TIDMECSC
RNS Number : 2555T
ECSC Group PLC
24 March 2021
24 March 2021
ECSC Group plc
('ECSC' or the 'Company' or the 'Group')
Final Results for the Year Ended 31 December 2020
Strong recovery delivering adjusted EBITDA profitability and
cash generation
ECSC Group plc (AIM: ECSC) a leading provider of cyber security
services, announces its audited final results for the year ended 31
December 2020.
Highlights
-- Managed Detection and Response (MDR) recurring revenue growth
of 22% to GBP2.42m (2019: GBP1.98m)
-- MDR revenue up 6% to GBP2.73m (2019: GBP2.59m)
-- Adjusted EBITDA* profit GBP0.4m (2019: break-even)
-- Organic revenue growth down 4% to GBP5.66m (2019: GBP5.91m)
due to short-term COVID-19 related impact in Q2
-- Cash of GBP1.12m at period end (31 December 2019: GBP0.35m),
including GBP0.42m of COVID-19 related medium-term government
support relating to VAT and PAYE deferral. The Group's bank
facility of GBP0.5m remains unutilised.
* Adjusted EBITDA excludes one-off charges and share based
charges (see note 12)
Operational Highlights
-- 90 new Assurance clients secured (2019: 118)
-- Continued development of partner programme, with over 150
partners signed up, expanding reach and routes to market
-- Continued development of proprietary Artificial Intelligence
(AI) software, with 14% R&D investment
Post-Period Highlights
-- Major contract wins in MDR division for one of the UK's major
charities and a national leisure group
-- Market forecasts resumed for 2021 and 2022
Ian Mann, Chief Executive Officer of ECSC, commented:
"The Group responded rapidly to the challenges posed by the
pandemic, drawing up a strategy early on to manage the situation
effectively and ensure business continuity. As a result, we are
delighted to report growing adjusted EBITDA profitability and cash
generation for the 2020 financial year.
"Despite the impact of COVID-19 on the Assurance division in Q2,
we began to see rapid recovery in Q3 and a return to growth of 6%
in Q4 against Q4 2019, as well as an addition of 90 new clients to
the division, which is testament to both our business resilience
and market demand.
"The continued growth in recurring MDR revenue demonstrates the
strength of this service line, and our effective strategy of
winning consulting clients and converting them into long-term
managed services clients.
"The strong momentum of Q4 has continued into Q1 2021, with a
number of impressive contract wins in our MDR division. We are
resuming our organic growth strategy and related recruitment
activities, and we look forward to keeping the market updated on
our progress."
Enquiries:
ECSC Group plc +44 (0) 1274 736 223
David Mathewson (Non-Executive Chairman)
Ian Mann (Chief Executive Officer)
Allenby Capital (Nominated Adviser and Broker) +44 (0) 203 3285 656
David Hart / Asha Chotai (Corporate Finance)
Tony Quirke (Equity Sales and Corporate Broking)
Yellow Jersey (PR and IR) +44 (0) 203 0049 512
Sarah Hollins
Annabel Atkins
Matthew McHale
For more information please visit the following:
https://investor.ecsc.co.uk/
Notes to Editors:
Founded in 2000, ECSC Group plc (AIM: ECSC) is the UK's longest
running full-service cyber security service provider. With an
extensive range of in-house developed proprietary technologies,
including advanced Artificial Intelligence (AI) systems, ECSC
provides expert security breach prevention and advisory support to
organisations across all sectors.
ECSC operates from two Security Operations Centres (SOCs): one
in Yorkshire, UK, and the other in Brisbane, Australia. ECSC offers
flexible 24/7/365 cyber security monitoring, detection, and
response support to its clients, either as a fully managed service
or to enhance an organisation's existing cyber security systems. In
addition, ECSC's Assurance division provides guidance,
certification to industry standards, and extensive testing services
to allow organisations to assess their cyber security
protection.
The Company's broad client base ranges from e-commerce start-ups
to global blue-chip organisations, including 10% of the FTSE
100.
For more information please visit the following:
https://investor.ecsc.co.uk/
Chairman's Statement
T hese results demonstrate solid growth in the Group's adjusted
EBITDA profitability and cash generation. The encouraging progress
we have seen in our Managed Detection and Response (MDR) division
has been driven by continuing market demand and increasing
awareness of ECSC's expertise in both the development of
technologies and in the area of Artificial Intelligence (AI). This
highlights the ongoing requirements for all organisations to
maintain their cyber security defences, and we have emerged from
the most difficult period imaginable in a strong position.
Despite the ongoing uncertainty caused by the pandemic and the
economic risks associated with Brexit, the Group has continued to
demonstrate resilience and financial progress based on quality of
delivery and unrivalled client reputation and retention. I am proud
of the way the team has adapted in order to achieve a very credible
set of results throughout a period of unprecedented economic
turmoil.
The confirmation of the multi-million-pound fines related to the
UK and European General Data Protection Regulation (GDPR)
substantiate the new regulatory environment that all organisations
have to acknowledge; building resilience into their cyber security
protection, detection and response capabilities. ECSC remains the
trusted partner to help organisations of all sizes achieve
this.
