Replacement Final Results

RNS Number : 3455L

NCC Group PLC

03 July 2014

 



HEADLINE ALTERATION

The headline for the NCC Group plc announcement released on 3 July 2014 at 07:00 under RNS No 2921L should read 

Strong organic growth drives revenue up 12% and dividend up 13%

The announcement text is unchanged and is reproduced in full below.

3 July 2014

NCC Group plc

Strong organic growth drives revenue up 12% and dividend up 13%

NCC Group plc (LSE: NCC, "NCC Group" or "the Group"), the international, independent provider of Escrow, Assurance and Domain Services, has reported its full year results for the 12 months to 31 May 2014.

Financial

§ Group revenue increased by 12% to £110.7m (2013: £99.2m), 15% on a constant currency basis

§ Adjusted Group operating profit* up 9% to £26.0m (2013: £23.9m) after £2.1m (2013: £1.2m) of expenses relating to Domain Services and .trust

§ Reported operating profit £24.1m (2013: £19.8m)

§ Group adjusted pre-tax profit* up 10% to £25.3m (2013: £23.0m)

§ Adjusted fully diluted earnings per share* up 11% to 9.3p (2013: 8.4p)

§ Total dividend up 13% to 3.5p (2013: 3.1p) - since the Group's IPO in July 2004, the dividend has increased from 0.42p, a compound annual growth rate of 27%.

§ Cash conversion 120% of operating profit (2013: 116%)

Operational

§ Group Escrow revenue grew by 7% (2013: 2%)

§ Assurance Division revenue growth up 13% (2013: 18%)

Outlook for 2014/2015

§ Escrow renewals forecast at £18.0m (2013: £17.9m)

§ Escrow verification order book £2.9m (2013: £2.3m)

§ Assurance Testing order book and renewals up 5% to £32.1m (2013: £30.7m)

§ New secure Internet domain, .trust, launched within new business division, Domain Services

*Operating profit is adjusted for amortisation of acquired intangibles of £2.1m (2013: £3.6m), exceptional items of £1.3m profit (2013: £0.3m profit) and share based payment charges of £1.1m (2013: £0.8m). Pre-tax profit is adjusted for these items and the unwinding of the discount on the acquisitions' contingent consideration of £0.1m (2013: £0.2m). 

Rob Cotton, Group Chief Executive, comments:

"Our established divisions have produced another strong year of growth, with sales and profit showing double digit growth. We are also now poised to expand on these strong foundations with the newly launched Domain Services division.

"The information security and cyber security markets are evolving continuously and growing at an unstoppable pace. All three of our divisions have strong market positions and a widening range of new products and services to address these growing opportunities. 

"Taking into account all our renewals, order books and renewal forecasts, we have forward visibility of some £53m of revenues at this very early stage of the year. 

"We have started the year strongly - in line with the Board's expectations - and with this forward visibility are well-placed to deliver sustained long term growth."

Enquiries:

NCC Group  (www.nccgroup.com)	[phone]
Rob Cotton, Chief Executive
Atul Patel, Group Finance Director
Instinctif Partners
Adrian Duffield/Kathy Gordon	[phone]

About NCC Group

NCC Group is a global information assurance specialist providing organisations worldwide with expert escrow and verification, cyber security consulting, website performance, software testing and domain services.

NCC Group operates three main complementary divisions, NCC Group Escrow, NCC Group Assurance and NCC Group Domain Services with 20 offices across the UK, mainland Europe, North America and Australia providing comprehensive end-to-end information assurance for over 15,000 organisations worldwide.

The Group employs close to 1,000 employees around the world in information security, assurance and technology.

NCC Group is committed to making the Internet a safer place with its .trust domain service.  Creating a safe gated Internet community, .trust will be used by organisations to protect their brand, reputation and sensitive customer information

Overview

The Group has seen another year of tangible progress, strategically, operationally and financially.  Both trading divisions grew organically and the newly launched Domain Services division continues to develop its tools and services to provide a safer Internet to businesses and consumers.

The Escrow business has developed a new SaaS (Software as a Service) offering for customers running systems in the Cloud, which offers excellent value and the strongest protection available in the global market today.

In line with the Group's acquisition strategy, NCC Group has added another small independent security testing company to its Assurance division to complement its geographical presence.  FortConsult, based in Denmark is one of the leading Nordic security testing services providers.  Its addition will increase the Group's footprint in Europe and also provide customers with one-stop testing services across the region.

Two years ago, NCC Group took the strategic decision to develop a third division providing domain services as part of its vision to create a safer Internet for all.   The Group has invested heavily in the newly formed NCC Group Domain Services division.  It acquired the new generic top level domain .trust, subject to ICANN delegation processes, to help accelerate the delivery of the full service.

The service was launched, on time and budget, at the beginning of the current financial year on 20 June 2014.  The Domain Services division promises to be an exciting development for the Group and one that is anticipated to show strong returns in future years.

NCC Group's strategy is to develop the three complementary divisions both organically and by acquisition delivering excellent service and value for money to its customers, which will drive growth across the Group.

In the last 12 months Group revenues grew organically by 12% to £110.4m (2013: £99.2m).

Adjusted pre-tax profits and adjusted fully diluted earnings per share were up 10% and 11% to £25.3m and 9.3p respectively. The Group continues to be highly cash generative with operating cash conversion representing 120% of operating profit (2013: 116%).

Reflecting the progressive dividend policy, which at least tracks earnings growth, a final dividend of 2.36p is recommended by the Board, making a total for the year of 3.50p, up 13%. 

Outlook

Across the Group the year has started well.

The whole organisation is focused on client risk mitigation and delivering peace of mind, through a complementary range of services offered to global clients to address business issues.

Escrow renewals are forecast to be £18.0m (2013: £17.9m) and the verification order book is £2.9m (2013: £2.3m), of which £0.9m (2013: £0.7m) relates to Escrow Europe and Escrow US. 

The Assurance division's order books are £25.3m (2013: £24.2m) and with this, it forecasts £6.8m (2013: £6.5m) of monitoring renewals for the current financial year.

Domain Services continues to develop its systems, processes and policies, with a view to being able to offer a service to its customers through .trust from the first half of the current financial year. This complex development will always remain subject to ICANN timetable delays, although it is currently thought that the go live date of October is likely to be achieved. The expectation is that there will be at least 20 customers signed up by the end of the financial year 2015 and 70 by 31 May 2016.

As stated on 20 June 2014, the Board expects Domain Services to generate revenue in the current financial year of £1.0m, increasing to around £5.0m in the following financial year.   The Group expects a divisional operating loss in the order of some £4.3m in the current financial year. However, this division is anticipated to make a positive contribution in the financial year to May 2016 with a divisional margin target of approximately 25% thereafter.

The outlook for NCC Group remains extremely promising.  The economic uplift will help all businesses and the progress made by Domain Services to date suggests that it will become a significant contributor in the coming years.

