
{ Software development life cycle
Effective solutions to business challenges
Mitigate
{ Software assurance
{ Implementing change
{ Asset verification
{ Industry standards compliance
{ Hosted and managed services
{ Virtual security team
Examples
Æ Penetration testing
Æ Reverse engineering
Æ Cryptographic review
Æ Static code analysis
Æ Policy review
Examples
Æ Managed threat protection
Æ Technology solutions
Æ Security analytics
Æ First responder training
B
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Trusted services for effective recovery
Respond
{ Cyber incident response
{ Post incident analysis
{ Asset recovery
Examples
Æ Cyber incident helpline
Æ Cyber forensics
Æ Software escrow
Æ Takedown services
Æ Trusted advisor
Identify
Mitigate
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
Mitigating organisations’ cyber risks through a complete spectrum of
consultancy and managed services which can help organisations to:
{ Ensure their software and applications meet business requirements
{ Comply with industry standards
{ Implement change effectively
{ Manage and monitor their cyber infrastructure effectively
{ Understand staff training and support needs
{ Protect investment in business critical software
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:
Respond
{ Cyber threats
{ Vulnerability exposure
{ Regulatory obligations and whether they are compliant
{ Application security and functionality
{ Change plan
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 lifecycle.
12
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Group at a glance
ASSURANCE DIVISION OVERVIEW
8
3
Revenue
194.4m
(2017: £178.1m)
Gross
Profit
§ 66.5m
(2017: £51.5m)
We are one of the world’s largest and most
trusted cyber security companies, offering
unique capability and scale, strong technical
reputation, and expertise valued by our
customers.
We work with our clients to help them to
understand their current cyber posture, tackle
the latest threats, contain and mitigate any
breach and become more proactive when
managing risk by developing strategies to
improve overall cyber security maturity.
Through our Assurance division we offer
a range of complementary professional
services to our clients (including expert
technical security testing, risk management
and governance consultancy) and managed
services (which include monitoring, detection
and response services).
Our two security operations centres (SOCs)
provide 24x7 frontline support to major
organisations, offering peace of mind that their
business critical infrastructure is continuously
monitored by world class consultants.
We are experts in transforming our knowledge
of the threat landscape into valuable actionable
information for our clients. Our expert threat
intelligence services provide information on
which threat actors are out there, what their
intent is and which tactics, techniques and
procedures they use to execute attacks.
Through both human and technical information
gathering we take raw data and information
from a variety of sources and turn it into
strategically, tactically or operationally valuable
information for our clients.
Our people are our most important asset
and we have assembled one of the world’s
largest security consulting teams. We focus on
attracting and retaining pioneers and leaders
in their respective fields, while at the same
time training the next generation and investing
significantly in research and development.
We innovate and invest to enable government,
business and society to stay secure as the
threat landscape evolves around us. Through
our specialist practices we have opened
a dedicated automotive cyber security
assessment, research and training facility to
ensure the next generation of autonomous and
connected vehicles are cyber secure, and have
launched a Centre for Evolved Next-generation
Threat Assurance (CENTA) to make critical
national infrastructure more cyber resilient.
We encourage all of our security consultants to
conduct their own research, and regularly host
our Cyber Research and Innovation Council
to ensure we hear from our customers and
stakeholders as to the challenges they are
facing, and how we are able to respond.
We are proud of our record of excellence,
contribution to industry and ambition to be the
leading cyber security company in the world.
Through our Assurance division we represent
global cyber security industry leadership and
are committed to innovation and focused on
always being a step ahead of the attackers.
Group at a glance
ESCROW DIVISION OVERVIEW
Stock Code: NCC
www.nccgroup.com
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1
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Revenue
38.8m
(2017: £37.2m)
Gross
Profit
29.6m
(2017: £26.7m)
The Escrow division offers a high value product
to customers who rely on business 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 technology partners. However, if a
software developer or Software as a Service
(SaaS) partner goes out of business 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 business
critical software and applications for licensees
while protecting the intellectual property
rights (IPR) of technology partners. Working
with all parties involved in the development,
supply and use of business critical software
applications, NCC Group assures that source
code and other information is available and
tested to assure the quality of the source code
behind vital applications, providing assurance
that should it ever need to be recreated from
the original source code, the knowledge and
guidance to do so will be available.
We continue to develop our SaaS service to
respond to the continuing evolution of our
marketplace and to assist our customers in
their movement towards the Cloud.
Further, we provide registry data escrow
services (an ICANN regulatory requirement)
for 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. 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
contained within a contractual relationship.
Where possible, Escrow will work with the
Assurance division to offer complementary
services to protect customers against a full
range of cyber risks. A good example of this
has been the development of offering SAST
(static application security testing) services
to technology partners on source code that is
being 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 18,000 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.
14
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Strategic Report
CONTENTS
Highlights
The market landscape
The market opportunity
Strategic review and transformation
Business model
Our strategy
Group performance review for 2018
Principal risks and uncertainties
Corporate social responsibility
15
16
18
20
22
24
26
40
45
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 ended 31 May 2018. We also outline the
principal risks we face and how we manage them.
Highlights
Stock Code: NCC
www.nccgroup.com
15
FINANCIAL HIGHLIGHTS
Total Group revenue (£m)
{ Group revenue from continuing operations grew by 8.3% to £233.2m (2017: £215.3m)
109.3
110.0
174.7
215.3
233.2
made up of:
— Adjusted Organic* growth of £24.1m
— Impact of acquisitions in the prior year: (£4.0m all in Assurance)
— Impact of changes in weighted average foreign exchange rates between financial years 2017
and 2018: (£2.6m adverse)
— Assurance: 13.8% Adjusted organic* growth to £194.4m
2014
2015
2016
2017
2018
— Escrow: 2.7% Adjusted organic* growth to £38.8m
Adjusted* Operating Profit (£m)
25.8
22.9
35.1
25.5
31.0
{ Adjusted Operating Profit* grew 21.6% to £31.0m (2017: £25.5m)
{ Profit before tax recovered to £11.9m from a loss in the prior year of £44.8m
{ Basic EPS from continuing operations 4.5p (2017: loss 16.6p)
{ Adjusted* basic EPS: 8.3p (2017: 6.2p) , adjusted effective tax rate of 22.4%
{ Total dividend maintained at 4.65p per share with final dividend proposed of 3.15p per share
{ Net debt* reduced to £27.8m (2017: £43.7m)
2014
2015
2016
2017
2018
{ Cash conversion ratio* improved to 90% (2017: 87%)
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STRATEGIC AND
OPERATIONAL HIGHLIGHTS
OUTLOOK FOR 2018/19
{ Good progress made on the implementation of the Strategic
Review, new initiatives in place to broaden and deepen the
strategic plan.
{ Leverage high value products and services through our
global sales channels by lowering internal barriers to
Group-wide co-operation.
{ Transformation programme launched internally under the
{ Maintain double digit growth.
brand ‘Securing Growth Together’.
{ Short-term focus on internal self-help measures and
{ Organisational restructure completed around geographical
efficiencies in a buoyant market.
business units and customer segments.
{ Completed portfolio rationalisation in disposing of Web
Performance and Software Testing businesses.
{ Significant changes to the Board and Executive
management team.
{ Initiatives now underway to develop skills and capabilities as
well as deepening industry specialisms and alignment.
{ Medium-term cost investments in the transformation
programme (£3.0m-£4.0m p.a. for two years).
{ Medium-term goal of steady, annual, incremental net
margin growth.
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures..
16
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
The market landscape
THE CONNECTED WORLD
120…
86
HEALTH
CONSUMER & HOME
WORK & OFFICE
INCOMING
CALL
Wearable
E I N T E R NET OF THIN
G
S
SMART CITIES & FARMS
T H
INFRASTRUCTURE
TRANSPORT
CAR & AUTOMOTIVE
Privacy and security
Against this backdrop, global policy makers are working hard to create
legislation and regulation that can cope with this data explosion,
focusing predominately on privacy and security. In the European Union
(EU) that manifested itself as the General Data Protection Regulation
(GDPR), a set of sweeping changes that affected all 28 EU member
states and those that trade with businesses in the EU from 25 May
2018. Any data that businesses collect, process and share about
employees, contractors, consultants, customers, suppliers, clients or
visitors must comply with the principles of GDPR. Hefty punishment can
be levelled against the non-compliant, with the Supervisory Authority in
each country (the Information Commissioner’s Office (ICO) in the UK)
now able to fine offenders a maximum €20 million, or 4% of global
turnover (whichever is greater). The ICO previously had a fine ceiling of
£500,000.
While GDPR affects all businesses, the Network and Information
Security (NIS) Directive aims to ensure critical infrastructure and digital
services are more resilient from cyber-attacks and failure. Another
directive from the EU, the rules apply to roughly 600 organisations in
the UK across digital infrastructure, energy, drinking water supply and
distribution, health and transport, as well as digital services including
cloud providers.
The landscape
For better or worse, last year was memorable across the technology and
cyber security landscapes. Data breaches were massive and numerous,
global ransomware outbreaks brought organisations to a standstill
and disruptive technologies and organisations - including various
cryptocurrencies - was (and still is) the talk of the town although at times
coupled with high volatility.
On top of that, our increasingly connected society has become a
playground for malicious threat actors be they nation state, organised
crime or lone individuals. And when everything is connected, everything
is vulnerable. The consequences of an attack range from the frustrating
to the kinetic. Our global society is now built on digital connectivity, and
these connections are growing at lightning speed.
It wasn’t long ago that digital connectivity meant a desktop PC and a
modem. Now it encompasses mobile phones, tablets, cars, trains, planes
and homes – communicating with each other over networks such as
the internet, ZigBee or similar. The internet of things (IoT) has made the
physical world digital, as we attempt to connect anything and everything
to make our lives simpler and more enjoyable.
With more and more devices comes an avalanche of data. Many still
reference the IBM statistic from 2015, that 90% of data in the world had
been created in the previous two years. This is an unstoppable trend.
As a truly global society we are becoming reliant on this data. In
business it informs strategy, allows for personalised customer interaction
and streamlines processes. For consumers it enables improved health
and fitness measurements, frictionless travel experiences and tailored
products and services.
The reliance on data by both businesses and consumers is inextricably
linked. Consumers are demanding a certain type of experience from the
brands they engage with. Businesses are reacting accordingly.
Stock Code: NCC
www.nccgroup.com
17
The UK government and its regulators have indicated that there will
be reasonable expectations of compliance. The stated ambition for the
first year of the NIS Directive is to develop a clear picture of the UK’s
critical national infrastructure’s network and information system security.
Organisations are expected to invest up to £17.5 million additional
security spending in the first year as they review and assess their cyber
security readiness.
An evolving security market
This macro environment is contributing to a flourishing cyber security
market. The unstoppable growth in connectivity – coupled with the
complexity of the likes of artificial intelligence and next-generation
transport systems – will only increase the potential vulnerabilities let
alone address the legacy latent technical security debt. This puts both
businesses and individuals at greater risk.
Regulations are moving forward in North America too, with discussions
around their own version of GDPR continuing apace. While the
Cambridge Analytica data scandal brought digital privacy into the
spotlight, the USA was ahead of the curve in respect of government
standards with its FedRAMP accreditation which it unveiled in December
2011. This programme promotes data security and a cloud-first mindset
in federal agencies. Any commercial cloud storing federal data has to
go through a FedRAMP accreditation process and it’s proved a success
thus far with the 100th cloud service offering certified in April.
In China, a new data protection law became effective on 1 May 2018,
providing much stricter guidelines around the protection of personal
information. This trend for greater security and integrity in data storage
and processing is very much global.
This international movement has been a reaction to a growing threat.
The security of this data is at risk from a range of actors – from nation
states to organised crime and ‘script kiddies’ operating from everywhere
and anywhere.
What motivates these actors in turn informs their attack strategies.
Nation states driven by geopolitics are more likely to focus on espionage
through highly advanced attacks, although Russia also demonstrated
the desire to disrupt. Organised criminals will follow the cash, looking
to make as much money for as little effort as possible. Hacktivists want
to make a political point and will opt for online vandalism or disruptive
attacks, while script-kiddies are often simply pushing the boundaries and
seeing what’s possible.
The concern for organisations is that the time taken for the advanced
threats - often developed by nation states – to fall into the hands of the
other actors is falling. Threats that were only a worry for the biggest
targets can now be turned on the majority.
Online security still seems to be behind the curve in keeping 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 upfront investment in advice or other cyber services
can ultimately save significant sums in remediation and reputational
damage clean-up costs.
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The wave of regulatory change has made compliance an even more
important discussion point for boards across the world, while increasing
the costs of compliance failure in tandem. All of this provides ample
opportunities for cyber security businesses as both advisors and
technical experts.
While the cyber security market itself has reached a satisfactory level
of maturity, cyber security still isn’t normalised across other industries
– particularly complementary sectors like insurance and law. As this
process continues we expect it to drive further market growth for
security businesses.
At a high level, we expect the market to continue growing with ever
more competition and increasing demand of deep sectoral or technology
knowledge be it in advisory, technical, operations or response.
{ Cyber will increasingly become a science
{ Trend of using cyber insurance and other risk transfer mechanisms
increasingly in overall risk management strategies is set to continue.
{ Much as GDPR and NIS have driven national legislation, we expect
governments and their regulators around the globe to legislate
further.
{ Further regulation to control cyber security proliferation and national
capabilities
{ Growing demand for advice on secure implementation of machine
learning/artificial intelligence
{ IoT and general growth of embedded devices will drive the hardware
security market
{ Companies will demand their cyber security partners to have deep
sector expertise relevant to them
{ Security of start-ups becomes a requirement
{ An increase in companies using cryptocurrency, block chains and
smart contract to create sustainable valuable companies
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 help organisations prepare and
become more resilient becomes more important than ever.
18
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
The market opportunity
The market opportunity
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.
SIZE $BN*
MARKET SEGMENT
NCC GROUP OFFERING
7.0
11.0
6.0
4.0
10.0
Fully Outsourced IT Security
NCC GROUP PROVIDES LIMITED
SERVICES IN THIS SEGMENT
Managed Security Services
MONITORING
Advisory, Governance and Assessment
PROCESS AND GOVERNANCE
Forensic and Legal Response
SECURITY TESTING
Operational
SECURITY TESTING
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* OC&C estimates produced as part of the Strategic Review
Estimated market size
The addressable market is clearly very large at $38bn
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.
Market research as part of last year’s Strategic Review
confirmed that market growth is likely to continue and that
customers’ propensity to pay more for high quality advice
and solutions is growing.
Estimated CAGR 2016-20*
USA
12.1%
UK
9.5%
NL
7.4%
Rest of
World
8.5%
Stock Code: NCC
www.nccgroup.com
19
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 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.
KPC 1 – Technical expertise
Consistently noted as having top-tier technical
talent, Fox-IT seen as most technically
advanced player in the Netherlands.
KPC 2 – Customer service
UK and US customers often feel NCC Group is
too transactional. Fox-IT customers value their
trusted partnership.
KPC 3 – Value for money
NCC Group and Fox-IT generally perceived as
good value. Customers very willing to pay more
for quality.
KPC 4 – Speed of delivery
Seen as “mid-sized”, competing with boutique
pure-plays, NCC Group advantages include
wider capabilities and flexibility.
KPC 5 – Brand/Reputation
Well known by security professionals in the
UK and US. Fox-IT highly regarded in the
Netherlands (Dutch government work).
KPC 6 – Low price
Seen to be expensive but price rarely the
deciding factor. NCC Group rated highly as
good “value for money”.
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. Finding 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 Target Operating
Model is designed to ensure that these remain
a core feature of the business.
The recent 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.
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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
One-off
Ongoing
FREQUENCY OF PURCHASE
e
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NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Strategic review and transformation
TODAY’S TRUTH
Market dynamics continue to
benefit NCC Group
CONNECTED
ENVIRONMENT
SOCIETY’S
DEPENDENCE
ON CONNECTED
ENVIRONMENT
REGULATORY
ENVIRONMENT
AGILITY AND
PACE OF THREAT
Stock Code: NCC
www.nccgroup.com
21
Securing Growth Together
transformation programme
All businesses go through transitional phases
and we are no exception. NCC Group has a
great future, but only if we build it ourselves.
It is after all ‘Only Us’, a phrase we use to
encapsulate the need for each one of us to
materially contribute to success.
We know that we must change so that NCC
Group can survive, and thrive, and we have
established our Securing Growth Together
programme as a supportive structured
framework through which we will improve
NCC Group.
It isn’t just about avoiding the challenges, and
perhaps the mistakes of the recent past – it is
about fulfilling our potential.
We have the opportunity to drive the new cyber
agenda in this complex, changing landscape
but we must organise ourselves correctly in
order to succeed.
Vision and strategic alignment
Crucial to our success on this journey is
engaging our whole organisation around a
common set of goals, a shared purpose and
values; working together to create enduring
success for NCC Group. Crystallising our vision
and strategic priorities for the next three years
is an essential prerequisite. It provides us with
the basis to understand where we need to
change and adapt; to make the right choices
and invest judiciously to fuel our growth and
strengthen our position in the market; and to
create an organisation where all of us together
are energised and supported to make NCC
Group the most rewarding place to be.
We are making significant progress in charting
our future. Our leadership team is actively
engaged in a strategy clarification and
implementation process which will deliver our
three-year strategy roadmap, and the critical
performance metrics and priority initiatives we
need to focus on. This process is enabling us
to challenge past assumptions, and foster open
constructive debate while delivering a robust,
logical roadmap connecting the different parts
of our organisation and clearly articulating how
we deliver value to our markets, customers, and
shareholders.
None of this can happen without recognising
that our future success depends on the
excellence and talent of our people – that is
the foundation of our strategy roadmap. We are
committed as a leadership team to create the
conditions for our people to thrive and be fully
engaged with NCC Group’s vision and journey.
The vision and strategy alignment process will
help us embed the NCC Group strategy within
the organisation. It will support every individual
to understand the strategy, what it means with
respect to their role; and how each of us can
contribute to the corporate goals with clarity
and confidence.
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22 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
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
Stock Code: NCC
www.nccgroup.com
23
Research and innovation
Research and 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 while efficiently delivering legacy commoditised services.
Professional services:
NCC Group’s security experts provide a wide range of integrated
professional services including end-to-end services in all facets of cyber
security to our clients professional services. Some of these revenue
streams are shown below.
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 and 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
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
s safeguard the network infrastructure of clients ranging from national
telecommunications providers to international financial services firms.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Informing
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
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:
Managed Security Services (MSS) are another revenue type within our
Assurance Reporting segment. Examples of MSSs are shown below.
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 sized 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.
24
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Our strategy
STRATEGIC PRIORITIES AND KEY PERFORMANCE INDICATORS
Our continually evolving 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. Our strategic goals build on those established in the prior
year, all of which remain fundamentally sound, with additional metrics focused on cash
generation, a key attribute for a healthy business.
Strategic priorities
Rationale and current status
KPIs and our performance in 2018
Focus and goals for 2019
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.
Having implemented the structure of a new operating model, we need to overlay new go-to market
strategies that match our capabilities to customer needs, markets and buying power. This will enrich the
quality of growth that the business delivers.
EXECUTE
Our new 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 execute a new and clear operating model that delivers better customer service at an improving
gross margin.
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.
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.
Æ Launch of CENTA service (Centre for Evolved Next Generation Threat Assurance)
Æ Continued demonstration that NCC Group
Æ Unique high value offering in regulated financial services and governments
Æ Continued release of leading-edge research on cloud and container technologies
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 23.5% (2017: 21.8%)
Æ Strategic Review feedback told us our staff feel valued and enjoy working at NCC Group
Æ Values and leadership training being developed
Æ Staff retention rates at Group level are unchanged year on year
Æ We will develop and implement employee
performance appraisal and development
Æ Creation of the NCC Group Academy
focusing on helping our staff achieve their
systems
full potential
IMPROVE
Business processes
and systems
LEAD
Technical thinking and
product development
in a rapidly evolving and
dynamic market sector
DEVELOP
Our people to allow
them to reach their full
potential and contribute
fully to NCC Group
Adjusted Organic* revenue growth (metric unchanged)
Æ Continue roll-out of value-based sales
2018: 11.8% (2017: 7.6%)
Æ Medium-term goal of above market growth rates while controlling costs
Æ Align sales specialisms to market sectors
Æ Adjusted Organic* growth in retained Assurance (13.8%) and Escrow (2.7%)
skills
where appropriate
Æ Support internal development of an
integrated “Manage, Detect & Respond”
(MDR) service offer
Æ Our transformation programme, “Securing
Growth Together” aims to LEAN the
organisation and improve the GM% ratio
in the medium-term
Æ Potential for major benefits for customer
service, efficiency and working capital
Æ “Securing Growth Together” will require
investment of approximately £3.0m-£4.0m
in additional costs in 2019 and 2020
Æ Expect benefits to flow in the
following years
GM% to improve (metric unchanged)
2018: 41.2% (2017: 36.3%)
Æ Significant benefit from revenue growth effectively delivered by an unchanged number
of delivery staff
products
Æ Just under 1% benefit from mix improved by planned cut in resale of third party
Æ Medium-term goal to drive up margin, building foundations for sustainable growth
G&A * ratio to improve (metric unchanged)
2018: 27.9% (2017: 24.5%)
Æ Overhead increases this year were largely committed in 2017 (new premises and full
year impact of new support staff)
Æ Many improvement projects underway in delivery and back office functions
Cash conversion ratio * (metric unchanged)
2018: 90% (2017: 87%)
Æ Improving as earnings quality rises in parallel with better working capital management
Stock Code: NCC
www.nccgroup.com
25
KEY:
PERFORMANCE BELOW
PRIOR YEAR
PERFORMANCE IN LINE WITH
PRIOR YEAR
PERFORMANCE ABOVE PRIOR YEAR
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.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
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.
Having implemented the structure of a new operating model, we need to overlay new go-to market
strategies that match our capabilities to customer needs, markets and buying power. This will enrich the
quality of growth that the business delivers.
EXECUTE
Our new operating model
gross margin.
The Strategic Review identified that we do not organise ourselves in a way that brings simplicity and
efficiency to our service delivery.
We will execute a new and clear operating model that delivers better customer service at an improving
Strategic priorities
Rationale and current status
KPIs and our performance in 2018
Focus and goals for 2019
Adjusted Organic* revenue growth (metric unchanged)
2018: 11.8% (2017: 7.6%)
Æ Continue roll-out of value-based sales
skills
Æ Medium-term goal of above market growth rates while controlling costs
Æ Align sales specialisms to market sectors
Æ Adjusted Organic* growth in retained Assurance (13.8%) and Escrow (2.7%)
GM% to improve (metric unchanged)
2018: 41.2% (2017: 36.3%)
Æ Significant benefit from revenue growth effectively delivered by an unchanged number
of delivery staff
Æ Just under 1% benefit from mix improved by planned cut in resale of third party
products
Æ Medium-term goal to drive up margin, building foundations for sustainable growth
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.
G&A * ratio to improve (metric unchanged)
2018: 27.9% (2017: 24.5%)
We will design and implement improved business processes with reduced manual interventions to lower
Æ Overhead increases this year were largely committed in 2017 (new premises and full
year impact of new support staff)
Æ Many improvement projects underway in delivery and back office functions
Cash conversion ratio * (metric unchanged)
NEW
2018: 90% (2017: 87%)
Æ Improving as earnings quality rises in parallel with better working capital management
where appropriate
Æ Support internal development of an
integrated “Manage, Detect & Respond”
(MDR) service offer
Æ Our transformation programme, “Securing
Growth Together” aims to LEAN the
organisation and improve the GM% ratio
in the medium-term
Æ Potential for major benefits for customer
service, efficiency and working capital
Æ “Securing Growth Together” will require
investment of approximately £3.0m-£4.0m
in additional costs in 2019 and 2020
Æ Expect benefits to flow in the
following years
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
Æ Launch of CENTA service (Centre for Evolved Next Generation Threat Assurance)
Æ Continued demonstration that NCC Group
Æ Unique high value offering in regulated financial services and governments
Æ Continued release of leading-edge research on cloud and container technologies
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
Employee turnover 23.5% (2017: 21.8%)
Æ Strategic Review feedback told us our staff feel valued and enjoy working at NCC Group
Æ Values and leadership training being developed
Æ Staff retention rates at Group level are unchanged year on year
Æ We will develop and implement employee
performance appraisal and development
systems
Æ Creation of the NCC Group Academy
focusing on helping our staff achieve their
full potential
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
IMPROVE
Business processes
and systems
our costs to serve.
LEAD
Technical thinking and
product development
in a rapidly evolving and
dynamic market sector
DEVELOP
by reward.
Our people to allow
them to reach their full
potential and contribute
fully to NCC Group
26 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Group performance
review for 2018
ADAM PALSER CHIEF EXECUTIVE OFFICER
Stock Code: NCC
www.nccgroup.com
27
Continuing Adjusted
organic* revenue growth
and significantly improved
gross margins demonstrate
the Group’s ability to deliver
high quality earnings
growth.”
ADAM PALSER CHIEF EXECUTIVE OFFICER
Group revenue
Group revenue from continuing operations increased by 8.3% to £233.2m
(2017: £215.3m). Adjusted organic* growth was 11.8%. The results of the
Web Performance and Software Testing businesses have been treated as
discontinued operations in the current and prior year Income Statements
following their disposal during the year. The disposal of Domain Services in
the prior year has also been treated as a discontinued operation. The Income
Statement therefore shows the profit after tax of the discontinued operations
as a one line item. More detailed analysis of the results attributable to the
discontinued operations are set out in note 5.
The table below shows an analysis of the movements in revenue between
2017 and 2018:
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
FY
2017
£m
37.2
178.1
215.3
2.6
9.3
17.3
29.2
Escrow
Assurance
Continuing total
Domain Services
Web Performance
Software Testing
Discontinued total
FX
£m
Acquisitions
£m
Disposals
£m
Third party
products
£m
Escrow PY
correction
£m
(0.4)
(2.2)
(2.6)
–
–
–
–
–
4.0
4.0
–
–
–
–
–
–
–
(2.6)
(1.5)
–
(4.1)
(4.1)
(8.6)
(8.6)
–
–
–
–
1.0
–
1.0
–
–
–
–
(8.6)
1.0
Group total
244.5
(2.6)
4.0
Adjusted
Organic*
Growth
£m
1.0
23.1
24.1
–
(0.9)
(2.7)
(3.6)
20.5
Organic
Growth
Ratio%
+2.7%
+13.8%
+11.8%
(100%)
(11.5%)
(15.6%)
FY 2018
£m
38.8
194.4
233.2
–
6.9
14.6
21.5
254.7
+8.8%
Adjusted organic* growth ratio is calculated as Adjusted organic* growth
divided by FY2017 less FX, third party products and PY Escrow revenue
correction. The FX reduction above is the translational impact resulting
from a 6.1% weakening in the weighted average FX rate for the US$
which was partly offset by a 3.2% strengthening of the weighted
average Euro FX rate. The movement related to “Acquisitions” reflects
the fact that PSC Inc and VSR LLC were bought half way through the
prior year and hence the current year benefited from an additional six
months of ownership.
The disposals column shows the impact of not owning the discontinued
operations for the full year. Web Performance was sold in March 2018
and hence just over two months of revenue were excluded, whereas
there was a negligible impact from the sale of Software Testing in
May 2018.
Last year, as a result of the Strategic Review, we reported that we would
seek to rebalance the business away from single transaction reselling of
third party products, unless they complemented our professional services
or our monitoring activities. The £8.6m reduction above represents the
completion of this strategic objective. In addition, we have moved to new
lower risk terms and conditions for the Group so that if we do facilitate
the procurement of a third party product for a customer, we act as an
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
28 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Group performance review for 2018
REVENUE BY LOCATION
2018
TOTAL REVENUE
£233.2m
2018
UK £100.3m 43.0%
US £68.4m 29.3%
TOTAL REVENUE
£233.2m
Europe and RoW £64.5m 27.7%
TOTAL REVENUE
£215.3m
2017
2017
TOTAL REVENUE
£215.3m
UK £102.0m 47.4%
US £60.4m 28.0%
Europe and RoW £52.9m 24.6%
Note: some businesses sell a modest amount of services in other countries and report that revenue within their own geography
agent only and record a commission on the transaction as opposed
to the gross revenue and cost values. This change was made midway
through the financial year with an estimated additional full year impact
next year to reduce revenue by £2.6m (all else being equal). We expect
no further material reductions in this revenue line.
The balance of revenue movements are attributable to organic drivers.
Adjusted organic* growth was robust at £24.1m (11.8%) with the bulk
of the growth being driven by strong Assurance organic performance
up 13.8%.
Group profitability
The financial performance of the Group was ahead of the Board’s
expectations, with a firm second half performance. Operating profit* from
continuing operations was £13.7m which was a significant improvement
on the operating loss in the prior year of £42.9m. The prior year saw
£57.6m of ISI’s whereas these totalled £7.6m in the current year. A
detailed listing and explanation of each ISI is shown in note 6. The prior
years ISIs included £48.6m in respect of the impairment of goodwill of
two business units.
The amount of Group revenue earned outside the UK increased by
£19.6m, reflecting strong growth in all overseas territories. The apparent
£1.7m reduction in the UK reflects the £8.6m impact of the withdrawal
from third party products without which the UK would show year-on-year
growth of £6.9m or 6.8%. This lower UK growth rate reflects the higher
proportion of UK sales from our Escrow division which typically grows at
a much lower rate than the Assurance business.
The Group continued to have minimal reliance on any one customer
or sector. Within Assurance the largest customer represents 3.9% of
Assurance revenue. The largest customer in Escrow represents just over
1% of Escrow revenue.
Group revenue – impact of IFRS 15,
Revenue Recognition
The Group has undertaken an in-depth risk-based analysis of the likely
impact of IFRS 15 on its reported results. The analysis showing what
the reported 2018 revenue, profit and opening reserves adjustments
would have been if IFRS 15 had been applied is shown in note 1 to
the Financial Statements. In summary, revenue and profit in the year
would have been unchanged. The lack of a material impact of the new
standard reflects the fact that the vast majority of the Group’s revenue
was effectively already recognised in accordance with the principles of
IFRS 15.
Group profitability – alternative performance
measures (APMs)
The Group makes use of alternative performance measures in
addition to GAAP measures in order to assist the reader in forming
an understanding of the underlying performance of the business. The
explanation and derivation of the Groups APMs are set out in note 3.
The larger ISI’s in the current year were in respect of a loss making
contract provision (£2.5m), onerous lease provisions and property costs
(£2.7m) and restructuring costs (£1.6m).
Adjusted operating profit* from continuing operations increased
by 21.6% to £31.0m (2017: £25.5m). The primary drivers for this
improvement were the Adjusted organic* revenue growth discussed
above, which combined with gains in GM% in both business segments,
to deliver a £17.9m (22.9%) increase in gross profit. GM% itself
improved by 4.9% points in 2018 to 41.2% (2017: 36.3%). The gross
profit margin improvement of each division is discussed further within
the Operating Segments’ performance reports below. Key highlights
were the improvement in the utilisation of professional consultancy staff
in Assurance coupled with a reduction of sales of low margin third party
products.
The improvement from growth and GM% gains was then partly offset
by a £12.4m (23.5%) increases in general and administrative expenses,
which includes a £1.3m (26.5%) increase in depreciation and a £2.7m
(103.8%) increase in the amortisation charge for the year (excluding the
amortisation of acquired intangibles).
Property costs increased £1.8m, most of which was driven by the already
committed investments in new offices, the key one being the relocation
of the UK Head Office in Manchester (August 2017). New staff to
support both operating divisions as well as the full year impact of staff
recruited in 2017 and their associated on-costs added a further increase
of £3.5m. We invested £1.6m of our gross profit gains in professional
fees to support our change programme. Finally, we experienced
transactional FX losses in the current year of £0.6m versus a prior year
gain of £0.6m resulting in an adverse swing of £1.2m.
The £1.3m increase in depreciation charges was primarily driven by
charges linked to the start of depreciation of the fit out costs of the new
premises noted above. The £2.7m increase in amortisation costs was
driven by a number of factors:
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
Stock Code: NCC
www.nccgroup.com
29
Central costs and allocations
In a number of territories the different reporting segments of Assurance
and Escrow are often co-located with each other or with head office
functions. Equally, in order to benefit from economies of scale, purchases
and head office supporting functions are often run on a shared basis.
In order to arrive at a more accurate picture of operating segment
performance, it is necessary to allocate centrally collected shared
costs to each segment. Allocations are made directly where possible
and in other cases are made on the basis of activity costing or another
mechanical attribution basis (such as ratio of shared space or a per user
basis).
During this financial year, a full review of central costs and their
allocation bases has been completed as the previous model, which
had last been updated a number of years ago, was no longer an
accurate reflection of how resources were being consumed in the
Group due to the much higher growth rates seen in Assurance. The
updated review resulted in an increased proportion of central costs
to the Assurance division and a lower proportion to Escrow. We have
restated the prior year allocation to give a more accurate comparable
figure in both segments, as the reallocation basis in the current year is
equally appropriate to the prior year. There is no overall impact of the
reallocation on the Group’s total result. The impact of the restatement is
set out in note 4.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Æ During the year, we conducted a strategic review of our capitalised
product portfolio and software assets linked directly to each product.
This resulted in the commercial decision to withdraw from some
revenue generating product sales. It also identified some projects as
having slower commercial ramp ups than previously expected. We
therefore accelerated the amortisation on those products projects
which resulted in a one-off charge of £1.5m. This has been treated
as an ordinary operating charge and not an Individually Significant
Item because it relates to a number of individually smaller items and
such project portfolio reviews are an ongoing part of normal product
lifecycle management.
Æ The same risk-based review led to a decision to shorten the useful
economic lives of a number of capitalised development projects
from ten years to five years with effect from the start of the
current financial year. This change in estimate increased the year’s
amortisation charge by £0.4m and this impact will continue in future
until the end of the useful lives of those assets.
Æ The £0.8m balance of the increase in amortisation charges was
the direct result of a full year’s amortisation of the Fox CTMp MSS
technology platform as well as the start of amortisation of spend in
the current year that saw all existing Fox customers transfer to the
new platform. The platform also went live internally in NCC Group in
preparation for the UK commercial launch of services which occurred
on 1 June 2018.
