TIDMECSC
RNS Number : 8934L
ECSC Group PLC
11 September 2019
11 September 2019
ECSC Group plc
('ECSC' or the 'Company' or the 'Group')
Unaudited results for the six months ended 30 June 2019
and current trading update
ECSC Group plc (AIM: ECSC), a provider of cyber security
services, announces its unaudited interim results for the six
months ended 30 June 2019 and an update on current trading.
Highlights
-- Managed Services division revenue up 63% to GBP1.24m (2018:
GBP0.77m) with Consulting Services division revenue down 23%
to GBP1.19m (2018: GBP1.56m), resulting in total revenue for
the six months of GBP2.63m (2018: GBP2.65m)
-- Gross Profit increase of 18% to GBP1.44m (2018: GBP1.22m)
-- Adjusted* EBITDA** loss of GBP0.19m (2018: GBP0.49m)
-- 59 new Consulting clients secured, an increase of 18% on 2018
-- Partner Programme generating 17% of new client wins and 4%
of Consulting revenue
Post-Period Highlights
-- Strong growth of Consulting sales since period end
-- Record revenue in July of GBP0.62m, up 42% on the same month
prior year (2018: GBP0.44m), with circa GBP0.1m monthly adjusted
EBITDA profit
-- Record levels of Consulting bookings in Q3 and into Q4
-- Cash of GBP0.4m at 6 September and unutilised bank facilities
of GBP0.5m
-- Trading broadly in line with expectations for the full year,
on track to reach EBITDA profitability
*Adjusted EBITDA excludes one-off charges and share based
charges
**EBITDA is defined as Earnings before Interest, Tax,
Depreciation and Amortisation
Ian Mann, CEO, commented:
"We are pleased that from the start of H2 the previously
reported reduced level of consulting services demand has now been
reversed, with consulting growth recovering strongly to match the
continued growth in managed services recurring revenue and cyber
incident response service."
David Mathewson, Non-Executive Chairman, commented:
"Since period end, the return to profit, positive cash flow, and
strong Q3/4 outlook are testament to the continued improvements
across the business. The recent release of the first significant
GDPR related cyber security breach fines highlights the continued
need for ECSC's proven expertise and long-established services
which is now showing in our current trading."
Enquiries:
ECSC Group plc
David Mathewson (Non-Executive
Chairman) +44 (0) 1274 736
Ian Mann (Chief Executive Officer) 223
Allenby Capital (NOMAD and Broker)
David Hart +44 (0) 203 3285
Nicholas Chambers 656
Alma PR (Financial PR)
Josh Royston
Hilary Buchanan +44 (0) 203 4050
Susie Hudson 205
For more information please visit the following:
https://investor.ecsc.co.uk/
Chairman's Statement
As stated at our AGM on 19 June 2019, following the strong
results achieved in 2018 including revenue growth of 35%, overall
revenues to 31 May 2019 were flat compared with 2018. This level of
activity continued for the remainder of the half year period, with
overall revenues of GBP2.63m generated across the six months.
However, since the end of June 2019 we have seen a significant
improvement in overall performance and a return to profitability.
This includes a return to strong growth within the Consulting
division reflected in record levels of consulting bookings in Q3
and into Q4. Therefore, we expect revenues for the 2019 financial
year to be broadly in line with current market expectations, and
still expect to be EBITDA profitable (excluding the impact of
share-based payments) for the full year 2019.
We have now seen the first significant intentions to fine
announced by the UK's Information Commissioners' Office (ICO) under
the new GDPR regulations, with British Airways at GBP183m and
Marriott International at GBP99m. This confirms the significant
potential impact of breaches for organisations failing to
adequately address cyber risk. The significant rise in ECSC's
incident response revenues demonstrates more organisations
recognising the need for expert help when their cyber security
fails.
The ECSC Kepler Artificial Intelligence (AI) technology,
released in 2018, and delivered through the global Security
Operation Centres (SOCs), continues to be central to the growth in
the Managed Services division. Clients increasingly recognise that
24/7/365 cyber security breach detection, and expert incident
response, is vital to the protection of personal information and
maintenance of critical IT systems. For all but the largest global
organisations, the outsourcing of these critical functions is the
logical choice, and ECSC has the technology, expertise and
processes to deliver.
On behalf of the Board, I would like to thank all of our
clients, staff, new channel partners and advisors for their
continued support and commitment during the year.
ECSC is well positioned in a growing cyber security marketplace,
and we look forward with confidence to broadening our base of
clients and delivering improved operating results.
David Mathewson
Non-Executive Chairman
11 September 2019
Chief Executives Officer's Statement
Despite the UK economic uncertainty, and its short-term impact
on consulting projects, we have focussed on continued improvement
across all areas of the business. These have all contributed to the
strong growth of the Managed Services division and, post-period
end, record trading in Consulting.
Our post-IPO investment in the Managed Services division, in
both establishing the UK and Australian Security Operations Centres
(SOCs), and the development of the ECSC proprietary Artificial
Intelligence (AI) software 'Kepler' continues to drive growth. This
technology is used extensively within our security devices to
enable the identification, assessment and alerting of critical
security events to the SOC teams for analysis and reporting to
clients. Our continued investment in R&D activities
demonstrates our commitment to maintaining systems at the forefront
of cyber security managed service offerings.