With the Group's strong market position and widening range of new products and services to address growing markets, the Board is confident that the Group can continue to deliver sustainable growth and enhanced shareholder value.

Financial review

Revenue

Overall for the financial year ended 31 May 2014 the Group increased revenue by 12% to £110.7m (2013: £99.2m) with the revenue split being 49%:51% (2013: 48%:52%) between the first and second halves of the year. 

On a constant currency basis, the Group revenue growth would have been 15% as both the dollar and euro remained weak against the pound.  Due to the natural hedging through the intercompany loans, the impact on the Group's operating profits was minimal with a charge of £0.1m being taken.  The Group does not speculate against currency fluctuations. 

Escrow now accounts for 28% of the Group's revenue (2013: 29%) as the Assurance business saw faster organic growth and benefitted from acquisitions. 

The Group's recurring income remained significant.  In Escrow UK over 88% of all contracts renewed (2013: 88%). Assurance saw 76% of its revenues renewed (2013: 77%), this now represents 46% of all customers (2013: 52%).  In addition, 91% (2013: 91%) of the performance monitoring revenues renewed and are recurring.

The increasing number of customers that renew in Assurance has resulted in renewing Assurance customers' expenditure increasing from £68,821 to £73,225 with total average customer spend marginally increasing to £44,689 from £38,425.

In the year 60% (2013: 64%) of revenue, £66.4m (2013: £63.1m) was derived from the UK.   Europe contributed £10.5m (2013: £7.7m) with the Rest of the World revenue increasing strongly to £33.8m (2013: £28.4m), some 31% of Group revenue.

The Group continued to have minimal reliance on any one customer or sector.  Within Assurance the largest customer represents 6% of Assurance revenue which is 4% of Group revenue.  The largest customer in Escrow is 1% of total Escrow revenue.

Top three sectors by division	Escrow	Assurance
Software computer services	25%	36%
Banks & insurance	42%	28%
Telecoms	3%	7%

Escrow  

The Group's Escrow businesses have always been and will continue to be, the cornerstone of NCC Group's profitability. They produce a substantial margin and very strong cash conversion as well as a high degree of recurring revenue, due to the consistent contracts renewals rate of over 88%. 

The Escrow division increased revenue by 7% to £30.5m (2013: £28.5m) and profitability grew by 8% to £18.1m (2013: £16.7m) with the UK contributing 81% (2013: 81%). 

Escrow recurring revenues, renewals, grew to £17.9m (2013: £17.7m).  Verification revenues grew by 23% in the year to £7.5m (2013: £6.1m).

Escrow UK revenue was £22.5m (2013: £20.9m).  This 8% growth in revenue (2013: 3%) was delivered through contract growth and verifications, with only a limited amount coming from the effects of a price increase. 

Escrow UK recurring revenues increased to £12.8m (2013: £12.4m) and terminations remain below 12%. 

Escrow US revenues grew by 5% to £4.7m (2013: £4.4m) and Escrow Europe revenues grew by 3% to £3.3m (2013: £3.2m). 

Escrow UK now has 103 employees (2013: 96), Escrow Europe has 17 employees (2013: 17) and the North American Escrow businesses have 38 employees (2013: 38).

Assurance

The Assurance division is divided into two areas, cyber security consultancy services and web performance and load testing. 

Cyber security consultancy and testing includes penetration and application security testing, operational response, forensics and managed monitoring along with the compliance based services such as social engineering, card and information security standards and auditing.  Web performance testing involves continuously monitoring the performance and load capability of organisations' websites.

Assurance revenues increased by 13% to £80.2m (2013: £70.7m) and profitability grew by 17% to £14.0m (2013: £12.0m).  The acquisition of FortConsult had less than a percentage point impact on organic growth, as it was only purchased for one month of the reported period.

Cyber security consultancy and testing revenues grew 15% to £71.0m (2013: £61.9m), although the Group ensured that utilisation rates remained at a suitably low level to combat any staff retention issues.  The business unit employs 521 employees globally (2013: 444) and uses 122 associates.

Web Performance had a recurring revenue rate of 91% (2013: 91%), which continues its strong track record of client retention.  The challenge facing this business unit will be to complete the product developments and derive revenues from them in the new financial year.  During the year the business area grew by 5%.  The business unit employs 69 employees globally (2013: 59).

Domain Services - creating a safer Internet - .trust

In May 2012, the Group applied to register a generic top level domain (gTLD), .secure, as part of the ICANN programme to create a new set of gTLDs, so as to create a universal environment for end users to operate and navigate the Internet with complete safety and security.

The Group established a new wholly owned subsidiary, in California, to develop the critical infrastructure and know-how to deliver this project.  The Group also decided to create a best in class registrar to serve Group customers directly.

Up to the end of the financial year, the Group has invested in total £8.3m in this project, of which £5.0m has been capitalised.  During the financial year, the Group invested a total of £5.6m (2013: £2.3m) in the project of which £2.1m (2013: £1.2m) has been expensed, as the costs were in respect of sales and marketing.

During the year, the Group acquired the rights to the gTLD .trust, subject to ICANN delegation processes and procedures, in order to provide the platform from which the service could be launched.  This is planned for the first half of the new financial year, subject to ICANN process delays or slippages that may occur. 

The initial application for a gTLD .secure remains in contention as the Group was one of two companies who applied for it.  This will be resolved during the current financial year in accordance with ICANN rules.

Profitability and margins

NCC Group continues to generate strong margins and adjusted Group operating profit grew by 9% to £26.0m (2013: £23.9m), including operational expenditure of £2.1m in Domain Services and excluding the amortisation of acquired intangibles, exceptional items and share-based charges as set out in the table below.

Despite the increased percentage of revenue from the non-escrow businesses and the effects of the Domain Services operational expenditure, overall adjusted operating margins remained strong at 24% (2013: 24%).

The Escrow division's operating margins remained strong at 59% (2013: 59%) whilst the Assurance division improved its margins through pricing to 18% (2013: 17%).

	2014		2013
	£000		£000
Reported profit before tax	23,211		18,758
Amortisation of acquired intangible assets	2,116		3,612
Share based payments	1,108		760
Exceptional items - see note 3	(1,268)		(261)
Unwinding of discount on contingent consideration	120		167
Adjusted profit before tax	25,287		23,036
Net financing costs	741		902
Adjusted operating profit	26,028		23,938
Reported operating profit		24,072		19,827

Adjusted Group pre-tax profit improved to £25.3m (2013: £23.0m) after an interest charge of £0.7m. 

The Group's reported pre-tax profit was £23.2m (2013: £18.8m), after the inclusion of the unwinding of the discount on the acquisitions' contingent consideration, amortisation of acquired intangible assets, share based payment charges and the exceptional items.