The improvements in Adjusted operating profit* shows that the
immediate actions taken at the start of the financial year to control
cost of sales, combined with implementing the findings of the Strategic
Review, are delivering real improvements that reversed the significant
decline seen in the second half of the prior year.
ADJUSTED OPERATING PROFIT*
£m
45.0
40.0
35.0
30.0
25.0
20.0
39.7
6.0
27.5
(2.0)
25.5
(0.4)
1.5
10.8
(8.4)
(4.0)
31.0
Reported 2017
Discontinued
Continuing 2017
FX
Acquisitions
Adjusted*
Organic growth
GM%
G&A
D&A
2018
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
30
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Group performance review for 2018
ASSURANCE DIVISION — BUSINESS PERFORMANCE REVIEW
Assurance revenue
The Assurance division accounts for 83.4% of continuing Group revenue
(2017: 82.7%). The table below shows the primary drivers of growth in
Assurance revenue.
Revenue (continuing operations)
Year ended 31 May 2017
Impact of FX movements
Prior year acquisitions
MSS – third party re-sales
Adjusted organic* growth (analysed further below)
Total Assurance revenue growth
Year ended 31 May 2018
Growth
£m
178.1
(2.2)
4.0
(8.6)
23.1
16.3
194.4
In the year, Assurance revenue benefited from the full year impact of the
PSC and VSR acquisitions completed in 2017, adding £4.0m to current
year revenue. The adverse impact in FX movements of £2.2m is mainly
driven by the average USD FX rate weakening compared to GBP by
6.1% with a partial offset from a 3.2% strengthening in the Euro FX rate.
As noted earlier, the Group consciously decided to de-emphasise the
sale of third party products and the steps to achieve this started in the
prior year and completed in the current year. This sales reduction, while
not a discontinued operation, does represent a decision to significantly
reduce an individual revenue line that was acquired with the Accumuli
plc group of businesses. As previously reported in the Interim Results,
there is no material allocation of Group resources in this area to deliver
growth, although we do expect the current revenue level to continue.
The Group therefore excludes it when calculating Assurance Adjusted
organic* growth.
Assurance Adjusted organic* growth in the year was £23.1m or 13.8%.
This strong performance was supported by all four of our key territories,
as shown in the table below.
Adjusted organic* Assurance
growth by selling territory
Change
£m
Change
%
UK and RoW
North America
Netherlands
Denmark and Baltics
8.9
8.3
5.0
0.9
+11.1%
+15.9%
+17.2%
+21.3%
Total Adjusted organic* Assurance
growth
23.1
+13.8%
The disappointment was the revenue performance in UK MSS (though
its operating profit* was in line with expectations). There have been
a number of change initiatives impacting the MSS business unit,
particularly amongst the sales and management teams during the
year. A new market approach is now underway with greater business
integration between the UK and Fox. Managed Security Services are
seen as a scalable offering within the Group. The management team has
now settled down and the Fox CTMp technology has now been deployed
to support SOC services in the UK. The commercial launch of the UK
SOC services was held on the first day of the new financial year. We
therefore aim to set the business back on the road to growth, albeit from
a low starting point.
The table below analyses Assurance revenue streams by type of
service/product.
2018
2017
£m
159.1
25.5
% of
total
81.9
13.1
£m
135.6
22.8
% of
total
76.1
12.8
9.8
5.0
19.7
11.1
Professional services
Managed services
Product sales
(own and third party)
Total
194.4
100.0
178.1
100.0
As noted previously, the analysis groups our revenue streams into
distinct types of revenue as opposed to representing management
units or profit centres. The professional services growth above is slightly
flattered by the full-year impact of the VSR and PSC acquisitions, but
even with those removed, we delivered good Adjusted organic* growth.
Our growth is supported by our scale which allows us to capture share
when others face more pressing resource constraints. In the UK, our
RM&G consultancy service line that focuses on Board or Strategic level
cyber risk has continued to show good year-on-year revenue growth
(27.6%). This has been supported by an improved effectiveness in
identifying opportunities from other cyber consultancy activities, coupled
with our overseas business units working with the UK team to grow this
service offering. We have also started to implement value-based pricing
that had a modest impact in the current year, but will have an increasing
role in the future.
Professional Services in the Netherlands, which were historically a
smaller part of the overall business, are being supported in their growth
efforts by other parts of the Group and in the year delivered growth of
11.4%. In managed services (sometimes known as CTMp or MSS), our
Dutch business continued to show good growth of £2.8m (22.0%). In
addition, our High Assurance service line grew by £2.1m (29.9%). This
demonstrates the recovering profile of some key customer relationships
in the Netherlands.
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
Stock Code: NCC
www.nccgroup.com
31
The table below shows the adjusting operating profit* result for
continuing operations in the Assurance division.
Revenue
Cost of sales
Gross profit
GM%
G&A before adjusting items
Central cost allocation
Adjusted operating profit*
Adjusted operating profit margin*
Adjusting items (note 3)
Operating profit*/(loss)
2018
£m
194.4
(127.9)
66.5
34.2%
(34.6)
(14.9)
17.0
8.7%
(12.5)
4.5
2017
£m
178.1
(126.6)
51.5
28.9%
(30.8)
(10.3)
10.4
5.8%
(63.9)
(53.5)
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The central cost allocation for 2017 reported in the prior year Annual
Report and Accounts was £6.1m. The figure in the table above provides
the reader with a comparator which is more closely aligned to the current
central cost allocation model of the Group.
Assurance gross profit
The growth in revenue (whether by geography or by service/product
type) contributed to the improvement in gross profit and GM% with the
latter increasing by 5.3% to 34.2% (FY17 28.9%). In absolute terms, the
gross profit improved £15.0m to £66.5m (2017: £51.5m). The increase
was the result of growing revenues being serviced by a more controlled
approach to headcount growth than in prior years – which in turn
improved utilisation rates.
An exception to this was in our business in the Netherlands, where costs
increased ahead of revenue resulting in lower operational leverage than
would have been expected. Plans are in place to remedy the situation
going forward under the new Managing Director. In addition, Assurance
benefited from the full year impact of the higher margin activity acquired
in North America (VSR and PSC). Lastly, the dilutive effect of low margin
third party product re-selling was reduced by the completion of the
initiative to resize this income line (improved mix).
Assurance overheads
General and administrative costs increased by £3.8m to £34.6m (2017:
£30.8m) and this offset some of the gross profit gains. The division
invested £2.3m in support of the additional revenue, in indirect staff and
their associated costs such as travel expenditure. Amortisation in the
division increased by £1.6m, with £0.5m relating to a full year charge for
the CTMp platform which saw all Netherlands customers migrated in the
financial year. A further £1.1m came from the strategic product review
discussed in the Group overview section as well as the associated
shortening of useful economic lives.
Assurance operating profit*
The improved revenue and GM%, less the increase in overheads and
central cost allocations, resulted in the overall operating profit* margin,
improving by 2.9% to 8.7% (2017: 5.8%). The central cost allocation
includes property costs, which increased significantly during the year as
a result of the investment in new office locations, notably the head office
building in Manchester but also refurbished or expanded presences in a
number of other UK and North American offices.
During the year, we identified a loss making contract (in the Fox-IT
business) that started in 2014. A detailed project review identified that
the contract would require significant additional effort to complete and
this additional effort would result in the contract being loss making over
its life. A provision was made, during the year, for the remaining net
loss to be incurred and £1.5m of costs during the year were charged
to this contract provision. A similar programme of work to that required
in the rest of the Group to professionalise the challenging internal
business processes of Fox-IT is underway. The objectives and initiatives
of Securing Growth Together are also being applied to Fox-IT. In the
current year, those challenging internal processes mean that the growth
delivered in the year did not translate into operating profit* gains.
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
32 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Group performance review for 2018
ESCROW DIVISION — BUSINESS PERFORMANCE REVIEW
Escrow Europe
Escrow Europe revenues fell 2.6% to £3.8m (2017: £3.9m) with
recurring revenues of £2.3m (£2.1m 2017). This was despite a 3.2%
strengthening in the Euro FX rate in which much of our European
business is transacted. The European business continues to provide
the division with a foothold in Europe from which to generate growth.
Europe, like the USA business unit, will be invested in with new
headcounts to drive enhanced market share and return the region to
growth.
Escrow Rest of the World
During the year a review of the satellite office in Dubai was carried out
and while we do believe there are customer opportunities in the region,
we have decided to forgo a physical presence and any customers will be
serviced from our UK business going forward.
Escrow revenues can be further analysed by service lines as follows:
31 May
2018
£m
31 May
2017
£m
% Change
Escrow contracts
Verification testing
Other services
Total Escrow revenue
26.3
11.3
1.2
38.8
26.3
9.6
1.3
37.2
–
+17.7%
(7.7%)
+4.3%
This analysis is presented to provide the reader with an understanding
of the different revenue types within the operating segment. They do not
represent separate management units or profit centres.
Revenue performance
The Escrow division now accounts for 16.6% of Group revenues (2017:
17.3%). Escrow revenue for the year grew by £1.6m (4.3%) to £38.8m
(2017: £37.2m). However, as explained below, approximately half of
this growth resulted from a prior year revenue recognition issue in UK
Escrow. Adjusting for this correction, Escrow Adjusted organic* growth
therefore was closer to 2.7%.
31 May
2018
£m
31 May
2017
£m
% Change
UK and Rest of the World
USA
Europe
Total Escrow revenue
27.5
7.5
3.8
38.8
25.4
7.9
3.9
37.2
+8.3%
(5.1%)
(2.6%)
+4.3%
Escrow UK
Escrow UK revenue was £27.5m (2017: £25.4m), with verifications
increasing year on year by £2.0m to £8.2m. The Escrow revenue
comparison benefited from a one-off change in revenue recognition
as noted at the end of last year which reduced revenue in that year,
accounting for approximately £1.0m of revenue growth in the current
year. Adjusting for this correction in the prior year would have seen
reasonable UK growth of 4.2%. The division also started to reorganise
the process to deliver verification testing and this led to an increase in
the volume of work actually delivered in the current period to further
enhance the quality of revenue and earnings in the year.
Escrow UK recurring revenues remained stable at £14.1m (2017:
£14.1m) and terminations remain at around 11% with just under 90%
of all contracts renewed (2017: 90%). We expect UK growth to remain
modest given the relative market maturity and our market share.
Escrow USA
Escrow USA revenues fell by 5.1% to £7.5m (2017: £7.9m). All of
this reduction came from adverse FX movements, with the business
remaining broadly flat which was still a disappointing result. The
US business continues to receive management focus with new
appointments being made to the sales team, coupled with secondment
of experienced UK sales team members that we anticipate will allow
us to build our market share in the USA in the new financial year. In
addition, we intend to invest some of our gross profit gains made in the
year ending 31 May 2018 in further initiatives to support growth in North
America including the relocation of the divisional managing director to
the US business which also signals our intent in that marketplace.
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
Stock Code: NCC
www.nccgroup.com
33
Escrow profitability analysis
The table below shows a summarised Income Statement for the Escrow
division as a whole:
Escrow strategic goals
Our over-arching goal is to return Escrow to confident growth. This
includes the following short-term goals:
Revenue
Cost of sales
Gross profit
GM%
G&A before adjusting items
Central cost allocation
Adjusted operating profit*
2018
£m
38.8
(9.2)
29.6
2017
£m
37.2
(10.5)
26.7
76.3%
71.8%
(3.9)
(4.1)
21.6
(3.7)
(2.8)
20.2
{ To maintain our market-leading position in the UK, delivering modest
annual Adjusted organic* growth;
{ To continue to develop evolving solutions for customers in a SaaS
and cloud-based world;
{ To build on our scalable capability in the USA;
{ To explore opportunities for collaboration with the Assurance division
in potential new territories and also to review opportunities to benefit
from shared customer relationships; and
{ To begin to grow our European operations.
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CHIEF EXECUTIVE OFFICER
Adjusted operating profit margin*
55.7%
54.3%
Adjusting items (note 3)
Operating profit*
0.2
21.8
(1.0)
19.2
Growth in Escrow operating profit* was primarily driven by GM% gains
that resulted from the unwind of additional costs added to the division
in the first half of FY17. These had been all but removed by the end
of FY17. In addition, the change in application of revenue recognition
criteria in the prior year also led to a one-off £1.0m increase in gross
and net margin in the current year. GM% grew by 4.5% to 76.3% (2017:
71.8%). The prior year revenue correction had artificially suppressed
GM% and hence 2.6% points of the current year recovery were
attributable to the unwinding of that factor.
The GM% gains support the operating profit margin* gains for the year
of 1.4%, growing to 55.7% (2017: 54.3%). The combination of lower
direct costs and revenue recognition step change were partly offset by
additional overhead costs and the start of an investment programme
designed to consolidate our position in the US market.
As explained earlier, the central cost allocation for 2017 reported in the
prior year Annual Report and Accounts was £3.9m. The figure in the
table above provides the reader with a comparator that is more closely
aligned to the current central cost allocation model of the Group.
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
34
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Group performance
review for 2018
BRIAN TENNER CHIEF FINANCIAL OFFICER
Stock Code: NCC
www.nccgroup.com
35
The Group has delivered
improving cash flows to
match growth in profitability.
Further gains in both can be
achieved as we improve
internal processes and
systems.”
FINANCIAL MATTERS
Adjusting items
The Group separately identifies those items which, in management’s judgement, need to be
disclosed by virtue of their nature, size or incidence in order for the users of the Annual Report
and Accounts to obtain a proper understanding of the performance of the business (known as
“Adjusting Items”, see note 3).
Individually Significant Items (see note 6) are one type of adjusting item and those incurred during
the year and prior year are set out in the table below:
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Individually Significant Items (ISIs)
Loss-making contract
Revisions to deferred and contingent consideration
Restructuring costs
Onerous leases and other property-related costs
Market-related costs
Impairment of goodwill
Acquisition costs
Vacation pay catch-up provision
Total ISIs – continuing operations
Impairment of goodwill
Impairment of other intangible assets
Total ISIs – discontinued operations
Total all ISIs
2018
£m
(2.5)
(0.6)
(1.6)
(2.7)
(0.2)
–
–
–
(7.6)
–
–
–
(7.6)
2017
£m
–
(2.9)
(1.3)
(2.2)
–
(48.6)
(0.8)
(1.8)
(57.6)
(5.7)
(7.7)
(13.4)
(71.0)
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
36 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Group performance review for 2018
Current period
During the year we carried out an in depth review of a project
underpinning a long-term contract to develop a prototype product and
then to convert that into an actual product, once approved, for supply
to a customer. The review identified that the three-year-old project
would require significant additional effort to complete and that costs
were higher than the original cost estimates when the contract was first
signed. A financial assessment of the project was then carried out using
the latest estimated time and costs to complete and it was identified that
over the course of the life of the contract it would be loss making. We
have therefore recognised a provision in the period for the expected net
loss that will be incurred in completing the contract.
The change in value of deferred and contingent consideration (in the
current and prior period) is driven by changes in FX rates on outstanding
payments denominated in foreign currencies. As explained in note 34 to
the Financial Statements, the final tranche of deferred consideration on
Fox-IT was paid in full after the year end.
Restructuring costs in the current year relate to the costs of completing
the Strategic Review and subsequent work to develop and implement
the Target Operating Model. In addition, there were some redundancy
costs amongst the senior management team that were a direct result of
the new operating model as well as consultancy support in delivering the
ongoing change programme.
Market-related costs in the current year were in respect of the
shareholder circular issued ahead of the AGM in September 2017 to
remedy a number of invalid dividend payments made in previous years.
Onerous leases and property-related costs were in respect of a number
of items. During the year, the Group carried out a review of its UK
property portfolio and capacity requirements. This led to the identification
of two onerous property leases where the facilities in question were
either empty or significantly under-utilised. As a result, a provision
has been established for the forecast discounted net cash flows that
will result on both properties after allowing for estimated income
from potential subletting. Both properties were empty and unused as
at 31 May 2018. Other property costs included here related to pre-
occupancy double running costs of the Manchester head office that
started in the prior year and were completed in the first half of the year
when the building was occupied.
Prior period
In the prior year, a number of impairments were recognised in respect
of goodwill and other intangible assets. The Fox-IT and former Accumuli
businesses had underperformed against their original growth forecasts
since their acquisition dates. Integration and leveraging of value from
the acquisitions was also slower than anticipated. The net result of those
factors was to recognise an impairment of the goodwill that arose on
the acquisition of Accumuli plc by £24.3m and a coincidentally identical
figure for Fox-IT. The carrying value of goodwill in our Web Performance
business was impaired by £5.7m as a result of a slower than expected
ramp-up in revenue from a number of new service lines.
Details of the other ISIs in the prior year are shown in note 6 to the
Financial Statements.
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
Stock Code: NCC
www.nccgroup.com
37
Earnings per share
The Adjusted* basic earnings per share from operations was 8.3p
(2017: 6.2p).
The table below reconciles basic EPS to Adjusted* EPS on the Group’s
definitions of adjusting items including their tax impact.
2018
pence
2017
pence
Basic EPS/(loss per share) as per the
income statement
Discontinued operations
Amortisation of acquired intangibles
(note 14)
Individually Significant Items (note 6)
Share-based payments (note 25)
Unwinding discount on deferred
consideration (note 9)
Deferred tax on US historical R&D tax
credits
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3.5
2.7
20.2
–
0.2
–
–
6.2
2.5
2.0
2.0
2.2
–
0.1
(0.8)
0.3
8.3
Taxation
The Group’s adjusted* effective tax rate is 22.4% (2017: 29.3%), which
is a significant reduction on the prior year. The improvement in the
effective tax rate reflects a combination of lower federal tax rate in the
US from 1 January 2018 and also some basic tax planning implemented
as part of a low risk approach to managing the Group’s tax affairs.
This was possible following the appointment of the Group’s first Tax
and Treasury Manager at the start of the financial year. The effective
tax rate remains marginally above the UK standard rate of corporation
tax reflecting the origin of a reasonable proportion of Group profits in
overseas territories with higher rates of tax than the UK.
The Group has also been active in identifying tax incentives offered by
different governments in respect of R&D activities, where the Group
had not been as diligent as we should have been in claiming these
entitlements. In the US in particular, the Group has identified a risk
weighted claim for unclaimed R&D tax credits dating back four years
that amounts to £2.5m of net tax benefit. The Group will additionally
benefit from an ongoing annual credit estimated at £0.7m per annum of
tax value.
The adjusted* effective tax rate above excludes the benefit of the
historical R&D tax claim as this is not considered to be part of the
Group’s underlying business performance. Including this item, the
Group’s reported effective tax rate would be 17.4%.
The historical USA R&D tax claim and the ongoing annual claims will
create real tax cash flow benefits for the Group in the short term as well
as reducing the overall tax burden and effective rate going forward.
Impact of US tax rate change
Adjusted* basic EPS
The Group’s longer term strategy for tax and treasury matters is based
on a low risk appetite and any new strategies will operate inside those
parameters. All else being equal, the Group expects to be able to
operate with an ongoing adjusted* effective tax rate of approximately
22-23%. This would change if a significant proportion of Group profits
started to arise in territories with higher corporate tax rates than the UK
or US.
The Group’s total reported post-tax profit from all operations was £6.9m
(2017: loss of £56.6m).
The adjusted* fully diluted earnings per share from continuing operations
was 8.3p (2017: 6.2p) while reported fully diluted profit per share was
2.5p (2017: loss of 20.4p).
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
38 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Group performance review for 2018
Dividend
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 now positive (2017:
negative coverage based on a basic adjusted* loss per share from
continuing operations) the Board is conscious of the need to invest in
short-term initiatives to build sustainable longer term growth and margin
improvement. The dividend policy will therefore remain under review.
In the first half of the current financial year, shareholders voted at the
AGM in September 2017 to pass a series of resolutions to rectify an
administrative non-compliance issue that had been identified at the end
of the prior year in respect of distributable reserves and the payment of
previous dividends. Additional controls are now in place to ensure that
this situation does not arise again.
Cash
The table below summarises the Group’s cash flow for the year:
In addition, good progress has been made on accelerating our accrued
income processes so that accrued income is billed to clients at a faster
and more appropriate rate. The total value of accrued income that was
aged over two months fell during the year from £4.8m to £3.2m at the
end of May 2018, a fall of 33.3%. Most of the gains were at the older
end of the age range. The proportion of current accrued income also
rose from 59% to 70%.
In absolute terms the Group actually has relatively low levels of net
working capital*. Trade and other receivables (including accrued income)
less trade and other creditors and deferred income (where the Group
has been paid in advance for services), arrives at a traditional net
working capital* figure of £3.5m (2017: £2.5m). The small increase
reflects the sale of Web Performance which typically had net negative
working capital as customers paid in advance for monitoring services.
The Group measures how effectively adjusted operating profit* is
converted into actual cash flows. This is done using the cash conversion
ratio*. The calculation of the cash conversion ratio* is set out below:
Cash inflow before changes in working
capital
Changes in working capital
Operating cash flow before interest
and tax
Interest paid
Income taxes paid
Net cash flow from operating
activities
Net capital expenditure
Capitalised development costs
Free cash flow*
Acquisitions
Net proceeds from business disposals
(Repayment)/Drawdown of loans
Dividends
Share issues
Net cash flow
2018
£m
40.0
(0.5)
39.5
(1.8)
(4.7)
33.0
(7.7)
(5.0)
20.3
(3.1)
9.2
(5.4)
(12.8)
1.5
9.7
2017
£m
33.8
(2.1)
31.7
(1.9)
(1.8)
28.0
(6.9)
(7.4)
13.7
(26.5)
–
18.9
(12.8)
0.7
(6.0)
The Group generated £39.5m of cash from operating activities before
interest and tax (2017: £31.7m), an increase of 24.6% in the year and
compares favourably to an increase of 21.5% in adjusted* EBITDA. This
figure is used in calculating the Group’s Cash conversion ratio*.
Working capital benefited from improved collection processes and a
reduction in overdue debt. Overdue trade debt fell in the year by 7% as a
result of additional management focus and improved processes.
Continuing and discontinued
Net operating cash flow before interest
and tax (A)
Adjusted* EBITDA (B)
Cash conversion ratio* (%) (A)/(B)
2018
£m
39.5
44.0
90%
2017
£m
31.7
36.2
87%
While our progress this year is good, there remains much to be achieved
in working capital management.
Interest cash costs remained modest though increased slightly on last
year as leverage (calculated for banking purposes) in the second half
was over 1.5 times and hence Group debt attracted a higher interest
margin.
The difference in cash tax paid from 2017 to 2018 is a result of
payments on account in 2016 covering lower actual payments in the UK
in 2017 that resulted from lower profitability in that year. The current year
cash tax figure is therefore more representative of the likely ongoing
cash tax profile.
Net capital expenditure was £12.7m (2017: £14.3m), and includes
tangible expenditure of £7.7m (2017: net £7.3m after a £3.7m capital
contribution from the landlord of the Manchester head office) and
capitalised development costs of £5.0m (2017: £3.7m). Tangible
expenditure will fall next year by approximately £4.0m following the
completion of the Manchester head office fit-out during the year.
The decrease in capitalised development expenditure and software
expenditure reflects a reduction in capitalised internal costs as new
systems and products moved from a build phase to business as usual
activity, offset in part by additional investment in the year on the Fox-IT
CTMp monitoring platform prior to the migration of all Netherlands
customers to the platform and the start of roll-out of commercial
services in the UK at the end of the year. The outlook for total capital
expenditure (tangible and intangible) is to fall to around £8.0m-£10.0m
per annum.
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
Stock Code: NCC
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Acquisition expenditure relates to the payment of contingent
consideration in respect of the acquisition of PSC and VSR in the USA
in the prior year and the part payment of 10% of the second tranche of
Fox-IT deferred consideration in November 2017. Both US businesses
performed well in the first year of their earn-outs and achieved 100% of
the maximum potential pay-out based on profit targets set at the time of
acquisition. The remaining portion of the Fox-IT deferred consideration
was paid in full after the year end as set out in note 34. Disposal
proceeds were in respect of the sale of Web Performance and Software
Testing which are detailed further in note 5 to the Financial Statements.
The table below reconciles the net cash flow in the year to the change in
net debt*.
Financing facilities
The Group’s facilities and covenants are summarised below:
{ Maximum facility £100.0m (£20.0m amortising term loan and £80m
revolving credit facility) with an additional accordion facility of £50.0m
on top – current net debt* is £27.8m (2017: £43.7m)
{ Liability for deferred acquisition consideration is included in net debt*
for covenant purposes giving banking net debt* as at 31 May 2018
of £37.7m. The fact that this was paid after rather than before the
year end therefore had no impact on the Group’s covenant or interest
margin calculations (see note 34 Post Balance Sheet Events).
{ Leverage limit of 2.5 times Adjusted* EBITDA – current leverage
0.89 times.
2018
£m
2017
£m
{ Net interest (Adjusted* EBITDA/Net interest) cover minimum 3.5
times – current ratio 28.3 times.
Opening net debt*
(43.7)
(12.7)
Net increase in cash and cash
equivalents
Foreign exchange impacts
Change in net debt* from cash flows
Closing net debt*
9.7
0.8
5.4
(27.8)
(6.0)
(6.1)
(18.9)
(43.7)
* See pages 122 to 124 for an explanation and definition of Alternative Performance
Measures.
The Group remains comfortably within its banking facilities and
covenants. The terms and ratios above are specifically defined in
the Group’s banking documents (in line with normal commercial
practice) and are materially similar to GAAP or the Group’s Alternative
Performance Measures of the same name. The exception is net debt*
which as described above includes unpaid deferred consideration. There
are commercially confidential documents and hence further details of
any immaterial differences are not disclosed.
Brian Tenner
CHIEF FINANCIAL OFFICER
40
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Principal risks and uncertainties
RISK MANAGEMENT
We have conducted a
comprehensive review
and relaunched our risk
management processes
reflecting the current
and future needs of the
business.”
Relaunch of Risk Management
During the year we appointed a risk
management subject matter expert, the
Director of Risk & Assurance. Following this
appointment, the Board commissioned an
evaluation of our existing risk management
framework. The review led to the
implementation of a range of enhancements to
build on the established platform.
The Group has now developed and
implemented a new Risk Management Policy,
against which we are relaunching enterprise-
wide risk management. This policy sets out
protocols covering roles and responsibilities
for the risk framework and the definition of
risk appetite as set by the Board (see the risk
framework diagram). A web-based tool, the
Integrated Risk Management System (IRMS),
has been deployed to record risk registers and
to track risk mitigation action plans, helping
embed ownership of risks and treatment
actions while also providing access to live
management information.
Risks are evaluated at a number of levels
of the organisation, commencing with those
which link to the Group achieving its strategic
objectives. These risks are presented overleaf
under our principal risks and uncertainties.
Risks are identified primarily by the
management team through the use of a
structured risk framework. Non-executive
reviews carried out by two Board Committees;
the Cyber Security Committee for IT centric
risks and the Audit Committee for all other risk
types. The Chief Information Security Office
(CISO) reports to the Cyber Committee and
the Director of Risk and Assurance reports to
the Audit Committee.
While distinct from the established CISO role,
the Director of Risk and Assurance works
closely with the CISO to facilitate risk oversight
across the full range of risk types.
RISK MANAGEMENT FRAMEWORK
As described below risks are considered at various levels
across the Group, commencing with a strategic view of risk
THE BOARD
Sets the “tone at the top” – the culture
Sets direction for key areas of focus e.g.
adopted in respect of risk
Cyber risk
Responsible for risk management and
Defines acceptable levels of risk –
internal control processes
our risk appetite
Monitors adherence to our risk appetite
and management’s responsiveness to
excessive risk
CYBER SECURITY AND
GROUP AUDIT COMMITTEES
GROUP RISK FUNCTION AND THE
CHIEF INFORMATION SECURITY OFFICER
Supporting the Board reviewing the end-to-end risk
Facilitates the development and maintenance of risk registers
management process
Emphasis given to risk identification and management
responsiveness to the treatment of excessive risk
Maintains a particular focus on strategic type risks
Assists management to scope risk treatment actions
Monitors the status of risk treatment actions
Reports progress to the Board sub Committees – the CISO
reports to the Cyber Security Committee on IT centric risk, the
Risk and Assurance Director reports on all other risk
areas to the Audit Committee
Maintains local risk registers and plans
Ongoing action management and tracking
Embeds the Group culture and risk
appetite at a local level.
BUSINESS UNITS
Stock Code: NCC
www.nccgroup.com
41
RISK HEAT MAP
1 Business Strategy VR
2 Management of Strategic Change
3 Availability of critical information systems VR
4 Attracting and retaining appropriate staff
capacity and capability VR
5 Cyber risk (including GDPR) VR
6 Quality of Management Information
Systems (MIS) and internal business
processes
7 Quality and Security Management
Systems
VR = Viability Risk
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PROBABILITY
Risk management processes
and controls
The Board monitors the ongoing process by
which relevant material risks are identified,
evaluated and managed via the two sub-
committees noted above. On a quarterly basis,
the sub-committees review the detailed risk
registers that have been prepared and updated
across the business along with the status of
actions plans that are in place to treat risks
which are considered to be excessive.
Evaluation and treatment of risk
Risks are evaluated using a simple but
robust model which forms part of the new
Risk Management Policy. The model, which
is capable of application across multiple risk
types, is sufficiently sensitive to record risks
that have the potential to impact Viability
Reporting obligations.
Risks are evaluated without considering the
operation of any existing controls. This is done
to form a view of inherent risk.
The impact of existing mitigating controls are
then considered along with their effectiveness
to determine the extent of residual risk. The
assessments are made using a combination of
impact and likelihood criteria to arrive at a total
risk score. Residual risk is then considered
against the Group Risk Appetite which is a
judgemental scoring matrix created by the
Board to identify risks as being within or
outside acceptable parameters for the Group.
Output from the evaluation of strategic risks
has been used to help shape the Group’s
Transformation Programme. Where risks
are assessed as being outside of appetite,
treatment actions are agreed including
owners, priorities and due dates, either within
the Transformation governance structures or
milestone plans owned by senior business
leaders. The IRMS is used to track these
actions, with data mining capabilities to
produce reports to the Cyber Security and
Audit Committees.
The Group uses a simple Risk Heat Map
(above) to record an up-to-date view of
residual risk. Viability risks are principal risks
that the Directors consider are so extreme that
they could jeopardise the business viability if
they crystallise.
Principal risks and uncertainties
The Group continues to operate in a
particularly dynamic and evolving marketplace.
The very latest strategic risk register has been
developed to reflect those factors.
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.
42
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Principal risks and uncertainties
Risk Areas
Potential Impact
Mitigation
1 Business Strategy
VR
A comprehensive business strategy
is essential to the continued success
of the Group as we strive to maximise
shareholder value.
2 Management of
Strategic Change
As the Group adapts and executes 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.
3 Availability of critical
information systems
VR
The Group is heavily reliant on continued
and uninterrupted access to its IT
systems. As well as environmental and
physical threats, the Group is a natural
target for individuals who may seek to
disrupt the Group’s commercial activities.
2018
2017
A poor strategy or ineffective execution
of a strategy could 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.
Members of the Board have significant experience in evolving
business strategies. Following the recent appointment of the
current CEO, the Group is in the process of reviewing and
updating the strategy. The results are expect to help shape
and refine the Group’s already established Transformation
Programme.
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). Poor
delivery of change could ultimately impair
business performance.
2018
2017
During the year the Group has established a Strategic Change
Management capability. This includes access to Programme
Management professionals and the deployment of associated
change management processes, for example the operation of
senior change oversight committees.
2018
2017
If the Group’s critical systems failed,
this could affect the Group’s ability to
provide services to our customers.
The Group has made significant investment in its IT
infrastructure to ensure it continues to support the growth of
the organisation.
The Group has controls in place in order to reduce the risk of
actual loss of critical systems. Further, controls are operated
to ensure the availability of back-up media in the event of
prolonged loss of systems.
Initiating to standardise and simplify while increasing resilience
continue to be implemented. Additional focus is being periodically
given to proving the recoverability of systems and data.
2018
2017
Staff are offered a rewarding career structure and attractive
salary packages, which can include participation in share
schemes.
Linked to the development of our people, the Group is reviewing
our values, personal performance management processes and
aligned development programmes.
4 Attracting and retaining
appropriate staff capacity
and capability
VR
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 employees or significant
staff turnover 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.
Stock Code: NCC
www.nccgroup.com
43
Risk Areas
Potential Impact
Mitigation
5 Cyber risk
(including GDPR) VR
As a provider of security services,
the Group is a high profile target and
could therefore be subject to attacks
specifically designed to disrupt the
Group’s business and harm the Group’s
reputation.
There could also be implications relating
to our GDPR control obligations. Such
events could adversely affect the market’s
perception of the Group as well as
causing business disruption.
6 Quality of Management
Information Systems
(MIS) and internal
business processes
In addition to meeting statutory reporting
obligations, ensuring that trusted and
relevant MIS is available on a day-to-day
basis to inform management decisions
and drive performance.
Failure to maintain control over customer,
colleague, commercial and/or operational
data could lead to a range of impacts,
including reputational damage. The misuse
of personal data, for example without
the customer’s consent or retaining for
longer than is necessary, may also result in
reputational harm, regulatory investigations
and potential fines.
Suboptimal business decision-making
and performance as key financial
performance data is not available or
trusted.
7 Quality and Security
Management Systems
We aspire to attain and retain key
internationally recognised standards
which form an important component for
many of our customers.
The risk of the Group failing to retain a
core standard e.g. 9001, 27001 or PCI,
with a consequential loss of key customer
accounts or ability to operate.
2018
2017
The Board operates a Cyber Security Committee chaired by
a Senior Non-Executive Director. The CISO reports to each
meeting, in line with the new Group Risk Management Policy.
Security testing is regularly carried out on the Group’s
infrastructure and there are extensive response plans, which were
reviewed during the year, in the event of a major security incident.
Comprehensive plans are in place and being delivered associated
with discharging our GDPR obligations. Progress is monitored by
the Cyber Security Committee.
Employees also receive regular security training and updates.
During the remainder of 2018, the Group expects to commission
a health check of Cyber security governance and control.
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2018
2017
The Group finance function has developed a forward-facing
Finance Functional Strategy. Enhancements were identified
covering system and process standardisation. A comprehensive
milestone plan is in place and progress is tracked and reported
to each Audit Committee.
