TIDMNCC
RNS Number : 9642U
NCC Group PLC
02 July 2009
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NCC Group plc
Continued solid organic and acquisitive growth drive profits up 19% - dividend
up 32%
2 July 2009. NCC Group plc (LSE: NCC, "NCC Group" or "the Group"), the
independent information security assurance group, has reported its final results
for the year ended 31 May 2009.
Highlights
Financial
* Group revenue up by 31% to GBP46.8m (2008: GBP35.7m)
* Group adjusted operating profits* up by 19% to GBP12.7m (2008: GBP10.7m)
* Group adjusted pre tax profits* up by 17% to GBP12.3m (2008: GBP10.5m)
* Cash conversion ratio up to 140% of operating profits (2008: 122%)
* Adjusted fully diluted earnings per share* up 17% to 26.1p (2008: 22.4p)
* Total dividend up 32% of 9.25p (2008: 7.00p)
* Net debt at year end GBP5.6m - expected to be net debt free by August 2010
Operational
* Group Escrow maintained strong organic revenue growth of 13%
* Assurance Testing now firmly established as UK's largest independent information
security business
* Two acquisitions completed and integrated
* Next Generation Security Software (NGS), an Ethical Security Testing business in
November 2008
* Escrow Europe Switzerland acquired the remaining 76% in May
2009, further strengthening Group's position as the world's largest software
Escrow provider
Outlook for 2009/2010:
* Group Escrow renewals forecast to be GBP14.9m (2009: GBP13.6m)
* Group Escrow verification order book GBP2.0m (2008: GBP2.0m)
* Assurance Testing order book, including Consultancy, GBP9.4m (2008: GBP7.1m)
* Site Confidence monitoring renewals forecast to be GBP4.1m (2008: GBP3.8m)
* Operating profit is adjusted for amortisation of acquired intangibles of
GBP1.2m. Pre tax profit is adjusted for this item and the unwinding of the
discount on the acquisitions deferred consideration of GBP0.2m.
Rob Cotton, NCC Group Chief Executive commented:
"We have delivered our strongest performance to date against a backdrop of
economic and worldwide financial downturn and uncertainty. We have continued to
develop and grow in the face of this adversity and delivered solid and
consistent organic growth, complemented by the acquisitions completed over the
last few years.
"The fundamentals of our business remain strong and attractive; substantial
recurring revenues, good cash generation and a focus on the faster growing IT
services segments.
"We have started this year in a very strong position which has given us
considerable confidence in our ability to deliver further sustainable growth."
Enquiries:
+--------------------------------------+--------------------------------+
| NCC Group (www.nccgroup.com) | 0161 209 5200 |
+--------------------------------------+--------------------------------+
| Rob Cotton, Chief Executive | |
+--------------------------------------+--------------------------------+
| Paul Edwards, Group Finance Director | |
+--------------------------------------+--------------------------------+
| | |
+--------------------------------------+--------------------------------+
| College Hill | |
+--------------------------------------+--------------------------------+
| Adrian Duffield | 020 7457 2020 |
+--------------------------------------+--------------------------------+
Overview
The Group delivered 31% growth in revenues and growth of 17% in both adjusted
pre tax profits and adjusted earnings per share, emphasising the strength of the
Group's proposition despite the global economic uncertainty faced by all
businesses over the last year.
The Group Escrow division maintained its strong, principally organic, revenue
growth of 13% whilst Assurance Testing consolidated its position as the UK's
largest independent information security business with revenues growing 49%.
The last five years of solid growth and CAGR of 25% in revenues and 22% for
adjusted operating profit, demonstrate the success of the Group's strategy of
focused sustainable organic growth, allied to carefully targeted acquisitions.
The Group continues to be highly cash generative and has only GBP5.6m net debt
with operating cash conversion representing140% of operating profits (2008:
122%).
Financial review
Group
Revenue
Group revenue for the year ended 31 May 2009 increased by 31% to GBP46.8m (2008:
GBP35.7m), with the previous year's acquisitions of Secure Test and Escrow
Europe successfully integrated into the Group.
The Group has continued to be acquisitive in the year and purchased the UK-based
NGS and the remaining 76% of Escrow Europe Switzerland in November 2008 and May
2009 respectively. Excluding these acquisitions Group revenue grew by 19% to
GBP43.4m.
The Group half year split saw 44% of revenue delivered in the first half (2008:
46%) and 56% in the second half (2008: 54%).
The geographic split of revenue has continued to evolve with the acquisition of
NGS which has a global presence. However, the majority of Group revenue is
derived from the UK. UK revenue was GBP36.6m (2008: GBP29.2m) representing 78%
(2008: 82%) of the total of the Group, with the rest of the world increasing by
48% to GBP5.6m (2008: GBP3.8m) and Europe contributing GBP4.6m (2008: GBP2.7m).
Recurring revenue
The Group saw recurring income levels consolidate. In Group Escrow nearly 89% of
all contracts renewed, whilst in Assurance Testing 79% of prior year testing
revenue was retained, with those customers spending on average 24% more with the
Group at nearly GBP22,000 per renewal. In addition, 90% of Site Confidence's
performance monitoring and load testing revenues were renewed and are recurring.
Profitability
Adjusted Group operating profit, excluding the amortisation of acquired
intangibles and as set out in the table below, grew by 19% to GBP12.7m (2008:
GBP10.7m). Adjusted operating margins were, as expected, slightly lower at 27%
(2008: 30%) reflecting the change in the Group's margin mix as a result of the
acquisitions. Non escrow businesses margins are typically closer to 15%. The
adjusted operating profit includes GBP1.0m (2008: GBP0.7m) of share based
charges and related costs. Excluding the share based charges adjusted operating
profits grew by 21%.
The half year split of adjusted operating profits was H1 43%: H2 57% (2008: H1
44%: H2 56%).
Currency fluctuations resulted in a GBP28,000 positive impact on the Group's
profits.
+----------------------------------------------------+----------+--------+
| | Operating profit |
+----------------------------------------------------+-------------------+
| GBP000 | 2009 | 2008 |
+----------------------------------------------------+----------+--------+
| Reported operating profit | 11,486 | 9,217 |
| | | |
+----------------------------------------------------+----------+--------+
| Amortisation of acquired intangibles | 1,237 | 740 |
| | | |
+----------------------------------------------------+----------+--------+
| Exceptional items | - | 711 |
| | | |
+----------------------------------------------------+----------+--------+
| Adjusted operating profit | 12,723 | 10,668 |
| Adjusted operating profit | | |
| | | |
+----------------------------------------------------+----------+--------+
+----------------------------------------------------+----------+--------+
| | Profit before |
| | tax |
+----------------------------------------------------+-------------------+
| Reported profit before tax | 10,867 | 8,693 |
| | | |
+----------------------------------------------------+----------+--------+
| Amortisation of acquired intangibles | 1,237 | 740 |
| | | |
+----------------------------------------------------+----------+--------+
| Exceptional items | - | 711 |
| | | |
+----------------------------------------------------+----------+--------+
| Unwind of the discount on deferred consideration | 177 | 333 |
| | | 333 |
+----------------------------------------------------+----------+--------+
| Adjusted profit before tax | 12,281 | 10,477 |
| | | |
+----------------------------------------------------+----------+--------+
Adjusted pre-tax profit increased 17% to GBP12.3m (2008: GBP10.5m). The Group's
reported pre-tax profit was up 25% to GBP10.9m (2008: GBP8.7m) after the
inclusion of the unwinding of the discount on the acquisitions deferred
consideration and amortisation.
Taxation
The Group's effective tax rate is 29.2% (2008: 26.9%). The increase in the
effective tax rate is largely due to the impact in the prior year of the tax
allowance in relation to the exercise of share options granted in 2004. This
exceeded the reduction in the tax rate from 30% in 2008 to 28% in 2009.
The effective tax rate is above the standard UK rate of 28% largely due to the
impact of foreign tax and items not deductable for tax purposes.
Earnings per share
The adjusted fully diluted earnings per share increased 17% to 26.1p (2008:
22.4p). The basic earnings per share increased 21% to 22.9p (2008: 18.9p),
whilst fully diluted earnings per share increased 20% to 22.1p (2008: 18.3p).
The table below analyses the effect on the Group's fully diluted earnings per
share of the amortisation of acquired intangibles, unwind of the discount on the
deferred consideration for acquisitions and the effect of the exceptional costs.
+----------------------------------------------------+--------+----------+
| Pence | 2009 | 2008 |
+----------------------------------------------------+--------+----------+
| Diluted EPS as per the income statement | 22.1 | 18.3 |
+----------------------------------------------------+--------+----------+
| Amortisation of acquired intangibles | 3.5 | 1.6 |
+----------------------------------------------------+--------+----------+
| Exceptional items | - | 1.5 |
+----------------------------------------------------+--------+----------+
| Unwind of discount on deferred consideration of | 0.5 | 1.0 |
| acquisitions | | |
+----------------------------------------------------+--------+----------+
| Adjusted diluted EPS | 26.1 | 22.4 |
+----------------------------------------------------+--------+----------+
Dividend
In line with the continuing progressive dividend policy, the Board is
recommending a final dividend of 6.25p per ordinary share, making the total
9.25p for the year. This represents cover of 2.5 times (2008: 2.7 times) based
on basic earnings per share.
If approved at the Annual General Meeting, the dividend will be paid on 25
September 2009 to shareholders on the register at 28 August 2009. The
ex-dividend date will be 26 August 2009.
Shareholders' funds at the end of the year were GBP44.8m (2008: GBP39.5m).
Cash
The Group continues to be highly cash generative with operating cash flow before
interest and tax of GBP16.1m (2008: GBP11.2m) which is 140% of operating profit
before interest and tax (2008: 122%).
After accounting for net cash outflows of GBP11.4m for acquisitions and deferred
acquisitions payments made during this year, the Group ended the year with net
debt of GBP5.6m (2008: GBP3.4m).
Capital expenditure remained tightly controlled at GBP1.4m (2008: GBP1.5m). In
the current financial year as the Group upgrades its core IT systems to SAP,
there will be a onetime capital expenditure increase of approximately GBP1.8m.
In the year the Group underwent a refinancing deal to secure a GBP15m multi
option facility term loan which at the year-end was 59% utilised at GBP8.9m.
This facility, along with the highly cash generative nature of the Group's
businesses, provides flexibility for future acquisitions and expected capital
projects. It expires in July 2010 when the Group expects to be almost debt free.