Taxation

The Group's effective tax rate is 22% (2013: 23%), which is marginally below the average standard UK rate of 23% (2013: 24%).  The effective tax rate remains low due to the continued investment in Domain Services and the US tax treatment of these costs.

Earnings per share

The adjusted basic earnings per share from continuing operations increased 10% to 9.5p (2013: 8.6p).  The table shows the effect on the Group's basic earnings per share of the amortisation of acquired intangibles, share based payment charges, unwinding of the discount on the contingent consideration for acquisitions and the effect of the exceptional items.

	2014 Pence	2013  Pence
Basic EPS as per the income statement	8.7	7.0
Amortisation of acquired intangibles	0.8	1.3
Exceptional items	(0.5)	(0.1)
Unwinding of the discount on the contingent consideration of the acquisitions	0.1	0.1
Share based payments	0.4	0.3
Adjusted basic EPS	9.5	8.6

The adjusted fully diluted earnings per share from continuing operations increased 11% to 9.3p (2013: 8.4p) while reported fully diluted earnings per share was 8.6p (2013: 6.9p). 

Dividends

The Board is recommending a final dividend of 2.36p per ordinary share, making a total for the year of 3.50p.  This represents cover of 2.7 times (2013: 2.8 times) based on basic adjusted earnings per share from continuing operations.  Since the Group's flotation in July 2004, the dividend has increased from 0.42p, a compound annual growth rate of 27%.

If approved at the Annual General Meeting, the dividend will be paid on 26 September 2014 to shareholders on the register at the close of business on 29 August 2014.  The ex-dividend date will be 27 August 2014. 

Cash

The Group continues to be highly cash generative with an operating cash flow before interest and tax of £28.9m (2013: £23.0m), which gives a cash conversion ratio of 120% of operating profit before interest and tax (2013: 116%).  It is expected as the mix of business continues to change due to the increase in Assurance revenues, the percentage will be between 100% and 110%.

After accounting for net cash outflows of £4.3m for acquisitions and contingent acquisition payments, the Group ended the year with net debt of £23.6m (2013: £25.3m).

Total capital expenditure remained tightly controlled at £10.8m (2013: £4.9m) which includes the Group's continued investment (£3.5m) in Domain Services. 

In the current financial year, during the implementation phase of Domain Services, the Group will continue to invest heavily in the project and expects to spend some £5.0m on capital expenditure.  In the next financial year to May 2016, the investment programme is expected to drop to some £1.6m and thereafter to approximately £0.5m.

The Group's banking facility with the Royal Bank of Scotland, which provides a £40m revolving credit facility and a £5m overdraft, runs until July 2016.  Interest on the facility is charged between 1.5% and 2.25% over LIBOR based on the Group's net debt/EBITDA ratio.

The facility provides the Group with the necessary capacity to meet its current acquisition objectives, although this is regularly reviewed to ensure that unnecessary fees are not incurred due to non-utilisation.  The Group was utilising64% of the facility at the year-end.

Operational review

Strategy

NCC Group is a global information assurance specialist providing organisations worldwide with expert escrow and verification, cyber security consultancy, web performance, software testing and domain services. 

The Group set about building its future around the software escrow business whilst looking for new areas of growth in the then uncharted territory of information and cyber security.  Since then, through carefully constructed, controlled and sustainable organic growth along with well planned and executed strategic acquisitions, the Group has developed into a leading global provider in both areas.

The Group operates in three distinct but complementary divisions; Escrow, Assurance and Domain Services, which do not cross sell directly but do share information, intelligence and relationships to ensure that the appropriate products in its portfolio are introduced to the Group's clients.

All divisions are tasked with and measured on providing the best client service allied to offering appropriate services to help mitigate risk.  The Group is cautiously acquisitive and will remain so, looking for complementary small to medium sized businesses that either further strengthen market position, geographic presence and/or extend the service offering.

Employees

The talent, dedication and experience of the people employed are key to the Group's success.  The motivation and retention of staff remains vital for the Group's future.  NCC Group aims to be the employer of choice.  It proactively monitors staff retention and manages all aspects of individuals' roles, responsibilities and aspirations.

Escrow

The Escrow Division is the cornerstone of the Group.  The fundamentals of the Group are fully encapsulated in the product, which is based around the very highest standards of customer care and equitable treatment to both customers in the contractual relationship.

Escrow offers a high value product for a low, in comparison, investment.  Due to its importance to clients, it provides the Group with good recurring revenues along with good margins. 

The cash flow and profitability of Escrow are reinvested to produce not only better Escrow products and services but also other areas of complementary services to help clients mitigate their information and cyber security risks through the Group's two other divisions.

The Group is committed to developing its escrow proposition further by providing new innovative solutions to evolve with the market.  To date this has seen investments in SaaS and ICANN escrow solutions.

Assurance

The strategic direction and cultural philosophy of the Assurance Division is about evolution, and so research is key to being successful in the market place. Information and cyber security are constantly and rapidly changing with new areas of concern or vulnerabilities frequently and regularly being discovered.  To stay ahead in what has become a cyber-arms race, the corporate culture is aligned with this rapid and constant change.  The Group has created boutique ways of working and cultural values that encourage individuals to fulfil their full creative potential.

Apart from determining security weaknesses, the Group is also committed to making the Internet a safer place.  While combatting the threat of cyber-crime is a clearly stated objective, so is finding a safe way for the world to navigate, communicate and transact on the Internet. 

The Division's strategy is to constantly demand the generation of new ideas and initiatives to fulfil this.  However, whilst not all ideas make it to product development or design, each is critically, technically and commercially appraised before any financial commitment is made.

To allow this creativity to flow there is a requirement that the organisation is committed to remaining independent, product agnostic and not to be a reseller of third parties products, software or services.  Equally this extends to not providing white label solutions for third parties to resell or to enter into any strategic alliances that could in any way appear to compromise the Group's objectivity or independence.

Domain Services

The strategic objective of the Division is to create a universal environment, a secure gated community through the .trust top level domain, that will provide a safer and more trustworthy Internet for both businesses and consumers.

Applicants for a .trust domain will have to verify their identity, ensure their organisation is secure by complying to a strict and specific code of security policies, and assure their infrastructure remains safe by undergoing regular compliance scanning.

The policies have been developed by a coalition of industry and NCC Group experts, and adhering to them will help provide comprehensive protection from vulnerabilities that threaten to compromise integrity, availability and privacy.

The business model is based around high renewal rates, good margins and the highest standard of customer service.  The take on of new customers will be slow and cautious ensuring that each transition to .trust has been successful before embarking on the next one.

The long term strategy is that Domain Services and Assurance will develop a symbiotic relationship as the opportunities to cross sell Assurance services increases as the .trust community grows.

Business performance measures

The Group manages the business using the KPI's shown in the table below.  Reporting is daily, weekly and monthly and has different levels of granularity according to each manager's responsibility.  The provision of accurate and quick management information has always been integral to the Group.

