NCC G roup plc · 1. _NCC Group Annual Report and Accounts 2009 NCC Group. Annual Report and...

NCC Group plc Annual Report and Accounts for the year ended 31 May 2009

GLOBAL STRENGTHSOLID FOUNDATIONS

www.nccgroup.com

www.escroweurope.ch

www.escroweurope.com

www.nccgroup.de

www.nccgroup.us

www.ngssoftware.com

www.securetest.com

www.siteconfidence.com

www.nccgroupplc.com

Registered number: 4627044 assure •secure •advise

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WORLDWIDESTRENGTH

UK: Head OfficeManchester Technology Centre, Oxford Road, Manchester, M1 7EF, United Kingdom.

T +44 (0)161 209 5200 F +44 (0)161 209 5100 E [email protected] www.nccgroup.com

London Office Floor 4, Tavistock HouseNorth, London, WC1H 9HR, United Kingdom.

T +44 (0)20 7383 9170 F +44 (0)20 7383 9179 E [email protected] www.nccgroup.com

Site ConfidenceSt Martins House, St Martins Walk, Dorking, Surrey, RH4 1UW, United Kingdom.

T +44 (0)870 850 8520 F +44 (0)870 850 8521 E [email protected] www.siteconfidence.com

NGS52 Throwley Way, Sutton, SM1 4BF, United Kingdom.

T +44 (0)208 401 0070F +44 (0)208 401 0076E [email protected]

Secure TestEastern Bypass, Thame, Oxfordshire, OX9 3FF, United Kingdom.

T +44 (0)1844 210 300 F +44 (0)8709 908 423 E [email protected] www.securetest.com

EUROPE:Escrow Europe BVVeemkade 396, NL-1019 HE, Amsterdam, The Netherlands.

T +31 20 620 7151 F +31 20 420 1733 E [email protected] www.escroweurope.com

NCC Group GmbHHeimeranstrasse 37, D-80339, Munchen, Germany.

T +49 (0)89 599 762 0 F +49 (0)89 599 762 599 E [email protected] www.nccgroupescrow.de

Escrow Europe Switzerland AG,Ibelweg 18a,CH-6300 Zug, (Zurich)Switzerland.

T +41 (0)41 763 2800F +41 (0)41 763 2801E [email protected]

US: NCC Group Inc1731 Technology Drive, Suite 880, San Jose, CA 95110, California, USA.

T +1 408 441 4660 F +1 408 441 4658 E [email protected] www.nccgroup.us

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STRONG TEAM

421



LEADING FROM THE FRONT Highlights 07

Group Profile 10Chairman’s Report 11Chief Executive’s Review 15Financial Review 21

Directors 25Senior Management 27Directors’ Report 31

Consolidated Income Statement 52Group Balance Sheet 53Company Balance Sheet 54Group Cash Flow Statement 55Company Cash Flow Statement 56Statements of Changes of Equity 57

Notes 59

Company Information 100Contact us 102

STRONG LINE-UPNCC GROUP SERVES THE NEEDS OF A VARIETY OF WORLDWIDE CLIENTS WITH OFFICES THROUGHOUT THE UK, CONTINENTAL EUROPE AND THE USA

Corporate Governance 34Directors’ Remuneration Report 39Statement of Directors’ Responsibilities 46Corporate Social Responsibility Report 47Independent Auditors’ Report 49

NCC Group has also produced a dedicated web site for the 2009 Annual Report featuring dynamic functionality, located at: www.nccgroupplc.com


HIGHLIGHTS NCC GROUP ANNUAL REPORT 2009

£12.7MGroup adjusted operating profits* up by 19% to £12.7m (2008: £10.7m)

13% 13% Group Escrow

maintained strong organic revenue growth

17% Adjusted fully diluted earnings per share* up 17% to 26.1p (2008: 22.4p)

17% Group adjusted pre tax profits* up by 17% to £12.3m (2008: £10.5m)

140% Cash conversion ratio up to 140% of operating profits (2008: 122%)

£9.4MAssurance Testing order book, including Consultancy, £9.4m (2008: £7.1m)

* Operating profit is adjusted for amortisation of acquired intangibles of £1.2m. Pre-tax profit is adjusted for this item and the unwinding of the discount on the acquisitions deferred consideration of £0.2m. The Directors believe the adjusted measures better reflect the ongoing performance of the business.

32%Total dividend up 32% to 9.25p

Escrow Europe Switzerland acquired the remaining 76% in May 2009, further strengthening the Group’s position as the world’s largest software Escrow provider

TWO ACQUISITIONS COMPLETED & INTEGRATEDNext Generation Security Software (NGS) an Ethical Security Testing business acquired for

up to £10M in November 2008

THE WORLDWIDE ESCROW BUSINESSES ARE THE CORNERSTONE OF THE GROUP’S PROFITABILITY AND PROVIDE A NOTABLY HIGH DEGREE OF RECURRING REVENUE

£2.0MGroup Escrow verification order book £2.0m (2008: £2.0m)

£4.1MSite Confidence monitoring renewals forecast to be £4.1m (2008: £3.8m)

£5.6MNet debt at year end £5.6m – expected to be net debt free by August 2010

£14.9MGroup Escrow renewals forecast to be £14.9m (2009: £13.6m)

ASSURANCE TESTING NOW FIRMLY ESTABLISHED AS UK’S LARGEST INDEPENDENT INFORMATION SECURITY BUSINESS

31% Group revenue up by 31% to £46.8m (2008: £35.7m)

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GROUP PROFILE

NCC Group is a leading global provider of independent IT assurance, security and consultancy services. As a trusted advisor, we help over 15,000 public, private and not for profit sector organisations, including 94 out of the FTSE 100 to make the most efficient use of information and technology and to manage the associated risks.

Our independence from hardware and software providers ensures the advice we offer is unbiased and impartial. We focus on developing intelligent solutions to real business issues and building lasting partnerships through our comprehensive portfolio of IT assurance, security and consultancy services.

NCC Group serves the needs of a wide variety of clients worldwide with offices throughout the UK, continental Europe and the USA. We are listed on the London Stock Exchange.

The Group operates two main complementary divisions; Escrow, which trades under the NCC Group Escrow brand and Assurance Testing, which trades under the Secure Test, NGS and Site Confidence brands. The consultancy operations, with effect from the beginning of the current financial year, now form part of Assurance Testing and operate under the NCC Group Consultancy brand.

STRONG CHARACTER

Escrow:• Ensuring source code or

other business critical material is protected and accessible should anything happen to a key supplier and to enable stronger supplier relationships

•Confirming the material held is properly protected by verifying it can be rebuilt from its source code components.

Assurance Testing:• SiteConfidence– testing and

monitoring relevant aspects of system, network and web site performance to ensure the technology used can deliver optimum performance

• NGS– expert led security testing, covering forensics, vulnerability research and the development of expert software to aid organisations in their ongoing battle with information security breaches

• SecureTest– penetration and security testing of networks, applications and security policies in place to ensure an organisation’s information is safe from the constantly evolving challenges of unauthorised access

• Information Security Consultancy– protecting organisations against a variety of risks through the development and implementation of effective strategy and compliance with relevant standards and guidelines

• Information Technology Consultancy– providing advice at all levels on the effective use of information, technology and business processes.

AS A TRUSTED ADVISOR, WE HELP OVER 15,000 PUBLIC, PRIVATE AND NOT FOR PROFIT SECTOR ORGANISATIONS

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CHAIRMAN’SREPORT

OverviewIn our fifth successive year as a public listed company, NCC Group plc has delivered its strongest ever performance, but this time against a backdrop of economic and worldwide financial downturn and uncertainty. Without doubt the global economy in which the Group operates is the worst ever encountered. However, the Group developed and continued to grow in the face of this adversity. As well as delivering strong financial growth, two acquisitions were made in the financial year to complement our Escrow and Assurance divisions.

Overall Group revenues for the year grew by 31% to £46.8m (2008: £35.7m). Excluding the acquisitions, the Group showed very strong organic growth of 19%. Adjusted operating profits increased by 19% to £12.7m (2008: £10.7m). Adjusted pre-tax profits were up 17% to £12.3m (2008: £10.5m) and fully diluted adjusted earnings per share increased 17% to 26.1p (2008: 22.4p).

Group margins remained strong. Our adjusted operating profit margin was 27% (2008: 30%) changing as expected as a result of acquiring non escrow businesses whose margins are closer to 15%.

The Group continues to be highly cash generative and has only £5.6m net debt at the year end after meeting the initial payments on two acquisitions and completing the cash payments of two earn outs. Operating cash conversion represented 140% of operating profits (2008: 122%).

NCC Group has further enhanced its reputation as a consistent, strong deliverer of reliable growth and has maintained its commitment to shareholders by further improving the dividend for the year to 9.25p, up 32%.

OperationsOur 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. Organic revenue growth in the year was 13%, with strong performances from the overseas operations.

For Escrow UK, growth in the first half of the year was slower than the Board would have liked, as our clients were affected by the severity and speed of the economic downturn which curtailed their investment in IT software and services. The Group also experienced a fall off in demand for our 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%.

At an operating profit level the Escrow businesses overall grew by 15% to £11.7m (2008: £10.2m) with all geographies seeing double digit growth.

In Assurance Testing, revenues grew by 49% and profitability by 67% as the benefits of our acquisitions over the last few years continued to be realised. Secure Test saw another year of solid growth, growing organically by 31% and Site Confidence saw a 9% growth in sales.

The acquisition of NGS broadened our appeal in the ethical security market by further increasing our technical expertise and adding forensics skills and research to our already strong set of propositions.

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 continues to focus on being a key provider in the information security standards arena and the business saw a 36% growth in revenues. Operating profits grew by 4% as the general IT consultancy market, which we have been moving away from during the last two years, has continued to be very competitive.

PeopleNCC Group remains committed to being a first class employer and we recognise our dedicated and hardworking team is the major reason for the Group’s continued success.

We have always worked hard to recruit only the best and we continue to ensure all employee bonus plans motivate towards the Group’s long term success. On behalf of the Board, I would like to congratulate and thank all employees of NCC Group who have made this year such a success during this very demanding and uncertain time.

Board ChangesAs the Group has grown and developed so the Board has evolved. We were delighted to welcome Debbie Hewitt on 18 September 2008, as a Non Executive Director. She brings with her a first class business acumen and strong background of people skills.

I would also like to welcome David McKeith who will join us on 29 July 2009. David brings strong professional financial skills to further complement the Board and will replace Eurfyl ap Gwilym who retires at the AGM after five years with the Group. I would like to put on record mine and the Group’s sincere thanks for his time with us, joining as he did at the time of flotation and helping us become an established and well respected PLC. Debbie Hewitt will chair the Remuneration Committee following Eurfyl’s departure.

Paul MitchellNon Executive ChairmanNCC Group plc1 July 2009 WITHOUT DOUBT THE

GLOBAL ECONOMY IN WHICH WE OPERATE IS THE WORST EVER ENCOUNTERED. HOWEVER, THE GROUP DEVELOPED AND CONTINUED TO GROW IN THE FACE OF THIS ADVERSITY

OVERALL GROUP REVENUES FOR THE YEAR GREW BY

31%

GROUP MARGINS REMAINED STRONG. OUR ADJUSTED OPERATING PROFIT MARGIN WAS 27%

IN ASSURANCE TESTING, REVENUES GREW BY 49% AND PROFITABILITY BY 67%

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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 £14.9m, up from £13.6m achieved in the financial year to 31 May 2009 and a verification order book of £2.0m, of which £0.6m relates to Escrow Europe and Escrow US.

The Assurance Testing businesses’ order books have improved to £9.4m (2008: £7.1m), included in this is £2.9m (2008: £2.5m) from the Consultancy division. The division also has £4.1m of monitoring renewals forecast for the coming financial year (2008: £3.8m).

The outlook for NCC Group is good and the Board remains very confident in the Group’s ability to deliver further sustainable growth.

Paul MitchellNon Executive ChairmanNCC Group plc1 July 2009

CHAIRMAN’SREPORTCONTINUED

THE START TO THE YEAR SEES OUR GROUP ESCROW RENEWALS AT

£14.9M

The Operational Board, which runs the day to day affairs of the Group, has been revised to reflect the enlarged Group. It now predominately operates as two business strands, Escrow and Assurance Testing. Roger Rawlinson has been promoted to Managing Director of Assurance Testing and we are currently in the process of recruiting a Managing Director to lead our global Group of Escrow businesses.

Corporate GovernanceNCC Group has always maintained that for a business such as ours, which acts as an independent trusted advisor to its clients, the highest standards of corporate governance and application of the most prudent accounting standards are essential.

NCC Group will continue to take every practical step to adhere to the revised Combined Code, with which we comply fully and will continue using FTSE 250 companies as our benchmark.

DividendsThe Board is recommending a final dividend of 6.25p per share which makes a total for the year of 9.25p (2008: 7.00p). 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.

I WOULD LIKE TO CONGRATULATE AND THANK ALL EMPLOYEES OF NCC GROUP WHO HAVE MADE THIS YEAR SUCH A SUCCESS

WE HAVE ALWAYS WORKED HARD TO RECRUIT ONLY THE BEST

OutlookNCC 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.

