Preliminary Results
NCC Group PLC
03 July 2007
3 July 2007
NCC Group plc
22% revenue growth by Escrow Solutions and 40% by Ethical Security Testing drive
Group full year profits up 23%
NCC Group plc, (AIM: NCC, 'NCC Group' or 'the Group') the international,
independent provider of Escrow Solutions, Assurance Testing and Consultancy,
published its preliminary results for the year ended 31 May 2007 today.
Financial Highlights
• Group revenue up by 22% to £25.4m (2006: £20.7m)
- Escrow Solutions revenue up by 22% to £15.0m
- Assurance Testing revenue up by 53% to £5.8m (including Ethical
Security Testing up 40%)
- Consultancy revenue down by 2% to £4.6m
• Group adjusted operating profits* up by 22% to £8.2m (2006: £6.7m)
- Escrow Solutions operating profits up by 21% to £8.0m
- Assurance Testing operating profits up by 25% to £0.7m
- Consultancy operating profits up by 16% to £0.7m
• Group adjusted pre tax profits** up by 23% to £8.1m (2006: £6.6m)
• Adjusted fully diluted earnings per share** up 23% to 16.8p (2006: 13.7p)
• Final dividend proposed of 3.25p, giving a total dividend of 4.75p, up 36%
• Net cash positive at £0.9m following acquisitions (2006: £1.3m)
Operational Highlights
• Two acquisitions completed in the year;
- Source Harbor, US Escrow Solutions provider on 7 July 2006 for up
to £0.8m
- Site Confidence, UK web site monitoring and load testing business on
23 January 2007 for up to £9.1m
• Modified Group structure to focus on rapid market growth of Escrow
Solutions and Assurance Testing (Load & Performance Testing and Ethical
Security Testing)
• Transfer to Full Listing expected on 13 July 2007
• Heads of terms signed to acquire another Assurance Testing Company for a
maximum consideration of £4m
• Total Group recurring revenue, monitoring renewals and order book for 2007
/8 currently stands at £19.0m
* Adjusted for amortisation of acquired intangibles. ** Adjusted for
amortisation of acquired intangibles and the unwinding of the discount of the
Site Confidence deferred consideration.
Rob Cotton, NCC Group Chief Executive commented:
'These are another excellent set of results. We have also integrated two
acquired businesses and are completing the move to the Official List from AIM.
'Following changes to the market and the integration of the acquisitions, we
have completed the modification of our operating structure. This will enable us
to focus on exploiting the considerable market opportunities in the software
escrow market, particularly following some high profile corporate failures; and
on the web testing and assurance markets. In the latter, organised crime
hacking has continued to increase significantly as the returns from identity
theft, banking and online frauds also continue to rise substantial.
'With a sound business model, growing markets and excellent forward visibility
of our revenues, we are confident that we will be able to continue to develop
the Group rapidly.'
Enquiries:
NCC Group (www.nccgroup.com) 0161 209 5200
Rob Cotton, Chief Executive
Paul Edwards, Group Finance Director
Dresdner Kleinwort
Charles Batten 020 7475 5799
College Hill
Adrian Duffield / Corinna Dorward 020 7457 2020
Overview
NCC Group has delivered another set of excellent results in its third and final
year as an AIM listed company. The year produced record performances in a
number of areas and saw the completion of two acquisitions, further
strengthening the Group's capability in both Escrow Solutions and Assurance
Testing.
Overall Group revenues grew by 22% to £25.4m (2006: £20.7m) with Group operating
profits increasing by 20% to £8.0m (2006: £6.6m). The Group continued to
generate strong margins, with operating margin before amortisation holding firm
at 32% (2006: 32%).
Adjusted pre-tax profits were up 23% to £8.1m (2006: £6.6m) and adjusted
earnings per share increased 23% to 16.8p (2006: 13.7p). In line with the
continuing progressive dividend policy, the Board is recommending a final
dividend of 3.25p per share which makes a total of 4.75p for the year, up 36%
(2006: 3.5p).
The Group continued to be highly cash generative and was £0.9m net cash positive
at the year end, despite meeting the cost of acquisitions out of cash resources.
The acquisition of Site Confidence, a Performance and Load Testing company, in
January 2007 for £9.1m, was a very positive move for the Group. Not only does
it complement the Assurance Testing offerings, it also allows the Group to
develop further its southern presence.
Following the acquisition of Site Confidence and to reflect the changes in
businesses over the last two years, the Group's structure has been modified over
the last 12 months.
The Group is now structured along three business lines:
• Escrow Solutions encompassing the Escrow businesses in the UK, Germany,
United States and now including Verification Testing
• Assurance Testing encompassing Performance and Load Testing, including
Site Confidence and the Ethical Security Testing business
• Consultancy
Financial Review
NCC Group revenues for the year ended 31 May 2007 increased by 22% to £25.4m
(2006: £20.7m). Supported by the acquisition of Site Confidence, the Group's
half year split was more weighted to the second half year than the first, with
45% of revenue delivered in the first half (2006: 47%) compared to 55% in the
second half (2006: 53%).
Total Escrow Solutions accounted for 59% of Group revenue (2006: 59%) following
the inclusion of Escrow Verification Testing within the division's income
stream. Assurance Testing now accounts for 23% (2006: 18%) with Consultancy,
the smallest division, accounting for 18% of revenue (2006: 22%).
With the continued growth in the US Escrow Solutions business and further
penetration into continental Europe from the UK, the geographical split of
revenue has continued to evolve. However, the vast majority of the revenue is
still contributed by the UK at £20.6m (2006: £17.7m), 81% (2006: 85%) of total
revenue. Revenue from the rest of the world has increased 71% to £3.0m (2006:
£1.8m) with Europe contributing £1.8m (2006: £1.3m).
Total Escrow Solutions revenue for the year increased by 22% to £15.0m (2006:
£12.3m) driven by continued growth in the UK which increased its revenue by 16%
to £11.4m (2006: £9.8m) and the acquisition of Source Harbor. The US increased
its revenue by 177% to £1.0m (2006: £0.4m) following a full year of trading.
Escrow Verification Testing contributed a 25% increase in revenue to £2.4m
(2006: £1.9m). Total Escrow Solutions contract terminations remain below 10%
with annual renewals increasing by 21% to £9.4m (2006: £7.7m).
The Assurance Testing division delivered strong revenue growth of 53% to £5.8m
(2006: £3.8m). The continued demand for Ethical Security Testing has seen its
revenue increase by 40%, although the move away from Specialist Testing has seen
a 29% (£0.5m) fall in revenues in 2007. The Performance and Load Testing
business of Site Confidence, which was acquired in January 2007, contributed
£1.6m of revenue to the Assurance Testing business in a little over four months
of NCC Group ownership.
Consultancy revenues fell by 2% to £4.6m (2006: £4.7m) with as expected slightly
stronger second half of the year.
Adjusted Group operating profit, as set out in the table below, grew by 22% to
£8.2m (2006: £6.7m). Adjusted operating margins remained at 32% (2006: 32%) a
significant increase from 29% at the time of the interim results. The half year
split of adjusted operating profit at 40:60 (2006: 40:60) was in line with prior
years.
Operating profit Profit before tax
2007 2006 2007 2006
Reported operating profit/profit before tax 7,952 6,636 7,785 6,551
Amortisation of acquired intangibles 230 47 230 47
Unwind of the discount on Site Confidence deferred consideration - - 102 -
Adjusted operating profit/profit before tax 8,182 6,683 8,117 6,598
The operating profits, as set out in the table, increased by 20% to £7.9m (2006:
£6.6m) are not adjusted for £0.6m (2006: £0.5m) of share based charges.