Standardised business process control standards were recently
issued across all parts of the Group. As the new financial
year progresses, control self-assessment techniques will be
implemented along with an aligned programme of Internal
Audits.
2018
2017
We operate a comprehensive programme to ensure the
retention of our core standards. This includes a portfolio
of aligned policies and cascading business processes. A
programme of internal audit provides assurance over the design
and application of these policies and procedures. External
assessors provide a further layer of review and challenge,
confirming during the year the retention of our Quality and
Security standards.
TREND EFFECT
TREND DIRECTION
HIGH
IMPACT
MEDIUM
IMPACT
LOW
IMPACT
INCREASING
UNCHANGED
DECREASING
*
VR
= Viability Risk
44
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Principal risks and uncertainties
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 probability and potential impact of these risks crystallising were
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.
The sensitivities included one in which cash flow/EBIT was 20%
lower in every month of the three-year forecast period than the same
month one year earlier. Even in this extreme scenario with no relief
or compensating response by management, the Group would retain
adequate cash and debt facilities to maintain its viability.
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.
Other risks
Furthermore, as the Group’s international footprint expands, there is
an inherent risk of adverse foreign exchange movements affecting
profitability. At present this risk is limited due to the low level of inter-
territorial trading but it will increase in future. 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
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 a Tax and
Treasury Manager. Part of their role is to support the CFO in developing
a Treasury strategy and overseeing its implementation.
Impact of Brexit on the Group
The Group continues to have little inter-territorial trade from the UK
into Europe and vice versa. While Brexit has already had an impact on
exchange rates, 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. Regulations governing international
data transfers are already in place and the Group works within these
with little change expected from Brexit itself.
With regards to staffing, NCC Group has significant in-region presence
within the UK and continental Europe. As such, should free movement
be impeded in the future, we do not foresee a material impact. In the
medium term, should free movement of labour be impeded then future
recruitment requirements in the UK will be offset in part through our
involvement in supporting initiatives designed to create capacity in UK
nationals in computer science and cyber.
Viability Statement
In accordance with the requirements of the 2016 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 42 to 43 of
the Annual Report. The assessment emphasised those risks that could
theoretically threaten the Group’s ability to operate or to continue in
existence (with the VR designation).
The Directors determined that a three-year period to 31 May 2021
was an appropriate time frame for the viability assessment based
on the markets and sectors in which we operate. 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 Group’s core banking
facilities have an expiry date in November 2020 and so will expire within
the three-year time horizon. However, the Directors have no reason to
assume that the required facilities will not be renewed ahead of that
date, in line with market practice.
Corporate social responsibility
Stock Code: NCC
www.nccgroup.com
45
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NCC Group’s Jeff Bennison handing
over a £5k cheque to the CICU at South
Tees Hospitals NHS Foundation Trust.
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 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. We are committed to providing a productive
working environment and we recognise the importance of training and
career development, which we will deliver through the creation of the
NCC Academy which will standardise Group-wide training delivery.
Each employee has a training record and is positively encouraged to
up-skill. All roles where an additional professional qualification can be
achieved are actively supported and rewarded. The Group employs a
training manager who ensures all relevant staff have the necessary
training plans in place.
On a daily basis, the Group provides relevant technical, administrative
and sales training 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.
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.”
NCC Group 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. We continually seek to reduce our
environmental impact and fully invest in our staff and their development.
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 62 of the Governance Report.
46
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Corporate social responsibility
Equality and diversity
NCC Group is committed to inclusion and diversity, and aims to be an
attractive and fair employer for all.
The Group 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. 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. We believe that requirements to publish gender pay gap
figures are a positive move towards transparency around a key issue
within the cyber security industry.
The Group’s results highlight the imbalance of male and female
colleagues across the organisation and confirm the particular challenge
we face in attracting women to a career in cyber security: the gender pay
gap in the Group’s Security Services division is high compared to the UK
average of 18.1%, and the UK technology sector of 25%.
NCC Group is taking steps to improve our gender mix at all levels as
part of a broader diversity strategy which includes:
{ An NCC Group Diversity Steering Group, chaired by a member of
the Executive Committee, with an initial focus on gender, to increase
the visibility of the cyber security industry and promote the positive
aspects of cyber security careers to attract female talent, including at
universities and colleges across the UK;
{ Enhanced maternity and paternity policies to encourage and support
working parents alongside a continuation of inclusive recruitment,
promotion and training and development processes;
{ Support and sponsorship of UK Government and National Cyber
Security Centre initiatives, such as the CyberFirst Girls Competition,
aimed at inspiring 14 and 15 year old girls to pursue opportunities
in cyber.
NCC Group also understands its responsibility to embrace diversity in all
its forms to tackle the persistent skills gap and enrich the cyber security
profession.
We know that neurodiversity has a demonstrable commercial,
productivity and social benefit and is committed to developing an
in-depth understanding of the processes and requirements needed
to create neurodiverse employment opportunities. NCC Group is a
member of the Cyber Growth Partnership Neurodiversity Working Group
that aims to improve outcomes in cyber for those with neurodiverse
conditions and is creating guidance and information hubs for the
industry as well as working with the National Autistic Society to consider
the feasibility of a Neurodiverse Employer Accreditation Scheme.
Finally, we are developing non-traditional and creative routes into our
cyber security careers while putting in place the required support
infrastructure and mechanisms. NCC Group actively encourages
candidates from non-traditional backgrounds into technical careers to
foster our teams’ diversity of thought, looks beyond university degrees
to understand people’s talent and aptitude underneath the surface,
and invests in training and support for those wishing to enter the cyber
security profession mid-career.
As required by UK legislation, NCC Group reviewed and published our gender pay gap, as of 5 April 2018.
Women’s Hourly Rate v Men
Mean*
Hourly Rate
Median**
Hourly Rate
Mean
Bonus Pay
Median
Bonus Pay
Security Services
30.3% lower
34.4% lower
34.9% lower
53.6% lower
Escrow
Corporate
Total UK
13.7% lower
5.6% lower
53.2 % lower
83.8% lower
34.1% lower
5.9% lower
75.3% lower
0% lower
30.2% lower
32.6% lower
50.5% lower
61.5% lower
* The mean is determined by adding all the data points of a data sample and then dividing the total by the number of points. The resulting number is known
as the mean or the average.
**The median is the value separating the higher half of a data sample from the lower half (the middle value).
Health and safety
No activity is so critical or urgent that it may be done in an unsafe and
uncontrolled manner. Everyone who works for NCC Group should expect
to return home at night in the same fit and healthy state in which they
came to work. This ethos extends beyond physical threats and extends
to the general well-being of all those working across the Group.
No serious accidents were reported during the year. However, as part
of continuous improvement we recently completed a self-evaluation
of Health and Safety risk management. As a result, the Group is in the
process of enhancing Health and Safety management and systems.
We will build on the established platform, ensuring that we continue
to meet our statutory control obligations and will launch the NCC
Safe for Life Framework, which will include leadership, training, hazard
assessment and incident management. The IRMS, referenced on page
40, incorporates aligned functionality which will help ensure the new
management system is embedded across our business.
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% 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.
Stock Code: NCC
www.nccgroup.com
47
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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 over £80,000 to good causes this year. NCC
Group launched its third annual “12 Days of Christmas” charity campaign
in December 2017, which resulted in a total of £60,000 being donated
to 12 charities in the run-up to Christmas. In addition we held a charity
raffle and donated £20,000 to Macmillan, of which half of this was
donated by employees. We also support a number of local and national
charities.
The Group believes in community and encourages its staff to do the
same. Every year NCC Group staff members participate in and organise
football tournaments, golf days, silent auctions, raffles, bake days, sport
days and many more fundraising activities.
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 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.
Recognising our responsibility for a more secure society, we have
engaged our political audiences with a view to increasing their
awareness of the modern cyber threats facing the UK today, and
educating them on the solutions and approaches we believe will improve
UK businesses’ and citizens’ cyber resilience.
From working closely with the National Cyber Security Centre,
responding to government consultations and parliamentary inquiries,
and hosting civil servants and our local MPs across our UK offices,
to organising briefings and showcases bringing our multiple political
audiences together, we sought to use our experience and expertise
to ensure decision-makers understand what the UK cyber industry
needs to be internationally successful, and to help promote the UK
Government’s declared aim to make the UK the safest place to live and
do business online.
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 2018, the Group had an average of
35.28 days purchases outstanding in trade creditors (2017: 34.82 days).
48 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Corporate social responsibility
Environment and sustainability
The impact of the Group’s operations on the environment is limited
compared with for example a manufacturing business, however we seek
to minimise any detrimental impact that our activities might have on the
environment.
The Group continues to support the selection of hybrid or electric
vehicles through the company car scheme.
Due to the size and nature of the Group, an external environmental
audit is not required. This area will be reassessed as the Group grows in
conjunction with any new legislative developments.
The Group’s Environmental Policy aims to reduce the energy our
business uses by:
{ Conserving energy and other natural resources and improving
efficient use of those resources. The relocation to our new Head
Office has delivered energy consumption improvements via, for
example, modern heating and lighting systems.
{ Improving the efficiency of materials used.
{ Reducing waste and increasing reuse and recycling wherever
possible.
{ 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.
{ Providing all staff with relevant environmental training and guidance.
The new subject matter expert, referenced in the Health and Safety
section, will bring further focus to this area.
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.
TOTAL
TCO2E BY
EMISSION
TYPE
Electricity, heat and cooling
purchased for own use
Combustion of fuel
Our emissions cover scope 1 and scope 2 and we have used revenue as the intensity ratio as it best reflects the size and scale of the business. Our
aim is to reduce the overall carbon intensity for the Group by at least 10% over the next three years.
Absolute carbon emissions (tCO2e)
Group revenue (£m) (including discontinued)
Carbon intensity for whole Group
Year-on-year carbon intensity change
Year-on-year carbon intensity change (as a %)
For and on behalf of the Board
Adam Palser
CHIEF EXECUTIVE OFFICER
17 July 2018
Brian Tenner
CHIEF FINANCIAL OFFICER
17 July 2018
2018
1,761
254.7
6.9
0.3
4.5
2017
1,550
244.5
6.6
(4.2)
(38.8)
2016
2,264
209.1
10.8
(0.4)
(3.57)
2015
1,449
129.8
11.2
0.4
3.7
Governance
Stock Code: NCC
www.nccgroup.com
49
CONTENTS
Chairman’s letter
Governance framework
Board of Directors
Executive committee
Board composition and division of
responsibilities
Shareholder relations
Audit committee report
Nomination committee report
Cyber security committee report
Remuneration committee report
Directors’ report
Directors’ responsibilities statement
50
51
52
54
56
62
65
72
74
76
95
97
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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.
50
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Chairman’s letter
We see achieving best
practice governance
standards as a journey
on which we will regularly
review the context, progress
and maintenance of these
standards, for the benefit of
all of our stakeholders.”
CHRIS STONE NON-EXECUTIVE CHAIRMAN
The Board, the Executive Committee and
senior management continue to promote the
Company’s culture and standards throughout
the business and lead by example to provide a
strong corporate governance framework.
Board changes
The year ended May 2018 was another year of
significant change for the Board. Details of the
changes are set out in my statement on pages
2 to 3.
Statement of compliance
with the UK Corporate
Governance Code
The Company measures itself against the
requirements of the UK Corporate Governance
Code 2016 (“Code”), which is available on
the Financial Reporting Council website
(www.frc.org.uk).
From June 2017 to May 2018, the Company
complied with the Code in full. The non-
compliance identified in the prior year was
remedied during the year with respect to
Provision B.2.1 where 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.
Chris Stone
NON-EXECUTIVE CHAIRMAN
17 July 2018
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 our values and
acceptable behaviours from our staff, our
customers, our suppliers and our advisers.
Governance standards
During the prior 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 our governance systems and procedures.
The weaknesses identified in our governance
systems and procedures included the
application of policies on 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. I am pleased to
report that the key shortcomings identified in
the Governance Review were all addressed in
the early part of the current year. This included
the recruitment of two additional independent
Non-Executive Directors, changes to some
external advisers and the review of the content
and application of a number of internal policies.
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 led by a new Associate
Director of Risk and Assurance.
The culture of the Company is also high on the
Board’s agenda. The Board considers culture
to be an essential ingredient in meeting our
long-term, sustainable returns to shareholders.
Stock Code: NCC
www.nccgroup.com
51
Governance framework
The different parts of the Company’s Governance framework are shown below,
with a description of how they operate and the linkages between them.
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.
BOARD
FOR FURTHER DETAILS OF THE
ROLE OF THE BOARD SEE PAGE 56.
BOARD COMMITTEES
Support the Board in its work with specific areas of review and oversight objectives and risk management. They ensure the right company
structure is in place to delivery long-term value to shareholders and other stakeholders.
AUDIT
COMMITTEE
NOMINATION
COMMITTEE
REMUNERATION
COMMITTEE
CYBER SECURITY
COMMITTEE
Responsible for considering
the Board’s structure,
size, composition and
succession planning.
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.
Responsible for determining
the overall remuneration of
the Executive Directors and
the remuneration of senior
managers within the broader
institutional context of
remuneration practice.
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 65-71
FOR FURTHER
INFORMATION
SEE PAGES 72-73
FOR FURTHER
INFORMATION
SEE PAGES 76-94
FOR FURTHER
INFORMATION
SEE PAGES 74-75
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Has responsibility for managing the business and overseeing the implementation of the strategy agreed by the Board.
CHIEF EXECUTIVE
EXECUTIVE COMMITTEE
The Executive Committee 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
{ reviewing the Company’s policies and procedures
{ monitoring the performance of the different divisions of the
{ prioritisation and allocation of resources
Company against the plan
{ carrying out a formal risk review process
{ overseeing the day-to-day running of the Company
52 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Board of Directors
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.
Chris Stone
Non-Executive Chairman
Adam Palser
Chief Executive Officer
Brian Tenner
Chief Financial Officer
N C
Appointed to the Board as Executive
Chairman on 6 April 2017. Following
the appointment of Adam Palser,
Chris became Non-Executive
Chairman on 1 December 2017.
Chris was appointed Chairman of
both the Nomination and Cyber
Security Committees from 16
January 2018.
Career
Chris has 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.
External appointments
Chris is also the Chairman of AIM
listed CityFibre plc, a national
alternative provider of wholesale
fibre network infrastructure.
Adam joined NCC Group on
1 December 2017.
Career
Prior to NCC Group, Adam was
the CEO of NSL Ltd, the public
services provider. He joined NSL
in 2015 and led the successful
transformation and sale of the
business for its private equity owner,
leaving in March 2017. Before that
he held a number of senior roles at
QinetiQ between 2003 and 2013,
most recently as EMEA Business
Development Director. Prior to that,
Adam had responsibility for QinetiQ’s
cyber, information warfare and
professional services businesses.
External appointments
Adam does not currently have any
external appointments.
Brian joined the Board as Chief
Financial Officer on 1 February
2017. He was appointed as interim
Chief Executive Officer on 1 March
2017 following the departure of the
previous CEO Rob Cotton. Brian
resumed the role of CFO following
the appointment of Adam Palser on
1 December 2017.
Brian has announced his intention
to leave the Group to pursue other
interests in August 2018.
Career
Prior to joining NCC Group, Brian
held a number of senior finance
positions with both publicly listed
and private multinational companies,
including as CFO of Renold plc from
2010 to 2016, Scapa plc from 2007
to 2010 and British Nuclear Group
from 2003 to 2007. Brian qualified
as a Chartered Accountant with
PwC in 1994.
External appointments
Brian does not currently have any
external appointments.
Christopher
Batterham
Senior Independent
Non-Executive Director
A R N C
Chris joined NCC Group in May
2015. Chris was appointed as Senior
Independent Director on 29 March
2018 and Chairman
of the Audit Committee on
1 April 2018.
Career
Chris is a qualified chartered
accountant and was Finance
Director of Unipalm plc, before
becoming CFO of Searchspace
Limited until 2005.
External appointments
Chris is currently a non-executive
director of Blue Prism Group plc.
Stock Code: NCC
www.nccgroup.com
53
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
Jonathan Brooks
Independent Non-
Executive Director
Thomas Chambers
Independent Non-
Executive Director
Jennifer Duvalier
Independent Non-
Executive Director
Mike Ettling
Independent Non-
Executive Director
R C A
A R C
R N C
Jonathan joined the Board on
16 March 2017. Jonathan was
appointed as Chairman of the
Remuneration Committee on
29 March 2018.
Career
Jonathan was Chief Financial
Officer of ARM Holdings plc from
1995 until 2002. 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.
External appointments
Jonathan has been a non-executive
director of IP Group plc since
August 2011.
Thomas joined NCC Group in
September 2012. As announced
on 16 January 2018, Thomas
stepped down as the Chair of the
Audit Committee with effect from
31 March 2018 and is resigning
from the Board at this year’s AGM.
Career
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.
External appointments
Thomas is Chairman of recruitment
company Propel London Ltd and
a non-executive director of Kings
Arms Yard Plc and The Universities
and Colleges Admissions Service.
Thomas was previously Chairman of
residential energy provider Impello
Plc (trading as First Utility).
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Jennifer joined the Board on
25 April 2018.
Mike Ettling joined NCC Group on
22 September 2017.
Career
Jennifer was Executive Vice
President of People at ARM
Holdings plc, with responsibility
for all People and Internal
Communications activity globally,
from September 2013 to March
2017.
External appointments
Jennifer is currently non-executive
director of Mitie Group plc and of
Guardian Media Group plc, where
she also chairs the Remuneration
Committee. She is a member of
Council of the Royal College of
Art and Chair of its Remuneration
Committee.
Career
With strong sector and non-
executive experience, Mike was
President of SAP-Successfactors
globally. He has had an extensive
executive career in global
technology businesses including
NorthgateArinso, Unisys, Synstar
and EDS and was formerly a non-
executive director of Backoffice
Associates LLC, a US PE-backed
data business.
External appointments
Mike is currently non-executive
director of Impellam PLC, an AIM-
listed recruitment business, Telkom
BCX Ltd, a South African IT and
telecommunications business and
Topia Inc, a Silicon Valley cloud
relocation software business.
Please note that all of the Directors who held office during FY 2018 are listed above. In addition, Debbie Hewitt resigned from the Board on
28 March 2018. Debbie was the Chairman of both the Nomination and Cyber Security Committees until 16 January 2018 and the Chairman of
the Remuneration Committee and Senior Independent Director until 28 March 2018.
54
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Executive committee
The senior management team forms the ExCom, which typically meets weekly. 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
Officer or the Chief Financial Officer if the Chief Executive Officer is unavailable.
The current members of the Executive Committee, in addition to the CEO and CFO are:
ASSURANCE
Roger Rawlinson
Managing Director, Assurance UK & RoW.
Roger is responsible for the operational management and growth of the Group’s Assurance Division in the UK
and RoW. 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.
Nick Rowe
Managing Director, Assurance North America
Nick joined the Group in 1998 and has held positions in business development, sales, consulting and operations
management. Following a series of acquisitions in the USA, Nick has been focused on managing the complexities of
business integration and growing the Group’s North American operation since relocating from the UK in 2013.
Erik Ploegmakers
Managing Director, Assurance Netherlands (also known as Fox-IT)
Erik is responsible for business strategy, strengthening relationships within government and industry and the
integration of business operations with the wider NCC Group. Erik is a Master of Law (criminal law and eLaw). After
his studies, he became a Forensic researcher at Fox-IT, and in 2007 he became COO of the FoxReplay business unit.
Following periods at DearBytes and PwC, he joined KPN, where he held the position of Managing Director Security
Services. On 1 March 2018, he returned to Fox-IT as Global Head of Crypto & High Assurance.
Tomas Sorensen Boye
Managing Director, Assurance Denmark and Nordics
Tomas is the Group’s Managing Director in Denmark. He joined the Company in 2016 as Commercial Director and
took up the position of Managing Director in April 2018. Over a 20-year career in the technology industry, Tomas has
focused heavily on increasing the value that various products and services bring to customers. Prior to NCC Group,
Tomas has held senior roles within KiSS Technology, Cisco and GreenWave Systems.
Rob Horton
Global Head of Assurance Delivery
Rob 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 into 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.
Stock Code: NCC
www.nccgroup.com
55
ESCROW
Daniel Liptrott
Managing Director, Escrow
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 was 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.
GROUP DIRECTORS
Steve Boughton
Global Operations Director
Steve is responsible for the operational efficiency and effectiveness of the Group around the world. He joined the
business in March 2018 and previously served as Managing Director of QinetiQ’s technical advisory business, leading
software and service subsidiaries in the UK, Canada and Australia. Most recently Steve was the Chief Operating
Officer of the NSL group, supporting the business through its sale in 2017.
Ollie Whitehouse
Chief Technical Officer
Ollie is Chief Technical Officer and is responsible for the Group’s technical strategy, research and development. Over
the past 20 years, Ollie has worked in a variety of cyber security consultancy, applied research and management roles,
including being responsible for security research and assessment at RIM (BlackBerry) in Europe. Ollie is a research
and science advisor to the UK Government on cyber security and is also a mentor at the CyLon incubator and board
member of the UK Cyber Security Challenge.
Suzy Cross
General Counsel and Company Secretary
Suzy joined the Group in January 2018. Suzy has over 20 years’ legal experience and is a trusted adviser to the
Board. Suzy previously served as General Counsel in Dechra Pharmaceuticals plc, Victrex plc and Speedy Hire plc, all
groups listed on the main market of the London Stock Exchange. As a qualified solicitor, Suzy is able to execute the
role of Company Secretary by advising the Board on governance issues and the regulatory environment.
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56 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
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. The
Chairman, in conjunction with the CEO 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
(Adam Palser)
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. The role of CEO is separate from that of the
Chairman to ensure that no one individual has unfettered powers of decision.
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 also accountable for the transparency and appropriateness of management
information and key performance indicators, internally and externally.
The Senior
Independent
Director
(Chris Batterham)
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
(Jonathan Brooks, Thomas
Chambers, Jennifer Duvalier
and Mike Ettling)
Company Secretary
(Suzy Cross)
Maintain an ongoing dialogue with the Executive Directors which includes constructive challenge of
performance and the Group’s strategy.
Ensures 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.
Stock Code: NCC
www.nccgroup.com
57
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
Adam Palser
Brian Tenner
Chris Batterham
Jonathan Brooks
Thomas Chambers
Jennifer Duvalier
Mike Ettling
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58 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Board composition and
division of responsibilities
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.
A summary of each current Director’s attendance at meetings that they were eligible to attend of the Board and its committees during the financial
year ended 31 May 2018 is shown below. Unless otherwise indicated, all Directors held office throughout the year:
Chris Stone1
Adam Palser2
Brian Tenner
Thomas Chambers
Chris Batterham
Jonathan Brooks3
Jennifer Duvalier4
Mike Ettling5
Debbie Hewitt6
# Committee Chair.
Board
11(11)
4(4)
10(11)
10(11)
11(11)
11(11)
0(1)
8(8)
9(9)
Audit
Remuneration
Nomination
n/a
n/a
n/a
4(4)
#
4(4)
4(4)
n/a
n/a
3(3)
n/a
n/a
n/a
11(11)
11(11)
#
10(11)
0(1)
n/a
9(9)
#
3(3)
n/a
n/a
6(6)
6(6)
5(6)
0(0)
n/a
3(3)
Cyber
#
0(0)
n/a
n/a
n/a
2(2)
2(2)
0(0)
n/a
2(2)
1 Appointed as a member and chair of both the Nomination and Cyber Security Committees from January 2018.
2 Appointed December 2017.
3 Missed one Remuneration Committee meeting due to a prior commitment before becoming Chair of the Remuneration Committee in March 2018.
4 Appointed April 2018
5 Appointed September 2017.
6
Resigned from the Board and stepped down as Chairman of the Remuneration Committee in March 2018.
Stepped down as Chairman of the Nomination and Cyber Security Committees in January 2018.
Stock Code: NCC
www.nccgroup.com
59
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.
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 2017/2018).
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, five independent Non-Executive
Directors and the Non-Executive Chairman.
The Board has debated and considers that all of the current Non-
Executive Directors are independent, and in so doing considered the
profile of all of the individuals, concluding that none of them:
{ has ever been an employee of the Group;
{ has ever had a material business relationship with the Group or
receives any remuneration other than their salary or fees;
{ has close family ties with advisers, other Directors or senior
management of the Group that could reasonably be expected to
cause a conflict;
{ holds cross-directorships or has significant links with other Directors
through involvement with other companies or bodies;
{ represents a significant shareholder; or
{ has 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 Non-Executive Directors provide a strong independent element
on the Board and are well placed to constructively challenge and help
develop proposals on strategy and succession planning. Between them
they bring an extensive and broad range of experience to the Group.
Details of the Directors’ respective experience is set out in their
biographical profiles on pages 52 to 53.
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.
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The table below sets out the current position of the Company on a
gender basis:
ALL AT 31 MAY 2018
Main Board
Executive
Committee
Direct
Reports to
the Executive
Committee
NCC
Employees
2017
Male 78%
Female 22%
Male 92%
Female 8%
Male 75%
Female 25%
Male 84%
Female 16%
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:
Director being
appraised
Chairman
Chief Executive
Officer
Chief Financial
Officer
Non-Executive
Directors
Appraiser
Reviewed by the Non-Executive Directors,
excluding the Chairman, and feedback
facilitated by the Senior Independent Non-
Executive Director.
Reviewed by all of the Non-Executive
Directors and CFO and feedback facilitated by
the Chairman.
Reviewed by all of the Non-Executive
Directors and feedback facilitated by the CEO
and Chairman.
Reviewed by the Executive Directors and
by their Non-Executive Director peers and
feedback collated and given by the Chairman.
60
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Board composition and
division of responsibilities
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 2018 are subject to election by shareholders at the
AGM in September 2018 and, in line with best practice, all others are
subject to re-election annually.
Director induction, training and development
Adam Palser, Mike Ettling and Jennifer Duvalier joined the Board
during the year and were provided with an induction on 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 an internal effectiveness review was completed for the year
ended 2018. The evaluation identified changes which would improve the
working of the Board, including:
{ Increased strategic discussion. Extensive work has been carried out
throughout the year on producing a clear vision for the Group going
forward.
{ Board composition and succession, including the enhancement of
the Board with two additional Non-Executives who brought HR/
remuneration experience and technology expertise.
{ Strengthening of the Senior Management team. This has been
addressed by appointing several new senior managers including a
Group Operations Director, a Group Sales and Marketing Director,
a Director of Risk and Assurance and a Transformation Programme
Manager to oversee and drive through a change programme linked to
the Group’s strategy.
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. The conclusion from the
Committee reviews is that, overall, the Committees are working well but
some recommendations were made, including a more robust approach
to monitoring and managing risk and an extensive review of the senior
management team.
Stock Code: NCC
www.nccgroup.com
61
Risk management
The Board has ultimate responsibility for ensuring that business risks are
effectively managed. The Board has delegated regular review of the risk
management procedures to the Cyber Security Committee in relation to
cyber risks and to the Audit Committee in relation to all other risks, who
collectively reviews the overall risk environment on at least an annual
basis. The day-to-day management of business risks is the responsibility
of the Executive Committee.
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 with all such systems, the goal is to manage risk within acceptable
parameters rather than to eliminate risk entirely. The Group can
therefore only provide reasonable and not absolute assurance that the
business objectives and asset stewardship will be provided successfully.
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 at least not at an
economically viable price. The Group regularly reviews both the type and
amount of external insurance that it buys. 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 40 to 44.
Executive remuneration
During the year, we operated within the Remuneration Policy approved
by shareholders at the 2017 AGM. Details of how the Remuneration
Policy has been applied during this financial year are set out on pages
84 to 90 of the Remuneration Committee report.
G
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Operation of Governance Framework
Role of the Board
The Board is responsible for reviewing, challenging and approving the
strategic direction of the Group, while 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.
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:
{ Approval of strategic plans, annual operating plans and any material
changes to them.
{ Oversight of the Group’s operations ensuring competent and prudent
management, sound planning, an adequate system of internal control
and governance.
{ Through the Audit Committee, oversight of financial reporting
systems and information and adherence to appropriate accounting
policies.
{ Changes to the structure, size and composition of the Board and
Executive Committee, oversight of the Company culture and ethical
standards of the leadership and the independence of Non-Executive
Directors, taking into consideration prudent succession planning.
{ Approval of the acquisition or disposal of subsidiaries and major
investments and capital projects.
{ Approval of the dividend, treasury and banking policies, including the
Group’s capital structure.
{ Through the Remuneration Committee, the delivery of an effective
Executive Remuneration Policy.
{ 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 Executive Committee of NCC Group. The Board also delegates
other matters to Board committees and management as appropriate.
62 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Shareholder relations
Share capital structure
The Company’s issued share capital at 31 May 2018 consisted of
277,660,081 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.
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 a number of
meetings with shareholders as set out in the table below.
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.
Investor meetings
(FY2017/18 results roadshows)
Number of meetings
per institutional investor
One-to-one
meetings
30
Conference
calls
12
1-2
meetings
62
Group
meetings
3
Stock Code: NCC
www.nccgroup.com
63
Substantial shareholdings
As at 2 July 2018, 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:
Shareholder
Neptune Investment Management
Montanaro Asset Management
Schroder Investment Management
Fidelity Management & Research
Legal And General Investment Management
Artemis Investment Management
Fidelity Management & Research
Baillie Gifford & Co
Kames Capital
Vanguard Group
Total above
Number of
ordinary shares
2018
Number of
ordinary shares
2017
% of NCC’s total
share capital
2018
% of NCC’s total
share capital
2017
19,970,909
17,189,287
15,847,864
12,836,424
11,818,304
10,037,863
9,704,800
9,521,050
7,844,516
6,970,600
121,741,614
17,632,559
21,745,000
11,508,326
9,735,500
15,207,286
10,439,726
9,065,956
11,389,759
–
–
–
7.19
6.19
5.71
4.62
4.26
3.61
3.49
3.43
2.83
2.51
6.38
7.86
4.16
3.52
5.50
3.78
3.28
4.12
–
–
43.84
40.45
There have been no notifications under DTR 5 between the date of the information in this table and 17 July 2018 when the Annual Report and
Accounts were signed.
As at 1 June 2018
Location of investors
Type of investor
G
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UK
Europe
(ex. UK)
North
America
7.1%
13.8%
Rest of World
0.4%
Unidentified
0.0%
Unanalysed
0.8%
73.4%
20.4%
77.9%
Domestic
Institutions
Foreign
Institutions
Private
Stakeholders
/Investors
Corporate
Stakeholders
Hedge
Funds
Employees
etc.
Domestic
Brokers
Foreign
Brokers
3.6%
1.5%
0.8%
0.5%
0.4%
0.2%
Unanalysed
-0.8%
Unidentified
holdings
0.0%
64
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Shareholder relations
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 76 to 94 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, Nomination and Cyber Security 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 2017 AGM, the proportions of possible votes that were cast and the proportions in
favour and against each resolution (resolutions 1 to 13 and resolution 18 were passed as ordinary resolutions and resolutions 14 to 17 were passed
as special resolutions).
Votes for
%
Votes
against
Total votes
cast
%
% of issued
share capital
voted
Votes
withheld
To receive the report and accounts
202,831,822
98.14
3,843,011
1.86
206,674,833
74.74
To approve the directors’ remuneration report
(other than the directors’ remuneration policy)
for the year ended 31 May 2017
206,367,814
99.85
307,019
0.15
206,674,833
74.74
0
0
318,649
0.16
202,627,840
73.28
4,046,993
To approve the directors’ remuneration policy
for the financial year ended 31 May 2017
202,309,191
To declare a final dividend of 3.15p per share
202,831,822
99.84
98.14
3,843,011
1.86
0.00
206,674,833
206,674,833
To re-appoint KPMG as auditor
206,671,774
100.00
3,059
To authorise the Audit Committee to determine
the auditor’s remuneration
206,670,667
100.00
555
0.00
206,671,222
To elect Chris Stone as a Director
206,517,139
99.92
157,694
To elect Brian Tenner as a Director
206,666,259
100.00
To elect Jonathan Brooks as a Director
206,663,200
99.99
8,574
11,633
To re-elect Debbie Hewitt as a Director
204,583,232
98.99
2,091,601
To re-elect Thomas Chambers as a Director
202,610,325
98.03
4,064,508
To re-elect Chris Batterham as a Director
206,663,199
99.99
11,634
0.08
0.00
0.01
1.01
1.97
0.01
206,674,833
206,674,833
206,674,833
206,674,833
206,674,833
206,674,833
To authorise the Directors to allot shares
203,306,674
98.37
3,368,159
1.63
206,674,833
74.74
74.74
74.74
74.74
74.74
74.74
74.74
74.74
74.74
74.74
To authorise the Directors to disapply pre-
emption rights up to 5% of the issued share
capital
To authorise the Directors to disapply pre-
emption rights for an additional 5% in relation
to an acquisition or capital investment
To authorise the purchase of own shares
pursuant to s.701 of the Companies Act 2006
To reduce the notice period required for
General Meetings
To approve amendments to the NCC Group
US Employee Stock Purchase Plan
200,303,684
96.92
6,371,149
3.08
206,674,833
74.74
191,202,537
92.51
15,472,296
7.49
206,674,833
202,286,591
97.88
4,388,242
2.12
206,674,833
201,873,402
97.68
4,801,431
2.32
206,674,833
74.74
74.74
74.74
206,663,767
99.99
10,511
0.01
206,674,278
74.74
555
0
0
3,611
0
0
0
0
0
0
0
0
0
0
0
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
The 2018 AGM will be held at 11.00am on Wednesday 26 September 2018 at the Group’s head office at XYZ Building, 2 Hardman Boulevard,
Spinningfields, Manchester, M3 3AQ. 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
NON-EXECUTIVE CHAIRMAN
17 July 2018
Audit committee report
Stock Code: NCC
www.nccgroup.com
65
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.
The Audit Committee’s
responsibilities
The Committee’s main responsibilities include:
{ Monitoring the integrity of the financial
statements 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.
{ Reviewing material information and
significant accounting judgements
contained in it.
The Audit Committee
continues to support
the management team
in developing improved
governance structures that
will support further growth
in scale and complexity.”
CHRIS BATTERHAM COMMITTEE CHAIRMAN
{ 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.