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CHIEF EXECUTIVE’SREVIEW

Corporate OverviewThe Group delivered 31% growth in revenues and growth of 17% in adjusted pre tax profits, emphasising the strength of the Group’s proposition despite the global economic uncertainty faced by all businesses over the last year.

Overall the Group delivered £46.8m revenue, up from £35.7m in 2008 and adjusted operating profits of £12.7m, up 19% from £10.7m in 2008.

The last five years of solid growth, revenue CAGR of 25% and 22% for adjusted operating profit, demonstrate the success of our strategy of focused sustainable organic growth, allied to carefully targeted acquisitions.

Market and PositioningIt is without doubt a difficult and uncertain global and domestic economic environment in which to operate, with the financial world continuing to change shape rapidly and the future still only being measured in months rather than years. The Board believes that the basic underpinning of demand for its 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 to avoid the worst effects of the downturn in the domestic economy as its products and services fall into the non-discretionary expenditure category.

NCC Group remains the largest provider of escrow services in the world. Furthermore, it is the only provider that 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 were 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 £100m, which still provides NCC Group with considerable headroom for growth.

Within Assurance Testing, the market for Secure Test and NGS, the ethical 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 the Group and the industry grows, the highest ethical and technical standards are maintained.

The information security side of the Consultancy division now fits well into Assurance Testing. NCC 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.

Business PerformanceThe Group grew revenue by 31% to £46.8m and adjusted operating profits by 19% to £12.7m. More importantly, we saw our recurring income levels consolidate. In Escrow UK 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 us at nearly £22,000 per renewal. In addition, 90% of our performance monitoring and load testing revenues were renewed and are recurring.

As a Group, we continue to generate strong margins, with our adjusted operating profit margin remaining strong at 27% (2008: 30%) in line with expectations. The change in margin is, as always, the effect of acquiring non-escrow businesses whose margins are closer to 15%.

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.

Rob CottonChief ExecutiveNCC Group plc1 July 2009

NCC GROUP REMAINS THE LARGEST PROVIDER OF ESCROW SERVICES IN THE WORLD

NCC GROUP IS FAST BECOMING THE NAME OF CHOICE FOR MAJOR COMPANIES

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:

•Organisationswhoneedprotection for their business critical applications as corporate failures and product withdrawals increase;

•Systems,networksanddatasecurity have not kept pace with the growth of data and of 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

•Websiteperformanceiscritical to all types of businesses as the web is now often their primary shop window.

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CONTINUED

Top three sectors by division

Escrow Assurance Consultancy

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

Group EscrowDuring the year the Group has 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 we already held a 24% stake, demonstrated our intention to widen and strengthen, by acquisition and organically, our geographical spread carefully both in continental Europe and the US.

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. Group Escrow profitability grew 15% to £11.7m (2008: £10.2m), on revenue of £21.0m (2008: £18.0m), with the UK contributing 79% (2008: 87%). Group recurring revenues through our renewals process grew by 22% to £13.6m (2008: £11.2m). Verifications grew throughout the Group by 13% in the year despite a poor performance during the first half.

Escrow UKThis 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 a whole saw Verification revenue only 5% down at £2.9m (2008: £3.0m).Escrow UK recurring revenues grew 10% to £10.9m (2008: £9.9m) 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.

Termination Rate % 2006 2007 2008 200910.3 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 USEscrow 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% on a consistent currency basis. The US office now has 16 employees and is growing as the NCC Group brand starts to have an impact in the US Escrow market.

Assurance TestingAssurance Testing in this financial year consists of three component parts; Secure Test, NGS and Site Confidence. Assurance Testing revenue grew 49% to £19.1m with an increase in profitability of 67% to £2.8m (2008: £1.7m), 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 £17,463 to £21,732 in 2009 and to £15,525 from £14,120 for new customers.

Site Confidence performance monitoring and load testing had 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.

CHIEF EXECUTIVE’SREVIEW

THE US OFFICE NOW HAS 16 EMPLOYEES AND IS GROWING AS THE NCC GROUP BRAND STARTS TO HAVE AN IMPACT IN THE US ESCROW MARKET

Fixed & Mobile Telecommunications

9%

Local Govt 8%

Central Govt 6%

Travel & Leisure 5%

Housing 5%

Healthcare Equipment& Services

4%

Support Services 4% 3% Education

18% Banks & Insurance

15% Software & Computer Services

13% Other

10% General Retailers

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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 competitiveness of the products and services.

The market place for the Site Confidence products 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.

Group StrategyThe 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 the NGS database security tools.

CHIEF EXECUTIVE’SREVIEWCONTINUED

CONSULTANCY REVENUES GREW BY 36% TO

£6.7M

ConsultancyConsultancy revenues grew by 36% to £6.7m (2008: £4.9m) 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.

Acquisitions The Group 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 Group 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.

Employees, Recruitment and RetentionRecruitment 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.

The Way ForwardWe continue to make a virtue of acting independently and operating as trusted, equitable advisors. To date we have successfully acquired and integrated seven businesses that have complemented our service and delivery offerings. Combining that with our outstanding track record of organic growth, we have a sound business model that we will continue to evolve and develop to grow the Group further.


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NCC Group Annual Report and Accounts 2009_22

FINANCIALREVIEW

Group RevenueGroup revenue for the year ended 31 May 2009 increased by 31% to £46.8m (2008: £35.7m), 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, purchasing 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 £43.4m.

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 £36.6m (2008: £29.2m) representing 78% (2008: 82%) of the total of the Group, with the rest of the world increasing by 48% to £5.6m (2008: £3.8m) within which Europe contributed £4.6m (2008: £2.7m).

ProfitabilityAdjusted Group operating profit, excluding the amortisation of acquired intangibles, as set out in the table opposite, grew by 19% to £12.7m (2008: £10.7m). 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 £1.0m (2008: £0.7m) 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 £28,000 positive impact on the Group’s profits in the financial year ended 31 May 2009.

Adjusted pre-tax profit increased 17% to £12.3m (2008: £10.5m). The Group’s reported pre-tax profit was up 25% to £10.9m (2008: £8.7m) after the inclusion of the unwinding of the discount on the acquisitions deferred consideration and amortisation of intangible assets.

EscrowThe 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 £21.0m (2008: £18.0m). 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 £16.6m (2008: £15.7m). 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 £2.0m (2008: £1.2m) and Escrow Europe increased revenues by 121% to £2.4m (2008: £1.1m) of which £0.5m was derived from Escrow Germany.

Escrow UK contract terminations as anticipated at the interim results increased in the year to 11.5% (2008: 9.2%) - more details on page 18. However recurring revenues obtained through renewals increased by 22% to £13.6m (2008: £11.2m).

Group Escrow operating profit increased 15% to £11.7m (2008: £10.2m) 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%).

Operating profit

2009 2008£000 £000

Reported operating profit 11,486 9,217

Amortisation of acquired intangibles 1,237 740

Exceptional items – 711

Adjusted operating profit 12,723 10,668

Profit before tax

2009 2008£000 £000

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

Adjusted before tax 12,281 10,477

Paul EdwardsFinance DirectorNCC Group plc1 July 2009

GROUP ESCROW SOLUTIONS REMAINS THE LARGEST DIVISION ACCOUNTING FOR 45% OF TOTAL REVENUE

21_NCC Group Annual Report and Accounts 2009

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Assurance TestingAssurance 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 £19.1m (2008: £12.8m) and, excluding the acquisition of NGS, Assurance Testing revenues increased 22% to £15.7m.

Operating profit increased 67% to £2.8m (2008: £1.7m) 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.

ConsultancyConsultancy accounted for 14% of Group revenue (2008: 14%). Revenues grew by 36% to £6.7m (2008: £4.9m), and operating profit for the year increased by 4% to £0.8m (2008: £0.7m) as the general IT consultancy market, which we have been moving away from during the last two years, has continued to be very competitive.

TaxationThe 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 deductible for tax purposes.

Earnings Per ShareThe 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 on page 24 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.

DividendsIn 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.

Shareholders’ funds at the end of the year were £44.8m (2008: £39.5m).

FINANCIALREVIEW

2009pence

2008pence

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 the discount on the deferred consideration of the acquisitions

0.5 1.0

Adjusted diluted EPS 26.1 22.4

CONTINUED

CashThe Group continues to be highly cash generative with operating cash flow before interest and tax of £16.1m (2008: £11.2m) which is 140% of operating profit before interest and tax (2008: 122%).

After accounting for net cash outflows of £11.4m for acquisitions and deferred acquisitions payments made during this year, the Group ended the year with net debt of £5.6m (2008: £3.4m).

Capital expenditure remained tightly controlled at £1.4m (2008: £1.5m). In the current financial year as the Group upgrades its core IT systems to SAP, there will be a one-time capital expenditure increase of approximately £1.8m.

In the year, the Group underwent a refinancing deal to secure a £15m multi-option facility term loan which at the year end was 59% utilised at £8.9m. 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 SheetFollowing the acquisitions of NGS and Escrow Europe Switzerland, goodwill increased by 18% to £52.2m (2008: £44.1m) and the cost of intangible assets relating to customer contracts and associated relationships increased by 15.7% to £10.1m (2008: £8.7m). 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.

Paul EdwardsFinance DirectorNCC Group plc1 July 2009

CAPITAL EXPENDITURE REMAINED TIGHTLY CONTROLLED AT £1.4M

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Rob Cotton Chief Executive

Rob Cotton has been Chief Executive since 2003, having joined the Group as Finance Director and Managing Director of Escrow in 2000.

He steered the Group through its move to the London Stock Exchange’s main market in July 2007 following admission to AIM in July 2004, and through a management buy-out in April 2003. As well as delivering consistent organic growth in revenue and profits, he has instigated and overseen a series of strategic expansion plans including the acquisition of complementary businesses worldwide.

A qualified chartered accountant, he previously held a number of Director and senior management positions in industry.

Paul Edwards Finance Director

Paul Edwards was appointed Finance Director in April 2003, having joined NCC Group in 2000 as Group Financial Controller. He played a key role in the Company’s flotation on AIM in July 2004 and its move to the London Stock Exchange’s main market in July 2007.

He is a qualified chartered management accountant and holds an MBA from Manchester Business School.

Paul Mitchell Non Executive Chairman

Paul Mitchell was appointed Non Executive Chairman of NCC Group in 1999. He is Managing Director of Rickitt Mitchell & Partners Limited, a corporate financial advisory firm based in Manchester. He is also a Non Executive Director of Styles & Wood Group plc.

He is a qualified chartered accountant.

STRONGERTOGETHER

James Wallace Senior Non Executive Director

James Wallace joined NCC Group in June 2004 as a Non Executive Director. He is a qualified chartered accountant. He is Chairman of Scapa Group plc and a Non Executive Director of Manchester Airport Group plc and Cryptologic Limited.

Debbie Hewitt Non Executive Director

Debbie Hewitt joined NCC Group in September 2008 as a Non Executive Director. She is an MBA and is a Fellow of the Chartered Institute of Personnel Development. She is a non Executive of Mouchel plc, Domestic and General Group plc, Luminar Group Holdings plc, HR Owen and Moss Brothers plc. She is also a Non Executive Director of the Office of Government Commerce which oversees the Government’s purchasing budget and reports to the Treasury.

David McKeithNon Executive Director

David McKeith will join NCC Group as a Non Executive Director as from 29 July 2009. He is a qualified chartered accountant and retired from PricewaterhouseCoopers LLP after 19 years as a partner at the end of 2008. He is the Chairman of the Hallé Orchestra and is Chairman of Greater Manchester Chamber of Commerce.


DIRECTORS

Eurfyl ap Gwilym Non Executive Director

Eurfyl ap Gwilym joined NCC Group in June 2004 as a Non Executive Director. He has worked at board level for many years in an Executive capacity and is a Non Executive Director of the Principality Building Society and Pure Wafer plc.

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Senior ManagementThe senior management team detailed on pages 27-30, is responsible for the operation of the Group’s two divisions. The Group is currently recruiting a Group Managing Director for the Escrow businesses.

The members of the senior management team include:

John Redeyoff Group Development Director Assurance Division

John Redeyoff is responsible for the strategic development of new services and markets in particular our 365 assured security and monitoring services, having joined NCC Group in 2003 as a Director of Consultancy.

Roger Rawlinson Managing Director Assurance Division

Roger Rawlinson is responsible for the operational management of the Group’s Assurance Division. He has worked for NCC Group for over ten years in a variety of testing and consultancy roles and was appointed a Director of Consultancy in 2004.

Andy Hague Operational Director Secure Test

Reporting to Roger Rawlinson, Andy Hague joined NCC Group in 2006 and is responsible for the operational delivery and technical development for Secure Test. He was previously Managing Director at technology company XAL Group.

Felicity Brandwood Group Company Secretary and Operational DirectorEscrow UK & USA

Felicity Brandwood, a qualified solicitor, was appointed a Director of Escrow in 2006 alongside her role as Group Company Secretary, having joined the Group in 1984. Felicity is responsible for operational controls and processes for Group Escrow and for Escrow US.