The continued growth in 24/7/365 detection services, delivered
through the Security Operations Centres (SOCs) in the UK and
Australia, supported by the ECSC Kepler Artificial Intelligence
(AI), shows the importance of early breach detection to contain the
incident and limit damaging consequences. For all but the largest
global organisations, the outsourcing of this critical function
continues to be the logical choice, and ECSC has the technology,
people, and certified processes to deliver.
The Group's successful GBP0.5m (before costs) fundraise in April
2020 demonstrated the continued support from our institutional
investors and reduced our risk exposure during the uncertain months
of 2020. As a result of the growth in profitability and cash
generation, the Group did not utilise this additional funding.
I'm pleased to note that we have maintained a stable team
throughout these difficult times, with staff retention at an
improved rate of 91%.
On behalf of the board, I would like to thank all of our
clients, partners, team, advisors, and investors for their
continued support throughout a challenging year for us all.
ECSC is well-positioned in the growing cyber security
marketplace, and we are now resuming our organic growth strategy
and related recruitment activities.
David Mathewson
Non-Executive Chairman
24 March 2021
Chief Executive Officer's Review
T he Group made solid progress during the 2020 financial year,
and we are particularly pleased to report growing adjusted EBITDA
profitability and cash generation.
The GBP3m of Group revenue in H2 illustrates the recovery in the
Assurance division following the COVID-19 related impact seen in
Q2. The continued growth in recurring MDR revenue demonstrates the
resilience of this service line, and our effective strategy of
winning consulting clients and converting them into long-term
managed services clients.
COVID-19 Impact
One year ago, at the time of publishing our annual results, the
potential impact of the pandemic was beginning to emerge. As such,
we led our Annual Report with our strategy of managing the
situation. This included:
1. Re-engineering services traditionally delivered on-site with
clients to enable remote and home working, ensuring the safety of
our clients and our team.
2. Ensuring the continued delivery of off-site 24/7 managed
services with uninterrupted compliance with all agreed Service
Level Agreements (SLAs).
3. Making use of government support and reducing costs to a
break-even level during the short-term period of revenue loss.
The management team, and the efforts of all employees, ensured
we met the first two objectives and exceeded the third.
To reduce the overall risk to the Group, in April 2020 we
conducted a fully subscribed GBP0.5m (before costs) fundraise from
existing and new institutional investors to strengthen our cash
position, and reduce the risks of either an extended lockdown, or
potential long-term disruption without the uncertain government
support.
The direct revenue impact of COVID-19 was most evident in two
areas:
Firstly, the Assurance division, comprising mainly consultancy
type services, was impacted with client cancellations and delays to
confirmed projects. Having seen Assurance growth in Q1 2020 of just
over 4% compared with the 2019 average quarterly revenue, Q2 2020
saw revenue drop by over 50% against the same comparator.
However, Q3 2020 demonstrated a rapid recovery to only 4% down
on average 2019 quarterly revenues, with Q4 returning to growth of
over 6% against the same comparator.
Secondly, client chargeable expenses declined from GBP53k in Q1
2020 to only GBP8k in Q2 2020, and only GBP21k combined in Q3 2020
and Q4 2020 as remote working continued.
The combined reductions in revenue for the Assurance division in
Q2 and expenses for the year came to over GBP400k. This compares
with the overall Group revenue reduction of GBP242k for the year,
showing the reduced revenue was due to the short-term impact of
COVID-19.
Return to Profitability
The combination of the strong recovery in the Assurance division
in Q3, the continued recurring revenue growth in the MDR division
of 22%, and careful control of costs, saw Group Adjusted EBITDA
profit of GBP0.4m (2019 break-even).
Growth Strategy
We are confident that the organic growth strategy of ECSC
remains appropriate. Despite the challenges of 2020, we added 90
new Assurance division clients. In addition, we expanded the
Partner Programme to over 150 partners, contributing to 4% of
revenue (2019: 2%) and 13% of the new client wins.
Key Performance Indicators
The Key Performance Indicators below were established in 2018 to
enable meaningful measurement of the Group's performance.
Performance Rationale 2020 2019 2018 Management Comment
Indicator
The Group saw a decline
in Assurance revenue
and rechargeable expenses
Measurement of due to COVID-19 pandemic.
the success of Assurance revenues
the organic growth returned to growth
Revenue Growth strategy (4%) 10% 35% in Q4
---------------------- -------------------------- ----------- ----------- -----------
Visibility of
the success of Continued growth due
increasing the to new contract wins
percentage of and contract expansions,
MDR Recurring revenue from long-term building on the 2017
Revenue Growth recurring revenues 22% 27% 46% investment
---------------------- -------------------------- ----------- ----------- -----------
Visibility of
the success of
increasing the
percentage In line with the
of revenue from strategy
MDR Recurring long-term to increase this
Revenue Proportion recurring revenues 43% 34% 29% proportion
---------------------- -------------------------- ----------- ----------- -----------
Combined measurement
MDR Order of GBP2.6m GBP2.6m GBP2.5m The management team's
Book new client contracts favoured overall measure
together with of progress in managed
renewals of existing services
client contracts
---------------------- -------------------------- ----------- ----------- -----------
Indicative of increased
leveraging of IPO
MDR Gross Delivery efficiency investment
Margin measurement 73% 68% 53% in capacity
---------------------- -------------------------- ----------- ----------- -----------
Indicative of strong
Quasi-recurring client retention and
Assurance from longer- term continued trust in
Repeat Revenue consulting clients 73% 73% 78% ECSC quality
---------------------- -------------------------- ----------- ----------- -----------
A reflection on capacity
required for growth
and management of
Assurance Delivery efficiency consultant
Gross Margin measurement 58% 54% 57% workload
---------------------- -------------------------- ----------- ----------- -----------
A new measure introduced
Continued investment to show continued
Research in technology investment
and Development and intellectual in technologies for
(of revenue) property development 14% 13% 8% the future
---------------------- -------------------------- ----------- ----------- -----------
Outlook
ECSC is well-positioned in the growing cyber security
marketplace and looks forward with confidence to delivering
improved operating results and shareholder value.