Balance sheet
Following the acquisitions of NGS and Escrow Europe Switzerland goodwill
increased by 18% to GBP52.2m (2008: GBP44.1m) and the cost of intangible assets
relating to customer contracts and associated relationships increased by 15.7%
to GBP10.1m (2008: GBP8.7m). The value of goodwill has been assessed and no
impairment has been evidenced. The contracts and customer relationships have
been assigned a useful economic life of between three and twenty years and are
to be amortised over that period.
Divisions
Group Escrow
The worldwide Escrow businesses are the cornerstone of the Group's profitability
and provide a notably high degree of recurring revenue due to the high contracts
renewals base.
Group Escrow remains the largest division, accounting for 45% of total revenue
(2008: 50%). It increased revenue by 17% to GBP21.0m (2008: GBP18.0m), 47% of
revenue was delivered in the first half (2008: 47%) and 53% in the second half
(2008: 53%). Organic revenue growth in the year was 13%, with strong
performances from the overseas operations.
Escrow UK increased revenue by 6% to GBP16.6m (2008: GBP15.7m). UK growth in
the first half of the year was slower than the Board would have liked, as
clients were affected by the severity and speed of the economic downturn which
curtailed their investment in IT software and services. The business also
experienced a fall off in demand for verification services. In the first six
months overall growth was 1%. In the second six months, due to swift action
taken to refocus the sales message, new contract and verifications growth was
once again 10%.
Escrow US increased its revenue by 70% to GBP2.0m (2008: GBP1.2m) and Escrow
Europe increased revenues by 121% to GBP2.4m (2008: GBP1.1m) of which GBP0.5m
was derived from Escrow Germany.
Escrow UK contract terminations, as anticipated at the interims results,
increased to 11.5% (2008: 9.2%), more details below. However recurring revenues
obtained through renewals increased by 22% to GBP13.6m (2008: GBP11.2m).
Group Escrow operating profit increased 15% to GBP11.7m (2008: GBP10.2m) with
Escrow UK contributing 88%. Escrow US and Escrow Europe continued to increase
profitability and contributed 5% and 7% of total Escrow operating profits
respectively with all geographies seeing double digit growth.
Group Escrow operating margins remained strong as a consequence of focused
control over contract terminations and new business wins at 55% (2008: 56%) with
Escrow UK increasing its margins to 62% (2008: 60%).
Assurance Testing
Assurance Testing now accounts for 41% (2008: 36%) of Group revenues, due to the
full year contribution from Secure Test and the acquisition of NGS during the
year. Revenue increased by 49% to GBP19.1m (2008: GBP12.8m) and, excluding the
acquisition of NGS, Assurance Testing revenues increased 22% to GBP15.7m.
Operating profit increased 67% to GBP2.8m (2008: GBP1.7m) and it is expected
that both revenues and operating profits will increase further in the current
financial year as the demand for Ethical Security Testing and Performance and
Load Testing continues to grow.
Assurance Testing continues to benefit from the integration of the various units
acquired to date and is focusing on improving its operating margins, which grew
to 15% from 13% in the previous year.
Consultancy
Consultancy accounted for 14% of Group revenue (2008: 14%). Revenues grew by 36%
to GBP6.7m (2008: GBP4.9m). Operating profit increased by 4% to GBP0.8m (2008:
GBP0.7m) as the general IT consultancy market, which we have been moving away
from during the last two years, has continued to be very competitive.
Customer analysis
As has always been the case, the Group had no reliance on one customer or sector
for its revenue. The analysis is as follows and shows a consistent trend.
+----------------------------+------------+------------+-------------+
| Top three sectors by | Escrow | Assurance | Consultancy |
| division | | | |
+----------------------------+------------+------------+-------------+
| Banks & Insurance | 23% | 20% | - |
+----------------------------+------------+------------+-------------+
| Software Computer Services | 13% | 22% | - |
+----------------------------+------------+------------+-------------+
| Telecoms | 18% | - | - |
+----------------------------+------------+------------+-------------+
| Retail | - | 17% | - |
+----------------------------+------------+------------+-------------+
| Housing | - | - | 29% |
+----------------------------+------------+------------+-------------+
| Local Govt | - | - | 19% |
+----------------------------+------------+------------+-------------+
| Central Govt | - | - | 9% |
+----------------------------+------------+------------+-------------+
Group revenue split by sector
+------------------------------------+------------+
| Sector | % |
+------------------------------------+------------+
| Banks and Insurance | 18 |
+------------------------------------+------------+
| Fixed & Mobile Telecommunications | 9 |
+------------------------------------+------------+
| Software & Computer Services | 15 |
+------------------------------------+------------+
| Central Government | 6 |
+------------------------------------+------------+
| Local Government | 8 |
+------------------------------------+------------+
| Education | 3 |
+------------------------------------+------------+
| Housing | 5 |
+------------------------------------+------------+
| Support Services | 4 |
+------------------------------------+------------+
| General Retailers | 10 |
+------------------------------------+------------+
| Healthcare Equipment & Services | 4 |
+------------------------------------+------------+
| Travel & Leisure | 5 |
+------------------------------------+------------+
| Other | 13 |
+------------------------------------+------------+
Operational Review
Market and positioning
It is without doubt a difficult and uncertain global and domestic economic
environment in which to operate with the financial world continuing rapidly to
change shape and the future still only being measured in months rather than
years.
The Board believes that the basic underpinning of demand for the Group's
products and services has remained unchanged. However, it is very aware that
business investment in new infrastructure and software continues to be
considerably less than it has seen over the last few years, as corporations
defer decisions and as a consequence implementations and upgrades.
The IT software and services market is also under attack from cost cutters.
Decision making ability is being removed and authority levels are being reduced.
Discretionary expenditure has been culled. However, selling is still very much
possible, providing it is in the right area with the right products.
Although NCC Group was not immune from the downturn, its positioning helped the
Group avoid the worst effects of the downturn in the domestic economy as its
products and services fall into the non discretionary expenditure category.
For NCC Group, the product sets are still compelling to its customers as it
continues to provide services that are critical to business, for example:
* organisations who need protection for their business critical applications as
corporate failures and product withdrawals increase;
* systems, networks and data security have not kept pace with the growth of data
and identity theft and hacking globally, which continue to reach new levels on
an almost daily basis. As the Group has stated before this is 'an arms race'
which is not getting any slower nor is there any end in sight; and
* web site performance is critical to all types of businesses as the web is now
often their primary shop window.
NCC Group remains the largest provider of Escrow services in the world.
Furthermore, it is the only provider who mandates quality ahead of price and
does not intend to change that philosophy. There are no signs that the very
small virtual providers who offer a low cost, low value proposition are gaining
traction in the market. The Board believes their future is in jeopardy as the
market shows no sign of wanting to make false economy by trusting part of their
disaster recovery and risk mitigation plans to unknown organisations.
The dynamics of the Escrow market have not materially changed since the Group
floated in 2004 and the same market assumptions, as detailed by Gartner at the
time, remain. As was confirmed then, many companies remain significantly less
protected than they should be and apart from those the Group has worked closely
with, the Board still believes that to be the case.
Both the public and private sector still typically believe that they have
several times more cover than they actually do have. They are still unaware that
they should have considerably more. The UK escrow market without verification
testing is still very niche and the Group estimates that the market size is
approximately GBP100m, which still provides NCC Group with considerable headroom
for growth.
Within Assurance Testing, the market for Secure Test and NGS, the penetration,
security testing and forensics service providers, continues to see strong
growth. Media headlines continue to highlight embarrassing and avoidable
examples of poor security that have resulted in real data and financial loss.
Within Assurance Testing the Group has the largest team of CESG CHECK accredited
ethical security testers in the UK with currently over 100 testers. NCC Group is
committed to investing in the number of employees who have the CHECK or
equivalent Crest qualification to ensure that as we and the industry grow the
highest ethical and technical standards are maintained.
The information security side of the Consultancy division now fits well into
Assurance Testing. The Group is fast becoming the name of choice for major
companies wanting to ensure that they are best placed to protect themselves and
their business assets from attack.
The Group provides information security advice from every perspective,
especially for those organisations that are covered by the PCI Data Security
Standards. NCC Group's position in the information security market is further
enhanced by being accredited PCI Auditors and by having more CLAS consultants in
the UK than anybody else.
The Group is managed through two distinct business units, Group Escrow and
Assurance Testing. Each is run independently by an autonomous management team
responsible for setting and, after Board approval, delivering its own plans,
with each area being tasked with generating organic growth.
This change from three to two divisions reflects the very substantial shift in
consulting activity, as it becomes even closer to Assurance Testing and as the
Group withdraws further from the low margin commoditised areas of consulting.
All future reporting will follow this structure, with non information security
consulting being disclosed separately in the Assurance Division.
Divisions
Group Escrow
During the year the Group expanded its footprint in continental Europe by adding
operations in Zurich, to complement its presence in Amsterdam and Munich.
The acquisition of Escrow Europe Switzerland, in which NCC Group already held a
24% stake, demonstrated the intention to widen and strengthen, by acquisition
and organically, the geographical spread carefully both in continental Europe
and the USA.
Across the escrow businesses in the various countries the Group has experienced
positive changes in most of its key performance measures of profitability,
renewals, terminations and verification testing.
Escrow UK
This was very much a year of two halves, with the first six months of the year
suffering from the full impact of the global banking crisis, as outlined above.
Key changes were made to better take advantage of the market place and the
second half of the year saw a 10% growth in revenue. Contained within that
excellent result was that Verification revenues grew by 8.5%, which for the year
as whole saw Verification revenue only 5% down at GBP2.9m (2008: GBP3.0m).
Escrow UK recurring revenues grew 10% to GBP10.9m (2008: GBP9.9m) but
terminations varied significantly particularly in the first eight months of the
year. An improvement in the Group's processes, allied to the passing of the
initial knee jerk reaction to the economic downturn, has seen UK termination
rates for the last year of 11.5%.
Below are the termination rates for the last three years, importantly, the Group
is now seeing a reduction in termination requests which leads the Board to
believe rates are returning to normal.
+------------------------------+------+------+------+------+
| | 2006 | 2007 | 2008 | 2009 |
+------------------------------+------+------+------+------+
| Termination Rate % | 10.3 | 10.2 | 9.2 | 11.5 |
+------------------------------+------+------+------+------+
The external planning guidance historically given was between 11% and 13% for
terminations for the previous three years and until September 2009 that had been
unchanged. Currently the Board believes the peak of 12% seen in January is
unlikely to be a long term trend and so the benchmark remains between these two
levels.
Escrow Europe and Escrow USA
Escrow Europe had a successful year, despite the management team being replaced.
The business has benefited from the strong euro, but succeeded in growing
profitability by 113% on a consistent currency basis. The Swiss acquisition
further consolidates NCC Group's position and the business is already seeing
benefits from that acquisition. The two German offices are fully amalgamated and
the business is growing at 102% per annum.
