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Company profile

NCC GROUP – ABOUT US

NCC Group is the UK’s leading independent provider

of IT Assurance, Security and Consultancy services.

NCC Group works with over 10,000 public and

private sector organisations to help them manage

the risks associated with the increased reliance on IT.

As IT becomes an increasingly fundamental part

of any organisation’s strategy, the effective use of

information and technology is even more crucial.

NCC Group helps clients realise the full benefits

and maximise their potential whilst managing

the numerous risks through the following portfolio

of services;

■ ESCROW SOLUTIONS: Ensuring business critical

material or code is protected and accessible

should anything happen to your key supplier

or developer.

■ VERIFICATION SERVICES: Confirming the material

held under an Escrow Solution is properly protected

by verifying that it can be reconstituted from its

components.

■ SPECIALIST TESTING: Testing relevant aspects of

your system’s performance, including testing of

new technologies, to ensure your system is effective,

robust and can deliver optimum performance.

■ PENETRATION TESTING: Expert testing on networks

and applications to ensure organisations are safe

from the ever increasing threat of unauthorised

internal and external network penetration.

■ INFORMATION SECURITY: Creating a secure

environment for your organisation by considering

every aspect of your business from a security

perspective including business continuity plans,

disaster recovery and regulatory compliance.

■ IT CONSULTANCY: Providing advice at all levels

to help organisations improve their performance

through the effective use of information and

technology.

Based in Manchester with offices in London and

Germany, NCC Group employs 158 members of staff.

With over 20 years of history, NCC Group’s

reputation is well established and well respected.

Crucial to NCC Group’s success is its complete

independence from any hardware or software

provider. This independence ensures all clients

receive impartial advice, confirming NCC Group’s

position as a ‘trusted advisor’ committed to building

long term client relationships.

The company is committed to quality having

achieved ISO 9001 certification and is a preferred

supplier of services to the UK government participating

in both S-CAT and G-CAT schemes. NCC Group also

holds the security CESG (CLAS) and CHECK

accreditations to the highest level. The company

actively encourages staff to qualify for appropriate

industry accreditations.

NCC Group has grown at an impressive rate since

the initial management buyout in 1999, establishing

itself as a market leader for Escrow Solutions and as

a key player in the market for its consultancy and

testing services.

A second management buyout led by Rob Cotton

was undertaken in 2003 which saw the previous

investors and management team exit, with backing

provided by Barclays Private Equity.

43

Left to right: Paul Edwards, Finance Director; Rob Cotton,

Chief Executive; Paul Mitchell, Chairman

65

HighlightsJo

n L

eig

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Felic

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oo

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NCC GROUP

■ Year of healthy growth and progress

■ Firmly recognised as a leading independent provider

■ 46% increase in operating profits before interest

and goodwill amortisation to £4.8m. Turnover growth

of 23% to £14.5m.

Escrow Solutions

Turnover up by 23% with profitability growing by 38%

to £3.8m.

Verification Services

Turnover growth of 58% to £0.5m.

Specialist Testing

Delivered very similar profitability to last year despite

a 9.2% decline in turnover.

Penetration Testing

Turnover increased by 30% to £1.0m.

IT Consultancy

Turnover increased by 13% to £3.9m, while profitability

more than doubled to £1.0m in the year.

Information Security

Established quickly with revenues of £0.4m in the first

six months.

Corporate governance

We have for some years run the group broadly as

if it was a listed plc and to that end have taken

the matter of corporate governance and internal

control very seriously. The rigour and requirement

of good governance contributes to improved

profitability; we have considered the spirit and

applied where practical the relevant features of the

Combined Code and best practice to the running

of the group.

With the arrival of the additional two independent

non-executive directors to The NCC Group (Holdings)

Limited, we will affect changes to the construction

and make up of the remuneration committee and we

will formalise the audit and nominations committees.

Outlook and future prospects

Despite this year’s excellent results, now is not the

time to become complacent. However we are

confident that we will be able to deliver another

strong year of growth.

We continue to be innovators and this will be key to

our success. Approaching the market with the right

set of products, services and skills is essential for any

business, but particularly to a fast growing business

like NCC Group. We constantly seek to improve on

what we do, for whom and how often; repeat and

renewable business is a critical component of our

growth enhanced by evolution where appropriate.

Escrow is expected to grow as market awareness

and our expert account management team continue

to make the case for what should be a compulsory

purchase with every business critical application.

Consultancy will continue to develop its role

as a truly independent trusted advisor as more of

our clients experience the benefits from truly

independent consulting.

Testing will benefit from the need to secure and

confirm assurance over IT networks. Not only is IT

security a pressing issue but also the performance

and robustness of systems and networks will continue

to require third party testing.

In summary we see a year of strong growth in a

cautious but improving market. We are competitive,

we continue to win new assignments and to secure

high levels of repeat income and as a Board we

see a growing place for an independent provider of

IT assurance, security and advice.

Paul Mitchell

Chairman

The NCC Group (Holdings) Limited

Rob Cotton

Chief Executive

The NCC Group (Holdings) Limited

The NCC Group Limited

87

“Duis autem veleum iriure dolor inhendrerit in vulputate velit essemolestie conse qua vel illum”

Review of the yearWe are proud to announce the NCC Group’sstrongest ever performance delivered in thefirst full year since the management buyout.

In the year to 31 May 2004, turnover grew by 23% up

from £11.8m to £14.5m.

The operating profit of the group before exceptional

items and goodwill amortisation was £4.8m against

£3.3m last year, an increase of 46%. After goodwill

amortisation and exceptional items it was £4.6m

against £1.5m last year. The operating margins

before exceptional costs and goodwill amortisation

grew to 33% from 28% and after exceptional items

and goodwill amortisation it grew to 32% from 12%.

Investing in growth

Our strategy remains to develop complementary

activities within existing business units, allowing them

to form their own profit centres as they achieve scale.

This enables us to benefit from new trends and

products whilst maintaining close management

focus on our existing activities.

In November 2003 we devolved the Information

Security Consultancy from our IT Consultancy business

and have seen its revenues grow to £0.4m in its first 6

months as it benefited from the increase in corporate

importance placed on managing IT security and risk.

We will continue with this strategy and anticipate being

able to grow all business areas strongly in the coming year.

Delivering the results

All three of the business units delivered strong growth

as each took up the challenge to improve on last

year’s performance. The strongest performance

came from Consultancy services which saw profits

double to £0.9m which was an excellent result.