Ian Mann
Chief Executive Officer
24 March 2021
Financial Review
Principal Activities
The principal activity of the Group during the year continued to
be the provision of professional cyber security services, including
Assurance, MDR and the sale of Vendor Products.
Comparative Financial Information
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Revenue
Assurance 2,724 2,922
MDR 2,732 2,585
Vendor Products 125 162
Other 82 236
5,663 5,905
------------------------------ ----------- -----------
Gross Profit
Assurance 1,576 1,574
MDR 1,994 1,745
Vendor Products 25 29
Other (47) 12
3,548 3,360
------------------------------ ----------- -----------
Adjusted EBITDA*
Other Income 297 263
Sales & Marketing Costs (1,713) (1,958)
Administration Expenses (1,757) (1,664)
375 1
------------------------------ ----------- -----------
EBITDA**
Share Based Payments (101) (105)
Exceptional Items (65) (6)
209 (110)
------------------------------ ----------- -----------
Depreciation and Amortisation (480) (594)
Adjusted Operating Loss* (105) (593)
------------------------------ ----------- -----------
Operating Loss (271) (704)
------------------------------ ----------- -----------
* Adjusted Operating Loss and EBITDA excludes one-off charges
and share based charges.
** EBITDA is defined as Earnings before Interest, Tax,
Depreciation and Amortisation
(See note 12 in the Financial Statements).
Revenue & Organic Growth
Total revenue in the year ended 31 December 2020 was GBP5.66m,
down 4% on the comparable prior period (revenue in the 12 months
ended 31 December 2019 was GBP5.91m). Within this, Assurance
revenue fell by 7% to GBP2.72m (2019: GBP2.92m).
MDR division revenue rose by 6% in the year to GBP2.73m (2019:
GBP2.59m). This includes recurring revenue which rose to GBP2.42m
(2019: GBP1.98m) and Incident Response revenues which fell to
GBP0.31m (2019: GBP0.60m).
Vendor Products revenue in the year fell by 23% to GBP0.13m
(2019: GBP0.16m).
Margin Generation
Gross Profit for the year was GBP3.55m, yielding a 63% margin
(2019: GBP3.36m, yielding a 57% margin). This was due to improved
margins across the Assurance, MDR and Vendor divisions.
The Assurance margin rose to 58% in the year (2019: 54%). This
was due to cost controls over the period. The Board expects the
Assurance margin to continue at a similar level in the future.
The MDR margin rose to 73% (2019: 68%), with the increase being
a direct result of new contracts utilising the capacity built in
previous years and cost controls.
EBITDA & Operating Loss
Adjusted EBITDA for the year, which excludes one-off charges and
share based charges, was GBP0.4m (2019: Break-even). EBITDA for the
year was a profit of GBP0.21m (2019: loss of GBP0.11m).
Adjusted Operating Loss for the year, which excludes one-off
charges and share based charges, was GBP0.11m (2019: loss of
GBP0.59m). The Operating Loss in the year was GBP0.27m (2019: loss
of GBP0.70m).
Cash Flow
Cash and cash equivalents increased by GBP0.77m to GBP1.12m as
at 31 December 2020 primarily due to improved margins across the
Assurance and MDR divisions GBP0.29m of Covid related Government
grants, and the proceeds from the fundraise undertaken during the
year which raised GBP0.5m (before costs).
Intangible Asset
Intangible asset costs have increased to GBP1.28m (2019:
GBP1.09m). This is offset by amortisation of GBP0.82m. The Group's
development cost for the year was GBP0.19m. The Net Book Value of
Intangible Assets as at 31 December 2020 was therefore GBP0.46m
(2019: GBP0.43m). During the year, the Group received a refund of
GBP0.29m from HMRC in respect of a surrender of R&D Tax Credits
from earlier periods.
Tangible Asset
Property, plant and equipment (PPE) cost has remained at
GBP0.95m (2019: GBP0.95m). This is offset by depreciation of
GBP0.81m. The Group's capital expenditure for the year was
GBP0.01m. The Net Book Value of Tangible Assets as at 31 December
2020 was GBP0.15m (2019: GBP0.28m).
Trade and other receivables
Trade and other receivables decreased to GBP0.81m (2019:
GBP0.89m) as at 31 December 2020. This includes GBP0.61m of Trade
receivables.
Trade and other payables
Trade and other payables increased to GBP2.09m (2019: GBP1.82m)
as at 31 December 2020. This includes GBP0.88m of deferred income
(2019: GBP0.87m).
Key Performance Indicators
The Key Performance Indicators are set out above.