{ Advising the Board on the effectiveness
of the processes ensuring that the Annual
Report and Accounts, when taken as a
whole, is fair, balanced and understandable.
{ Reviewing the audit findings with the
external auditors including discussing any
major issues that arise during 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.
{ Reviewing the effectiveness of the Group’s
internal control systems.
{ Reviewing the nature and extent of
significant financial risks and how they can
be mitigated.
{ Making recommendations to the Board in
relation to the appointment of the external
auditors, approving their remuneration and
terms of engagement.
{ Overseeing the relationship with the
external auditors including, but not limited
to, assessing their independence, objectivity
and effectiveness.
{ Reporting to the Board on the procedures
for responding to whistleblowing, 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.
Activities during the year
This year, the Committee:
{ Reviewed and challenged the reporting
around discontinued operations and
subsequent disposals.
{ Supported new Board members in their
on-boarding process as well as assisting
changes in the roles of the Non-Executive
Directors including the transition of the
Chairman’s role from Thomas Chambers to
myself.
{ Led discussion with the external auditors
on the process for the proposed partner
rotation at the end of the reporting cycle in
the current financial year.
{ Sponsored a review of the potential impact
of the new revenue recognition accounting
standard, IFRS15.
{ Initiation and consideration of a revised risk
review undertaken by the new Director of
Risk and Assurance.
{ Reviewed the ongoing programme to
enhance the quality of the Group’s external
reporting, including in the Annual Report
and Accounts.
G
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66 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Audit committee report
Composition
The Audit Committee is chaired by me, a Chartered Accountant of 39
years’ standing. I have previously served as the Finance Director of
Unipalm plc, before becoming Chief Financial Officer of Searchspace
Limited. Both businesses operated in digital technology sectors. My
earlier career included roles with BICC Group and accountants Arthur
Andersen. The Board considers that I have the recent and relevant
experience required by the UK Corporate Governance Code 2016.
The other members of the Committee who served throughout the year
are: Thomas Chambers (who I succeeded as Chairman in March 2018)
and Debbie Hewitt, the Senior Independent Non-Executive Director,
who stepped down from the Committee and the Board in March 2018.
In addition, Jonathan Brooks, who joined the Board in March 2017,
was appointed to the Committee at the end of June 2017 and served
throughout the year. All members of the Committee are considered
to be independent and the Committee as a whole continues to have
competence in the technology sector.
Summary biographies of each member of the Committee are included
on pages 52 to 53.
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 four
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. In addition, following the appointment of the
Group’s new Director of Risk and Assurance who heads up the Group’s
Internal Audit function, a number of meetings were held with them
without management being present.
The attendance of individual Committee members at Audit Committee
meetings is shown in the table below:
Attended
Chris Batterham
Jonathan Brooks
Thomas Chambers
Debbie Hewitt
Meetings attended
4(4)
4(4)
4(4)
3(3)
Significant issues considered during the year in
relation to the Financial Statements
During the year, the Committee reviewed and considered the following
areas in respect of financial reporting and the preparation of the interim
and annual Financial Statements:
{ The appropriateness of the accounting policies used.
{ Significant areas of management judgement or estimation.
{ The effectiveness and changes to the financial control environment.
{ Compliance with external and internal financial reporting standards
and policies.
{ Disclosure and presentation of GAAP and non-GAAP information.
{ 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.
2017 Annual Report and Accounts FRC review
During the year the Group received a letter from the Conduct Committee
of the Financial Reporting Council (FRC), a body appointed to review
the annual report and accounts of public and large companies. The
reviews are intended to support continuous improvement in the quality
of reporting. The letter was sent following a review of the Group’s 2017
Annual Report and Accounts. The letter focused on the disclosures
given around accounting errors in respect of prior years, acquisitions
arising in that financial year (PSC and VSR), sensitivity analyses around
impairment reviews and the Group’s use of Alternative Performance
Measures (APMs).
The Audit Committee was able to clarify a number of matters for the
FRC. The Committee undertook to improve the quality and clarity of
disclosures around how the Group assesses materiality. In addition, the
Committee undertook to enhance and expand on disclosures regarding
significant accounting judgements and estimates, and sensitivity
analyses. With respect to APMs, the Committee also undertook to
provide a fuller rationale for their use, as well as their calculation and
reconciliation to the reported 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 split between those
items which are identified either as recurring items that the Committee
regularly reviews or as 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.
Stock Code: NCC
www.nccgroup.com
67
Review items
Goodwill carrying values (recurring)
Intangible asset-carrying values (recurring)
Onerous leases (current year focus)
Loss-making contracts (current year focus)
Relevance to the
Financial Statements
Group net assets £208.2m
Goodwill value £187.1m
Group net assets £208.2m
Intangible assets value £240.0m
Group net assets £208.2m
Adjusted operating profit* £31.0m
Group net assets £208.2m
Adjusted operating profit* £31.0m
Related KPIs
–
Adjusted* operating margin
Adjusted* operating margin
Adjusted* operating margin
Revenue recognition
(current year focus)
Revenue £233.2m
Adjusted operating profit* £31.0m
Revenue and growth rates
Adjusted* operating margin
Estimation
required
High
High
Low
Low
Low
Individually significant items (recurring)
Net charges (£7.6m)
Adjusted operating profit* £31.0m
Adjusted* operating margin
Medium
Taxation (current year focus)
Adjusted operating profit* £31.0m
Profit after tax£12.4m
Earnings per share
Effective tax rate
IFRS15 Revenue Recognition (current year focus)
Disclosure only this year
Revenue growth
Adjusted* operating margin
Low
Low
Goodwill carrying value
(Recurring item: see note 14 to the Financial Statements)
The Group has made a number of historical acquisitions which
generated goodwill at the time of purchase. At the start of the current
financial year, the Group had goodwill of £187.1m.
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 estimate 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.
This is set out in more detail in note 14 to the Financial Statements.
The Committee has reviewed the rationale used to determine the CGUs
and assumptions used in future cash flows that underpin the valuation
of goodwill. The CGUs used in the review of goodwill changed in the
prior year. This reflected 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. There have
been no changes to the CGUs in the current year other than in respect
of the two businesses that were disposed of (each having been treated
as a separate CGU for a number of years).
Intangible assets-carrying value
(Including acquired intangibles, software and capitalised development
costs’) (Recurring item: see note 14 to the Financial Statements.)
The total value of acquired intangible assets at the start of the year was
£49.7m. Acquired intangible assets are amortised over a period of 10
years. Movements in the balance sheet values during the year are set
out in note 14 to the Financial Statements. Annual impairment reviews
of each intangible asset are based on the same underlying discounted
future cash flow models that are used in assessing the carrying value of
goodwill. These models can contain a significant degree of management
estimate in terms of the forecast cash flows, the appropriate growth
rates to apply to revenues and margins, and the discount rates to
be used. This is set out in more detail in note 14 to the Financial
Statements.
The Committee reviews the assumptions and estimates underpinning
the cash flow models each year given the high level of estimation
required in assessing cash flows over an extended period of time to
arrive at recoverable values.
Finally, 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.
During the year, management undertook a risk-based review of
capitalised development projects as well as their potentially useful
economic lives. This resulted in the amortisation charge in the current
year including £1.5m in respect of accelerated amortisation of a number
of capitalised project costs where long-term viability of the projects
was no longer deemed sufficiently certain to support their carrying
value. The review of the Useful Economic Lives (UELs) associated with
G
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68 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Audit committee report
the remaining capitalised development projects concluded that five
years was a more appropriate UEL than the previous ten-year period.
Management has concluded that while the projects may have technical
feasibility over that longer period, the rate of change and the potential for
technological obsolescence mean that a shorter UEL of five years would
better match the risk and return profiles. This had an impact in the year
of £0.4m of additional amortisation charges being the full-year effect
since 1 June 2017. The Committee was content that the £1.9m impact
of the portfolio review represented an appropriate change in accounting
estimate that should be treated as an ordinary operating charge as a
part of our normal product lifecycle management activity. Hence it has
not been treated as an Individually Significant Item.
Onerous leases
(Current year focus item: see note 20 to the Financial Statements)
During the year, the Group identified leases on two UK properties
that were surplus to requirements. Discounted cash flow models were
reviewed and challenged on their assumptions. The Committee is
satisfied that liability for onerous leases is properly recorded.
Loss-making contracts
(Current year focus item: see note 20 to the Financial Statements)
During the year, the Group reviewed a major long-term contract in
the Netherlands for the development and supply of a new product.
Management prepared estimates of future income, costs and resulting
cash flows associated with the contract. The annual cash flows were
then discounted using appropriate risk-adjusted discount rates to arrive
at the Net Present Value (NPVs) of the contract in question.
The Committee reviewed and challenged the interpretation of
accounting standards and the assumptions underpinning the cash flows
and discount rates. The Committee is satisfied that the contract is loss-
making and that the liabilities recorded are reasonable.
Revenue recognition and accrued income
(Current year focus item: see note 1 to the Financial Statements)
In the prior year, the Committee spent a significant amount of time
considering the Group’s revenue recognition policies and practise.
This reflected the upcoming change in revenue recognition rules in
2019 (IFRS 15) the reliance on manual processes and controls within
the business, and the inherent risks around revenue recognition more
generally. 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.
Given the importance of revenue recognition and the deemed inherent
risk, it was felt appropriate to maintain revenue recognition on the
Committee’s agenda for the current year. The Committee built upon
the risk-based work in the prior year and reviewed a number of smaller
individual service line revenue recognition policies and concluded that
they remained appropriate.
With respect to the sale of third party products, where new low risk
terms and conditions of sale have been implemented in most cases, the
Committee agreed with management’s conclusion that these should
now be recognised on a net or agency basis rather than a gross basis.
It should be noted that it was the change in fact pattern occasioned
* See pages 122 to 124 for an explanation and definition of
Alternative Performance Measures.
by the new terms and conditions, alongside the new criteria in IFRS15
to identify sales that should be treated on an agency basis that led to
this change in practice as opposed to a change in policy. There was no
impact on any profitability measures.
Individually Significant Items
(Current year focus item: see note 6 to the Financial Statements)
Individually significant items by their nature and scale could have
a significant impact on the reporting of “Adjusted” metrics 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 individually
significant and hence excluded from “Adjusted” measures of
performance, were sufficiently material and unrelated to the underlying
business to be properly classified in this way.
Taxation
(Current year focus item: see note 10 to the Financial Statements)
As part of the publication of the Interim Results in January 2018, a large
fall was projected for the Group’s full year Adjusted* effective Tax Rate
as a result of the significant planned cut in rates of corporation tax in the
USA from 35% to 21%. The actual Adjusted* effective Tax Rate for the
Group for the year ended 31 May 2018 was 22.4% (2017: 29.3%).
The change in tax rates in the USA had a significant impact on the
Group’s effective tax rate. It also had an impact on deferred tax assets
and liabilities that needed to be evaluated. In addition, the cut in tax rate
also had an impact on the discounted net cash flows used to evaluate
the recoverability of goodwill and other intangible assets in the USA
in respect of historical additions. The Committee therefore deemed it
appropriate to review this area given its materiality and the nature of the
one-off change.
Furthermore, the Group initiated a programme to claim the US equivalent
of R&D tax credits in respect of our US operations. This led to a
significant historical claim which has been accrued with an appropriate
risk haircut and will also create an ongoing tax benefit. Both historical
and ongoing tax benefits will create real cash flow benefits for the
Group. The Committee considered whether or not the US R&D tax
credits should be treated as operating income as in the UK or should
be treated as a tax item. The Committee concluded that since the US
tax credit is itself not a form of taxable income (unlike the UK) it should
be treated as a tax item. Given its size and historical nature, it was also
confirmed the benefit from it should be excluded in calculating Adjusted*
EPS.
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:
Stock Code: NCC
www.nccgroup.com
69
{ Firstly, to ensure that the Group’s more complex and growing
international footprint is fully compliant with all local legislation and
transfer pricing regulations.
The initial internal audit plan was approved by the Committee during the
financial year, for implementation on a phased basis in the new financial
year.
{ 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.
The Committee is satisfied that the Group’s policy, disclosures and
financial position in respect of taxation are appropriate.
IFRS 15 Revenue Recognition
(Current year focus item: see note 1 to the Financial Statements)
The new revenue recognition accounting standard (IFRS 15) is due to
be implemented in next year’s Annual Report and Account. In advance
of the implementation, companies have been encouraged by the FRC to
disclose prospectively the estimated impact of the new standard on an
illustrative basis using the most recent year’s results.
During the year, the Committee supported a detailed review of
revenue recognition criteria and policies in those service lines which
were deemed to have a higher risk of requiring changes after the
implementation of the new standard. A more detailed description of the
review and its outcome is shown in note 1 to the Financial Statements.
The Committee is satisfied that the outcomes shown in note 1 are an
accurate reflection of the likely material impacts on the Group’s results.
The Group’s approach to materiality
In considering the materiality of any individual issue or issues in
aggregate, the Group looks at a range of qualitative and quantitative
measures to assess whether or not a user of the accounts would be
likely to be influenced by the item in question. The range of measures
includes (but is not limited to) the primary financial statements
themselves, the individual line item in question, and whether or not the
issue moves the result from one side of an inflection point to another
(for example, turning a profit into a loss or a net asset into a net liability).
Qualitative and quantitative measures are both considered as is any
potential impact on remuneration or banking arrangements such as
debt covenants.
Where a matter arises in respect of the current year but which relates to
a prior period estimate for example, we assess the impact on individual
reporting periods as if any amendments had been made to the prior
year Income Statement and opening Balance Sheet at the start of the
period. This reflects the Group’s approach to the application of IAS 8,
paragraph 42 that requires the ‘Retrospective Correction’ of material
prior period errors.
Internal audit
In the prior year, the Group decided that the scale and complexity of
its operations justified the creation of an internal audit function. During
the year the Group appointed a Director of Risk and Assurance, who
joined in the third quarter. The role is 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.
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.
The Committee monitors the performance of management in this area.
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 and can provide only reasonable but not absolute
assurance against material misstatement or loss. Key elements of the
internal control system are described below. Enhancements during the
year are highlighted while the other elements have all been in place
throughout the year:
{ Defined management structure and delegation of authority to
Committees of the Board, subsidiary boards and associated business
units (enhanced by more detailed authorities and guidance notes).
{ Recruitment standards and training to ensure the integrity and
competence of staff.
{ Anti-bribery, security and compliance training.
{ Information provided to management covering financial performance
and key performance indicators, including non-financial measures
(enhanced by new KPIs and targeted management reports).
{ A detailed budgeting process where business units prepare plans
for the coming year (enhanced with new standardised reporting and
consolidation models and systems).
{ Procedures for the approval of capital expenditure and investments
and acquisitions (enhanced by standardised capital approval request
forms).
{ Monthly operational reviews to monitor and reforecast results as
required against the annual operating plan, with major variances
followed up and management action taken where appropriate.
{ Clearly documented internal procedures set out in the Group’s ISO
9001:2008 accredited quality manual.
{ Regular internal audits of key processes and procedures under the
Group’s ISO 9001 and ISO 27001 accredited quality assurance
process.
{ Monitoring of any whistleblowing 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 Audit and
Risk Committee on behalf of 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 40 to 44.
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NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Audit committee report
Whistleblowing and confidential reporting
procedures
The Group operates a confidential reporting and whistleblowing
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 year, the Committee appointed 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 is advertised internally via staff notice boards and
our intranet.
The Committee reviews any whistleblowing 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
received one reported matter that did not come through the independent
whistleblowing process and, on detailed review, concerned private
use of social media by a junior member of staff. No further action was
warranted by the Committee.
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 July Audit Committee meeting. In
making these recommendations the Committee considers:
{ The experience, industry knowledge and expertise of the auditors.
{ The scope and planning of the audit and any variations from the plan.
{ The quality of the processes adopted.
{ The fees charged.
{ Their attitude to and handling of key audit judgements.
{ Their ability to challenge and communicate effectively with
management.
{ The quality of the final report.
During the financial year, Thomas Chambers (former Committee
Chairman) and myself, once I had taken over the Chairman role,
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 agreed that in a period of significant Board
changes and operational upheaval, it would not be in the best interests
of the Group to subject the external audit contract to another formal
tender exercise during the current financial year.
The Group will keep this position under review during the new
financial year. The Group intends to remain in full compliance with the
requirement to carry out a formal tender at least once every ten years.
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.
Stock Code: NCC
www.nccgroup.com
71
FINANCIAL
INFORMATION
NARRATIVE
DISCLOSURES
INDEPENDENT
REVIEWERS
{ Prepared by
individual
business units
{ Consolidated by
Group Finance
team
{ Reviewed by
Group Financial
Controller and
CFO
{ Prepared by
Group Finance
team
{ Various reports
prepared by
Committee
Chairs, CEO
and CFO
{ Senior members
of the Executive
Committee
{ Those who have
not been major
contributors
AUDIT
COMMITTEE
CHAIR
{ Review of
detailed
verification
documents
{ Review of
findings and
observations
from
independent
reviewers
Auditors’ independence and objectivity
The Committee received a formal statement of independence from the
external auditors.
Related party transactions and other fees
approved by the Committee
Refer to note 31 for related party transactions in the year.
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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.com
During this financial year non-audit fees of £27,500 (2017: £17,500)
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.
In the prior year, the former Non-Executive Chairman, Paul Mitchell,
was also the Non-Executive Chairman of Rickitt Mitchell. During that
year the Audit Committee approved corporate finance fees payable to
Rickitt Mitchell & Partners Ltd of £0.3m in relation to the completed
acquisitions PSC and VSR and the disposal of the Open Registry
businesses. There were no such fees payable in the current year.
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
2018 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.
The independent reviewers noted above were not major contributors to
the Annual Report and Accounts but, at the same time, as members of
the Executive Committee, 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.
Chris Batterham
CHAIRMAN, AUDIT COMMITTEE
17 July 2018
72
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Nomination committee report
The Committee has
had a busy year with a
number of Executive and
Non-Executive changes to
the Board.”
CHRIS STONE COMMITTEE CHAIRMAN
Debbie Hewitt stepped down as Chairman of
the Nomination Committee in January 2018
and I was appointed as the new Committee
Chairman. Other members of the Committee
are the following independent Non-Executive
Directors: Thomas Chambers, Chris Batterham,
Jonathan Brooks and Jennifer Duvalier, the
latter of whom joined the Committee when
she joined the Board in April 2018. Thomas
Chambers has announced his intention to
resign from the Board at the 2018 AGM and
Thomas will step down as a member of the
Committee from that date.
The Nomination Committee’s
objectives and responsibilities
The Nomination 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:
{ Reviewing the structure of the Board.
{ Evaluating the balance of skills, knowledge,
experience and diversity on the Board.
{ Making recommendations for further
recruitment to the Board or proposing
changes to the existing structure of the
Board, or individual Directors.
{ Reviewing the leadership needs of the
Company, both Executive and Non-
Executive.
{ Succession planning for Directors and other
senior Executives within the business.
{ Recruiting, appointing and exiting of
Directors.
{ Overseeing membership of, and succession
to, the various Board committees.
{ 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 Financial
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. The Company and the
Committee value the aims and objectives of
the Davies report and the Hampton-Alexander
Review on women on boards and support and
apply the Group’s diversity policy set out on
page 46.
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 22% 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.
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.
Stock Code: NCC
www.nccgroup.com
73
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 six 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
Meetings attended
Chris Stone (Chair from January 2018)
Debbie Hewitt (Chair until
January 2018)
Chris Batterham (member)
Jonathan Brooks (member)
Thomas Chambers (member)
Jennifer Duvalier (member)
3(3)
3(3)
6(6)
5(6)
6(6)
0(0)
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 a broader review of succession planning.
External search consultancies
In accordance with B.2.4 of the Code, during the year the Committee
engaged Matrix Interim Management in the recruitment of Adam Palser
(Chief Executive Officer) and Heidrick & Struggles in relation to the
recruitment of Jennifer Duvalier (Non-Executive Director). None of the
above companies have any connection with the Company.
In relation to the appointment of Mike Ettling, the Nomination Committee
had agreed that the Board would be enhanced by the appointment of
a new Non-Executive Director with specific technology expertise. The
Chairman had previously worked with Mike Ettling and suggested that it
would be worth considering Mike as he had both strong sector and non-
executive director experience. Following a rigorous interview process
with the Committee and the rest of the Board, it was agreed that Mike
was an excellent candidate and an offer was accordingly made.
Chris Stone
CHAIRMAN, NOMINATION COMMITTEE
17 July 2018
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NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Cyber security committee report
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:
{ 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 resulting
actions.
{ Receive and consider the regular reports
from the CISO.
{ Ensure the CISO is given the right of direct
access to the Committee.
{ Consider and recommend actions in respect
of all cyber risk issues escalated by the
CISO, 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.
{ Review the Group’s ability to identify and
manage new cyber risks.
{ Assess the adequacy of resources and
funding for cyber security defence and
control activities.
{ Regularly review the cyber risk posed by
third parties including outsourced IT and
other partners.
{ Oversee cyber security due diligence
undertaken as part of an acquisition and
advise the Board of the risk exposure.
{ Annually assess the adequacy of the
Group’s cyber insurance cover.
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.
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 Committee reviewed and approved a
revised Cyber Security Strategy that sets
medium-term goals measured against a
maturity framework for cyber security posture.
Our goal is to enhance our performance on
each of the categories. The categories of cyber
security posture and maximum scores are
shown in the spider diagram on page 75.
While each company faces different risks
aligned to their own operations and industry
sectors, these can be grouped in accordance
with the diagram opposite. We seek to achieve
an appropriate level of maturity that matches
our risk appetite.
The Group increased its capability to detect
and react to potential incidents with the
addition of new, or enhanced, security controls
and our 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.
Following our own advice to customers, we
adopted a risk-based approach to prioritise our
efforts to prepare for GDPR.
The Group continues
to constantly evolve its
capability to detect and
react to potential risks in the
ever evolving cyber threat
landscape.”
CHRIS STONE COMMITTEE CHAIRMAN
The Cyber Security Committee was formed
to focus specifically on the cyber risks faced
by the business. This reflects the growing
threat posed by cyber risks, the nature of
our business, and the potential damage
to the business as a high value target for
malicious acts. The Committee’s activities
aim to challenge and support improvements
to the Group’s internal cyber security policy
and defences as well as compliance with the
General Data Protection Regulations (GDPR)
and other data protection requirements.
I became Chairman of the Committee in
January 2018 when Debbie Hewitt, Senior
Independent Director, stepped down as
Chair of the Committee. Prior to that, Debbie
had been Chairman since the formation of
the Committee in November 2016. Chris
Batterham and Jonathan Brooks, Non-
Executive Directors, also served as members
of the Committee throughout the year and
Jennifer Duvalier joined the Committee
following her appointment in April 2018.
The Group’s Director of Risk and Assurance
and the Group’s Chief Information Security
Officer (CISO) are standing invitees of the
Committee. The Executive Directors are invited
to attend Committee meetings when the
Committee considers it to be appropriate.
Stock Code: NCC
www.nccgroup.com
75
NCC Group has made considerable progress with its GDPR compliance
programme, which began with the appointment of a Group Data
Privacy Officer in May 2017. Since that point, areas of most notable
progress include:
{ Awareness - all UK and EU staff receive bespoke GDPR training on
an annual basis, with new starters receiving this within 2 weeks of
their arrival. US employees also receive online data privacy training.
Awareness programmes are also running continuously across the
Group.
{ Customer Data - this data has been reviewed, categorised, and
where necessary, purged. Development work has been undertaken
on our CRM and marketing tools to ensure that all customer contact
preferences are logged effectively. Sales teams have been trained on
the compliant usage of this data.
{ Incident management - procedures for dealing with security and/or
personal data breaches have been reviewed and any gaps identified
have been filled.
{ Policies and procedures - new, robust policies for staff and customers
relating to GDPR have been created and published. Data flow maps
and data asset inventories have been created and reviewed.
CUSTOMER DATA
GOVERNANCE
0
4
5
0
5
3
3
2
0
2
1 5
1 0
5
0
AWARENESS
INCIDENT
MANAGEMENT
POLICIES &
PROCEDURES
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 two times.
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
Meetings attended
Chris Stone1 (Chair)
Debbie Hewitt2 (Chair)
Chris Batterham (member)
Jonathan Brooks (member)
Jennifer Duvalier3 (member)
0(0)
2(2)
2(2)
2(2)
0(0)
1 Appointed as a member and Chairman of the Committee in January 2018.
2 Until January 2018.
3 Appointed April 2018.
Committee effectiveness
During the year, the Cyber Security Committee carried out an internal
self evaluation on its effectiveness, as it continues to mature since
its formation in November 2016. As an output of this evaluation, the
Committee, along with the Board, resolved that cyber security was a
sufficiently important risk for the business that the Committee should
remain focused on this specific set of risks. Therefore, the Board
decided in April 2018 to maintain the previous structure in which the
responsibility for broader risk management should remain with the Audit
Committee. The terms of reference for the Committee were therefore
not amended (as had previously been intended when its remit would
have increased to cover all risk management activities).
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THIRD PARTIES
ACCOUNTABILITY
Chris Stone
CHAIRMAN, CYBER SECURITY COMMITTEE
17 July 2018
Maximum score (100% compliant)
Score at May 2017
Current score June 2018
Of course, compliance is an ongoing process, and work continues
apace. We have set realistic target scores for the Group, to ensure
that appropriate organisational and technical measures are in place
to protect the personal data we process, whilst continuing with our
pragmatic and risk-based approach.
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. This resulted in a rebalancing of our insurance
spend to give a greater coverage on cyber-related risks.
76
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Remuneration committee report
ANNUAL STATEMENT
Adam Palser joined the business as our new
Chief Executive Officer on 1 December 2017.
He was awarded a base salary of £425,000
and benefits and incentives in line with our
Policy. This salary was 20% lower than the
£528,000 salary of the previous CEO.
For the 2018-19 financial year, both the Chief
Executive Officer and the Chief Financial
Officer have been awarded an increase in
base salary of 2.5%. By reference, the general
salary review awarded to all other UK-based
employees was also 2.5%.
In line with policy, Non-Executive Director fees
are reviewed annually and these were also
increased by 2.5% to apply from 1 June 2018.
Details of these increases are given in the
Annual Report on Remuneration on page 84.
The annual bonus for the year ended 31 May
2018 for both the Chief Executive Officer
and Chief Financial Officer was based on
the satisfaction of stretching financial and
strategic targets. This resulted in an overall
payment of 32.5% of basic salary earned in
the financial year. With respect to the financial
targets, these were set last year at an adjusted
EBIT from continuing operations of between
£31.0m and £34.0m (i.e. excluding the results
for the Web Performance and Software Testing
businesses) and by delivering an adjusted
EBIT of £31.0m this resulted in a bonus of
15% (out of a maximum of 75%) of base
salary being achieved. With respect to the
strategic objectives, two out of three were met:
a maximum 12.5% bonus was achieved for
selling the Web Performance and Software
Testing businesses during the year as well as
a maximum bonus of 5% for implementing
the new Target Operating Model organisation.
The Remuneration Committee decided that no
bonus was payable with respect to the third
strategic target of improving the quality of the
reporting of KPIs for the new organisation.
35% of the bonuses will be deferred in shares
and held for two years. No LTIPs vested in the
year for these two executives.
For 2018/19, the Committee intends to keep
the same annual bonus structure, with up to
75% being attributed to the achievement of
financial targets and 25% for strategic targets.
For 2018-19, recognising the need to increase
investment in infrastructure which will increase
the cost base of the business, the adjusted
EBIT target has been set between £33.0m and
£36.0m, with bonuses of between 15% and
75% of base salary being calculated by linear
interpolation. The strategic targets include
developing and implementing a strategic plan
for Fox IT and certain of its product offering
(12.5%), implementing ERP and CRM systems
for the business (7.5%) and developing the KPI
reporting (5%). As in prior years, the bonus
will continued to be self-funding and as such,
no bonus will be payable, even for strategic
targets, unless the minimum profit target is
met. 35% of any bonus earned will be deferred
into nominal cost share options and after a
vesting period of two years, these shares must
be retained until the shareholding guideline is
achieved. Clawback and malus provisions are in
place for the annual bonus.
With respect to the LTIP for 2018-2021, the
Committee intends to make awards of up
to 100% of base salary and these will vest
after three years as long as a number of
demanding performance targets are satisfied.
60% of the potential award will be based
on the achievement of a demanding EPS
target, 30% to the achievements of certain
cash targets and 10% to relative TSR targets.
Clawback and malus provisions are in place
for the LTIP. In order to further align executives
with shareholders, executives are required
to retain any vested shares (net of tax) for a
period of two years. After this holding period,
vested shares must also be retained if the
shareholding guideline has not been met.
At the Annual General Meeting in September
2017, 99.84% of shareholders voted in
favour of the revised Remuneration Policy
and 99.85% of shareholders voted in favour
of the adoption of the Annual Report on
Remuneration. The Remuneration Committee
appreciated the support for our approach. The
2018 Annual Statement and Annual Report on
Remuneration will be put to an advisory vote
at the Annual General Meeting in September
2018, providing shareholders with the
opportunity to voice their opinions on how the
Committee has implemented the Remuneration
Policy this year. We look forward to receiving
your support on our approach to Remuneration
at the Annual General Meeting.
Jonathan Brooks
CHAIRMAN, REMUNERATION COMMITTEE
17 July 2018
The committee has
reviewed the Group’s
remuneration policy to
assess its appropriateness
and alignment with
business strategy.”
JONATHAN BROOKS
CHAIRMAN, REMUNERATION COMMITTEE
I became Chair of the Remuneration
Committee following the resignation of the
previous Chair, Debbie Hewitt, at the end of
March 2018. On behalf of your Board, I am
therefore pleased to present our Directors’
Remuneration Report (DRR) for the year
ended 31 May 2018.
The Report is divided into three sections: an
Annual Statement, a summary of our Directors’
Remuneration Policy and the Annual Report
on Remuneration (which sets out the actual
application of the Policy).
Annual Statement
During the year, we operated within the
Remuneration Policy that was approved by
shareholders at the 2017 AGM, a copy of
which can be found in the next section of this
Report.
Along with Debbie Hewitt’s resignation, there
were a number of other Board changes during
2017/2018, including the appointment of a
new Chief Executive Officer, Adam Palser, and
two new Non-Executive Directors, Mike Ettling
and Jennifer Duvalier.
Remuneration committee report
DIRECTORS’ REMUNERATION POLICY
Stock Code: NCC
www.nccgroup.com
77
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:
{ 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.
{ Provide the level of remuneration required to attract, retain and
motivate Executive Directors and senior executives of an appropriate
calibre.
{ Ensure a proper balance of fixed and variable performance-related
components, linked to short and longer term objectives.
{ 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 complex multinational organisation, which has grown both organically
and by acquisition.
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 Group as well as providing a strong alignment of
interest between the Executive Directors and shareholders.
For the purposes of section 226D-(6)(b) of the Companies Act 2006,
this policy took effect from the date of the 2017 AGM, which was held
on 21 September 2017.
Current Policy Table for Executive Directors
Purpose and link to short and long-
term strategic objectives
Salary
Attract, retain and
reward high calibre
Executive Directors.
Operation (including framework to assess performance)
Maximum opportunity
The Remuneration Committee reviews salaries for Executive Directors
annually unless responsibilities change.
Pay reviews take into account Group and personal performance and
externally benchmarked market data for companies operating in IT
services, management consulting and relevant high-tech sectors, which,
although not directly comparable, provide 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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Details of current salaries are
set out in the Annual Report on
Remuneration (page 83).
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.
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.
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.
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
percentage of base salary.
10% of basic salary into the
Group Scheme, providing they
make a contribution of not less
than 5% of basic salary, or a
basic salary supplement of 10%
of base salary.
78 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Remuneration committee report
DIRECTORS’ REMUNERATION POLICY
Purpose and link to short and long-
term strategic objectives
Annual bonus
Drive and reward
sustainable business
performance.
Long Term Incentive Plan
To drive long-term
performance in line
with Group strategy
and incentivise
through share
ownership.
Operation (including framework to assess performance)
Maximum opportunity
Chief Executive Officer 100% of
base salary.
Chief Financial Officer 100% of
base salary.
Award over shares with a face
value at grant of:
100% of salary p.a. for the Chief
Executive Officer.
100% of salary p.a. for the Chief
Financial Officer.
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% of the maximum opportunity is
paid for achievement of the threshold performance targets. Payments
rise from the threshold payment to 100% 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% 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 clawback provisions are in place for both cash
and deferred elements.
Awards have a performance period of three years.
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 a maximum of 60% of total potential for
EPS growth, 30% for the achievement of cash flow targets and 10% for
the achievement of relative TSR targets.
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% and rises to 100% 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% 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.
Stock Code: NCC
www.nccgroup.com
79
Purpose and link to short and long-
term strategic objectives
Operation (including framework to assess performance)
Maximum opportunity
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% 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.
As a result, no element of Executive Director Remuneration Policy is
operated exclusively for Executive Directors:
{ The annual performance-related pay scheme for Executive Directors
is largely the same as that of the Executive Committee and Senior
Managers within the business and all are aligned with similar
business objectives.
{ Participation in the LTIP is extended to other senior executives where
possible.
{ The pension scheme is operated for all permanent employees.
The main difference between pay for Executive Directors and employees
is that for Executive Directors, the variable element of total remuneration
is much greater while the total remuneration opportunity is also higher to
reflect the increased responsibility of the role.
Executive shareholding guidelines
The Committee considers that Executive Directors of the Company
should retain a personal holding of shares in the Company, so as to align
their interests with the interests of the Company’s shareholders.
In any event, 35% 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.
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Choice of performance measures and
target setting
For both the annual bonus and LTIPs, the objective of 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 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 focused on the delivery of
sustainable business performance.
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.
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.
80 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Remuneration committee report
DIRECTORS’ REMUNERATION POLICY
Non-Executive Director policy table
Purpose and link to strategy
Operation
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 disclosures 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.
Maximum opportunity
Current fee levels are set
out in the Annual Report on
Remuneration on page 84.
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 details 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.
“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.
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.
Stock Code: NCC
www.nccgroup.com
81
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:
{ 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.
{ Subject to the normal bonus targets, tested at the end of the year,
and would take into account performance over the notice period.
{ Subject to deferral of 35% of the value.
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, it 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 12 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.