The UK performed strongly with an increase in adjusted operating profit growth
of 22% to £8.4m (2006: £6.9m), the adjusted operating margins also increased to
35% up from 34% in 2006. The US performed inline with expectations following
its first full year of trading with adjusted operating profit increasing by 39%
to £0.3m (2006: £0.2m). Germany incurred losses of £0.5m as costs were incurred
in the process of winding down the operation.
Currency fluctuations were minimal with a £11,000 adverse impact on the Group's
profits in the financial year ended 31 May 2007.
Adjusted pre-tax profit increased 23% to £8.1m (2006: £6.6m). The Group's
reported pre-tax profit was up 19% to £7.8m (2006: £6.6m).
The Group's effective tax rate is 31.0% (2006: 30.4%). The rate is above the
standard UK rate of 30% largely as a result of the amortisation of the
intangible asset and the unwinding of the discount on the retention payment for
Site Confidence Limited, both of which are not allowable for tax purposes.
At the year end the Group had unutilised tax losses carried forward in Site
Confidence. The Board has been advised these tax losses will be utilised and
£0.9m has been recognised (2006: £nil) as a deferred tax asset associated with
these losses.
The adjusted fully diluted earnings per share increased 23% to 16.8p (2006:
13.7p). The basic earnings per share increased 18% to 16.5p (2006: 14.0p),
whilst fully diluted earnings per share increased 17% to 15.9p (2006: 13.6p).
Growth in earnings per share is marginally different from the growth in earnings
due to the fact that the weighted average number of dilutive share options has
increased.
The table below analyses the effect on the Group's fully diluted earnings per
share of the amortisation of acquired intangibles and unwind of the deferred
consideration on Site Confidence Limited.
2007 2006
Pence Pence
Diluted EPS as per the income statement 15.9 13.6
Amortisation of acquired intangibles 0.6 0.1
Unwind of the discount on Site Confidence deferred consideration 0.3 -
Adjusted diluted EPS 16.8 13.7
The Board is recommending a final dividend of 3.25p per share which makes a
total of 4.75p for the year up 36% (2006: 3.5p). If approved at the Annual
General Meeting, the dividend will be paid on 28 September 2007 to shareholders
on the register at 31 August 2007. The ex-dividend date will be 29 August 2007.
The Group continues to be highly cash generative with operating cash flow before
interest and tax of £7.8m (2006: £7.3m) which is 98% of operating profit before
interest and tax (2006: 109%). A strong finish to the year has seen debtor days
increased to 61 (2006: 51).
Shareholders' funds at the end of the year were £33.4m (2006: £28.2m).
After accounting for net cash out flows of £3.3m for the two acquisitions made
during this year the Group ended the year with net cash of £0.9m (2006: £1.3m).
Capital expenditure was reduced at £0.7m (2006: £0.8m) but it is likely to
increase marginally in the coming financial year as the Group upgrades its core
IT systems and develops unutilised space in its existing facilities to
accommodate future growth.
Following the acquisitions of Source Harbor and Site Confidence, goodwill
increased by £7.1m and intangible assets relating to customer contracts and
associated relationships increased by £2.0m. The value of goodwill has been
assessed and no impairment has been evidenced. The contracts and customer
relationships have been assigned a useful economic life of between five and
twenty years and are to be amortised over that period.
Current markets
In the second half of the year, the Group saw returns from of its targeted
software owner campaigns and there has been an increase in software owners
proactively offering NCC Group Escrow Solutions to their customers.
NCC Group has been aided by the newsworthy and very public demise of some high
profile software providers. Enlightened software owners are now keen to
disassociate themselves from the dubious segments of the software development
and reseller market and are more aware than ever that a licensee will demand
escrow protection.
The software owner schemes provide real added value as NCC Group actively
markets escrow for them and take away the administrative burden. These schemes
are paying positive returns to those who adopt them and the Group expects this
trend to continue.
The launch and continuing enhancements of the on line portal, 'Escrow Live' is
making the process of account management and code depositing easier for all
parties. Within the next few months the Group anticipates that owners will be
able to have licensees join their agreement online with minimum administration
and involvement. The introduction of immediate escrow protection schemes are
further making the process of obtaining escrow protection quicker, easier and
more accessible.
The Escrow Solutions service continues to be a 'peace of mind' assurance
proposition which provides real benefit in all economic climates. NCC Group
continues to encourage clients to reach the correct level of protection and is
seeing a good increase in their levels of risk awareness.
Ethical Security Testing yet again continues to experience strong growth.
Hacking is big business getting bigger and with it there is increased publicity,
TK Maxx being a substantial recent example.
Organised crime is committed to hacking as the returns from identity theft,
banking and online frauds have continued to rise. The proliferation of black
market auction web sites continues as it has become even easier to buy and sell
hacking tools, bank details and individuals' personal identities.
The market research obtained from the Group's security awareness campaign in
January, which targeted Finance Directors of listed companies with USB memory
sticks sent from an unidentified source, highlighted that individuals in senior
positions still have a long way to go before information security is properly
understood.
NCC Group is well placed to capitalise on the work that results from this lack
of knowledge. The Ethical Security business combined with the Information
Security Consultancy offerings put NCC Group in a strong position to capitalise
on the market growth.
The current day rate market is best described as 'buoyantly competitive', with a
lot of invitations to propose for work. This position is much better than last
year and the Group remains confident in the Consultancy offerings. Over the
last twelve months NCC Group has seen the Consultancy work fall into two main
categories, Information and Technology review, including process improvement and
procurement, and Information and Technology Security.
The security side of the Consultancy division complements the Ethical Security
Testing propositions and the Group offers advice to organisations to make sure
that they are best placed to protect themselves and their business assets from
attack. NCC Group provides security advice from every perspective, especially
for those organisations that are covered by the Payment Card Industry (PCI) Data
Security Standards.
The Group's position in the information security market is further enhanced by
its being accredited PCI Auditors, having CLAS consultants and one of the
biggest CHECK accredited security testing teams in the UK.
Business Review
Each operating division is managed independent and run by an autonomous
management team. There is no divisional focus on cross selling, although more
and more the Group is seeing a tie up between the information security side of
Consultancy and Ethical Security Testing. This trend will continue throughout
the coming year as PCI Data Security Standards are introduced and audited in
businesses accepting debit or credit card payments.
Group Escrow Solutions
The Escrow Solutions business remains the cornerstone of the Group representing
59% of Group revenue. NCC Group has experienced good growth in all of its key
performance measures of profitability, new contracts and beneficiaries, renewals
and for Verification Testing.
Profitability grew to £8.0m (2006 £6.6m), an increase of 21% on revenue of £15m,
with the UK contributing £13.8m.
Group escrow renewals, represented £9.4m (2006: £7.7m) in the year, benefiting
from continued tight controls over the termination process. Contract
terminations were less than 10% in the year and below 11% for agreement
beneficiaries. This is again better than the Board's expectation and reflects
the Group's flexibility and commitment to customer care in ensuring this level
of renewal.
During the year the Board curtailed the investment in the German Escrow
Solutions business and cut costs. NCC Group anticipates that the business will
now run at break even. The Board still ultimately believes that Continental
Europe represents a real opportunity for the Group's Escrow Solutions ambitions.
However, the level of growth achieved so far, against the costs incurred in
delivering that growth, has failed to make a compelling case for further
investment at this time.
Worldwide the beneficiary base has now grown to 18,450 and the number of
contracts is now at 9,138. In the UK NCC Group has 14,432 beneficiaries to
7,440 agreements. In the UK we have 911 minimum annual fees on agreements.
The rate of agreement completions, renewals and terminations have been such that
NCC Group is forecasting Group escrow renewals to be £10.5m for 2007/08 with UK
renewals forecast to be £9.5m.