KPI	31 May 2014	31 May 2013	% Change
Group Revenue	£110.7m	£99.2m	12%
Group Escrow Revenue	£30.5m	£28.5m	7%
Group Assurance Revenue	£80.2m	£70.7m	13%
Escrow operating Profits	£18.1m	£16.7m	8%
Assurance operating profits	£14.0m	£12.0m	17%
Adjusted operating Profits	£26.0m	£23.9m	9%
Corporate overheads	£4.0m	£3.6m	11%
Adjusted Profit before tax	£25.3m	£23.0m	10%
Reported Profit before tax	£23.2m	£18.8m	23%
Adjusted basic earnings per share	9.49p	8.60p	10%
Group Escrow margins	59%	59%	-
Group Assurance margins	18%	17%	3%
Escrow termination rates	12%	12%	-
Group headcount including associates	991	931	6%
Assurance headcount	590	503	17%
Escrow headcount	158	151	5%
Net debt	£23.6m	£25.3m	(7%)
Cash conversion ratio	120%	116%	3%

Consolidated income statement

For the year ended 31 May 2014

		2014	2013
		£000	£000
Revenue		110,661	99,225
Cost of sales		(71,193)	(63,376)
Gross profit		39,468	35,849
Administrative expenses before amortisation of acquired intangible assets, share based payments, impairment losses and exceptional items		(13,440)	(11,911)
Operating profit before amortisation of acquired intangibles, share based payments, impairment losses and exceptional items		26,028	23,938
Amortisation of acquired intangible assets		(2,116)	(3,612)
Share based payments		(1,108)	(760)
Exceptional items		1,268	261
Total administrative expenses		(15,396)	(16,022)
Operating profit		24,072	19,827
Financial income		24	18
Finance expense excluding unwinding of discount		(765)	(920)
Net financing costs excluding unwinding of discount		(741)	(902)
Unwinding of discount relating to contingent consideration on business combinations		(120)	(167)
Financial expenses		(885)	(1,087)
Net financing costs		(861)	(1,069)
Profit before taxation		23,211	18,758
Taxation		(5,104)	(4,274)
Profit for the year		18,107	14,484
Attributable to equity holders of the parent company		18,107	14,484
Earnings per share from continuing operations
Basic earnings per share		8.7p	7.0p
Diluted earnings per share		8.6p	6.9p

Consolidated Statement of comprehensive income

for the year ended 31 May 2014

			2014	2013
			£000	£000
Profit for the period			18,107	14,484
Items that will not be reclassified to profit or loss			-	-
Items that may be reclassified subsequently to profit or loss (net of tax)
Foreign exchange translation differences			(1,968)	876
Total comprehensive income for the period, net of tax			16,139	15,360
Attributable to:
Equity holders of the parent			16,139	15,360

Consolidated statement of financial position

at 31 May 2014

		2014		2013
		£000	£000	£000	£000
Non-current assets
Intangible assets		110,064		105,680
Plant and equipment		6,244		5,131
Deferred tax assets		2,299		987
Total non-current assets			118,607		111,798
Current assets
Trade and other receivables		28,691		24,474
Cash and cash equivalents		11,212		4,589
Total current assets		39,903		29,063
Total assets			158,510		140,861
Equity
Issued capital		2,085		2,075
Share premium		23,634		23,086
Reserve for own shares		(1,075)		-
Retained earnings		56,003		44,392
Currency translation reserve		(1,051)		917
Total equity attributable to equity holders of the parent			79,596		70,470
Non-current liabilities
Other financial liabilities		484		577
Deferred tax liability		2,444		1,048
Contingent consideration on acquisitions		1,001		4,765
Interest bearing loans		34,786		29,852
Total non-current liabilities			38,715		36,242
Current liabilities
Trade and other payables		17,363		12,554
Contingent consideration on acquisitions		2,940		2,177
Deferred revenue		17,207		16,847
Current tax payable		2,689		2,571
Total current liabilities			40,199		34,149
Total liabilities			78,914		70,391
Total liabilities and equity			158,510		140,861

Consolidated statement of cash flows

for the year ended 31 May 2014

		2014	2013
		£000	£000
Cash flow from operating activities
Profit for the year		18,107	14,484
Adjustments for:
Depreciation charge		2,092	1,964
Share based charges (net of national insurance contributions)		887	690
Amortisation of intangible assets		2,438	3,929
Net financing costs		861	1,069
Loss/(profit) on sale of plant and equipment		10	(27)
Adjustments to contingent consideration		(1,894)	(1,239)
Income tax expense		5,104	4,274
Cash inflow for the year before changes in working capital		27,605	25,144
Increase in trade and other receivables		(3,414)	(2,482)
Increase in trade and other payables		4,661	289
Cash generated from operating activities before interest and tax		28,852	22,951
Interest paid		(798)	(791)
Income taxes paid		(4,489)	(2,993)
Net cash generated from operating activities		23,565	19,167
Cash flows from investing activities
Interest received		24	18
Acquisition of plant and equipment		(3,237)	(1,974)
Software and development expenditure		(7,520)	(2,895)
Acquisition of business net of cash acquired		(4,249)	(10,455)
Net cash used in investing activities		(14,982)	(15,306)
Cash flows from financing activities
Purchase of own shares		(2,123)	-
Proceeds from the issue of ordinary share capital		558	294
Draw down of borrowings		6,838	1,157
Equity dividends paid		(6,778)	(5,830)
Net cash used in financing activities		(1,505)	(4,379)
Net increase/(decrease) in cash and cash equivalents		7,078	(518)
Cash and cash equivalents at beginning of year		4,589	5,450
Effect of foreign currency		(455)	(343)
Cash and cash equivalents at end of year		11,212	4,589

Statements of changes of equity

for the year ended 31 May 2014

Group

	Issued Share  capital	Share  Premium	Currency Translation reserve		Reserve for own shares	Retained earnings	Total
	£000	£000	£000		£000	£000	£000
Balance at 1 June 2012	343	23,244	41		-	36,730	60,358
Profit for the year	-	-	-		-	14,484	14,484
Foreign currency translation differences	-	-	876		-	-	876
Total comprehensive income for the period	-	-	876		-	14,484	15,360
Transactions with owners recorded directly in equity
Dividends to equity shareholders	-	-	-		-	(5,830)	(5,830)
Share bonus issue	1,729	(1,729)	-		-	-	-
Share based payment transactions	-	-	-		-	690	690
Current and deferred tax on share based payments	-	-	-		-	(402)	(402)
Shares issued	3	291	-		-	-	294
Purchase of own shares	-	1,280	-		-	(1,280)	-
Total contributions by and distributions to owners	1,732	(158)	-		-	(6,822)	(5,248)
Balance at 31 May 2013	2,075	23,086	917		-	44,392	70,470
	Issued Share capital	Share  Premium	Currency Translation reserve		Reserve for own shares	Retained  earnings	Total
	£000	£000	£000		£000	£000	£000
Balance at 1 June 2013	2,075	23,086	917		-	44,392	70,470
Profit for the year	-	-	-		-	18,107	18,107
Foreign currency translation differences	-	-	(1,968)		-	-	(1,968)
Total comprehensive income for the period	-	-	(1,968)		-	18,107	16,139
Transactions with owners recorded directly in equity
Dividends to equity shareholders	-	-	-		-	(6,778)	(6,778)
Share based payment transactions	-	-	-		-	887	887
Current and deferred tax on share based payments	-	-	-		-	443	443
Shares issued	10	548	-		-	-	558
Purchase of own shares	-	-	-		(1,075)	(1,048)	(2,123)
Total contributions by and distributions to owners	10	548	-		(1,075)	(6,496)	(7,013)
Balance at 31 May 2014	2,085	23,634	(1,051)		(1,075)	56,003	79,596