Jon Leigh Operational DirectorEscrow UK & Europe

Jon Leigh has been Director of Escrow UK since 2003. He is responsible for the product development and sales strategies for Escrow UK and Europe. With a background in testing, he has worked for NCC Group for over 20 years and previously held a variety of senior management roles.


STRONGERTOGETHER

SENIOR MANAGEMENT

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Niels Hagels Operational Director Escrow Europe

Niels Hagels joined NCC Group in 2005 and is responsible for the day to day management of the Escrow Europe group of businesses. Prior to joining the Group, he was Commercial Director of Escrow Europe, having previously managed a number of IT and Internet companies.

Craig Motta Operational Director North America & Escrow US

Craig Motta joined NCC Group as General Manager of Escrow US in 2006 following the acquisition of the Escrow business of Recall Total Information Management. He is responsible for the day to day activities of the US businesses. He previously held a number of senior manager and Director positions.

Rob Horton Operational Director NGS

Reporting to Roger Rawlinson, Rob Horton joined NCC Group on the acquisition of NGS and is responsible for the operational delivery and technical development for NGS.

Bob Dowson Operational DirectorSite Confidence

Bob Dowson is responsible for the operational management and development of Site Confidence, the Group’s Web Site Performance and Load Testing business. He joined the Company in 2002 from Forrester Research.

Nathan JacksonDirector of Consultancy

Reporting to Roger Rawlinson, Nathan Jackson is Director of the Consultancy Assurance practice and is responsible for the strategic development, direction and delivery of the Group’s comprehensive range of Risk, Compliance and Assurance services and manages a team of experienced security consultants.


STRONGERTOGETHER

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Principal Risks and UncertaintiesThe principal financial risks and uncertainties the Group faces are described in note 19 to the annual report and accounts.

The Group faces operational risks and uncertainties which the Directors take all reasonable steps possible to mitigate. However, the Directors recognise that they can never be eliminated completely.

The principal operational risks and uncertainties the Group faces include those in relation to the recruitment of additional staff to meet the Group’s ambitious growth plans, the entry of a significant competitor to threaten the Group’s leading position in its domestic Escrow market, the occurrence of unforeseen difficulties in the integration of future acquisitions the Group may enter into and the dependence on key Executives and senior managers. There are no persons with whom the Company has contractual or other arrangements that are deemed to be essential to the Group.

Risk and uncertainties outside the Group’s control include those relating to the implementation of changes in government policy for the procurement of IT Services and alterations to the legislative and taxation framework in which the Group operates.

Disclosure of Information to AuditorsThe Directors who held office at the date of approval of this Directors’ report confirm that so far as they are each aware, there is no relevant audit information of which the Company’s auditors are unaware. Each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

AuditorsKPMG Audit Plc has expressed its willingness to continue in office. Therefore, in accordance with Section 489 of the Companies Act 2006, a resolution to reappoint KPMG Audit Plc as the Group’s auditor and authorising the Directors to fix the remuneration of the auditor will be put to the forthcoming Annual General Meeting.

Annual General MeetingThe notice of the Company’s Annual General Meeting to be held at the Manchester Technology Centre is sent to shareholders with this annual report along with details of the business to be proposed and explanatory notes.

By order of the Board


DIRECTORS’REPORTThe Directors present their annual report and financial statements for the year ended 31 May 2009.

Principal Activity and Review of the BusinessThe principal activity of the Group is the independent provision of IT assurance through Escrow and Assurance Testing to both the public and private sectors worldwide. The performance in the year and the year end financial position were satisfactory and the Directors expect the Group to continue its growth for the foreseeable future.

The Chairman’s report on pages 11 to 14 as well as the Chief Executive’s review on pages 15 to 20 report on the Group’s development during the year to 31 May 2009, its position at that date and the Group’s likely future development.

Any forward looking statements made in this document represent management’s best judgment as to what may occur in the future. However, the Group’s actual results for the current and future fiscal periods and corporate developments will depend on a number of economic, competitive and other factors, some of which will be outside the control of the Group. Such factors could cause the Group’s actual results for future periods to differ materially from those expressed in any forward looking statements made in this document.

The financial results of the Group are shown in the income statement on page 52.

DividendsThe Directors propose a final dividend of 6.25p per ordinary share which, together with the interim dividend of 3.0p per ordinary share paid on 27 February 2009, makes a total dividend of 9.25p for the year. The final dividend has not been accrued for in these financial statements. The final dividend will, if approved by shareholders at the Annual General Meeting (AGM), be paid on 25 September 2009 to shareholders on the register at the close of business on 28 August 2009. The ex-dividend date will be 26 August 2009.

The Company received dividends of £2.0m (2008: £4.0m) from subsidiary undertakings during the financial year.

Share CapitalDetails of the movements of the authorised and called up share capital of the Company are set out in note 21 to the financial statements.

Directors and Their InterestsDetails of the Company’s current Directors are set out on pages 25 to 30. Directors’ interests in shares and share options in the Company are detailed in the Directors’ remuneration report set out on pages 39 to 45.

Corporate Social ResponsibilityThe corporate social responsibility section on pages 47 to 48 provides an update on the Group’s policies and activities in respect of its wider stakeholders - employees, clients, suppliers and the community – and environmental, ethical and health and safety issues.

THE PRINCIPAL ACTIVITY OF THE GROUP IS THE INDEPENDENT PROVISION OF IT ASSURANCE THROUGH ESCROW AND ASSURANCE TESTING

Ordinary shares of 1p % of issued share capital

AXA Framlington Investment Management 4,274,507 12.70

AKO Capital LLP 3,522,929 10.46

Legal & General Investment Management 3,255,362 9.67

Montanaro Inv Managers 2,540,000 7.55

Rob Cotton 1,594,212 4.74

SEB Asset Management 1,360,599 4.04

Hansa Capital Limited 1,250,000 3.71

Standard Life Investment Management 1,151,427 3.42

JP Morgan Asset Management 1,096,823 3.26

Principal ShareholdersThe following have notified the Company as being interested in 3% or more of the Company’s issued ordinary share capital as at 30 June 2009:

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The Non Executive Chairman, Paul Mitchell, is responsible for the running of the Board. Executive responsibility for the running of the Group’s business rests with the two Executive Directors, Rob Cotton and Paul Edwards, who are supported in this by the Operational Board of NCC Group. The Board normally meets on a monthly basis. During the year, the Board met on 12 scheduled occasions.

The Board conducted a self evaluation on its effectiveness in February 2009 and has concluded no significant amendments are required to its operating procedures of the Board as a result of the review. In addition a review of the Chairman’s performance was conducted in January 2009 by the other Non Executive Directors and no actions were felt necessary to improve the Chairman’s effectiveness.

The attendance of individual Directors at the scheduled Board meetings is shown in the table below:

A MEASUREOF STRENGTH

Board AuditCommittee

RemunerationCommittee

NominationCommittee

Paul Mitchell Non Executive Chairman Chairman – Member Chairman

Rob Cotton Chief Executive Member – – Member

Paul Edwards Finance Director Member – – –

James Wallace Senior Non Executive Director Member Chairman Member Member

Debbie Hewitt Non Executive Director Member Member Member Member

Eurfyl ap Gwilym Non Executive Director Member Member Chairman Member

CORPORATEGOVERNANCENCC Group is committed and is accountable to shareholders for high standards of corporate governance. In respect of the year ended 31 May 2009, NCC Group has been in full compliance with the provisions of section 1 of the June 2008 (revised) Combined Code on Corporate Governance.

This statement describes how principles of corporate governance are applied to the Group.

The BoardThe Board comprises two Executive and four Non Executive Directors whose Board and Committee responsibilities are set out in the table below:

Boardmeetings attended

Paul Mitchell Non Executive Chairman 12/12

Rob Cotton Chief Executive 12/12

Paul Edwards Finance Director 12/12

James Wallace Senior Non Executive Director 11/12

Debbie Hewitt Non Executive Director 7/8

Eurfyl ap Gwilym Non Executive Director 10/12

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After careful review, the Board has again concluded that James Wallace, Eurfyl ap Gwilym and Debbie Hewitt were independent. In coming to this assessment the Board considered the character of the individuals concerned and the fact that none of them:

• haseverbeenanemployeeof the Group;

• haseverhadamaterialbusinessrelationship with the Group;

• receivesanyremunerationotherthantheir fees;

• hasclosefamilytieswithadvisors,other Directors or senior management of the Group that could reasonably be expected to cause a conflict;

• hassignificantlinkswithotherDirectors through involvement with other companies;

• representsasignificant shareholder; or

• hasservedontheNCCGroupBoardfor more than nine years.

The Board is responsible to shareholders for the proper management of the Group and for its system of corporate governance. It receives

information on (at least) a monthly basis to enable it to review trading performance, forecasts and strategy and it has a schedule of matters specifically reserved for its decision.

The most significant of these are:

• changestothestructure,sizeandcomposition of the Board;

• considerationoftheindependenceofNon Executive Directors;

• reviewofmanagementstructureandsenior management responsibilities;

• withtheassistanceoftheRemuneration Committee, approval of remuneration policies across the Group;

• approvalofstrategicplans,profitplans and budgets and any material changes to them;

• oversightoftheGroup’soperationsensuring competent and prudent management, sound planning, an adequate system of internal control and adequate accounting and other records;

• finalapprovalofannualaccountsandaccounting policies;

• approvalofthedividendpolicy;

• approvaloftheacquisitionordisposalof subsidiaries and major investments and capital projects;

• delegationoftheBoard’spowersand authorities, including the division of responsibilities between the Chairman, the Chief Executive and other Executive Directors; and

• receivingreportsontheviewsoftheCompany’s shareholders.

Operational management of the Group is delegated to the operating Board of NCC Group.

Procedures exist to allow the Directors to seek independent legal and professional advice in respect of their duties at the Company’s expense where the circumstances are appropriate. During the year a training course was run to remind the Directors of their responsibilities as well as to inform them of the changes made by the Companies Act 2006. In addition, all of the Directors have access to the Company Secretary for advice.

All Directors are required to submit themselves for re-election at regular intervals and at least every three years.

The following formally constituted committees deal with specific aspects of the Group’s affairs in accordance with their written terms of reference, which are reviewed regularly.

Audit CommitteeThe Audit Committee, which is chaired by James Wallace, who is a member and former Chairman of other PLC Audit Committees, comprises three independent Non Executive Directors and meets at least three times a year. The Chairman, Chief Executive, Finance Director and external auditors attend these meetings as required by the Committee.

The purpose of the Committee is to assist the Board in the discharge of its responsibilities for financial reporting and corporate control and to provide a forum for reporting by the external auditors. The responsibilities of the Committee include:

• toconsiderliquidityriskandthegoingconcern of the Group;

• tomonitortheintegrityofthefinancialstatements and review significant financial reporting judgements contained in them;

• toreviewtheCompany’sinternalfinancial control system and risk management systems;

• tomakerecommendationstotheBoard in relation to the appointment of the external auditors and to approve the remuneration and terms of engagement of the external auditors;

• toreviewandmonitortheexternalauditors’ independence, objectivity and effectiveness;

• todevelopandimplementpolicyon the engagement of the external auditors to supply non-audit services;

• tomonitortheCompany’s whistle-blowing procedures; and

• toreviewregularlytheneedforaninternal audit function.

The attendance of individual Committee members at Audit Committee meetings is shown in the table below:

During the year, the Audit Committee considered the following issues:

• theappropriatevaluationtechniquesto be utilised in valuing share options under IFRS;

• theareasofjudgementinthe financial statements including the valuation of intangible assets and goodwill impairment;

• therequirementforaformalinternalaudit function;

• theindependenceofRickittMitchellas corporate finance advisors;

• theleveloffeespayabletoKPMGAudit plc in respect of non-audit work;

• theseparationoftheaudit,nonauditand tax work and appointment of the appropriate advisors;

• varioustaxissueswithinthe Group; and

• corporategovernanceissues.

Meetings attended

James Wallace 3/3

Debbie Hewitt 2/2

Eurfyl ap Gwilym 3/3

THE NOMINATION COMMITTEE MET THREE TIMES IN THE YEAR, IN PARTICULAR TO DISCUSS AND PLAN SUCCESSION FOR ALL KEY SENIOR EXECUTIVES IN THE BUSINESS

THE COMPANY VALUES THE VIEWS OF SHAREHOLDERS AND RECOGNISES THEIR INTERESTS IN THE GROUP’S STRATEGY AND PERFORMANCE

CORPORATEGOVERNANCECONTINUED

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NCC Group does not have a dedicated internal audit function, although regular internal audits are conducted under the Group’s ISO 9001 accredited quality assurance process and at the request of the Audit Committee. The Board has considered the need for an internal audit function and believes that current arrangements are adequate given the structure of the Group’s accounting function and the size of the Group.

Auditor IndependenceThe Company operates a rigorous policy designed to ensure that the auditors’ independence is not compromised by their undertaking inappropriate non-audit work. Every five years, the audit is put out to formal tender to ensure that independence is maintained, the last time this took place was 2006. The next formal date for tender will be in 2011.