Escrow Verification Testing remains a predominantly UK sale, although the Group
is seeing very good progress within the US market with customers beginning to
understand the benefits of increased levels of protection. The Escrow
Verification Testing service delivered £2.4m of revenue (2006: £1.9m). The
Board continues to see over 40% of verifications being repeated and have an
order book of £1.3m.
Assurance Testing
Assurance Testing consists of Ethical Security Testing and Performance and Load
Testing. Ethical Security Testing incorporates all of the Group's security
testing, of which Penetration Testing is just one part. Performance and Load
Testing includes the web site monitoring and load testing business based around
Site Confidence, as well as the parts of the original Specialist Testing
business, which is now mostly concerned with complementary Load Testing
services.
In Assurance Testing, the Ethical Security Testing business saw an increase of
40% in revenues to over £3.1m in the year and a 317% increase in profitability
despite the sizeable investment in the management structure. Site Confidence
and the Performance and Load Testing offering produced over £2.7m of income,
with Site Confidence producing a contribution of £0.1m in the first four months
of ownership.
Assurance Testing profitability grew to £0.7m (2006: £0.6m), an increase of 25%,
with revenue growth of 53% to £5.8m. As risk mitigation moves further up the
corporate agenda, the Board anticipates significant growth in this area going
forward.
In adjusting the flow of information provided to the market, NCC Group has
decided to report Ethical Security Testing's revenue and revenue growth instead
of the number of tests. The Group offers much more than just basic penetration
tests and it is now difficult to quantify what actually constitutes a test.
Revenue growth was 40% to £3.1m (2006: £2.2m).
In May 2007 we were delighted to be selected as one of only three approved
suppliers under the CESG, the information assurance arm of the UK Government
Communications Headquarters, Tailored Assurance Service scheme, which covers all
aspects of the assurance proposition including security testing and Information
Security Consultancy.
Performance and Load Testing offers a tremendous opportunity to the Group. The
movement away from the existing niche based offering was concluded with the
acquisition of Site Confidence. The online monitoring business offers a high
level of recurring revenues, with 90% of the blue chip customers renewing their
annual contracts.
Site Confidence has a very strong presence in the web monitoring market and will
provide a platform for further developments in both load testing and 24/7
monitoring products. Of particular interest is the development of a 24/7
ethical security testing service.
Consultancy
Consultancy delivered a solid year although revenue fell by 2% to £4.6m as the
Group continued to stabilise its position in the market. Once again the Group
had a stronger second half and as anticipated utilisation levels returned to the
75% mark.
The business has emerged as a key provider in the PCI Data Security Standards
area and has seen good growth in the information security consultancy as
security moves rapidly up the corporate agenda. Whilst this has helped reduce
the reliance on local authority and central government, the Group has still seen
success within the public sector, most notably in the housing sector.
As a result of careful cost control and the appropriate use of flexible
resources, the Group generated a profit of £0.5m in the second half of the year.
Operating profits grew by 16% to £0.7m (2006: £0.6m) for the year.
Employees, Recruitment and Retention
Recruitment and retention remains the biggest challenge to growth for a people
business. The Group has a headcount of 259, with 84 escrow account managers
(2006: 67).
NCC Group has begun to recruit in the new southern office in Dorking, but has
deliberately taken a careful approach to ensure that the business processes
fully function and that the business is properly integrated into the Group first
before stretching the onsite management team.
With good progress to date the Group has recruited a number of Ethical Security
Testing staff, are constructing an Ethical Security Testing laboratory and
expects to start extensive recruitment for escrow account managers during the
next six months.
Acquisitions
NCC Group will continue to invest in appropriate complementary business
activities and is regularly involved in discussions with suitable target
companies but remains cautious.
Currently the Group is optimistic that it will acquire another earnings
enhancing Assurance Testing Company, for a consideration not greater than £4m.
The Group has entered into a non-binding heads of terms agreement, with a view
to undertaking due diligence and then, subject to the outcome, completing the
transaction on or around the end of July 2007.
Move to Full Listing
As announced earlier this year the Board decided to transfer the Group's listing
from AIM to the Official List, the main market in London. A full listing should
not only enhance the Group's corporate identity and profile but also support its
ambitious growth plans. The Group expects to complete the process on 13 July
2007.
Current Trading and Outlook
The Board believes that the Group has the right operational structure and strong
business culture in place to continue with its ambitious and exciting growth
plans whilst the business continues to make a virtue of acting independently and
to ensure equitable terms are provided for both parties. No parties are
favoured.
The start to the year sees the total Group Escrow Solutions renewals at £10.5m,
up from £9.4m this time last year and a verification order book of £1.3m.
The Assurance Testing businesses' order books have improved to £2.2m from £1.6m
with £3.2m of monitoring renewals being forecast for 2007/08. The Consultancy
business has £1.8m of orders up from £1.7m last year.
NCC Group remains committed to the delivery of organic growth in both its
existing businesses and newly acquired operations. The outlook for NCC Group
remains good and the Board remains very confident in the Group's ability to
deliver growth.
Consolidated income statement
For the year ended 31 May 2007
Notes 2007 2006
£000 £000
Revenue 2 25,400 20,747
Cost of sales (13,365) (10,647)
Gross profit 12,035 10,100
Administrative expenses before amortisation of intangible assets (3,853) (3,417)
Earnings before interest, tax and amortisation 8,182 6,683
Amortisation of intangible assets (230) (47)
Total administrative expenses (4,083) (3,464)
Operating profit 2 7,952 6,636
Financial income 5 109 175
Finance expense excluding unwinding of discount (174) (260)
Net financing costs excluding unwinding of discount (65) (85)
Unwinding of discount effect relating to deferred consideration on business (102) -
combinations
Financial expenses 5 (276) (260)
Net financing costs (167) (85)
Profit before taxation 3 7,785 6,551
Taxation 6 (2,411) (1,993)
Profit for the year 5,374 4,558
Attributable to equity holders of the parent company 5,374 4,558
Profit for the year 5,374 4,558
Earnings per share 8
Basic earnings per share 16.5p 14.0p
Diluted earnings per share 15.9p 13.6p
Group balance sheet
at 31 May 2007
Notes 2007 2006
£000 £000 £000 £000
Non current assets
Intangible assets 10 39,302 30,420
Plant and equipment 11 1,482 1,257
Deferred tax assets 14 2,005 423
Total non-current assets 42,789 32,100
Current assets
Trade and other receivables 12 7,757 4,840
Cash and cash equivalents 4,377 5,139
Total current assets 12,134 9,979
Total assets 54,923 42,079
Equity
Issued capital 20 326 326
Share premium 19,929 19,913
Retained earnings 13,144 7,964
Currency translation reserve 39 15
Total equity attributable to equity holders
of the parent
33,438 28,218
Non current liabilities
Interest bearing loans 17 3,500 2,689
Other financial liabilities 17 3,782 123
Deferred tax liability 14 473 -
Total non current liabilities 7,755 2,812
Current liabilities
Interest bearing loans 18 - 1,200
Trade and other payables 15 3,931 2,750
Deferred revenue 16 8,620 6,037
Current tax payable 1,179 1,062
Total current liabilities 13,730 11,049
Total liabilities 21,485 13,861
Total liabilities and equity 54,923 42,079
Group cash flow statement
for the year ended 31 May 2007
Notes 2007 2006
£000 £000
Cash inflow from operating activities
Profit for the year 5,374 4,558
Adjustments for:
Depreciation charge 688 550
Share based charges 575 468
Amortisation of intangible assets 230 47
Net financing costs 167 85
Profit on sale of plant and equipment - (9)
Income tax expense 2,411 1,993
Profit for the year before changes in working capital 9,445 7,692
Increase in receivables (1,976) (1,045)
Increase in payables 314 636
Cash generated from operating activities before interest and tax 7,783 7,283
Interest paid (166) (272)
Income taxes paid (2,449) (1,808)
Net cash generated from operating activities 5,168 5,203
Cash flows from investing activities
Interest received 109 175
Proceeds from the sale of plant and equipment 1 34
Acquisition of plant and equipment (734) (824)
Acquisition of business 13 (3,641) (2,546)
Net cash used in investing activities (4,265) (3,161)
Cash flows from financing activities
Proceeds from the issue of ordinary share capital 16 -
VAT recovered on fees relating to the issue of capital - 94
Proceeds from borrowings 3,500 -
Payment of bank loans (3,900) (1,200)
Payment for shares in minority interest - (18)
Equity dividends paid (1,304) (897)
Net cash from financing activities (1,688) (2,021)
Net (decrease) / increase in cash and cash equivalents 22 (785) 21
Cash and cash equivalents at beginning of year 5,139 5,103
Effect of exchange rate fluctuations on cash held 23 15
Cash and cash equivalents at end of year 4,377 5,139
Statement of changes of equity
for the year ended 31 May 2007
Group
Share Share Retained Currency Minority Total
capital premium earnings translation interest Equity
£000 £000 £000 £000 £000 £000
Balance at 1 June 2005 326 19,819 3,755 - (23) 23,877
Share based charges - - 468 - - 468
Deferred tax on share based
payments
- - 103 - - 103
Profit for the year - - 4,558 - - 4,558
Currency translation reserve - - - 15 - 15
Recovery of VAT on share issue - 94 - - - 94
Purchase of minority interest - - (23) - 23 -
Dividends to shareholders - - (897) - - (897)
Balance at 31 May 2006 326 19,913 7,964 15 - 28,218
Balance at 1 June 2006 326 19,913 7,964 15 - 28,218
Share based charges - - 575 - - 575
Deferred tax on share based - - 535 - - 535
payments
Profit for the year - - 5,374 - - 5,374
Shares issued - 16 - - - 16
Currency translation reserve - - - 24 - 24
Dividends to shareholders - - (1,304) - - (1,304)
Balance at 31 May 2007 326 19,929 13,144 39 - 33,438
Notes
1 Accounting policies
Basis of preparation
NCC Group plc ('the Company') is a company incorporated in the UK.