Notes

(forming part of the financial statements)

1 Accounting policies

Basis of preparation

NCC Group plc ("the Company") is a company incorporated in the UK.

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group").  The parent company financial statements present information about the Company as a separate entity and not about 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 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 Company has also taken the exemption in FRS1 5(a) and consequently no statement of cash flows is presented for the company

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 May 2014 or 2013. The financial information for the year ended 31 May 2013 is derived from the statutory accounts for 31 May 2013 which have been delivered to the registrar of companies. The auditor has reported on the 2013 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for the year ended 31 May 2014 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the registrar of companies in due course.

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 contingent consideration payable on acquisitions which are measured at fair value.

Functional and presentation currency

The Group and Company financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£'000) except when otherwise indicated.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic report.  The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Business and Financial Review.  In addition, the notes to the financial statements includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities and its exposures to credit risk and liquidity risk.

The Group funds its strategic acquisitions and meets its day to day working capital requirements via a revolving credit facility of £40m and an overdraft of £5m.  This facility was agreed in April 2013 and is not due for renewal until July 2016.

The Group's forecast and projections taking into account reasonably possible changes in trading performance show that the Group is able to operate within the level of this facility and as a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain external economic outlook. 

After making enquiries, the Directors have a reasonable expectation that the company and the Group have adequate resources to continue in operational existence for the foreseeable future. 

Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

Use of estimates and judgements

The areas involving the other sensitive estimates and assumptions that are significant to the financial statements are included in the following notes;

Note 11 - key assumptions used in discounted cash flow projections

Note 14 - measurement of contingent consideration

Note 1 - Assessment of intangible assets useful economic lives

2          Segmental information

The Group is organised into three operating segments (2013: three) Group Escrow, Assurance Testing and Domain Services each of which is separately reported. 

Whilst revenue and profitability are monitored by individual business units within these operational segments it is only at the operating level that resource allocation decisions are made.  Performance is measured based on segment profit which comprises segment operating profit excluding amortisation of intangible assets, share based payment charges and exceptional items.  Interest and tax are not allocated to business segments and there are no intra-segment sales.

	2014 £000	2013 £000
Revenue by business segment
Escrow UK	22,507	20,888
Escrow Europe	3,285	3,180
Escrow USA	4,663	4,449
Total Group Escrow	30,455	28,517
Security Testing, Audit and Compliance	71,034	61,947
Web Performance	9,172	8,761
Total Assurance Testing	80,206	70,708
Domain services	-	-
Total revenue	110,661	99,225

All revenue is in relation to services provided.

	2014 £000	2013 £000
Operating profit by business segment
Group Escrow	18,056	16,737
Assurance Testing	14,052	12,022
Domain services	(2,126)	(1,174)
Segment operating profit	29,982	27,585
Head office costs	(3,954)	(3,647)
Operating profit before amortisation of acquired intangibles, charges for share based payments and exceptional items	26,028	23,938
Amortisation of acquired intangible assets Group Escrow	(1,097)	(712)
Amortisation of acquired intangible assets Assurance Testing	(1,019)	(2,900)
Share based payments	(1,108)	(760)
Operating profit before exceptional items	22,804	19,566
Exceptional items	1,268	261
Operating profit	24,072	19,827

There are no customer contracts which account for more than 10% of segment revenue.

	Assets	Liabilities	Assets	Liabilities
	2014	2014	2013	2013
	£000	£000	£000	£000
Assets/(liabilities) by business segment
Group Escrow	11,330	(13,381)	13,689	(14,758)
Assurance Testing	38,591	(24,306)	16,006	(7,532)
Domain services	5,282	(7,272)	1,539	(2,974)
Unallocated	103,307	(33,955)	109,627	(45,127)
Total assets/(liabilities)	158,510	(78,914)	140,861	(70,391)

Unallocated net assets consist of goodwill arising on consolidation, cash, tax payable and other centrally held assets and liabilities.

2014		Depreciation	Capital expenditure	Total costs incurred to acquire segmental assets
		£000	£000	£000
Group Escrow		294	84	-
Assurance Testing		892	2,359	2,093
Domain services		23	174	-
Unallocated		883	620	-
Total		2,092	3,237	2,093

2013		Depreciation	Capital expenditure	Total costs incurred to acquire segmental assets
		£000	£000	£000
Group Escrow		273	521	-
Assurance Testing		784	805	7,824
Domain services		2	22	-
Unallocated		905	659	-
Total		1,964	2,007	7,824

The table below provides an analysis of the Group's revenue by geographical market where the customer is based.

	2014 £000	2013 £000
Revenue by geographical origin and destination
UK	66,366	63,090
Rest of Europe	10,453	7,702
Rest of the World	33,842	28,433
Total revenue	110,661	99,225

The table below provides an analysis of the Group's assets/(liabilities) by geographical market where the assets/(liabilities) are based.

	Assets	Liabilities	Assets	Liabilities
	2014	2014	2013	2013
	£000	£000	£000	£000
Asset/ (liabilities) by geographical segment
UK	105,453	(43,339)	89,001	(33,022)
Rest of Europe	5,272	(3,116)	3,711	(2,087)
Rest of the World	47,785	(32,459)	48,149	(35,282)
Total assets/(liabilities)	158,510	(78,914)	140,861	(70,391)

3          Exceptional items

The Group identifies separately items as "exceptional".  These are items which in management's judgement, need to be disclosed by virtue of their size or incidence in order for the user to obtain a proper understanding of the financial information.  Subsequent revisions of estimates for items initially recognised as exceptional provisions are recorded as exceptional items in the year that the revision is made. 

	2014 £000	2013 £000
Operating exceptional items
Legal fees	(334)	(372)
Unused remedial costs	-	219
Acquisition related costs	(292)	(825)
Revision to estimates of contingent consideration (see note 14)	1,894	1,239
Total	1,268	261

Legal fees of £0.3m are primarily in respect of legal advice received in relation to the Groups claim to recover capitalised and other costs incurred as part of the Groups IT system implementation which was terminated in May 2012. 