Escrow US also benefited from the exchange rate, but underlying growth was still
good with revenues up by 70% and profits up by 36%. The US office now employs 16
employees and is growing as the NCC Group brand starts to have an impact in the
USA in the escrow market.
Assurance Testing
Assurance Testing in this financial year consists of three component parts,
Secure Test, NGS and Site Confidence. Assurance Testing revenue grew 49% to
GBP19.1m with an increase in profitability of 67% to GBP2.8m (2008: GBP1.7m),
the organic element of which was 38%. A key feature of the Division is the
frequency that customers' renew the testing work performed by the Group.
The Division currently has a high recurrence rate for Ethical Security
testing of 79% of prior year's revenues, which represents 51% of all customers
which is a slight change from last year, when the renewal rate was 82% and
56% respectively. This entirely expected change is due to the increased demand
for testing generally, as reflected by the revenue growth seen in the year. More
importantly, renewing customers' expenditure has gone up from GBP17,463 to
GBP21,732 in 2009 and to GBP15,525 from GBP14,120 for new customers.
For Site Confidence performance monitoring and load testing have a recurring
revenue rate of 90%.
Secure Test and NGS both had very strong years and the business witnessed the
team of 97 testers operating at capacity for most of the year. In addition, the
Group gained valuable new clients from its acquisition of NGS all of which
continue to use the best security testers in the market regardless of the
economic uncertainty.
The Site Confidence operation encompassing the web site monitoring and load
testing business had a good year in which revenues grew by 9%. This is before
the Group started on its product upgrades which will further improve the
competiveness of the products and services.
The market place for the Site Confidence product has been more affected by the
recession than the other areas of Assurance Testing, as customers have been more
willing to switch off the Group's services and risk falling behind their
competitors' web site performances. However, the recurring income renewal rates
remain consistent at 90%.
The acquisition of NGS broadened the Group's appeal in the Ethical security
market by further increasing the technical expertise and adding forensics skills
and research to the already strong set of propositions.
Consultancy
Consultancy revenues grew by 36% to GBP6.7m (2008: GBP4.9m) as the Group
continued to grow its presence in the Information Security marketplace. With
the increased presence of Information Security and the synergies that are being
achieved from being part of the Assurance division, the Board expects to be able
to continue growing both profits and revenues despite dropping certain types of
work.
Group Strategy
The Group strategy remains to develop further the two core strands of Escrow and
Assurance organically by developing new ideas and looking for new opportunities
in the IT and information security markets, geographically and by acquisition
when appropriate.
The Group has always viewed profits, margins and cash generation as the most
important features of its business model and we do not intend to change that
approach. Escrow's margin has continued to increase and it is normal for us to
use a combination of effective selling and price increases to improve
it further. The Board does not expect this to change although price increases
will be lower than seen in the past.
In Assurance Testing, the Group has been growing rapidly and has historically
built revenue and market share at the expense of margin. Over the last 12 months
the Board set about realising scale and established market position and changing
the focus onto margin improvement. The margin has improved and is expected to
continue going forward. Further with the acquisition of NGS, the premium service
offering, the Board expects to gain higher day rates.
The strength of the Group's proposition is that it is independent; the Group
delivers the right solution for the client without being biased towards a
particular vendor or solution. The Group would not consider entering the already
over populated reseller market other than to sell its own tools as is the case
with the Site Confidence monitoring and load tools and NGS database security
tools.
Acquisitions
The Board has consistently complemented its organic growth by carefully adding
accretive acquisitions. The Group successfully completed two acquisitions in the
financial year, NGS and the remaining shareholding in Escrow Europe Switzerland.
In addition it concluded the earn-out and integration of Escrow Europe.
Acquisitions are still very important to the Group. Seven have been completed
and have all been successful and at fair prices reflecting their strategic
importance. NGS is now firmly part of the Group and is adding a tremendous
amount of value.
Agreeing a price is always the hardest part of any negotiation and there is a
misconception that there are bargains to be had for people businesses. Clearly
the disappearance of the overinflated private equity led pricing models will
make acquisition pricing ease, but bargains are unlikely to be found.
The strategy is to look at the highest quality businesses and pay a full and
fair price for them. As importantly, the Group typically buys small or mid size
people businesses. The Board will continue to invest in appropriate
complementary businesses by way of company or asset based acquisitions. NCC
Group remains involved in a number of dialogues with suitable target companies
but will always remain cautious, as the integration and extraction of enhanced
value is of paramount importance to the Group.
Board change, employees, recruitment and retention
David McKeith joins the Board on 29 July 2009 - see separate statement today. He
is replacing Eurfyl ap Gwilym who retires at the AGM after five years with the
Group.
As stated above, NCC Group now predominately operates as two business strands,
Group Escrow and Assurance Testing. Roger Rawlinson has been recently promoted
to Managing Director of Assurance Testing and the Group is currently recruiting
a Managing Director to lead its global group of Escrow businesses.
Recruitment and retention remains the biggest challenge to growth for a people
business such as NCC Group and the management has made good progress. The Board
is committed to employing the best people in the market wherever possible. The
Group had a headcount of 421 employees worldwide at the end of the last
financial year.
The Group has seen a good intake of new testers and well qualified Information
Security consultants in Assurance Testing as it capitalised on its market
leading position. In Escrow worldwide all sales teams have grown, even in the
UK, where at the year end the escrow sales team reached a record 95.
As important as recruitment is retention. The management believes that its all
round packages place it in the top quartile of remuneration in the locations
from which the Group operates. Therefore as in all previous years, the Group has
reviewed all salaries and bonuses in the normal way. NCC Group has resisted the
temptation to implement a cap or freeze on pay, so as to ensure that its people
remain motivated and valued so that the Group is able to retain them when there
is an economic upturn.
Outlook
NCC Group continues to make a virtue of acting independently and operating as
trusted, equitable advisors. To date it has successfully acquired and integrated
seven businesses that have complemented its service and delivery offerings. The
Group has an outstanding track record of organic growth and a sound business
model that it will continue to evolve and develop to grow the business further.
The economic landscape has fundamentally shifted over the last year and for many
businesses this is causing considerable hardship and has led to a period of
uncertainty.
For NCC Group, that is not the case. The decisive action taken over the last
three years has ensured the Group has and will continue to weather this economic
storm and the Board is confident the business will go from strength to strength.
NCC Group has a very strong market leading position in all of the niches in
which it operates and the services and advice it provides is as far away from
discretionary expenditure as it can be. The Group also continues to evolve its
range of offerings to ensure it maintains its market leading positions.
The start to the year sees Group Escrow renewals at GBP14.9m, up from GBP13.6m
achieved in the financial year to 31 May 2009 and a verification order book of
GBP2.0m, of which GBP0.6m relates to Escrow Europe and Escrow US.
The Assurance Testing businesses' order books have improved to GBP9.4m (2008:
GBP7.1m), included in this is GBP2.9m (2008: GBP2.5m) from the Consultancy
division. The division also has GBP4.1m of monitoring renewals forecast for the
coming financial year (2008: GBP3.8m).
The outlook for NCC Group is good and the Board remains very confident in the
Group's ability to deliver further sustainable growth.
Consolidated income statement
For the year ended 31 May 2009
+-----------------------------------------------------+-------+----------+----------+
| |Notes | 2009 | 2008 |
+-----------------------------------------------------+-------+----------+----------+
| | | GBP000 | GBP000 |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
| Revenue | 2 | 46,836 | 35,745 |
+-----------------------------------------------------+-------+----------+----------+
| Cost of sales | | (26,275) | (20,055) |
+-----------------------------------------------------+-------+----------+----------+
| Gross profit | | 20,561 | 15,690 |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
| Administrative expenses before amortisation of | | (7,838) | (5,022) |
| intangible assets and exceptional items | | | |
+-----------------------------------------------------+-------+----------+----------+
| Earnings before interest, tax, amortisation and | | 12,723 | 10,668 |
| exceptional items | | | |
+-----------------------------------------------------+-------+----------+----------+
| Amortisation of intangible assets | | (1,237) | (740) |
+-----------------------------------------------------+-------+----------+----------+
| Exceptional items | 3 | - | (711) |
+-----------------------------------------------------+-------+----------+----------+
| Total administrative expenses | | (9,075) | (6,473) |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
| Operating profit | 2 | 11,486 | 9,217 |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
| Financial income | 6 | 24 | 78 |
+-----------------------------------------------------+-------+----------+----------+
| Finance expense excluding unwinding of discount | | (466) | (269) |
+-----------------------------------------------------+-------+----------+----------+
| Net financing costs excluding unwinding of discount | | (442) | (191) |
+-----------------------------------------------------+-------+----------+----------+
| Unwinding of discount effect relating to deferred | | (177) | (333) |
| consideration on business combinations | | | |
+-----------------------------------------------------+-------+----------+----------+
| Financial expenses | 6 | (643) | (602) |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
| Net financing costs | | (619) | (524) |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
| Profit before taxation | 4 | 10,867 | 8,693 |
+-----------------------------------------------------+-------+----------+----------+
| Taxation | 7 | (3,170) | (2,340) |
+-----------------------------------------------------+-------+----------+----------+
| Profit for the year | | 7,697 | 6,353 |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
| Attributable to equity holders of the parent | | 7,697 | 6,353 |
| company | | | |
+-----------------------------------------------------+-------+----------+----------+
| Profit for the year | | 7,697 | 6,353 |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
| Earnings per share | 9 | | |
+-----------------------------------------------------+-------+----------+----------+
| Basic earnings per share | | 22.9p | 18.9p |
+-----------------------------------------------------+-------+----------+----------+
| Diluted earnings per share | | 22.1p | 18.3p |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
Group balance sheet
at 31 May 2009
+-------------------------------+--------+----------+--------+---------+---------+
| | Notes | 2009 | 2008 |
+-------------------------------+--------+-------------------+-------------------+
| | | GBP000 | GBP000 | GBP000 | GBP000 |
+-------------------------------+--------+----------+--------+---------+---------+
| Non current assets | | | | | |
+-------------------------------+--------+----------+--------+---------+---------+
| Intangible assets | 10 | 60,009 | | 51,833 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Plant and equipment | 11 | 2,131 | | 1,939 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Deferred tax assets | | 787 | | 1,145 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Total non-current assets | | 62,927 | | 54,917 | |
+-------------------------------+--------+----------+--------+---------+---------+
| | | | | | |
+-------------------------------+--------+----------+--------+---------+---------+
| Current assets | | | | | |
+-------------------------------+--------+----------+--------+---------+---------+