All significant pieces of non audit work are put to informal tender to suitable parties. Upon review as to suitability and price, the work will then be placed to the provider recommended after approval by the Audit Committee. The Audit Committee has delegated the placing of financial non audit work under £25,000 to the discretion of the Executive Directors.

The Audit Committee has undertaken its annual review of the nature and amount of non-audit work undertaken by the external auditors to satisfy itself that there is no effect on their independence.

Going ConcernThe Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report. For this reason, they continue to adopt the going concern basis in preparing the financial statements. See page 59 for the note on the Basis of Preparation.

Communication with ShareholdersThe Company values the views of shareholders and recognises their interests in the Group’s strategy and performance. It holds briefings with institutional fund managers, analysts and other investors, including staff shareholders, primarily following the announcement of interim and preliminary results, as well as at other times during the year as may be appropriate.

The Company’s programme of investor relations activities is designed to ensure that the investing community receives a balanced and consistent view of the Group’s performance. All shareholders are welcomed to the Annual General Meeting, at which the Board of Directors are available to answer questions from shareholders.

Communication is also provided through the Annual Report, the Interim Report and the investor relations area on the Company’s web site, www.nccgroup.com on which financial and other information is available and regularly updated.

The Board receives reports from the Group’s brokers twice a year that communicate feedback from institutional shareholders.

It reviews analyst coverage of the Group every month and receives reports twice a year from its financial public relations advisors regarding the views of analysts. There were no meetings between the investors and Non Executive Directors, as none were requested or required.

By order of the Board.


Remuneration CommitteeThe Remuneration Committee, which is chaired by Eurfyl ap Gwilym and comprises the Non Executive Directors, meets at least three times a year and additionally as required. It is responsible for reviewing remuneration arrangements for members of the Board and other senior employees of the Group and for providing general guidance on aspects of remuneration policy throughout the Group.

The attendance of individual Committee members at Remuneration Committee meetings is shown in the table below:

The Directors’ Remuneration Report is set out on pages 39 to 45.

Nomination CommitteeThe Nomination Committee is chaired by Paul Mitchell and comprises the Chief Executive and the Non Executive Directors. The Committee is responsible for proposing candidates to the Board, having regard to the balance and structure of the Board. The Committee met three times in the year, in particular to discuss and plan succession for all key senior Executives in the business.

Internal ControlThe Board is responsible for establishing and maintaining the Group’s system of internal control. Internal control systems are designed to meet the particular needs of the Group and the risks to which it is exposed. By their nature however, internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material mis-statement or loss.

Meetings attended

Paul Mitchell 5/5

James Wallace 5/5

Debbie Hewitt 3/3


Meetings attended

Paul Mitchell 3/3

Rob Cotton 3/3

James Wallace 3/3

Debbie Hewitt 2/2


INTERNAL CONTROL SYSTEMS ARE DESIGNED TO MEET THE PARTICULAR NEEDS OF THE GROUP AND THE RISKS TO WHICH IT IS EXPOSED

Key elements of the internal control system are described below. These have all been in place throughout the year and up to the date of this report and are reviewed regularly by the Board:

• clearly defined management structure and delegation of authority to Committees of the Board, subsidiary boards and associated business units;

• clearly documented internal procedures set out in the Group’s ISO 9001:2000 accredited quality manual;

• high recruitment standards and formal career development and training to ensure the integrity and competence of staff;

• regular and comprehensive information provided to management, covering financial performance and key performance indicators, including non-financial measures;

• a detailed budgeting process where business units prepare budgets for the coming years and rolling three-year strategic plans, which are approved by the Board;

• procedures for the approval of capital expenditure and investments and acquisitions;

• monthly monitoring and re-forecasting of results against budget, with major variances followed up and management action taken where appropriate;

• regular internal audits of key processes and procedures under the Group’s ISO 9001 accredited quality assurance process;

• ongoing procedures to identify, evaluate and manage significant risks faced by the business in accordance with the guidance of the Turnbull Committee on Internal Controls and procedures to monitor the control systems in place to reduce these risks to an acceptable level; and

• formal consideration of progress made against significant business risks at monthly operational board meetings.

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Remuneration CommitteeThe Remuneration Committee advises the Board and makes recommendations to it about all elements of the remuneration packages of the Executive Directors. The members of the Remuneration Committee during the year were Eurfyl ap Gwilym as Committee Chairman, Paul Mitchell, James Wallace and Debbie Hewitt. The Chief Executive attends the Remuneration Committee by invitation and assists the Committee with its considerations. No Director is involved in setting their own remuneration plan.

Remuneration PolicyThe Committee and the Board believe that in order to attract and maintain a senior management team of the right calibre it is necessary to provide competitive market-based packages which reward Group and individual performance and motivate senior Executives to achieve stated business objectives and deliver outstanding shareholder returns.

Remuneration packages comprise:

• basicsalary

• annualperformancerelatedbonus

• otherbenefits

• participationintheshare incentive plans

The Group introduced a number of share incentive schemes on flotation, of which all members of staff, including the Executive Directors are potential beneficiaries. These include a Long Term Incentive Plan (LTIP) and a Save As You Earn (SAYE) Scheme. The EMI scheme put in place on flotation was replaced last year by a Company Share Option Plan (CSOP).

Performance-related BonusesThe performance-related pay scheme for Executive Directors is the same as that of the operational Directors and senior managers within the business.

Payments under the scheme are based upon the achievement of profit targets set by the Remuneration Committee. The profit target is based on delivery of the Group’s own internal plans overlaid on to the financial forecasts out in the market. The schemes do not start to reward until 80% of the stringent, internal target set is achieved but are capped at 120%. This prevents short term decisions being made. The maximum bonus payable under the scheme is £210,000 for Rob Cotton and £110,000 for Paul Edwards.

DIRECTORS’ REMUNERATION REPORT

Share IncentivesThe Group’s policy is to award share incentives to Executive Directors in order to align their interests with those of the Company’s shareholders. Both the Executive Directors are currently precluded from joining the CSOP, but have participated in the LTIP scheme during the financial year. The Remuneration Committee agreed, in 2005, to extend participation in the LTIP to other senior Executives within the Group. The maximum award is equal to one times the Director’s or senior Executive’s annual basic salary in the year of award. There are two LTIP schemes in place. From 1 June 2007 the Group’s LTIP schemes are based on the earnings per share (EPS) performance of the Group over the performance period of three years. The previous scheme approved in 2006 was based on performance targets that relate to both the total shareholder returns (TSR) and earnings per share (EPS) performance of the Group over the performance period. We still contend that EPS drives the Executive’s performance best, which is even more applicable in the current economic climate.

For the 2006 scheme, the EPS and TSR conditions each will govern the vesting of up to 50% of the LTIP award. The EPS measure will relate to the growth in the Group’s EPS performance over the performance period and TSR measure will compare the Group’s TSR performance over the performance period with the TSR performance of the constituent companies of the FTSE software and computer services index over the performance period. The performance period is three years.

For both schemes, if growth is equal to 25% or more per annum then 100% of the award governed by the EPS condition will vest. If, however, growth is less than 10% per annum, none of the award governed by the EPS condition will vest. Between these two points, vesting will be determined on a straight line basis. The Remuneration Committee believed that this is a more appropriate measure of the Company’s performance and it aligned the interests of the key Executives and Directors with those of the shareholders.

The TSR condition will govern the vesting of 50% of the 2006 LTIP award and will compare the Group’s TSR performance over the three year performance period with the TSR performance of the constituent companies of the FTSE Software and Computer Services Index. Where the Company’s TSR performance equates to median level in the comparator group, 30% of the award governed by the TSR condition will vest. 100% of the award governed by the TSR condition will vest for upper quartile performance or above. Between these two points, vesting will be determined on a straight line basis.

Rob Cotton joined the SAYE Scheme at the time of flotation and has continued to subscribe to the scheme. Paul Edwards joined the SAYE Scheme on 1 September 2005 and continues to subscribe to the scheme.

THE PROFIT TARGET IS BASED ON DELIVERY OF THE GROUP’S OWN INTERNAL PLANS OVERLAID ON TO THE FINANCIAL FORECASTS OUT IN THE MARKET

Basic salarySalaries are normally reviewed annually and any changes are effective from 1 June in each year. Pay reviews take into account Group and personal performance and externally benchmarked market data for comparable companies operating in IT services, management consulting and relevant high-tech sectors.

The salaries of Rob Cotton and Paul Edwards for the last two financial years are set out in the table on page 43.

A formal benchmarking exercise was undertaken in April 2009, using Deloitte, to provide the Remuneration Committee with relevant comparable data.

The Committee also considered the excellent performance of the Group over the last five years, its increasing size and complexity and viewed this in light of the economic backdrop and remuneration levels being set in the rest of the business.

With effect from 1 June 2009, Rob Cotton’s salary is £360,000 and Paul Edwards’ salary is £185,000 increases of 2.8%.

PensionsThe Executive Directors are entitled to a company pension contribution of 10% of basic salary, providing they make a contribution of not less than 5%, which is paid into the Group defined contribution personal pension scheme, which is also open to all of its permanent employees.

BenefitsBenefits in kind include the provision of a car or car allowance, payment of private fuel, car insurance, private medical insurance, life assurance and permanent health insurance.

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Performance GraphThe following graph shows the total shareholder return, with dividends reinvested, from 12 July 2006 against the corresponding change in a hypothetical holding in shares in both the FTSE All Share Index and the FTSE Software and Computer Services Index.

The FTSE All Share and FTSE Software and Computer Services indices both represent broad equity indices in which the Company is a constituent member. Inclusion of the FTSE All Share Index gives a market capitalisation-based perspective, whilst the FTSE Software and Computer Services Index gives an industry sector perspective.

The share price of the Company at 1 June 2006 was 253p and was 335p at 31 May 2009.

Service ContractsThe service contracts and letters of appointment of the Directors include the following terms:

The Executive Directors are subject to rolling contracts and offer themselves for re-election by rotation in accordance with the Company’s Articles of Association. These contracts may be terminated by either the Company or the relevant Executive Director giving the appropriate notice.

Payments on termination for Executive Directors are restricted to the value of salary and contractual benefits for the notice period. There are no predetermined special provisions for Executive Directors with regard to compensation in the event of loss of office.

Directors’ Interest in SharesDirectors had the following beneficial interest in the issued share capital of the Company:

CONTINUED

100

150

200

250

300

350

400

450

pence

2004 2005 2006 2007 2008 2009

Date of contract Notice period Period of appointment

Executive

Rob Cotton 8 July 2004 1 year –

Paul Edwards 8 July 2004 6 months –

Non Executive

Paul Mitchell 26 June 2007 3 months 3 years

James Wallace 26 June 2007 3 months 3 years

Debbie Hewitt 18 September 2008 3 months –

Eurfyl ap Gwilym 26 June 2007 3 months –

ncc group small cap all share comp software & services

Ordinary Shares of 1p each 2009 Ordinary Shares of 1p each 2008

Executive

Rob Cotton 1,594,212 1,557,169

Paul Edwards 306,098 289,893

Non Executive

Paul Mitchell 196,600 196,600

James Wallace 14,705 14,705

Debbie Hewitt 5,665 –

Eurfyl ap Gwilym 14,705 14,705

DIRECTORS’ REMUNERATION REPORT

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The auditors have audited the information in the following tables:

RemunerationThe remuneration of the Directors for the year ended 31 May 2009 was as follows:

The remuneration of the Directors for the year ended 31 May 2008 was as follows:

Directors’ Share OptionsThe Group has a number of share option schemes whereby Directors and staff are able to subscribe for ordinary shares in the Company.

As at 31 May 2009 the Directors held options over ordinary shares as follows. There have been no changes between the end of the financial year and the date of this report.

On 30 July 2008 Rob Cotton exercised options granted to him under the NCC Group LTIP scheme over 62,916 shares, 15,515 shares were forfeited. Paul Edwards exercised his options over 27,525 shares, 6,788 shares were forfeited. The market price of the Company’s shares on this date was £3.55.

On 18 September 2008 Paul Edwards exercised options granted to him under the NCC Group plc Sharesave Scheme over 4,577 shares. The exercise price of the Company’s shares on this date was £2.06.