Balance Sheet
The Group's Balance Sheet as at 31 December 2020 had Net Assets
of GBP0.65m (2019: GBP0.37m). Retained Earnings and Distributable
Reserves as at 31 December 2020 were a cumulative loss of GBP5.94m
(2019: cumulative loss of GBP5.67m).
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; the fact that business continues to attract new
clients and is not overly dependent on any single client; the fact
that the business continues to retain key staff, and that the Group
has a secured invoicing discounting facility of GBP0.5m, which
remains unused. The facility was renewed in August 2020 for a
minimum 12 months period with a three month notice period. The
Board expects to renew the facility for a further 12 months
following the annual review expected in August 2021. However, if it
is not renewed, the cashflow forecast demonstrates that the
facility is for prudence only and is not relied upon. The Board is
positive about the future EBITDA trajectory of the Company and
continues to manage the cash position of the Company carefully.
These factors give the Directors confidence in relation to going
concern.
Dividend
The Board has not declared a dividend for the year ended 31
December 2020 (2019: GBPnil).
Gemma Basharan
Chief Financial Officer
24 March 2021
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
Note GBP'000 GBP'000
Revenue 5 5,663 5,905
Cost of Sales (2,115) (2,545)
---------------------------------- ---- ----------- -----------
Gross Profit 5 3,548 3,360
Other Income 297 263
Sales & Marketing Costs (1,713) (1,958)
Administration Expenses (2,403) (2,369)
Operating Loss before Exceptional
Items and Share Based Payments (105) (593)
Share Based Payments 101 105
Exceptional Items 65 6
---------------------------------- ---- ----------- -----------
Operating Loss (271) (704)
---------------------------------- ---- ----------- -----------
Finance Cost (48) (46)
---------------------------------- ---- ----------- -----------
Loss before Taxation 12 (319) (750)
Taxation Credit/(Charge) 6 50 (26)
---------------------------------- ---- ----------- -----------
Loss for the year (269) (776)
---------------------------------- ---- ----------- -----------
Other Comprehensive Income - -
---------------------------------- ---- ----------- -----------
Total Comprehensive Loss for the
year (269) (776)
---------------------------------- ---- ----------- -----------
Attributed to Equity Holders of
the Company (269) (776)
Loss per Share 7 pence pence
Basic Loss per Share (2.7) (8.5)
Diluted Loss per Share (2.7) (8.5)
Consolidated Statement of Financial Position
As at 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019*
Note GBP'000 GBP'000
ASSETS
Non-current Assets
Intangible Assets 8 455 429
Property, Plant and Equipment 9 148 283
Right-of-use Assets 11 746 896
Deferred Tax Asset 6 118 77
Total Non-current Assets 1,467 1,685
------------------------------ ---- ----------- -----------
Current Assets
Inventory 9 26
Trade and Other Receivables 811 890
Corporation Tax Recoverable 216 265
Cash and Cash Equivalents 10 1,122 351
Total Current Assets 2,158 1,532
------------------------------ ---- ----------- -----------
TOTAL ASSETS 3,625 3,217
------------------------------ ---- ----------- -----------
LIABILITIES
Current Liabilities
Trade and Other Payables (2,085) (1,817)
Lease Liability 11 (143) (150)
Total Current Liabilities (2,228) (1,967)
------------------------------ ---- ----------- -----------
Non-current Liabilities
Deferred Tax Liability 6 (90) (99)
Lease Liability 11 (659) (781)
Total Non-current Liabilities (749) (880)
------------------------------ ---- ----------- -----------
TOTAL LIABILITIES (2,977) (2,847)
------------------------------ ---- ----------- -----------
NET ASSETS 648 370
------------------------------ ---- ----------- -----------
EQUITY
Equity attributable to Owners
of the Parent:
Share Capital 100 91
Share Premium Account 6,098 5,661
Share Option Reserve 392 291
Retained Earnings (5,942) (5,673)
TOTAL EQUITY 648 370
------------------------------ ---- ----------- -----------
*A prior year restatement of GBP320k is accounted for to remove
trade receivables and contract liabilities in relation to amounts
invoiced but not due as at 31 December 2019 where the performance
obligation had not commenced at that date. This restatement does
not impact the statement of comprehensive income for the Group or
Company only financial statements.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
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
------------------------------- ------- ------- ------- -------- -------
Loss and Total Comprehensive:
Total comprehensive loss for
the year - - - (776) (776)
Transactions with shareholders
Issue of Shares - - - - -
Share Based Payments - - 105 - 105
Balance as at 31 December 2019 91 5,661 291 (5,673) 370
------------------------------- ------- ------- ------- -------- -------
Loss and Total Comprehensive:
Total comprehensive loss for
the year - - - (269) (269)
Transactions with shareholders
Issue of Shares 9 437 - - 446
Share Based Payments - - 101 - 101
Balance as at 31 December 2020 100 6,098 392 (5,942) 648
------------------------------- ------- ------- ------- -------- -------
Consolidated Cash Flow Statement
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
Note GBP'000 GBP'000
Cash Flow from/(used in) Operating
Activities
Loss before Taxation (319) (750)
Adjustment for:
Amortisation of Intangibles 8 168 177
Depreciation of right-of-use assets 11 175 200
Depreciation of Property, Plant and
Equipment 9 137 217
Profit on Disposal of Equipment (4) (1)
Finance costs 48 46
Share Based Payments 101 105
-------------------------------------------- ---- ----------- -----------
Cash used up in Operating Activities
before
changes in Working Capital 306 (6)
Change in Inventory 17 (8)
Change in Trade and Other Receivables (214) (349)
Change in Trade and Other Payables 268 428
Change on Other non cash items - (13)
Cash generated from Operating Activities 377 52
R&D tax credit received 343 152
Net Cash Flow generated from Operating
Activities 720 204
Acquisition of Property, Plant and
Equipment 9 (5) (129)
Disposal Proceeds 6 16
Development Costs capitalised 8 (194) (194)
Net Cash Flow used in Investing Activities (193) (307)
Principal paid on lease liabilities 11 (195) (195)
Interest paid on loans and borrowings (7) (1)
Proceeds from issue of shares 500 -
Costs of share issuance (54) -
Net Cash generated from/(used in) Financing
Activities 244 (196)
Net increase/(decrease) in Cash & Cash
Equivalents 771 (299)
-------------------------------------------- ---- ----------- -----------
Cash & Cash Equivalents at beginning
of period 351 650
Cash & Cash Equivalents at end of period 10 1,122 351
-------------------------------------------- ---- ----------- -----------
Notes
1. Corporate Information
ECSC Group plc is incorporated in England and Wales and admitted
to trading on the market of the London Stock Exchange (AIM:
ECSC).