Illustration of remuneration scenarios
The chart below details the hypothetical composition of each Executive
Director’s remuneration package and how it could vary at different levels
of performance under the policy set out above.
1,400
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
£1,327
33%
33%
£608
14%
11%
£456
£814
31.5%
31.5%
£301
£391
13%
10%
100%
75%
34%
100%
77%
37%
Fixed
Target
Maximum
Fixed
Target
Maximum
CHIEF EXECUTIVE OFFICER
CHIEF FINANCIAL OFFICER
Total Fixed
Annual Bonus
Long-term incentives
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Amounts shown in the chart are in £000.
Note that the charts are indicative, as share price movement has been
excluded. Assumptions made for each scenario are as follows.
{ Minimum. Fixed remuneration only: salary, benefits and pension.
Salary based on 2018/19 salary and benefits based on 2017/18
disclosed benefit amounts.
{ Target. Fixed remuneration plus minimum annual bonus opportunity
of £65,400 for the Chief Executive Officer and £38,400 for the
Chief Financial Officer, which is equivalent to 15% of salary for both
the Chief Executive Officer and Chief Financial Officer, plus 20%
vesting of the maximum award under the Long Term Incentive Plan.
{ Maximum. Fixed remuneration plus maximum annual bonus
opportunity, £436,000 for the Chief Executive Officer and £256,000
for the Chief Financial Officer, equivalent to 100% of salary for both
the Chief Executive Officer and Chief Financial Officer, as well as,
100% vesting of the maximum award under the Long Term Incentive
Plan being 100% of salary for both Executives.
82 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Remuneration committee report
DIRECTORS’ REMUNERATION POLICY
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.
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.
Our Non-Executive Chairman, Chris Stone, held the position of Executive
Chairman for an eight month period from April 2017 until Adam Palser
was appointed Chief Executive Officer on 1 December 2017. During the
time that Chris was Executive Chairman, he held more than one external
Non-Executive Directorship but with the consent of the Board which
judged that his other directorships did not conflict with, nor impact, his
ability to perform his interim role as Executive Chairman.
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.
How shareholder views are taken into account
The Remuneration Committee considers shareholder feedback received
on the Directors’ Remuneration Report each year and guidance from
shareholder representative bodies more generally. Shareholders’ views
are key inputs when shaping remuneration policy. When any material
changes are proposed to the Remuneration Policy, the Remuneration
Committee Chairman will inform major shareholders in advance and will
generally offer a meeting to discuss these.
Key areas of discretion in the Remuneration Policy
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:
{ Whether annual bonus is paid to Executives once notice has been
served.
{ Discretion in exceptional circumstances to amend previously set
incentive targets or to adjust the proposed payout to ensure a fair
and appropriate outcome.
{ 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.
{ The decisions on exercise of clawback rights.
Remuneration committee report
ANNUAL REPORT ON REMUNERATION
Stock Code: NCC
www.nccgroup.com
83
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 2018 AGM, which is scheduled to be held on 26 September 2018.
The information on pages 83 to 94 has been audited where indicated.
How will the Remuneration Policy be implemented
in the year ending 31 May 2019?
Executive Directors’ base salaries. The Committee has decided to
award a salary increase of 2.5% to both the Chief Executive Officer and
Chief Financial Officer. With regard to all other UK-based employees, the
general increase has been 2.5%, except those who have been promoted
or where adjustments were made to employees who were out of line
with the general market, where larger increases have been made.
No executive salary increases were awarded last year due to the fact
that Chris Stone, who was then acting as executive Chairman, was
appointed in April 2017 and Brian Tenner, who was then acting as
Interim Chief Executive, was appointed in February 2017.
When Adam Palser was appointed as the new Chief Executive Officer
on 1 December 2017, Brian Tenner resumed his role as Chief Financial
Officer and his salary reverted to £250,000 from £350,000 and Chris
Stone reverted to Non-Executive Chairman and his fees were reduced
from £350,000 to £135,000.
£000
Base salary
at 31 May
2018
Base salary
to 31 May
2019
% Change
The targets relating to the 2017/18 bonus payments are shown on
page 86.
Long Term Incentive Plan (LTIP). It is expected that awards of 100%
of base salary will be made under the LTIP in July or August 2018. 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% 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 these LTIP awards will be based on Earnings Per Share
(60%), a cash flow metric (30%) and a relative Total Shareholder Return
metric (10%). The performance conditions for 2018-19 will be the same
as for 2017-18:
{ Earnings per share needs to grow at between a threshold 9% and a
maximum of 12% per annum over three years to qualify for an award
of between 20% and 60% of salary.
{ The relative TSR component is worth up to 10% of salary. If the
business achieves a level of share performance equivalent to the
mid FTSE 250, then this will qualify for an award of 2%. Achieving a
share price equivalent to upper quartile for the FTSE 250 will result in
the maximum award of 10%.
{ Finally, the cash conversion metric enables executives to earn a
further 30% of salary. A cash conversion rate of 70% represents the
threshold, qualifying for an award of 6% of salary, with the maximum
award of 30% due if the target is 80%. The cash conversion ratio* is
calculated as net cash from operating activities divided by Adjusted*
EBITDA.
Chief Executive Officer
Chief Financial Officer
£425
£250
£436
£256
2.5
2.5
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 Group’s strategic goals.
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* See pages 122 to 124 for an explanation and definition of Alternative Performance
Pension and benefits. There will be no changes to pension or
benefits provision.
Measures.
Annual bonus. The annual bonus maximum for the Chief Executive
Officer and the Chief Financial Officer in 2018/19 will be 100% of
salary with 75% based on the achievement of actual operating profit
(EBIT) targets and 25% 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 Board.
In addition, to ensure that this bonus opportunity results in shareholder
alignment and provides greater retention value, 35% 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.
84
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Remuneration committee report
ANNUAL REPORT ON REMUNERATION
Non-Executive Directors’ remuneration
In line with the current Policy, Non-Executive Director fees are reviewed
annually. It is proposed that the fees are increased by 2.5%, to apply with
effect from 1 June 2018.
How has the Remuneration Policy been
implemented in the year ended 31 May 2018?
This section sets out how the Remuneration Policy was implemented in
2017/18. The key implementation decisions during the year related to:
Annualised Fees
£000s
Chris Stone*
Thomas Chambers**
Chris Batterham***
Jonathan Brooks ****
Mike Ettling
Jennifer Duvalier
As at
1 June 2017
As at
1 June 2018
£350
£138
£52
£45
£45
–
–
£46
£59
£53
£46
£46
{ Determination of annual bonus outcomes for the 2017/18
performance period.
{ Terms of the new Directors appointed to the Board, including the
Chief Executive Officer.
{ The performance targets of the annual bonus scheme, which will
apply for the year ending 31 May 2019.
{ The performance targets and value of awards to be granted under
the LTIP, which will vest in 2021.
Further detail on these decisions, together with other information on
payments made to Directors, is set out in the following sections.
*
Executive Chair fees were £350,000 but these reduced to £135,000 from
December 2017 when the new Chief Executive Officer was appointed and Chris
Stone became Non-Executive Chairman
** Thomas Chambers returned to a base fee of £45,000 when he stepped down as
Chair of the Audit Committee on 31 March 2018
*** Chris Batterham’s fee increased by £6,000 when he became Senior Independent
Non-Executive Director and by £7,000 when he became Chair of the Audit
Committee, in each case on 1 April 2018
**** Jonathan Brooks’ fee increased by £7,000 when he became Chair of the
Remuneration Committee on 29 March 2018
Stock Code: NCC
www.nccgroup.com
85
Single Total Figure of Remuneration (Audited)
The detailed emoluments received by the Executive and Non-Executive Directors for the year ended 31 May 2018 are below. No payments were
made for loss of office.
Director
£000
Base salary
/ Non-
Executive
Director fees
£000
Year
ended
Benefits1
£000
Pension
benefits2
£000
Annual
bonus3
£000
Long-term
incentive4
£000
Other5
£000
Total
£000
Chris Stone6
31 May 2018
31 May 2017
Adam Palser7
31 May 2018
Brian Tenner8
31 May 2018
31 May 2017
Debbie Hewitt9
31 May 2018
31 May 2017
Thomas Chambers10 31 May 2018
31 May 2017
Chris Batterham11
31 May 2018
31 May 2017
Jonathan Brooks12
31 May 2018
31 May 2017
Mike Ettling13
31 May 2018
Jennifer Duvalier14
31 May 2018
243
52
213
300
108
48
86
51
43
47
38
46
8
31
4
–
–
6
15
5
–
–
–
–
–
–
–
–
–
–
–
–
4
30
11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
243
52
223
345
124
48
86
51
43
47
38
46
8
31
4
G
O
V
E
R
N
A
N
C
E
1 Taxable benefits include the provision to every Executive Director of a car or car allowance, payment of private fuel, car insurances, private medical insurance, life assurance and
permanent health insurance.
2 Pension benefits include employer contributions to the Group pension scheme and payments in lieu of pension contributions.
3 Annual bonus payments for performance in the relevant financial year. 35% of this bonus is deferred in shares for two years.
4 Long-term incentive awards vesting under the LTIP.
5 The value of the awards vesting under the SAYE.
6 Chris Stone was initially appointed Executive Chairman on 6 April 2017 and paid a total fee of £350,000. Chris became Non-Executive Chairman on 1 December 2017 following
the appointment of the new Chief Executive Officer whereupon his fees reverted to £135,000.
7 Adam Palser was appointed as Chief Executive Officer on 1 December 2017.
8 Brian Tenner was appointed as Chief Financial Officer to the Board on 1 February 2017. He was paid a supplement of £100,000 from 1 March 2017 to recognise his
appointment as Interim Chief Executive Officer. Brian resumed his role of Chief Financial Officer on 1 December 2017 and his salary reverted from £350,000 to £250,000.
9 Debbie Hewitt resigned from the Board on 28 March 2018 and accordingly stepped down as Senior Independent Director and Chair of the Remuneration Committee from this
date. In 2017, Debbie was paid an additional fee of £35,000 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 Strategic Review.
10 Thomas Chambers stepped down as Chair of the Audit Committee with effect from 31 March 2018 and his fee was accordingly reduced from £52,000 to £45,000.
11 Chris Batterham was appointed Senior Independent Director and Chair of the Audit Committee from 1 April 2018 and his fee was accordingly increased from £45,000 to
£58,000 (£6,000 supplement in relation to the Senior Independent Director role and £7,000 supplement for the Audit Committee Chair role).
12 Jonathan Brooks was appointed Chair of the Remuneration Committee with effect from 29 March 2018 and his fee was accordingly increased from £45,000 to £52,000.
13 Mike Ettling was appointed as Non-Executive Director in September 2017.
14 Jennifer Duvalier was appointed as Non-Executive Director in April 2018.
86 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Remuneration committee report
ANNUAL REPORT ON REMUNERATION
Additional information in respect of the Single Total Figure of Remuneration
Annual bonus
2017/18 Annual bonus (audited)
For the year ended 31 May 2018, the maximum potential bonus opportunity for Adam Palser was 100% of salary but prorated to reflect that he
joined part way through the year (£212,500). For Brian Tenner, the maximum potential was also 100% of salary but adjusted to reflect that part of
the year Brian was acting as Interim Chief Executive Officer and for the remainder of the year resumed the role of Chief Financial Officer (£300,000
being his average salary for the year). The actual bonus paid to Adam Palser was £69,062 and to Brian Tenner was £97,500 based on the
achievement of the performance conditions set out below. 35% of each payment will be deferred in shares for two years.
The performance measures and targets are set out below:
Financial targets – up to 75% of the bonus
Performance condition - continuing business
Actual performance/Bonus payments
Strategic targets – up to 25% of the bonus
31 May 2018
Adjusted*
EBITDA
31 May 2018 potential annual
bonus payments
Adam Palser
Brian Tenner
Threshold
Maximum
£31m
£34m
£31m
£31,875
£45,000
£159,375
£225,000
£31,875
£45,000
Target
Adam Palser
Brian Tenner
Achieved?
31 May 2018 potential annual
bonus payments
% of
bonus
5%
If adequate progress has been made in the implementation of the new Target
Operating Model (TOM).
The new TOM was a key output from the strategic work undertaken in 2017.
Its objective was for NCC to be able to offer an integrated ‘go to market’
proposition from each geographical location. This required significant
reorganisation and the Committee deemed the objective to have been
achieved.
7.5%
If a new Board key performance indicator (KPI) pack is produced to reflect the
new TOM.
The Group has suffered from inadequate KPI reporting which needed to
be significantly enhanced to map the new TOM organisation. It was not
considered that sufficient progress had been made on this target to warrant
a bonus payment.
12.5%
If NCC Group Performance Testing Limited and NCC Group SDLC Limited are
both successfully sold or transferred to a third party during the financial year
ended 31 May 2018.
During the strategic reviews conducted in 2017, these businesses were
identified as not being cyber-related businesses, and so not core to our
overall strategy. In addition, they required significant investment if they were
not to decline and were identified as important activities to divest, which was
achieved during the financial year.
£10,625
£15,000
Yes
£15,938
£22,500
No
£26,563
£37,500
Yes
Stock Code: NCC
www.nccgroup.com
87
Long-term incentive plan vesting
LTIP awards vest based on a three-year performance period. As the Chief Executive Officer and Chief Financial Officer have been employed since 1
December 2017 and 1 February 2017 respectively, no LTIP awards vested for the executive directors during the year.
Appointment terms for new Directors
Chief Executive Officer
Adam Palser, Chief Executive Officer, joined the business on 1 December 2017. The remuneration arrangements provided to him were in accordance
with the current approved Policy and are as follows:
{ Base salary of £425,000.
{ Maximum annual bonus potential of 100% of salary, with 35% of any payment deferred in shares, for two years.
{ Annual grant under the LTIP of 100% of salary.
{ Employer pension contribution of 5% of salary.
{ Benefits of monthly car allowance of £1,100 per month, private fuel, life assurance of 4 × salary, private medical insurance for self and family and
income protection insurance.
{ Notice period of six months until 1 December 2018. Thereafter the notice period increases to 12 months.
Scheme interests awarded during the year (audited)
LTIP awards granted in the year
During the financial year, the Executive Directors were granted awards which are due to vest on 31 May 2020, subject to the performance conditions
set out below. The awards were as follows:
Executive
Number of
LTIP awards1 Basis
Face
value2
Performance condition
Performance
period
Adam Palser
178,601
100% of base salary*
£425,000
Vesting determined by:
{ growth in Adjusted* EPS over the
1 June 2017 to
31 May 2020
performance period
{ TSR over the performance period vs
FTSE 250 comparator group
{ Average cash conversion ratio* over the
performance period
Brian Tenner
148,777
100% of base salary**
£350,000
As above.
1 June 2017 to
31 May 2020
1 LTIP awards are structured as nominal-cost options (£1 being payable upon each exercise).
2 Based on a share price of £1.98 in relation to Adam Palser and £2.35 in relation to Brian Tenner which was the closing mid-market price of the Company’s shares on the day
before the respective date of grant.
* Prorated to reflect that Adam Palser joined part way through the year.
** Based on Brian Tenner’s salary of £350,000 at the time of grant when he was acting as interim Chief Executive Officer.
G
O
V
E
R
N
A
N
C
E
Straight line
between
threshold
and max
Straight line
between
threshold
and max
88 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Remuneration committee report
ANNUAL REPORT ON REMUNERATION
The performance condition for these awards is set out below:
Proportion
Component
Metric
Threshold
Threshold
vesting %
Target
Target
vesting % Maximum
Maximum
vesting %
Vesting
basis
60%
EPS
Average growth over a
three–year period
9%
20%
n/a
n/a
20%
100%
TSR
TSR over three years vs
FTSE 250 comparator group
(excluding investment funds)
Median
20%
n/a
n/a
Upper
quartile
100%
10%
30%
Cash
conversion
Average Cash conversion
ratio* over 3 years (net cash
from operations divided by
Adjusted* EBITDA)
70%
20%
75%
50%
80%
100% Straight lines
between
threshold and
target, then
target to max
SAYE options granted 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 Brian Tenner opted to participate in this scheme.
These awards will be included in the other column of the single figure table in the 2020/21 annual remuneration report, once they have vested.
Executive
Date of
grant
Number of
options
Basis
Face
value1
Exercise
price
Performance
condition
Vesting
date
Brian Tenner
25 Aug 2017
11,568
£500 per month
contribution over
a three–year
period
£22,442
£1.556
October 2020
Awards vest
subject to
continued
employment
1 Calculated on the price of £1.94, which was the average midmarket share price over the three days preceding the date of grant.
Directors’ interests in shares (audited)
The tables below set out details of the Executive Directors’ outstanding share awards, which will vest in future years subject to performance
conditions and/or continued service.
Summary of maximum LTIP awards outstanding
Total LTIP
Options held
at 31 May
2017
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
2018
Adam Palser
Brian Tenner
–
–
178,601
148,777
–
–
–
–
–
–
178,601
148,777
All awards granted under the LTIP are subject to continued employment and the satisfaction of the performance conditions as set out above.
The awards were all nominal cost options.
* See pages 122 to 124 for an explanation and definition of Alternative Performance Measures.
Stock Code: NCC
www.nccgroup.com
89
Share ownership (audited)
The beneficial and non-beneficial interests of the current Directors in the share capital of NCC Group at 31 May 2018 are set out below.
Beneficial interests
in ordinary shares1
Maximum share awards subject
to performance conditions2
Share options
Total
31 May
2017
31 May
2018
31 May
2017
31 May
2018
31 May
2017
31 May
2018
31 May
2017
31 May
2018
Chris Stone
Adam Palser
Brian Tenner
Thomas Chambers
Chris Batterham
Mike Ettling
Jonathan Brooks
Jennifer Duvalier
–
–
–
20,900
22,000
–
–
–
50,000
–
111,309
29,134
50,000
–
30,000
–
–
–
–
–
–
–
–
–
–
178,601
148,777
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3
11,568
–
–
–
–
–
–
–
–
20,900
22,000
–
–
–
50,000
178,601
271,654
29,134
50,000
–
30,000
–
1 This information includes holdings of any connected persons.
2 These awards represent the outstanding LTIP interests, which are included in the table above which are due to vest in May 2020.
3 Representative SAYE scheme interest, which are due to vest in October 2020.
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 2018 are set out below.
G
O
V
E
R
N
A
N
C
E
Beneficial interests
in ordinary shares1
Maximum share awards subject
to performance conditions
Share options
Total
31 May
2017
31 May
2018
31 May
2017
31 May
2018
31 May
2017
31 May
2018
31 May
2017
31 May
2018
Debbie Hewitt
37,389
51,289
–
–
–
–
37,389
51,289
1 This information includes holdings of any connected persons.
90
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Remuneration committee report
ANNUAL REPORT ON REMUNERATION
Shareholding requirements
The Executive Directors are expected to build and retain a shareholding in the Group at least equivalent to 200% 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.
Adam Palser
Brian Tenner
Shareholding
requirements
(% of current
salary)
Current
shareholding
(% of salary)
Requirement
met
200
200
–
95%
No
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
2018
£m
31 May
2017
£m
% Change
146.5
12.8
136.3
12.8
7.5%
–
1 Based on the figure shown in note 8 to the Financial Statements.
2 Based on the cash returned to shareholders in the year ended 31 May 2018 through dividends as shown in note 11 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
Chief Executive
Employees
Chief Executive (% of salary)
Employees (% of salary)
Chief Executive (% of salary)
Employees (% of salary)
% increase
2.5
2.5
–
–
2.5
2.5
Stock Code: NCC
www.nccgroup.com
91
Performance graph and table
The following graph shows the total shareholder return, with dividends reinvested, from 31 May 2009 against the corresponding changes in a
hypothetical holding in shares in the FTSE All Share Index.
The FTSE All Share represents broad equity indices in which the Company is a constituent member and gives a market capitalisation-based
perspective.
During the year, the Company’s share price varied between £1.57 and £2.38 and ended the year at £2.13.
Nine year historical TSR performance growth in the value of a hypothetical £100 holding over eight years FTSE All Share comparison based on spot
value.
The share price was £1.71 on 1 June 2018 and £2.13 on 31 May 2018; an increase of 25% in the year.
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
01 June 18
NCC GROUP PLC
FTSE ALL-SHARE INDEX
G
O
V
E
R
N
A
N
C
E
92 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Remuneration committee report
ANNUAL REPORT ON REMUNERATION
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 2018
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
Total remuneration
(£000)
Annual bonus
(% of max)3
Long-term
incentives
(% of max)4
Adam Palser1
Brian Tenner2
Rob Cotton
Rob Cotton
Rob Cotton
Rob Cotton
Rob Cotton
Rob Cotton
Rob Cotton
Rob Cotton
£223
£175
£610
£1,091
£993
£1,089
£1,118
£1,074
£1,222
£836
32.5
32.5
–
70
73
73
05
85
67
71
–
–
–
20
15
50
63
70
54
72
1 Adam Palser was appointed on 1 December 2017. The total remuneration figure above is in respect of the period from 1 December 2017 to 31 May 2018.
2 During the year ended 31 March 2018, Brian Tenner acted as Interim Chief Executive Officer for the period 1 June 2017 to 30 November 2017. The total remuneration figure
above is the total remuneration received in relation to that six month period.
3 Note that this shows the annual bonus payments as a percentage of the maximum opportunity.
4 Shows the number of shares, which vested as a percentage of the maximum number of shares, which could have vested.
5
In 2012/13 Rob Cotton waived his right to a bonus, which would have been equal to 32% of salary. This was equivalent to 50% of the maximum bonus opportunity.
Stock Code: NCC
www.nccgroup.com
93
Membership and attendance
The Remuneration Committee membership consists solely of Non-Executive Directors and comprises Jonathan Brooks as Chairman, Thomas
Chambers, Chris Batterham and Jennifer Duvalier. Debbie Hewitt stepped down as Chair of the Committee on 28 March 2018.
The Executive Chairman, Chief Financial 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:
Attended
Jonathan Brooks1
Debbie Hewitt2
Thomas Chambers
Chris Batterham
Jennifer Duvalier3
Meetings attended
10(11)
9(9)
11(11)
11(11)
0(1)
1 Appointed Chair of the Remuneration Committee on 29 March 2018.
2 Stepped down as Chair of the Remuneration Committee on 28 March 2018.
3 Appointed 25 April 2018.
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 2017/18 was £15,813. 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.
G
O
V
E
R
N
A
N
C
E
Executive
Adam Palser
Brian Tenner
Non-Executive
Chris Stone
Debbie Hewitt
Thomas Chambers
Chris Batterham
Jonathan Brooks
Mike Ettling
Jennifer Duvalier
Date of contract
Notice period
1 December 2017
6 months increasing to
12 months from 1 December 2018
1 February 2017
6 months
6 April 2017
18 September 2008
20 September 2012
9 April 2015
13 March 2017
1 September 2017
25 April 2018
3 months
3 months
3 months
3 months
3 months
3 months
3 months
94
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Remuneration committee report
ANNUAL REPORT ON REMUNERATION
Dilution
The LTIP has a dilution limit, for new and treasury shares, of 10% of the issued ordinary share capital of the Company in any ten-year period for
any share option scheme operated by the Company. As at 31 May 2018 the Company had utilised 17,516,337 (31 May 2017: 17,752,848) ordinary
shares through LTIP, SAYE, EMI, CSOP, ISO and ESPP awards counting towards the 10% limit which represents 6.31% (2017: 6.42%) of the issued
ordinary share capital of the Company.
Statement of shareholder voting
At the 2017 AGM, the Directors’ Remuneration Policy received the following votes from shareholders.
For
Against
Total votes cast (for and against excluding withheld votes)
Votes withheld1
Total votes cast (including withheld votes)
Total number
of votes
202,309,191
318,649
202,627,840
4,046,993
206,674,833
%
of votes cast
99.84
0.16
100.0
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.
For1
Against
Total votes cast (for and against excluding withheld votes)
Votes withheld
Total votes cast (including withheld votes)
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:
Jonathan Brooks
CHAIRMAN, REMUNERATION COMMITTEE
17 July 2018
Total number
of votes
%
of votes cast
206,367,814
307,019
206,674,833
0
206,674,833
99.85
0.15
100.0
100.0
Directors’ report
Stock Code: NCC
www.nccgroup.com
95
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 2018.
Principal activities
The Company is a public limited company incorporated in England,
registered number 4627044, with its registered office at XYZ Building,
2 Hardman Boulevard, Spinningfields, M3 3AQ as of August 2017.
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 14 to 48. 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 49 to 97. 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 2018 are set out on pages 98 to 156.
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 23
February 2018 makes a total dividend of 4.65p for the year.
The final dividend will, if approved by shareholders at the Annual General
Meeting, be paid on 5 October 2018 to shareholders on the register at
the close of business on 7 September 2018. The ex dividend date will be
6 September 2018.
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 40 to 44.
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 and concluded on the viability of the Group
over a three-year period, in accordance with provision C2.2 of the UK
Corporate Governance Code 2016, as set out on page 44.
Post balance sheet events
Following the balance sheet date, the Group decided to discontinue the
arbitration process it had commenced in respect of the final tranche of
deferred consideration payable in respect of the acquisition of Fox-IT
(€11.25m/£9.9m as recorded in the Group’s balance sheet as at 31 May
2018). The decision was based on a desire to focus the Group’s efforts
on the future growth and further development of the Fox-IT business.
It was felt that a long running process could have a detrimental effect
on local management (none of whom were present during the original
sale process) and on initiatives to begin to leverage the value within the
business. The full deferred consideration payable was therefore paid on
27 June 2018.
There were no other post balance sheet events.
Share capital and control
At the Company’s Annual General Meeting held on 21 September 2017,
the Directors were granted authority to allot up to 92,170,046 ordinary
shares representing approximately a third of the Company’s issued share
capital. In addition, the Directors were granted authority to allot a further
92,170,046 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 277,660,081 ordinary shares with a nominal value of one
pence each, of which no ordinary shares were held in treasury.
During the year ended 31 May 2017, 1,149,944 shares in the Company
were issued further to the exercise of options pursuant to the Company’s
share option schemes.
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 26 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 21 September 2017,
shareholders authorised the Company to make market purchases of up
to 27,651,013 ordinary shares representing approximately 10% of the
issued share capital. This authority was not used during the financial year
ended 31 May 2018. At the 2018 Annual General Meeting, shareholders
will be asked to give a similar authority.
The Company currently holds nil ordinary shares in treasury.
G
O
V
E
R
N
A
N
C
E
96 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Directors’ report
Directors
Biographical details of the Company’s current Directors are set out
on pages 52 to 53. In addition, Debbie Hewitt was a Director of the
Company in the financial year. 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 83 to 94.
Directors’ interests
Directors’ interests in shares and share options in the Company are
detailed in the Directors’ Remuneration Report set out on page 89.
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 2018 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 45 to 48 provides
an update on the Group’s policies and activities in respect of its wider
stakeholders, employees, employment of disabled persons, 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 (2017: £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 48 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 at 11am
on 26 September 2018 at its head office at XYZ Building, 2 Hardman
Boulevard, Spinningfields, Manchester, M3 3AQ, along with details of the
business to be proposed and explanatory notes, will be available on the
Group’s website together with the Annual Report. All shareholders will
be notified by post or email, at their request, when the documents have
been made available.
Information to be disclosed under LR 9.8.4R:
Listing Rule
LR 9.8.4 (1)
LR 9.8.4 (4)
Detail
Capitalised interest
Page Ref
96
Long-term incentive schemes
83–89
Capitalised interest
During the period, no interest was capitalised by the Group (2017: £nil).
The tax benefit on this amount was £nil (2017: £nil).
On behalf of the Board
Adam Palser
CHIEF EXECUTIVE OFFICER
17 July 2018
Brian Tenner
CHIEF FINANCIAL OFFICER
17 July 2018
Directors’ responsibilities statement
Stock Code: NCC
www.nccgroup.com
97
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 International Financial Reporting Standards as adopted
by the European Union (IFRSs as adopted by the EU) and applicable law
and have elected to prepare the parent Company Financial Statements
on the same basis.
Responsibility statement of the Directors in
respect of the annual financial report
We confirm that to the best of our knowledge:
{ The financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole.
{ 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
Adam Palser
CHIEF EXECUTIVE OFFICER
17 July 2018
Brian Tenner
CHIEF FINANCIAL OFFICER
17 July 2018
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Under company law the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and parent Company and of their
profit or loss for that period. In preparing each of the Group and parent
Company Financial Statements, the Directors are required to:
{ select suitable accounting policies and then apply them consistently;
{ make judgements and estimates that are reasonable, relevant and
reliable;
{ state whether they have been prepared in accordance with IFRSs as
adopted by the EU;
{ assess the Group and parent Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern; and
{ using the going concern basis of accounting unless they either intend
to liquidate the Group or the parent Company or to cease operations,
or have no realistic alternative but to do so.
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
are responsible for such internal control as they determine is necessary
to enable the preparation of the financial statements that are free from
material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the Directors are also responsible
for preparing a Strategic Report, Directors’ Report, Directors’
Remuneration Report and Corporate Governance Statement that
complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the company’s website.
Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
98 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Financial
Statements
CONTENTS
Independent auditor’s report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Company statement of
financial position
99
105
106
107
108
Consolidated statement of cash flows 109
Company statement of cash flows
Statements of changes of equity
Notes to the financial statements
Glossary of terms
Company information
111
112
114
157
159
Independent auditor’s report
TO THE MEMBERS OF NCC GROUP PLC ONLY
Stock Code: NCC
www.nccgroup.com
99
Opinions and conclusions arising from our audit
1. Our opinion is unmodified
We have audited the financial statements of NCC Group plc
(the Company) for the year ended 31 May 2018 which comprise
the consolidated Income Statement, consolidated Statement of
Comprehensive Income, consolidated Statement of Financial Position,
Company Statement of Financial Position, consolidated Statement
of Cash Flows, Company Statement of Cash Flows, Statements of
Changes in Equity, and the related notes, including the accounting
policies in note 1.
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 2018 and
of the Group’s profit for the year then ended;
{ the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union;
We were appointed as auditor by the Directors on 1 November 2013.
The period of total uninterrupted engagement is for the five financial
years ended 31 May 2018. We have fulfilled our ethical responsibilities
under, and we remain independent of the Group in accordance with, UK
ethical requirements including the FRC Ethical Standard as applied to
listed public interest entities. No non-audit services prohibited by that
standard were provided.
Overview
Materiality:
group financial
statements as a
whole
£0.80m (2017:£0.74m)
4.6% (2017: 5.0%) of the Group profit before tax
normalised to exclude property costs and onerous
leases, loss making contract and market related costs
Coverage
91% (2017:96%) of group profit before tax
Risks of material misstatement
vs 2017
{ the parent Company financial statements have been properly
Recurring risks
Recoverability of goodwill
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.
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities are
described below. We believe that the audit evidence we have obtained
is a sufficient and appropriate basis for our opinion. Our audit opinion is
consistent with our report to the audit committee.
Software and development costs
intangible assets
Recoverable amount of investment in
subsidiary – parent company
The risk of material misstatement in software and development costs
intangible assets has reduced following the sale of two businesses
which undertook a number of significant software development costs.
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100 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Independent auditor’s report
TO THE MEMBERS OF NCC GROUP PLC ONLY
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and
include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had
the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We
summarise below the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit
procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed,
and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole,
and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.
Recoverability
of goodwill
(£187.1m; 2017:
£198.7m)
Refer to page 67
(Audit Committee
Report), page
17 (accounting
policy) and page
133 (financial
disclosures).
The risk
Our response
Forecast based valuation:
Our procedures included:
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.
{ Historical comparison: Assessing the Group’s forecasting accuracy by
comparing actual results in the year to what was previously forecast for
the year.
{ Benchmarking assumptions: Critically evaluating the risk adjusted
discount rates, having regard for market observable data with regards to
risk free rates and returns on equity for comparator companies. We also
evaluated the assumptions for cost inflation and the terminal growth rate.
{ Our sector experience: Using our valuation specialists and our discount
rate tool to determine an appropriate discount rate adjusted for forecasting
risk and comparing this to the rate used by the Group.
{ 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.
{ Sensitivity analysis: Performing breakeven analysis on the key
assumptions.
{ 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.
Our results
{ We found the recoverability of goodwill to be acceptable (2017 result:
acceptable).
Stock Code: NCC
www.nccgroup.com
101
Software and
development
costs
intangible
assets
(Additions in
the year £5.0m,
Net book value
£12.9m; 2017:
Additions in
the year £7.4m,
Net book value
£19.2m)
Refer to page
67 (Audit
Committee
Report), page
16 (accounting
policy) and
page 133
(financial
disclosures).
Recoverability
of investments
in subsidiaries
(£60.8m; 2017:
£60.7m)
Refer to page 67
(Audit Committee
Report), page
117 (accounting
policy) and page
152 (financial
disclosures).
The risk
Our response
Accounting treatment
Our procedures included:
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:
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.
{ 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 and assessing whether there is an indicator of
impairment.
{ 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 to assess whether an impairment is
required.
{ Assessing transparency: Assessing the adequacy of the Group’s
disclosures about the capitalisation of software and development
intangible assets and the degree of estimation involved in assessing their
recoverability.
Our results
{ We found the capitalisation of software and development costs as
intangible assets in the year to be acceptable (2017 result: acceptable)
and found the resulting estimate of the recoverable amount of capitalised
software and development costs to be acceptable (2017 result:
acceptable).
Low risk, high value
Our procedures included:
The carrying amount of the parent
company’s investments in subsidiaries
represents 27% (2017: 27%) of the
company’s total assets. Their recoverability is
not at a high risk of significant misstatement
or subject to significant judgement. However,
due to their materiality in the context of
the parent company financial statements,
this is considered to be the area that had
the greatest effect on our overall parent
company audit.
{ Test of detail: comparing the carrying amount of 100% of investments with
the relevant subsidiaries’ draft balance sheet to identify whether their net
assets, being an approximation of their minimum recoverable amount, were
in excess of their carrying amount and assessing whether those subsidiaries
have historically been profit-making.
{ Assessing subsidiary audits: Assessing the work performed by the
subsidiary audit team on a sample of those subsidiaries and considering the
results of that work, on those subsidiaries’ profits and net assets.
{ Our sector experience: for the investments where the carrying amount
exceeded the net asset value, comparing the carrying amount of the
investment with the expected value of the business based on its value in use.