The Group financial statements consolidate those of the company and its
subsidiaries (together referred to as the 'Group'). The parent company
financial statements present information about the Company as a separate entity
and not about its Group.
Both the parent and the Group financial statements have been prepared and
approved by the directors in accordance with International Financial Reporting
Standards as adopted by the EU ('Adopted IFRS'). On publishing the parent
company financial statements here together with the Group financial statements,
the company is taking advantage of the exemption in s230 of the Companies Act
1985 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 consolidation
Subsidiaries are entities controlled by the Group. Control exists when the Group
has the power, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. In assessing
control, potential voting rights that are currently exercisable or convertible
are taken into account. 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
All business combinations are accounted for by applying the purchase method.
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. Identifiable intangibles are those
which can be sold separately or which arise from legal rights regardless of
whether those rights are separable.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is
allocated to cash-generating units based on the allocation of the business
acquired and is not amortised but is tested annually for impairment.
In respect of acquisitions prior to 1 June 2004, goodwill is included at 1 June
2004 on the basis of 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 not recognised and goodwill was amortised.
Other intangible assets that are acquired by the Group are stated at cost less
accumulated amortisation. Amortisation is charged to the income statement on a
straight line basis over the estimated useful lives of intangible assets unless
such lives are indefinite. Goodwill is systematically tested for impairment at
each balance sheet date or whenever there is an indication of impairment. Other
intangibles are amortised from the date they are available for use. Acquired
customer contracts and relationships are amortised over their estimated useful
economic life of between 5 and 20 years.
Related party transactions
Details of related party transactions are set out in note 25 to these financial
statements.
Plant and equipment
Plant and equipment is stated at cost less accumulated depreciation.
Depreciation is charged to the income statement on a straight line basis over
the estimated useful lives of each part of an item of plant and equipment. The
estimated useful lives are as follows:
Computer equipment - 20% to 33%
Plant and equipment - 20%
Fixtures and fittings - 20%
Motor vehicles - 25%
Plant and equipment is also tested for impairment whenever there is an
indication of potential impairment.
Investments in subsidiaries
Investments in subsidiaries are carried at cost less impairment and pre
acquisition dividends.
Revenue recognition
Revenue represents the value of services provided during the period, excluding
VAT.
Testing and consultancy
The results of partially completed contracts whether fixed price or on a time
and materials basis are dealt with on a percentage completion basis according to
the number of days worked 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.
Escrow and web site monitoring
Other than fees attributable to initial setup on the signing of a new contract,
which is recognised when the contract is signed, maintenance and escrow
solutions agreement revenue is deferred and released to the income statement on
a straight-line basis over the life of the related agreement, on the basis that
the performance is deemed to fall evenly over the contract period.
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
ruling at the balance sheet date and the gains or losses on translation are
included in the income statement.
The assets and liabilities of overseas subsidiaries denominated in foreign
currencies are translated at the closing rate and income statements of overseas
subsidiary undertakings are translated at the average exchange rates. Gains and
losses arising on these transactions are taken to the translation reserve. They
are released to the income statement upon disposal.
Operating leases payments
Operating lease rentals are charged to the income statement on a straight-line
basis over the period of the lease. Lease incentives received are recognised in
the income statement as an integral part of the total lease expense.
Employee benefits - defined contribution plans
The Group operates a defined contribution pension scheme. The assets of the
scheme are kept separately from those of the Group in an independently
administered fund. The amount charged as expense in the income statement
represents the contributions payable to the scheme in respect of the accounting
period.
Share-based payment transactions
The share option programme allows Group employees to acquire shares of the
parent company; these awards are granted by the parent. The fair value of
options granted is recognised as an employee expense with a corresponding
increase in equity. The fair value is measured at grant date and spread over the
period during which the employees become unconditionally entitled to the
options. 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 share options that vest except where forfeiture is due only
to share prices not achieving the threshold for vesting.
Interest bearing borrowings
Interest bearing borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition interest
bearing borrowings are stated at amortised cost with any difference between cost
and redemption value being recognised in the income statement over the period of
the borrowings on an effective interest basis.
Net financing costs
Net financing costs comprise interest payable, interest receivable on funds
invested and dividend income.
Interest income and interest payable is recognised in the income statement as it
accrues. Dividend income is recognised in the income statement on the date the
entity's right to receive the payments is established and pre acquisition
dividends are deducted from the cost of investment.
Contingent deferred consideration under business combinations
Contingent consideration on business combinations is recognised only to the
extent that it is probable that the consideration will be paid.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in the income statement except to the extent that it relates to
items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income 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 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 and the initial recognition of assets or
liabilities that affect neither accounting nor taxable profit other than in a
business combination. 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 asset can be
utilised.
Intra-group financial instruments
Where the Company enters into financial guarantee contracts to guarantee the
indebtedness of other companies within the Group, the Company considers these to
be insurance arrangements and accounts for them as such. In this respect the
Company treats the guarantee contract as a contingent liability until such time
as it becomes probable that the Company will be required to make a payment under
the guarantee.
IFRS adopted for the first time
In these financial statements the following new statements have been adopted for
the first time;
IFRIC 4 Determining whether an arrangement contains a lease
IFRIC 6 Liabilities arising from participating in a specific
market - waste electrical and electronic equipment
IFRIC 10 Interim financial reporting and impairment
Amendment to The effects of changes in foreign exchange rates - Net
IAS 21 investment in a foreign operation
Amendments to Financial instruments - Recognition and measurement -
IAS 39 Hedging of future cash flows and the
fair value option
The adoption of these statements has had an immaterial impact upon these
accounts.
