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ECSC Group PLC - Interim Results

RNS Number : 7817Z
ECSC Group PLC
23 September 2020
 

Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information for the purposes of Article 7 under the Market Abuse Regulation (EU) No. 596/2014 ("MAR"). With the publication of this announcement, this information is now considered to be in the public domain.

23 September 2020

ECSC Group plc

('ECSC' or the 'Company' or the 'Group')

Unaudited interim results for the six months ended 30 June 2020

 

Return to profit, positive cash flow and a strong outlook for Q4

 

ECSC Group plc (AIM: ECSC), the provider of cyber security services, announces its unaudited interim results for the six months ended 30 June 2020 and an update on current trading.

Financial Highlights

·      Managed Detection and Response ("MDR") division (managed services and incident response) recurring revenue up 25% to £1.17m (H1 2019: £0.94m)

·      MDR order book of £2.9m (30 June 2019: £2.7m)

·      Assurance* division (testing, standards and certification services) revenue up 4% to £1.24m (H1 2019: £1.19m)

·      Group revenue of £2.61m (H1 2019: £2.63m)

·      Adjusted** EBITDA*** profit of £52k (H1 2019: £184k loss)

·      Partner programme contributing to 27% of new client recurring revenue MDR order book, and 7% of Assurance revenue

·      Successful placing in April 2020 to raise £0.5m (gross)

·      Cash of £1.26m at period end (30 June 2019: £0.19m), including £0.77m of COVID-19 related medium-term government support relating to VAT and PAYE deferral.  The Group's bank facility of £0.5m remains unutilised

 

Operational Highlights

·      48 new Assurance clients secured (H1 2019: 59)

·      Appointment of Gemma Basharan as Chief Financial Officer and Ian Castle as Chief Technology Officer in March 2020

·      Launch of AI supported Nebula Cloud cyber security breach detection service in May 2020

 

Post-Period Highlights

·      Strong recovery of Assurance revenue, with July 2020 up 33% on the Q2 average

·      Assurance total bookings mid-September 2020 up 75% on H1 average

·      Continued Adjusted** EBITDA*** profitability

·      Cash of £1.64m at 18 September 2020 and unutilised bank facility of £0.5m

 

* Previously termed Consulting division

**Adjusted EBITDA excludes one-off charges and share based charges

***EBITDA is defined as Earnings before Interest, Tax, Depreciation and Amortisation

 

Ian Mann, Chief Executive Officer of ECSC, commented:

"We are delighted to report a return to Adjusted EBITDA profit with record levels of recurring revenues and orders within our Managed Detection and Response division, partly driven by an increase in cyber security incidents as organisations have accelerated the existing trend towards remote and cloud working during the COVID-19 pandemic.

"It is also pleasing to note that our Assurance division is recovering strongly as clients are beginning to resume projects (both on-site and working remotely), with an increase in both revenues and bookings in this sector.  We continue to see an uptake in our Partner Programme, with 120 registered partners generating over 160 sales opportunities by the end of the period, which had a material contribution to revenue.

"We have so far exceeded our stated objective of maintaining a break-even Adjusted EBITDA position throughout the COVID-19 crisis.  We remain focused on our strategy of growing our Managed Detection and Response division in order to build our recurring revenue streams and target this fast-growing sector of the market.  We continue to innovate our technologies and deliver quality services to our expanding client base.  

"In summary, ECSC is well positioned in the growing global cyber security marketplace, and we look forward with confidence to delivering improved operating results and shareholder value.  We will continue to update the market on our progress in due course."

 

Enquiries:

ECSC Group plc
David Mathewson (Non-Executive Chairman)
Ian Mann (Chief Executive Officer)

+44 (0) 1274 736 223

Allenby Capital Limited (NOMAD and Broker)
David Hart / Asha Chotai (Corporate Finance)
Tony Quirke (Equity Sales)

+44 (0) 203 3285 656

Yellow Jersey (PR and IR)
Sarah Hollins

Annabel Atkins

Matthew McHale

+44 (0) 203 004 9512

 

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.

ECSC is led by a highly experienced senior management team with over 80 years' combined experience within the company, and has delivered consecutive organic growth for the last 20 years.

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

The Group has managed its way through COVID-19 so far with excellent remote working practices, and a return to Adjusted EBITDA profitability throughout the period reflects well on the capable and experienced management team who are now focused on the many opportunities arising in the market.

Improved financial performance across the business has led to a return to profit for the period, positive cash flow, and a strong Q4 outlook.  Our successful fund-raise in April 2020 further strengthened our cash position.

