Profile: Paul Edwards, FD of NCC

If his life had taken a different course,
NCC Group’s FD could have
been the next Gordon Ramsay. But instead of terrorising hapless restaurateurs
and extinguishing kitchen blazes, Paul Edwards helps NCC Group put out fires of
another kind ­ the threat of losing your software and falling prey of hackers.

Under Edward’s stewardship, the Manchester-based company has become something
of a trailblazer. Its list of achievements include a successful jump up to the
main market after being the first AIM company to pull off IFRS adoption. These
milestones followed two MBOs, and the company now counts 92 of the FTSE 100 as
clients.

NCC planned to go straight to the main market in August 2004 ­ but due to
tough conditions and ‘investor-related tax considerations’ it decided to take a
smaller jump.

‘AIM did what we expected it to do. It raised our profile and helped us take
the debt off balance sheet. As a trusted independent third party you’ve got to
be robust or investors will say: “Your balance sheet looks a bit out of shape
and you’ve got all this debt. What’s going to happen to us if something happens
to you?” For us it was about solidifying the company and strengthening the
balance sheet.’

NCC decided to move partly because AIM was getting a lot of negative press,
not least from the US. There was an influx of questionable companies, the Torex
Retail accounting scandal occured, and some of the gambling companies weren’t
doing the index any favours, Edwards recalls. ‘The main list gives you access to
a different investor base. We were picked up by tracker funds, which gave us a
bit of a kick, but there can be no doubt that AIM was very good to us.’

The junior market was a key beneficiary of CGT breaks for investors and
Edwards is critical of the recent CGT hike.

‘The removal of the 10% tax rate is the stupidest thing the government has
ever done. The amount of people in Manchester trying to sell their business has
vastly increased. It will stifle entrepreneurialism. It’s a mistake and I think
we’ll pay for it in the long run,’ he says.

The company has changed significantly, not just in terms of how it manages
its exposure to the main market.

NCC provides services to 15,000 companies. Escrow solutions, where copies are
made of the codes that govern essential company software, are now the
cornerstone of NCC’s business. It also provides ‘ethical hacking’ services,
cracking clients’ IT protection to test how vulnerable systems are.

The obvious question that springs to mind is: who watches the watchers?
Access to NCC clients’ codes represents the Holy Grail for criminals, so it’s no
surprise that the group takes major steps to protect the information.

‘We keep our code in two places ­ firstly an ex-gold bullion vault in the
centre of Manchester. It’s a bit “James Bond” ­ but it’s a relatively
inexpensive place because believe it or not there’s not much call for gold
bullion vaults these days,’ Edwards quips. ‘It’s also bomb-proof so to get that
code would be quite hard.’

There is also a separate vault site as well, because customers like the idea
of ‘dual depositing’. Companies are understandably jittery about guaranteeing
the IT backbone of their businesses, so doubling up provides a safety net.

Serving as a main market plc FD is a long way from Edwards’ previous
incarnation as a chef. After catering college he started out on the bottom rung
of the culinary ladder but left because he needed to properly support his
family. It was a decision based on the realities of life. ‘I make no bones about
that. I enjoy the interaction with people and the achievements that we’ve made
but I go to work fundamentally to earn money.’

He went to night school before earning his CIMA qualification in 1994 and
started his career in finance. He joined NCC Group in October 2000. The group
had just gone through a management buy out from the not-for-­profit National
Computing Centre.

Great opportunity

He was persuaded to apply for the financial controller’s job by ex-FD Rob
Cotton and graduated to head of the finance function in April 2003, just in time
to help spearhead the second management buy out and start preparing for the AIM
float.

‘Very few people in finance have the opportunity to go through an MBO
followed by a flotation and then a full listing. It’s been a fantastic
experience.’

Today, NCC is a far cry from the company from which it evolved in 2000,
having operated on the main market since 2007. He is reluctant to put down
previous National Computing Centre management, but the problems of a
‘disjointed’ finance function were glaringly obvious to Edwards when he joined.

Edwards says the newly spun-out company could hardly produce the accounts.
‘It had a £400,000 debt provision, which was a lot of for a company with a £5m
buy-out. It was a finance department that was a bit broken. It had systems in
place that relied on favours from people to correct them when things went wrong.

‘I was brought in to sort out the nuts and bolts of the accounting function
because if you haven’t got that control then you’re going to be in big trouble,
especially in an organisation that is growing very quickly.’

Edwards introduced new systems in 2002 and by the time of the second MBO had
helped to turn around a loss-making company into one with a £30m value in the
space of three years. With the AIM float in 2004, the company raised £38m and
boasted a market cap of £55m.

One of the reasons for NCC’s prosperity is the continual investment in the
finance team. Edwards has made sure make that the infrastructure was in place
before the company found itself in the midst of a growth spurt.

‘You don’t want to be playing catch up. Get the back office in place to
ensure that growth is controlled. When it came to operating in the public arena
there were no great shocks for us because we had a strong finance function.’

Without a hint of arrogance, Edwards describes IFRS as ‘no big deal’. He
explains: ‘I read so many times “evaluation of IFRS is so tough”. I don’t get it
really. It’s something that you’ve just got to get a hold of.’

He does admit that some parts of the IFRS landscape need to be pruned for the
benefit of those people who aren’t au fait with accounting rules.

‘There’s no real clear methodology that’s out there for investors to go by.
They don’t, in my opinion, understand the intricacies surrounding it. IFRS was
brought in to increase comparability across international boundaries, but if
people treat things a little differently then it makes it more complex, not
less. The average man in the street hasn’t got a hope in hell of understanding a
set of accounts. Not only are [the accounts] twice as thick as they used to be,
there’s the amount of detail involved,’ he says.

Edwards’ steely character has kept him in the job while some other FDs that
take their companies from AIM to the main market have been dumped for those with
more experience.

‘It’s about doing the job, doing it well, and delivering what’s expected. If
you’re not going to do that, then you deserve to be shown the exit door.

‘If you’d have asked me ten years ago, would I have been happy being FD of a
fully listed plc then I would have said “absolutely”, but I’m still ambitious.
Where that will lead me I’m not sure. If the opportunity comes along then it’s
about evaluating it and grasping it with both hands and making the best of it.’

Crunch time

The capital markets are still in the grip of the credit crunch, but there are
no such problems for NCC. In fact it’s almost the complete opposite.

‘A lot of what we do now is non-discretionary spend. There’s fear and doubt
and uncertainty out there. You sprinkle a bit of economic misery on top, ie the
credit crunch, and you can see that our services are in high demand,’ says FD
Paul Edwards.

‘In times of downturn or credit crunches people don’t feel sorry for banks
and say “we won’t hack those”. It’s a fact that fraud goes up in times of
economic upheaval. There are websites which run along the same lines as ebay but
where you can buy stolen information – five star sellers doing deals with five
star buyers.’

The group also provides load-testing services to make sure websites can cope
with the most ferocious consumer demand. ‘4.4m people spent money online on Xmas
day, so you can see how important it is to have robust systems both in terms of
security and general user friendliness. About 40 people completed their tax
return on Christmas day as well which is a bit sadder!’

Big four vs Mid-tier auditors

Just before the business took off in 2000, NCC swapped GT for KPMG because,
in Edwards’ words, ‘you’ve got to walk the walk. It’s important to have the best
advisors. In terms of audit you’ve got to have a company with the strength and
breadth that the Big Four have.

‘We’ve always expected a lot from our auditors. They shouldn’t be treated as
the bad

guys. They’re here to help. The reports become so big that data almost gets
lost inside ­ you can’t read it all.’