Year ended 31 May 2008

Salary£000

Bonus£000

Pension£000

Benefits£000

Fees£000

Total£000

Executive

Rob Cotton 300 109 21 30 – 460

Paul Edwards 155 44 11 31 – 241

Non Executive

Paul Mitchell – – – – 58 58

James Wallace 45 – – – – 45

Eurfyl ap Gwilym 34 – – – – 34

534 153 32 61 58 838

DirectorDate of

grantMarket value

at date of grant

Maximum Options held at

31 May 2009

Exercise price

Performance conditions

Earliest exercise date

Expiry date

Rob Cotton 19/07/06 £2.70 83,333 nil* 1 01/06/09 18/06/10

Rob Cotton 13/08/07 £4.05 2,914 £3.24 3 01/10/10 31/03/11

Rob Cotton 19/10/07 £3.72 80,645 nil* 2 01/06/10 01/06/11

Rob Cotton 18/07/08 £3.52 98,315 nil* 2 01/06/11 01/06/12

Paul Edwards 19/07/06 £2.70 38,888 nil* 1 01/06/09 18/06/10

Paul Edwards 19/10/07 £3.72 41,666 nil* 2 01/06/10 01/06/11

Paul Edwards 11/08/08 £3.56 3,286 £2.85 4 01/10/11 31/03/12

Paul Edwards 18/07/08 £3.52 50,562 nil* 2 01/06/11 01/06/12

*£ exercise price of £1 on each occasion

DIRECTORS’ REMUNERATION REPORTCONTINUED

Year ended 31 May 2009

Salary£000

Bonus£000

Pension£000

Benefits£000

Fees£000

Total£000

Executive

Rob Cotton 350 148 32 30 – 560

Paul Edwards 180 65 16 33 – 294

Non Executive

Paul Mitchell – – – – 60 60

James Wallace 45 – – – – 45

Debbie Hewitt – – – – 23 23

Eurfyl ap Gwilym 34 – – – – 34

609 213 48 63 83 1,016

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STATEMENT OF DIRECTORS’ RESPONSIBILITIESIN RESPECT OF THE ANNUAL REPORT & THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and the Group and parent company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRS as adopted by the EU and applicable law and have elected to prepare the parent company financial statements on the same basis.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the Directors are required to:

•selectsuitableaccountingpoliciesandthen apply them consistently;

•makejudgementsandestimatesthatare reasonable and prudent;

•statewhethertheyhavebeenpreparedin accordance with IFRS as adopted by the EU; and

•preparethefinancialstatementsonthe going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions. They must disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements

comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s web site. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

THE DIRECTORS ARE RESPONSIBLE FOR THE MAINTENANCE AND INTEGRITY OF THE CORPORATE AND FINANCIAL INFORMATION

Performance Conditions and Notes1. LTIP 1 Scheme. The awards will

fully vest if both the total shareholder returns (TSR) and earnings per share (EPS) performance targets of the Group are met.

The TSR condition will govern the vesting of 50% of the LTIP award. Where TSR performance equates to median level in the comparator group, 30% of the award governed by the TSR condition will vest. 100% of the award governed by the TSR condition will vest for upper quartile performance or above.

The EPS condition will govern the vesting of the remaining 50% of the LTIP, if growth is equal to 25% or more per annum then 100% of the award governed by the EPS condition will vest. If, however, growth is less than 10% per annum, none of the award governed by the EPS condition will vest.

For both TSR and EPS, performance between the two points of measure will be determined on a straight line basis.

2. LTIP 2 Scheme. If EPS growth is equal to 25% or more per annum then 100% of the award will vest. If, however, growth is less than 10% per annum, none of the award governed by the EPS condition will vest, performance between the two points of measure will be determined on a straight line basis.

3. SAYE 2007 Scheme. The SAYE scheme is subject to a three year savings contract. If this is completed a maximum of 2,914 shares will be granted.

4. SAYE 2008 Scheme. The SAYE scheme is subject to a three year savings contract. If this is completed a maximum of 3,286 shares will be granted.

The Remuneration Committee recommends the granting of additional share options to the value of each Executive Director’s annual salary under the performance criteria of LTIP 2.

During the year the Company’s share price varied between £2.72 and £4.20 and ended the year at £3.35.

THE COMPANY’S SHARE PRICE ENDED THE YEAR AT

£3.35

DIRECTORS’ REMUNERATION REPORTCONTINUED

Approved by the Board and signed on its behalf:

Eurfyl ap GwilymChairman, Remuneration CommitteeNCC Group plc1 July 2009



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CORPORATE SOCIAL RESPONSIBILITY REPORTNCC Group takes its corporate social responsibilities very seriously and recognises the important contributions to the business made by the wider community of stakeholders, in particular employees, clients, suppliers and the local communities in which we operate. The Board takes into account social, environmental and ethical issues in its discussions and decision making and makes the health and safety of employees a priority.

Stakeholders

EmployeesPeople are at the heart of the Group’s business and the support and involvement of the talented individuals who form our team is vital to the continued success of the Group overall. The Group has a policy of keeping employees informed of, and engaged in, its business strategy through the Intranet, regular employee briefings and divisional meetings.

We are extremely proud to have been MEN Business of the Year in 2008, one of the top business awards in the North West. NCC Group scored high marks for its dedication to people, training and innovation.

Comments and suggestions from employees on the Group’s performance and management are actively encouraged and a free flow of information between the Directors, managers and employees ensures that everyone has an opportunity to contribute.

ClientsNCC Group values each and every client and is proud of the long standing nature of its client relationships. Continuing client satisfaction is central to our ongoing success and is regularly measured and monitored through the ISO 9001 certified quality programme. This includes written and telephone satisfaction surveys each month.

Rare instances of negative feedback are treated with the utmost seriousness and dealt with swiftly by management through to resolution. Each Operational Director takes direct responsibility for customer satisfaction, with the CEO investigating directly where divisional performances fail to meet the 80% threshold.

The CommunityWe are committed to ensuring that as well as delivering consistently strong results as a business, we give something back to the local community. We continue to support charitable organisations and actively encourage the involvement of our employees in fundraising by covering expenses and awarding additional days’ holidays.

During the year, we supported fundraising for the NSPCC and in particular the Child’s Voice appeal in Manchester. We are very proud to be patrons of the NSPCC and to date have raised and contributed directly £48,572.

The aim of the appeal we support is to raise £2.7m for improved Manchester based Childline and NSPCC facilities. We are committed to helping achieve this and in today’s economic climate it is even more important that charity is supported and in particular the NSPCC, as the evidence is that in a recession, child abuse dramatically increases.

SuppliersThe Group’s policy is to pay suppliers in accordance with terms and conditions agreed when orders are placed. Although the Group does not follow any code or standard on payment policy, where terms have not been specifically agreed, invoices dated in one calendar month are paid close to the end of the following month.

At 31 May 2009, the Group had an average of 40 days purchases outstanding in trade creditors (2008: 45 days).

The EnvironmentAlthough the impact of the Group’s operations on the environment is limited compared with other industries, we recognise our responsibility to respect and limit damage to the environment. In 2006, an environmental policy was introduced outlining the responsibilities of the Group and each employee to act in an environmentally responsible manner, in particular through efficient route planning, recycling and sustainable procurement.

NCC GROUP VALUES EACH AND EVERY CLIENT AND IS PROUD OF THE LONG STANDING NATURE OF ITS CLIENT RELATIONSHIPS

Ethics PolicyThe Group recognises and understands that our relationships with those who we deal with are the key to our success and, as such, we take our obligations and commitments to those people and organisations very seriously. Our independence, reputation as a supplier of quality services and the trust of our clients are all key assets that we aim to protect at all times. We aim to engender in our employees principles of honesty and integrity and the desire to work to the best of their ability.

All of these values and principles are founded on an ethics policy which permeates everything that we do.

Equal Opportunities and Employment PolicyThe Group is committed to offering equal opportunities to all; no employee or potential employee receives more or less favourable treatment due to their gender, age, race, national or ethnic origin, disability, sexual orientation, or marital status. The Group is committed to the training and development of all employees and to providing a productive working environment.

Should an existing employee’s circumstances change, it is the Group’s policy, wherever practicable, to provide continuing employment under normal terms and conditions and to provide training and career development and promotion wherever possible.

Health and Safety PolicyThe Group is committed to the good health and wellbeing of its employees and strives to provide and maintain a safe and pleasant environment for all employees, clients and visitors to its premises and to comply with the relevant health and safety legislation. Continued investment is planned in the coming financial year to enhance the working environments of employees in all of our offices.



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We have audited the financial statements of NCC Group plc for the year ended 31 May 2009 set out on pages 51 to 99. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the EU and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the Company’s members, as a body, in accordance with sections 495, 496 and 497 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditorsAs explained more fully in the Directors’ Responsibilities Statement set out on page 46, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.

Scope of the audit of the financial statementsA description of the scope of an audit of financial statements is provided on the APB’s web-site at: www.frc.org.uk/apb/scope/UKP

Opinion on Financial StatementsIn our opinion:

• thefinancialstatementsgiveatrueand fair view of the state of the Group’s and of the parent company’s affairs as at 31 May 2009 and of the Group’s profit for the year then ended;

•theGroupfinancialstatementshavebeen properly prepared in accordance with IFRS as adopted by the EU;

• theparentcompanyfinancialstatements have been properly prepared in accordance with IFRS as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and

•thefinancialstatementshavebeenprepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

INDEPENDENT AUDITORS’ REPORTTO THE MEMBERS OF NCC GROUP PLC

Opinion on other matters prescribed by the Companies Act 2006In our opinion:

•thepartoftheDirectors’Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and

•theinformationgivenintheDirectors’Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exceptionWe have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• adequateaccountingrecordshavenotbeen kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• theparentcompanyfinancialstatements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or

• certaindisclosuresofDirectors’remuneration specified by law are not made; or

• wehavenotreceivedallthe information and explanations we require for our audit.

Under the Listing Rules we are required to review:

• theDirectors’statement,setout on page 46, in relation to going concern; and

• thepartoftheCorporateGovernanceStatement relating to the Company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review.

Nick Plumb (Senior Statutory Auditor)for and on behalf of KPMG Audit Plc, Statutory Auditor

KPMG Audit Plc8 Salisbury Square,London,EC4Y 8BB

1 July 2009

THE FINANCIAL REPORTING FRAMEWORK THAT HAS BEEN APPLIED IN THEIR PREPARATION IS APPLICABLE LAW AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

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CONSOLIDATED INCOME STATEMENTFor the year ended 31 May 2009

FINANCIALSFOR THE YEAR ENDED 31 MAY 2009

Notes 2009 2008

£000 £000

Revenue 2 46,836 35,745

Cost of sales (26,275) (20,055)

Gross profit 20,561 15,690

Administrative expenses before amortisation of intangible assets and exceptional items

(7,838) (5,022)

Earnings before interest, tax, amortisation and exceptional items 12,723 10,668

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 consideration on business combinations

(177) (333)

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 company 7,697 6,353


Earnings per share 9

Basic earnings per share 22.9p 18.9p

Diluted earnings per share 22.1p 18.3p

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GROUP BALANCE SHEETAt 31 May 2009

Notes 2009 2008

£000 £000 £000 £000

Non current assets

Intangible assets 11 60,009 51,833

Plant and equipment 12 2,131 1,939

Deferred tax assets 15 787 1,145

Total non current assets 62,927 54,917

Current assets

Trade and other receivables 13 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 21 337 336

Share premium 21,630 21,537

Retained earnings 22,891 17,569

Currency translation reserve (104) 12

Total equity attributable to equity holders of the parent 44,754 39,454

Non current liabilities

Other financial liabilities 18 76 92

Deferred tax liability 15 1,588 1,499

Interest bearing loans 18,19 8,932 54

Total non current liabilities 10,596 1,645

Current liabilities

Interest bearing loans 19 – 4,500

Trade and other payables 16 11,317 11,270

Deferred revenue 17 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

COMPANY BALANCE SHEETAt 31 May 2009

Notes 2009 2008

£000 £000 £000 £000

Non current assets

Investments 26 30,673 29,994

Deferred tax assets 15 178 –

Total non current assets 30,851 29,994

Current assets

Cash and cash equivalents 1 12

Total current assets 1 12

Total assets 30,852 30,006

Equity

Issued capital 21 337 336

Share premium 21,630 21,537

Retained earnings 4,931 4,974

Total equity 26,898 26,847

Current liabilities

Trade and other payables 16 3,940 3,159

Current tax payable 14 –

Total current liabilities 3,954 3,159

Total liabilities 3,954 3,159

Total liabilities and equity 30,852 30,006

These financial statements were approved by the Board of Directors on 1 July 2009 and were signed on its behalf by:

Rob CottonChief ExecutiveNCC Group plc

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

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GROUP CASH FLOW STATEMENTFor the year ended 31 May 2009

Notes 2009 2008

£000 £000

Cash inflow from operating activities


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 capital 15,036 11,406

Increase in receivables (866) (3,620)

Increase in payables 1,955 3,460

Cash generated from operating activities before interest and tax 16,125 11,246

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 14 (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 22 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

COMPANY CASH FLOW STATEMENTFor the year ended 31 May 2009

2009 2008

£000 £000

Cash inflow from operating activities

Profit for the year 189 (1,050)

Adjustments for:

Share based charges 352 270

Income Tax expense (164) –

(Loss)/profit for the year before changes in working capital 377 (780)

(Decrease)/ Increase in payables 781 (2,462)

Profit for the year before interest and tax 1,158 (3,242)

Interest paid – –

Net cash generated from operating activities 1,158 (3,242)

Cash flows from financing activities

Proceeds from the issue of ordinary share capital 94 1,618

Purchase of own shares (656) (559)

Equity dividends received 2,000 4,000

Equity dividends paid (2,607) (1,817)

Net cash from financing activities (1,169) 3,242

Net (decrease) in cash and cash equivalents (11) –

Cash and cash equivalents at beginning of year 12 12

Cash and cash equivalents at end of year 1 12

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STATEMENTS OF CHANGES OF EQUITYFor the year ended 31 May 2009

Share capital

Share premium

Retained earnings

Currency translation

Total Equity

£000 £000 £000 £000 £000

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 payments – – (294) – (294)

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 payments – – (143) – (143)

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

STATEMENTS OF CHANGES OF EQUITYFor the year ended 31 May 2009

Share capital

Share premium

Retained earnings

Total Equity

£000 £000 £000 £000

Balance at 1 June 2007 326 19,929 3,686 23,941

Share based charges – – 270 270

Increase in subsidiary investment for share based charges

– – 444 444

Profit for the year – – 2,950 2,950

Shares issued 10 1,608 – 1,618

Purchase of own shares – – (559) (559)

Dividends to shareholders – – (1,817) (1,817)

Balance at 31 May 2008 336 21,537 4,974 26,847

Balance at 1 June 2008 336 21,537 4,974 26,847

Share based charges – – 352 352

Increase in subsidiary investment for share based charges

– – 679 679

Profit for the year – – 2,189 2,189

Shares issued 1 93 – 94

Purchase of own shares – – (656) (656)

Dividends to shareholders – – (2,607) (2,607)

Balance at 31 May 2009 337 21,630 4,931 26,898

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Group Company


1 Accounting Policies

Basis of PreparationNCC 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.