Cyber security remains a key priority for all Boards, with breaches continuing to attract media attention and an increasing regulatory framework, particularly with the impact of GDPR.

The ECSC Kepler Artificial Intelligence (AI) technology, released in 2018, delivered through the global Security Operation Centres (SOCs), continues to be integral to the growth in the Managed Detection and Response 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, channel partners and advisors for their continued support, together with our new institutional shareholders that participated in the fund-raise completed in April 2020.

Despite the temporary interruption to our progress with COVID-19, 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

23 September 2020

 

 

Chief Executive Officer's Statement

 

COVID-19 Strategy

As anticipated, the first significant impact of COVID-19 was seen in April, where a number of Assurance division engagements were postponed. 

 

The management team took early action to mitigate the impact in four areas:

1         All services were re-engineered to be delivered remotely, as the Company anticipated that this would be the preferred model of clients until at least the end of 2020.

2         Adjustments were made to the cost base and delivery capacity, as forecasted 2020 growth was unlikely to materialise.

3         A placing of £0.5m (gross) was completed by mid-April 2020 to reduce overall cash risk through uncertain times.  This was fully subscribed by both new and existing investors.

4         Once available, government support was utilised where appropriate, in both the UK and Australia.

We are therefore pleased to report that, to date, our stated aim of maintaining a break-even trading position throughout the pandemic has been exceeded, reflected in our growing cash balance.

 

Ongoing Strategy

Our strategy of delivering sustained and profitable organic growth remains our primary focus.

The Company's Managed Detection and Response division, comprising managed services and incident response, continues to be our priority for growth as we see the opportunity to secure recurring revenue streams through multi-year contracts. ECSC delivers a superior service to clients in this division by deploying and managing its proprietary cyber security technology (including Artificial Intelligence), 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 or effective 24/7 monitoring.

Success in this area is reflected in the Managed Detection and Response division now accounting for 47% of revenue, compared with 29% at the time of the Company's IPO (end of 2016).

The Assurance division, comprising of testing, standards, and certifications, remains key for new client acquisition, and still sees a relatively large proportion of repeat revenue.

Our Partner Programme, launched in 2019, allows primarily 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 June 2020, 120 partners have signed up to the programme, generating more than 160 sales opportunities and contributing to both new client acquisition and having a material contribution to revenue. 

We have continued to invest in ECSC proprietary technologies, including continuing development of our MDR Artificial Intelligence (AI) embedded within many of our managed services.

Outlook

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 Detection and Response services remains the strategic focus of the Board, to build our recurring revenue streams and target the fastest growing segment of the market.  The team continues to acquire new clients, deliver quality services, develop our technologies, and build a solid base for continuing progress and improving financial performance.

Key Performance Indicators

The following Key Performance Indicators were established in mid-2018, and expanded in 2019, to enable meaningful performance measurement:

 

 

Performance

Indicator

 

Rationale

Jun

2020

(interim)

Dec

2019

(full year)

Jun

2019

(interim)

Revenue Growth

Measurement of the success of the organic growth strategy

(1%)

10%

(0.6%)

Managed Detection and Response Recurring Revenue Growth

Visibility of the success of increasing the percentage of revenue from long-term recurring revenues

 

25%

 

27%

 

28%

Managed Detection and Response Recurring Revenue Proportion

Visibility of the success of increasing the percentage of revenue from long-term recurring revenues

 

45%

 

34%

 

35%

Managed Detection and Response Order Book

Combined measurement of new client contracts together with renewals of existing client contracts

£2.9m

£2.6m

£2.7m

Managed Detection and Response Gross Margin

Delivery efficiency measurement

67%

68%

69%

Assurance Repeat Revenue

Quasi-recurring from longer-term consulting clients

69%

 73%

77%

Assurance Gross Margin

Delivery efficiency measurement

51%

54%

47%

Contract Liabilities (Deferred Income)

Contracted and invoiced revenue yet to be recognised

£1.4m

£1.2m

£1.1m

Research and Development (of revenue)

Investment in future cyber technologies, service enhancements and intellectual property

14%

13%

12%

 

 

Ian Mann

Chief Executive Officer

23 September 2020



 

Financial Review

 

Principal Activities

 

The principal activity of the Group during the period continued to be the provision of professional cyber security services, including Assurance, Managed Detection and Response Services and the sale of Vendor Products.