Acquisition related costs of £0.3m (2013: £0.8m) principally consist of professional fees incurred in relation to the acquisitions made during the current and previous years (see note 14).

In accordance with IFRS3, the Directors have re-assessed the fair value of contingent consideration held in respect of business acquisitions and this has resulted in a £1.9m release of provisions held (2013: £1.2m)(see note 14).

The tax effect in the income statement relating to the exceptional items recognised is:

	2014 £000	2013 £000
Exceptional items and acquisition related costs
Credit in respect of impairment losses and remedial costs	-	-
Credit in respect of legal fees	(77)	(85)
Credit in respect of acquisition related costs	(67)	(83)
Revision to estimates of contingent consideration	-	-
Total	(144)	(168)

4          Expenses and auditors' remuneration

	2014	2013
	£000	£000
Profit before taxation is stated after charging/(crediting):
Amounts receivable by auditors and their associates in respect of:
Audit of these financial statements	30	27
Audit of financial statements of subsidiaries pursuant to legislation	30	36
Total audit	60	63
Review of interim financial statements	10	8
Other assurance services	60	-
Taxation compliance services	-	2
Total fees	130	73
Depreciation and other amounts written off tangible and intangible fixed assets:
Owned	2,092	1,964
Amortisation of intangible assets	2,418	3,929
Exchange losses/(gains)	408	(3)
Operating lease rentals charged:
Hire of property, plant and equipment	2,266	1,687
Other operating leases	984	864
Research and development expenditure	1,796	1,829
Loss/(profit) on disposal of fixed assets	10	(27)

The 2013 Auditor remuneration relates to services provided by the Group's previous Auditor's Ernst and Young LLP.

5          Staff numbers and costs

Directors' emoluments are disclosed in the directors' remuneration report.

Group

The average monthly number of persons employed by the Group during the year, including Directors is analysed by category as follows:

	Number of employees
	2014	2013
Operational	467	386
Administration, sales and marketing	372	335
	839	721

The aggregate payroll costs of these persons were as follows:

	2014	2013
	£000	£000
Wages and salaries	49,774	42,440
Share based payments  (note 20)	887	690
Social security costs	4,279	3,918
Other pension costs (note 24)	1,615	856
	56,555	47,904

6          Net financing costs

	2014	2013
	£000	£000
Financial income
Interest on short term deposits	24	18
	24	18
Financial expenses
Interest payable on bank loans and overdrafts	(680)	(791)
Amortisation of deal fees on term loans	(85)	(129)
Contingent consideration finance expense (see below)	(120)	(167)
	(885)	(1,087)

Contingent consideration related to the acquisition of subsidiary undertakings has been discounted to present value.

The contingent consideration finance expense of £120,000 (2013: £167,000) relates to the acquisitions of FortConsult A/S, Matasano Security LLC and Intrepidus Group, Inc.  The unwinding of the discount on contingent consideration has been treated as a finance expense and is analysed in the table below:

Contingent consideration finance expense			2014	2013
			£000	£000
iSEC Partners Inc			-	12
Matasano Security LLC			61	88
Intrepidus Group, Inc			55	67
FortConsult A/S			4	-
			120	167

The risk adjusted discount rate used was 7% (2013: 3%).

The total net present value of the contingent consideration as at 31 May is shown in the following table:

Contingent consideration			2014	2013
			£000	£000
Matasano Security LLC			2,210	4,184
Intrepidus Group, Inc			-	2,758
FortConsult A/S			1,731	-
			3,941	6,942

Current liabilities includes £2,940,000 (2013: £2,177,000) in respect of contingent considerations (see note 16).

7          Taxation

Recognised in the income statement

		2014	2013
		£000	£000
Current tax expense
Current year		4,865	4,499
Adjustment to tax expense in respect of prior periods		(308)	(61)
Foreign tax		474	625
Total current tax		5,031	5,063
Deferred tax (note 15)		73	(789)
Tax in income statement		5,104	4,274

Reconciliation of effective tax rate

			2014	2013
			£000	£000
Profit before taxation			23,211	18,758
Current tax using the UK corporation tax rate of 22.67% (2013: 23.83%)			5,263	4,470
Effects of:
Items not (taxable)/deductible for tax purposes			(328)	(57)
Adjustment to tax charge in respect of prior periods		(435)		(354)
Differences between overseas tax rates		155		122
Movements in temporary differences not recognised		334		71
Effect of rate change		115		22
Total tax expense			5,104	4,274

Current and deferred tax recognised directly in equity was a charge of £443,000 (2013: charge of £402,000).

Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and from 21% to 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013.  This will reduce the Company's future current tax charge accordingly.  The deferred tax liability at 31 May 2014 has been calculated based on the rates of 21% and 20% substantively enacted at the balance sheet date.

8          Dividends

	2014 £000	2013 £000
Dividends paid and recognised in the year	6,779	5,830
Dividends proposed but not recognised in the year	4,920	4,400
Dividends per share paid and recognised in the year	3.26p	2.81p
Dividends per share proposed but not recognised in the year	2.36p	2.12p

9          Earnings per share

The calculation of earnings per share is based on the following:

	2014	2014	2013	2013
	£000	£000	£000	£000
Profit for the year from continuing operations used for earnings per share		18,107		14,484
Amortisation of acquired intangible assets	2,116		3,612
Exceptional items (note 3)	(1,268)		(261)
Unwinding of discount (note 6)	120		167
Share based payments	1,108		760
Tax arising on the above items	(430)		(937)
		1,646		3,341
Adjusted profit from continuing operations used for adjusted earnings per share		19,753		17,825
		Number of shares		Number of shares
		000s		000s
Basic weighted average number of shares in issue		208,154		207,303
Dilutive effect of share options		3,283		4,132
Diluted weighted average shares in issue		211,437		211,435

The average market value of the Company's shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding.

10         Profit attributable to members of the parent company

The profit for the year dealt with in the accounts of the parent company was £12,709,000 (2013: £7,681,000).