The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive’s Review on pages 15 to 20. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review on pages 21 to 24. In addition note 19 to the financial statements includes the Group’s objectives,

policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities, and its exposures to credit risk and liquidity risk.

The Group’s forecast and projections taking into account reasonably possible changes in trading performance show that the Group is able to operate within the level of its current facility.

As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

Basis of ConsolidationSubsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Intangible Assets and GoodwillAll business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiaries. In respect of business acquisitions that have occurred since 1 June 2004, goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired including identifiable intangible assets. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable.

Goodwill is stated at cost less any accumulated impairment losses.Goodwill is allocated to cash-generating units where the expected cash flows are not independent of other assets and is not amortised but is tested annually for impairment.

In respect of acquisitions prior to 1 June 2004, goodwill is included at its deemed cost, which represents the amount recorded under UK GAAP at 31 May 2004 which was broadly comparable save that only separable intangibles were recognised and goodwill was amortised.

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation. Amortisation is charged to the income statement on a straight line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill is tested for impairment at each balance sheet date or whenever there is an indication of impairment. Other intangibles are amortised from the date they are available for use. Acquired customer contracts and relationships are amortised over their estimated useful economic life of between 3 and 20 years.

Related Party TransactionsDetails of related party transactions are set out in note 25 to these financial statements.

Plant and EquipmentPlant and equipment is stated at cost less accumulated depreciation. Depreciation is charged to the income statement on a straight line basis over the estimated useful lives of each part of an item of plant and equipment. The rates applied are as follows:

Computer equipment – 20% to 33%

Plant and equipment – 20%

Fixtures and fittings – 20%

Motor vehicles – 25%

Plant and equipment is also tested for impairment whenever there is an indication of potential impairment.

NOTESACCOUNTING POLICIES(FORMING PART OF THE FINANCIAL STATEMENTS)

NOTES CONTINUEDACCOUNTING POLICIES CONTINUED

No

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TaxationTax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill and the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

Intra-group Financial InstrumentsWhere the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.

Adopted IFRS not yet AppliedThe following adopted IFRS were available for early adoption but have not been applied by the Group in these financial statements:

The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s financial statements.

Trade and Other ReceivablesTrade and other receivables are stated at their nominal amount less impairment losses.

Cash and Cash EquivalentsCash and cash equivalents comprise cash in hand and deposits repayable on demand. Bank overdrafts that are repayable on demand form part of the Group’s cash management and are included as a component of cash and cash equivalents for the purpose only of the statement of cash flows.

Basis of MeasurementThe financial statements are prepared on the historical cost basis except for share based payment transactions and assets and liabilities acquired in a business combination which are measured at fair value.

Use of Estimates and JudgementsInformation about the most significant areas of estimation and judgements is described in the following notes; 11 Goodwill, 14 Acquisitions, 20 Measurement of share based payments.

Investments in SubsidiariesInvestments in subsidiaries are carried at cost less impairment and pre-acquisition dividends.

Revenue RecognitionRevenue represents the value of services provided during the period, excluding VAT.

Testing and ConsultancyThe results of partially completed contracts whether fixed price or on a time and materials basis are dealt with on a percentage completion basis according to the number of days worked by including the profit or loss earned on work completed to the balance sheet date. Provisions are made for any losses on uncompleted contracts expected to be incurred after the balance sheet date.

Escrow and Web Site MonitoringOther 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.

Foreign CurrenciesTransactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the income statement.

The assets and liabilities of overseas subsidiaries denominated in foreign currencies are translated at the closing rate and income statements of overseas subsidiary undertakings are translated at the average exchange rates. Gains and losses arising on these transactions are taken to the currency translation reserve. They are released to the income statement upon disposal.

Operating Leases PaymentsOperating lease rentals are charged to the income statement on a straight-line basis over the period of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense.

EmployeeBenefits–Defined Contribution PlansThe Group operates a defined contribution pension scheme. The assets of the scheme are kept separately from those of the Group in an independently administered fund. The amount charged as expense in the income statement represents the contributions payable to the scheme in respect of the accounting period.

Share-based Payment TransactionsThe share option programme allows Group employees to acquire shares of the parent company; these awards are granted by the parent. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount

recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting. In the Company’s accounts, the fair value of share options granted to employees of subsidiary companies is included in Investments with a corresponding increase in equity.

Interest Bearing BorrowingsInterest 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 CostsNet 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.

Contingent Consideration under Business CombinationsContingent consideration on business combinations is recognised only to the extent that it can be reliably estimated and it is probable that the consideration will be paid.

International accountingstandards (IFRS)

IFRS 8 Operating segments

IAS 1 Presentation of Financial Statements

IFRS 2Share based payments: vesting conditions and

cancellations No

tes




2 Segmental InformationThe Group is organised into three primary business segments: 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.

Interest and tax are not allocated to business segments and there are no inter segment sales.

2009 2008

£000 £000

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


Consultancy 754 726

Segment operating profit 15,210 12,567

Head office costs (2,487) (1,899)

Operating profit before amortisation and exceptional items 12,723 10,668

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

Assets Liabilities Assets Liabilities

2009 2009 2008 2008

£000 £000 £000 £000

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.

No

tes

SEGMENTAL INFORMATION CONTINUEDNOTES CONTINUEDNOTES CONTINUED

SEGMENTAL INFORMATION


No

tes

2008 Depreciation Capital expenditure

Total costs incurred to acquire segmental assets

£000 £000 £000

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 expenditure

Total costs incurred to acquire segmental assets

£000 £000 £000

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

2009 2008

£000 £000

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

Assets Liabilities Assets Liabilities

2009 2009 2008 2008

£000 £000 £000 £000

Assets/(liabilities) by geographical segment

UK 70,731 (27,913) 58,659 (21,354)

Rest of Europe 5,632 (3,757) 5,268 (3,610)

Rest of the World 4,705 (4,644) 4,483 (3,992)

Total assets/(liabilities) 81,068 (36,314) 68,410 (28,956)

The table below provides additional disclosure on revenue by geographical market where the customer is based.

The table below provides additional disclosure on assets/(liabilities) by geographical market where the assets/(liabilities) are based.

NOTES CONTINUEDSEGMENTAL INFORMATION CONTINUED SEGMENTAL INFORMATION CONTINUED

NOTES CONTINUED


2009 2008

£000 £000

Profit before taxation is stated after charging/(crediting):

Amounts receivable by auditors and their associates in respect of:

Audit of these financial statements 33 32

Audit of financial statements of subsidiaries pursuant to legislation 23 10

Services relating to corporate finance transactions entered into or proposed to be entered into by or on behalf of the Company or Group

– 115

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)

3 Exceptional ItemsThe 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 £nil, 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 (£531,000) and reorganisation costs following the acquisition of Escrow Europe (£180,000).

4 Expenses and Auditors’ Remuneration

No

tes

5 Staff Numbers and CostsDirectors’ emoluments are disclosed in the Directors’ remuneration report on pages 39 to 46.

GroupThe 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

£000 £000

Wages and salaries 19,625 14,315

Share based payments (note 20) 1,031 742

Social security costs 2,140 1,891

Other pension costs (note 24) 429 324

23,225 17,272

NOTES CONTINUEDEXCEPTIONAL ITEMS AND EXPENSES AND AUDITORS’ REMUNERATION

STAFF NUMBERS AND COSTSNOTES CONTINUED


CompanyThe average number of persons employed by the Company during the year, including Directors, is analysed by category as follows:

Number of employees

2009 2008

Administration, sales and marketing 2 2

2 2

The aggregate payroll costs of these persons were as follows:

2009 2008

£000 £000

Wages and salaries 805 589

Share based payments (note 20) 352 270

Social security costs 103 74

Other pension costs (note 24) 48 32

1,308 965

No

tes

NOTES CONTINUEDNET FINANCING COSTS

2009 2008

£000 £000

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)

Deferred consideration finance expense 2009 2008

£000 £000

Site Confidence Limited 138 233

Secure Test Limited 16 76

Escrow Europe Holdings B.V. 3 24

157 333

6 Net Financing Costs

The deferred consideration finance expense of £157,000 (2008: £333,000) relates to the acquisition of Next Generation Security Software, 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:

The discount rate used was 6.5% (2008: 6.5%).

NOTES CONTINUEDSTAFF NUMBERS AND COSTS CONTINUED


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 16) 2009 2008

£000 £000

Site Confidence Limited 55 3,908

Secure Test Limited – 1,485

Escrow Europe Holdings B.V. 158 717

Escrow Europe Switzerland A.G. 63 –

Next Generation Security Software Limited 4,263 –

4,539 6,110

No

tes

Reconciliation of Effective Tax Rate

2009 2008

£000 £000

Current tax expense

Current year 2,911 2,029

Adjustment to tax expense in respect of prior periods 35 4

Foreign tax 320 (10)

Total current tax 3,266 2,023

Deferred tax (note 15) (96) 317

Tax in income statement 3,170 2,340

2009 2008

£000 £000

Profit before taxation 10,867 8,693

Current tax using the UK corporation tax rate of 28% (2008: 30%) 3,043 2,608

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

7 Taxation Recognised in the Income Statement

Deferred tax recognised directly in equity was £143,000 (2008: £294,000).

NOTES CONTINUEDNET FINANCING COSTS CONTINUED

NOTES CONTINUEDTAXATION


8 Dividends

2009 2008

£000 £000

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 year 6.25p 4.75p

2009 2008

£000 £000


Number of Shares 000’s

Number of Shares 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

9 Earnings Per ShareThe calculation of earnings per share is based on the following:

No

tes

Customer contracts and relationships

Goodwill Total

£000 £000 £000

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

10 Profit Attributable to Members of the Parent CompanyThe profit for the year dealt with in the accounts of the parent company was £2,189,000 (2008: £2,950,000).

11 Intangible Assets – Group

The Group has made two acquisitions in the year, details of which are included in note 14. The Company has no intangible assets.

NOTES CONTINUEDDIVIDENDS AND EARNINGS PER SHARE

NOTES CONTINUEDPROFIT ATTRIBUTABLE TO MEMBERS OF THE PARENT COMPANY AND INTANGIBLE ASSETS – GROUP


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:

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.

Goodwill

2009 2008

Cash generating units £000 £000

Escrow 22,871 22,871


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

No

tes

12 Plant and Equipment – Group

Computer equipment

Plant and equipment

Fixtures and fittings

Motor vehicles

Total

£000 £000 £000 £000 £000

Cost

At 1 June 2007 3,103 405 594 239 4,341

Additions 828 – 480 164 1,472

Acquisition of group companies 115 – 95 – 210

Disposals – – – (122) (122)

At 31 May 2008 4,046 405 1,169 281 5,901

Additions 947 – 363 115 1,425


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


Disposals – – – (59) (59)

At 31 May 2008 2,970 323 573 96 3,962

Charge for year 893 58 259 73 1,283


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.

NOTES CONTINUEDINTANGIBLE ASSETS – GROUP CONTINUED

NOTES CONTINUEDPLANT AND EQUIPMENT – GROUP


13 Trade and Other Receivables

Group Group Company Company

2009 2008 2009 2008

£000 £000 £000 £000

Trade receivables 11,193 10,235 – –

Prepayments and accrued income 3,592 2,116 – –

14,785 12,351 – –

No

tes

14 AcquisitionsA. On 26 November 2008 the Group acquired 100% of the share capital of

Next Generation Security Software Limited for a maximum consideration of £10,000,000 of which up to £5,000,000 has been withheld subject to the achievement of performance criteria specified in the purchase agreement. The present value of the deferred consideration expected to be paid on 26 November 2008 was £4,127,000. The performance conditions are required to be satisfied by July 2009.