Escrow Solutions delivered a 38% increase in

profitability to £3.8m with Testing Solutions increasing

its profitability by 24% to £0.9m. Overall it has been

an outstanding year.

The development of the senior management team

is a key reason for the group’s success this year. Each

of the business unit directors and heads of each

business area are committed to the group’s growth

strategy and have worked tirelessly to deliver it.

It is also testimony to the dedication of NCC Group’s

staff and their commitment to our clients that we have

achieved so much in the short time since last year’s

MBO. We would like to extend our thanks to all NCC

Group staff for their endeavours in the last twelve months.

Part of the change this year has been the clear

understanding of the services and products we

deliver. We are a leading independent IT assurance

provider. We offer IT assurance, IT security and IT

advice to our portfolio of public and private sector

clients. We are independent of software and

hardware suppliers and have a background of IT

service provision that goes back over 20 years which

gives us the right to be trusted advisors.

Board changes

We are delighted to announce that we are to be

joined by James Wallace and Eurfyl ap Gwilym as

independent non-executive directors on the Board

of The NCC Group (Holdings) Limited, the ultimate

holding company of The NCC Group Limited, on

14 June 2004. James will bring with him a wealth of

experience from the manufacturing and industrial

sectors as well as considerable city and plc

experience. Eurfyl will bring considerable experience

of the software and IT services sectors along with his

non-executive experience.

We believe that these appointments are right for

the group at this stage and we are looking forward

to the contributions that each will bring. Pau

l Mitc

he

ll

IT Consultancy has had a very strong year – overall the

business unit has grown turnover from £3.5m to £4.4m

in 2004 with an increase of over 100% in profitability to

£0.9m for the year.

Employees, recruitment and retentionRecruitment and staff retention is the most important

challenge that we face as a group. The employment

market is as strong as it has ever been and therefore it

is important that we reflect this in our remuneration

packages and in our approach to training and

development. At the end of the financial year we had

158 employees and we continue to align our skill base

to ensure it matches the demand of the business and

the market.

Operational managementThe ability to accurately forecast and to react quickly

to changes in the market is an important part of

the group’s management strategy. Forecasting is

conducted on a daily, weekly, monthly and quarterly

basis and allows the management of each business

unit to focus on the key issues.

Forecasts need to be more than planning meetings

and following them through with strong operational

action is an essential part of business control and good

business management. In the last 14 months since the

buyout, this has become the chief characteristic of the

group’s success.

The way forwardGeneral market commentary suggests that expenditure

in the IT Project Services market is forecast to continue

to grow. This will enable NCC Group to continue its

impressive growth record, but it is important that we

focus on customers to ensure that we provide the best

value for them so that they continue to choose us as their

advisors even in times of reduced budgets. Simply put,

we want to be their independent trusted advisor for all

of their IT assurance, security and advisory needs.

Following our customers’ lead, we hope that the public

and private sectors will become more discerning and

considered with their IT spend and choose more of their

IT services from fully independent providers. Escrow

services cannot be properly performed by any party

with a vested interest in the source code. IT consultancy

and security services offered by a provider with

allegiance to a third party supplier, software provider

or implementer cannot be provided objectively, yet

the vast majority of the £7bn plus IT Project Service

2002 market will have been taken by parties with

those allegiances.

Over the next 12 months we will focus on continuing to

develop strong customer relationships. We will continue

to develop each of the business units independently

and we will retain our focus on growing our renewable

income base.

Our day rate businesses are built on long term

relationships rather than single project engagements

and we will continue to focus on this model for

organic growth. We intend to continue punching

above our weight and converting customers to our

independent philosophy.

For our Escrow Solutions business we will continue to

work at increasing the awareness and penetration

within customers, firstly to get them to the level of

protection they feel they already have, but do not in

practice, and then through to the level of protection

they actually need.

Current trading and prospectsThis will undoubtedly be another year of change and

development for NCC Group but that epitomises the

IT services market. We enter the new financial year as

we left the old one, committed to deliver strong levels

of growth both in turnover and profitability.

Rob Cotton

Chief Executive

The NCC Group (Holdings) Limited

The NCC Group Limited

109

Chief Executive’s report

Performance overview

The year to 31 May 2004 was one of healthy growth

and progress for NCC Group. Turnover has grown to

£14.5m and we are now firmly recognised as a leading

independent provider of IT assurance through our

Escrow Solutions, Testing Solutions and Consultancy

services to both the public and private sectors.

Currently we have 89 out of the FTSE 100 companies

as customers and over ten thousand other

organisations worldwide use our services. Our profitability

has continued to grow and operating profit before

exceptional items and goodwill amortisation has

advanced to £4.8m from £3.3m in 2003, an increase

of 46%. Operating profit after exceptional items

and goodwill amortisation has advanced to £4.6m

from £1.5m in 2003.

Our business model and sales strategy is not based

on price competition, but on the better delivery of

client solutions; we are not a body shop and do not

implement business systems. We firmly believe it is our

independence that has been the key to our success

and we consistently hold to our principles of providing

services that represent best value for our clients.

NCC Group’s approach –independent trusted advisor

Throughout NCC Group, our underlying objective is

to provide the best value solution to our customers

at all times. Our aim is to provide IT assurance to not

only help mitigate risk but to provide the right solution

in the face of increasingly complex situations.

To do this effectively, there can be no blurring of roles.

We advise on an IT solution, we do not implement it.

We protect business critical software with Escrow, we

do not develop software. We test the performance

and robustness of complex applications, we do not

sell them. Our aim is to stand with the client when they

have an IT or assurance need and work with them to

determine the right strategy or solution for their

situation. Our independence is the cornerstone of our

business model.

Business unit performance

The business operates three main business units;

Escrow Solutions, Testing Solutions and Consultancy.

Testing is split into three business areas and

Consultancy two.

Escrow Solutions. We are firmly placed to continue

as the UK market leader. We believe the market to

be growing substantially and are gearing up to meet

the challenge. Escrow Solutions grew turnover by 23%

in the year to 31 May 2004 and saw profitability grow

by 38% to £3.8m. Our biggest challenge will be to

grow the account management team quickly but in

a controlled fashion to deliver an even stronger 2005.

Testing Solutions. Overall the business unit has had a

very good year with turnover increasing by 19% and

profitability growing by 24%. Verification Testing has

seen turnover grow by 58% as customers realise the true

value of fully verifying a source code deposit under an

Escrow agreement. This is an area for significant growth

and the sales strategy is focusing strongly on this area.