| Trade and other receivables | 12 | 14,785 | | 12,351 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Cash and cash equivalents | | 3,356 | | 1,142 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Total current assets | | 18,141 | | 13,493 | |
+-------------------------------+--------+----------+--------+---------+---------+
| | | | | | |
+-------------------------------+--------+----------+--------+---------+---------+
| Total assets | | | 81,068 | | 68,410 |
+-------------------------------+--------+----------+--------+---------+---------+
| | | | | | |
+-------------------------------+--------+----------+--------+---------+---------+
| Equity | | | | | |
+-------------------------------+--------+----------+--------+---------+---------+
| Issued capital | 17 | 337 | | 336 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Share premium | | 21,630 | | 21,537 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Retained earnings | | 22,891 | | 17,569 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Currency translation reserve | | (104) | | 12 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Total equity attributable to | | | 44,754 | | 39,454 |
| equity holders of the parent | | | | | |
+-------------------------------+--------+----------+--------+---------+---------+
| | | | | | |
+-------------------------------+--------+----------+--------+---------+---------+
| Non current liabilities | | | | | |
+-------------------------------+--------+----------+--------+---------+---------+
| Other financial liabilities | 16 | 76 | | 92 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Deferred tax liability | | 1,588 | | 1,499 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Interest bearing loans | 16 | 8,932 | | 54 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Total non current liabilities | | 10,596 | | 1,645 | |
+-------------------------------+--------+----------+--------+---------+---------+
| | | | | | |
+-------------------------------+--------+----------+--------+---------+---------+
| Current liabilities | | | | | |
+-------------------------------+--------+----------+--------+---------+---------+
| Interest bearing loans | | - | | 4,500 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Trade and other payables | 14 | 11,317 | | 11,270 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Deferred revenue | 15 | 12,406 | | 11,009 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Current tax payable | | 1,995 | | 532 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Total current liabilities | | 25,718 | | 27,311 | |
+-------------------------------+--------+----------+--------+---------+---------+
| Total liabilities | | | 36,314 | | 28,956 |
+-------------------------------+--------+----------+--------+---------+---------+
| Total liabilities and equity | | | 81,068 | | 68,410 |
+-------------------------------+--------+----------+--------+---------+---------+
These financial statements were approved by the Board of Directors on 1 July
2009 and were signed on its behalf by:
Rob Cotton
Chief Executive
NCC Group plc
Group cash flow statement
for the year ended 31 May 2009
+-----------------------------------------------------+-------+----------+----------+
| |Notes | 2009 | 2008 |
+-----------------------------------------------------+-------+----------+----------+
| | | GBP000 | GBP000 |
+-----------------------------------------------------+-------+----------+----------+
| Cash inflow from operating activities | | | |
+-----------------------------------------------------+-------+----------+----------+
| Profit for the year | | 7,697 | 6,353 |
+-----------------------------------------------------+-------+----------+----------+
| Adjustments for: | | | |
+-----------------------------------------------------+-------+----------+----------+
| Depreciation charge | | 1,283 | 1,045 |
+-----------------------------------------------------+-------+----------+----------+
| Share based charges | | 1,031 | 742 |
+-----------------------------------------------------+-------+----------+----------+
| Amortisation of intangible assets | | 1,237 | 740 |
+-----------------------------------------------------+-------+----------+----------+
| Net financing costs | | 619 | 191 |
+-----------------------------------------------------+-------+----------+----------+
| Profit on sale of plant and equipment | | (1) | (5) |
+-----------------------------------------------------+-------+----------+----------+
| Income tax expense | | 3,170 | 2,340 |
+-----------------------------------------------------+-------+----------+----------+
| Profit for the year before changes in working | | 15,036 | 11,406 |
| capital | | | |
+-----------------------------------------------------+-------+----------+----------+
| Increase in receivables | | (866) | (3,620) |
+-----------------------------------------------------+-------+----------+----------+
| Increase in payables | | 1,955 | 3,460 |
+-----------------------------------------------------+-------+----------+----------+
| Cash generated from operating activities before interest | 16,125 | 11,246 |
| and tax | | |
+-------------------------------------------------------------+----------+----------+
| Interest paid | | (468) | (489) |
+-----------------------------------------------------+-------+----------+----------+
| Income taxes paid | | (1,772) | (2,657) |
+-----------------------------------------------------+-------+----------+----------+
| Net cash generated from operating activities | | 13,885 | 8,100 |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
| Cash flows from investing activities | | | |
+-----------------------------------------------------+-------+----------+----------+
| Interest received | | 25 | 273 |
+-----------------------------------------------------+-------+----------+----------+
| Proceeds from the sale of plant and equipment | | - | 69 |
+-----------------------------------------------------+-------+----------+----------+
| Acquisition of plant and equipment | | (1,409) | (1,466) |
+-----------------------------------------------------+-------+----------+----------+
| Acquisition of business | 13 | (11,358) | (10,418) |
+-----------------------------------------------------+-------+----------+----------+
| Net cash used in investing activities | | (12,742) | (11,542) |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
| Cash flows from financing activities | | | |
+-----------------------------------------------------+-------+----------+----------+
| Proceeds from the issue of ordinary share capital | | 94 | 1,618 |
+-----------------------------------------------------+-------+----------+----------+
| Draw down of borrowings | | 4,412 | 993 |
+-----------------------------------------------------+-------+----------+----------+
| Purchase of own shares | | (656) | (559) |
+-----------------------------------------------------+-------+----------+----------+
| Payment of bank loans | | (56) | - |
+-----------------------------------------------------+-------+----------+----------+
| Equity dividends paid | | (2,607) | (1,817) |
+-----------------------------------------------------+-------+----------+----------+
| Net cash from financing activities | | 1,187 | 235 |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
| Net increase in cash and cash equivalents | 18 | 2,330 | (3,207) |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
| Cash and cash equivalents at beginning of year | | 1,142 | 4,377 |
+-----------------------------------------------------+-------+----------+----------+
| Effect of exchange rate fluctuations on cash held | | (116) | (28) |
+-----------------------------------------------------+-------+----------+----------+
| Cash and cash equivalents at end of year | | 3,356 | 1,142 |
+-----------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------+-------+----------+----------+
Statements of changes of equity
for the year ended 31 May 2009
Group
+------------------------------+---------+----------+----------+-------------+----------+
| | Share | Share | Retained | Currency | Total |
| | capital | premium | earnings | translation | Equity |
+------------------------------+---------+----------+----------+-------------+----------+
| | GBP000 | GBP000 | GBP000 | GBP000 | GBP000 |
+------------------------------+---------+----------+----------+-------------+----------+
| Balance at 1 June 2007 | 326 | 19,929 | 13,144 | 39 | 33,438 |
+------------------------------+---------+----------+----------+-------------+----------+
| Share based charges | - | - | 742 | - | 742 |
+------------------------------+---------+----------+----------+-------------+----------+
| Purchase of own shares | - | - | (559) | - | (559) |
+------------------------------+---------+----------+----------+-------------+----------+
| Deferred tax on share based | - | - | (294) | - | (294) |
| payments | | | | | |
+------------------------------+---------+----------+----------+-------------+----------+
| Profit for the year | - | - | 6,353 | - | 6,353 |
+------------------------------+---------+----------+----------+-------------+----------+
| Shares issued | 10 | 1,608 | - | - | 1,618 |
+------------------------------+---------+----------+----------+-------------+----------+
| Currency translation reserve | - | - | - | (27) | (27) |
+------------------------------+---------+----------+----------+-------------+----------+
| Dividends to shareholders | - | - | (1,817) | - | (1,817) |
+------------------------------+---------+----------+----------+-------------+----------+
| Balance at 31 May 2008 | 336 | 21,537 | 17,569 | 12 | 39,454 |
+------------------------------+---------+----------+----------+-------------+----------+
| | | | | | |
+------------------------------+---------+----------+----------+-------------+----------+
| Balance at 1 June 2008 | 336 | 21,537 | 17,569 | 12 | 39,454 |
+------------------------------+---------+----------+----------+-------------+----------+
| Share based charges | - | - | 1,031 | - | 1,031 |
+------------------------------+---------+----------+----------+-------------+----------+
| Purchase of own shares | - | - | (656) | - | (656) |
+------------------------------+---------+----------+----------+-------------+----------+
| Deferred tax on share based | - | - | (143) | - | (143) |
| payments | | | | | |
+------------------------------+---------+----------+----------+-------------+----------+
| Profit for the year | - | - | 7,697 | - | 7,697 |
+------------------------------+---------+----------+----------+-------------+----------+
| Shares issued | 1 | 93 | - | - | 94 |
+------------------------------+---------+----------+----------+-------------+----------+
| Currency translation reserve | - | - | - | (116) | (116) |
+------------------------------+---------+----------+----------+-------------+----------+
| Dividends to shareholders | - | - | (2,607) | - | (2,607) |
+------------------------------+---------+----------+----------+-------------+----------+
| Balance at 31 May 2009 | 337 | 21,630 | 22,891 | (104) | 44,754 |
+------------------------------+---------+----------+----------+-------------+----------+
Notes
1 Accounting policies
Basis of preparation
NCC Group plc ("the Company") is a company incorporated in the UK.
The Group financial statements consolidate those of the company and its
subsidiaries (together referred to as the "Group"). The parent company financial
statements present information about the Company as a separate entity and not
about its Group.
Both the parent and the Group financial statements have been prepared and
approved by the directors in accordance with International Financial Reporting
Standards as adopted by the EU ("Adopted IFRS"). On publishing the parent
company financial statements here together with the Group financial statements,
the company is taking advantage of the exemption in s403 of the Companies Act
2006 not to present its individual income statement and related notes that form
a part of these approved financial statements.
The accounting policies set out below have, unless otherwise stated, been
applied consistently to all periods presented in these Group financial
statements.
Revenue recognition
Revenue represents the value of services provided during the period, excluding
VAT.
Testing and consultancy
The results of partially completed contracts whether fixed price or on a time
and materials basis are dealt with on a percentage completion basis according to
the number of days worked by including the profit or loss earned on work
completed to the balance sheet date. Provisions are made for any losses on
uncompleted contracts expected to be incurred after the balance sheet date.
Escrow and website monitoring
Other than fees attributable to initial setup on the signing of a new contract,
which is recognised when the contract is signed, maintenance and escrow
agreement revenue is deferred and released to the income statement on a
straight-line basis over the life of the related agreement, on the basis that
the performance is deemed to fall evenly over the contract period.
Interest bearing borrowings
Interest bearing borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition interest
bearing borrowings are stated at amortised cost with any difference between cost
and redemption value being recognised in the income statement over the period of
the borrowings on an effective interest basis.
Net financing costs
Net financing costs comprise interest payable and interest receivable on funds
invested.