Adopted IFRS not yet applied
The following adopted IFRS were available for early adoption but have not been
applied by the Group in these financial statements;
International accounting standards (IFRS)
IFRS 7 Financial Instruments: Disclosures
IFRS 1 Amendment to IAS 1 - Capital disclosures
IFRS 8 Operating segments (not yet endorsed)
IFRIC 7 Hyperinflation
IFRIC 8 Scope of IFRS 2 - Share based payments
The directors do not anticipate that the adoption of these standards and
interpretations will have a material impact on the Group's financial statements.
Certain of these standards and interpretations will require additional
disclosures over and above those currently included in these financial
statements in the period of initial application.
Trade and other receivables
Trade and other receivables are stated at their nominal amount less impairment
losses.
Cash and cash equivalents
Cash and cash equivalents comprise of cash in hand and deposits repayable on
demand. Bank overdrafts that are repayable on demand form part of the Group's
cash management and are included as a component of cash and cash equivalents for
the purpose only of the statement of cash flows.
Basis of measurement
The financial statements are prepared on the historical cost basis.
Use of estimates and judgements
Information about the most significant areas of estimation and judgements is
described in the following notes;
10 Goodwill
13 Acquisitions
19 Measurement of share based payments
2 Segmental information
The Group is organised into three primary business segments; Escrow Solutions,
Assurance Testing and Consultancy. These three segments are the Group's primary
reporting format for segment information. All segments are located in the UK
unless indicated otherwise.
2007 2006
£000 £000
Revenue by business segment
Escrow Solutions 11,400 9,832
Escrow Solutions (Germany) 203 183
Escrow Solutions (US) 1,028 371
Escrow Verification 2,390 1,907
Total Escrow Solutions 15,021 12,293
Assurance Testing 5,795 3,797
Consultancy 4,584 4,657
Total revenue 25,400 20,747
Operating profit by business segment
Escrow Solutions 7,357 6,065
Escrow Solutions (Germany) (476) (384)
Escrow Solutions (US) 248 178
Escrow Verification 825 710
Total Escrow Solutions 7,954 6,569
Assurance Testing 740 590
Consultancy 717 616
Segment operating profit 9,411 7,775
Head office costs (1,229) (1,092)
Earnings before interest, tax and amortisation 8,182 6,683
Amortisation of intangible assets Escrow (US) (118) (47)
Amortisation of intangible assets Assurance Testing (112) -
Operating profit 7,952 6,636
Interest and tax are not allocated to business segments and there are no inter
segment sales.
Assets Liabilities Assets Liabilities
2007 2007 2006 2006
£000 £000 £000 £000
Assets / (liabilities) by business segment
Escrow Solutions 2,795 (6,890) 2,014 (6,224)
Escrow Solutions (Germany) 175 (126) 272 (171)
Escrow Solutions (US) 4,341 (664) 3,723 (787)
Escrow Verification 624 (173) 355 (149)
Total Escrow Solutions 7,935 (7,853) 6,364 (7,331)
Consultancy 2,108 (666) 1,369 (646)
Assurance Testing 7,199 (7,794) 813 (550)
Unallocated net assets 37,681 (5,172) 33,533 (5,334)
Total assets / (liabilities) 54,923 (21,485) 42,079 (13,861)
Depreciation Capital Total costs
expenditure incurred to
acquire
2006 segmental assets
£000 £000 £000
Escrow Solutions 250 347 -
Escrow Solutions (Germany) 22 114 -
Escrow Solutions (US) 7 93 2,546
Escrow Verification 21 19 -
Total Escrow Solutions 300 573 2,546
Consultancy 110 87 -
Assurance Testing 130 154 -
Head office 10 10 -
Total 550 824 2,546
2007 Depreciation Capital Total costs
expenditure incurred to
acquire
segmental assets
£000 £000 £000
Escrow Solutions 298 317 -
Escrow Solutions (Germany) 32 12 -
Escrow Solutions (US) 52 89 1,124
Escrow Verification 20 14 -
Total Escrow Solutions 402 432 1,124
Consultancy 85 60 -
Assurance Testing 195 242 4,766
Head office 6 5 -
Total 688 739 5,890
Unallocated net assets consist of goodwill arising on consolidation, cash, tax
payable and other centrally held assets and liabilities.
The table below provides additional disclosure on revenue by geographical market
where the customer is based.
2007 2006
£000 £000
Revenue by geographical segment
UK 20,620 17,699
Rest of Europe 1,756 1,275
Rest of the World 3,024 1,773
Total revenue 25,400 20,747
The table below provides additional disclosure on assets / (liabilities) by
geographical market where the assets / (liabilities) are based.
Assets Liabilities Assets Liabilities
2007 2007 2006 2006
£000 £000 £000 £000
Assets / (liabilities) by geographical
segment
UK 50,407 (20,695) 38,084 12,903
Rest of Europe 175 (126) 272 (171)
Rest of the World 4,341 (664) 3,723 (787)
Total assets / (liabilities) 54,923 (21,485) 42,079 (13,861)
3 Expenses and auditors' remuneration
2007 2006
£000 £000
Profit before taxation is stated after charging/(crediting):
Amounts receivable by audtitors and their associates in respect of:
Audit of these financial statements 5 5
Audit of financial statements of subsidiaries pursuant to legislation 29 24
Other services pursuant to legislation 5 1
Services relating to corporate finance transactions entered into or proposed - 9
to be entered into by or on behalf of the Company or Group
Depreciation and other amounts written off tangible and intangible fixed
assets:
Owned 688 550
Amortisation of intangible assets 230 47
Exchange losses 11 10
Operating lease rentals charged:
Hire of property, plant and equipment 305 270
Other operating leases 445 385
Profit on disposal of fixed assets - (9)
4 Staff numbers and costs
Group
The average number of persons employed by the Group during the year, including
directors is analysed by category as follows:
Number of employees
2007 2006
Operational 59 66
Administration, sales and marketing 179 142
238 208
The aggregate payroll costs of these persons were as follows:
2007 2006
£000 £000
Wages and salaries 9,829 7,853
Share based payments (note 19) 575 468
Social security costs 1,120 912
Other pension costs (note 24) 257 231
11,781 9,464
Company
The average number of persons employed by the company during the year, including
directors is analysed by category as follows:
Number of employees
2007 2006
Administration, sales and marketing 2 2
2 2
The aggregate payroll costs of these persons were as follows:
2007 2006
£000 £000
Wages and salaries 435 386
Share based payments (note 19) 169 146
Social security costs 62 51
Other pension costs (note 24) 26 23
692 606
5 Net financing costs
2007 2006
£000 £000
Financial income
Interest on short term deposits 109 175
109 175
Financial expenses
Interest payable on bank loans and overdrafts (163) (253)
Amortisation of deal fees on term loans (11) (7)
Deferred consideration finance expense (see below) (102) -
(276) (260)
The deferred consideration finance expense of £102,000 (2006: nil) relates to
the acquisition of Site Confidence Limited. The maximum consideration to be paid
excluding professional fees is £9,100,000 based on performance conditions
specified in the purchase agreement of which £4,300,000 was paid in January
2007, £891,000 was paid in June 2007 with the remaining balance of up to
£3,909,000 due to be paid in June 2008. The deferred consideration has been
discounted to present values and the unwinding of the discount has been treated
as a finance expense. The discount rate used is 6.5%. The total net present
value as at 31 May 2007 of the deferred contingent consideration recognised in
trade and other payables (note 15) is £996,000 which includes £105,000 arising
from the acquisition of Source Harbor Inc. Additionally, the net present value
as at 31 May 2007 recognised in non current liabilities (note 17) is £3,625,000.