Our new Partner Programme allows typically IT Value Added
Resellers to directly sell selected ECSC services whilst referring
more complex projects to the ECSC sales team to deliver. As of the
end of July 2019, 66 partners have signed up to the programme,
generating more than 50 sales opportunities and contributing to
both new client acquisition and revenue. The Board sees the
continued expansion of the Partner Programme to have the potential
to significantly increase growth in the future. Sales and marketing
resources are being directed to support the growing Partner
Programme.
Further improvements were made to the performance of the sales
team, with a significant focus on management and ongoing training
and development. Additional resource in the marketing team has also
led to a 50% increase in marketing leads.
Cyber security testing continues to account for the largest
proportion of our consulting sales, and is typically the initial
starting point for any client looking to improve their cyber
security for the first time. Commonly, initial testing engagements
turn into further sales across multiple service lines as a result
of the company's 'land and expand' strategy. This is a result of
our consultative sales approach and comprehensive breadth of
service.
Consulting and assessment against standards, including ISO
27001, PCI DSS, and Cyber Essentials, have continued as
organisations are increasingly required to demonstrate external
verification of their cyber security capabilities to their
customers, partners, stakeholders, and the ICO. Billing rates for
consulting days have been robust and consistent during the
year.
We have continued to invest in ECSC proprietary software in the
year, including continuing development of our Managed Services
Artificial Intelligence (AI) software embedded within many of our
managed devices. The focus remains on delivery of our technology
through managed services, avoiding the issues end-users continue to
have with other vendor companies where cyber security technology is
being sold without appropriate in-house resource, expert management
and effective 24/7 monitoring.
The UK cyber security market remains an attractive segment of
the wider IT sector. Against this backdrop, we are confident that
the organic growth strategy of ECSC remains appropriate. Managed
Services remains the strategic focus of the Board, to build our
recurring revenue streams and target the fastest growing segment of
the market.
Key Performance Indicators
The following Key Performance Indicators were established in
mid-2018 to enable meaningful future performance measurement. A
measure of R&D has been added with these results:
Jun Dec Jun
Performance Rationale 2019 2018 2018
Indicator (interim) (full (interim)
year)
Measurement of the success
Revenue Growth of the organic growth strategy (0.6%) 35% 43%
------------------------- ------------------------------------ ---------- -------
Visibility of the success of
Managed Services increasing the percentage of
Recurring Revenue revenue from long-term recurring
Growth revenues 28% 46% 52%
------------------------- ------------------------------------ ---------- -------
Visibility of the success of
Managed Services increasing the percentage of
Recurring Revenue revenue from long-term recurring
Proportion revenues 35% 29% 29%
------------------------- ------------------------------------ ---------- -------
Managed Service Combined measurement of new GBP2.7m GBP2.5m GBP2.4m
Order Book client contracts together with
renewals of existing client
contracts
------------------------- ------------------------------------ ---------- -------
Managed Services
Gross Margin Delivery efficiency measurement 69% 53% 41%
------------------------- ------------------------------------ ---------- -------
Consulting Quasi-recurring from longer-term
Repeat Revenue consulting clients 77% 78% 78%
------------------------- ------------------------------------ ---------- -------
Consulting
Gross Margin Delivery efficiency measurement 47% 57% 57%
------------------------- ------------------------------------ ---------- -------
Contract Liabilities Contracted and invoiced revenue GBP1.1m GBP0.9m GBP0.9m
(Deferred Income) yet to be recognised
------------------------- ------------------------------------ ---------- -------
Investment in future cyber
Research and Development technologies, service enhancements
(of revenue) and intellectual property 11.8% 8.5% 9.2%
------------------------- ------------------------------------ ---------- -------
We are delighted to report the post-period return to strong
growth and profitability.
The team continues to acquire new clients, deliver quality
service, develop our technologies, and build a solid base for
continuing progress and improving financial performance.
Ian Mann
Chief Executive Officer
11 September 2019
Financial Review
Principal Activities
The principal activity of the Group during the period continued
to be the provision of professional cyber security services,
including Consulting, Managed Services and the sale of Vendor
Products.
Comparative Financial Information
The Group applied IFRS 16 at 1 January 2019, using the modified
retrospective approach. Under this approach, comparative
information is not restated (see note 4).