Interest income and interest payable is recognised in the income statement as
they accrue. Dividend income is recognised in the income statement on the date
the entity's right to receive the payments is established and pre acquisition
dividends are deducted from the cost of investment.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in the income statement except to the extent that it relates to
items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the balance sheet date, and
any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used
for taxation purposes. The following temporary differences are not provided for:
the initial recognition of goodwill and the initial recognition of assets or
liabilities that affect neither accounting nor taxable profit other than in a
business combination. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the balance
sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.
Adopted IFRS not yet applied
The following adopted IFRS were available for early adoption but have not been
applied by the Group in these financial statements:
+---------------+-----------------------------------------------------------------+
| International accounting standards (IFRS) |
+---------------------------------------------------------------------------------+
| IFRS 8 | Operating segments |
+---------------+-----------------------------------------------------------------+
| IAS 1 | Presentation of Financial Statements |
+---------------+-----------------------------------------------------------------+
| IFRS 2 | Share based payments: vesting conditions and cancellations |
+---------------+-----------------------------------------------------------------+
The directors do not anticipate that the adoption of these standards and
interpretations will have a material impact on the Group's financial statements.
2 Segmental information
The Group is organised into three primary business segments; Group Escrow,
Assurance Testing and Consultancy. These three segments are the Group's primary
reporting format for segment information. Escrow Europe includes amounts
previously reported as Escrow Germany. All segments are located in the UK unless
indicated otherwise.
+--------------------------------------------------------+------------+------------+
| | 2009 | 2008 |
| | GBP000 | GBP000 |
+--------------------------------------------------------+------------+------------+
| Revenue by business segment | | |
+--------------------------------------------------------+------------+------------+
| Escrow UK | 16,611 | 15,724 |
+--------------------------------------------------------+------------+------------+
| Escrow Europe | 2,415 | 1,094 |
+--------------------------------------------------------+------------+------------+
| Escrow US | 2,022 | 1,190 |
+--------------------------------------------------------+------------+------------+
| Group Escrow | 21,048 | 18,008 |
+--------------------------------------------------------+------------+------------+
| Assurance Testing | 19,124 | 12,835 |
+--------------------------------------------------------+------------+------------+
| Consultancy | 6,664 | 4,902 |
+--------------------------------------------------------+------------+------------+
| Total revenue | 46,836 | 35,745 |
+--------------------------------------------------------+------------+------------+
| | | |
+--------------------------------------------------------+------------+------------+
| Operating profit by business segment | | |
+--------------------------------------------------------+------------+------------+
| Escrow UK | 10,320 | 9,393 |
+--------------------------------------------------------+------------+------------+
| Escrow Europe | 797 | 376 |
+--------------------------------------------------------+------------+------------+
| Escrow US | 535 | 394 |
+--------------------------------------------------------+------------+------------+
| Group Escrow | 11,652 | 10,163 |
+--------------------------------------------------------+------------+------------+
| Assurance Testing | 2,804 | 1,678 |
+--------------------------------------------------------+------------+------------+
| Consultancy | 754 | 726 |
+--------------------------------------------------------+------------+------------+
| Segment operating profit | 15,210 | 12,567 |
+--------------------------------------------------------+------------+------------+
| Head office costs | (2,487) | (1,899) |
+--------------------------------------------------------+------------+------------+
| Operating profit before amortisation and exceptional | 12,723 | 10,668 |
| items | | |
+--------------------------------------------------------+------------+------------+
| Amortisation of intangible assets Escrow US | (143) | (115) |
+--------------------------------------------------------+------------+------------+
| Amortisation of intangible assets Assurance Testing | (694) | (458) |
+--------------------------------------------------------+------------+------------+
| Amortisation of intangible assets Escrow Europe | (400) | (167) |
+--------------------------------------------------------+------------+------------+
| Operating profit before exceptional items | 11,486 | 9,928 |
+--------------------------------------------------------+------------+------------+
| Exceptional items | - | (711) |
+--------------------------------------------------------+------------+------------+
| Operating profit | 11,486 | 9,217 |
+--------------------------------------------------------+------------+------------+
Interest and tax are not allocated to business segments and there are no inter
segment sales.
+---------------------------------+-----------+-------------+------------+-------------+
| | Assets | Liabilities | Assets | Liabilities |
+---------------------------------+-----------+-------------+------------+-------------+
| | 2009 | 2009 | 2008 | 2008 |
+---------------------------------+-----------+-------------+------------+-------------+
| | GBP000 | GBP000 | GBP000 | GBP000 |
+---------------------------------+-----------+-------------+------------+-------------+
| Assets / (liabilities) by | | | | |
| business segment | | | | |
+---------------------------------+-----------+-------------+------------+-------------+
| Escrow UK | 4,145 | (8,322) | 4,623 | (7,775) |
+---------------------------------+-----------+-------------+------------+-------------+
| Escrow Europe | 5,632 | (2,520) | 5,268 | (3,296) |
+---------------------------------+-----------+-------------+------------+-------------+
| Escrow US | 4,478 | (1,146) | 4,483 | (744) |
+---------------------------------+-----------+-------------+------------+-------------+
| Group Escrow | 14,255 | (11,988) | 14,374 | (11,815) |
+---------------------------------+-----------+-------------+------------+-------------+
| Consultancy | 2,604 | (873) | 2,790 | (823) |
+---------------------------------+-----------+-------------+------------+-------------+
| Assurance Testing | 11,342 | (5,750) | 8,055 | (9,451) |
+---------------------------------+-----------+-------------+------------+-------------+
| Unallocated net assets | 52,867 | (17,703) | 43,191 | (6,867) |
+---------------------------------+-----------+-------------+------------+-------------+
| Total assets / (liabilities) | 81,068 | (36,314) | 68,410 | (28,956) |
+---------------------------------+-----------+-------------+------------+-------------+
Unallocated net assets consist of goodwill arising on consolidation, cash, tax
payable and other centrally held assets and liabilities.
+------------------------+--------------------+--------------+-------------+------------+
| 2008 | | Depreciation | Capital | Total |
| | | | expenditure | costs |
| | | | | incurred |
| | | | | to acquire |
| | | | | segmental |
| | | | | assets |
+------------------------+--------------------+--------------+-------------+------------+
| | | GBP000 | GBP000 | GBP000 |
+------------------------+--------------------+--------------+-------------+------------+
| Escrow UK | | 508 | 807 | - |
+------------------------+--------------------+--------------+-------------+------------+
| Escrow Europe | | 51 | 26 | 6,832 |
+------------------------+--------------------+--------------+-------------+------------+
| Escrow US | | 55 | 17 | - |
+------------------------+--------------------+--------------+-------------+------------+
| Group Escrow | | 614 | 850 | 6,832 |
+------------------------+--------------------+--------------+-------------+------------+
| Consultancy | | 71 | 137 | - |
+------------------------+--------------------+--------------+-------------+------------+
| Assurance Testing | | 360 | 485 | 2,725 |
+------------------------+--------------------+--------------+-------------+------------+
| Total | | 1,045 | 1,472 | 9,557 |
+------------------------+--------------------+--------------+-------------+------------+
+------------------------+--------------------+--------------+-------------+------------+
| 2009 | | Depreciation | Capital | Total |
| | | | expenditure | costs |
| | | | | incurred |
| | | | | to acquire |
| | | | | segmental |
| | | | | assets |
+------------------------+--------------------+--------------+-------------+------------+
| | | GBP000 | GBP000 | GBP000 |
+------------------------+--------------------+--------------+-------------+------------+
| Escrow UK | | 732 | 519 | - |
+------------------------+--------------------+--------------+-------------+------------+
| Escrow Europe | | 55 | 78 | 1,462 |
+------------------------+--------------------+--------------+-------------+------------+
| Escrow US | | 77 | 56 | - |
+------------------------+--------------------+--------------+-------------+------------+
| Group Escrow | | 864 | 653 | 1,462 |
+------------------------+--------------------+--------------+-------------+------------+
| Consultancy | | 92 | 64 | - |
+------------------------+--------------------+--------------+-------------+------------+
| Assurance Testing | | 327 | 708 | 10,597 |
+------------------------+--------------------+--------------+-------------+------------+
| Total | | 1,283 | 1,425 | 12,059 |
+------------------------+--------------------+--------------+-------------+------------+
The table below provides additional disclosure on revenue by geographical market
where the customer is based.
+--------------------------------------------------------+------------+------------+
| | 2009 | 2008 |
| | GBP000 | GBP000 |
+--------------------------------------------------------+------------+------------+
| Revenue by geographical segment | | |
+--------------------------------------------------------+------------+------------+
| UK | 36,648 | 29,238 |
+--------------------------------------------------------+------------+------------+
| Rest of Europe | 4,604 | 2,745 |
+--------------------------------------------------------+------------+------------+
| Rest of the World | 5,584 | 3,762 |
+--------------------------------------------------------+------------+------------+
| Total revenue | 46,836 | 35,745 |
+--------------------------------------------------------+------------+------------+
3 Exceptional Items
The Group identifies separately items as "exceptional". These are items which in
the 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.
Exceptional items in the year ended 31 May 2009 were GBPnil, exceptional items
in the year ended 31 May 2008 were costs relating to the move to the London
Stock Exchange's Official List on 13 July 2007 (GBP531,000) and reorganisation
costs following the acquisition of Escrow Europe (GBP180,000).