6 Taxation
Recognised in the income statement
2007 2006
£000 £000
Current tax expense
Current year 2,571 2,151
Adjustment to tax expense in respect of prior periods (11) (16)
Foreign tax 12 5
Total current tax 2,572 2,140
Deferred tax (see note 14) (161) (147)
Tax in income statement 2,411 1,993
Reconciliation of effective tax rate
2007 2006
£000 £000
Profit before taxation 7,785 6,551
Current tax using the UK corporation tax rate of 30% (2006:30%) 2,336 1,965
Effects of:
Expenses not deductible for tax purposes 74 39
Foreign tax 12 5
Adjustment to tax charge in respect of prior periods (11) (16)
Total current tax 2,411 1,993
Deferred tax recognised directly in equity was £535,000 (2006: £103,000)
7 Dividends
2007 2006
£000 £000
Dividends paid and recognised in the year 1,304 897
Dividends proposed but not recognised in the year 1,060 734
Dividends per share paid and recognised in the year 4.00p 2.75p
Dividends per share proposed but not recognised in the year 3.25p 2.50p
8 Earnings per share
The calculation of earnings per share is based on the following:
2007 2006
£000 £000
Profit for the year 5,374 4,558
Number of Number of
Shares Shares
000's 000's
Basic weighted average number of shares in issue 32,611 32,604
Dilutive effect of share options 1,256 800
Diluted weighted average shares in issue 33,867 33,404
9 Profit attributable to members of the parent company
The loss for the year dealt with in the accounts of the parent company was
£77,000 (2006: £751,000 profit).
10 Intangible assets - Group
Note Customer Goodwill Total
contracts and
relationships
£000 £000 £000
Cost
At 1 June 2005 - 27,401 27,401
Additions 2,250 816 3,066
At 31 May 2006 2,250 28,217 30,467
Additions 13 1,964 7,148 9,112
At 31 May 2007 4,214 35,365 39,579
Amortisation
At 31 May 2006 47 - 47
Charge for year 230 - 230
At 31 May 2007 277 - 277
Net book value
At 31 May 2007 3,937 35,365 39,302
Net book value
At 31 May 2006 2,203 28,217 30,420
The Company has no intangible assets.
Goodwill considered significant in comparison to the Group's total carrying
amount of such assets have been allocated to cash generating units or groups of
cash generating units as follows:
Goodwill
2007 2006
Cash generating units £000 £000
Escrow 22,871 22,871
Assurance Testing 2,301 2,301
Consultancy 2,229 2,229
NCC Group plc 27,401 27,401
NCC Group Inc 1,354 816
Site Confidence Limited 6,610 -
35,365 28,217
NCC Group Inc includes goodwill on the acquisition of the escrow division of
Recall Information Management Inc and Source Harbor Inc. The recoverable amount
of the cash generating units has been calculated with reference to its fair
value in use. In calculating this value, management have used the following
assumptions. Management have used experience and taken a prudent approach in
determining the values assigned to each key assumption, sales levels are based
on historical trends and a prudent estimate of market growth. The period over
which management approved forecasts are based is three years using a discount
rate of 11.5%, the growth rate beyond 3 years is assumed to be zero. There is
significant headroom on this basis.
11 Plant and equipment - Group
Computer Plant and Fixtures and Motor vehicles
equipment equipment fittings Total
£000 £000 £000 £000 £000
Cost
At 1 June 2005 1,487 344 454 103 2,388
Additions 609 14 46 161 830
Disposals - - - (67) (67)
At 31 May 2006 2,096 358 500 197 3,151
Additions 627 14 56 42 739
Acquisition of Site 381 33 38 - 452
Confidence Limited
Disposals (1) - - - (1)
At 31 May 2007 3,103 405 594 239 4,341
Depreciation
At 1 June 2005 1,099 130 122 35 1,386
Charge for year 343 63 111 33 550
On disposals - - - (42) (42)
At 31 May 2006 1,442 193 233 26 1,894
Charge for year 458 64 109 57 688
Acquisition of Site 244 10 23 - 277
Confidence Limited
At 31 May 2007 2,144 267 365 83 2,859
Net book value
At 31 May 2007 959 138 229 156 1,482
Net book value
At 31 May 2006 654 165 267 171 1,257
The company has no plant and equipment
12 Trade and other receivables
Group Group Company Company
2007 2006 2007 2006
£000 £000 £000 £000
Trade receivables 5,792 3,464 - -
Amounts owed by group undertakings - - 235 165
Prepayments and accrued income 1,965 1,376 - -
7,757 4,840 235 165
All receivables fall due within one year and impairment on trade receivables in
the year was immaterial.
13 Acquisitions
A. On 7 July 2006, the Group acquired the trade and net assets of Source Harbour
Inc for a maximum consideration of £897,000 of which £111,000 has been withheld
subject to the achievement of performance criteria specified in the purchase
agreement. The performance conditions are required to be satisfied by September
2007.
The acquisition had the following effect on the Group's assets and liabilities:
Acquiree's Fair value Acquisition
book values Adjustments amounts
£000 £000 £000
Acquiree's net assets at the acquisition date:
Plant and equipment 6 - 6
Trade and other receivables 24 - 24
Deferred revenue (74) - (74)
Accruals (16) - (16)
Customer contracts and relationships - 389 389
Net identifiable (liabilities) / assets (60) 389 329
Goodwill on acquisition 568
Maximum consideration to be paid including expenses 897
Less purchase consideration withheld (111)
Net cash outflow 786
Goodwill has arisen on the acquisition because the purchase price exceeds the
fair value of the separately identifiable net assets acquired. Goodwill
represents the value of a second US business as the group develops its presence
in this important market.
From the date of acquisition Source Harbor Inc contributed to the operating
profit of the US Escrow Solutions business of £130,000 and revenue of £1,028,000
to the Group consolidated income statement for the year ended 31 May 2007.
B. On 23 January 2007 the Group acquired 97% of the share capital of Site
Confidence Limited for a maximum consideration of £9,100,000 of which £4,800,000
has been withheld subject to the achievement of performance criteria specified
in the purchase agreement. The present value of the deferred consideration on 23
January 2007 was £4,464,000. Following the completion of a drag along exercise,
100% of the share capital had been acquired by 8 March 2007. The performance
conditions are required to be satisfied by June 2008.
The acquisition had the following effect on the Group's assets and liabilities.
Acquiree's Fair value Acquisition
book values Adjustments amounts
£000 £000 £000
Acquiree's net assets at the acquisition date:
Plant and equipment 175 - 175
Trade and other receivables 917 - 917
Deferred tax asset - 893 893
Deferred tax liability - (473) (473)
Cash 2,249 - 2,249
Deferred revenue (1,680) - (1,680)
Accruals (1,036) - (1,036)
Intangible assets purchased - 1,575 1,575
Net identifiable assets 625 1,995 2,620
Goodwill on acquisition 6,610
Maximum consideration to be paid including expenses 9,230
Less purchase consideration withheld (4,464)
Net cash outflow 4,766
Cash acquired (2,249)
Net cash outflow excluding cash acquired 2,517
Goodwill has arisen on the acquisition because the purchase price exceeds the
fair value of the separately identifiable net assets acquired including
£1,575,000 assigned to customer relationships and contracts. Goodwill represents
synergies, business processes and the assembled value of the work force
including industry specific knowledge and technical skills.
From the date of acquisition Site Confidence Limited contributed an operating
profit before amortisation of intangible assets of £149,000 and revenue of
£1,574,000 to the Group consolidated income statement for the year ended 31 May
2007. After amortisation of intangible assets, operating profits were £37,000.
C. On 30 December 2005, the Group acquired the trade and net assets of the
escrow division of Recall Total Information Management Inc for a maximum
consideration of £2,946,000 of which £400,000 was withheld subject to the
achievement of performance criteria specified in the purchase agreement.
The performance conditions were required to be satisfied by 31 December 2006 and
in May 2007 a final payment of £338,000 was made to complete the transaction.