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2019 2018* 2018*
GBP'000 GBP'000 GBP'000
Revenue
Consulting 1,193 1,557 3,122
Managed Service 1,244 765 1,745
Vendor Products 87 161 228
Other 110 166 287
2,634 2,649 5,382
------------------------------------- --------- --------- -----------
Gross Profit
Consulting 558 886 1,783
Managed Service 862 314 923
Vendor Products 16 31 42
Other 4 (11) (8)
1,440 1,220 2,740
------------------------------------- --------- --------- -----------
EBITDA (Adjusted)* (184) (488) (635)
EBITDA** (249) (641) (866)
Operating (Loss)/ Profit (Adjusted)* (474) (664) (1,027)
Operating (Loss)/ Profit (539) (817) (1,258)
* Adjusted Operating Loss and Adjusted EBITDA excludes one-off
charges and share based charges
** EBITDA is defined as Earnings before Interest, Tax,
Depreciation and Amortisation
Revenue & Organic Growth
Total revenue in the period ended 30 June 2019 was GBP2.63m,
down 0.6% on the comparable prior period (revenue in the six months
ended 30 June 2018 was GBP2.65m). Within this, Consulting revenue
was down by 23% to GBP1.19m (June 2018: GBP1.56m).
Managed Services division revenue rose by 63% in the period to
GBP1.24m (June 2018: GBP0.77m). Within this division, Incident
Response revenues rose to GBP0.31m (June 2018: GBP0.03m) during the
period.
Vendor Products revenue in the period falling by 46% to
GBP0.09m, (June 2018: GBP0.17m), but remains small contributing
only 3% of revenues.
Margin Generation
Gross Profit in the period was GBP1.44m at 55% margin (prior
year interim period: GBP1.22m at 46% margin).
Consulting margin fell to 47% in the period (prior year interim
period: 57%). The Board expects Consulting margin to more closely
track the trend of revenue generated in the future.
Managed Services margin rose to 69% (prior year interim period:
41%), this increase is a direct result of new contracts utilising
the capacity built in 2018 and the growth in incident response
revenues.
EBITDA & Operating Loss
EBITDA (Adjusted) in the period was a loss of GBP0.19m (June
2018: loss of GBP0.49m). EBITDA in the period was a loss of
GBP0.25m (June 2018: loss of GBP0.64m).
Operating Loss (Adjusted) in the period was GBP0.48m (June 2018:
Operating loss of GBP0.66m). Operating Loss in the period was
GBP0.54m (June 2018: operating loss of GBP0.82m).
Cash Flow
The cash balance at the start of the year was GBP0.65m. During
the period, the cash balance has fallen due to the EBITDA loss
(GBP0.25m), capital expenditure (GBP0.7m), and development costs
(GBP0.09m).
The cash balance at 30 June 2019 was GBP0.19m and GBP0.4m as at
6 September 2019.
Balance Sheet
The Group's Balance Sheet at 30 June 2019 had Net Assets of
GBP0.57m (June 2018: GBP1.41m)
Going Concern
The Directors have assessed the going concern status of the
Group by reference to a number of factors. In particular, the
Directors have considered the strong rate of growth in the cyber
security market, that the business continues to attract new clients
and is not overly dependent on any single client, that the business
continues to retain key staff following the restructuring, that the
business has no Corporation Tax liability to HMRC. The Group has
also agreed an invoice discounting facility with Barclay's of
GBP500,000. As at the 30 June 2019 this was unutilised.
In undertaking their review, the Directors have reviewed
financial projections for the years ending 31 December 2019 and
2020, a review which assumed continued revenue growth and cost
efficiency.
In the event that this revenue and cost performance is not
achieved, the Directors have also considered a sensitivity analysis
based on lower revenue growth and have formulated contingency plans
for this scenario, which enable the Group to preserve its financial
resources.
As such, the Directors have concluded that the cash balance at
30 June 2019 is sufficient to fund the ongoing growth and
development of the Group and to meet its' liabilities as they fall
due for at least the next 12 months.
IFRS 16
The Directors adopted the application of IFRS 16 "Leases" from 1
January 2019, using a modified retrospective approach. IFRS 16
introduced a single, on-balance sheet accounting model for lessees.
As a result, the Group, as a lessee, has recognised right-of-use
assets representing its rights to use the underlying assets and
lease liabilities representing its obligation to make lease
payments
Further information on the impact of IFRS 16 is included in Note
4 to the Financial Statements.
David Mathewson
Non-Executive Chairman (Oversees the finance function)
11 September 2019
Consolidated Statement of Comprehensive Income
For the 6 months ended 30 June 2019
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2019 2018* 2018*
Note GBP'000 GBP'000 GBP'000
Revenue 5 2,634 2,649 5,382
Cost of Sales (1,194) (1,429) (2,642)
Gross Profit 5 1,440 1,220 2,740
Other Income 103 79 152
Sales & Marketing Costs (943) (909) (1,817)
Administration Expenses (1,139) (1,207) (2,333)
Operating (Loss)/Profit before
Exceptional Items (474) (664) (1,027)
Share Based Payments 65 54 111
Exceptional Items - 99 120
-------------------------------- ---- --------- --------- -----------
Operating Loss (539) (817) (1,258)
Finance Income - - 1
Finance Cost (19) - -
Loss before Taxation (558) (817) (1,257)
Taxation Credit 6 12 22 19
Loss for the Period (546) (795) (1,238)
-------------------------------- ---- --------- --------- -----------
Other Comprehensive Income - -
Total Comprehensive Income for
the Period (546) (795) (1,238)
-------------------------------- ---- --------- --------- -----------
Attributed to Equity Holders of
the Company
(Loss)/Earnings per Share 7 pence pence pence
Basic Loss per Share (6.0) (8.7) (13.6)
Diluted Loss per Share (6.0) (8.7) (13.6)
* The Group applied IFRS 16 at 1 January 2019, using the
modified retrospective approach. Under this approach, comparative
information is not restated (see note 4).