4 Expenses and auditors' remuneration
+--------------------------------------------------------+----------+------------+
| | 2009 | 2008 |
+--------------------------------------------------------+----------+------------+
| | GBP000 | GBP000 |
+--------------------------------------------------------+----------+------------+
| Profit before taxation is stated after | | |
| charging/(crediting): | | |
+--------------------------------------------------------+----------+------------+
| | | |
+--------------------------------------------------------+----------+------------+
| Amounts receivable by auditors and their associates in | | |
| respect of: | | |
+--------------------------------------------------------+----------+------------+
| Audit of these financial statements | 33 | 32 |
+--------------------------------------------------------+----------+------------+
| Audit of financial statements of subsidiaries pursuant | 23 | 10 |
| to legislation | | |
+--------------------------------------------------------+----------+------------+
| Services relating to corporate finance transactions | - | 115 |
| entered into or proposed to be entered into by or on | | |
| behalf of the Company or Group | | |
+--------------------------------------------------------+----------+------------+
| Depreciation and other amounts written off tangible | | |
| and intangible fixed assets: | | |
+--------------------------------------------------------+----------+------------+
| Owned | 1,283 | 1,045 |
+--------------------------------------------------------+----------+------------+
| Amortisation of intangible assets | 1,237 | 740 |
+--------------------------------------------------------+----------+------------+
| Exchange (profits) / losses | (28) | 15 |
+--------------------------------------------------------+----------+------------+
| Operating lease rentals charged: | | |
+--------------------------------------------------------+----------+------------+
| Hire of property, plant and equipment | 832 | 604 |
+--------------------------------------------------------+----------+------------+
| Other operating leases | 470 | 420 |
+--------------------------------------------------------+----------+------------+
| Profit on disposal of fixed assets | (1) | (5) |
+--------------------------------------------------------+----------+------------+
5 Staff numbers and costs
The average number of persons employed by the Group during the year, including
directors is analysed by category as follows:
+-------------------------------------------------------+------------+------------+
| | Number of employees |
+-------------------------------------------------------+-------------------------+
| | 2009 | 2008 |
+-------------------------------------------------------+------------+------------+
| | | |
+-------------------------------------------------------+------------+------------+
| Operational | 93 | 77 |
+-------------------------------------------------------+------------+------------+
| Administration, sales and marketing | 259 | 230 |
+-------------------------------------------------------+------------+------------+
| | 352 | 307 |
+-------------------------------------------------------+------------+------------+
The aggregate payroll costs of these persons were as follows:
+-------------------------------------------------------+------------+------------+
| | 2009 | 2008 |
+-------------------------------------------------------+------------+------------+
| | GBP000 | GBP000 |
+-------------------------------------------------------+------------+------------+
| | | |
+-------------------------------------------------------+------------+------------+
| Wages and salaries | 19,625 | 14,315 |
+-------------------------------------------------------+------------+------------+
| Share based payments | 1,031 | 742 |
+-------------------------------------------------------+------------+------------+
| Social security costs | 2,140 | 1,891 |
+-------------------------------------------------------+------------+------------+
| Other pension costs (note 20) | 429 | 324 |
+-------------------------------------------------------+------------+------------+
| | 23,225 | 17,272 |
+-------------------------------------------------------+------------+------------+
6 Net financing costs
+-------------------------------------------------------+------------+-----------+
| | 2009 | 2008 |
+-------------------------------------------------------+------------+-----------+
| | GBP000 | GBP000 |
+-------------------------------------------------------+------------+-----------+
| Financial income | | |
+-------------------------------------------------------+------------+-----------+
| Interest on short term deposits | 24 | 78 |
+-------------------------------------------------------+------------+-----------+
| | 24 | 78 |
+-------------------------------------------------------+------------+-----------+
| | | |
+-------------------------------------------------------+------------+-----------+
| Financial expenses | | |
+-------------------------------------------------------+------------+-----------+
| Interest payable on bank loans and overdrafts | (466) | (269) |
+-------------------------------------------------------+------------+-----------+
| Amortisation of deal fees on term loans | (20) | - |
+-------------------------------------------------------+------------+-----------+
| Deferred consideration finance expense (see below) | (157) | (333) |
+-------------------------------------------------------+------------+-----------+
| | (643) | (602) |
+-------------------------------------------------------+------------+-----------+
The deferred consideration finance expense of GBP157,000 (2008: GBP333,000)
relates to the acquisition of Next Generation Security Software Limited, Secure
Test and Escrow Europe.
Deferred consideration related to the acquisition of subsidiary undertakings has
been discounted to present values. The unwinding of the discount has been
treated as a finance expense and is analysed in the table below:
+-------------------------------+----------------+--------+-----------+------------+
| Deferred consideration finance expense | | 2009 | 2008 |
+------------------------------------------------+--------+-----------+------------+
| | | | GBP000 | GBP000 |
+-------------------------------+----------------+--------+-----------+------------+
| | | | | |
+-------------------------------+----------------+--------+-----------+------------+
| Site Confidence Limited | | 138 | 233 |
+------------------------------------------------+--------+-----------+------------+
| Secure Test Limited | | 16 | 76 |
+------------------------------------------------+--------+-----------+------------+
| Escrow Europe Holdings B.V. | | 3 | 24 |
+------------------------------------------------+--------+-----------+------------+
| | | 157 | 333 |
+-------------------------------+----------------+--------+-----------+------------+
The discount rate used was 6.5% (2008: 6.5%).
The total net present value of the deferred contingent consideration as at 31
May is shown in the following table:
+-------------------------------+----------------+--------+-----------+------------+
| Current liabilities - deferred consideration (note 14) | 2009 | 2008 |
+---------------------------------------------------------+-----------+------------+
| | | | GBP000 | GBP000 |
+-------------------------------+----------------+--------+-----------+------------+
| | | | | |
+-------------------------------+----------------+--------+-----------+------------+
| Site Confidence Limited | | 55 | 3,908 |
+------------------------------------------------+--------+-----------+------------+
| Secure Test Limited | | - | 1,485 |
+------------------------------------------------+--------+-----------+------------+
| Escrow Europe Holdings B.V. | | - | 717 |
+------------------------------------------------+--------+-----------+------------+
| Escrow Europe Switzerland A.G. | | 63 | - |
+------------------------------------------------+--------+-----------+------------+
| Next Generation Security Software Limited | | 4,421 | - |
+------------------------------------------------+--------+-----------+------------+
| | | 4,539 | 6,110 |
+-------------------------------+----------------+--------+-----------+------------+
7 Taxation
Recognised in the income statement
+------------------------------------------------------+-+------------+------------+
| | | 2009 | 2008 |
+------------------------------------------------------+-+------------+------------+
| | | GBP000 | GBP000 |
+------------------------------------------------------+-+------------+------------+
| Current tax expense | | | |
+------------------------------------------------------+-+------------+------------+
| Current year | | 2,911 | 2,029 |
+------------------------------------------------------+-+------------+------------+
| Adjustment to tax expense in respect of prior | | 35 | 4 |
| periods | | | |
+------------------------------------------------------+-+------------+------------+
| Foreign tax | | 320 | (10) |
+------------------------------------------------------+-+------------+------------+
| Total current tax | | 3,266 | 2,023 |
| | | | |
+------------------------------------------------------+-+------------+------------+
| Deferred tax | | (96) | 317 |
+------------------------------------------------------+-+------------+------------+
| Tax in income statement | | 3,170 | 2,340 |
+------------------------------------------------------+-+------------+------------+
Reconciliation of effective tax rate
+-------------------------------------------------------+----------+------------+------------+
| | | 2009 | 2008 |
+-------------------------------------------------------+----------+------------+------------+
| | | GBP000 | GBP000 |
+-------------------------------------------------------+----------+------------+------------+
| | | | |
+-------------------------------------------------------+----------+------------+------------+
| Profit before taxation | | 10,867 | 8,693 |
+-------------------------------------------------------+----------+------------+------------+
| Current tax using the UK corporation tax rate of 28% | | 3,043 | 2,608 |
| (2008: 30%) | | | |
+-------------------------------------------------------+----------+------------+------------+
| | | | |
+-------------------------------------------------------+----------+------------+------------+
| Effects of: | | | |
+-------------------------------------------------------+----------+------------+------------+
| Items not (taxable)/ deductable for tax purposes | | 52 | (257) |
+-------------------------------------------------------+----------+------------+------------+
| Foreign tax | 50 | (1) |
+------------------------------------------------------------------+------------+------------+
| Marginal relief | - | (2) |
+------------------------------------------------------------------+------------+------------+
| Difference in tax rates (Deferred tax) | - | (5) |
+------------------------------------------------------------------+------------+------------+
| Difference in tax rates (Current tax) | - | (22) |
+------------------------------------------------------------------+------------+------------+
| Adjustment to tax charge in respect of prior periods | 25 | 19 |
+------------------------------------------------------------------+------------+------------+
| Total current tax | 3,170 | 2,340 |
+-------------------------------------------------------+----------+------------+------------+
Deferred tax recognised directly in equity was GBP143,000 (2008: GBP294,000)
8 Dividends
+--------------------------------------------------------+------------+-----------+
| | 2009 | 2008 |
| | GBP000 | GBP000 |
+--------------------------------------------------------+------------+-----------+
| Dividends paid and recognised in the year | 2,607 | 1,817 |
+--------------------------------------------------------+------------+-----------+
| Dividends proposed but not recognised in the year | 2,104 | 1,596 |
+--------------------------------------------------------+------------+-----------+
| | | |
+--------------------------------------------------------+------------+-----------+
| Dividends per share paid and recognised in the year | 7.75p | 2.25p |
+--------------------------------------------------------+------------+-----------+
| Dividends per share proposed but not recognised in the | 6.25p | 4.75p |
| year | | |
+--------------------------------------------------------+------------+-----------+
9 Earnings per share
The calculation of earnings per share is based on the following:
+--------------------------------------------------------+-----------+------------+
| | 2009 | 2008 |
| | GBP000 | GBP000 |
+--------------------------------------------------------+-----------+------------+
| | | |
+--------------------------------------------------------+-----------+------------+
| Profit for the year | 7,697 | 6,353 |
+--------------------------------------------------------+-----------+------------+
| | | |
+--------------------------------------------------------+-----------+------------+
| | Number of | Number of |
| | | Shares |
| | Shares | 000's |
| | 000's | |
+--------------------------------------------------------+-----------+------------+
| Basic weighted average number of shares in issue | 33,653 | 33,653 |
+--------------------------------------------------------+-----------+------------+
| Dilutive effect of share options | 1,211 | 1,021 |
+--------------------------------------------------------+-----------+------------+
| Diluted weighted average shares in issue | 34,864 | 34,674 |
+--------------------------------------------------------+-----------+------------+
10 Intangible assets - Group
+------------------+------------------------+---------------+-----------+------------+
| | | Customer | Goodwill | Total |
| | | contracts | | |
| | | and | | |
| | | relationships | | |
+------------------+------------------------+---------------+-----------+------------+
| | | GBP000 | GBP000 | GBP000 |
+------------------+------------------------+---------------+-----------+------------+
| Cost | | | | |
+------------------+------------------------+---------------+-----------+------------+
| At 1 June 2007 | | 4,214 | 35,365 | 39,579 |
+------------------+------------------------+---------------+-----------+------------+
| Additions | | 4,515 | 8,756 | 13,271 |
+------------------+------------------------+---------------+-----------+------------+
| At 31 May 2008 | | 8,729 | 44,121 | 52,850 |
+------------------+------------------------+---------------+-----------+------------+
| Additions | | 1,371 | 8,042 | 9,413 |
+------------------+------------------------+---------------+-----------+------------+
| At 31 May 2009 | | 10,100 | 52,163 | 62,263 |
+------------------+------------------------+---------------+-----------+------------+
| | | | | |
+------------------+------------------------+---------------+-----------+------------+
| Amortisation | | | | |
+------------------+------------------------+---------------+-----------+------------+
| At 1 June 2007 | | 277 | - | 277 |
+------------------+------------------------+---------------+-----------+------------+
| Charge for year | | 740 | - | 740 |
+------------------+------------------------+---------------+-----------+------------+
| At 31 May 2008 | | 1,017 | - | 1,017 |
+------------------+------------------------+---------------+-----------+------------+
| Charge for year | | 1,237 | - | 1,237 |
+------------------+------------------------+---------------+-----------+------------+
| At 31 May 2009 | | 2,254 | - | 2,254 |
+------------------+------------------------+---------------+-----------+------------+
| | | | | |
+------------------+------------------------+---------------+-----------+------------+
| Net book value | | | | |
+------------------+------------------------+---------------+-----------+------------+
| At 31 May 2009 | | 7,846 | 52,163 | 60,009 |
| | | | | |
+------------------+------------------------+---------------+-----------+------------+
| Net book value | | | | |
+------------------+------------------------+---------------+-----------+------------+
| At 31 May 2008 | | 7,712 | 44,121 | 51,833 |
+------------------+------------------------+---------------+-----------+------------+
The Group has made two acquisitions in the year, details of which are included
in note 13. The Company has no intangible assets.