£30,000 of the difference between the accrual for withheld consideration and the
final payment arose from an exchange rate gain. This has been accounted for by
reducing the carrying value of goodwill.
D. If all of the acquisitions had occurred at the beginning of the financial
year the actual consolidated revenue and operating profit for the year ended 31
May 2007 would have been approximately £28.5m and £8.1m respectively.
14 Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities Net
2007 2006 2007 2006 2007 2006
£000 £000 £000 £000 £000 £000
Plant and equipment 137 81 - (7) 137 74
Short term temporary differences 13 9 - - 13 9
Trade losses 815 - - - 815 -
Intangible assets - - (473) - (473) -
Share based payments 1,040 333 - - 1,040 333
Deferred tax assets / (liabilities) 2,005 423 (473) (7) 1,532 416
Movement in deferred tax during the year
1 June 2006 Recognised Recognised Arising on 31 May 2007
in income In equity acquisition
£000 £000 £000 £000 £000
Plant and equipment 74 63 - - 137
Short term temporary differences 9 4 - - 13
Trade losses - (78) - 893 815
Intangible assets - - - (473) (473)
Share based payments 333 172 535 - 1,040
416 161 535 420 1,532
Movement in deferred tax during the prior year
1 June 2005 Recognised Recognised 31 May 2006
in income in equity
£000 £000 £000 £000
Plant and equipment 68 7 - 75
Short term temporary differences 9 - - 9
Share based payments 89 140 103 332
166 147 103 416
The Company has no deferred tax assets or liabilities
15 Trade and other payables
Group Group Company Company
2007 2006 2007 2006
£000 £000 £000 £000
Trade payables 431 448 - -
Amounts owed to Group undertakings - - 5,807 646
Interest payable 29 33 - 33
Non trade payables 963 804 - -
Deferred consideration on acquisition of 996 - - -
subsidiary (note 5)
Accruals 1,512 1,465 49 15
3,931 2,750 5,856 694
16 Deferred revenue
Group Group Company Company
2007 2006 2007 2006
£000 £000 £000 £000
Deferred revenue 8,620 6,037 - -
8,620 6,037 - -
Deferred revenue of £6,856,000 (2006: £6,037,000) consists of Escrow Solutions
agreement revenue and maintenance revenue that has been deferred to be released
to the income statement over the contract term on a pro-rata basis.
Deferred revenue of £1,764,000 (2006: nil) consists of internet monitoring and
load testing agreement revenue that has been deferred to be released to the
income statement over the contract term on a pro-rata basis.
17 Non-current liabilities
Group Group Company Company
2007 2006 2007 2006
£000 £000 £000 £000
Revolving credit facility (see note 18) 3,500 2,700 - 2,700
Total 3,500 2,700 - 2,700
Issue costs (26) (26) (26) (26)
Amortisation of issue costs 26 15 26 15
Net book value 3,500 2,689 - 2,689
The issue costs have been amortised to zero since the term loan to which it
relates has been repaid.
This note provides information about the contractual terms of the Group and
Company's interest bearing loans and borrowings for more information about the
Group and Company's exposure to interest rate and foreign currency risk see note
18.
Other non-current liabilities of £3,782,000 consist of £3,675,000 deferred
consideration (note 5) arising on the acquisition of Site Confidence Limited.
Payment was withheld from the initial consideration subject to the performance
of conditions specified in the purchase agreement.
Payment is due to be made in June 2008. The remaining £107,000 relates to the
balance of a rent free period (2006: £123,000) which is released to the income
statement over the term of the lease.
18 Financial instruments
Financial instruments policy
All instruments utilised by the Company and Group are for financing purposes.
The day-to-day financial management and treasury are controlled centrally for
all operations.
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
2007 2006
£000 £000
Sterling denominated financial assets 4,253 4,723
Euro denominated financial assets 32 58
US dollar denominated financial assets 92 358
Current trade and other receivables 7,757 4,840
12,134 9,979
The financial assets of the Company at the end of the financial year were as
follows
2007 2006
£000 £000
Sterling denominated financial assets 12 5
12 5
The financial liabilities of the Group and their maturity profile is as follows
2007 2006
Maturity £000 £000
Less than 1 year - 1,200
1 to 2 years - 1,200
2 to 3 years 3,500 1,200
3 to 4 years - 289
Current trade and other payables 3,931 2,750
Sterling denominated financial liabilities 7,431 6,639
The financial liabilities of the Company and their maturity profile is as
follows
2007 2006
Maturity £000 £000
Less than 1 year - 1,200
1 to 2 years - 1,200
2 to 3 years - 1,200
3 to 4 years - 289
Current trade and other payables 5,856 694
Sterling denominated financial liabilities 5,856 4,583
As at 31 May 2007 the Group had a committed undrawn and unsecured revolving
credit facility of £6.3 million (2006: £6.1 million). The interest payable on
drawn down funds is 0.95% above Libor.
As at 31 May 2007 the Company had a committed undrawn and unsecured revolving
credit facility of nil (2006: £6.1 million term loan) the interest payable on
drawn down funds is 0.95% above Libor.
The revolving credit facility is available until July 2009.
Liquidity risk
The Group and Company's operations are cash generative. The Group and Company
considers that it has sufficient financial resources to meet its foreseeable
requirements.
Credit risk
As at 31 May 2007 the Group and Company had no material exposure to credit risk.
Currency exposure
As at 31 May 2007 the Group and Company had no material currency exposures
relating to trading activities. The Group and Company's financial instruments
are materially denominated in sterling.
Fair value of financial instruments
As at 31 May 2007 the Group and Company had no other financial instruments.
There is no material difference between the fair value and the carrying value of
the financial instruments.
19 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.
Approved EMI scheme
Under the Approved EMI Scheme, options granted will be subject to performance
criteria. Options will vest if the average EPS growth for the 3 years following
their grant is greater than 3% above RPI per annum. The options are to be
settled in equity.
19 Share based payments (continued)
Date of grant Expected term of Exercise 2007 Number
options Exercisable between price Outstanding
July 2004 6 years July 2007 - July 2014 £1.70 894,141
July 2005 6 years July 2008 - July 2015 £2.565 13,644
July 2006 6 years July 2009 - July 2016 £2.70 9,259
LTIP Schemes
The vesting condition for the award of the July 2004 LTIP is average growth of
EBITA over the life of the LTIP. If average EBITA growth is above 25% the
shares will vest fully. If growth is less than 10% no shares will vest and if
the average EBITA growth is between 10% and 25% the shares vest on a straight
line basis between the two percentages.
The vesting condition for the award of the other LTIP schemes is split 50:50
between Total Shareholder Return (TSR) & EPS. The TSR condition compares the
Group's TSR performance over the 3 year performance period with the TSR
performance of the constituent companies of the FTSE software and computer
services index. Where the Group's TSR performance equates to median level in the
comparator group, 30% of the award governed by the TSR condition will vest. 100%
of the award governed by the TSR condition will vest for upper quartile
performance or above. Between these two points, vesting will be determined on a
straight line basis.
The EPS condition governs the vesting of the remaining 50% of the LTIP award and
relates to the 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 governed by the EPS
condition will vest. If, however, growth is less than 10% per annum, none of the
award governed by the EPS condition will vest. Between these two points, vesting
is determined on a straight line basis. The options are to be settled in equity.
Date of Grant Expected term of Exercisable between Exercise 2007 Number
options price outstanding
July 2004 3 years June 2007 - July 2008 nil* 169,118
July 2005 3 years June 2008 - Sept 2009 nil* 261,761
July 2006 3 years June 2009 - June 2010 nil* 280,553
Sept 2006 3 years June 2009 - June 2010 nil* 53,180
*The option exercise price is nil however £1 is payable on each occasion of
exercise.