2. General Information
This results announcement 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
This financial information for the year ended 31 December 2020
has been prepared in accordance with International Financial
Reporting Standards, International Accounting Standards and
Interpretations (collectively 'IFRS') in conformity with the
requirements of the Companies Act 2006.
The information in this preliminary statement has been extracted
from the financial statements for the year ended 31 December 2020
and, as such, does not contain all the information required to be
disclosed in the financial statements prepared in accordance with
IFRS. The Group's Annual Report for the year ended 31 December 2020
has yet to be delivered to the Registrar of Companies. The auditors
have reported on these accounts. The figures for the year ended 31
December 2020 and the ended 31 December 2019 do not constitute
statutory accounts within the meaning of section 434 of the
Companies Act 2006.
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.
The preliminary announcement was approved by the Board on 23
March 2021 and authorised for issue.
The statutory accounts for the year ended 31 December 2020 were
approved by the Board on 23 March 2021 and will be delivered to the
Registrar of Companies in due course. The statutory accounts for
the period ended 31 December 2020 will be made available on the
Company's website www.ecsc.com at least 21 days before the Annual
General Meeting.
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 IFRS standards, amendments to and interpretations not
applied to published standards
The following new standards, amendments to standards and
interpretations will be mandatory for the first time in future
financial years:
Issued date IASB mandatory UK Adoption status
effective date (EU pre 31 December
(UK mandatory effective 2020)
date)
New Standards
-------------------------- --------------- ------------------------
IFRS 17 Insurance 18-May-2017 and 01-Jan-2023 TBC
contracts 25-June 2020
-------------------------- --------------- ------------------------
Amendments to existing
standards
-------------------------- --------------- ------------------------
Amendments to References 29-May-2018 01-Jan-2020 Endorsed
to the Conceptual
Framework in IFRS
Standards
-------------------------- --------------- ------------------------
Amendments to IFRS 22-Oct-2018 01-Jan-2020 Endorsed
3 Business Combinations
- Definition of
a Business
-------------------------- --------------- ------------------------
Amendments to IAS 31-Oct-2018 01-Jan-2020 Endorsed
1 and IAS 8: Definition
of Material
-------------------------- --------------- ------------------------
Amendments to IFRS 26-Sept-2019 01-Jan-2020 Endorsed
9, IAS 39 and IFRS
7: Interest Rate
Benchmark Reform
-------------------------- --------------- ------------------------
Amendments to IAS 23-Jan-2020 01-Jan-2022 TBC
1: Classification
of Liabilities
as Current or Non-current
-------------------------- --------------- ------------------------
Amendments to: 14-May-2020 01-Jan-2022 TBC
IFRS 3 Business
Combinations; IAS
16 Property, Plant
and Equipment;
IAS 37 Provisions,
Contingent Liabilities
and Contingent
Assets
-------------------------- --------------- ------------------------
Annual Improvements 14-May-2020 01-Jan-2022 TBC
to IFRSs (2018-2020
Cycle): IFRS 1,
IFRS 9, Illustrative
Examples accompanying
IDRS 16, IAS 41
-------------------------- --------------- ------------------------
Amendments to IFRS 14-May-2020 01-Jun-2020 Endorsed
16 Leases Covid
19-Related Rent
Concessions
-------------------------- --------------- ------------------------
Amendments to IFRS 25-June-2020 01-Jun-2021 Adopted by UKEB
4 Insurance Contracts
- deferral of IFRS
9
-------------------------- --------------- ------------------------
Amendments to IFRS 27-Aug-2020 01-Jun-2021 Adopted by UKEB
9, IAS 39, IFRS
7, IFRS 4 and IFRS
16 Interest Rate
Benchmark Reform
- Phase 2
-------------------------- --------------- ------------------------
4.2 Going Concern
The Directors have reviewed whether the Group has adequate
resources to continue in operational existence for the foreseeable
future, being no shorter than 12 months from the date of approving
the Annual Report. 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 prepared financial projections for the
years ending 31 December 2021 and 2022, a review which assumed
continued revenue growth and cost efficiency.