11         Intangible assets - Group

	Software	Development costs	Customer contracts and relationships	Goodwill	Total
	£000	£000	£000	£000	£000
Cost:
At 1 June 2012	7,244	354	19,378	79,329	106,305
Acquisitions through business combinations			3,958	11,371	15,329
Other acquisitions - internally developed	1,815	1,080	-	-	2,895
Effects of movements in exchange rates		23	481	1,489	1,993
At 31 May 2013	9,059	1,457	23,817	92,189	126,522
Acquisitions through business combinations	18	-	634	2,735	3,387
Other acquisitions - internally developed	3,866	3,654	-	-	7,520
Effects of movements in exchange rates	-	(137)	(1,433)	(3,273)	(4,843)
At 31 May 2014	12,943	4,974	23,018	91,651	132,586
Amortisation:
At 31 May 2012	6,517	-	10,289	-	16,806
Charge for year	317	-	3,612	-	3,929
Effects of movements in exchange rates	-	-	107	-	107
At 31 May 2013	6,834	-	14,008	-	20,842
Charge for year	322	-	2,116	-	2,438
Effects of movements in exchange rates	-	-	(758)	-	(758)
At 31 May 2014	7,156	-	15,366	-	22,522
Net book value:
At 31 May 2014	5,787	4,974	7,652	91,651	110,064
At 31 May 2013	2,225	1,457	9,809	92,189	105,680

Management have exercised judgement in determining the recoverability of the asset value of software and development costs relating to the creation of new products and services.

The remaining useful economic life of customer contracts and relationships is between 2 and 8 years.

The Group has made an acquisition in the year, details of which are included in note 14.

The Company has no intangible assets.

11         Intangible assets - Group (continued)

For the purpose of impairment testing, goodwill has been allocated to the Group's three operating divisions, which are also operating segments, as these represent the lowest level at which goodwill is monitored for internal management purposes.

Goodwill considered significant in comparison to the Group's total carrying amount of such assets have been allocated to cash generating units for the purposes of impairment testing as follows:

		Goodwill
		2014	2013
Cash generating units		£000	£000
Escrow		22,886	22,871
Escrow Europe		6,727	7,071
Escrow USA		6,382	7,045
Total Group Escrow		35,995	36,987
Assurance Testing		47,765	47,312
Web performance		7,891	7,890
Total Assurance Testing		55,656	55,202
Domain services		-	-
Total		91,651	92,189

When assessing impairment, the recoverable amount of each CGU is based on value in use calculations.  These calculations require the use of estimates, specifically: pre-tax cash flow projections; long-term growth rates; and a pre-tax market discount rate.

Cash flow projections are based on the Group's current two-year plan.  The main assumptions underlying that plan relate to customer termination rates and gross margins, which incorporate past experience.  Beyond the two-year plan these projections are extrapolated using an estimated long-term growth rate of 2.5% (2013: 1%-2.5%) depending on the CGU.  The growth rates used have been determined as the lower of the nominal GDP rates for the country in which the CGU is based and the long term compound annual growth rate in EBITDA estimated by management.  A different set of assumptions may be more appropriate in future years dependent on changes to the macro-economic environment.

The discount rates used have been based on management's calculation of the weighted average cost of capital using the capital asset pricing model to calculate the cost of equity.  A range of alpha factors were used to reflect the risk of the cash generating units.

The discount rate has been revised for each CGU to reflect the latest market assumptions for the risk-free rate, the Equity Risk Premium and the net cost of debt.  Pre-tax market discount rates of 10.5% - 15.8% (2013:10.2% - 14.7%.)have been used in discounting the projected cash flows in respect of the Escrow CGU's and 10.5% - 14.3% for Assurance Testing CGU's (2013:10.9%-16.0%).

The Directors do not believe that a reasonably possible change of assumptions would cause the recoverable amounts to fall below book value for any of the cash generating units due to the significant levels of headroom and prudent assumptions applied by management in forming their assessment.

12         Plant and equipment - Group

	Computer equipment	Plant and equipment	Fixtures and fittings	Motor vehicles	Total
	£000	£000	£000	£000	£000
Cost:
At 1 June 2012	8,986	410	4,650	193	14,239
Additions	1,136	-	717	154	2,007
Disposals	-	-	-	(37)	(37)
Movement in foreign exchange rates	15	-	20	-	35
At 31 May 2013	10,137	410	5,387	310	16,244
Additions	1,832	-	1,331	74	3,237
Acquired as part of business combination	-	-	60	-	60
Disposals	(30)	-	-	-	(30)
Movement in foreign exchange rates	(90)	(1)	(83)	(6)	(180)
At 31 May 2014	11,849	409	6,695	378	19,331
Depreciation:
At 1 June 2012	6,975	410	1,724	62	9,171
Charge for year	1,342	-	573	49	1,964
Disposals	-	-	-	(31)	(31)
Movement in foreign exchange rates	6	-	3	-	9
At 31 May 2013	8,323	410	2,300	80	11,113
Charge for year	1,429	-	588	75	2,092
Disposals	(26)	-	-	-	(26)
Movement in foreign exchange rates	(75)	(1)	(16)	-	(92)
At 31 May 2014	9,651	409	2,872	155	13,087
Net book value:
At 31 May 2014	2,198	-	3,823	223	6,244
At 31 May 2013	1,814	-	3,087	230	5,131

The company has no plant and equipment.

13         Trade and other receivables

	Group	Group	Company	Company
	2014	2013	2014	2013
	£000	£000	£003	£000
Trade receivables	19,614	16,598	-	-
Prepayments and accrued income	9,077	7,876	-	-
Amounts owed by group undertakings	-	-	8,009	2,499
	28,691	24,474	8,009	2,499

14         Acquisitions

FortConsult 

On 2nd May 2014 the Group acquired 100% of the share capital of FortConsult A/S for a maximum consideration of £4.0m, of which a maximum of £2.0m has been withheld subject to the achievement of performance criteria specified in the purchase agreement.  The performance conditions are required to be satisfied by 30 April 2015 and 30 April 2016.  The contingent consideration is to be paid in July 2015 and July 2016.  

The acquisition had the following effect on the Group's assets and liabilities:

			Fair values
			£000
Acquiree's identifiable net assets at the acquisition date:
Plant and equipment			60
Trade and other receivables			803
Cash			239
Creditors & accruals			(410)
Current tax liability			(6)
Deferred tax liability			(217)
Intangible assets purchased			634
Net identifiable assets			1,103
Goodwill on acquisition			2,736
Expected consideration to be paid			3,839
Less purchase consideration withheld			(1,746)
Net cash outflow			2,093
Cash acquired			(239)
Net cash outflow excluding cash acquired			1,854

None of the receivables have been impaired and the full contractual amounts have been collected.

Goodwill of £2.7m has arisen on the acquisition because the purchase price exceeds the fair value of the separately identifiable net assets, liabilities and contingent liabilities acquired.  Goodwill represents synergies, business processes and the assembled value of the work force including industry specific knowledge and technical skills.  The goodwill is not expected to be deductible for tax purposes.

During the period from acquisition, the Company contributed £275,000 to Group revenue and £86,000 to Group operating profit.  It is not practical to disclose what the contribution to Group revenue and profits would have been had the acquisition of FortConsult A/S been completed on the first day of the current period, as financial information was not prepared on an IFRS basis prior to acquisition.

As noted above, as part of the sale and purchase agreement, a contingent consideration was agreed of up to a maximum of £2.0m which is withheld subject to the achievement of performance criteria specified in the purchase agreement and is based on profit growth forecasts and market multiples.