Specialist Testing has had a good year in the

circumstances. Competing in a difficult part of the IT

market, telecoms, we saw the business deliver a result

very similar to last year in terms of profitability despite

a 9% decline in turnover. Penetration Testing has grown

strongly with an increase of £0.2m in turnover to £1.0m

in the year. This area is expected to continue to

grow rapidly and our commitment to its success is

demonstrated by our recruitment and training policy

that ensures that we have more CHECK accredited

resource than any other provider.

Consultancy has already developed and spun out

a highly successful Information Security consultancy

and it demonstrates our adaptability in meeting market

demand for delivering world class solutions.

Ro

b C

ott

on

increased to reflect the value of the products and

services provided and to correct anomalies in the

pricing structure. The day rate businesses have

continued to deliver exceptional levels of utilisation

confirming the benefit of our policy of recruiting the

right people.

The group has maintained a good level of sales per

account manager for Escrow Solutions and the move

away from associate resource in the day rate businesses

in addition to the cost control has helped lead to a

46% growth in operating profits to £4.8m in 2004 from

£3.3m in 2003 before exceptional costs and goodwill

amortisation, and 215% increase in operating profits after

exceptional costs and goodwill amortisation.

Half year performance

The first half of the year generated 47.8% of turnover

with 52.2% in the second half. This is in line with 2003

when the split was 47.2% : 52.8%. The second half is

expected to continue to be stronger due to the timing

of price increases and the growing revenue base.

Dividends

The company declared an ordinary dividend in the

year of £3m (2003 £ nil).

Balance sheet

The group’s balance sheet is predominantly made up

of three main areas; debtors, cash and deferred

income. Trade debtors remain firmly in control despite

the fact that we raise in excess of 15,400 invoices each

year, with an average value of less than £1,000.

Debtor days have fallen further to 57 days (69 days:

2003) which is a good performance as Escrow

renewal invoices have to be sent 6 weeks in

advance of the anniversary of the commencement

of the agreement date.

Deferred income in the main represents the unexpired

duration of Escrow agreements, to be released on a

straight line basis over their remaining period and has

increased to £4.0m at the end of 2004 from £3.2m at

the end of 2003. The release of deferred income will

provide income into the next financial year.

Cash and treasury

The group has continued to generate a very strong

cash flow, with exceptionally high cash conversion

ratios. The group’s cash collection is not seasonal and

reflects the profile of operating profits in the year. At

an operating level, the cash in-flow for the year was

£6.0m (2003: £3.2m) with a net increase in cash being

£2.0m (2003: £1.1m).

Tax payments amounted to £921,000 against £768,000

in 2003 and capital expenditure reduced to £203,000

against £425,000 in 2003 reflecting the nature of the

group which is not capital expenditure intensive.

However, the group has committed to £400,000 for the

refurbishment of its office premises in Manchester to

be completed in the first half of the next financial year.

Paul Edwards

Finance Director

The NCC Group (Holdings) Limited

The NCC Group Limited

1211

Financial review

Headline news

NCC Group has achieved another year of significant

growth. Turnover has grown by 23% to £14.5m from

£11.8m in 2003. The group has tightly controlled its

cost base and strengthened its margin such that

the increase in turnover has been converted into

operating profits. The group has seen a 46% increase

in operating profits before exceptional items

and goodwill amortisation as they have risen to

£4.8m from £3.3m in 2003. Operating profits after

exceptional items and goodwill amortisation have

risen to £4.6m from £1.5m in 2003.

The group has remained highly cash generative and

continues to manage its debt with £4.0m of cash

currently on deposit.

Turnover

The group has seen a strong increase in turnover in

each of its business areas. Overall growth of 23%

results from 26% growth in Consultancy, 23% in Escrow

Solutions and 19% in Testing Solutions.

Escrow Solutions saw turnover increase to £6.7m from

£5.5m in 2003. Escrow deferred income, the value of

income withheld to reflect the duration of an Escrow

agreement and released on a straight line basis,

increased to £4.0m in the year from £3.2m, reflecting

an increase in the completion of agreements.

Consultancy turnover grew from £3.5m in 2003

to £4.4m this year as a direct consequence of

changes in our sales strategy and the move away

from associate consultants to full time employed

consultants. The Information Security Consultancy

which evolved out of the IT Consultancy in

November 2003 contributed £0.4m of sales income

in its first six months of trading, which is a very

encouraging start.

Testing Solutions has had a strong year with the

turnover before deferred income growing to £3.4m

this year, an increase of 19% and Penetration testing

and Escrow verifications are expected to continue to

grow strongly.

Overall, the level of professional fee income from the

day rate businesses represents 53.7% of the total

turnover of the group, against 53.8% in 2003. All

professional fees are delivered on a time and

materials basis rather than a fixed fee and this

remains a core part of the group’s strategy.

Profitability

The group continued to apply a suitably firm policy of

expenditure and cost control. Prices in all business

areas have been reviewed and where necessary

Pau

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wa

rds

Jon LeighDirector of Escrow Solutions

Jon has been with NCC Group for more than 16

years. In 1997 he joined Escrow Solutions as Head of

Testing and has been responsible for all delivery

and product development since 2000. Jon was

appointed Director of Escrow Solutions in 2003.

John RedeyoffDirector of Consultancy

John is a highly skilled and experienced professional

having held a variety of positions in both the private

and public sectors. John was appointed Director of

Consultancy at NCC Group in 2003; his areas of

expertise include IT management, strategy, system

design, project management, IT integration and

implementation.

Jane PinkDirector of Testing Solutions

Jane has been with NCC Group for more than

20 years. Her areas of expertise span across

telecommunications, programming, system design,

mobile data, penetration testing and testing

strategies. Jane was appointed Director of Testing

Solutions in 2000.

Paul VlissidisHead of Penetration Testing

Paul was appointed as Head of Penetration Testing

in 1996. He is responsible for developing Penetration

Testing, advising both private and public sector

organisations on how to manage the threats to their

applications and networks. Paul Is CESG CHECK

accredited to Team Leader status.

Sean PreeceHead of Specialist Testing Services

Sean joined NCC Group in 1987. He is responsible

for commercial and technical development for

Testing Solutions. His areas of expertise include

programming, design and development.

Roger RawlinsonHead of Consultancy

Roger joined NCC Group in 1994 as a Senior

Consultant. He previously worked for Jodrell Bank as

an Electronics Design Engineer. Roger was appointed

Head of IT Consultancy for NCC Group in 2001 and

is responsible for the management of the business

unit in terms of its income, profitability and the quality

of assignments carried out for our clients.