Consolidated Statement of Financial Position
As at 31 December 2018
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2019 2018* 2018*
Note GBP'000 GBP'000 GBP'000
ASSETS
Non-current Assets
Intangible Assets 8 418 407 412
Property, Plant and Equipment 370 469 427
Right of use Assets 946 - -
Deferred Tax Asset 6 15 7 4
Total Non-current Assets 1,749 883 843
------------------------------ ---- --------- --------- -----------
Current Assets
Inventory 39 28 18
Trade and Other Receivables 1,243 1,144 1,123
Corporation Tax Recoverable 258 201 155
Cash and Cash Equivalents 9 190 1,000 650
Total Current Assets 1,730 2,373 1,946
------------------------------ ---- --------- --------- -----------
TOTAL ASSETS 3,479 3,256 2,790
------------------------------ ---- --------- --------- -----------
LIABILITIES
Current Liabilities
Trade and Other Payables (1,928) (1,800) (1,709)
Lease Liabilities (154) (20) (20)
Total Current Liabilities (2,082) (1,820) (1,729)
------------------------------ ---- --------- --------- -----------
Non-current Liabilities
Lease Liabilities (828) (31) (20)
Total Non-current Liabilities (828) (31) (20)
------------------------------ ---- --------- --------- -----------
TOTAL LIABILITIES (2,910) (1,851) (1,749)
------------------------------ ---- --------- --------- -----------
NET ASSETS 569 1,405 1,041
------------------------------ ---- --------- --------- -----------
EQUITY
Equity attributable to Owners
of the Parent:
Share Capital 11 91 91 91
Share Premium Account 11 5,661 5,661 5,661
Share Option Reserve 11 251 147 186
Retained Earnings 11 (5,434) (4,494) (4,897)
TOTAL EQUITY 569 1,405 1,041
------------------------------ ---- --------- --------- -----------
* The Group applied IFRS 16 at 1 January 2019, using the
modified retrospective approach. Under this approach, comparative
information is not restated (see note 4).
Consolidated Statement of Changes in Equity
For the 6 months ended 30 June 2019
Share Share
Share Premium Option Retained
Capital Account Reserve Earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance as at 31 December 2018* 91 5,661 186 (4,897) 1,041
IFRS 16 Adjustment (see note 4) - - - 9 9
------------------------------------ ------- ------- ------- -------- -------
Loss and Total Comprehensive Income
Income for the year ended 30 June
2019 - - - (546) (546)
Transactions with shareholders
Share Based Payments - - 65 - 65
Balance as at 30 June 2019 91 5,661 251 (5,434) 569
------------------------------------ ------- ------- ------- -------- -------
*The Group applied IFRS 16 at 1 January 2019, using the modified
retrospective approach. Under this approach, comparative
information is not restated (see note 4).
Consolidated Cash Flow Statement
For the 6 months ended 30 June 2019
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2019 2018* 2018*
Note GBP'000 GBP'000 GBP'000
Cash Flow from Operating Activities
(Loss) before Taxation (558) (817) (1,257)
Adjustment for:
Amortisation of Intangibles 8 85 73 175
Depreciation 205 103 217
Share Based Payment 65 54 111
Lease payments (98) - -
Finance Costs 19 - -
Cash from Operating Activities
before
changes in Working Capital (282) (587) (754)
Change in Inventory (21) 25 35
Change in Trade and Other Receivables (220) (94) (148)
Change in Trade and Other Payables 219 185 111
Cash used in Operating Activities (304) (471) (756)
Corporation Tax received - - 122
Net Cash Flow used in Operations (304) (471) (634)
-------------------------------------- ---- --------- --------- -----------
Acquisition of Property, Plant
and Equipment (65) (46) (126)
Development Costs capitalised 8 (91) (80) (187)
Net Cash Flow used in financial
Activities (156) (126) (313)
-------------------------------------- ---- --------- --------- -----------
Net (decrease)/increase in Cash
& Cash Equivalents (460) (597) (947)
-------------------------------------- ---- --------- --------- -----------
Cash & Cash Equivalents at beginning
of period 9 650 1,597 1,597
Cash & Cash Equivalents at end
of period 190 1,000 650
-------------------------------------- ---- --------- --------- -----------
* The Group has initially applied IFRS 16 at 1 January 2019,
using the modified retrospective approach. Under this approach,
comparative information is not restated (see note 4)
Notes to the Financial Statements
For the 6 months ended 30 June 2019
1. Corporate Information
ECSC Group plc is incorporated in England and Wales and quoted
on the London Stock Exchange's Alternative Investment Market (AIM:
ECSC). Further copies of these financial statements will be
available at the Company's registered office: 28 Campus Road,
Listerhills Science Park, Bradford, West Yorkshire, BD7 1HR. These
condensed consolidated interim financial statements as at and for
the six months ended 30 June 2019 were approved by the Board of
Directors on 10 September 2019.