Our results
{ We found the group’s assessment of the recoverability of the investment in
and inter company balances receivable from subsidiaries to be acceptable.
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We continue to perform procedures over business combinations accounting. However, following a lack of new business combinations in the current
year, we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified in our report
this year.
102 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
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
£0.8m, determined with reference to a benchmark of group profit
before tax, normalised to exclude property costs and onerous leases,
loss making contract and market related costs see note 6, of which it
represents 4.6% (2017: 4.7%).
Materiality for the parent company financial statements as a whole
was set at £0.60m (2017: £0.45m), determined with reference to a
benchmark of company total assets, of which it represents 0.3%
(2017: 0.2%).
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £40,000, in addition
to other identified misstatements that warranted reporting on qualitative
grounds.
Of the Group’s 22 (2017: 21) reporting components, we subjected
11 (2017: 11) to full scope audits for group purposes. We conducted
reviews of financial information (including enquiry) at a further three
(2017: five) 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
percentages illustrated opposite.
The remaining 5% of total group revenue, 9% of group profit before tax,
1% of total group assets and 9% of group profit before tax normalised
to exclude individually significant items is represented by eight reporting
components, none of which individually represented more than 2% of
any of total group revenue, group profit before tax or total group assets.
For these residual 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 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 team approved the
component materialities, which ranged from £0.20m to £0.65m, having
regard to the mix of size and risk profile of the Group across the
components. The work on one of the 22 components (2017: one of the
21 components) was performed by component auditors and the rest,
including the audit of the parent company, was performed by the Group
team. The Group team performed procedures on the items excluded
from normalised group profit before tax.
The Group team visited one (2017: one) component location in Delft,
Netherlands (2017: Delft, Netherlands) to assess the audit risk and
strategy. Telephone discussions were also held with these component
auditors. At these visits and meetings, the findings reported to the Group
team were discussed in more detail, and any further work required by the
Group team was then performed by the component auditor.
Group profit before tax
normalised to exclude
property costs and
onerous leases, loss
making contract and
market related costs
Normalised Group profit before tax
Group materiality
£17.3m
(2017: £15.7m)
Group Materiality £0.8m (2017: £0.74m)
£0.80m
Whole financial
statements materiality
(2017: £0.74m)
£0.65m
Range of materiality
at 11 components
(£0.20m-£0.65m)
(2017: £0.15m to £0.45m)
£40,000
Misstatements reported to the audit
committee (2017: £37,000)
Group revenue
Group profit before tax
Group total assets
Group profit before tax –
normalised
5
8
93%
(2017: 96%)
88
88
4
11
94%
(2017: 96%)
1
16
98%
(2017: 97%)
85
90
81
97
9
22
87%
(2017 91%)
69
78
Full scope for group audit
purposes 2018
A review of financial
information 2018
Full scope for group audit
purposes 2017
A review of financial
information 2017
Residual components
Stock Code: NCC
www.nccgroup.com
103
4. We have nothing to report on going concern
We are required to report to you if:
{ we have anything material to add or draw attention to in relation to
the Directors’ statement in note 1 to the financial statements on
the use of the going concern basis of accounting with no material
uncertainties that may cast significant doubt over the Group and
Company’s use of that basis for a period of at least twelve months
from the date of approval of the financial statements; or
{ if the related statement under the Listing Rules set out on page 96 is
materially inconsistent with our audit knowledge.
{ the Directors’ explanation in the Viability Statement of how they have
assessed the prospects of the Group, over what period they have
done so and why they considered that period to be appropriate, and
their statement as to whether they have a reasonable expectation
that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary
qualifications or assumptions.
Under the Listing Rules we are required to review the Viability
Statement. We have nothing to report in this respect.
We have nothing to report in these respects.
5. We have nothing to report on the other
information in the Annual Report
The Directors are responsible for the other information presented in
the Annual Report together with the financial statements. Our opinion
on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except as explicitly
stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the
financial statements or our audit knowledge. Based solely on that work
we have not identified material misstatements in the other information.
Strategic report and Directors’ Report
Based solely on our work on the other information:
{ we have not identified material misstatements in the strategic report
and the Directors’ report;
{ in our opinion the information given in those reports for the financial
year is consistent with the financial statements; and
{ in our opinion those reports have been prepared in accordance with
the Companies Act 2006.
Directors’ Remuneration Report
In our opinion the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with the Companies
Act 2006.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements
audit, we have nothing material to add or draw attention to in relation to:
{ the Directors’ confirmation within the Viability Statement on page 44
that they have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its business
model, future performance, solvency and liquidity;
{ the Principal Risks disclosures describing these risks and explaining
how they are being managed and mitigated; and
Corporate Governance disclosures
We are required to report to you if:
{ we have identified material inconsistencies between the knowledge
we acquired during our financial statements 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 section of the Annual Report describing the work of the Audit
Committee does not appropriately address matters communicated by
us to the Audit Committee.
We are required to report to you if the Corporate Governance Report
does not properly disclose a departure from the eleven provisions of the
UK Corporate Governance Code specified by the Listing Rules for our
review.
We have nothing to report in these respects.
6. We have nothing to report on the other matters
on which we are required to report by exception
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.
We have nothing to report in these respects.
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104 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Independent auditor’s report
TO THE MEMBERS OF NCC GROUP PLC ONLY
8. The purpose of our audit work and to whom we
owe our responsibilities
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them
in an Auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members, as a body, for our
audit work, for this report, or for the opinions we have formed.
Stuart Burdass (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One St Peter’s Square
Manchester
M2 3AE
17 July 2018
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 97, the
Directors are responsible for: the preparation of the financial statements
including being satisfied that they give a true and fair view; such internal
control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether
due to fraud or error; assessing the Group and parent company’s ability
to continue as a going concern, disclosing, as applicable, matters related
to going concern; and using the going concern basis of accounting
unless they either intend to liquidate the Group or the parent Company
or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or other irregularities (see below), or error, and to
issue our opinion in an auditor’s report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud, other irregularities
or error and are considered material if, individually or in aggregate, they
could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably be
expected to have a material effect on the financial statements from our
sector experience, and through discussion with the Directors and other
management (as required by auditing standards).
We had regard to laws and regulations in areas that directly affect the
financial statements including financial reporting (including related
company legislation) and taxation legislation. We considered the extent
of compliance with those laws and regulations as part of our procedures
on the related financial statement items.
In addition we considered the impact of laws and regulations in the
specific areas of health and safety, anti-bribery, and employment
law regulatory capital and liquidity and certain aspects of company
legislation. Our work in respect of these was limited to enquiry of the
Directors and other management. With the exception of any known or
possible non-compliance, and as required by auditing standards, our
work in respect of these was limited to enquiry of the directors and other
management and inspection of regulatory and legal correspondence.
We communicated identified laws and regulations throughout our team
and remained alert to any indications of non-compliance throughout the
audit. This included communication from the Group to component audit
teams of relevant laws and regulations identified at Group level, with
a request to report on any indications of potential existence of non-
compliance with relevant laws and regulations (irregularities) in these
areas, or other areas directly identified by the component team.
As with any audit, there remained a higher risk of non-detection of non-
compliance with relevant laws and regulations irregularities, as these
may involve collusion, forgery, intentional omissions, misrepresentations,
or the override of internal controls.
Consolidated
income statement
FOR THE YEAR ENDED 31 MAY 2018
Stock Code: NCC
www.nccgroup.com
105
2018
Total
£m
2018
Adjustments
(note 6)
£m
2018
Adjusted*
£m
Notes
–
–
–
17.3
–
9.4
7.6
0.3
17.3
–
0.3
0.3
17.6
(7.1)
10.5
5.5
16.0
233.2
(137.1)
96.1
(65.1)
(65.1)
–
–
–
31.0
(1.5)
–
(1.5)
29.5
(6.6)
22.9
–
22.9
Revenue
Cost of sales
Gross profit
Administration expenses comprising:
General and administrative expenses
Amortisation of acquired intangibles
Individually Significant Items
Share-based payments
Operating profit*/(loss)
Interest expense
Discount on acquisition consideration
Net financing costs
Profit/(loss) before taxation
Taxation
Profit/(loss) - continuing operations
(Loss) - discontinued operations, net of
tax
Profit/(loss) for the year
Earnings per share
Basic EPS – continuing
Diluted EPS – continuing
Basic EPS – discontinuing
Diluted EPS – discontinuing
Basic EPS – all operations
Diluted EPS – all operations
4
233.2
(137.1)
96.1
(82.4)
(65.1)
14
6
25
4, 6
9
10
5
(9.4)
(7.6)
(0.3)
13.7
(1.5)
(0.3)
(1.8)
11.9
0.5
12.4
(5.5)
6.9
4.5p
4.4p
(2.0)p
(1.9)p
2.5p
2.5p
2017
Adjustments
(note 6)
£m
2017
Adjusted*
£m
–
–
–
68.4
–
10.3
57.6
0.5
68.4
–
0.5
0.5
68.9
(4.8)
64.1
9.7
73.8
215.3
(137.1)
78.2
(52.7)
(52.7)
–
–
–
25.5
(1.4)
–
(1.4)
24.1
(6.9)
17.2
–
17.2
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2017
Total
£m
215.3
(137.1)
78.2
(121.1)
(52.7)
(10.3)
(57.6)
(0.5)
(42.9)
(1.4)
(0.5)
(1.9)
(44.8)
(2.1)
(46.9)
(9.7)
(56.6)
(17.0)p
(17.0)p
(3.5)p
(3.5)p
(20.4)p
(20.4)p
The Company has elected to take the exemption under section 408 of the Companies Act 2006 from presenting the parent company profit and
loss account.
106 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Consolidated statement
of comprehensive income
FOR THE YEAR ENDED 31 MAY 2018
Profit/(loss) for the year
Items that may be reclassified subsequently to profit or loss (net of tax)
Foreign exchange translation differences
Total comprehensive income/(loss) for the year, net of tax
Attributable to:
Equity holders of the parent
2018
£m
6.9
0.3
7.2
7.2
2017
£m
(56.6)
17.9
(38.7)
(38.7)
Consolidated statement
of financial position
AT 31 MAY 2018
Stock Code: NCC
www.nccgroup.com
107
Non-current assets
Plant and equipment
Intangible assets
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
Currency translation reserve
Notes
£m
£m
£m
£m
2018
2017
13
14
15
18
16
17
19
20
22
21
18
20
22
19, 23
26
19.4
240.0
0.4
4.5
67.5
0.8
21.2
35.7
2.6
11.9
29.0
1.3
9.8
6.3
–
49.0
2.8
149.5
42.3
(12.8)
26.4
18.3
267.6
0.4
4.2
264.3
290.5
80.1
370.6
82.7
75.8
212.1
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
89.5
353.8
80.5
65.1
208.2
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
Total equity attributable to equity holders of the parent
208.2
212.1
108 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Company statement
of financial position
AT 31 MAY 2018
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
Retained earnings
Total equity
Notes
£m
£m
£m
£m
2018
2017
32
33
16
26
14.4
60.8
153.8
0.1
–
2.8
149.5
42.3
34.5
14.4
60.7
75.2
75.1
153.9
229.1
–
229.1
149.7
224.8
–
224.8
149.5
0.2
–
2.8
148.0
42.3
31.7
229.1
224.8
These Financial Statements were approved by the Board of Directors on 17 July 2018 and were signed on its behalf by:
Adam Palser
CHIEF EXECUTIVE OFFICER
NCC Group plc
4627044
Brian Tenner
CHIEF FINANCIAL OFFICER
Consolidated statement
of cash flows
FOR THE YEAR ENDED 31 MAY 2018
Stock Code: NCC
www.nccgroup.com
109
Cash flow from operating activities (includes continuing and discontinued operations)
Profit/(loss) for the year
Adjustments for:
Depreciation
Depreciation – Individually Significant Items
Share-based charges
Amortisation of acquired intangible assets
Amortisation of internally developed intangible assets and software
Net financing costs
Profit on sale of plant and equipment
Individually Significant Items (non-cash impact)
Loss/(profit) on disposal of subsidiaries
Income tax expense
Cash inflow for the year before changes in working capital
Increase in trade and other receivables
Increase 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
Net proceeds from sale of subsidiaries
Cash disposed of from sale of subsidiaries
Net cash used in investing activities
Cash flows from financing activities
Proceeds from the issue of ordinary share capital
Drawdown of borrowings
Repayment of borrowings
Equity dividends paid
Net cash used in financing activities
Net increase/(decrease) 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
13
6
25
14
9
7
6
5
10
13
14
5
5
11
2018
£m
6.9
6.5
–
0.2
9.4
5.9
1.8
–
3.5
6.4
(0.6)
40.0
(5.0)
4.5
39.5
(1.8)
(4.7)
33.0
(7.7)
–
–
(5.0)
(3.1)
–
9.9
(0.7)
(6.6)
1.5
7.5
(12.9)
(12.8)
(16.7)
9.7
12.3
(0.8)
21.2
2017
£m
(56.6)
5.2
0.9
0.6
10.3
3.5
1.9
(0.1)
68.0
(1.2)
1.3
33.8
(2.3)
0.2
31.7
(1.9)
(1.8)
28.0
(11.0)
3.7
0.4
(7.4)
(28.4)
1.9
1.7
(1.7)
(40.8)
0.7
45.5
(26.6)
(12.8)
6.8
(6.0)
20.7
(2.4)
12.3
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
110 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Consolidated statement
of cash flows
FOR THE YEAR ENDED 31 MAY 2018
Reconciliation of net change in cash and cash equivalents to movement in net debt*
Net increase/(decrease) in cash and cash equivalents
Change in net debt* resulting from cash flows
Effect of foreign currency on cash flows
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
Net debt* at end of year
2018
2018
2018
£m
9.7
5.4
(0.8)
1.6
15.9
(43.7)
(27.8)
2018
£m
21.2
(49.0)
(27.8)
2017
£m
(6.0)
(18.9)
(2.4)
(3.7)
(31.0)
(12.7)
(43.7)
2017
£m
12.3
(56.0)
(43.7)
Company statement
of cash flows
FOR THE YEAR ENDED 31 MAY 2018
Cash flow from operating activities
Profit for the year
Adjustments for:
Impairment of investments
Equity dividends received
(Increase)/decrease in intercompany net receivable balances
Net cash generated from operating 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
Stock Code: NCC
www.nccgroup.com
111
2018
Notes
2018
£m
2017
£m
15.5
29.0
33
11
–
–
(4.3)
11.2
1.5
(12.8)
(11.3)
(0.1)
0.2
0.1
13.0
(42.0)
12.3
12.3
0.7
(12.8)
(12.1)
0.2
–
0.2
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
112 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Statements of changes
in equity
FOR THE YEAR ENDED 31 MAY 2018
Group
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 2017
2.8
148.0
42.3
26.1
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
Total contributions by and distributions
to owners
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.5
1.5
–
–
–
–
–
–
–
–
–
0.3
0.3
–
–
–
–
–
Balance at 31 May 2018
2.8
149.5
42.3
26.4
–
–
–
–
–
–
–
–
–
–
(7.1)
212.1
6.9
–
6.9
6.9
0.1
7.2
(12.8)
(12.8)
–
0.2
–
–
0.2
1.5
(12.6)
(11.1)
(12.8)
208.2
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
2.8
147.3
42.3
Loss 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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
Statements of changes
of equity
FOR THE YEAR ENDED 31 MAY 2018
Stock Code: NCC
www.nccgroup.com
113
Balance at 31 May 2018
2.8
149.5
42.3
–
Company
Balance at 1 June 2017
Profit for the year
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
Total contributions by and distributions to owners
Balance at 1 June 2016
Profit for the year
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
Total
£m
2.8
148.0
42.3
–
31.7
224.8
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)
–
–
–
–
–
–
–
–
–
–
–
–
1.5
1.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.7
–
0.7
–
–
–
–
–
–
–
–
–
–
–
–
0.2
0.2
–
15.5
15.5
–
15.4
15.5
–
(12.8)
(12.8)
0.1
–
(12.7)
34.5
14.9
29.0
29.0
0.1
1.5
(11.2)
229.1
Total
£m
207.1
29.0
29.0
(12.8)
(12.8)
0.6
–
(12.2)
31.7
0.6
0.7
0.2
(11.3)
224.8
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Balance at 31 May 2017
2.8
148.0
42.3
114
NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
1 Accounting policies
Basis of preparation
NCC Group plc (“the Company”) is a company incorporated in the
UK, with its registered office at XYZ Building, 2 Hardman Boulevard,
Manchester, M3 3AQ. 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 17 July 2018.
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 14 to 48. 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 13. In addition, note 24
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 £20.0m multi-currency term loan that amortises by £2.5m
every six months and an overdraft of £5m. At 31 May 2018, the amount
drawn down under the facilities was £49.0m. 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:
IFRS 15 Revenue from Contracts with Customers: Summary financial impact of transition to IFRS 15
The summary impacts of the transition to IFRS 15 on the Group’s revenue, Operating Profit*, Adjusted Operating Profit*, Profit after Tax for the year
ended 31 May 2018 are set out below:
Existing GAAP (IAS 18 basis)
Spreading of set-up/initial/up-front Escrow fees
Spreading set-up/initial/up-front fees for Assurance MSS
IFRS 15 basis
The impact on the Group’s balance sheet would be similarly negligible.
Revenue
£m
233.2
0.4
(0.6)
233.0
Operating
profit*
£m
Adjusted
operating
profit*
£m
13.7
0.4
(0.6)
13.5
31.0
0.4
(0.6)
30.8
PAT
£m
6.9
0.3
(0.5)
6.7
Stock Code: NCC
www.nccgroup.com
115
1 Accounting policies continued
IFRS 15 continued
The Group expects to adopt the Retrospective Method of adoption. This
means that in the Annual Report and Accounts for the year ended
31 May 2019, the Group will make adjustments to the Income
Statements and the Statements of Financial Position as if IFRS 15 had
always been in effect for the year ended 31 May 2019 and also the
comparator year ended 31 May 2018. The Group also expects to take
advantage of the three transition expedients available in this option (bold
italics are a qualitative assessment of the impact each choice has on the
Group):
a. “For completed contracts, an entity need not restate contracts that
begin and end within the same annual reporting period; Significant
benefit given the sheer number of contracts in NCC Group.
b. For completed contracts that have variable consideration, an entity
may use the transaction price at the date the contract was completed
rather than estimating variable consideration amounts in the
comparative reporting periods; Incident response contracts are
variable in duration depending on the emerging situation
so it is helpful not to have to estimate anticipated value in
past periods.
c.
For all reporting periods presented before the date of initial
application, an entity need not disclose the amount of the transaction
price allocated to the remaining performance obligations and an
explanation of when the entity expects to recognise that amount
as revenue”. Significant benefit given the sheer number of
contracts in NCC Group.
All three of the practical expedients above shall be applied consistently
to all contracts within all reporting periods presented.
None of the above choices actually deliver materially different outcomes
in terms of reported results or financial position from alternate valid
choices. However, they do make the practical implementation of a
relatively complex accounting standard much easier from a systems,
process and workload perspective.
There are also three variable options available in applying IFRS 15
(whichever transition option is selected):
a. Expenses of acquiring a contract can be expensed immediately if it
lasts less than one year. This applies to the majority of NCC
Group business.
b. Contracts with similar terms and features can be treated as a
“portfolio” as opposed to individually assessed. Important for NCC
Group as we have a huge range of small but very similar
contracts on largely identical terms and conditions.
c.
Treatment of any significant financing component in revenue stream.
Limited relevance to NCC Group.
Where the transition to IFRS 15 impacts revenue recognition for
individual service lines, the costs associated with the revenue will now
either be held on the balance sheet and amortised over the same
period as the revenue is recognised (in the case of third party costs) or
continue to be expensed as incurred in the case of internal labour costs.
IFRS 9 Financial Instruments – Recognition and
Measurement
Measurement will be effective from the year ending 31 May 2019
onwards. Management is still considering the impact of the new
standard which is not expected to have a significant impact and an
update will be provided in the interim financials which are due to be
published in January 2019.
IFRS 16 Leases
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 (approximately £30m on an undiscounted basis,
as shown in note 28) 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.
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:
{ The fair value of the consideration transferred; plus
{ The recognised amount of any non-controlling interests in the
acquiree; plus
{ If the business combination is achieved in stages, the fair value of the
existing equity interest in the acquiree; less
{ The net recognised amount (generally fair value) of the identifiable
assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised
immediately in profit or loss. The consideration transferred does not
include amounts related to the settlement of pre-existing relationships.
Such amounts generally are recognised in the income statement.
Costs related to the acquisition, other than those associated with the
issue of debt or equity securities, are expensed as incurred.
Any deferred or contingent consideration payable is recognised at fair
value at the acquisition date. If the contingent consideration is classified
as equity, it is not 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.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
116 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
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 contracts
and relationships
– between three and ten years
Software
– between one and seven years
Capitalised development costs – between three and five years
(shortened from ten years)
1 Accounting policies continued
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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1 Accounting policies continued
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 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 31 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
– between three and five years
Plant and equipment
– between three and five years
Furniture
– between three and five years
Fixtures and fittings
– term of the lease
Motor vehicles
– 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
(wording represents the current GAAP (IAS 18) policy – to be revised
next year for IFRS 15 with impacts as shown in note 1)
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
The Assurance division groups its revenue into three types of income
streams.
i) Professional services income streams (which includes technical
security testing, risk management and governance and other advisory
services). These are usually made up of relatively short-term discreet
statements of work and 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.
ii) Managed services income streams (which includes 24/7 monitoring
services and front line support for incident response). These are
typically of an extended delivery duration where the customer derives
continual benefits over periods ranging from one to three years and are
recognised over the life of the contracted service delivery. In some cases,
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.
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118 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
1 Accounting policies continued
This is a revenue recognition policy that will change in most cases under
IFRS 15 as the customer does not acquire any benefit from the set up
activity and hence this revenue will in future be spread over the same
period as the service delivery. For the avoidance of doubt, ‘up-front fees’,
‘initial fees’ and ‘set-up fees’ all represent activities carried out at the
start of the provision of a specific service to a specific customer.
iii) Sales of products (own manufactured and resale of third party
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. On certain sales of
third party products, the risks undertaken by the Group are now minimal
following a change in our standard terms and conditions and in these
cases the Group acts as an agent and hence only records a commission
on sale as opposed to gross revenue and costs of sale.
Escrow
The Escrow division groups its revenue into two main types of income
streams.
i) Escrow contracts revenue streams relate to the provision of an escrow
service over a period of time, usually at least a year and potentially up
to three years. Such income is recognised on a straight line basis over
the life of the service delivery agreement on the basis that benefit is
consumed by the customer evenly over the period. Currently, fees are
recognised on completion of the services attributable to the initial set-
up of a new contract. This approach to revenue recognition on initial/
set-up/deposit fees (all of which are incurred at the start of an Escrow
contract) will also change under IFRS 15 on the basis of no separate
benefit accruing to the customer, apart from the Escrow service itself.
Note this will be the case even though our commercial terms and
conditions allow us to recover these costs if the Escrow agreement is
cancelled.
ii) Verifications and other Escrow services are recognised on completion
of the related services which are typically delivered over a short period
of time (typically a matter of weeks). These include SAAS services and
ICANN services.
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.
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.
Allocation of central costs
Some costs are collected and managed in one location but are
actually incurred on behalf of multiple operating segments or reporting
segments. These costs are then allocated to the reporting segments.
The allocation is based on logical or activity driven cost algorithms. The
allocation is necessary to give an accurate picture of the consumption of
resources by each reporting segment.
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 6.
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.
Stock Code: NCC
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119
1 Accounting policies continued
Employee benefits – defined contribution pensions
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.
Holiday or vacation pay
The Group recognises a liability in the balance sheet for any earned but
not yet taken holiday entitlement for staff.
Earned holiday is calculated on a straight line basis over a holiday year
which can vary by business unit. Taken holiday is based on actually taken
holiday. Any movement in the liability between the opening and closing
balance in the year is recorded as an employee cost or a reduction in
employee costs in the Income Statement in the year.
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 financial expenses
Finance expenses are recognised in the profit and loss account in the
period in which they are incurred.
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.
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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.
120 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
1 Accounting policies continued
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 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.
Non-current assets held for sale and
discontinued operations
A non-current asset or a group of assets containing a non-current asset
(a disposal group) is classified as held for sale if its carrying amount will
be recovered principally through sale rather than through continuing use,
it is available for immediate sale and sale is highly probable within one
year.
On initial classification as held for sale, non-current assets and disposal
groups are measured at the lower of previous carrying amount and
fair value less costs to sell with any adjustments taken to profit or loss.
The same applies to gains and losses on subsequent remeasurement
although gains are not recognised in excess of any cumulative
impairment loss. Any impairment loss on a disposal group first is
allocated to goodwill, and then to remaining assets and liabilities on a
pro rata basis, except that no loss is allocated to inventories, financial
assets, deferred tax assets, employee benefit assets and investment
property, which continue to be measured in accordance with the
Company’s accounting policies. Intangible assets and property, plant
and equipment once classified as held for sale or distribution are not
amortised or depreciated.
A discontinued operation is a component of the Company’s business
that represents a separate major line of business or geographical
area of operations that has been disposed of or is held for sale, or is a
subsidiary acquired exclusively with a view to resale. Classification as
a discontinued operation occurs upon disposal or when the operation
meets the criteria to be classified as held for sale, if earlier. When an
operation is classified as a discontinued operation, the comparative
income statement is restated as if the operation has been discontinued
from the start of the comparative period.
2 Use of estimates and judgements
The preparation of financial statements requires management to
exercise judgement in applying the Group’s accounting policies. Different
judgements would have the potential to change the reported outcome
of an accounting transaction or statement of financial position. It also
requires the use of estimates 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 changes recognised in the period in which
the estimates are revised and in any future periods affected. The table
below shows those areas of accounting judgements and estimates
that the Directors consider material and that could reasonably change
significantly in the next year. In some cases, the accounting area requires
both an accounting judgement and an estimate.
Accounting area
Carrying value of intangible assets
Capitalising development costs
Individually Significant Items
Loss-making contract
Accounting
Judgement?
Accounting
Estimate?
Yes
Yes
Yes
No
Yes
Yes
No
Yes
2.1 Estimation uncertainties
Information about estimation uncertainties that have a significant risk of
resulting in a material adjustment to the carrying values of assets and
liabilities within the next financial year are addressed below.
Carrying values of intangible assets (including goodwill, acquired
intangible assets and capitalised software and development costs)
The Group has significant balances relating to goodwill at 31 May 2018
as a result of acquisitions of businesses in previous years. The carrying
value of goodwill at 31 May 2018 is £187.1m (2017: £198.7m). Goodwill
balances are tested annually for impairment. Tests for impairment are
primarily based on the calculation of a value in use for each CGU.
Acquired intangibles and capitalised development and software costs
are also allocated to CGUs. This involves the preparation of discounted
cash flow projections, which require significant estimates of both future
operating cash flows and an appropriate risk-adjusted discount rate. The
commercial viability of individually capitalised development project costs
is also part of the overall assessment of carrying values (see note 14
regarding specific impairments of individual capitalised project costs).
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Loss-making contract
Some aspects of the Group’s revenue derive from relatively long-
term contracts, whilst this is in respect of a very limited number of
contracts, the risk of loss on such long term contracts could have a
significant impact. In such situations project managers use established
methodologies to estimate the percentage complete of a project and
hence the amount of revenue that should have been recognised to
date. One such example occurred in the current year where we carried
out a detailed bottom-up project assessment and identified that a
contract in our business in the Netherlands was not as complete as
previously estimated. This in turn led to a full life contract review and
the recognition of a provision for the remaining loss on the contract as
a whole. In some cases, long-term contract revenue is signed off by
reference to meeting customer agreed milestones in which case the
degree of estimation can be lower. Furthermore, identifying whether
or not an as yet incomplete contract will be loss-making over its life
includes estimates of future costs to complete. This inevitably includes
estimates and allowances for unknown contingencies and assumptions
about labour rates and future prices.
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 judgements are inherently subjective and can have a material
impact on determining the viability of the project and ultimately whether
the costs should be capitalised.
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2.1 Estimation uncertainties continued
Future cash flow estimates are made up of two critical estimates: the
rate of revenue growth, the associated rate of cost growth (or, in other
words, margin improvement or contraction if costs grow at a different
rate from revenue).
The calculation of an appropriate discount rate to apply to the future
cash flow estimate is itself an estimate. While some aspects of discount
rate calculations can be more mechanical in nature (such as using the
30-year gilt yield as a proxy for the risk free rate) others such as entity
or sector specific risk adjustments rely more on management estimates.
The estimates used and the sensitivity analysis on what are regarded as
reasonably possible changes are provided in note 14.
The calculation of an appropriate discount rate to apply to the future
cash flow estimate is itself an estimate. While some aspects of discount
rate calculations can be more mechanical in nature (such as using the
30-year gilt yield as a proxy for the risk free rate) others such as entity
or sector specific risk adjustments rely more on management estimates.
The discount rate is also a key component in assessing the Terminal
Value which is often an important part of any valuation. Sensitivity
analysis on what are regarded as reasonably possible changes is
provided in note 14.
2.2 Judgements
Information about judgements made in applying accounting policies
that have the most significant effects on the amounts recognised in the
consolidated financial statements are addressed below.
Carrying value of intangible assets – assessment of CGUs
A 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 reviewed the continuing applicability of the judgements
made in the prior year in determining the CGUs within the Group and in
allocating goodwill to these CGUs. The Directors have concluded that the
same CGUs continue to be applicable in the current year.
Individually Significant Items
The Group categorises certain items as ISIs on the basis of management
judgement. These judgements have regard to the Group’s approach to
materiality as set out on page 69 of the Audit Committee report. Some
items are deemed material because of scale, some because of their
nature or frequency of occurrence, and others through a combination
of both. These judgements can be significant not only in changing the
Group’s Adjusted* results, refer note 3, but can also have a significant
impact on senior management and executive reward which in some
cases are linked to Adjusted* results as opposed to GAAP results (as
set out in note 3).
To the extent that they relate to provisions for future costs or income
that involves a degree of uncertainty (such as in onerous property
leases) ISIs can also be a source of estimation uncertainty. Clearly where
the review of the carrying value has led to an impairment event that is
material enough in scale or nature to be classified as an ISI, all of the
estimation uncertainties that applied in the review of carrying value also
apply to the calculation of the impairment value itself.
122 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
3 Alternative performance measures
The Board and Executive management use a number of alternative performance measures (APMs) in their day-to-day management of the
business and in setting employee targets. The Group’s primary financial profitability measure used in guiding external stakeholders and in internal
management reviews is Adjusted operating profit*. It is management’s view that Adjusted operating profit* is more closely aligned to the underlying
performance of the business. Adjusted* EBITDA is also disclosed as this is used by some stakeholders and in some other KPIs used in the business
(such as the Cash conversion ratio*).
These APMs are not defined measures in IFRS and therefore these measures may not be comparable with similar APMs in other businesses. These
APMs are not intended to be a replacement for, or be superior to, IFRS measures.
The “Adjusted” alternative performance measures are arrived at by excluding the impact of a number of Adjusting Items that the Directors consider
are not part of underlying business performance for the reasons referred to below. The various adjusting items are set out in the table below:
Amortisation of acquired intangible assets (note 14)
Individually Significant Items (see note 6)
Share-based payments (note 25)
Discount unwind on acquisition consideration (note 9)
Adjustments to profit/(loss) before taxation
2018
£m
9.4
7.6
0.3
0.3
17.6
2017
£m
10.3
57.6
0.5
0.5
68.9
Rationale for adjusting items
At all times the Group aims to ensure that the Annual Report and Accounts are fully compliant with International Financial Reporting Standards
and that they give a Fair Balanced and Understandable view of the Group’s performance, cash flows and financial position. IAS 1, Presentation of
Financial Statements, requires the separate presentation of items that are material in nature or scale in order to allow the user of the accounts to
understand underlying business performance. In management’s opinion, the adjusting items below are material items that require separate disclosure
and adjustment to allow the user of the accounts to understand the underlying business performance. Adjusting items are reviewed by both the Audit
and the Remuneration Committee’s, each time they arise, to ensure that they are appropriately categorised and disclosed and to understand their
impact on executive and senior management incentive schemes which use Alternative Performance Measures when setting and evaluating targets.
The amortisation of acquired intangibles is a non-cash accounting charge driven by acquisition-based growth as opposed to Adjusted organic*
growth (organic growth is considered below). An alternative view could be that the charge should be included in underlying results to reflect the
“cost” of an acquisition in the Income Statement. All things considered, including the similar treatment by comparator companies, the Directors have
concluded that this item is validly disclosed as an adjusting item. The same logic applies to the non-cash unwinding of discounts on deferred and
contingent acquisition consideration.
Individually Significant Items are considered separately in note 6. The Directors consider share-based payments to be a valid adjusting item on the
basis that fair values are volatile due to movements in share price which may not be reflective of the underlying performance of the Group.
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3 Alternative performance measures continued
Adjusted EBITDA and Adjusted operating profit
The reconciliation of Adjusted operating profit* and Adjusted* EBITDA to reported profit or loss before tax is shown below:
Adjusted EBITDA from continuing operations
Depreciation
Amortisation of software and capitalised development costs
Adjusted operating profit from continuing operations
Amortisation of acquired intangible assets
Individually Significant Items (note 6)
Share-based payments
Interest expense
Discount on acquisition consideration
Profit before tax from continuing operations
2018
£m
42.5
(6.2)
(5.3)
31.0
(9.4)
(7.6)
(0.3)
(1.5)
(0.3)
11.9
2017
£m
33.0
(4.9)
(2.6)
25.5
(10.3)
(57.6)
(0.5)
(1.4)
(0.5)
(44.8)
The calculation of Adjusted* EPS follows the same logic shown above in respect of Adjusted* EBITDA and Adjusted operating profit* but also
includes the impact of taxation and any one-off taxation items. The calculation of Adjusted* EPS is shown in note 12.