1413

Directors’ & senior managers’ biographies

Paul MitchellNon-Executive Chairman

Paul Mitchell has been NCC Group’s Chairman since

the first management buy-out in 1999. He is Managing

Director of Rickitt Mitchell & Partners Limited, a

corporate financial advisory firm based in Manchester

and is also a non-executive director for Hollins

Murray Group Limited, a property investment

company. Paul qualified as a Chartered Accountant

with Coopers & Lybrand.

Rob CottonChief Executive

Rob joined NCC Group as Group Finance Director

in March 2000. He introduced new financial controls

and management information systems, and then took

over as Managing Director for Escrow Solutions in July

2000. Under his direction, Escrow income increased

by 172% between July 2000 and October 2002.

In April 2003, Rob led the buyout process which saw

the sale of the group to Barclays Private Equity and

the management team for £30m. He became

Chief Executive in April 2003. Rob is a qualified

Chartered Accountant and has previously worked as

a consultant for Coopers & Lybrand, as Finance

Director for Evans Halshaw plc and for the

Caudwell Group.

Paul EdwardsGroup Finance Director

Paul joined NCC Group in 2000 as Group Financial

Controller. Following the secondary management

buy-out in April 2003, he was appointed Group

Finance Director. Paul previously worked for TDG

plc as Divisional Finance Manager and prior

to that was Financial Controller in part of the

Caudwell Group. He qualified as a Management

Accountant in 1994.

Felicity BrandwoodGroup Company Secretary and Solicitor

Felicity joined NCC Group in 1984 and was

appointed Group Company Secretary in 1999.

Felicity is responsible for all company secretarial,

legal, contractual and HR matters. Felicity qualified

as a Solicitor in 1982 and previously worked for

Eversheds before joining NCC Group.

Joh

n R

ed

eyo

ff

Jan

e P

ink

Disabled employees

The group gives full consideration to applications for

employment from disabled persons where the

requirements of the job can be adequately fulfilled by

a handicapped or a disabled person.

Should an existing employee become disabled, 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 to disabled employees

wherever possible.

Employee involvement

During the year, the policy of providing employees

with information about the group has continued

through the group’s intranet, the quarterly all employee

updates and divisional meetings. Employees are

actively encouraged to present their suggestions

and views on the group’s performance. A free flow

of information between the directors, managers and

employees ensures that every person has an

opportunity to contribute ideas to the group.

Health and safety

The group strives to provide and maintain a safe

environment for all employees, customers and visitors

to its premises and comply with the relevant health

and safety legislation. The group is committed to the

well-being of its employees and actively promotes

best practice in the work place.

The environment

The group recognises that it is part of the wider

community of employees, customers and suppliers

amongst others and recognises that it has a

responsibility to act in a way that respects the

environment. The group actively encourages staff to

act in an environmentally responsible manner,

particularly in the development of recycling and

energy conservation policies to ensure finite resources

are not dissipated.

Political and charitablecontributions

No political or charitable contributions were made

during the year.

Auditors

KPMG LLP has expressed its willingness to continue in

office. Accordingly, in accordance with Section 384

of the Companies Act 1985, a resolution to reappoint

KPMG LLP 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.

By order of the Board

Rob Cotton

Chief Executive

The NCC Group (Holdings) Limited

The NCC Group Limited

1615

Directors’ reportThe directors present their annual report andthe audited financial statements for the yearended 31 May 2004.

Principal activity and review of the business

The principal activity of the group is the independent

provision of IT assurance through Escrow Solutions,

Consultancy and Testing Services to both the public

and private sectors. A review of the group’s activities

and development is provided in the Review of the year,

the Chief Executive’s report and the Financial review.

The financial results of the group are shown in the profit

and loss account on page 22.

Dividends

An interim ordinary dividend of £3,000,000 was paid

during the year. The directors do not recommend

payment of a final dividend to the ordinary or

preferred ordinary shareholders.

Share capital

Details of the movements of the authorised and called

up share capital of the company are set out in note

17 to the financial statements.

Directors and directors’ interests

The directors who held office during the year were

as follows:

Rob Cotton – Chief Executive

Paul Edwards – Finance Director

John Walker – Non-Executive Director

(appointed 22 October 2003)

The directors’ share interests and changes in the year

are shown in the Directors’ report of The NCC Group

(Holdings) Limited, the ultimate parent company of

The NCC Group Limited.

The NCC Group Employees’ Share Trust

The NCC Group Employees’ Trustees Limited was

established to encourage and facilitate the

acquisition and holding of shares in the company by

and for the benefit of employees of the group.

The NCC Group Employees’ Trustees Limited is a

wholly owned subsidiary of the company.

On 26 November 2003 employee loan notes were

redeemed and payments totalling £1.4m were

made to all employees who were employed by the

group on 11 April 2003.

No contributions to The NCC Group Employees’ Trustees

Limited were made in the year ended 31 May 2004.

Policy and practice on paymentof creditors

The 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.

Joh

n W

alk

er

Audit Committee

The Board had historically requested an annual

presentation from the group’s auditors following

the year end, but so as to meet the corporate

governance standards an Audit Committee will be

formed on 15 July 2004.

The Audit Committee will be chaired by James

Wallace. It will comprise the non-executive directors

and will meet three times a year.

The Chief Executive, Finance Director and external

auditors will also 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.

Remuneration Committee

The Remuneration Committee of the group was

chaired by Paul Mitchell and comprised the non-

executive director and CEO. The committee has

met twice during the year ended 31 May 2004

and is responsible for reviewing remuneration

arrangements for members of the Board and

Operating Board and for providing general

guidance on aspects of the remuneration policy

throughout the group.

From 15 July 2004 Paul Mitchell will relinquish the

role of Chairman of the Remuneration Committee

and will be succeeded by Dr Eurfyl ap Gwilym. It will

comprise the non-executive directors and meet

three times a year.

Nominations Committee

The Nominations Committee of the group will be

formed on 15 July 2004 and will be chaired by

Paul Mitchell and comprise the non-executive

directors. The Committee is responsible for proposing

candidates to the Board.

Internal control

The 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 misstatement

or loss.

Key elements of the internal control system are

described below, all of which have been in place

throughout the year under review and up to the date

of this report:

• Clearly defined management structure and

delegation of authority to committees of the

Board, Operating Board and Business Units;

1817

Corporate governance

NCC Group is committed to high standardsof corporate governance and the Directorsconfirm that during the year ended 31 May2004, the group considered the spirit and complied with the provisions of theCombined Code where practicable.