2. General Information
These financial statements may contain certain statements about
the future outlook of ECSC Group plc. Although the Directors
believe their expectations are based on reasonable assumptions, any
statements about future outlook may be influenced by factors that
could cause actual outcomes and results to be materially
different.
3. Basis of Preparation
These interim financial statements for the period ended 30 June
2019 have been prepared in accordance with International Financial
Reporting Standards, International Accounting Standards and
Interpretations (collectively 'IFRS') issued by the International
Accounting Standards Board ('IASB') as adopted by the European
Union ('adopted IFRS').
The financial statements for the period ended 30 June 2019 (and
comparative) have been prepared on a consolidated basis. The
consolidated financial statements present the results of the
Company and its subsidiaries ('the Group') as if they formed a
single entity. The financial statements of the Group and Company
are both prepared in accordance with IFRS. They do not include all
of the information required for a complete set of IFRS financial
statements. However, selected explanatory notes are included to
explain events and transactions that are significant to an
understanding of changes in the Group's financial position and
performance since the last annual statements.
This is the first set of the Group's financial statements in
which IFRS 16 has been applied. Changes to significant accounting
policies are described in Note 4.
The financial statements have been presented in thousands of
Pounds Sterling (GBP'000, GBP) as this is the currency of the
primary economic environment that the Company operates in.
4. Accounting Policies
The principal accounting policies applied in the preparation of
the financial statements are set out below. These policies have
been consistently applied to all periods presented, unless
otherwise stated.
4.1 Basis of Accounting
The financial statements have been prepared on the historical
cost basis except as stated.
New standards, amendments to and interpretations to published
standards
The Group adopted IFRS 16 Leases from 1 January 2019. IFRS 16
introduced a single, on-balance sheet accounting model for lessees.
As a result, the Group, as a lessee, has recognised right-of-use
assets representing its rights to use the underlying assets and
lease liabilities representing its obligation to make lease
payments. Lessor accounting remains similar to previous accounting
policies.
The Group has applied IFRS 16 using the modified retrospective
approach, therefore the comparative information presented for 2018
has not been restated and is presented, as previously reported,
under IAS 17 and related interpretations. The details of the
changes in accounting policies are disclosed below.
Definition of a lease
Previously. The Group determined at contract inception whether
an arrangement was or contained a lease under IAS 7 IFRIC 4
Determining Whether an Arrangement contains Lease. The Group now
assesses whether a contract is or contains a lease based on the new
definition of a lease. Under IFRS 16, a contract is, or contains, a
lease if the contract conveys a right to control the use of an
identified asset for a period of time in exchange for
consideration.
The Group has applied IFRS 16 only to contracts that were
previously identified as leases. The Group has elected not to
separate non-lease components and will instead account for the
lease and non-lease components as a single lease component.
As a lessee
The Group leases a number of assets including properties and
cars
As a lessee, the Group previously classified leases as operating
or finance leases based on its assessment
On transition, for leases previously accounted for as operating
leases with a remaining lease term of less than 12 months and for
leases of low-value assets the Group has applied the optional
exemptions to not recognise right-of-use assets but to account for
the lease expense on a straight-line basis over the remaining lease
term.
The Group has benefited from the use of hindsight for
determining lease term when considering options to extend and
terminate leases.
When measuring lease liabilities for leases that were classified
as operating leases, the Group discounted lease payments using its
incremental borrowing rate at 1 January 2019.
The rate applied are:
-- Cars: 7.50%
-- Property: 4.25%
On transition to IFRS16, the Group moved GBP9k from Accruals to
retained earnings, which representing rent savings.
The following is a reconciliation of total operating lease
commitments at 31 December 2018 to the lease liabilities recognised
at 1 January 2019:
GBP'000 GBP'000
Total operating lease commitments disclosed
at 31 December 2018 1,155
-------------------------------------------------------- -------
Recognised inclusions:
-------------------------------------------------------- -------
* Lease components 115
-------------------------------------------------------- -------
* Adjustments to commitments disclosures 18
-------------------------------------------------------- -------
Recognition exemptions:
-------------------------------------------------------- -------
* Leases with remaining lease term of less than 12
months (103)
-------------------------------------------------------- -------
29
-------------------------------------------------------- -------
Operating lease liabilities before discounting 1,184
-------------------------------------------------------- -------
Discounted using incremental borrowing rate (178)
-------------------------------------------------------- -------
Operating lease liabilities 1,006
-------------------------------------------------------- -------
Finance lease obligations 40
-------------------------------------------------------- -------
Total lease liabilities recognised under IFRS
16 at 1 January 2019 1,046
-------------------------------------------------------- -------
Impacts for the period
As a result of initially applying IFRS 16, in relation to the
leases that were previously classified as operating leases, the
Group recognised GBP946k of right-of-use assets and GBP952k of
lease liabilities as at 30 June 2019.