Sharesave scheme
The company operates a Sharesave scheme, which is available to all employees and
full time Executive Directors of the Company and its subsidiaries who have
worked for a qualifying period. All options are to be settled by equity.
Under the scheme the following options have been granted and are outstanding at
year end.
Date of Grant Expected term of Exercise 2007 Number
options Exercisable between price Outstanding
July 2004 3.25 years September 2007 - February 2008 £1.36 276,477
July 2005 3.25 years September 2008 - February 2009 £2.07 36,978
August 2006 3.25 years September 2009 - February 2010 £2.16 24,580
The following tables illustrate the number of share options for the schemes.
Scheme Number of Instruments Options Forfeitures in Number of
instruments as granted during exercised in the year instruments as
at 1June 2005 the year the year at 31 May 2006
Approved EMI scheme 1,132,080 - - (167,668) 964,412
Approved EMI scheme - 42,882 - - 42,882
Sharesave scheme 343,678 - - (51,875) 291,803
Sharesave scheme - 56,357 - (6,586) 49,771
LTIP 169,118 - - - 169,118
LTIP - 261,761 - - 261,761
The weighted average share price at the time the share options were forfeited in
the year was £2.49.
Scheme Number of Instruments Options Forfeitures in Number of
instruments as granted during exercised in the year instruments as
at 1June 2006 the year the year at 31 May 2007
Approved EMI scheme 964,412 - (7,572) (62,699) 894,141
Approved EMI scheme 42,882 - - (29,238) 13,644
Approved EMI scheme - 9,259 - - 9,259
Sharesave scheme 291,803 - (2,212) (13,114) 276,477
Sharesave scheme 49,771 - - (12,793) 36,978
Sharesave scheme - 28,901 - (4,321) 24,580
LTIP 169,118 - - - 169,118
LTIP 261,761 - - - 261,761
LTIP - 280,553 - - 280,553
LTIP - 53,180 - - 53,180
The weighted average share price at the time the share options were exercised in
the year was £2.58.
The weighted average share price at the time the share options were forfeited in
the year was £2.81.
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, Binomial and Monte Carlo simulation models
have been used to calculate the fair values of options on their grant date for
all options issued after 7 November 2002 which had not vested by 1 January 2005.
The assumptions used in the model are illustrated in the table below:
Grant Date Fair value at Exercise Expected Option expected Risk-free
measurement date price volatility term interest rate
EMI Jul-04 £0.66 £1.70 44% 6 Years 5.09%
EMI Jul-05 £1.07 £2.57 40% 6 Years 5.09%
EMI Jul-06 £0.78 £2.70 25% 6 Years 4.75%
SAYE Jul-04 £0.68 £1.36 44% 3.25 Years 5.06%
SAYE Jul-05 £1.00 £2.07 40% 3.25 Years 5.06%
SAYE Aug-06 £0.81 £2.16 25% 3.25 Years 4.76%
LTIP Jul-04 £1.59 £nil* 44% 3 Years 5.01%
LTIP Sep-05 £1.87 £nil* 40% 3 Years 5.01%
LTIP Sep-05 £2.27 £nil* 40% 3 Years 5.01%
LTIP Jul-06 £2.21 £nil* 25% 3 Years 4.79%
LTIP Sep-06 £1.80 £nil* 25% 3 Years 4.97%
* The option exercise price is nil however £1 is payable on each occasion of
exercise.
The expected volatility is based on the historical volatility (calculated based
on the weighted average remaining life of the share options), adjusted for any
expected changes to future volatility due to publicly available information.
For the options granted in the year ending 31 May 2007, dividend yield assumed
at the time of option grant is 1.6%. For other option schemes, dividend yield
assumed at the time of option grant was 2.3%.
A charge of £575,000 (2006: £468,000) has been made to cost of sales in the
Group income statement in respect of share based payment transactions. A charge
of £169,000 (2006: £146,000) has been made to cost of sales in the Company
income statement in respect of share based payment transactions.
20 Called up share capital
Number of
shares 2007 2006
£000 £000
Authorised
Ordinary shares of 1p each 50,000,000 500 500
500 500
Allotted, called up and fully paid
Ordinary shares of 1p each at the beginning of the year 32,604,185 326 326
Ordinary shares of 1p each issued in the year 9,784 - -
Ordinary shares of 1p each at the end of the year 32,613,969 326 326
21 Minority interests
2007 2006
£000 £000
At beginning of year - (23)
Acquired - 23
At end of year - -
Equity - -
Non-equity - -
- -
22 Cash and cash equivalents
At beginning of Cash flow Non cash At end of
year items year
£000 £000 £000 £000
Cash and cash equivalents per balance sheet 5,139 (785) 23 4,377
Cash and cash equivalents per cash flow statement 5,139 (785) 23 4,377
23 Other financial commitments and contingent liabilities
a) Capital commitments at the end of the financial year, for which no provision
has been made, are as follows:
2007 2006
£000 £000
Contracted 350 -
b) Non-cancellable operating lease rentals are payable as follows:
2007 2006
Land and Land and Other
Buildings Buildings £000
£000 Other £000
£000
Within 1 year 14 66 - 46
In second to fifth year inclusive 499 191 407 225
513 257 407 271
There are no contingent liabilities not provided for at the end of the financial
year.
24 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 £257,000 (2006:
£231,000). The outstanding contributions at the year end were £42,240 (2006:
£32,707).
For the Company, the pension cost charge for the year represents contributions
payable by the Company to the fund and amounted to £26,000 (2006: £23,000).
25 Related party transactions
NCC Group's Non Executive chairman Paul Mitchell is a director of Rickitt
Mitchell and Partners Limited and the Group conducted business to the value of
£239,000 (2006 : £115,000) with Rickitt Mitchell and Partners Limited. Included
within the charge is £194,000 relating to advice received in connection with
acquisitions made during the year ended 31 May 2007. The remaining £45,000
relates to the services of the Non Executive Chairman. Rickitt Mitchell and
Partners Limited also held 7,000 1.0p ordinary shares (2006: 7,000).
26 Fixed asset investments in subsidiaries
Shares in group
undertakings
Company £000
Cost
At beginning and end of year 29,145
The cost represents the cost of acquiring the whole of the issued share capital
of NCC Group (Solutions) Limited and its subsidiary undertakings. Fixed asset
investments are recognised at cost.
The principal undertakings in which the Company's interest at the year end is
100% are as follows:
Country of Principal
Subsidiary undertakings incorporation Activity
NCC Group (Solutions) Limited England and Wales Escrow Solutions
& Consultancy services
NCC Services Limited England and Wales Escrow Solutions
& Consultancy services
NCC Escrow International Limited England and Wales Dormant
NCC Group Inc USA Escrow Solutions
NCC Group Employee's Trustees Limited England and Wales Employee Benefit Trust
NCC Group GmbH Germany Escrow Solutions
Escrow 4 Software Limited England and Wales Dormant
Site Confidence Limited England and Wales Internet monitoring & load
testing
The Group does not have an interest in any other subsidiary undertakings.
27 Post balance sheet events
On 21 March 2007 it was disclosed that the standard rate of corporation tax is
to be changed to 28%. For the purposes of the Group and Company financial
statements to 31 May 2007, the standard rate of 30% as applicable prior to 31
March 2008 has been applied, on the basis that these were enacted at the balance
sheet date of 31 May 2007. This will also effect the time period over which
deferred tax can be recovered.
On 12 June 2007 it was announced that the Company expects trading in its
ordinary shares to cease on AIM on Friday 13 July 2007. It is expected that
admission of the Group's shares to the Official List will be simultaneous with
the de-listing from AIM and will become effective at 8.00am on Friday 13 July
2007.
This information is provided by RNS
The company news service from the London Stock Exchange
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