This statement describes how principles of corporate

governance are applied to the group.

The Board

The Board of The NCC Group Limited comprises two

executive directors and a non-executive director.

The Board of The NCC Group (Holdings) Limited

comprises two executive directors, a non-executive

director and a non-executive chairman who meet

on a monthly basis. To strengthen The NCC Group

(Holdings) Limited Board two more independent

non-executive directors have been appointed. They

are James Wallace, who will become the senior

independent non-executive director, and Dr Eurfyl

ap Gwilym.

The Board of The NCC Group (Holdings) Limited

is responsible to shareholders for the proper

management of the group and for the group’s

system of corporate governance. It reviews trading

performance, forecasts and strategy, agrees future

plans and has a schedule of matters specifically

reserved for its decision.

The non-executive chairman of The NCC Group

(Holdings) Limited, Paul Mitchell, is responsible for the

running of the Board. Executive responsibility for the

running of the company’s business rests with the two

executive directors, Rob Cotton and Paul Edwards.

The Board believes that the size, structure and

composition of the Board is appropriate given the

group’s size and stage of development.

Operational management of the group is currently

delegated to the Operating Board of The NCC Group

Limited. This is comprised of Rob Cotton and Paul

Edwards as well as the divisional directors of the group.

All directors are able to seek independent legal

advice in respect of their duties at the company’s

expense where the circumstances are appropriate. All

directors have access to the Company Secretary for

her advice and services.

We intend to constitute the following committees to

deal with specific aspects of the group’s affairs. The

responsibilities and terms of reference for the Audit

and Nominations committees are being formally

agreed and when approved will then be subject to

annual review.

Pau

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son

Company law requires the directors to prepare

financial statements for each financial year, which

give a true and fair view of the state of affairs of the

group and of the profit, or loss for that period. In

preparing those financial statements, the directors are

required to:

• select suitable accounting policies and then apply

them consistently;

• make judgements and estimates that are

reasonable and prudent;

• state whether applicable accounting standards

have been followed, subject to any material

departures disclosed and explained in the financial

statements; and

• prepare the financial statements on the going

concern basis unless it is inappropriate to presume

that the company will continue in business.

The directors are responsible for keeping proper

accounting records which disclose with reasonable

accuracy at any time the financial position of the

company and to enable them to ensure that the

financial statements comply with the Companies Act

1985. 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.

2019

Corporate governance– continued

Statement of directors’responsibilities

• Clearly documented internal procedures set out in

the group’s ISO 9001 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 planning 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 investment;

• Monthly monitoring and re-forecasting of results

against the Annual Operating Plan, with major

variances followed up and management action

taken where appropriate; and

• Regular internal audits of key processes under

the group’s ISO 9001 accredited quality assurance

process.

The group does not have a dedicated internal

financial audit function, although internal audits are

conducted under the group’s ISO 9001 accredited

quality assurance process. Quality Audits are carried

out by an Independent consultant to the company

and are again covered by LRQA as part of their

ongoing review of our accreditation.

The Board has considered the need for an internal

financial audit function and believes that current

arrangements are adequate at this stage of the

group’s development.

Auditor independence

The Board has not formally reviewed Auditor

independence, but this will form part of the remit of

the Audit Committee and a formal policy on Auditor

independence and objectivity will be implemented.

The group has not traditionally assigned non-financial

or consultancy contracts to the external auditors. The

external auditors may be considered for consultancy

work but only after rigorous checks to confirm they

are the best provider, including where appropriate

competitive tender.

Going concern

The Board is 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,

it continues to adopt the going concern basis in

preparing the financial statements.

Jaso

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2221

Report of the independent auditorsReport of the independent auditors to themembers of The NCC Group Limited

We have audited the financial statements on pages

22 to 36.

This report is made solely to the company’s members,

as a body, in accordance with section 235 of

the Companies Act 1985. 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 auditor’s 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 auditors

The directors are responsible for preparing the

directors’ report and as described on page 20 the

financial statements in accordance with applicable

United Kingdom law and accounting standards.

Our responsibilities, as independent auditors, are

established in the United Kingdom by statute, the

Auditing Practices Board and by our profession’s

ethical guidance.

We report to you our opinion as to whether the

financial statements give a true and fair view and

are properly prepared in accordance with the

Companies Act 1985. We also report to you if, in our

opinion, the directors’ report is not consistent with the

financial statements, if the company has not kept

proper accounting records, if we have not received

all the information and explanations we require for our

audit, or if information specified by law regarding

directors’ remuneration and transactions with the

group is not disclosed.

Basis of audit opinion

We conducted our audit in accordance with Auditing

Standards issued by the Auditing Practices Board.

An audit includes examination, on a test basis, of

evidence relevant to the amounts and disclosures in

the financial statements. It also includes an assessment

of the significant estimates and judgements made by

the directors in the preparation of the financial

statements, and of whether the accounting policies

are appropriate to the group’s circumstances,

consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain

all the information and explanations which we

considered necessary in order to provide us with

sufficient evidence to give reasonable assurance that

the financial statements are free from material

misstatement, whether caused by fraud or other

irregularity or error. In forming our opinion we also

evaluated the overall adequacy of the presentation

of information in the financial statements.

Opinion

In our opinion the financial statements give a true and

fair view of the state of affairs of the company and

the group as at 31 May 2004 and of the profit of

the group for the year then ended and have

been properly prepared in accordance with the

Companies Act 1985.