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

Goodwill has arisen on the acquisition because the purchase price exceeds the fair value of the separately identifiable net assets acquired including £1,242,000 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 £481,000 and revenue of £3,450,000 to the Group consolidated income statement for the year ended 31 May 2009. After amortisation of intangible assets, operating profits were £274,000.

B. On 1 May 2009 the Group acquired 100% of Escrow Europe Switzerland A.G. for a maximum consideration of £539,000 of which £62,000 was withheld subject to the achievement of performance criteria specified in the purchase agreement.

Acquiree’s book values

Fair value adjustments

Acquisition amounts

£000 £000 £000

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 including expenses – – 9,584

Less purchase consideration withheld – – (4,127)

Net cash outflow – – 5,457

Cash acquired – – (680)

Net cash outflow excluding cash acquired – – 4,777

NOTES CONTINUEDTRADE AND OTHER RECEIVABLES

NOTES CONTINUEDACQUISITIONS


The acquisition had the following effect on the Group’s assets and liabilities.

Goodwill has arisen on the acquisition because the purchase price exceeds the fair value of the separately identifiable net assets acquired including £128,000 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 £8,000 and revenue of £12,000 to the Group consolidated income statement for the year ended 31 May 2009. After amortisation of intangible assets, operating profits were £7,000.

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; £893,000 in relation to the acquisition of Escrow Europe Holdings B.V., £1,500,000 in relation to the acquisition of SecureTest Limited and £3,640,000 in relation to the acquisition of Site Confidence Limited. Additionally a payment of £30,000 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 £50.3m and £11.9m respectively.

Acquiree’s book values

Fair value adjustments

Acquisition amounts

£000 £000 £000

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 including expenses – – 601

Less purchase consideration withheld – – (62)

Net cash outflow – – 539

Cash acquired – – (21)

Net cash outflow excluding cash acquired – – 518

No

tes

Assets Liabilities Net

2009 2008 2009 2008 2009 2008

£000 £000 £000 £000 £000 £000

Plant and equipment 246 180 (12) – 234 180

Short term temporary differences 26 13 – – 26 13

Trade losses – 390 – – – 390

Intangible assets – – (1,576) (1,499) (1,576) (1,499)

Share based payments 515 562 – – 515 562

Deferred tax assets/(liabilities) 787 1,145 (1,588) (1,499) (801) (354)

15 Deferred Tax Assets and LiabilitiesRecognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

Movement in deferred tax during the year

1 June 2008

Recognised in income

RecognisedIn equity

Arising on acquisition

31 May 2009

£000 £000 £000 £000 £000

Plant and equipment 180 70 – (16) 234

Short term temporary differences 13 13 – – 26

Trade losses 390 (390) – – –

Intangible assets (1,498) 306 – (384) (1,576)

Share based payments 561 97 (143) – 515

(354) 96 (143) (400) (801)

NOTES CONTINUEDACQUISITIONS CONTINUED

NOTES CONTINUEDDEFERRED TAX ASSETS AND LIABILITIES


16 Trade and Other Payables

17 Deferred Revenue


2009 2008 2009 2008

£000 £000 £000 £000

Trade payables 1,217 965 – –

Amounts owed to Group undertakings – – 3,714 2,987

Interest payable 3 4 – –

Non trade payables 1,807 1,655 – –

Deferred consideration on acquisition of subsidiary (note 6) 4,539 6,110 – –

Accruals 3,751 2,536 226 172

11,317 11,270 3,940 3,159


2009 2008 2009 2008

£000 £000 £000 £000

Deferred revenue 12,406 11,009 – –

12,406 11,009 – –

Deferred revenue of £10,246,000 (2008: £9,043,000) mainly consists of Escrow agreement revenue that has been deferred to be released to the income statement over the contract term on a pro-rata basis.

Deferred revenue of £2,160,000 (2008: £1,966,000) 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.

Movement in deferred tax during the prior year

The Company has deferred tax assets related to share based payments of £178,000 (2008: nil).

1 June 2007

Recognised in income

RecognisedIn equity

Arising on acquisition

31 May 2008

£000 £000 £000 £000 £000

Plant and equipment 137 43 – – 180

Short term temporary differences 13 – – – 13

Trade losses 815 (425) – – 390

Intangible assets (473) 250 – (1,275) (1,498)

Share based payments 1,040 (185) (294) – 561

1,532 (317) (294) (1,275) (354)

No

tes

NOTES CONTINUEDDEFERRED TAX ASSETS AND LIABILITIES CONTINUED

NOTES CONTINUEDTRADE AND OTHER PAYABLES AND DEFERRED REVENUE


19 Financial Instruments

Financial Risk ManagementThe Group has exposure to the following risks from its use of financial instruments:

•Creditrisk

•Liquidityrisk

•Currencyrisk

•Interestraterisk

The Board has overall responsibility for establishing appropriate management of exposure to risk. The Audit Committee oversees how management identify and address risks to the Group.

Capital ManagementThe Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total interest bearing loans as shown in the consolidated balance sheet, less cash and cash equivalents. Total capital is calculated as equity, as shown in the consolidated balance sheet, plus net debt. As at 31 May 2009 the Group’s gearing ratio was 11% (2008: 8%).

Financial Instruments PolicyAll instruments utilised by the Company and Group are for financing purposes. The day-to-day financial management and treasury are controlled centrally for all operations.

Fair Value of Financial InstrumentsAs at 31 May 2009 the Group and Company had no other financial instruments than those disclosed below. The carrying value of all financial instruments in these financial statements represents their fair value.

Credit RiskCredit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s receivables from customers. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer.

Group2009

Group2008

Company2009

Company2008

£000 £000 £000 £000

Trade receivables 11,193 10,235 – –

Cash and cash equivalents 3,356 1,142 1 12

14,549 11,377 1 12

This note provides information about the contractual terms of the Group and Company’s interest bearing loans and borrowings for more information about the Group and Company’s exposure to interest rate and foreign currency risk see note 19.

Other financial liabilities of £76,000 relates to the balance of a rent free period (2008: £92,000) which is released to the income statement over the term of the lease.

18 Non Current Liabilities

Group2009

Group2008

Company2009

Company2008

£000 £000 £000 £000

Unsecured bank loan 9,000 54 – –

Issue costs (88) – – –

Amortisation of issue costs 20 – – –

Interest bearing loans 8,932 54 – –

Deferred tax (note 15) 1,588 1,499 – –

Other financial liabilities 76 92 – –

Total non current liabilities 10,596 1,645 – –

No

tes

Exposure to Credit RiskThe carrying value of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

NOTES CONTINUEDNON CURRENT LIABILITIES

NOTES CONTINUEDFINANCIAL INSTRUMENTS


Impairment LossesThe ageing of trade receivables at the reporting date was:

The movement in the allowance in respect of trade receivables during the year was as follows:

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of specific trade receivables.

The allowance accounts in respect of trade receivables are used to record impairment losses unless the Group is satisfied that no recovery of the amounts owing is possible; at that point the amount is considered irrecoverable and is written off against the financial asset directly. The Group reviews all debt more than 90 days past due and provides for impairment losses, net of any revenue which has been deferred, based on trading experience with that customer. The ageing of Group debt and associated impairment loss is reported to the Board on a monthly basis.

Group2009

Group2008

Company2009

Company2008

£000 £000 £000 £000

Not past due 5,701 5,210 – –

Past due 0-30 days 3,435 2,640 – –

Past due 31-90 days 1,897 2,310 – –

Past due more than 90 days 787 346 – –

11,820 10,506 – –

Group2009

Group2008

£000 £000

Balance at 1st June 271 116

Impairment loss recognised 356 155

Balance at 31st May 627 271

Debtors by geographical segment

Group2009

Group2008

Company2009

Company2008

£000 £000 £000 £000

UK 9,941 9,489 – –

Rest of Europe 622 464 – –

Rest of the World 630 282 – –

11,193 10,235 – –

Debtors by business segmentGroup

2009Group

2008Company

2009Company

2008

£000 £000 £000 £000

Escrow UK 3,848 3,829 – –

Escrow Europe 622 464 – –

Escrow USA 630 282 – –

Consultancy 1,864 1,922 – –

Assurance Testing 4,229 3,738 – –

11,193 10,235 – –

The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:

The maximum exposure to credit risk at the reporting date by business segment was:

The trade receivables of the Group typically comprise amounts due from a large number of small customers. The Group’s customer base, whilst concentrated largely in the UK, represents a spread of industry sectors. The largest amount due from a single customer at the reporting date represented 3% of total Group receivables (2008: 4%). All of the Group’s cash is held with financial institutions of high credit rating.

No

tes

NOTES CONTINUEDFINANCIAL INSTRUMENTS CONTINUED FINANCIAL INSTRUMENTS CONTINUED

NOTES CONTINUED


Currency RiskThe Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Group entities. The Group’s management review the size and probable timing of settlement of all financial assets and liabilities denominated in foreign currencies. Where there is substantial exposure to currency risk, hedging arrangements are put in place.

The Group’s exposure to currency risk is as follows:

Interest Rate RiskThe Group and Company finances its operations through a mixture of retained profits and bank borrowings. The Group borrows and invests surplus cash at floating rates of interest based upon bank base rate.

The financial assets of the Group at the end of the financial year were as follows:

2009 2008

Sterling Euros USD Sterling Euros USD

£000 €000 $000 £000 €000 $000

Loans and receivables 9,941 622 630 9,489 464 282

Cash and cash equivalents 2,187 773 396 331 271 539

Unsecured bank borrowings 8,932 – – 4,500 – –

Trade and other payables 10,726 340 251 10,491 749 30

2009 2008

£000 £000

Sterling denominated financial assets 2,187 618

Euro denominated financial assets 773 35

US dollar denominated financial assets 396 489

Current trade and other receivables 14,785 12,351

18,141 13,493

Carrying Contractual 6 months 6-12 1-2 2-3At 31st May 2009 amount Cash flows or less Months Years Years

£000 £000 £000 £000 £000 £000

Unsecured bank borrowings 8,932 (8,932) – – (8,932) –

Trade and other payables 11,317 (11,317) (11,317) – – –

At 31st May 2008

Unsecured bank borrowings 4,500 (4,524) (4,524) – – –

Trade and other payables 11,270 (11,270) (11,270) – – –

Liquidity RiskLiquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risks by regular reviews of forecast cash flows in line with contractual maturities of financial liabilities and Revolving Credit Facility available. Forecast cash flows are reported to the Board on a monthly basis. The following are the contractual maturities of financial liabilities, including interest payments of the Group:

The financial liabilities of the Company all have contractual maturities within 6 months (2008: within 6 months).

No

tes

NOTES CONTINUEDFINANCIAL INSTRUMENTS CONTINUED FINANCIAL INSTRUMENTS CONTINUED

NOTES CONTINUED


20 Share Based Payments The Company has a number of share option schemes under which options to subscribe for the Company’s shares have been granted to Directors and staff, details of which are illustrated in the tables below. Expected term of options represents the period over which the fair value calculations are based.

Approved EMI SchemeUnder the Approved EMI Scheme, options granted will be subject to performance criteria. Options will vest if the average EPS growth for the 3 years following their grant is greater than 3% above RPI per annum. The options are to be settled in equity.

LTIP SchemesThe vesting condition for the award of the 2006 LTIP scheme is split 50:50 between Total Shareholder Return (TSR) & EPS. The TSR condition compares the Group’s TSR performance over the 3 year performance period with the TSR performance of the constituent companies of the FTSE software and computer services index. Where the Group’s TSR performance equates to median level in the comparator group, 30% of the award governed by the TSR condition will vest. 100% of the award governed by the TSR condition will vest for upper quartile performance or above. Between these two points, vesting will be determined on a straight line basis.

Date of grant

Expected term of options

Exercisable between

ExercisePrice

2009 Number Outstanding

July 2004 6 years July 2007 – July 2014 £1.70 156,553



August 2007 6 years July 2010 – July 2017 £3.85 287,259

February 2008 6 years July 2010 – July 2017 £3.89 45,351

The financial assets of the Company at the end of the financial year were as follows:

The financial liabilities of the Group and their maturity profile is as follows:

The financial liabilities of the Company and their maturity profile is as follows:

As at 31 May 2009 the Group had a committed multi-option credit facility of £15 million (2008: £10 million). The interest payable on drawn down funds is 1.6% above Libor (2008: 0.85%).

The revolving credit facility is available until July 2010. A change of 100 basis points in interest rates would not have a significant impact on these financial statements.

2009 2008

£000 £000

Sterling denominated financial assets 1 12

1 12

2009 2008

Maturity £000 £000

Less than 1 year – 4,500

1 to 2 years 8,932 –

2 to 3 years – –


Current trade and other payables 11,317 11,270

Sterling denominated financial liabilities 20,249 15,770

2009 2008

Maturity £000 £000

Less than 1 year – –




Current trade and other payables 3,954 3,159

Sterling denominated financial liabilities 3,954 3,159

No

tes

NOTES CONTINUEDFINANCIAL INSTRUMENTS CONTINUED SHARE BASED PAYMENTS

NOTES CONTINUED


The following tables illustrate the number of share options for the schemes.

The weighted average share price at the time the share options were exercised in the year was £3.63. The weighted average share price at the time the share price was forfeited in the year was £3.75.