The budget figures are closely monitored against actuals on a
monthly basis. Variances that may arise are discussed a Board level
on a monthly basis during a review of the monthly numbers. 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.
During 2020, the Group has seen the pandemic creating additional
risks and uncertainties. These were carefully monitored and the
Group was able to adapt to meet the challenges arising from COVID
19. The Group has extensive remote and home working options in
place, fully tested, supporting a range of conferencing
technologies, all of which maintain cyber security related
certifications, associated technical standards and policies. The
Group was also able to deliver the full range of services
remotely.
During 2020, the Group took advantage of published time to pay
plans on VAT. As at 31 December 2020, GBP0.2m remained outstanding
in this regard. A deferred PAYE payment plan ending on 31 March
2021 was agreed with HMRC. As at 31 December 2020, GBP0.2m remained
outstanding.
As at 31 December 2020, the Group had cash and cash equivalents
of GBP1.1m (2019: GBP0.4m) and achieved an Adjusted EBITDA profit
of GBP0.4m (2019: GBP1k), reducing the operating loss to GBP0.3m
(2019: GBP0.7m).
On 17 April 2020, the Group completed a fundraise of GBP0.45m
(net of expenses of GBP0.05m). The Group continues to have an
unused invoice financing facility with Barclays Bank PLC of
GBP0.5m.
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 from
the date of approval of the financial statements. Consequently, the
Directors have adopted the going concern basis in preparing the
financial statements.
4.3 Revenue Recognition
The core principle is that revenue should only be recognised as
the client receives the benefit of the goods or services provided
under a commercial contract, in an amount that reflects the
consideration to which the provider expects to be entitled for the
transfer of the goods or services.
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 Assurance in note 5. Revenue
from MDR contracts includes:
Hardware - hardware revenue is recognised on delivery and is
included within other revenue as set out in note 5. This is when
control of hardware passes to the customer.
Device build - Device build revenue is deferred and recognised
on a straight line basis over the term of the contract.
Licensing - deferred and recognised on a straight line basis
over the invoice period, due to the performance obligation not
being considered distinct from management and monitoring
performance obligation
Management and monitoring - deferred and recognised on a
straight line basis over the invoice period.
Management and monitoring - deferred and recognised on a
straight line basis over the invoice period.
Revenue from the sale of products (vendor) is recognised when
control passes to the customer, 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 sales staff for work in obtaining Managed
Service contracts are prepaid and amortised over the terms of the
contract on a straight line basis.
Commissions paid to sales staff for work in obtaining the
Prepaid Consultancy contracts are recognised in the month of
invoice.
Contract Balances
Contract Contract Contract Contract
Assets Assets Liabilities Liabilities
2020 2019 2020 2019*
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 43 49 (866) (949)
Commission expensed during
the
period (62) (28) - -
Commissions paid in advanced
of
contract completion 53 22 - -
Recognised as revenue during
the
period - - 3,390 2,429
Cash received in advanced
of
performance during period - - (3,402) (2,346)
34 43 (878) (866)
----------------------------- -------- -------- ----------- -----------
*Prior year restatement
A prior year restatement of GBP320k is accounted for to remove
trade receivables and contract liabilities in relation to amounts
invoiced but not due as at 31 December 2019 where the performance
obligation had not commenced at that date. This restatement
impacted the presentation of both the Group and Company Statement
of Financial Position. This restatement does not impact the
statement of comprehensive income for the Group or Company only
financial statements. Trade receivables and contract liabilities
are stated net in respect of advance billing in line with the
requirements of IFRS 15.
Contract Assets balance of GBP34k (2019: GBP43k) is included in
the Trade Receivables and Other Receivables.
Contract Liabilities balance of GBP878k (2019: GBP866k) is
included in Trade Payables and Other Payables.