 

 

* 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 2020 was £2.61m, down 1% on the comparable prior period (revenue in the six months ended 30 June 2019 was £2.63m).  Within this, Assurance revenue was up by 4% to £1.24m (June 2019: £1.19m).

 

Managed Detection and Response division revenue remained the same in the period at £1.24m (June 2019: £1.24m).  Within this division, Incident Response revenues fell to £0.07m (June 2019: £0.31m) during the period.  The drop in incidents, whilst historically quite variable, is likely to be due to reduced organisational activities during COVID-19 related 'lock-down'.

 

Vendor Products revenue in the period fell by 20% to £0.07m, (June 2019: £0.09m), but remains small contributing only 3% of revenues.

 

Margin Generation

 

Gross Profit in the period was £1.46m, representing a 56% margin (prior year interim period: £1.44m at 55% margin). This was due to improved margins in the Assurance division.

 

Assurance margin rose to 51% in the period (prior year interim period: 47%), due to the 4% increase in revenue over the prior period.

 

Managed Detection and Response margin fell to 67% (prior year interim period: 69%), this was due to a fall in Incident Response revenue during the period.

 

EBITDA & Operating Loss

 

Adjusted EBITDA for the period, which excludes one-off charges and share based charges, was a profit of £0.05m (June 2019: loss of £0.18m). EBITDA in the period was a loss of £0.06m (June 2019: loss of £0.25m). The Group has achieved the COVID-19 target of operating on a break-even Adjusted EBITDA basis.

 

Adjusted Operating loss in the period was £0.21m (June 2019: Operating loss of £0.47m). Operating loss in the period was £0.32m (June 2019: operating loss of £0.54m).

 

Exceptional items

 

During the period the Group undertook a cost restructure to reduce its operating costs.  This restructure resulted in exceptional costs totalling £0.05m during the period, which included payments in lieu of notice and redundancy payments.

 

Consolidated Statement of Financial Position

 

The Group's Balance Sheet at 30 June 2020 had Net Assets of £0.56m (June 2019: £0.57m).

 

Consolidated Cash Flow Statement

 

Cash and cash equivalents increased by £0.91m to £1.26m as at 30 June 2020 primarily due to achieving an Adjusted EBITDA profit, equity raise of £0.50m (gross) and £0.77m of COVID-19 related medium-term government support.

 

Lease payment costs increased to £0.1m (June 2019: £0.09m) and development costs for the period increase to £0.11m (June 2019: £0.09m) as investment continues in this area.

 

The Group will continue to prioritise cash management and monitor the cash position closely to ensure that the Group has adequate liquidity to meet all its financial commitments as they arise.

 

Gemma Basharan

Chief Financial Officer

23 September 2020

 



 

Consolidated Statement of Comprehensive Income

For the 6 months ended 30 June 2020

 

 



6 months

6 months

Year



ended

ended

ended



30 June

30 June

31 December



2020

2019

2019


Note

£'000

£'000

£'000






Revenue

5

2,608

2,634

5,905

Cost of Sales


(1,146)

(1,194)

(2,545)

Gross Profit

5

1,462

1,440

3,360

Other Income

6

211

103

263

Sales & Marketing Costs


(844)

(943)

(1,958)

Administration Expenses


(1,148)

(1,139)

(2,369)






Operating Loss before Exceptional Items


(208)

(474)

(593)

Share Based Payments


57

65

105

Exceptional Items


54

-

6






Operating Loss

 

(319)

(539)

(704)

Finance Income


-

-

-

Finance Cost


(21)

(19)

(46)

Loss before Taxation

 

(340)

(558)

(750)

Taxation Credit/ (Charge)

7

23

12

(26)

Loss for the Period


(317)

(546)

(776)






Other Comprehensive Income


-

-

-






Total Comprehensive Loss for the Period


(317)

(546)

(776)






Attributed to Equity Holders of the Company










Loss per Share

8

pence

pence

pence

Basic Loss per Share


(3.2)

(6.0)

(8.5)

Diluted Loss per Share


(3.2)

(6.0)

(8.5)

 

 

 



 

Consolidated Statement of Financial Position

As at 30 June 2020

 

 



6 months

6 months

Year



ended

ended

ended



30 June

30 June

31 December



2020

2019

2019


Note

£'000

£'000

£'000






ASSETS










Non-current Assets





Intangible Assets

9

446

418

429

Property, Plant and Equipment


212

370

283

Right of use Assets


825

946

896

Deferred Tax Asset

7

86

126

77

Total Non-current Assets


1,569

1,860

1,685






Current Assets





Inventory


10

39

26

Trade and Other Receivables


1,127

1,243

1,210

Corporation Tax Recoverable


472

258

265

Cash and Cash Equivalents

10

1,258

190

351

Total Current Assets


2,867

1,730

1,852






TOTAL ASSETS


4,436

3,590

3,537






LIABILITIES










Current Liabilities





Trade and Other Payables


(2,911)