Goodwill considered significant in comparison to the Group's total carrying
amount of such assets have been allocated to cash generating units for the
purposes of impairment testing as follows:
+--------------------------------------------------------+-----------+------------+
| | Goodwill |
+--------------------------------------------------------+------------------------+
| | 2009 | 2008 |
+--------------------------------------------------------+-----------+------------+
| Cash generating units | GBP000 | GBP000 |
+--------------------------------------------------------+-----------+------------+
| Escrow | 22,871 | 22,871 |
+--------------------------------------------------------+-----------+------------+
| Assurance Testing | 2,301 | 2,301 |
+--------------------------------------------------------+-----------+------------+
| Consultancy | 2,229 | 2,229 |
+--------------------------------------------------------+-----------+------------+
| NCC Group plc | 27,401 | 27,401 |
+--------------------------------------------------------+-----------+------------+
| NCC Group Inc | 1,218 | 1,218 |
+--------------------------------------------------------+-----------+------------+
| Site Confidence Limited | 6,396 | 6,610 |
+--------------------------------------------------------+-----------+------------+
| Secure Test Limited | 3,351 | 3,351 |
+--------------------------------------------------------+-----------+------------+
| Next Generation Security Software Limited | 7,338 | - |
+--------------------------------------------------------+-----------+------------+
| Escrow Europe | 6,459 | 5,541 |
+--------------------------------------------------------+-----------+------------+
| | 52,163 | 44,121 |
+--------------------------------------------------------+-----------+------------+
The cash generating units' recoverable amounts are based on value in use
calculations using projections of the Group's future performance reflecting the
Directors' best estimates of the cash flows. Key assumptions for the value in
use calculations are the discount rates, growth rates and expected changes in
revenues and direct costs during the period. Risk adjusted discount factors of
10% (2008: 11.5%) have been applied to the projections. The discount rate has
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
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.
11 Plant and equipment - Group
+------------------+------------+------------+------------+------------+------------+
| | Computer | Plant and | Fixtures | Motor | Total |
| | equipment | equipment | and | vehicles | |
| | | | fittings | | |
+------------------+------------+------------+------------+------------+------------+
| | GBP000 | GBP000 | GBP000 | GBP000 | GBP000 |
+------------------+------------+------------+------------+------------+------------+
| Cost | | | | | |
+------------------+------------+------------+------------+------------+------------+
| At 1 June 2007 | 3,103 | 405 | 594 | 239 | 4,341 |
+------------------+------------+------------+------------+------------+------------+
| Additions | 828 | - | 480 | 164 | 1,472 |
+------------------+------------+------------+------------+------------+------------+
| Acquisition of | 115 | - | 95 | - | 210 |
| group companies | | | | | |
+------------------+------------+------------+------------+------------+------------+
| Disposals | - | - | - | (122) | (122) |
+------------------+------------+------------+------------+------------+------------+
| At 31 May 2008 | 4,046 | 405 | 1,169 | 281 | 5,901 |
+------------------+------------+------------+------------+------------+------------+
| Additions | 947 | - | 363 | 115 | 1,425 |
+------------------+------------+------------+------------+------------+------------+
| Acquisition of | 259 | - | 7 | - | 266 |
| group companies | | | | | |
+------------------+------------+------------+------------+------------+------------+
| Disposals | (2) | - | - | (38) | (40) |
+------------------+------------+------------+------------+------------+------------+
| At 31 May 2009 | 5,250 | 405 | 1,539 | 358 | 7,552 |
+------------------+------------+------------+------------+------------+------------+
| | | | | | |
+------------------+------------+------------+------------+------------+------------+
| Depreciation | | | | | |
+------------------+------------+------------+------------+------------+------------+
| At 31 May 2007 | 2,144 | 267 | 365 | 83 | 2,859 |
+------------------+------------+------------+------------+------------+------------+
| Charge for year | 757 | 56 | 160 | 72 | 1,045 |
+------------------+------------+------------+------------+------------+------------+
| Acquisition of | 69 | - | 48 | - | 117 |
| group companies | | | | | |
+------------------+------------+------------+------------+------------+------------+
| Disposals | - | - | - | (59) | (59) |
+------------------+------------+------------+------------+------------+------------+
| At 31 May 2008 | 2,970 | 323 | 573 | 96 | 3,962 |
+------------------+------------+------------+------------+------------+------------+
| Charge for year | 893 | 58 | 259 | 73 | 1,283 |
+------------------+------------+------------+------------+------------+------------+
| Acquisition of | 197 | - | 3 | - | 200 |
| group companies | | | | | |
+------------------+------------+------------+------------+------------+------------+
| Disposals | - | - | - | (24) | (24) |
+------------------+------------+------------+------------+------------+------------+
| At 31 May 2009 | 4,060 | 381 | 835 | 145 | 5,421 |
+------------------+------------+------------+------------+------------+------------+
| | | | | | |
+------------------+------------+------------+------------+------------+------------+
| Net book value | | | | | |
+------------------+------------+------------+------------+------------+------------+
| At 31 May 2009 | 1,190 | 24 | 704 | 213 | 2,131 |
+------------------+------------+------------+------------+------------+------------+
| Net book value | | | | | |
+------------------+------------+------------+------------+------------+------------+
| At 31 May 2008 | 1,076 | 82 | 596 | 185 | 1,939 |
+------------------+------------+------------+------------+------------+------------+
The company has no plant and equipment
12 Trade and other receivables
+-----------------------------------------+----------+----------+----------+----------+
| | Group | Group | Company | Company |
+-----------------------------------------+----------+----------+----------+----------+
| | 2009 | 2008 | 2009 | 2008 |
+-----------------------------------------+----------+----------+----------+----------+
| | GBP000 | GBP000 | GBP000 | GBP000 |
+-----------------------------------------+----------+----------+----------+----------+
| | | | | |
+-----------------------------------------+----------+----------+----------+----------+
| Trade receivables | 11,193 | 10,235 | - | - |
+-----------------------------------------+----------+----------+----------+----------+
| Prepayments and accrued income | 3,592 | 2,116 | - | - |
+-----------------------------------------+----------+----------+----------+----------+
| | 14,785 | 12,351 | - | - |
+-----------------------------------------+----------+----------+----------+----------+
13 Acquisitions
A. On 26 November 2008 the Group acquired 100% of the share capital of Next
Generation Security Software Limited for a maximum consideration of
GBP10,000,000 of which up to GBP5,000,000 has been withheld subject to the
achievement of performance criteria specified in the purchase agreement. The
present value of the deferred consideration on 26 November 2008 was
GBP4,127,000. The performance conditions are required to be satisfied by July
2009.
The acquisition had the following effect on the Group's assets and liabilities:
+-------------------------------------------+------------+--------------+-------------+
| | Acquiree's | Fair value | Acquisition |
| | book | Adjustments | amounts |
| | values | | |
+-------------------------------------------+------------+--------------+-------------+
| | GBP000 | GBP000 | GBP000 |
+-------------------------------------------+------------+--------------+-------------+
| Acquiree's identifiable net assets at the | | | |
| acquisition date: | | | |
+-------------------------------------------+------------+--------------+-------------+
| Plant and equipment | 66 | - | 66 |
+-------------------------------------------+------------+--------------+-------------+
| Trade and other receivables | 1,554 | - | 1,554 |
+-------------------------------------------+------------+--------------+-------------+
| Tax recoverable | 14 | | 14 |
+-------------------------------------------+------------+--------------+-------------+
| Deferred tax liability | - | (347) | (347) |
+-------------------------------------------+------------+--------------+-------------+
| Cash | 680 | - | 680 |
+-------------------------------------------+------------+--------------+-------------+
| Creditors & Accruals | (963) | - | (963) |
+-------------------------------------------+------------+--------------+-------------+
| Intangible assets purchased | - | 1,242 | 1,242 |
+-------------------------------------------+------------+--------------+-------------+
| Net identifiable (liabilities) / assets | 1,351 | 895 | 2,246 |
+-------------------------------------------+------------+--------------+-------------+
| Goodwill on acquisition | | | 7,338 |
+-------------------------------------------+------------+--------------+-------------+
| Expected consideration to be paid | | | 9,584 |
| including expenses | | | |
+-------------------------------------------+------------+--------------+-------------+
| Less purchase consideration withheld | | | (4,127) |
+-------------------------------------------+------------+--------------+-------------+
| Net cash outflow | | | 5,457 |
+-------------------------------------------+------------+--------------+-------------+
| Cash acquired | | | (680) |
+-------------------------------------------+------------+--------------+-------------+
| Net cash outflow excluding cash acquired | | | 4,777 |
+-------------------------------------------+------------+--------------+-------------+
Goodwill has arisen on the acquisition because the purchase price exceeds the
fair value of the separately identifiable net assets acquired including
GBP1,242,000 assigned to customer relationships, contracts, non-compete
agreements and software. Goodwill represents synergies, business processes and
the assembled value of the work force including industry specific knowledge and
technical skills.
From the date of acquisition Next Generation Security Software Limited
contributed an operating profit before amortisation of intangible assets of
GBP481,000 and revenue of GBP3,450,000 to the Group consolidated income
statement for the year ended 31 May 2009. After amortisation of intangible
assets, operating profits were GBP274,000.
B. On 1 May 2009 the Group acquired 100% of Escrow Europe Switzerland A.G. for a
maximum consideration of GBP539,000 of which GBP62,000 was withheld subject to
the achievement of performance criteria specified in the purchase agreement.