Due to the inherentuncertainties in deriving forecasts the level of contingent consideration is reassessed at each reporting date to reflect revisions to forecasts or differences between

forecast and actual performance.  The fair value of the contingent consideration of £2m is still considered appropriate and is based upon the present value of the future cash flows

During the period, as a result of the acquisitions noted above, total acquisition related costs of £292,000 were incurred (see note 3).

Matasano Security LLC

On 1 August 2012 the Group acquired 100% of the partnership interests of Matasano Security LLC for a maximum consideration of £8.1m, of which up to a maximum of £4.1m was withheld subject to the achievement of performance criteria specified in the purchase agreement.  The performance conditions are required to be satisfied by 31 July 2013 and 31 July 2014.  The contingent consideration is to be paid in December 2013 and November 2014.

During the period, £1.7m was paid in relation to the part settlement of the contingent consideration due on the acquisition of Matasano Security LLC.  The fair value of the remaining contingent consideration of £2.2m is still considered appropriate and is based on the present value of the future cash flows.  Management expect the full amount to be payable based upon Matasano's predicted performance.

Intrepidus Group, Inc. 

During the period £0.4m has been paid which relates to part of the initial consideration that was deferred for one year.

During the year, the Directors have reassessed the carrying value of the contingent consideration held in respect of Intrepidus Group Inc and as a result of this review the fair value of the contingent consideration decreased to £0.4m from £2.4m to reflect the agreed amount which was paid in final settlement of the agreement.  The fair value adjustment is recognised within exceptional administration expenses (see note 3).

During the year ended 31 May 2013, as a result of the acquisitions noted above, total acquisition related costs of £825,000 were incurred (see note 3).

15         Deferred tax assets and liabilities

Group

Recognised deferred tax assets and liabilities are attributable to the following:

	Assets		Liabilities		Net
	2014	2013	2014	2013	2014	2013
		£000		£000		£000
Plant and equipment	-	304	(5)	-	(5)	304
Short term temporary differences	178	266	-	-	178	266
Intangible assets	-	-	(2,439)	(1,048)	(2,439)	(1,048)
Share based payments	579	417	-	-	579	417
Tax losses	1,542	-	-	-	1,542	-
Deferred tax asset/(liability)	2,299	987	(2,444)	(1,048)	(145)	(61)

Movement in deferred tax during the year:

	1 June 2013	Recognised in income	Exchange differences	Recognised in equity	Acquisitions	31 May 2014
	£000	£000	£000	£000	£000	£000
Plant and equipment	304	(308)	-	-	-	(4)
Short term temporary differences	266	(31)	-	-	(57)	178
Intangible assets	(1,048)	(1,282)	48	-	(158)	(2,440)
Share based payments	417	5	-	157	-	579
Tax losses	-	1,543	(1)	-	-	1,542
	(61)	(73)	47	157	(215)	(145)

		1 June 2012	Recognised in income	Recognised in equity	Acquisitions	31 May 2013
		£000	£000	£000	£000	£000
Plant and equipment		183	121	-	-	304
Short term temporary differences		169	97	-	-	266
Intangible assets		(547)	217	-	(718)	(1,048)
Share based payments		765	384	(732)	-	417
Tax losses		30	(30)	-	-	-
		600	789	(732)	(718)	(61)

The Company has deferred tax assets related to share based payments of £nil (2013: £138,000).

A deferred tax asset of £1,542,000 (2013:£Nil) has been recognised on US losses as management consider it probable that future taxable profits will be available against which they can be utilised.

The Group has not recognised a deferred tax asset on non UK losses of £855,000 (2013: £375,000) due to the uncertainty over recoverability.  Included in unrecognised tax losses are losses of £660,000 that will expire in 2034.  Other losses may be carried forward indefinitely. 

The Group has an unrecognised deferred tax liability of £nil (2013: £nil) which would only arise in the event of the sale of the shares or assets in NCC Group Inc. 

As at 31 May 2014 the Group has an unrecognised deferred tax asset of £76,000 in respect of UK short term timing differences and intangible assets (2013: £nil)

As at 31 May 2014, the temporary differences arising from un-remitted earnings of overseas subsidiaries was £1,646,000 (2013: £477,000).  No material tax charges are expected to arise if they were to be distributed and therefore a deferred tax liability in respect of unremitted earnings has not been recognised.

16         Trade and other payables

	Group	Group	Company	Company
	2014	2013	2014	2013
	£000	£000	£000	£000
Trade payables	2,973	2,944	-	-
Contingent consideration on acquisitions	2,940	2,177	-	-
Non trade payables	5,781	4,251	-	-
Accruals	8,609	5,359	1,075	-
	20,303	14,731	1,075	-

17         Deferred revenue

	Group	Group	Company	Company
	2014	2013	2014	2013
	£000	£000	£000	£000
Deferred revenue	17,207	16,847	-	-
	17,207	16,847	-	-

Deferred revenue of £12,005,000 (2013: £12,084,000) mainly consists of Escrow agreement revenue that has been deferred to be released to the income statement over the contract term in accordance with the group's accounting policy.

Deferred revenue of £3,119,000 (2013: £3,252,000) consists of website monitoring and load testing agreement revenue that has been deferred to be released to the income statement over the contract term in accordance with the group's accounting policy.  The remaining deferred revenue of £2,083,000 (2013: £1,511,000) relates to Assurance revenue.

18         Non-current liabilities

	Group	Group	Company	Company
	2014	2013	2014	2013
	£000	£000	£000	£000
Secured bank loan	34,945	30,080	-	-
Issue costs	(244)	(357)	-	-
Amortisation of issue costs	85	129	-	-
Interest bearing loans	34,786	29,852	-	-
Deferred tax (note 15)	2,444	1,048	-	-
Contingent consideration                                 on acquisitions (note 6)	1,001	4,765	-	-
Other financial liabilities	484	577	-	-
Total non-current liabilities	38,715	36,242	-	-

For more information about the contractual terms of the Groups interesting bearing secured bank loan, which is measured at amortised cost.

Other financial liabilities of £484,000 relates to the balance of a rent free period (2013: £577,000) which is released to the income statement over the term of the lease.

19         Related party transactions

The Group's key management personnel comprises the Directors of the Group.  The Group and Company's transactions with those Directors are disclosed in the Directors' Remuneration Report.

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 £150,000 (2013: £295,000) with Rickitt Mitchell and Partners Limited.  Included within the charge is £85,000 relating to advice received in connection with the acquisitions made during the year ended 31 May 2014.   Rickitt Mitchell and Partners Limited provide an outsourced acquisition service which facilitates the delivery of acquisition targets which have been identified and approved by the board.

The remaining £65,000 relates to the services of the Non Executive Chairman.  Rickitt Mitchell and Partners Limited also held nil 1.0p ordinary shares (2013: 42,000).

 

END

 

 

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