KPMG LLP

Chartered Accountants

Registered Auditor

Consolidated profitand loss accountfor the year ended 31 May 2004

Note 2004 2004 2004 2003 2003 2003Before Goodwill Total Before Goodwill Total

goodwill amortisation exceptional amortisationamortisation items and and

amortisation exceptional of goodwill items

(see note 3)

£000 £000 £000 £000 £000 £000Turnover before movement in deferred income 15,316 - 15,316 12,291 - 12,291Deferred income (797) - (797) (464) - (464)

Turnover from continuing operations 2 14,519 - 14,519 11,827 - 11,827Cost of sales 4 (7,641) - (7,641) (6,654) (1,511) (8,165)

Gross profit 6,878 - 6,878 5,173 (1,511) 3,662Administrative expenses 4 (2,077) (233) (2,310) (1,857) (355) (2,212)

Operating profit from continuing operations 4,801 (233) 4,568 3,316 (1,866) 1,450

Net interest receivable 7 79 11

Profit on ordinary activities before taxation 4 4,647 1,461Tax on profit on ordinary activities 8 (794) (870)

Profit on ordinary activities after taxation 3,853 591Dividends 9 (3,000) (23)

Retained profit for the year 853 568

Reconciliation of movements in shareholders’ fundsfor the year ended 31 May 2004 Group Company

2004 2003 2004 2003£000 £000 £000 £000

Profit/(loss) for the financial year 3,853 591 (114) (251)Dividends (3,000) (23) - (23)

853 568 (114) (274)

Repayment of preference share capital - (1,094) - (1,094)New share capital subscribed - 15 - 15Charge in relation to share related awards - 1,363 - 1,363Currency translation (1) (3) - -

Net addition to/(reduction in) shareholders’ funds 852 849 (114) 10Opening shareholders’ funds 4,217 3,368 1,747 1,737

Closing shareholders’ funds 5,069 4,217 1,633 1,747

St James’ Square, Manchester M2 6DS, United Kingdom

Company balance sheetat 31 May 2004

2423

Consolidated balance sheetat 31 May 2004

Note 2004 2003£000 £000 £000 £000

Fixed assetsIntangible assets 10 3,491 3,724Tangible assets 11 546 648

4,037 4,372

Current assetsDebtors 13 3,523 3,106Cash at bank and in hand 3,970 1,959

7,493 5,065

Creditors: amounts falling due within one year 14 (2,451) (2,083)

Net current assets 5,042 2,982

Total assets less current liabilities 9,079 7,354

Deferred income 15 (4,033) (3,160)

Net assets 5,046 4,194

Capital and reservesCalled up share capital 17 300 300Capital redemption reserve 18 1,396 1,396Profit and loss account 18 3,373 2,521

Shareholders’ funds 5,069 4,217

Minority interest 19 (23) (23)

5,046 4,194

These financial statements were approved by the Board of directors

on 23 June 2004 and were signed on its behalf by:

Rob Cotton

Chief Executive

The NCC Group (Holdings) Limited

The NCC Group Limited

Note 2004 2003£000 £000 £000 £000

Fixed assetsIntangible assets 10 1,712 1,826Investments 12 1,426 1,426

3,138 3,252

Current assetsCash at bank and in hand 24 24

24 24

Creditors: amounts falling due within one year 14 (1,529) (1,529)

Net current (liabilities) (1,505) (1,505)

Net assets 1,633 1,747

Capital and reservesCalled up share capital 17 300 300Capital redemption reserve 18 1,396 1,396Profit and loss account 18 (63) 51

Shareholders’ funds 1,633 1,747

These financial statements were approved by the Board of directors

on 23 June 2004 and were signed on its behalf by:

Rob Cotton

Chief Executive

The NCC Group (Holdings) Limited

The NCC Group Limited

2625

Consolidated statement of total recognised gains and losses for the year ended 31 May 2004

2004 2003£000 £000

Retained profit for the financial year 853 568

Currency translation (loss) (1) (3)

Total recognised gains for the year 852 565

Consolidated cash flow statementfor the year ended 31 May 2004

Note 2004 2003£000 £000

Net cash inflow from operating activities a 6,001 3,183Returns on investments and servicing of finance b (2,921) (12)Taxation (921) (768)Capital expenditure and financial investment b (148) (244)

Cash inflow before financing 2,011 2,159

Financing b - (1,086)

Increase in cash in the year 2,011 1,073

Reconciliation of net cash flow to movement in net debtfor the year ended 31 May 2004

Note 2004 2003£000 £000

Increase in cash in the year 2,011 1,073Cash inflow from decrease in finance leases and hire purchase contracts - 7

Movement in net debt in the year c 2,011 1,080Net debt at beginning of the year c 1,959 879

Net debt at end of the year c 3,970 1,959

Consolidated cash flow notes

a) Reconciliation of operating profit to net cash flows from operating activitiesfor the year ended 31 May 2004

2004 2003£000 £000

Operating profit 4,568 1,450Depreciation charge 262 311Amortisation of goodwill 233 233(Profit) on the sale of fixed assets (12) (25)(Increase) in debtors (434) (626)Increase in creditors 1,384 477Charge in relation to share related awards - 1,363

Net cash inflow from operating activities 6,001 3,183

b) Analysis of cash flows2004 2003£000 £000

Returns on investments and servicing of financeInterest received 80 11Interest paid (1) -Dividend paid (3,000) (23)

Net cash outflow from returns on investment and servicing of finance (2,921) (12)

Capital expenditure and financial investmentPurchase of tangible fixed assets (203) (425)Sale of tangible fixed assets 55 181

Net cash outflow from capital expenditure and financial investment (148) (244)

FinancingCapital element of finance lease and hire purchase payments - (7)Issue of ordinary share capital - 15Repayment of preference share capital - (1,094)

Net cash outflow from financing - (1,086)

c) Analysis of net debtAt beginning Cash At end

of year flow of year£000 £000 £000

Cash in hand and at bank 1,959 2,011 3,970

Total 1,959 2,011 3,970

Consolidated cash flow statementfor the year ended 31 May 2004

Notes to thecash flow statementfor the year ended 31 May 2004

completion basis 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. Maintenance and Escrow Solution

agreement revenue is recognised on a straight-line

basis over the life of the related agreement.

Foreign currencies

Transactions in foreign currencies are recorded using

the rate of exchange ruling at the date of the

transaction. Monetary assets and liabilities denominated

in foreign currencies are translated using the rate of

exchange ruling at the balance sheet date and the

gains or losses on translation are included in the profit

and loss account.

The assets and liabilities and profit and loss accounts

of overseas subsidiary undertakings are translated

at the closing exchange rates. Gains and losses

arising on these transactions are taken to reserves,

net of exchange differences arising on related

foreign currency borrowings.

Leases

Operating lease rentals are charged to the profit and

loss account on a straight-line basis over the period of

the lease.

Post retirement benefits

The group operates a defined contribution pension

scheme. The assets of the scheme are kept separately

from those of the group in an independently

administered fund. The amount charged against

profits represents the contributions payable to the

scheme in respect of the accounting period.

Taxation

The charge for taxation is based on the profit for

the year and takes into account taxation deferred

because of timing differences between the

treatment of certain items for taxation and

accounting purposes. Deferred tax is recognised

without discounting in respect of all timing

differences between the treatment of certain items

for taxation and accounting purposes which have

arisen but not reversed at the balance sheet date

except as otherwise required by FRS 19.