The acquisition had the following effect on the Group's assets and liabilities.
+-------------------------------------------+------------+--------------+-------------+
| | Acquiree's | Fair value | Acquisition |
| | Book | Adjustments | amounts |
| | values | | |
+-------------------------------------------+------------+--------------+-------------+
| | GBP000 | GBP000 | GBP000 |
+-------------------------------------------+------------+--------------+-------------+
| Acquiree's identifiable net assets at the | | | |
| acquisition date: | | | |
+-------------------------------------------+------------+--------------+-------------+
| Trade and other receivables | 35 | - | 35 |
+-------------------------------------------+------------+--------------+-------------+
| Deferred tax liability | - | (36) | (36) |
+-------------------------------------------+------------+--------------+-------------+
| Cash | 21 | - | 21 |
+-------------------------------------------+------------+--------------+-------------+
| Creditors and Accruals | (12) | - | (12) |
+-------------------------------------------+------------+--------------+-------------+
| Deferred Income | (70) | | (70) |
+-------------------------------------------+------------+--------------+-------------+
| Intangible assets purchased | - | 128 | 128 |
+-------------------------------------------+------------+--------------+-------------+
| Net identifiable (liabilities) /assets | (26) | 92 | 66 |
+-------------------------------------------+------------+--------------+-------------+
| Goodwill on acquisition | | | 535 |
+-------------------------------------------+------------+--------------+-------------+
| Expected consideration to be paid | | | 601 |
| including expenses | | | |
| | | | |
+-------------------------------------------+------------+--------------+-------------+
| Less purchase consideration withheld | | | (62) |
+-------------------------------------------+------------+--------------+-------------+
| Net cash outflow | | | 539 |
+-------------------------------------------+------------+--------------+-------------+
| Cash acquired | | | (21) |
+-------------------------------------------+------------+--------------+-------------+
| Net cash outflow excluding cash acquired | | | 518 |
+-------------------------------------------+------------+--------------+-------------+
Goodwill has arisen on the acquisition because the purchase price exceeds the
fair value of the separately identifiable net assets acquired including
GBP128,000 assigned to customer relationships and contracts. Goodwill represents
synergies and business processes.
From the date of acquisition Escrow Europe Switzerland A.G. contributed an
operating profit before amortisation of intangible assets of GBP8,000 and
revenue of GBP12,000 to the Group consolidated income statement for the year
ended 31 May 2009. After amortisation of intangible assets, operating profits
were GBP7,000.
C. During the year ended 31 May 2009, payments were made in relation to the
settlement of deferred consideration arising on acquisitions completed in prior
years. The amounts paid were; GBP893,000 in relation to the acquisition of
Escrow Europe Holdings B.V., GBP1,500,000 in relation to the acquisition of
Secure Test Limited and GBP3,640,000 in relation to the acquisition of Site
Confidence Limited. Additionally a payment of GBP30,000 was made during the year
in relation to the acquisition of the minority interest in Escrow Europe GmbH.
D. If all of the acquisitions had occurred at the beginning of the financial
year it is estimated that the consolidated revenue and operating profit for the
year ended 31 May 2009 would have been approximately GBP50.3m and GBP11.9m
respectively.
14 Trade and other payables
+-------------------------------+-----------+-----------+------------+-----------+
| | Group | Group | Company | Company |
+-------------------------------+-----------+-----------+------------+-----------+
| | 2009 | 2008 | 2009 | 2008 |
+-------------------------------+-----------+-----------+------------+-----------+
| | GBP000 | GBP000 | GBP000 | GBP000 |
+-------------------------------+-----------+-----------+------------+-----------+
| Trade payables | 1,217 | 965 | - | - |
+-------------------------------+-----------+-----------+------------+-----------+
| Amounts owed to Group | - | - | 3,714 | 2,987 |
| undertakings | | | | |
+-------------------------------+-----------+-----------+------------+-----------+
| Interest payable | 3 | 4 | - | - |
+-------------------------------+-----------+-----------+------------+-----------+
| Non trade payables | 1,807 | 1,655 | - | - |
+-------------------------------+-----------+-----------+------------+-----------+
| Deferred consideration on | 4,539 | 6,110 | - | - |
| acquisition of subsidiary | | | | |
| (note 6) | | | | |
+-------------------------------+-----------+-----------+------------+-----------+
| Accruals | 3,751 | 2,536 | 226 | 172 |
+-------------------------------+-----------+-----------+------------+-----------+
| | 11,317 | 11,270 | 3,940 | 3,159 |
+-------------------------------+-----------+-----------+------------+-----------+
15 Deferred revenue
+-------------------------------+------------+------------+------------+------------+
| | Group | Group | Company | Company |
+-------------------------------+------------+------------+------------+------------+
| | 2009 | 2008 | 2009 | 2008 |
+-------------------------------+------------+------------+------------+------------+
| | GBP000 | GBP000 | GBP000 | GBP000 |
+-------------------------------+------------+------------+------------+------------+
| | | | | |
+-------------------------------+------------+------------+------------+------------+
| Deferred revenue | 12,406 | 11,009 | - | - |
+-------------------------------+------------+------------+------------+------------+
| | 12,406 | 11,009 | - | - |
+-------------------------------+------------+------------+------------+------------+
Deferred revenue of GBP10,246,000 (2008: GBP9,043,000) consists of Escrow
agreement revenue and maintenance revenue that has been deferred to be released
to the income statement over the contract term on a pro-rata basis.
Deferred revenue of GBP2,160,000 (2008: GBP1,966,000) consists of internet
monitoring and load testing agreement revenue that has been deferred to be
released to the income statement over the contract term on a pro-rata basis.
16 Non-current liabilities
+-------------------------------+------------+------------+------------+------------+
| | Group | Group | Company | Company |
+-------------------------------+------------+------------+------------+------------+
| | 2009 | 2008 | 2009 | 2008 |
+-------------------------------+------------+------------+------------+------------+
| | GBP000 | GBP000 | GBP000 | GBP000 |
+-------------------------------+------------+------------+------------+------------+
| | | | | |
+-------------------------------+------------+------------+------------+------------+
| Unsecured bank loan | 9,000 | 54 | - | - |
+-------------------------------+------------+------------+------------+------------+
| Revolving credit facility | - | - | - | - |
+-------------------------------+------------+------------+------------+------------+
| Other financial liabilities | 76 | 92 | - | |
+-------------------------------+------------+------------+------------+------------+
| Total | 9,076 | 146 | - | - |
+-------------------------------+------------+------------+------------+------------+
| | | | | |
+-------------------------------+------------+------------+------------+------------+
| Issue costs | (88) | - | - | - |
+-------------------------------+------------+------------+------------+------------+
| Amortisation of issue costs | 20 | - | - | - |
+-------------------------------+------------+------------+------------+------------+
| Net book value | 9,008 | 146 | - | - |
+-------------------------------+------------+------------+------------+------------+
Other financial liabilities of GBP76,000 relates to the balance of a rent free
period (2008: GBP92,000) which is released to the income statement over the term
of the lease.
17 Called up share capital
+-------------------------------+---------------+------------+---------+------------+
| | | Number of | 2009 | 2008 |
| | | shares | | |
+-------------------------------+---------------+------------+---------+------------+
| | | | GBP000 | GBP000 |
+-------------------------------+---------------+------------+---------+------------+
| Authorised | | | | |
+-------------------------------+---------------+------------+---------+------------+
| Ordinary shares of 1p each | | 50,000,000 | 500 | 500 |
+-------------------------------+---------------+------------+---------+------------+
| | | | 500 | 500 |
+-------------------------------+---------------+------------+---------+------------+
| | | | | |
+-------------------------------+---------------+------------+---------+------------+
| Allotted, called up and fully | | | | |
| paid | | | | |
+-------------------------------+---------------+------------+---------+------------+
| Ordinary shares of 1p each at the beginning | 33,619,440 | 336 | 326 |
| of the year | | | |
+-----------------------------------------------+------------+---------+------------+
| Ordinary shares of 1p each issued in the year | 45,057 | 1 | 10 |
+-----------------------------------------------+------------+---------+------------+
| Ordinary shares of 1p each at the end of the | 33,664,497 | 337 | 336 |
| year | | | |
+-------------------------------+---------------+------------+---------+------------+
During the year 45,057 shares were issued in relation to the exercise of
employee share options for a total consideration of GBP94,000 settled in cash.
18 Cash and cash equivalents
+-------------------------------------+------------+----------+-----------+-----------+
| | At | Cash | Non cash | At end of |
| | beginning | flow | items | year |
| | of year | | | |
+-------------------------------------+------------+----------+-----------+-----------+
| | GBP000 | GBP000 | GBP000 | GBP000 |
+-------------------------------------+------------+----------+-----------+-----------+
| Cash and cash equivalents per | 1,142 | 2,330 | (116) | 3,356 |
| balance sheet | | | | |
+-------------------------------------+------------+----------+-----------+-----------+
| Cash and cash equivalents per cash | 1,142 | 2,330 | (116) | 3,356 |
| flow statement | | | | |
+-------------------------------------+------------+----------+-----------+-----------+
19 Other financial commitments and contingent liabilities
a) Capital commitments at the end of the financial year, for which no provision
has been made, are as follows:
+----------------------------------+-----------+-----------+-----------+-----------+
| | | | 2009 | 2008 |
+----------------------------------+-----------+-----------+-----------+-----------+
| | | | GBP000 | GBP000 |
+----------------------------------+-----------+-----------+-----------+-----------+
| Contracted | | | - | 57 |
+----------------------------------+-----------+-----------+-----------+-----------+
b) Non-cancellable operating lease rentals are payable as follows:
+----------------------------------+-----------+-----------+-----------+-----------+
| | 2009 | 2008 |
+----------------------------------+-----------------------+-----------------------+
| | Land and | Other | Land and | Other |
| | Buildings | GBP000 | Buildings | GBP000 |
| | GBP000 | | GBP000 | |
+----------------------------------+-----------+-----------+-----------+-----------+
| Within 1 year | 124 | 76 | 84 | 104 |
+----------------------------------+-----------+-----------+-----------+-----------+
| In second to fifth year | 769 | 223 | 569 | 132 |
| inclusive | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+
| | 893 | 299 | 653 | 236 |
+----------------------------------+-----------+-----------+-----------+-----------+
There are no contingent liabilities not provided for at the end of the financial
year.
20 Pension scheme
The Group operates a defined contribution pension scheme that is open to all
eligible employees. The pension cost charge for the year represents
contributions payable by the Group to the fund and amounted to GBP429,000 (2008:
GBP324,000). The outstanding contributions at the year end were GBP73,187 (2008:
GBP46,870).
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BRGDRUSGGGCB
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