(1,928)

(2,137)

Lease Liabilities


(153)

(154)

(150)

Total Current Liabilities


(3,064)

(2,082)

(2,287)






Non-current Liabilities





Deferred Tax Liability

7

(85)

(111)

(99)

Lease Liabilities


(730)

(828)

(781)

Total Non-current Liabilities


(815)

(939)

(880)






TOTAL LIABILITIES


(3,879)

(3,021)

(3,167)






NET ASSETS


557

569

370






EQUITY





Equity attributable to Owners of the Parent:





Share Capital


100

91

91

Share Premium Account


6,099

5,661

5,661

Share Option Reserve


348

251

291

Retained Earnings


(5,990)

(5,434)

(5,673)






TOTAL EQUITY


557

569

370

 

 

 

Consolidated Statement of Changes in Equity

For the 6 months ended 30 June 2020

 

 



Share

Share




Share

Premium

Option

Retained



Capital

Account

Reserve

Earnings

Total


£'000

£'000

£'000

£'000

£'000







Balance as at 31 December 2019

91

5,661

291

(5,673)

370







Loss and Total Comprehensive Expenditure






Loss for the year ended 30 June 2020

-

-

-

(317)

(317)







Transactions with shareholders






Issue of Shares

9

491

-

-

500

Share Issue Costs

-

(53)

-

-

(53)

Share Based Payments

-

-

57

-

57







Balance as at 30 June 2020

100

6,099

348

(5,990)

557

 

 

 

 

 



 

Consolidated Cash Flow Statement

For the 6 months ended 30 June 2020

 

 



Unaudited

Unaudited

Audited



6 months

6 months

Year



ended

ended

ended



30 June

30 June

31 December



2020

2019

2019


Note

£'000

£'000

£'000






Cash Flow from Operating Activities










Loss before Taxation


(340)

(558)

(750)






Adjustment for:





Amortisation of Intangibles

9

89

85

177

Depreciation of right-of use asset


69

114

200

Depreciation of Property, Plant and Equipment


102

91

217

Profit on Disposal of Equipment


(4)

-

(1)

Finance Costs


21

19

46

Share Based Payment


57

65

105

Cash from Operating Activities before





changes in Working Capital


(6)

(184)

(6)






Change in Inventory


16

(21)

(8)

Change in Trade and Other Receivables


(124)

(220)

(349)

Change in Trade and Other Payables


774

219

428

Change in Other Non Cash Items


-

(13)

(13)






Cash from/ (used in) Operating Activities


660

(219)

52






Corporation Tax received


-

-

152






Net Cash Flow from/ (used in) Operations


660

(219)

204






Acquisition of Property, Plant and Equipment


(2)

(65)

(129)

Disposal Proceeds


6

-

16

Development Costs Capitalised

9

(106)

(91)

(194)






Net Cash Flow used in Investing Activities


(102)

(156)

(307)






Principal paid on lease liabilities


(98)

(85)

(195)

Interest paid on loans and borrowings


-

-

(1)

Net proceeds from the Share Issue


447

-

-

Net Cash used in Financing Activities


349

(85)

(196)






Net increase/ (decrease) in Cash & Cash Equivalents


907

(460)

(299)






Cash & Cash Equivalents at beginning of period


351

650

650






Cash & Cash Equivalents at end of period


1,258

190

351

 

 

 

Notes to the Financial Statements

For the 6 months ended 30 June 2020

 

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 2020 were approved by the Board of Directors on 23 September 2020.

 

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 2020 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 2020 (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.

 

 

Alternative performance measures (APM)

 

In the reporting of financial information, the Directors have adopted the APM 'Adjusted EBITDA" (APMs were previously termed 'Non-GAAP measures'), which is not defined or specified under International Financial Reporting Standards (IFRS).

 

This measure is not defined by IFRS and therefore may not be directly comparable with other companies' APMS, including those in the Group's industry. APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.

 

Purpose

 

The Directors believe that this APM assists in providing additional useful information on the underlying trends, performance and position of the Group. This APM is also used to enhance the comparability of information between reporting periods and business units, by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid the user in understanding the Group's performance.