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: Assurance
(including Remote Support services), M DR , 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, no 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 has PPE located in the UK (cost of GBP896k; NBV of
GBP147k) and Australia (cost of GBP57k; NBV of GBP1k). The Group's
revenue and gross profit by operating segment for the year ended 31
December 2020 were as follows:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Revenue
Assurance 2,724 2,922
MDR 2,732 2,585
Vendor Products 125 162
Other 82 236
Total Revenue 5,663 5,905
--------------------- ----------- -----------
Gross Profit
Assurance 1,576 1,574
MDR 1,994 1,745
Vendor Products 25 29
Other (47) 12
Gross Profit 3,548 3,360
--------------------- ----------- -----------
Operating Loss (271) (704)
--------------------- ----------- -----------
Finance Cost (48) (46)
---------------------
Loss before Taxation (319) (750)
--------------------- ----------- -----------
Revenue by country for the year ended 31 December 2020 was as
follows:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
United Kingdom 5,294 5,708
Europe 278 116
United States - 9
Channel Islands 89 66
Middle East - 2
Other Countries 2 4
Total 5,663 5,905
---------------- ----------- -----------
The Group's United Kingdom revenue by operating segment for the
year ended 31 December 2020 was as follows:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Revenue United Kingdom
Assurance 2,367 2,760
MDR 2,724 2,580
Vendor Products 124 144
Other 79 224
Total 5,294 5,708
----------------------- ----------- -----------
6. Taxation
Recognised in the Statement of Comprehensive Income
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Corporation Tax (Credit)/Charge - -
Deferred Tax (Credit)/Charge (50) 26
Total Tax (Credit)/Charge (50) 26
--------------------------------- ----------- -----------
Reconciliation of Total Tax (Credit)/Charge
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Loss before Tax (319) (750)
------------------------------------------ ----------- -----------
UK Corporation at rate of 19.0% (2019:
19%) (61) (143)
Expenses not deductible for tax purposes 2 2
Over/under provision in prior period
- Deferred Tax (50) 26
Tax losses on which Deferred Tax
not recognised 59 141
Total Tax (Credit)/Charge (50) 26
------------------------------------------ ----------- -----------
Deferred Tax Assets & Liabilities
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Deferred Tax Assets 118 77
Deferred Tax Liabilities (90) (99)
Deferred Tax - Net Asset/ (Liability) 28 (22)
--------------------------------------- ----------- -----------
Deferred Tax Assets of GBP118K is recognised in respect of
unutilised trading losses, Share Based Payments and short-term
timing differences. Deferred Tax Liabilities of GBP90k 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 19%, being the rate of
Corporation Tax expected to be in force when the timing differences
reverse.
Unutilised Trading Losses
The Company continues to carry forward unutilised trading losses
of GBP5,111k (2019: GBP5,696k). A Deferred Tax Asset of GBP35k
(2019: GBP22k) has been recognised as at 31 December 2020 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 loss 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 loss
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
loss (after adding-back exceptional costs incurred in the period;
see note 12) by Diluted Number of Ordinary Shares.
The calculation of Basic, Diluted and Adjusted Earnings per
Share is as follows:
The calculation of Basic, Diluted and Adjusted Earnings per
Share is as follows:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Net Loss attributable to Equity Holders
of the Company (269) (776)
Add back: Exceptional Costs 65 6
Add back: Share Based Payments 101 105
Adjusted Loss (103) (665)
---------------------------------------- ----------- -----------
Number of Ordinary Shares ('000)
Initial Weighted Average 9,098 9,098
Shares issued in April 2020 909 -
----------------------------------------
Basic Number of Ordinary Shares 10,007 9,098
Weighted Average Dilutive Shares in
Period 906 661
Diluted Number of Ordinary Shares 10,913 9,759
---------------------------------------- ----------- -----------
Earnings per Share (pence):
Basic Losses per Share (2.7) (8.5)
Diluted Losses per Share** (2.7) (8.5)
Adjusted Losses per Share (1.0) (7.3)
** In accordance with IAS 33, the effect of anti-dilutive
potential shares has been ignored.
During the year ended 31 December 2020, the following dilutive
events have occurred:
-- On 17 April 2020, 909,091 ordinary shares were issued for
GBP0.45m (net of expenses of GBP0.05m).
-- On 21 August 2020, the Company granted options over 588,037
Ordinary Shares to selected employees, including 144,758 to
Director Lucy Sharp, 103,602 to Director Ian Castle and 64,651 to
Director Gemma Basharan, of which 587,107 remain outstanding as at
31 December 2020.
-- On 28 August 2020, the Company granted options over 450,000
Ordinary Shares to selected employees, including 100,000 to
Director Ian Mann, 100,000 to Director Lucy Sharp, 80,000 to
Director Ian Castle and 80,000 to Director Gemma Basharan, of which
450,000 remain outstanding as at 31 December 2020.
These dilutive events were taken into account in calculating
Diluted Number of Ordinary Shares.
8. Intangible Assets
Development Costs
Costs GBP'000
As at 1 January 2019 891
Additions 194
As at 31 December 2019 1,085
----------------------- -------
As at 1 January 2020 1,085
Additions 194
As at 31 December 2020 1,279
----------------------- -------
Amortisation
As at 1 January 2019 479
Charges for the year 177
As at 31 December 2019 656
----------------------- -------
As at 1 January 2020 656
Charges for the year 168
As at 31 December 2020 824
----------------------- -------
Net Book Value
As at 31 December 2019 429
----------------------- -------
As at 31 December 2020 455
----------------------- -------
9. Property, Plant and Equipment
Leasehold Office Computer Motor
Property Equipment Equipment Vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2019 103 120 639 57 919
Reclassification due
to IFRS16 - - (61) - (61)
Additions 12 16 101 - 129
Disposals - - - (34) (34)
At 31 December 2019 115 136 679 23 953
--------------------- --------- --------- --------- -------- -------
Additions - - 5 - 5
Disposals - - (5) - (5)
At 31 December 2020 115 136 679 23 953
--------------------- --------- --------- --------- -------- -------
Depreciation
At 1 January 2019 48 50 370 24 492
Reclassification due
to IFRS16 - - (20) - (20)
Charge for Period 15 25 168 9 217
Disposals - - - (19) (19)
At 31 December 2019 63 75 518 14 670
--------------------- --------- --------- --------- -------- -------
Charge for Period 16 21 95 5 137
Disposals - - (2) - (2)
At 31 December 2020 79 96 611 19 805
--------------------- --------- --------- --------- -------- -------
Net Book Value
At 31 December 2019 52 61 161 9 283
--------------------- --------- --------- --------- -------- -------
At 31 December 2020 36 40 68 4 148
--------------------- --------- --------- --------- -------- -------
10. Cash & Cash Equivalents
GROUP GROUP COMPANY COMPANY
As at As at As at As at
31 December 31 December 31 December 31 December
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
Cash & Cash Equivalents 1,122 351 1,119 350
------------------------ ----------- ----------- ----------- -----------
11. Leases of low-value assets
On commencement of a contract (or part of a contract) which
gives the group the right to use an asset for a period of time in
exchange for consideration, the group recognises a right-of-use
asset and a lease liability unless the lease qualifies as a
'short-term' lease or a 'low-value' lease.