Also in relation to those leases under IFRS 16, the Group has
recognised depreciation and interest costs, instead of operating
lease expense. During the six months ended 30 June 2019, the Group
recognised GBP91k of depreciation charges and GBP19k of interest
costs from these leases.
For the impact of IFRS 16 on EBITDA, see Note 13.
4.2 Going Concern
The Directors have reviewed whether the Group has adequate
resources to continue in operational existence for the foreseeable
future. In conducting this review, the Directors have considered a
range of factors, including the market prospects for cyber security
services, client relationships and dependency, supplier
relationships and dependency, actual or potential litigation, staff
retention and reliance, relationships with HMRC and regulators,
financing arrangements, historic trading and cash flow performance,
current trading and cash flow performance, and future trading and
cash flow expectations. In undertaking their review, the Directors
have reviewed financial projections for the years ending 31
December 2019 and 2020, a review which assumed continued revenue
growth and cost efficiency.
In the event that this revenue and cost performance is not
achieved, the Directors have also considered a sensitivity analysis
based on lower revenue growth and have formulated contingency plans
for this scenario, which enable the Group to preserve its financial
resources.
Based on this review, the Directors have concluded that the
Group has adequate resources to meet its liabilities as they fall
due and continue in operational existence for the foreseeable
future, which is considered to be at least the next 12 months.
Consequently, the Directors have adopted the going concern basis in
preparing the interim financial statements.
4.3 Revenue Recognition
Performance obligations and timing of revenue recognition
Revenue comprises the sales value of goods and services supplied
during the year, exclusive of Value Added Tax and trade discounts.
Revenue from the provision of Consulting services is recognised as
services are rendered, based on the contracted daily billing rate
and the number of days delivered during the period.
Revenue from Pre-paid contracts are deferred in the balance
sheet and recognised on utilisation of service by the client.
Pre-paid revenue is included within Consulting in note 5.
Revenue from Managed Services contracts includes:
Hardware and devise build - the hardware revenue is recognised
on order in other revenue in note 6, any profit from hardware is
deferred and recognised on a straight line basis over the term of
the contract. Devise build is deferred and recognised on a straight
line basis over the term of the contract.
Configuration and installation - is deferred and recognised on a
straight line basis over the term of the contract.
Licensing - is deferred and recognised on a straight line basis
over the invoice period.
Management and monitoring - is deferred and recognised on a
straight line basis over the invoice period.
Revenue from the sale of products (vendor) is recognised when
the significant risks and rewards of ownership have been
transferred, which is considered to occur when the software or
hardware product has been delivered to the client.
Determining the transaction price
The Group's revenue is derived from fixed price contracts and
therefore the amount of revenues to be earned from each contract is
determined by reference to those fixed prices.
Costs of obtaining long-term contracts and costs of fulfilling
contracts
Commissions paid to sale staff for work in obtaining the Managed
Service contracts are prepaid and amortised over the terms of the
contract on a straight line basis.
Commissions paid to sale staff for work in obtaining the Prepaid
Consulting are recognised in the month of invoice.
Contract Balances
Contract Contract Contract Contract
Assets Assets Liabilities Liabilities
30 June 31 December 30 June 31 December
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 49 - (949) (829)
Commission expensed during the
period (17) (13) - -
Commissions paid in advanced
of contract completion 17 62 - -
Recognised as revenue during
the period - 1112 2129
Invoiced in advanced of
performance during period - (1,275) (2,249)
49 49 (1,112) (949)
------------------------------- -------- ----------- ----------- -----------
5. Revenue and Segment Information
The Group's principal revenue is derived from the provision of
cyber security professional services.
During this period, the Directors received information on
financial performance on a divisional basis. The Directors consider
that there are three reportable operating segments: Consulting
(including Remote Support services), Managed Services, and Vendor
Products. There were a small number of other transactions recorded
during each period which are not considered to be part of either of
the three reportable operating segments. These are presented below
within the 'Other' caption and are not significant.
The Directors do not receive any information on the financial
position of each segment, including information on assets and
liabilities. Accordingly, such information has not been
presented.
The Group is not reliant on any single client, with no single
client accounting for 10% or more of revenue. All revenue
recognised is derived from external clients.
