NCC Group plc Annual Report 2021

Notes to the Financial Statements continued for the year ended 31 May 2021

1 Accounting policies continued Assurance continued

Timing of satisfaction of performance obligations and significant payment terms

Revenue recognition policies, including determination of transaction price and rationale Revenue is recognised on an input basis to measure the satisfaction of the performance obligation over time. This is done according to total costs incurred in comparison to the total expected costs to be incurred to satisfy the performance obligation. This input measure is driven by the nature of the activities carried out in satisfying the performance obligation. The transaction price is fixed within the terms of the contractual arrangement.

Revenue stream

Nature

Long-term fixed price contracts

Delivery of the product is considered to represent one

This revenue represents the long-term development and/or manufacture of specialised software and hardware solutions.

performance obligation. The development and/or

manufacturing work carried out by the Group is not considered to create an asset with an alternative use to the entity. The Group is entitled to payment as performance of the contract is completed. On this basis, revenue is recognised over time. Invoices are raised based on achievements of pre-defined milestones in the contract. Invoices are usually payable within 30 days. The customer benefits from the escrow service evenly over a contract period, usually at least a year and potentially up to three years. The service represents one performance obligation. Invoices are raised based on an agreed invoicing profile with the customer. Invoices are usually payable within 30 days. The customer benefits from the verification service on completion because the source code will only have been fully verified/validated at that point. The service represents one performance obligation. Invoices are raised monthly or based on an agreed invoicing profile with the customer. Invoices are usually payable within 30 days.

Software Resilience Escrow contract services

Revenue is recognised over time on a straight- line basis representing the service delivery agreement. The nature of the agreement gives rise to the customer having the benefit of software resilience if and when required over the contract period. Revenue is recognised on a straight-line basis as the pattern of benefit to the customer as well as the Group’s efforts to fulfil the contract are generally even throughout the period. The transaction price is determined by a contract price. Set-up time is not considered distinct and a separate performance obligation due to the administrative nature and therefore is recognised over the period of the contract. Revenue is recognised on completion of the verification services. Transaction price is determined by fixed contract rates based upon day rates and number of verification days.

These services securely maintain in “escrow” the long-term availability of

business critical software and applications while protecting the intellectual property rights (IPR) of technology partners. The service will include set-up time which is administrative in nature.

Verification services

These services verify source code based upon an agreed scope between all parties, and provide a fully managed secure service and result validation, typically delivered over a short period of time (days). These include SaaS services and ICANN services.

Contract costs Contract costs comprise incremental sales commissions paid to sales agents which can be directly attributed to an acquired or retained contract. Capitalised commission costs are amortised on a systematic basis that is consistent with the transfer to the customer of the services when the related revenues are recognised. In all other cases, all internal and external costs of obtaining the contract are recognised as incurred. Costs directly incurred in fulfilling a contract with a customer, which comprise labour hours on long-term contracts, are recognised as an asset to the extent they are recoverable. Such costs are amortised on a systematic basis that is consistent with the transfer to the customer of the services when the related revenues are recognised.

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NCC Group plc — Annual report and accounts for the year ended 31 May 2021

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