All leases are accounted for by recognising a right-of-use and a
lease liability except for:
-- Leases of low-value assets
Leases where the underlying asset is 'low-value', GBP5k lease
payments are recognised as an expense on a straight-line basis over
the lease term. The group has elected to apply the 'low-value'
lease exemption to all qualifying leases, but the election can be
made on a lease-by-lease basis.
-- Short term lease
Where the lease term is twelve months or less and the lease does
not contain an option to purchase the leased asset, lease payments
are recognised as an expense on a straight-line basis over the
lease term.
The group sometimes negotiates break clauses in its property
leases. On a case-by-case basis, the group will consider whether
the absence of a break clause would exposes the group to excessive
risk. Typically factors considered in deciding to negotiate a break
clause include:
-- the length of the lease term;
-- the economic stability of the environment in which the property is located; and
-- whether the location represents a new area of operations for the group.
Right-of-use Assets
A right-of-use asset is recognised at commencement of the lease
and initially measured at the amount of the lease liability, plus
any incremental costs of obtaining the lease and any lease payments
made at or before the leased asset is available for use by the
group.
The right-of-use asset is subsequently measured at cost less
accumulated amortisation and any accumulated impairment losses. The
amortisation methods applied is on a straight-line basis over the
term of the lease.
Amortisation charge for the year included in 'administrative
expenses' for right-of-use assets.
Office Motor IT
buildings vehicles equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2019 981 56 41 1,078
Additions - 18 - 18
Amortisation (132) (48) (20) (200)
NBV at 31 December 2019 849 26 21 896
------------------------ --------- -------- --------- -------
At 1 January 2020 849 26 21 896
Additions - 22 - 22
Variable lease payment
adjustment 4 - (1) 3
Amortisation (133) (22) (20) (175)
NBV at 31 December 2020 720 26 - 746
------------------------ --------- -------- --------- -------
Lease Liability
The lease liability is initially measured at the present value
of the lease payments during the lease term discounted using the
interest rate implicit in the lease, or the incremental borrowing
rate if the interest rate implicit in the lease cannot be readily
determined.
The lease term is the non-cancellable period of the lease plus
extension periods that the group is reasonably certain to exercise
and termination periods that the group is reasonably certain not to
exercise.
The lease liability is subsequently increased for a constant
periodic rate of interest on the remaining balance of the lease
liability and reduced for lease payments.
Interest expense for the year on lease liabilities is recognised
in 'finance costs'.
Office Motor IT
buildings vehicles equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2019 968 55 40 1,063
Additions - 18 - 18
Interest expense 42 3 - 45
Lease payments (121) (53) (21) (195)
At 31 December 2019 889 23 19 931
----------------------- --------- -------- --------- -------
At 1 January 2020 889 23 19 931
Additions - 22 - 22
Variable lease payment
adjustment 4 - (1) 3
Interest expense 37 2 2 41
Lease payments (150) (24) (21) (195)
At 31 December 2020 780 23 (1) 802
----------------------- --------- -------- --------- -------
Group and Company
-- Short-term lease expense GBP73k
-- Low value lease expense GBP3k
Up to 12 1 to 5 more than
At 31 December 2020 months years 5 years
GBP'000 GBP'000 GBP'000
Lease payments 176 446 317
Interest expense (33) (84) (20)
Lease Liabilities 143 362 297
--------------------- -------- ------- ---------
12. Adjusted Loss before Taxation and Adjusted EBITDA
Adjusted Loss before Taxation
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Loss before Taxation (319) (750)
------------------------------ ----------- -----------
Share Based Payments 101 105
Exceptional Items 65 6
Adjusted Loss before Taxation (153) (639)
------------------------------ ----------- -----------
Adjusted EBITDA:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Operating Loss (271) (704)
------------------------------ ----------- -----------
Depreciation and Amortisation 480 594
EBITDA** 209 (110)
------------------------------ ----------- -----------
Share Based Payments 101 105
Exceptional Items 65 6
Adjusted EBITDA* 375 1
------------------------------ ----------- -----------
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Operating Loss (271) (704)
------------------------------ ----------- -----------
Share Based Payments 101 105
Exceptional Items 65 6
Adjusted Operating Loss* (105) (593)
------------------------------ ----------- -----------
* Adjusted Operating Loss and EBITDA excludes one-off charges
and share based charges.
** EBITDA is defined as Earnings before Interest, Tax,
Depreciation and Amortisation.
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