The Group's revenue and gross profit by operating segment for
the year ended 30 June 2019 were as follows:
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
Revenue
Consulting 1,193 1,557 3,122
Managed Service 1,244 765 1,745
Vendor Products 87 161 228
Other 110 166 287
Total Revenue 2,634 2,649 5,382
---------------------- --------- --------- -----------
Gross Profit
Consulting 558 886 1,783
Managed Service 862 314 923
Vendor Products 16 31 42
Other 4 (11) (8)
Gross Profit 1,440 1,220 2,740
---------------------- --------- --------- -----------
Operating Loss (539) (817) (1,258)
Finance Income - - 1
Finance Cost (19) - -
Loss before Taxation (558) (817) (1,257)
---------------------- --------- --------- -----------
6. Taxation
Recognised in the Statement of Comprehensive Income
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
Corporation Tax Charge/(Credit) - - -
Deferred Tax Credit (12) (22) (19)
Total Tax Credit (12) (22) (19)
--------------------------------- --------- --------- -----------
Reconciliation of Total Tax Charge Credit
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
Loss before Tax (539) (817) (1,257)
--------- --------- -----------
UK Corporation at rate of 19% (53) (155) (164)
Expenses not deductible for tax
purposes 1 1 2
Exercise of Share Options - - (14)
Over/under provision in prior
period - Deferred Tax (12) (22) (19)
Tax losses on which Deferred Tax
not recognised 52 154 176
Total Tax Credit (12) (22) (19)
---------------------------------- --------- --------- -----------
Deferred Tax Assets & Liabilities
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
Deferred Tax Assets 126 134 119
Deferred Tax Liabilities (111) (127) (115)
Deferred Tax - Net Liabilities 15 7 4
-------------------------------- --------- --------- -----------
Deferred Tax Assets of GBP0.13m is recognised in respect of
unutilised trading losses, Share Based Payments and short-term
timing differences. Deferred Tax Liabilities of GBP0.11m arise on
timing differences in the carrying value of certain of the
Company's assets for financial reporting purposes and for
corporation tax purposes. These will reverse as the fair value of
the related assets are depreciated over time. Deferred Tax balances
have been calculated at the rate of 17%, being the rate of
Corporation Tax rate expected to be in force when the timing
differences reverse.
Unutilised Trading Losses
The Company continues to carry forward unutilised trading losses
of GBP4.96m (unutilised trading losses were GBP0.47m as at 30 June
2019). A Deferred Tax Asset of GBP0.80m has been recognised as at
30 June 2019 in respect of the unutilised trading losses. No
further Deferred Tax Asset has been recognised because the Board
envisages that a significant period of time will be required to
generate sufficient profits to utilise the trading losses carried
forward.
7. Earnings per Share
Basic Earnings per Share is calculated by dividing the Profit
for the period Attributable to Equity Holders of the Company by the
weighted average number of Ordinary Shares outstanding during the
period ('Basic Number of Ordinary Shares').
Diluted Earnings per Share is calculated by dividing the Profit
for the period attributable to Equity Holders of the Company by the
weighted average number of Ordinary Shares outstanding during the
period plus the weighted average number of Ordinary Shares that
would be issued on conversion of all the potential dilutive
Ordinary Shares ('Diluted Number of Ordinary Shares'), subject to
the effect of anti-dilutive potential shares being ignored in
accordance with IAS 33.
Adjusted Earnings per Share is calculated by dividing Adjusted
Profit by Diluted Number of Ordinary Shares.
The calculation of Basic, Diluted and Adjusted Earnings per
Share is as follows:
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2019 2018* 2018*
GBP'000 GBP'000 GBP'000
Net Profit attributable to Equity
Holders of the Company (546) (795) (1,238)
Add back: Exceptional Costs - 99 120
Add back: Share Based Payments 65 54 111
Adjusted Profit (481) (642) (1,007)
------------------------------------ --------- --------- -----------
Number of Ordinary Shares ('000)
Initial Weighted Average 9,098 8,994 9,047
Exercise Share Option - 14 14
Equity Warrant - 90 37
------------------------------------ --------- -----------
Basic Number of Ordinary Shares 9,098 9,098 9,098
Weighted Average Dilutive Shares
in Period 598 261 458
Diluted Number of Ordinary Shares 9,696 9,359 9,556
------------------------------------ --------- --------- -----------
Earnings (Loss) per Share (pence):
Basic Earnings per Share (6.0) (8.7) (13.6)
Diluted Earnings per Share** (6.0) (8.7) (13.6)
Adjusted Earnings per Share (5.3) (7.4) (11.1)
* The Group has initially applied IFRS 16 at 1 January 2019,
using the modified retrospective approach. Under this approach,
comparative information is not restated (see note 4).
** In accordance with IAS 33, the effect of anti-dilutive
potential shares has been ignored
During the year ended 31 December 2018, Ordinary Shares were
issued as follows:
-- On 27 April 2018, David Mathewson, Non-Executive Chairman
exercised his options over 6,411 ordinary shares in the Company at
nil cost per share.
-- On 2 May 2018, Former Director exercised options of 8,041
ordinary shares in the Company at nil cost per share.
This share issue is taken into account in calculating the Basic
Number of Ordinary Shares.
During the year ended 31 December 2018, the following dilutive
events have occurred:
-- On 18 April 2018, the Company granted options of 200,000
Ordinary Shares to the Non-Executive Directors.
-- On 7 August 2018, the Company granted options over 185,000
Ordinary Shares to selected employees, of which 180,000 remain
outstanding at year end.
These dilutive events are taken into account in calculating
Diluted Number of Ordinary Shares.