Scheme

Number of instruments as at 1 June 2007

Instruments granted during

the year

Options exercised in

the year

Forfeitures in the year

Number of instruments as

at 31 May 2008

Approved EMI scheme 894,141 – (729,068) – 165,073

Approved EMI scheme 13,644 – – – 13,644


Approved EMI scheme – 367,560 – (31,705) 335,855

Approved EMI scheme – 49,117 – (1,865) 47,252

Sharesave scheme 276,477 – (274,405) (2,072) –

Sharesave scheme 36,978 – (1,998) (5,558) 29,422

Sharesave scheme 24,580 – – (1,736) 22,844

Sharesave scheme – 218,389 – (38,397) 179,992

LTIP 169,118 – (147,831) (21,287) –

LTIP 261,761 – – (31,372) 230,389

LTIP 280,553 – – (35,185) 245,368

LTIP 53,180 – – – 53,180

LTIP – 316,662 – – 316,662

Date of Grant Expected term of options

Exercisable between

Exerciseprice

2009 Number outstanding

July 2006 3 years June 2009 – June 2010 nil* 245,368

Sept 2006 3 years June 2009 – June 2010 nil* 53,180

Oct 2007 3 years June 2010 – June 2011 nil* 316,662

Oct 2008 3 years June 2011 – June 2012 nil* 363,062

Date of Grant Expected term of options

Exercisable between

Exerciseprice

2009 Number outstanding

August 2006 3.25 years September 2009 – February 2010 £2.16 16,181



The EPS condition governs the vesting of the remaining 50% of the LTIP award and relates to the growth in the Group’s EPS over the performance period. If growth is equal to 25% or more per annum then 100% of the award governed by the EPS condition will vest. If, however, growth is less than 10% per annum, none of the award governed by the EPS condition will vest. Between these two points, vesting is determined on a straight line basis. The options are to be settled in equity.

The vesting condition for the award of the other LTIP option schemes is based on EPS growth. If growth is equal to 25% or more per annum then 100% of the award governed by the EPS condition will vest. If, however, growth is less than 10% per annum none of the award will vest. Between these two points, vesting is determined on a straight line basis. The options are to be settled in equity.

* The option exercise price is nil. However, £1 is payable on each occasion of exercise.

Sharesave SchemeThe Company operates a Sharesave scheme, which is available to all employees and full time Executive Directors of the Company and its subsidiaries who have worked for a qualifying period. All options are to be settled by equity. Under the scheme the following options have been granted and are outstanding at year end. N

ote

s

NOTES CONTINUEDSHARE BASED PAYMENTS CONTINUED SHARE BASED PAYMENTS CONTINUED

NOTES CONTINUED


The assumptions used in the model are illustrated in the table below:

* The option exercise price is nil. However, £1 is payable on each occasion of exercise.

The expected volatility is based on the historical volatility, adjusted for any expected changes to future volatility due to publicly available information. For the options granted in the year ending 31 May 2009, dividend yield assumed at the time of option grant is 1.5% (2008: 1.3%).

A charge of £1,122,000 (2008: £934,000) has been made to cost of sales in the Group income statement in respect of share based payment transactions, including £91,000 of provision for National Insurance contributions (2008: £192,000). A charge of £350,000 (2008: £270,000) has been made to cost of sales in the Company income statement in respect of share based payment transactions.

Grant date Fair value at measurement

date

Exercise price

Expected volatility

Option expected

term

Risk-free interest

rate

EMI Jul-04 £0.66 £1.70 44% 6 Years 5.09%

EMI Jul-05 £1.07 £2.57 40% 6 Years 5.09%

EMI Jul-06 £0.78 £2.70 25% 6 Years 4.75%

EMI Aug-07 £1.19 £3.85 25% 6 Years 6.00%

EMI Feb-08 £1.27 £3.89 25% 6 Years 6.00%

SAYE Aug-06 £0.81 £2.16 25% 3.25 Years 4.76%

SAYE Sept-07 £1.13 £3.24 25% 3.25 Years 6.00%

SAYE Sept-08 £1.20 £2.86 25% 3.25 Years 6.00%

LTIP Jul-06 £2.21 £nil* 25% 3 Years 4.79%

LTIP Sep-06 £1.80 £nil* 25% 3 Years 4.79%

LTIP Oct-07 £3.58 £nil* 25% 3 Years 6.00%

LTIP Oct-08 £3.41 £nil* 25% 3 Years 6.00%

The weighted average share price at the time the share options were exercised in the year was £3.59.

The weighted average share price at the time the share options were forfeited in the year was £3.55.

The fair value of services received in return for share options is calculated with reference to the fair value of the award on the date of grant. The fair value is spread over the period during which the employee becomes unconditionally entitled to the award, adjusted to reflect actual and expected levels of vesting. Black-Scholes, Binomial and Monte Carlo simulation models have been used to calculate the fair values of options on their grant date for all options issued after 7 November 2002 which had not vested by 1 January 2005.

Scheme

Number of instruments as at 1 June 2008

Instruments granted during

the year

Options exercised in

the year

Forfeitures in the year

Number of instruments as

at 31 May 2009




Approved EMI scheme 335,855 – – (48,596) 287,259

Approved EMI scheme 47,252 – – (1,901) 45,351

Sharesave scheme 29,422 – (28,740) (682) –



Sharesave scheme – 176,262 – (36,143) 140,119

LTIP 230,389 – (184,815) (45,574) –

LTIP 245,368 – – – 245,368

LTIP 53,180 – – – 53,180

LTIP 316,662 – – – 316,662

LTIP – 393,961 – (30,899) 363,062

No

tes

NOTES CONTINUEDSHARE BASED PAYMENTS CONTINUED SHARE BASED PAYMENTS CONTINUED

NOTES CONTINUED


23 Other Financial Commitments and Contingent Liabilities

a) Capital commitments at the end of the financial year, for which no provision has been made, are as follows:

There are no contingent liabilities not provided for at the end of the financial year.

b) Non-cancellable operating lease rentals are payable as follows:

2009 2008

£000 £000

Contracted – 57

2009 2008

Land and Buildings

£000

Other

£000

Land and Buildings

£000

Other

£000

Within 1 year 124 76 84 104

In second to fifth year inclusive 769 223 569 132

893 299 653 236

21 Called Up Share Capital

22 Cash and Cash Equivalents

During the year 45,057 shares were issued in relation to the exercise of employee share options for a total consideration of £94,000 settled in cash.

Number of shares 2009 2008

£000 £000

Authorised

Ordinary shares of 1p each 50,000,000 500 500

500 500

Allotted, called up and fully paid

Ordinary shares of 1p each at the beginning of the year 33,619,440 336 326

Ordinary shares of 1p each issued in the year 45,057 1 10

Ordinary shares of 1p each at the end of the year 33,664,497 337 336

At beginning of year

Cash flow Non cash items

At end of year

£000 £000 £000 £000

Cash and cash equivalents per balance sheet 1,142 2,330 (116) 3,356

Cash and cash equivalents per cash flow statement 1,142 2,330 (116) 3,356

No

tes

NOTES CONTINUEDCALLED UP SHARE CAPITAL AND CASH AND CASH EQUIVALENTS

OTHER FINANCIAL COMMITMENTS AND CONTINGENT LIABILITIES

NOTES CONTINUED


26 Fixed Asset Investments

Shares in group undertakings

Company £000

At 1st June 2007 29,550

Increase in subsidiary investment for share based charges 444

At 31st May 2008 29,994

At 1st June 2008 29,994

Increase in subsidiary investment for share based charges 679

At 31st May 2009 30,673

The cost represents the cost of acquiring the whole of the issued share capital of NCC Group (Solutions) Limited and its subsidiary undertakings. Fixed asset investments are recognised at cost. The principal undertakings in which the Company’s interest at the year end is 100% are as follows:

Subsidiary undertakings Country of incorporation Principal Activity

NCC Group (Solutions) Limited England and Wales Escrow & Consultancy services

NCC Services Limited England and Wales Escrow & Consultancy services

NCC Escrow International Limited England and Wales Dormant

NCC Group Inc USA Escrow

NCC Group Employees’ Trustees Limited England and Wales Employee Benefit Trust

NCC Group GmbH Germany Escrow

Escrow 4 Software Limited England and Wales Dormant

Site Confidence Limited England and Wales Web site monitoring & load testing

Secure Test Limited England and Wales Ethical Security Testing

Escrow Europe BV Netherlands Escrow

Escrow Europe (Deutschland) GmbH Germany Escrow

Escrow Europe (Switzerland) AG Switzerland Escrow

Next Generation Security Software Limited England and Wales Ethical Security Testing

Next Generation Security Software LLC USA Ethical Security Testing

Next Generation Security Software Pty Australia Ethical Security Testing

24 Pension SchemeThe 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 £429,000 (2008: £324,000). The outstanding contributions at the year end were £73,187 (2008: £46,870).

For the Company, the pension cost charge for the year represents contributions payable by the Company to the fund and amounted to £52,000 (2008: £32,000).

25 Related Party Transactions The Group and Company’s transactions with Directors are disclosed in the Directors’ Remuneration Report.

NCC Group’s Non Executive Chairman Paul Mitchell is a Director of Rickitt Mitchell and Partners Limited and the Group conducted business to the value of £220,000 (2008 : £236,000) with Rickitt Mitchell and Partners Limited. Included within the charge is £160,000 relating to advice received in connection with acquisitions made during the year ended 31 May 2009. The remaining £60,000 relates to the services of the Non Executive Chairman. Rickitt Mitchell and Partners Limited also held 7,000 1.0p ordinary shares (2008: 7,000).

No

tes

NOTES CONTINUEDPENSION SCHEME AND RELATED PARTY TRANSACTIONS

FIXED ASSET INVESTMENTSNOTES CONTINUED


Directors Paul Mitchell Non Executive Chairman

Rob CottonChief Executive

Paul EdwardsFinance Director

James Wallace Senior Non Executive Director

Debbie HewittNon Executive Director

Eurfyl ap GwilymNon Executive Director

David McKeithNon Executive Director (as from 29 July 2009)

Secretary Felicity Brandwood

Registered office Manchester Technology Centre,Oxford Road,Manchester, M1 7EFRegistered number4627044

Joint brokers and corporate finance advisers Altium Capital Limited,30 St James’s Square,London,SW1Y 4AL KBC Peel Hunt,111 Old Broad Street,London,EC2N 1PH

Corporate finance advisers Rickitt Mitchell & Partners Limited,Clarence House,Clarence Street,Manchester, M2 4DW

Auditors KPMG Audit plc,8 Salisbury Square,London,EC4Y 8BB

Solicitors Eversheds LLP,70 Great Bridgewater Street,Manchester,M1 5ES

Bankers Barclays Bank plc,7th Floor, 1 Marsden Street,Manchester, M2 1HW

RegistrarsEquiniti,Aspect House,Spencer Road,Lancing,West Sussex BN99 6DA

COMPANY INFORMATION

The principal undertakings in which the Company’s interest at the year end is less than 100% are as follows:

Interest Country of incorporation Principal Activity

Escrow Europe NV 25% Belgium Escrow

Escrow Europe (Israel) Limited 25% Israel Escrow

Escrow Europe (Pty) Limited 25% South Africa Escrow

Deposit AB 25% Sweden Escrow

NOTES CONTINUEDFIXED ASSET INVESTMENTS CONTINUED

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UK offices

Head OfficeManchester Technology CentreOxford RoadManchesterM1 7EFUnited KingdomPhone: +44 (0) 161 209 5200Fax: +44 (0) 161 209 5100e-mail: [email protected]

DorkingSt Martins HouseSt Martins WalkDorkingSurreyRH4 1UWUnited KingdomPhone: +44 (0) 870 850 8520Fax: +44 (0) 870 850 8521e-mail: [email protected]

LondonFloor 4 Tavistock House NorthLondonWC1H 9HRUnited KingdomPhone: +44 (0) 207 383 9170Fax: +44 (0) 207 383 9179

Sutton52 Throwley WaySuttonSurrey SM1 4BFUnited KingdomPhone: +44 (0) 208 401 0070Fax: +44 (0) 208 401 0076e-mail: [email protected]

ThameEastern BypassThameOxfordshireOX9 3FFUnited KingdomPhone: +44 (0) 1844 210 300Fax: +44 (0) 8709 908 423e-mail: [email protected]

European offices

The NetherlandsHerengracht 414 1017 BZ Amsterdam Phone: +31 20 620 7151 Fax: +31 20 420 1733 e-mail: [email protected]

GermanyHeimeranstrasse 37D-80339 MunchenGermanyPhone: +49 (0) 89 599 7620Fax: +49 (0) 89 599 762 599e-mail: [email protected]

SwitzerlandIbelweg 18A CH-6300 Zug (Zurich) Phone: +41 (0)41 763 2800 Fax: +41 (0)41 763 2801 e-mail: [email protected]

North American office

US1731 Technology DriveSuite 880San JoseCA 95110USAPhone: +1 (408) 441 4660Fax: +1 (408) 441 4658e-mail: [email protected]

CONTACT US

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