Adjusted organic growth
Adjusted organic* growth is used to convey the amount of revenue growth that has been delivered by management through their controllable
actions in the day to day running of the business. It therefore excludes growth delivered through the impact of acquisitions or disposals and also the
strategic decision to exit the sale of third party products as each of these are considered to be the result of corporate activity rather than day to day
operating activities. Finally, it also excludes the translational impact of changes in weighted average foreign exchange rates as these are outside
of management control. The foreign exchange impact is calculated by applying the current year weighted average foreign exchange rates to the
prior year revenues denominated in foreign currencies and is the difference between that calculation and the sterling equivalent reported with in
the FY2017 Annual Report and Accounts. The prior year is adjusted for a correction in the application of revenue recognition in Escrow which were
included in the Annual Report and Accounts in the prior year.
The calculation of Adjusted organic* growth is set out on page 27 for the Group and the two divisions.
Cash conversion ratio
The cash conversion ratio* is a measure of how effectively Adjusted operating profit* (refer above) is converted into cash and effectively highlights
both non-cash accounting items within operating profit* and also movements in working capital. It is calculated as Net cash flow from operating
activities before interest and tax (which is disclosed on the face of the cash flow statement) divided by Adjusted* EBITDA (which is one of the
Group’s APM described above). The cash conversion ratio* is used by many comparable companies in our sector and hence is disclosed to show the
quality of cash generation and also to allow comparison to other similar companies.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
The calculation of the cash conversion ratio* is set out below:
Continuing and discontinued
Net operating cash flow before interest and tax (A) (Consolidated statement of cash flows)
Adjusted* EBITDA (B) (see below)
Cash conversion ratio* (%) (A)/(B)
2018
£m
39.5
44.0
90%
2017
£m
31.7
36.2
87%
Adjusted EBITDA for continuing operations is £42.5m, see above, and from discontinued operations is £1.5m, total £44.0m (2017: £33.0m, £3.2m,
and £36.2m respectively.
124 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
3 Alternative performance measures continued
Net debt
Net debt is defined as total cash and cash equivalents less interest bearing loans. Both of these amounts are shown in the Statement of financial
position. This APM is used to convey the overall net indebtedness of the Group and to assess the Group’s overall gearing.
Cash and cash equivalents (Consolidated statement of financial position)
Interest-bearing loans (notes 9, 19 and 23)
Net Debt
2018
£m
21.2
(49.0)
(27.8)
2017
£m
12.3
(56.0)
(43.7)
Net debt, when compared to available borrowing facilities, also gives an indication of available financial resources to fund potential future
investments.
4 Segmental information
The Group is organised into the following two (2017: two) reportable segments, Escrow and Assurance. The two reporting segments provide distinct
types of service while within each of the reporting segments, the operating segments provide a homogeneous group of services. The operating
segments are grouped into the reporting segments on the basis of how they are reported to the Chief Operating Decision Maker (CODM) for the
purposes of IFRS 8: “Operating Segments”, who is considered to be the Board of Directors of NCC Group. Operating segments are aggregated into
the two reportable segments based on the types and delivery methods of services they provide, common management structures, and their relatively
homogenous commercial and strategic market environments. Performance is measured based on reporting segment profit, which comprises
reporting segment operating profit* excluding amortisation of acquired intangible assets, share-based payment charges and Individually Significant
Items. Interest and tax are not allocated to business segments and there are no intra-segment sales.
Segmental analysis 2018
Revenue
Cost of sales
Gross profit
Gross profit %
G&A* before adjusting items
Central cost reallocation
Adjusted operating profit*
Adjusting items (note 3)
Operating profit*
Escrow
£m
Assurance
£m
Central &
Head Office
£m
38.8
(9.2)
29.6
194.4
(127.9)
66.5
76.3%
34.2%
(3.9)
(4.1)
21.6
0.2
21.8
(34.6)
(14.9)
17.0
(12.5)
4.5
–
–
–
0.0%
(26.6)
19.0
(7.6)
(5.0)
(12.6)
Group
£m
233.2
(137.1)
96.1
41.2%
(65.1)
–
31.0
(17.3)
13.7
Stock Code: NCC
www.nccgroup.com
125
Escrow
£m
Assurance
£m
Central &
Head Office
£m
37.2
(10.5)
26.7
178.1
(126.6)
51.5
71.8%
28.9%
(3.7)
(2.8)
20.2
(1.0)
19.2
(30.8)
(10.3)
10.4
(63.9)
(53.5)
–
–
–
0.0%
(18.2)
13.1
(5.1)
(3.5)
(8.6)
Group
£m
215.3
(137.1)
78.2
36.3%
(52.7)
–
25.5
(68.4)
(42.9)
4 Segmental information continued
Segmental analysis 2017
Restated (see note below)
Revenue
Cost of sales
Gross profit
Gross profit %
G&A before adjusting items
Central cost reallocation
Adjusted operating profit*
Adjusting items (note 3)
Operating profit*
* The segmental figures above for central cost allocations have been restated to be on the same basis as the current year allocation to give a more accurate picture of the underlying
result and movement between years. The reallocation rationale is explained on page 29. Management consider that the revised reallocation rationale is appropriate to the prior year
given that the overall Group result is unchanged by this. However, the Escrow operating profit* in last year’s accounts was reported as £18.1m, Assurance was a loss of £55.6m,
Domain Services a loss of £4.2m and Central and head office recorded a loss of £11.7m, totalling a loss of £53.4m. This included a loss on Discontinued operations (including
Domain Services) of £10.5m.
There are no customer contracts which account for more than 10% of segment revenue.
Revenue by geographical destination
UK
US
Europe and RoW
Total revenue from continuing operations
Revenue from discontinued operations
Total revenue
Revenue by category
Sale of goods
Revenue from services
Total revenue
2018
£m
2017
£m
100.3
68.4
64.5
233.2
21.5
254.7
2018
£m
9.8
223.4
233.2
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
102.0
60.4
52.9
215.3
29.2
244.5
2017
£m
23.8
191.5
215.3
5 Discontinued operations
In July 2017, the Group also announced its intention to sell Web Performance and Software Testing, both part of the Assurance division but not
aligned to the core cyber security activities of the division. The Web Performance business was sold on 28 March 2018. The Software Testing
business was sold on 24 May 2018. The results of these businesses have been classified as discontinued operations. The comparative consolidated
statement of profit or loss and OCI have been re-presented to show the discontinued operations separately from continuing operations. In January
2017, in the prior financial year, the Group sold Open Registry, part of the Domain Services division and it too has been shown as a discontinued
operation.
126 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
5 Discontinued operations continued
The tables below provide an analysis of discontinued operations for revenue, EBITDA and profit before tax as these are considered to be the most
relevant to understanding underlying business performance.
(Loss)/profit of discontinued operations
Revenue
Cost of sales
Gross profit
General administrative expenses
Individually Significant Items*
Share-based payments
Operating profit*/(loss)
(Loss)/gain on sale of discontinued operations before tax
Loss on discontinued operations before tax
Taxation
Loss on discontinued operations after tax
* Individually Significant Items are shown in note 6.
2018
£m
21.5
(17.2)
4.3
(3.6)
–
0.1
0.8
(6.4)
(5.6)
0.1
(5.5)
2017
£m
29.2
(22.9)
6.3
(4.3)
(13.4)
(0.3)
(11.7)
1.2
(10.5)
0.8
(9.7)
Effect of discontinued operations on assets and liabilities*
2018
£m
2017
£m
Intangible assets
Plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Net assets/(liabilities)
* Comprising Web Performance and Software Testing for FY17 and FY18 and Open Registry in FY17.
Cash flows from (used in) discontinued operations*
Net cash from/(used) in operating activities
Net cash from/(used) in investing activities
Consideration received, satisfied in cash
Cash and cash equivalents, disposed of
Net cash used in operating activities
Net cash flows for the year
* Comprising Open Registry, Web Performance and Software Testing for FY17 and FY18.
6.2
0.5
4.5
0.7
(5.8)
6.1
2018
£m
1.1
(1.4)
11.3
(0.7)
–
10.3
4.7
0.6
8.6
1.9
(11.5)
4.3
2017
£m
(1.3)
1.2
1.7
(1.9)
(1.5)
(1.8)
Stock Code: NCC
www.nccgroup.com
127
2018
£m
2017
£m
11.3
–
11.3
(6.1)
(10.2)
(1.4)
(6.4)
–
(6.4)
1.7
1.5
3.2
0.2
(2.1)
(0.1)
1.2
–
1.2
5 Discontinued operations continued
Summary of gain/(loss) on disposal of subsidiary
Consideration received or receivable:
Cash consideration
Fair value of contingent consideration
Total disposal consideration
Carrying amount of net assets disposed of
Elimination of goodwill
Professional fees and other costs
(Loss)/gain on disposal before tax
Taxation
(Loss)/gain on disposal after tax
6 Individually Significant Items
The Group separately identifies items as Individually Significant Items. Each of these is considered by the Directors to be sufficiently unusual in terms
of nature or scale so as not to form part of the underlying performance of the business. They are therefore separately identified and excluded from
adjusted results (as explained in note 3).
Individually Significant Items (ISIs)
Loss-making contract
Revisions to deferred and contingent consideration
Restructuring costs
Onerous leases and other property-related costs
Market-related costs
Impairment of goodwill
Acquisition costs
Vacation pay catch-up provision
Total ISIs – continuing operations
Impairment of goodwill
Impairment of other intangible assets
Total ISIs – discontinued operations
Total all ISIs
2018
£m
(2.5)
(0.6)
(1.6)
(2.7)
(0.2)
–
–
–
(7.6)
–
–
–
(7.6)
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2017
£m
–
(2.9)
(1.3)
(2.2)
–
(48.6)
(0.8)
(1.8)
(57.6)
(5.7)
(7.7)
(13.4)
(71.0)
Current period
The onerous contract represents a loss-making contract which was identified through a review conducted by management in the year, whereby it
was considered that significant additional effort would be required to satisfy the contractual commitments that led to the contract being estimated
to be loss making over its lifetime. The Group has a very small number of long-term contracts and hence this is a very unusual occurrence for the
Group. It was therefore deemed, both in terms of its unusual nature and size that it should be treated as an ISI.
Adjustments to deferred and contingent consideration were in respect of FX movements as no adjustments to expected payments were made in the
period. The Group treats any change in deferred or contingent consideration that is driven by changes in foreign exchange rates as an ISI because
128 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
6 Individually Significant Items continued
this is unconnected to business performance. Other changes in deferred and contingent consideration are treated as an ISI as they relate to
acquisition activity which is not part of the underlying performance of the business.
Restructuring costs are significant and are driven primarily by the Strategic Review and hence are treated as an ISI given the one off nature of the
Strategic Review and the level of the costs.
Following a review of the UK property portfolio and capacity requirements, management identified two onerous property leases which were either
unutilised or significantly under-utilised. The amount provided for represents the forecasted discounted net cash flows, after allowing for estimated
income from subletting. Both properties were vacant and not in use as at 31 May 2018. In addition, double running costs of the Manchester head
office, prior to occupancy, are also included here. These costs are treated as an ISI because they arise in connection with unoccupied properties and
this is not considered to be part of the underlying performance of the business.
Market-related costs in the period were in respect of the shareholder circular and exercise to remediate a number of invalid dividends. This exercise
completed successfully at the September EGM. The correction of invalid dividends being paid in the prior year by means of a shareholder circular is a
highly unusual (one-off) occurrence and hence while small in scale was deemed not to form part of the underlying business performance.
Prior period
A goodwill impairment of £48.6m was recognised in respect of the CGUs for Fox-IT Holdings BV and Accumuli plc. The Fox and former Accumuli
businesses (the latter now known as MSS) had underperformed 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. The other
Individually Significant Items are disclosed more fully in the prior year Annual Report and Accounts.
7 Expenses and auditors’ remuneration
Profit/(loss) 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*
Depreciation of property, plant and equipment (note 13)
Impairment of fixtures and fittings* (note 13)
Amortisation and other amounts written off intangible fixed assets:
Amortisation of development costs (note 14)
Amortisation of software costs (note 14)
Amortisation of acquired intangibles (note 14)
Impairment of goodwill* (note 14)
Impairment of capitalised development costs*
Impairment of software costs*
Foreign exchange losses/(gains)
Operating lease rentals charged:
– Hire of property, plant and equipment
– Other operating leases
Research and development expenditure
Loss/(profit) on sale of subsidiary companies (included within adjusting items, notes 3, 5)
Profit/(loss) on disposal of plant and equipment
*The only non-audit service provided by the auditor was the half year review for which the fee was £27,500 (2017: £17,500).
2018
£m
2017
£m
0.2
0.1
0.3
6.5
–
2.4
2.9
9.4
–
–
–
0.1
0.1
0.2
5.2
0.9
1.5
2.0
10.3
54.3
5.7
2.0
0.6
(0.6)
1.3
4.5
0.5
6.4
0.1
3.2
1.6
1.7
(1.2)
(0.1)
Stock Code: NCC
www.nccgroup.com
129
8 Staff numbers and costs
Directors’ emoluments are disclosed in the Remuneration Committee report. Total aggregate emoluments of the Directors in respect of 2018 were
£1.0m (2017: £1.2m). Employer contributions to pensions for Executive Directors for qualifying periods were £nil (2017: £0.1m). The aggregate net
value of share awards granted to the Directors in the period was £0.3m (2017: £0.1m). 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, no share options were exercised by Directors (2017:
89,804 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
Number of employees
2018
2017
1,113
700
1,813
1,042
655
1,697
The actual number of employees was significantly lower at the year end following the disposals of Web Performance and Software Testing. The
aggregate payroll costs of these persons were as follows:
Wages and salaries
Share-based payments (note 25)
Social security costs
Other pension costs (note 30)
9 Net financing costs
Interest payable on bank loans and overdrafts
Unwinding discount on deferred and contingent consideration
Financial expenses
2018
£m
134.0
0.3
9.0
3.2
2017
£m
118.2
0.6
11.7
5.8
146.5
136.3
2018
£m
1.5
0.3
1.8
2017
£m
1.4
0.5
1.9
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
The unwinding of discount on deferred and contingent consideration payable relates to future payments for the historical acquisitions of subsidiary
companies where the future payments have been discounted to their present value.
130 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
10 Taxation
Recognised in the income statement
Current tax expense
Current year
Adjustment to tax expense in respect of prior periods
Impact of prior year US R&D tax credits
Foreign tax
Total current tax
Deferred tax expense
Origination and reversal of temporary differences
Reduction in tax rate
Recognition of previously unrecognised tax losses
Recognition of previously unrecognised/(de-recognition of previously recognised) deductible timing differences
Impact of prior year US R&D tax credits
Total deferred tax
Tax expense/(benefit) on continuing operations
Reconciliation of effective tax rate
Profit/(loss) before taxation
Current tax using the UK corporation tax rate of 19.00% (2017: 19.83%)
Effects of:
Items not taxable for tax purposes
Adjustment to tax charge in respect of prior periods
Impact of prior year US R&D tax credits
Differences between overseas tax rates
Movements in temporary differences not recognised
Effect of rate change
Total tax expense/(benefit) on continuing operations
2018
£m
2017
£m
2.4
(0.6)
(0.2)
1.8
3.4
(2.3)
(0.6)
–
1.3
(2.3)
(3.9)
(0.5)
2018
£m
11.9
2.3
(0.5)
0.9
(2.5)
1.4
(1.5)
(0.6)
(0.5)
3.1
–
–
0.9
4.0
(1.9)
(0.4)
–
0.4
–
(1.9)
2.1
2017
£m
(44.8)
(8.9)
10.6
(0.2)
–
0.4
0.6
(0.4)
2.1
Current and deferred tax recognised directly in equity was a credit of £0.2m (2017: charge of £0.2m). The UK Government enacted Finance Act
2016 in September 2016 including provisions to reduce the main rate of corporation tax to 17% with effect from 1 April 2020. Accordingly, the UK
deferred tax balances have been revalued in these accounts where relevant.
Stock Code: NCC
www.nccgroup.com
131
10 Taxation continued
The United States Tax Cuts and Jobs Act was enacted on 22 December 2017 and included several provisions that impact NCC Group. Notably a
reduction in the US federal rate of corporate income tax from 35% to 21% (effective 1 January 2018), which has impacted the FY18 tax charge
primarily due to a re-valuation of deferred tax assets and liabilities relating to US operations. The Group FY18 tax charge has also been affected by a
significant R&D tax credit claim in the US, which is discussed further in the Group Performance Review and Audit Committee report.
The net deferred tax liability in the year fell from £10.0m to £5.3m, primarily as a result of the cut in the US Federal tax rate from 35% to 21% in the year.
11 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
12 Earnings per share (EPS)
The calculation of Adjusted* EPS for continuing operations only is based on the following:
Profit/(loss) for year for total operations
Loss for the year for discontinued operations
Profit/(loss) for the year for continuing operations
Amortisation of acquired intangible assets (note 14)
Individually Significant Items (note 6)
Unwinding of discount (note 9)
Share-based payments (note 25)
Tax arising on the above items
Deferred tax recognised on US R&D tax credits
Impact of US rate changes not accounted for in ISIs
Adjusted* profit from continuing operations used for Adjusted* EPS
Loss from discontinued operations
Adjusted* profit from all operations
Basic weighted average number of shares in issue
Dilutive effect of share options
Diluted weighted average shares in issue
2018
£m
12.8
8.7
4.65p
3.15p
2017
£m
10.3
57.6
0.5
0.5
(4.8)
–
2017
£m
12.8
8.7
4.65p
3.15p
2017
£m
(56.6)
9.7
(46.9)
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
64.1
17.2
(9.7)
7.5
Number
of shares
m
276.3
–
276.3
2018
£m
9.4
7.6
0.3
0.3
(5.6)
(2.3)
0.8
2018
£m
6.9
5.5
12.4
10.5
22.9
(5.5)
17.4
Number
of shares
m
277.0
2.3
279.3
For the purposes of calculating the dilutive effect of share options, the average market value is based on quoted market prices for the period during
which the options are outstanding.
132 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
13 Plant and equipment
Cost:
At 1 June 2016
Additions
Acquired as part of business combination
Disposals
Movement in foreign exchange rates
At 31 May 2017
Additions
Disposals
Movement in foreign exchange rates
At 31 May 2018
Depreciation:
At 1 June 2016
Charge for year
Impairment
Acquired as part of business combination
Disposals
Movement in foreign exchange rates
At 31 May 2017
Charge for year
Disposals
Movement in foreign exchange rates
At 31 May 2018
Net book value:
At 31 May 2018
At 31 May 2017
Computer
equipment
£m
Plant and
equipment
£m
Fixtures and
fittings
£m
Motor
vehicles
£m
18.6
4.2
0.5
(0.3)
0.8
23.8
2.3
(8.8)
–
0.4
0.1
–
(0.4)
–
0.1
0.1
–
–
12.2
6.6
–
(0.2)
1.0
19.6
5.3
(4.3)
(0.2)
0.5
0.1
–
(0.2)
–
0.4
–
–
–
17.3
0.2
20.4
0.4
Total
£m
31.7
11.0
0.5
(1.1)
1.8
43.9
7.7
(13.1)
(0.2)
38.3
12.9
3.3
–
0.4
(0.3)
0.6
16.9
3.9
(8.0)
(1.2)
11.6
5.7
6.9
0.4
–
–
–
(0.4)
–
–
0.2
–
–
0.2
–
0.1
5.5
1.9
0.9
–
(0.2)
0.4
8.5
2.3
(4.3)
0.4
6.9
0.2
19.0
–
–
–
(0.1)
–
0.1
0.1
–
–
5.2
0.9
0.4
(1.0)
1.0
25.5
6.5
12.3
(0.8)
0.2
18.9
13.5
11.1
0.2
0.2
19.4
18.3
Stock Code: NCC
www.nccgroup.com
133
Software
£m
Development
costs
£m
Customer
contracts and
relationships
£m
Goodwill
£m
Total
£m
14 Intangible assets
Cost:
At 1 June 2016
Acquisitions through business combinations
Reclassification
Additions – internally developed
Disposals of subsidiaries/disposals
–
Effects of movements in exchange rates
At 31 May 2017
0.6
20.2
Additions – internally developed
2.5
2.5
Disposal of subsidiaries/disposals
Effects of movements in exchange rates
(3.0)
–
(10.9)
0.1
–
(0.5)
27.0
–
(11.1)
3.7
4.2
–
11.1
3.7
(0.1)
0.4
19.3
76.2
7.7
–
–
(3.4)
6.5
87.0
–
236.2
12.1
–
–
–
16.6
264.9
343.6
19.8
–
7.4
(3.5)
24.1
391.4
–
5.0
(9.8)
(1.7)
(23.6)
(2.2)
At 31 May 2018
19.7
10.9
86.6
253.4
370.6
Accumulated amortisation and impairment losses:
At 1 June 2016
Reclassification
Charge for year
Impairment charge
Effects of movements in exchange rates
At 31 May 2017
Reclassification
Charge for year
Impairment charge
Disposals of subsidiaries/disposals
9.3
(2.1)
2.0
2.0
–
11.2
–
–
2.1
1.5
5.7
(0.2)
9.1
–
25.1
–
10.3
–
1.9
37.3
–
2.9
2.7
9.4
–
(2.1)
–
–
(6.0)
0.1
Effects of movements in exchange rates
–
–
(0.2)
11.9
–
–
54.3
–
66.2
–
–
–
–
–
46.3
–
13.8
62.0
1.7
123.8
–
15.0
–
(8.0)
(0.1)
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
At 31 May 2018
Net book value:
At 31 May 2018
At 31 May 2017
12.0
5.8
46.6
66.2
130.6
7.7
5.1
40.0
187.2
240.0
9.0
10.2
49.7
198.7
267.6
134 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
14 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 UK: Professional Services
Assurance US: Professional Services
PSC
VSR
Assurance Netherlands
Assurance UK: MSS
Web Performance (disposed of in 2018)
Software Testing (disposed of in 2018)
Total Assurance
Total Group
Goodwill
2018
£m
22.9
7.4
8.0
38.3
33.0
27.0
9.5
2.2
63.0
14.1
–
–
148.8
187.1
Goodwill
2017
£m
222.9
8.3
7.3
38.5
18.5
28.1
9.8
2.3
62.7
28.6
2.2
8.0
160.2
198.7
The CGUs are unchanged on the prior year save for the disposal of Web Performance and Software Testing CGUs during the year. The assessment
of CGUs is a key accounting judgement as set out in note 2.
Discount rates can change relatively quickly for reasons both inside and outside management control. Those outside management direct control
or influence include changes in the Group’s Beta, changes in risk free rates of return and changes in Equity Risk Premia. In context, the estimated
changes in risk free rates and the Group’s Beta from last year to this have reduced all of the CGU discount rates by around 0.5%. Matters inside
management control are the delivery of performance in line with plans or budgets and the production of high or low risk plans. In the current year,
performance has on average been closer to planned performance and forward plans are considered to have a lower risk profile than prior years as
forecast growth rates in revenue and margins have been moderated to reflect the need to improve internal systems and processes before higher
growth could again be sustained. These factors also combine to lower the estimated discount rate for all CGUs.
When assessing impairment, the recoverable amount of each CGU is based on value-in-use calculations (VIU). VIU calculations are an area of
material management estimate as set out in note 2. These calculations require the use of estimates, specifically: pre-tax cash flow projections; long-
term growth rates; and a pre-tax discount rate. Cash flow projections are based on the Group’s detailed annual operating plan for the forthcoming
financial year which has been approved by the Board.
Assumptions have then been applied for expected revenue and margin growth forecasts for subsequent four years from the end of 2019 to 2023
(forecasts which have also been approved by the Board). These assumptions are based on management’s experience of growth and knowledge
of the industry sectors, markets and our own internal opportunities for growth and margin enhancement. The projections beyond five years use an
estimated long-term growth rate of 2.5% (2017: 2.5%) for EBITDA. This represents management’s best estimate of a long-term annual growth rate
aligned to an assessment of long-term GDP growth rates. A higher sector-specific growth rate would be a valid alternative estimate. A different set
of assumptions may be more appropriate in future years dependent on changes in the macroeconomic environment.
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 VIU 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 VIU calculations are shown above.
Stock Code: NCC
www.nccgroup.com
135
14 Intangible assets continued
The key assumptions for each CGU are shown in the table below:
Escrow UK
Escrow Europe
Escrow USA
Assurance UK: Professional Services
Assurance US: Professional Services
PSC
VSR
Assurance Netherlands (Fox-IT)
Assurance UK: MSS
5 year
Revenue
CAGR%
2018
5 year
Revenue
CAGR%
2017
EBITDA
Margin%
Growth
2018
EBITDA
Margin%
Growth
2017
Pre-tax
discount
rate
2018
Pre-tax
discount
rate
2017
3.1%
2.7%
4.6%
3.4%
9.7%
8.6%
10.2%
12.2%
9.5%
3.5%
3.5%
3.5%
8.6%
8.9%
19.9%
22.7%
19.1%
11.6%
(0.2%)
(5.9%)
3.5%
6.3%
3.3%
2.6%
1.8%
1.7%
1.7%
5.9%
7.6%
3.1%
(6.6%)
(6.8%)
12.8%
11.1%
17.8%
20.8%
12.1%
12.3%
13.4%
11.9%
13.4%
13.4%
13.4%
14.3%
14.9%
11.4%
11.8%
14.9%
12.6%
14.6%
14.5%
14.5%
17.0%
15.4%
The Directors have considered a range of sensitivities where they consider a reasonably possible change in key assumption could occur as follows:
{ Revenue growth rates: in the type of high growth sector in which the Group’s Assurance division operates, a significant proportion of the VIU is
generated by the assumption that high growth will continue. If the revenue growth is achieved at unchanged profit margins each year then it is a
very significant contributor to the terminal value, a key part of the VIU. A decrease of 10% is considered a reasonably possible change in revenue
growth rates. A more significant decrease is not considered reasonably possible on the basis of the accuracy of the Group’s previous revenue
forecasts as in the great majority of cases, actual sales were within 10% of the forecasts.
{ EBITDA margin growth: EBITDA (as a proxy for operating cash flow before changes in working capital) is also a key contributor to VIU. If revenue
itself is unchanged over a period, margins can still be improved through efficiency gains or losses, which also has a significant impact on VIU.
Revenue growth itself can also enhance EBITDA margins due to operational leverage achieved when costs grow at a slower rate than revenue.
A change in the EBITDA growth assumption in excess of that which would be caused by a 10% fall in revenue growth is not considered by the
Directors to be a reasonably possible change as they consider that cost control actions can be used to mitigate against changes in revenue.
{ The discount rate for each CGU - as described above, both factors inside and outside management control impact the discount rate and 1% is
considered a reasonably possible change in assumption due to changing market conditions.
EBITDA as an absolute measure is the primary cash flow driver and is directly impacted by the key assumptions relating to revenue growth and
EBITDA margin. The sensitivities and their potential impacts on those CGU’s where a reasonably possible change in a key assumption would lead to
an impairment are shown below:
Surplus over carrying value of assets
Total VIU
Assumptions used in the VIU calculation
Revenue growth CAGR
Change required to eliminate surplus
Pre-tax discount rate
Change required to eliminate surplus
Fox-IT
UK MSS
£1.4m
£1.8m
£87.1m
£26.7m
12.2%
(0.5%)
9.5%
(0.4%)
14.3%
14.9%
(0.1%)
(0.9%)
The headroom in the other CGU’s is significant such that reasonably possible changes in the key assumptions above would not lead to an
impairment.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
136 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
14 Intangible assets continued
Development and software costs are included in the CGU asset bases and the associated discounted cash flow models. Capitalised development
projects and software intangible assets are considered, on an asset by asset basis, for impairment where there are indicators of impairment. During
the year, the Directors carried out a detailed strategic review of the capitalised product portfolio. This led to some specific projects being fully
impaired as further development activity is not expected to continue, leading to a total impairment charge of £1.5m. For the remaining development
and software assets, the Directors considered that based on forecast cashflow projections for the respective projects, the level of headroom is
significant and therefore no sensitivity analysis is presented
15 Investments
Interest in unlisted shares
Group
2018
£m
Group
2017
£m
0.4
0.4
The investment in unlisted shares relates to a 3.35% 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 in which the Directors consider there has been no change
in the year.
16 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
2018
£m
Group
2017
£m
Company
2018
£m
Company
2017
£m
41.7
7.2
1.5
17.1
–
67.5
40.9
6.6
1.5
17.7
–
66.7
–
–
–
–
–
–
–
–
153.8
153.8
149.5
149.5
Gross
2018
£m
Impairment
2018
£m
Gross
2017
£m
Impairment
2017
£m
25.9
6.8
8.0
2.3
43.0
–
–
–
(1.3)
(1.3)
19.8
12.1
7.7
2.0
41.6
–
–
–
(0.7)
(0.7)
The Company had no trade receivables (2017: £nil).
The Group establishes a provision for impairment that represents its estimate of incurred losses in respect of specific trade receivables. The aging
profile of trade receivables improved significantly during the year with the proportion of debt not past due rising from 47.6% to 60.8% due to
improved collections processes. The provision basis was updated in the current year to include a specific provision for the statistically normal rate of
default by customers.
Stock Code: NCC
www.nccgroup.com
137
Group
2018
£m
Group
2017
£m
(0.7)
(0.7)
(1.4)
(0.7)
–
(0.7)
Group
2018
£m
Group
2017
£m
0.8
1.1
16 Trade and other receivables continued
The movement in the provision for impairment was:
Balance at 1 June
(Created)/utilised in the year
Balance at 31 May
17 Inventory
IT hardware for resale
The majority of inventory represents stock of sensors for use in our Managed Security Services businesses which turns relatively rapidly and hence
there is limited risk of obsolescence. In addition, the Group holds stock of certain critical components for key customers of our own product sales (as
opposed to third party sales).
18 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
Assets
Liabilities
Net
2018
£m
2017
£m
–
3.3
–
0.5
0.7
4.5
–
1.4
–
0.3
2.5
4.2
2018
£m
(0.5)
–
(9.3)
–
–
2017
£m
(1.9)
–
(12.3)
–
–
(9.8)
(14.2)
2018
£m
(0.5)
3.3
(9.3)
0.5
0.7
(5.3)
2017
£m
(1.9)
1.4
(12.3)
0.3
2.5
(10.0)
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
1 June
2017
£m
Recognised
in income
£m
Exchange
differences
£m
Recognised
in equity
£m
Disposals
£m
31 May
2018
£m
(1.9)
1.4
(12.3)
0.3
2.5
(10.0)
1.5
1.9
2.3
0.1
(1.8)
4.0
–
–
(0.1)
–
–
(0.1)
–
–
–
0.2
–
0.2
(0.1)
–
0.8
(0.1)
–
0.6
(0.5)
3.3
(9.3)
0.5
0.7
(5.3)
138 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
18 Deferred tax assets and liabilities (Group) continued
Plant and equipment
Short-term temporary differences
Intangible assets
Share-based payments
Tax losses
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)
The Group has recognised a deferred tax asset of £0.7m (2017: £2.5m) 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 £10.4m (2017: £6.2m) of tax losses carried forward
due to uncertainties over their future recovery. The Group has recognised a deferred tax asset in respect of R&D tax claims submitted in the USA that
are expected to be fully utilised within one year. The amount recognised has been discounted to reflect a modest risk to the total amount claimed.
Included in recognised and unrecognised tax losses are losses of £0.5m that will expire in 2034 (2017: £2.9m). Other losses may be carried forward
indefinitely.
No deferred tax liability is recognised on temporary differences of £nil (2017: £nil) 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.
19 Trade and other payables
Trade payables
Non-trade payables
Accruals
20 Provisions
Balance as at 1 June 2017
Provisions arising in the year
Provisions utilised during the year
Balance as at 31 May 2018
Non-current
Current
Group
2018
£m
Group
2017
£m
Company
2018
£m
Company
2017
£m
8.1
7.4
20.2
35.7
4.3
6.7
18.7
29.7
–
–
–
–
Lease
incentives
£m
Loss making
contracts
£m
Onerous
leases
£m
5.0
1.7
(0.8)
5.9
5.5
0.4
–
2.6
(1.6)
1.0
(1.0)
2.0
–
2.4
(0.4)
2.0
1.8
0.2
–
–
–
–
Total
£m
5.0
6.7
(2.8)
8.9
6.3
2.6
Property provisions of £5.9m represent capital contributions of £3.5m towards fit-out costs on the new Manchester Head Office building and a rent-
free allowance of £2.8m which are being amortised over the period of the lease.
The loss-making contract represents the estimated remaining net lifetime loss on a long-term development and supply contract. This is explained
in more detail in note 2. The provision will be utilised over the remaining period of the contract which is expected to be completed in 2020. The
provision includes an estimation of hours to complete, which if increased by 10% would increase the provision by £0.3m.
Stock Code: NCC
www.nccgroup.com
139
20 Provisions continued
The onerous lease provisions arose due to vacant premises in Reading (£0.4m) and an unused floor in the Manchester head office building
(£1.6m). The Reading provision will be utilised over the next three years and the Manchester provision will be utilised over the next ten years. In the
discounted cash flow model, cash outflows are discounted at 2.6% and cash inflows at 6.1%. A 1% change in the discount rate on the cash outflows
increases the provision by £0.2m. At present the Directors do not consider that void or rent free periods could be significantly longer than those
already assumed in calculating the provisions. Hence a material change in the provision is not considered reasonably likely to happen.
21 Deferred revenue
Deferred revenue
Group
2018
£m
Group
2017
£m
29.0
35.6
Deferred revenue consists of: Escrow agreements £13.9m (2017: £13.5m), Assurance contracts £15.1m (2017: £19.2m), Website monitoring and
load testing agreements of £nil (2017: £2.9m). The revenue has been deferred and will be released to the income statement over the contract term
in accordance with the Group’s accounting policy. This will be largely unchanged under IFRS 15.
22 Outstanding consideration on acquisitions
As disclosed in note 32, the deferred consideration was paid in full in June 2018. The balances presented above are presented at the fair value
of the amounts payable in respect of contingent consideration is stated at the maximum amount payable as it is believed that on current trading
performance and trends the full amount will be due. The first tranches of contingent consideration were paid in full during the year.
Current
Non-current
Total
23 Non-current liabilities
Secured and interest-bearing bank loan
Deferred tax (note 18)
Consideration on acquisitions (note 22)
Provisions (note 20)
Total non-current liabilities
2018
2017
Deferred
£m
Contingent
£m
Total
£m
Deferred
£m
Contingent
£m
9.9
–
9.9
2.0
–
2.0
11.9
–
11.9
10.9
–
10.9
2.0
2.1
4.1
Total
£m
12.9
2.1
15.0
Group
2018
£m
Group
2017
£m
49.0
9.8
–
6.3
65.3
56.0
14.2
2.1
3.5
75.8
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
For more information about the contractual terms of the Group’s interest-bearing secured bank loan, see note 24.