8. Intangible Assets
GROUP & COMPANY
Development Costs
Costs GBP'000
As at 1 January 2018 704
Additions 187
As at 31 December
2018 891
--------------------- -------
As at 1 January 2019 891
Additions (6 months) 91
As at 30 June 2019 982
--------------------- -------
Amortisation
As at 1 January 2018 304
Charge 175
As at 31 December
2018 479
--------------------- -------
As at 1 January 2019 479
Charge (6 months) 85
As at 30 June 2019 564
--------------------- -------
Net Book Value
As at 31 December
2018 412
--------------------- -------
As at 30 June 2019 418
--------------------- -------
9. Cash & Cash Equivalents
Unaudited Unaudited Audited
GROUP GROUP GROUP
As at As at As at
30 June 30 June 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
Cash & Cash Equivalents 190 1,000 650
--------- --------- -----------
10. Secured Facilities
The Group has been provided with payments facilities by Barclays
Bank plc, including a BACS payment facility and a credit card
facility.
Barclay's are also providing an invoice discounting facility of
GBP500,000.
These payment facilities are secured by a debenture in favour of
Barclays that creates fixed and floating charges over the assets of
the Company.
11. Share Capital
Ordinary Share Capital
During the period ended 30 June 19, the movement in Share
Capital was:
Ordinary Shares Number of Number of Ordinary Share
Authorised Shares Issued Capital GBP'000
Shares and Fully
Paid
As at 1 January 2018 11,992,131 9,084,072 91
Exercise of Share Options - 14,425 -
As at 31 December 2018 11,992,131 9,098,497 91
-------------------------- ----------- -------------- ----------------
As at 1 January 2019 11,992,131 9,098,497 91
As at 30 June 2019 11,992,131 9,098,497 91
-------------------------- ----------- -------------- ----------------
On 27 April 2018, David Mathewson, Non-Executive Chairman
exercised options over 6,411 Ordinary Shares at nil cost per
share.
On 2 May 2018, a former Director exercised options over 8,041
Ordinary Shares at nil cost per share.
Share Premium Account
The balance of the Share Premium Account represents amounts
received in excess of the nominal value (1 pence per share) of
Ordinary Shares. This account is non-distributable.
Share Option Reserve
The balance of the Share Option Reserve represents the
accumulated amounts charged to the Statement of Comprehensive
Income in respect of Share Based Payments. This reserve is
non-distributable.
Retained Earnings
The balance of the Retained Earnings account represents the
accumulated retained profits or losses of the Group. This account
is a distributable reserve, provided that the accumulated balance
is positive.
12. Controlling Party
ECSC Group plc does not have an ultimate controlling party.
13. Adjusted (Loss)/Profit before Taxation and Adjusted EBITDA
Adjusted (Loss)/Profit before Taxation
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2019 2018* 2018*
GBP'000 GBP'000 GBP'000
Loss before Taxation (558) (817) (1,257)
Share Based Payments 65 54 111
Exceptional Items - 99 120
Adjusted (Loss)/Profit before
Taxation (493) (664) (1,026)
------------------------------ --------- --------- -----------
Adjusted EBITDA:
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2019 2018* 2018*
GBP'000 GBP'000 GBP'000
Operating Loss (539) (817) (1,258)
------------------------------ --------- --------- -----------
Depreciation and Amortisation 290 176 392
EBITDA** (249) (641) (866)
------------------------------ --------- --------- -----------
Share Based Payments 65 54 111
Exceptional Items - 99 120
EBITDA (Adjusted) (184) (488) (635)
------------------------------ --------- --------- -----------
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2019 2018* 2018*
GBP'000 GBP'000 GBP'000
Operating Loss (539) (817) (1,258)
-------------------------- --------- --------- -----------
Share Based Payments 65 54 111
Exceptional Items - 99 120
Operating Loss (Adjusted) (474) (664) (1,027)
-------------------------- --------- --------- -----------
* The Group has initially applied IFRS 16 at 1 January 2019,
using the modified retrospective approach. Under this approach,
comparative information is not restated (see note 4).
14. Subsidiary Undertakings
ECSC Group plc currently has the following wholly-owned
subsidiaries, which are incorporated and registered in England and
Wales:
Name of Subsidiary Registered Office Date of Incorporation Principal Activity
ECSC Services 28 Campus Road 18 April 2017 Dormant
Limited Listerhills Science
Park
Bradford
BD7 1HR
ECSC Labs Limited 28 Campus Road 18 April 2017 Dormant
Listerhills Science
Park
Bradford
BD7 1HR
ECSC Australia 28 Campus Road 29 September 2016 Intermediary holding
Limited Listerhills Science company
Park
Bradford
BD7 1HR
ECSC Australia Limited currently has the following wholly-owned
subsidiary, which is incorporated and registered in Australia:
Name of Subsidiary Registered Office Date of Incorporation Principal Activity
ECSC Australia Governor Phillip 20 March 2017 Provision of professional
Pty Limited Tower Level 36 cyber security
1 Farrer Place services
Sydney
NSW 2000
The share capital of each Group entity is as follows:
Entity Ordinary Shares Nominal Value Investment at
in Issue Cost
ECSC Services 1 share GBP1 GBP1
Limited
ECSC Labs Limited 1 share GBP1 GBP1
ECSC Australia 1 share GBP1 GBP1
Limited
ECSC Australia 100 shares AUD 1 AUD 100
Pty Limited
Total GBP60
* AUD = Australian dollars
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR EAFNEFDENEAF
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