Cash

Cash, for the purpose of the cash flow statement,

comprises cash in hand and deposits repayable on

demand, less overdrafts payable on demand.

2827

Notes (forming part of the financial statements)

1 Accounting policies

The following accounting policies have been applied

consistently in dealing with items which are considered

material in relation to the group’s financial statements.

Basis of preparation

The financial statements have been prepared in

accordance with applicable accounting standards

and under the historical cost accounting rules.

Basis of consolidation

The consolidated financial statements include the

financial statements of the company and its subsidiary

undertakings made up to 31 May 2004. The acquisition

method of accounting has been adopted. Under

this method the results of subsidiary undertakings

acquired or disposed of in the year are included in the

consolidated profit and loss account from the date

of acquisition or up to the date of disposal.

Under section 230(4) of the Companies Act 1985 the

company is exempt from the requirement to present

its own profit and loss account.

Goodwill

Purchased goodwill (representing the fair value of

the consideration given over the fair value of the

separable net assets acquired) arising on consolidation

is capitalised. Positive goodwill is amortised to nil

by equal annual instalments over its estimated

useful life of 20 years.

Related party transactions

Details of related party transactions are set out in note

23 to these financial statements.

Tangible fixed assets and depreciation

Depreciation is provided to write off the cost less

the estimated residual value of tangible fixed assets

by equal instalments over their estimated useful

economic lives as follows:

Computer equipment – 20% to 33%

Plant and equipment – 20%

Fixtures and fittings – 20%

Motor vehicles – 25%

Revenue recognition

Turnover represents the invoiced value of goods and

services provided during the period, excluding VAT

and after deferred income. The results of partially

completed contracts whether fixed price or on a time

and materials basis are dealt with on a percentage

3029

Notescontinued

2 Segmental informationTotal Total2004 2003

a) Turnover by geographical segment £000 £000

UK 12,452 9,698Rest of Europe 1,011 828Rest of World 1,056 1,301

Total Turnover 14,519 11,827

Total Total2004 2003

b) Turnover by business segment £000 £000

Escrow Solutions 6,721 5,460Consultancy 4,357 3,471Testing Solutions 3,441 2,896

Total Turnover 14,519 11,827

Operating profit by business segmentEscrow Solutions 3,760 2,735Consultancy 900 447Testing Solutions 884 711

Segment operating profit 5,544 3,893

Head office costs (743) (577)Goodwill amortisation (233) (233)

Operating profit 4,568 3,083

Net assets / (liabilities) by business segmentEscrow Solutions (2,981) (2,112)Consultancy 473 129Testing Solutions 161 504Unallocated net assets 7,393 5,673

Total net assets 5,046 4,194

Unallocated net assets consist of cash, tax payable and other centrally held assets and liabilities.

3 Exceptional costs

Included within cost of sales is £Nil of exceptional costs (2003: £1,511,000). The costs in 2003 were the charges inrelation to share related rewards of £1,363,000 and associated costs of £148,000 in connection with the changeof ownership which occurred during that year.

Included within administrative expenses is £Nil of exceptional costs (2003: £122,000). The costs in 2003 related todeal costs arising from the change of ownership.

4 Profit on ordinary activities before taxation2004 2003£000 £000

Profit on ordinary activities before taxation is stated after charging/(crediting):Auditors’ remuneration:Audit 17 17Non audit 38 78

Depreciation and other amounts written off tangible and intangible fixed assets:Owned 262 311Amortisation of goodwill 233 233

Operating lease rentals charged:Hire of plant and equipment 236 189Other operating leases 169 157(Profit) on disposal of fixed assets (12) (25)

5 Remuneration of directors2004 2003£000 £000

Directors’ emoluments 465 770Company contributions to defined contribution pension schemes 13 28Amounts paid to third parties in respect of directors’ services 45 28

523 826

Number of directors2004 2003

Retirement benefits are accruing to the following number of directors under:

Defined contribution scheme 2 2

The number of directors who exercised share options was:

Exercise of share options - 2

The emoluments of the highest paid director were:2004 2003£000 £000

Salary and bonus 336 295Benefits in kind 26 22Company contributions to defined contribution scheme 9 7

371 324

3231

Notescontinued

6 Staff numbers and costs

The average number of persons employed by the group during the year, including directors is analysed by category as follows:

Number of employees2004 2003

Operational 50 40Administration, sales and marketing 101 100

151 140

The aggregate payroll costs of these persons were as follows:2004 2003£000 £000

Wages and salaries 5,816 4,954Social security costs 704 554Other pension costs (note 22) 167 169

6,687 5,677

7 Net interest receivable/(payable)2004 2003£000 £000

Interest receivable and similar income 80 11

Interest payable and similar chargesOther interest payable (1) -

Net interest receivable 79 11

8 Taxation

Analysis of charge in year 2004 2003£000 £000

UK corporation taxCurrent tax on income for the year 893 903Adjustments in respect of prior periods (100) (29)

Total current tax 793 874Deferred tax (note 16) 1 (4)

Tax on profit on ordinary activities 794 870

8 Taxation (continued)

Factors affecting the tax charge for the current yearThe current tax charge for the period is lower (2003: higher) than the standard rate of corporation tax in the UK 30% (2003: 30%).The differences are explained below:

2004 2003£000 £000

Current tax reconciliationProfit on ordinary activities before taxation 4,647 1,461

Current tax at 30% (2003: 30%) 1,394 438

Effects of:Expenses not deductible for tax purposes 88 577Capital allowances in excess of depreciation and amortisation 1 (8)Short-term timing differences 2 (25)Utilised losses - (14)Group relief (592) (65)Adjustments in respect of prior periods (100) (29)

Total current tax charge for year (see above) 793 874

Factors that may affect future tax chargesThe company envisages that its effective rate of tax will remain consistent with prior periods.

9 Dividends2004 2003£000 £000

Paid£1 A Preference shares - 23£1 Ordinary shares 3,000 -

Total dividend paid 3,000 23

10 Intangible fixed assetsGroup Company

£000 £000Goodwill

CostAt beginning and end of year 4,655 2,282

AmortisationAt beginning of year 931 456Charge for year 233 114

At end of year 1,164 570

Net book value at 31 May 2004 3,491 1,712

At 31 May 2003 3,724 1,826

3433

Notescontinued

11 Tangible fixed assetsComputer Plant and Fixtures Motor Total

equipment equipment and fittings vehiclesGroup £000 £000 £000 £000 £000

CostAt beginning of year 1,145 107 106 193 1,551Additions 146 10 20 27 203Disposals (42) - - (90) (132)

At end of year 1,249 117 126 130 1,622

DepreciationAt beginning of year 730 75 36 62 903Charge for year 186 13 23 40 262On disposals (38) - - (51) (89)

At end of year 878 88 59 51 1,076

Net book valueAt 31 May 2004 371 29 67 79 546

At 31 May 2003 415 32 70 131 648

CompanyThe company does not have any tangible fixed assets.