140 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
24 Financial instruments
Financial risk management
The Group has exposure to the followings risks from its use of financial instruments:
{ Credit risk
{ Liquidity risk
{ Currency risk
{ Interest rate risk
The Board has overall responsibility for establishing appropriate management of exposure to risk. The Audit Committee oversees how management
identify and address risks to the Group.
Capital management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development
of the business.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt* divided by total capital. Net debt* is calculated as
total interest-bearing loans as shown in the consolidated balance sheet, less cash and cash equivalents. Total capital is calculated as equity, as shown
in the consolidated balance sheet, plus net debt*. As at 31 May 2018 the Group’s gearing ratio was 11.8% (2017: 17.1%).
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.
Fair value of financial instruments
As at 31 May 2018 the Group and Company had no other financial instruments other than those disclosed below. The carrying value of contingent
consideration on acquisitions, held at the year end, is valued using a level 3 valuation method as defined by IFRS 13 Fair Value measurement. There
have been no transfers between levels in the year.
The following table presents the Group’s financial assets and liabilities that are measured at fair value by level of fair value hierarchy:
{ Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).
{ Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly
(that is, derived from prices) (Level 2).
{ 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.
Investments
Trade receivables
Other receivables
Cash and cash equivalents
Interest-bearing loans
Trade and other payables
Deferred consideration
Contingent consideration
2018
2017
Level 1
£m
Level 2
£m
Level 3
£m
Level 1
£m
Level 2
£m
Level 3
£m
–
41.7
–
21.2
–
(35.7)
(9.9)
–
0.4
–
1.5
–
49.0
–
–
–
–
–
–
–
–
–
–
(2.0)
–
(40.9)
–
(12.3)
–
(29.7)
(10.9)
–
0.4
–
1.5
–
(56.0)
–
–
–
–
–
–
–
–
–
–
(4.1)
A reconciliation of level 3 fair values is displayed in the following table:
Stock Code: NCC
www.nccgroup.com
141
Contingent
consideration
4.1
0.1
(2.1)
(0.1)
2.0
24 Financial instruments continued
Balance at 1 June 2017
Unwinding of discount
Payments made
Foreign exchange difference
Balance at 31 May 2018
Credit Risk
The contingent consideration is expected to realise full pay-out based on current trading performance. 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
2018
£m
41.7
21.2
62.9
Group
2017
£m
Company
2018
£m
Company
2017
£m
40.9
12.3
53.2
–
–
–
–
–
–
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
2018
£m
Group
2017
£m
Company
2018
£m
Company
2017
£m
23.4
10.7
6.4
1.2
41.7
21.6
10.9
6.4
2.0
40.9
–
–
–
–
–
–
–
–
–
–
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
142 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
24 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
2018
£m
9.3
32.4
41.7
Group
2017
£m
Company
2018
£m
Company
2017
£m
8.9
32.0
40.9
–
–
–
–
–
–
The trade receivables of the Group typically comprise many small amounts due from a large number of customers. The Group’s customer base,
while concentrated largely in the UK, represents a spread of industry sectors. The largest amount due from a single customer at the reporting date
represented of 2.9% of total Group receivables (2017: 8.6%). 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 reviews customer debt balances to assess the
risk of recovery. The allowance is all for debts older than 90 days (2017: 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 2018
Secured bank borrowings
Trade and other payables
Deferred consideration
Contingent consideration
At 31 May 2017
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
(49.0)
(35.7)
(9.9)
(2.0)
(56.0)
(29.7)
(10.7)
(4.1)
(49.0)
(35.7)
(9.9)
(2.0)
(56.0)
(29.7)
(10.9)
(4.3)
–
(35.7)
(9.9)
–
–
(29.7)
(10.9)
–
–
–
–
(2.0)
–
–
–
–
–
–
–
–
–
–
(2.1)
(2.1)
2+
years
£m
(49.0)
–
–
–
(56.0)
–
–
–
The financial liabilities of the Company all have contractual maturities within six months (2017: within six months).
Stock Code: NCC
www.nccgroup.com
143
24 Financial instruments continued
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:
Receivables
Cash and cash equivalents
Bank borrowings
Deferred consideration
Trade and other payables
2018
2017
Sterling
£m
EUR
£m
21.3
7.4
(10.5)
–
(20.9)
5.7
2.5
–
(9.9)
(6.9)
USD
£m
12.0
9.8
(38.5)
–
(6.2)
Other
£m
Sterling
£m
EUR
£m
USD
£m
Other
£m
2.7
1.5
–
–
25.1
2.1
(12.4)
–
(1.7)
(18.4)
3.6
3.8
–
(10.7)
(6.3)
9.9
5.3
(43.6)
–
(3.6)
2.2
1.1
–
–
(1.4)
A change in exchange rate of 10% would have an impact of £11.6m on revenue, £1.7m on operating profit*, £5.0m on net assets and £3.5m 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
2018
£m
7.4
2.5
9.8
1.5
41.7
62.9
2017
£m
2.1
3.8
5.3
1.1
40.9
53.2
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
144 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
24 Financial instruments continued
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
2018
£m
0.1
153.8
153.9
2017
£m
0.2
149.5
149.7
A change of 100 basis points in interest rates would result in a difference in annual pre-tax profit of £0.5m (2017: £0.5m).
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
Sterling
£m
–
–
(10.5)
–
2018
EUR
£m
(9.9)
–
–
–
Current trade and other payables
(20.9)
(6.9)
USD
£m
(7.0)
(5.0)
(28.5)
–
(6.2)
Other
£m
Sterling
£m
–
–
–
–
(1.7)
–
–
–
12.4
18.4
2017
EUR
£m
10.9
–
–
–
6.3
USD
£m
Other
£m
–
2.1
2.1
43.6
3.6
–
–
–
–
1.4
As at 31 May 2018 the Group had a funding facility comprising a multi-currency revolving credit facility of £80m (2017: £80m), a £20m multi-
currency term loan (2017: £25m) and an overdraft of £5m (2017: £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
2018 the amount drawn down under the facilities was £49m (2017: £56m). This facility was agreed in November 2015 and is due for renewal in
November 2020. At the end of May 2018, the effective rate was 3.1% (2017: 2.0%).
Stock Code: NCC
www.nccgroup.com
145
25 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 £0.1m (2017: £0.6m).
CSOP Scheme (equity-settled)
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 annum.
Date of grant
July 2012
August 2015
July 2016
August 2016
Expected term
of options
Exercisable
between
Exercise
price
2018
number
outstanding
6 years
July 2015 – July 2022
6 years
August 2018 – August 2025
6 years
July 2019 – July 2026
6 years
August 2019 – August 2023
£1.36
£2.45
£3.28
£3.37
98,924
303,135
195,366
59,280
Sharesave schemes (equity-settled)
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.
Date of grant
August 2015
August 2016
March 2017
August 2017
March 2018
Expected term
of options
Exercisable
between
Exercise
price
2018
number
outstanding
3.25 years
October 2018 – February 2019
3.16 years
October 2019 – March 2020
May 2020 – October 2020
£1.87
£2.62
£0.92
485,578
185,425
961,485
May 2021 – October 2021
£1.56
1,879,497
May 2021 – October 2021
£1.58
136,087
3 years
3 years
3 years
Employee stock purchase plan (equity-settled)
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 2018
Expected term
of options
Exercisable
between
Exercise
price
2018
number
outstanding
1 year
February 2019
£1.69
351,035
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
146 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
25 Share-based payments continued
ISO scheme (equity-settled)
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 annum.
Date of grant
January 2013
August 2015
January 2016
July 2016
Expected term
of options
Exercisable
between
Exercise
price
2018
number
outstanding
3 years
January 2016 – January 2023
3 years
August 2018 – August 2025
3 years
January 2019 – January 2026
3 years
July 2019 – July 2022
£1.48
£2.46
£3.24
£3.26
20,338
129,940
19,476
202,709
The following tables illustrate the number of share options for the schemes.
LTIP schemes (equity-settled)
The vesting condition for the award of the LTIP schemes, related to options granted July 2015 and July 2016 relates to growth in the Group’s EPS over
the performance period. If growth is equal to 25% or more per annum then 100% of the award will vest. If, however, growth is less than 10% per annum,
none of the award will vest. Between these two points, vesting is determined on a straight-line basis.
Options granted on or after October 2017 have three separate vesting conditions as set out below:
{ 60% will vest based on achieving an increase in Group EPS of 9%. If growth is equal to 20% or more per annum then 100% of the award will
vest. If, however, growth is less than 9% per annum, none of the award will vest. Between these two points, vesting is determined on a straight-
line basis.
{ 30% will vest based on achieving a cash conversion ratio* expressed as a percentage over the measurement period is greater than 70% per annum
on average. If cash conversion is greater than or equal to 80% per annum then 100% of the award will vest. If, however, cash conversion is less
than 70% per annum, none of the award will vest. Between these two points, vesting is determined on a straight-line basis.
{ 10% will vest based on the Group’s Total Shareholder Return (TSR) ranking when measured against the FTSE250. If the Group’s TSR is
consistent with the median group 20% of the award will vest, below this level, none of the award will vest. If the TSR is within the upper quartile or
above, 100% of the award will vest; between the median and upper quartile vesting is determined on a straight-line basis.
Date of grant
July 2015
July 2016
October 2017
November 2017
January 2018
Expected term
of options
Exercisable
between
Exercise
price
2018
number
outstanding
3 years
3 years
3 years
3 years
3 years
June 2018 – July 2019
June 2019 – July 2020
June 2019 – July 2021
June 2019 – July 2021
June 2019 – July 2021
nil*
nil*
nil*
nil*
nil*
378,289
368,808
349,626
427,004
178,601
* The option exercise price is nil; however, £1 is payable on each occasion of exercise.
Stock Code: NCC
www.nccgroup.com
147
25 Share-based payments continued
RSU schemes (equity-settled)
Options granted related to the RSU schemes on or after October 2017 have three separate vesting conditions as set out below:
{ 60% will vest based on achieving an increase in Group EPS of 9%. If growth is equal to 20% or more per annum then 100% of the award will
vest. If, however, growth is less than 9% per annum, none of the award will vest. Between these two points, vesting is determined on a straight-
line basis.
{ 30% will vest based on achieving a cash conversion ratio* expressed as a percentage, over the measurement period of greater than 70% per annum
on average. If cash conversion is greater than or equal to 80% per annum then 100% of the award will vest. If, however, cash conversion is less
than 70% per annum, none of the award will vest. Between these two points, vesting is determined on a straight-line basis.
{ 10% will vest based on the Group’s Total Shareholder Return (TSR) ranking when measured against the FTSE250. If the Group’s TSR is
consistent with the median group 20% of the award will vest, below this level, none of the award will vest. If the TSR is within the upper quartile or
above, 100% of the award will vest; between the median and upper quartile vesting is determined on a straight-line basis.
The options are to be settled in equity.
Date of grant
November 2017
January 2018
Deferred share scheme (equity-settled)
Date of grant
July 2016
Expected term
of options
Exercisable
between
Exercise
price
2018
number
outstanding
3 years
3 years
June 2019 – July 2021
June 2019 – July 2021
£0.01
£0.01
208,053
20,058
Expected term
of options
Exercisable
between
Exercise
price
2018
number
outstanding
1 year
July 2018 – July 2020
nil*
27,183
* The option exercise price is nil; however, £1 is payable on each occasion of exercise.
Phantom schemes (cash-settled)
Phantom schemes were used on a temporary basis during the year to allow the grant of LTIPs to members of the Executive Committee based in
certain overseas locations at a time when the Group’s Option Scheme rules were not structured to allow overseas grants. This was remedied during
the year and no further grants of Phantom Options are expected. The vesting conditions for the award of the Phantom schemes, related to options
granted August 2016, relates to growth in the Group’s EPS over the performance period. If growth is equal to 25% or more per annum then 100% of
the award will vest. If, however, growth is less than 10% per annum, none of the award will vest. Between these two points, vesting is determined on
a straight-line basis.
Options granted on or after October 2017 have three separate vesting conditions as set out below:
{ 60% will vest based on achieving an increase in Group EPS of 9%. If growth is equal to 20% or more per annum then 100% of the award will
vest. If, however, growth is less than 9% per annum, none of the award will vest. Between these two points, vesting is determined on a straight-
line basis.
{ 30% will vest based on achieving a cash conversion ratio* expressed as a percentage over the measurement period is greater than 70% per annum
on average. If cash conversion is greater than or equal to 80% per annum then 100% of the award will vest. If, however, cash conversion is less
than 70% per annum, none of the award will vest. Between these two points, vesting is determined on a straight-line basis.
{ 10% will vest based on the Group’s Total Shareholder Return (TSR) ranking when measured against the FTSE250. If the Group’s TSR is
consistent with the median group 20% of the award will vest, below this level, none of the award will vest. If the TSR is within the upper quartile or
above, 100% of the award will vest; between the median and upper quartile vesting is determined on a straight-line basis.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Date of grant
August 2016
October 2017
November 2017
Expected term
of options
Exercisable
between
Exercise
price
2018
number
outstanding
3 years
3 years
3 years
June 2018 – July 2020
June 2019 – July 2021
June 2019 – July 2021
nil*
nil*
nil*
19,779
113,120
8,189
* The option exercise price is nil; however, £1 is payable on each occasion of exercise.
148 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
25 Share-based payments continued
Measurement of fair values
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 LTIPs, RSUs and Phantoms granted in the current year have introduced a
market-based performance criteria of 10%; the Monte Carlo model has been used to calculate the fair value of this proportion of the grant.
The assumptions used in the model are illustrated in the table below:
Grant date
Fair value at
measurement date
Exercise
price
Expected
volatility
Option
expected
term
Risk-free
interest rate
CSOP scheme
CSOP scheme
CSOP scheme
CSOP scheme
CSOP scheme
Sharesave scheme
Sharesave scheme
Sharesave scheme
Sharesave scheme
Sharesave scheme
Sharesave scheme
ESPP scheme
ISO scheme
ISO scheme
ISO scheme
LTIP
LTIP
LTIP
90% of LTIP under Black Scholes
10% of LTIP under Monte Carlo
90% of LTIP under Black Scholes
10% of LTIP under Monte Carlo
90% of LTIP under Black Scholes
10% of LTIP under Monte Carlo
90% of RSU under Black Scholes
10% of RSU under Monte Carlo
90% of RSU under Black Scholes
10% of RSU under Monte Carlo
Phantom
90% of Phantom under Black Scholes
10% of Phantom under Monte Carlo
90% of Phantom under Black Scholes
10% of Phantom under Monte Carlo
Deferred shares July 2016
August 12
July 13
August 15
July 16
August 16
August 14
August 15
August 16
March 17
August 17
March 18
February 18
August 15
February 16
July 16
July 14
July 15
July 16
October 2017
October 2017
November 2017
November 2017
January 2018
January 2018
November 2017
November 2017
January 2018
January 18
July 16
October 17
October 17
November 17
November 17
July 16
* The option exercise price is nil; however, £1 is payable on each occasion of exercise.
£0.35
£0.25
£1.45
£0.65
£0.66
£0.68
£1.53
£0.95
£0.43
£0.88
£0.76
£0.40
£1.45
£1.91
£0.64
£1.92
£2.14
£2.75
£2.22
£2.20
£2.18
£2.16
£1.98
£1.98
£2.17
£2.16
£2.75
£2.22
£2.20
£2.18
£2.16
£3.14
£1.36
£1.40
£2.46
£3.28
£3.37
£1.51
£1.87
£2.62
£0.92
£1.56
£1.58
£1.69
£2.46
£3.24
£3.26
£nil*
£nil*
£nil*
£nil*
£nil*
£nil*
£nil*
£nil*
£nil*
£0.01
£0.01
£0.01
£0.01
£nil*
£nil*
£nil*
£nil*
£nil*
£nil*
35%
32%
103%
31%
31%
32%
103%
31%
46.6%
47.5%
47.8%
32.4%
103%
103%
31%
32%
103%
31%
47.5%
47.5%
47.6%
47.6%
47.7%
47.7%
47.6%
47.6%
47.7%
47.7%
31%
47.5%
47.5%
47.6%
47.6%
31%
6 years
6 years
6 years
3 years
3 years
3.25 years
3.25 years
3.16 years
3 years
3 years
3 years
1 year
3 years
3 years
3.16 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
2.75%
2.75%
2.75%
1.50%
1.50%
2.75%
2.75%
1.50%
1.50%
1.96%
2.20%
1.82%
2.75%
2.75%
1.50%
2.75%
2.75%
1.81%
1.96%
1.96%
1.96%
1.96%
2.00%
2.00%
1.96%
1.96%
2.00%
2.00%
1.81%
1.96%
1.96%
1.96%
1.96%
1.81%
Stock Code: NCC
www.nccgroup.com
149
25 Share-based payments continued
The expected volatility has been based on an evaluation of the historical volatility of the Company’s share price, particularly over the historical period
commensurate with the expected term. The expected term of the instruments has been based on historical experience and general option holder
behaviour. For the options granted in the year ended 31 May 2018, dividend yield assumed at the time of option grant is 2.0% (2017: 2.1%).
Reconciliation of outstanding share options
The options outstanding at 31 May 2018 have an exercise price in the range of £nil to £3.37 (2017: £nil to £3.37) and a weighted average
contractual life of three years (2017: three years). The weighted average share price at the time the share options were exercised in the year was
£2.14 and weighted average share price at the time the share options were forfeited in the year was £1.94.
Scheme
Approved EMI scheme August 2007
Approved EMI scheme February 2008
CSOP scheme July 2012
CSOP scheme July 2013
CSOP scheme August 2015
CSOP scheme July 2016
CSOP scheme August 2016
Sharesave scheme August 2014
Sharesave scheme August 2015
Sharesave scheme August 2016
Sharesave scheme March 2017
Sharesave scheme August 2017
Sharesave scheme March 2018
ESPP scheme February 2017
ESPP scheme February 2018
ISO scheme January 2013
ISO scheme January 2014
ISO scheme January 2015
ISO scheme August 2015
ISO scheme January 2016
ISO scheme July 2016
LTIP July 2014
LTIP July 2015
LTIP July 2016
LTIP October 2017
LTIP November 2017
LTIP January 2018
RSU November 2017
RSU January 2018
Phantoms August 2016
Phantoms November 2017
Phantoms October 2017
Deferred shares July 2015
Deferred shares July 2016
592,592
–
(451,721)
(140,871)
Number of
instruments
as at 1 June
2017
Instruments
granted
during the
year
Options
exercised in
the year
Forfeitures in
the year
Number of
instruments
as at 31 May
2018
(10,908)
–
–
(2,862)
–
–
–
98,924
10,908
2,862
110,780
14,252
325,401
234,820
59,280
683,424
614,751
440,094
1,057,848
–
–
–
–
–
–
–
–
–
–
–
–
–
1,883,769
136,087
–
351,035
–
–
–
–
–
–
–
–
–
349,626
439,853
178,601
208,053
20,058
–
113,120
8,189
20,338
30,074
50,000
129,940
19,476
202,709
308,625
378,289
377,586
–
–
–
–
–
19,779
–
–
37,869
27,183
(11,856)
(1,589)
–
–
–
(670,774)
(413)
–
–
(4,272)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(12,663)
(22,266)
(39,454)
–
(12,650)
(128,760)
(254,669)
(96,363)
–
–
–
–
(30,074)
(50,000)
–
–
–
(308,625)
–
(8,778)
–
(12,849)
–
–
–
–
–
–
–
–
–
303,135
195,366
59,280
–
485,578
185,425
961,485
1,879,497
136,087
–
351,035
20,338
–
–
129,940
19,476
202,709
–
378,289
368,808
349,626
427,004
178,601
208,053
20,058
19,779
113,120
8,189
–
27,183
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
–
–
(37,869)
–
150 NCC Group plc
Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
25 Share-based payments continued
Scheme
Approved EMI scheme August 2007
Approved EMI scheme February 2008
CSOP scheme July 2012
CSOP scheme July 2013
CSOP scheme August 2015
CSOP scheme July 2016
CSOP scheme August 2016
Sharesave scheme August 2013
Sharesave scheme August 2014
Sharesave scheme August 2015
Sharesave scheme August 2016
Sharesave scheme March 2017
ESPP scheme February 2016
ESPP scheme February 2017
ISO scheme January 2013
ISO scheme January 2014
ISO scheme January 2015
ISO scheme August 2015
ISO scheme January 2016
ISO scheme July 2016
LTIP July 2013
LTIP July 2014
LTIP July 2015
LTIP July 2016
Phantoms August 2016
Deferred shares July 2015
Deferred shares July 2016
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
59,280
(23,917)
–
(46,728)
(14,252)
–
–
–
–
–
–
–
–
–
–
457,436
1,055,822
1,087,209
–
–
–
(406,024)
(51,412)
(14,038)
(358,360)
(13,040)
(459,418)
–
–
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
–
–
94,382
–
–
–
644,483
19,779
–
–
81,384
–
–
–
–
(20,338)
(12,549)
–
–
–
–
(457,296)
–
1,057,848
(92,820)
–
–
(2,488)
–
–
592,592
20,338
30,074
50,000
(12,181)
129,940
–
–
(150,385)
(616,877)
–
–
–
–
–
–
(330,011)
(320,175)
(266,897)
–
(56,513)
(54,201)
10,908
2,862
110,780
14,252
325,401
234,820
59,280
–
683,424
614,751
440,094
19,476
202,709
–
308,625
378,289
377,586
19,779
37,869
27,183
Expense recognised in the profit and loss account
A charge of £0.1m (2017: £0.6m) 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.
26 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
2018
£m
2017
£m
276,510,137
1,149,944
277,660,081
2.8
–
2.8
2.8
–
2.8
During the year, 1,149,944 new ordinary shares of one pence were issued as a result of exercise of share options. The proceeds of £1.5m were
credited to the share premium account. As at 31 May 2018, no shares were held in treasury (2017: nil).
Stock Code: NCC
www.nccgroup.com
151
27 Profit attributable to members of the parent Company
The profit for the year dealt with in the accounts of the parent Company was £15.5m (2017: £29.0m).
28 Other financial commitments
Non-cancellable operating lease rentals are payable as follows:
Within one year or less
Between one and five years
Over five years
2018
2017
Land and
Buildings
£m
Other
£m
Land and
Buildings
£m
Other
£m
4.5
17.2
10.3
32.0
0.7
0.5
0.2
1.4
4.5
22.5
27.0
54.0
1.3
1.1
–
2.4
There are no contingent liabilities not provided for at the end of the financial year.
29 Contingencies
There are no contingent liabilities not provided for at the end of the financial year. Similarly, there are no contingent assets.
30 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 £3.2m (2017: £5.8m).
For the Company, the pension cost charge for the year represents contributions payable by the Company to the fund and amounted to £nil
(2017: £nil).
31 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. There were no other related party transactions during the year.
In the prior year, corporate finance fees of £0.3m were paid to Rickitt Mitchell & Partners Ltd. Paul Mitchell held the positions of Non-Executive
Chairman of NCC Group until 31 May 2017 and was also the Non-Executive Chairman of Rickitt Mitchell & Partners Ltd.
32 NCC Group plc company goodwill
The goodwill of £14.4m (2017: £14.4m) represents a transfer from investments of the value attributable to the continuing business, assets and liabilities
of RandomStorm Limited, which was hived up to a fellow NCC Group subsidiary company, NCC Group Security Services Limited, in June 2016.
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Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
33 Investments in subsidiary undertakings
Company
At 1 June 2016
Transfer to goodwill
Impairment charge
Increase in subsidiary investment for share-based charges
At 31 May 2017
At 1 June 2017
Transfer to goodwill
Impairment charge
Increase in subsidiary investment for share-based charges
At 31 May 2018
Shares in
Group
undertakings
£m
87.5
(14.4)
(13.0)
0.6
60.7
60.7
–
–
0.1
60.8
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
in the prior year 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 14.
Stock Code: NCC
www.nccgroup.com
153
33 Investments in subsidiary undertakings continued
The undertakings in which the Company has a 100% interest at 31 May 2018 are as follows:
Subsidiary undertakings
Country of incorporation
Principal activity
Registered office
NCC Group (Solutions) Limited
England and Wales
Holding company
XYZ Building, 2 Hardman Boulevard, Spinningfields,
Manchester, M3 3AQ (XYZ)
NCC Services Limited
England and Wales
Escrow and Assurance
NCC Group Escrow Limited
England and Wales
The National Computing Centre Limited
England and Wales
NCC Group Security Services Limited
England and Wales
NCC Group Audit Limited
NCC Group Pte Limited
England and Wales
Singapore
Dormant
Dormant
Assurance
Assurance
Assurance
NCC Group FZ-LLC
United Arab Emirates
Escrow
Axzona Limited
England and Wales
NCC Group Escrow Europe BV
Netherlands
Dormant
Escrow
Switzerland
Escrow
NCC Group Escrow Europe
(Switzerland) AG
NCC Group GmbH
FortConsult A/S
FC Holding Lithuania ApS
FC Holding Russia ApS
FortConsult UAB
NCC Group Security Services, Inc.
NCC Group Escrow Associates LLC
NCC Group Secure Registrar, Inc.
NCC Group Domain Services, Inc.
NCC Group Inc.
NCC Group Pty Limited
Germany
Denmark
Denmark
Denmark
Lithuania
USA
USA
USA
USA
USA
Australia
Escrow
Assurance
Assurance
Assurance
Assurance
Assurance
Escrow
Domain Services
Domain Services
Escrow & Assurance
Assurance
Assurance
NCC Group Security Services Corporation
Canada
Accumuli Limited
England and Wales
Holding company
Accumuli (Holdings) Limited
England and Wales
Holding company
ArmstrongAdams Limited
Randomstorm Limited
England and Wales
Assurance
England and Wales
Non–trading
XYZ1
XYZ1
XYZ1
XYZ1
XYZ
XYZ1
XYZ1
XYZ1
XYZ1
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
123 Mission Street, Suite 900, San Francisco, CA
94105, USA (US HQ)*
US HQ*
US HQ*
US HQ*
US HQ*
Level 17, 383 Kent Street, Sydney NSW 2000
51 Breithaupt Street, Suite 100, Kitchener, Ontario
N2H 5G5, Canada
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Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
33 Investments in subsidiary undertakings continued
Subsidiary undertakings
Country of incorporation
Principal activity
Registered office
Eqalis Limited
England and Wales
Accumuli Security Services Limited
England and Wales
Non–trading
Non–trading
NCC Group Signify Solutions Limited
England and Wales
Assurance
Fujin Technology Limited
England and Wales
Accumuli Security Systems Limited
England and Wales
Accumuli Security Technology Limited
England and Wales
Accumuli Security ASH Limited
England and Wales
Non–trading
Non–trading
Non–trading
Non–trading
NCC Group Accumuli Security Limited
England and Wales
Assurance
Accumuli B.V.
Netherlands
Holding company
Boxing Orange MSS Limited
England and Wales
Fox-IT Holding B.V.
Fox-IT Group B.V.
Fox-IT B.V.
Fox-IT Operations B.V.
Fox-IT Crypto B.V.
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Payment Software Company Inc
USA
Dormant
Assurance
Assurance
Assurance
Assurance
Assurance
Assurance
Payment Software Company Limited
England and Wales
Assurance
XYZ1
XYZ1
XYZ1
XYZ1
XYZ1
XYZ1
XYZ1
XYZ1
Doezastraat 1, 2311GZ, Leiden,
The Netherlands
XYZ1
Olof Palmestraat 6, 2616 LM Delft
The Netherlands (Fox HQ)
Fox HQ
Fox HQ2
Fox HQ2
Fox HQ2
591 West Hamilton Avenue, Suite 200, Campbell,
California 95008, USA
Upper Deck Admirals Quarters, Portsmouth Road,
Thames Ditton, Surrey, USA
Virtual Security Research LCC
USA
Assurance
76 Sumner St, 4th Floor, Boston, MA 02110
1 2 Hardman Boulevard, Spinningfields, Manchester, M3 3AQ
2 Olof Palmestraat 6, 2616 LM Delft, The Netherlands
The following subsidiaries were disposed of during the financial year:
Name of company
Country of incorporation
Principal activity
Date of Disposal
NCC Group Performance Testing Limited
NCC Group SDLC Limited
England and Wales
England and Wales
Assurance
Assurance
28 March 2018
24 May 2018
The undertakings in which the Company holds less than a 100% interest at the year end are as follows:
Undertaking
Tracks Inspector B.V.
Deposit AB Escrow Europe
% interest
35%
25%
Country of
incorporation
Netherlands
Sweden
Principal
activity
Assurance
Assurance
Stock Code: NCC
www.nccgroup.com
155
34 Post balance sheet events
Following the balance sheet date, the Group decided to discontinue the arbitration process it had commenced in respect of the final tranche of
deferred consideration payable in respect of the acquisition of Fox-IT (€11.25m/£9.9m as recorded in the Group’s balance sheet as at 31 May
2018). The decision was based on a desire to focus the Group’s efforts on the future growth and further development of the Fox business. It was felt
that a long-running process could have a detrimental effect on local management (none of whom were present during the original sale process) and
on initiatives to begin to leverage the value within the business. The full deferred consideration payable was therefore paid on 27 June 2018.
There were no other post balance sheet events.
35 Prior period acquisitions
Payment Software Company Inc
NCC Group Inc acquired Payment Software Company Inc (PSC), a company based in California, USA, on 28 September 2016. The consideration
was $16.6m initial cash and contingent consideration payments of $1.9m. 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 and paid in full.
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 of £0.4m were recognised as Individually Significant
Items (note 6). The 2017 Income Statement includes eight months’ post acquisition trading (£5.9m revenue and £1.2m operating profit).
Acquiree’s identifiable net assets at the acquisition date:
£m
Intangible assets – acquired
Trade and other receivables
Deferred tax liability (includes deferred tax arising on intangible assets acquired)
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
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Annual Report and Accounts for the year ended 31 May 2018
Notes to the financial statements
FOR THE YEAR ENDED 31 MAY 2018
35 Prior period acquisitions continued
Virtual Security Research LLC
NCC Group Inc acquired Virtual Security Research LLC (VSR), a company based in Boston, USA, on 11 November 2016. The consideration
was $3.7m initial cash and contingent payments of $0.9m. Fair values are based on the estimated discounted outflows, due on in periods to 31
December 2017 and 2018. The two contingent payments are payable in cash on the achievement of specific profit based targets (expected to be
paid in full).
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
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 6). The Group’s 2017 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.
Glossary of terms
Stock Code: NCC
www.nccgroup.com
157
Term
2016 Code
Adjusted*
AGM
Definition and usage
Guidance, issued by the Financial Reporting Council in 2016, 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.
Alternative Performance
Measure(APM)
An Alternative Performance Measure (which is denoted in each case or use thereof by * is a non–GAAP
performance metric used by management either internally or externally to present management’s view of the
underlying business performance. They are not superior to GAAP–based measures and are simply an alternative
way of looking at performance.
Average working capital % of sales
Calculated as the average of each months’ closing working capital divided by rolling 12 months’ sales in each
month.
Board
CAGR
The Board of Directors of the Company (for more information see pages 52 to 53).
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 before interest and tax divided by Adjusted* EBITDA, expressed
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 52–53 of this Report.
EBIT
EBIT Margin%
EBITDA
EPS
FCA
Earnings before interest and tax.
EBIT Margin is calculated as follows: Adjusted* EBIT divided by revenue.
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
Free cash flow
FRS
Gross profit
Financial Reporting Council
Net cash from operating activities less capital expenditure.
A UK Financial Reporting Standard as issued by the UK Financial Reporting Council (FRC).
Gross profit 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.
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Annual Report and Accounts for the year ended 31 May 2018
Glossary of terms
Term
Definition and usage
Gross margin%/GM%
Gross margin% is calculated as follows: Gross profit 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.
Adjusted 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 strategic decisions to
deliberately significantly reduce certain lines of income (namely the re–sale of third party products in the UK)
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%
ROS%
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.
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
Underlying
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.
Restate prior period information at current year exchange rates to give a like–for–like comparison.
Company information
Stock Code: NCC
www.nccgroup.com
159
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
Directors
Chris Stone
– Executive Chairman
Adam Palser
– Chief Executive Officer
(from 1 December
2017)
Brian Tenner
– Chief Financial Officer
Debbie Hewitt MBE – Senior Independent
Non-Executive Director
(until 28 March 2018)
Chris Batterham
– Senior Independent
Non-Executive Director
(from 29 March 2018)
Thomas Chambers – Non-Executive Director
Jonathan Brooks
– Non-Executive Director
Mike Ettling
Jennifer Duvalier
– Non-Executive Director
(from 1 September
2017)
– Non-Executive Director
(from 25 April 2018)
Company Secretary
Suzy Cross
Registered Office
XYZ Building – Head Office
2 Hardman Boulevard
Spinningfields
Manchester
M3 3AQ
Registered Number
4627044
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Annual Report and Accounts for the year ended 31 May 2018
Company information
Contact Us
UK
XYZ Building –
Head Office
2 Hardman Boulevard
Spinningfields
Manchester
M3 3AQ
Cambridge
Endeavour House
Chivers Way
Vision Park
Histon
Cambridge
CB24 9ZR
Cheltenham
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
Slough
268 Bath Road
Slough
Berkshire
SL1 4DX
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
Dubai
Dubai Internet City
Unit E015
Building 16
DIC
Dubai
United Arab Emirates
Singapore
Singapore
20 Collyer Quay
19-07 Singapore
049319
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 Abedu
4ª planta
28033, Madrid
Spain
Sweden
Norra Vallgatan 20
211 25, Malmö
Sweden
Switzerland
Ibelweg 18A
CH-6300 Zug
Switzerland
The Netherlands
Olof Palmestraat 6
2616 LM Delft
The Netherlands
Wilhelmina van Pruisenweg 104,
2595 AN, The Hague
The Netherlands
Van Heuven Goedhartlaan 13
1181 LE Amstelveen
The Netherlands
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
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XYZ Building – Head Office
2 Hardman Boulevard
Spinningfields
Manchester
M3 3AQ
www.nccgroup.com