Earnings Release • Jul 3, 2014
Earnings Release
Open in ViewerOpens in native device viewer
National Storage Mechanism | Additional information
RNS Number : 2921L
NCC Group PLC
03 July 2014
3 July 2014
Strong organic growth drives earnings 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) | +44 (0)161 209 5432 |
| Rob Cotton, Chief Executive | |
| Atul Patel, Group Finance Director | |
| Instinctif Partners | |
| Adrian Duffield/Kathy Gordon | +44 (0)20 7457 2020 |
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).
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BRGDRXSGBGSD
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.