12 Fixed asset investmentsShares in group undertakings

Company £000

CostAt beginning and end of year 2,659

ProvisionsAt beginning and end of year 1,233

Net book value as at 31 May 2004 and 31 May 2003 1,426

The cost represents the cost of acquiring the whole of the issued share capital of the company’s subsidiaryundertakings. Fixed asset investments are recognised at cost.

Listed below are the subsidiary undertakings of The NCC Group Limited at 31 May 2004.

Subsidiary undertakings Country Principal Class and percentageof incorporation activity of shares held

NCC Services Limited England and Wales Escrow Solutions 100% ordinary shares& Consultancy services

NCC Escrow International GmbH Germany Escrow Solutions 80% ordinary sharesNCC Escrow International Limited England and Wales Dormant 100% ordinary sharesNCC Services Inc USA Dormant 100% ordinary sharesNCC Services (Africa) (Pty) Limited Botswana Dormant 100% ordinary sharesNCC Group Employee’s Trustees Limited England and Wales Employment Benefit Trust 100% ordinary shares

The NCC Group Employee’s Trustees Limited has not been included in the consolidation as the group does nothave control of the company. The aggregate capital and reserves of this company at 31 May 2004 was £2,129(2003: £1,470,732). The company had a loss after tax amounting to £1,468,603 for the year ended 31 May 2004(2003: Profit £1,434,633).

13 DebtorsGroup Company

2004 2003 2004 2003£000 £000 £000 £000

Trade debtors 2,407 2,318 - -Amounts owed by group undertakings - 16 - -Deferred tax (note 16) 71 72 - -Prepayments and accrued income 1,045 700 - -

At end of year 3,523 3,106 - -

All debtors fall due within one year.

14 Creditors: amounts falling due within one yearGroup Company

2004 2003 2004 2003£000 £000 £000 £000

Trade creditors 365 308 - -Amounts owed to group undertakings 131 - 1,529 1,391Corporation tax 290 422 - -Other taxation and social security 677 571 - -Other creditors 24 - - -Accruals 964 782 - 138

2,451 2,083 1,529 1,529

15 Deferred incomeGroup Company

2004 2003 2004 2003£000 £000 £000 £000

Deferred income 4,033 3,160 - -

Deferred income of £4,033,000 (2003: £3,160,000) consists of Escrow Solutions agreement revenue andmaintenance revenue that has been deferred to be released to the profit and loss account over the contractterm on a pro-rata basis.

16 Provisions for liabilities and charges £000

At beginning of year 72Charge for year (1)

Deferred tax asset 71

The elements of deferred taxation are as follows:

Group 2004 2003£000 £000

Difference between accumulated depreciation and capital allowances 64 63Short term timing differences 7 9

Deferred tax asset 71 72

CompanyThe company has no deferred tax balances.

3635

Notescontinued

17 Called up share capitalNumber of shares 2004 2003

£000 £000

AuthorisedOrdinary shares of £1 each 210,000 210 210Preferred ordinary shares £1 90,000 90 90A Preference shares £1 1,250,000 1,250 1,250B Preference shares 10p 1,460,000 146 146

1,696 1,696

Allotted, called up and fully paid

Ordinary shares of £1 each 210,000 210 210Preferred ordinary shares £1 each 90,000 90 90

300 300

Voting rightsThe preferred ordinary shares and ordinary shares carry voting rights at one vote per share.

Dividend rightsBoth the preferred ordinary shares and the ordinary shares have no rights to a dividend.

Rights on winding upThe ranking of shares in the instance of the winding up of The NCC Group Limited is as follows:• Preferred ordinary shares• Ordinary shares

18 Share premium and reservesCapital redemption reserve Profit and loss account

£000 £000GroupAt beginning of year 1,396 2,521Retained profit for the year - 853Currency translation adjustment - (1)

At end of year 1,396 3,373

Capital redemption reserve Profit and loss account£000 £000

CompanyAt beginning of year 1,396 51Retained loss for the year - (114)

At end of year 1,396 (63)

The cumulative amount of positive goodwill resulting from acquisitions in earlier financial years, which has beenwritten off, is £1,164,000 (2003: £931,000), including £353,000 (2003: £282,000) in relation to subsidiary undertakings.

19 Minority interests2004 2003£000 £000

At beginning of year (23) (23)

Equity (3) (3)

Non-equity (20) (20)

(23) (23)

20 Contingent liabilities

Each group company is party to a group banking facility under which it has guaranteed the bank borrowings,performance bonds and guarantees of its fellow group companies. The drawings under this group facility were£11,975,000 as at 31 May 2004 (2003: £13,375,000).

21 Other financial commitments

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

Group 2004 Group 2003 Company 2004 Company 2003£000 £000 £000 £000

Contracted 400 - - -

b) Annual commitments under non-cancellable operating leases are as follows:

2004 2003Land and Buildings Other Land and Buildings Other

£000 £000 £000 £000GroupOperating leases which expire:Within 1 year - 5 - 8In second to fifth year inclusive 173 227 24 180Over 5 years 154 - 135 60

327 232 159 248

22 Pension scheme

The group operates a defined contribution pension scheme that is open to all eligible employees. The pensioncost charge for the period represents contributions payable by the group to the fund and amounted to £167,000(2003: £169,000).

23 Related party transactions

The group conducted business to the value of £20,000 (2003: £1,667) at arms length with Barclays Private EquityLimited. Barclays Private Equity Limited was a shareholder of The NCC Group (Holdings) Limited during the yearthat supplied the services of a non-executive director.

24 Ultimate and immediate controlling party

The company is a wholly owned subsidiary undertaking of The NCC Group (Holdings) Limited. The largest groupin which the results of the company are consolidated is that headed by The NCC Group (Holdings) Limited,incorporated in the UK. The consolidated financial statements of this company are available to the public andmay be obtained from The Registrar of Companies, Companies House, Cardiff, CF4 3UZ.