 

Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive setting purposes and this remains consistent with the prior year.  Adjusted APMs are used by the Group in order to understand underlying performance and exclude items which distort compatibility, as well as being consistent with public broker forecasts and measures (see note 13).

 

The financial statements have been presented in thousands of Pounds Sterling (£'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 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 effective date

EU endorsement status

New Standards




IFRS 17 Insurance contracts

18-May-2017

01-Jan-2021*

TBC

Amendments to existing standards




Amendments to References to the Conceptual Framework in IFRS Standards

29-May-2018

01-Jan-2020

Endorsed

Amendments to IFRS 3 Business Combinations - Definition of a Business

22-Oct-2018

01-Jan-2020

Expected Q1 2020

Definition of Material - Amendments to IAS 1 and IAS 8

31-Oct-2018

01-Jan-2020

Endorsed

Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

26-Sept-2019

01-Jan-2020

Endorsed January 2020

Amendments to IAS 1: Classification of Liabilities as Current or Non-current

23-Jan-2020

01-Jan-2022

TBC

 

The application of these standards and interpretations is not expected to have a material impact on the Group's reporting financial performance or position.

 

 

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 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.

 

The Group's objective was to maintain a break-even Adjusted EBITDA position throughout the COVID-19 crisis. This was achieved by undertaking a cost restructuring and making use of the UK Government's furlough scheme. The Group also made use of medium-term government support relating to VAT and PAYE deferral. During this period the Group successfully completed a placing in April 2020 raising £0.5m (gross).  As of 30 June 2020 the Group's cash balance was £1.26m (30 June 2019: £0.19).

 

The Board have renewed the invoice discounting facility with Barclay's of £0.5m following the annual review in August 2020. The facility will be formally reviewed again in August 2021.  As of the 30 June 2020 this facility was unutilised.

 

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

 

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 Assurance 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 Managed Detection and Response 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.

 

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 the Managed Detection and Response 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 Assurance Consultancy are recognised in the month of invoice.

 

These costs are recognised in the Consolidated Statement of Comprehensive Income within Sales & Marketing costs.

 

Contract Balances

 

 

 

 

4.4  Finance Income

 

Finance income is accrued on an annual basis, by reference to the principal outstanding at the applicable effective credit interest rate.

 

4.5  Government Grant Income

 

A government grant is recognised only when there is reasonable assurance that (a) the entity will comply with any conditions attached to the grant; and (b) the grant will be received.

 

The grant is recognised as income over the period necessary to match them with the related costs, for which they are intended to compensate, on a systematic basis.

 

Government Grant Income is recognised in the Statement of Comprehensive Income over the period in which the Company recognises expenses for the related costs for which the grants are intended to compensate. Grants relating to income are deducted from the related expense.

 

Government tax credits available on eligible Research and Development expenditure ('R&D Tax Credits') and not reclaimable through other means are recognised as Other Income.

 

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), Managed Detection and Response, 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 2020 were as follows:

 

 



Unaudited

Unaudited

Audited



6 months

6 months

Year



ended

ended

ended



30 June

30 June

31 December



2020

2019

2019



£'000

£'000

£'000






Revenue





Assurance


1,241

1,193

2,922

Managed Detection and Response


1,239

1,244

2,585

Vendor Products


70

87

162

Other


58

110

236

Total Revenue


2,608

2,634

5,905






Gross Profit





Assurance


633

558

1,574

Managed Detection and Response


834

862

1,745

Vendor Products


14

16

29

Other


(19)

4

12

Gross Profit


1,462

1,440

3,360






Operating Loss


(319)

(539)

(704)

Finance Income


-

-

-

Finance Cost


(21)

(19)

(46)

Loss before Taxation


(340)

(558)

(750)

 

 

6.    Other Income

 

 



Unaudited

Unaudited

Audited



6 months

6 months

Year



ended

ended

ended



30 June

30 June

31 December



2020

2019

2019



£'000

£'000

£'000

Gain on sale of Asset


4

-

1

R&D Tax Credits


207

103

262

Total


211

103

263

 

 

 

 

 

7.    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



2020

2019

2019



£'000

£'000

£'000

Corporation Tax Charge/(Credit)


-

-

-

Deferred Tax Charge/(Credit)


(23)

(12)

26

Total Tax Credit


(23)

(12)

26

 

 

 

 

 

Reconciliation of Total Tax Charge Credit

 

 



Unaudited

Unaudited

Audited



6 months

6 months

Year



ended

ended

ended



30 June

30 June

31 December



2019

2019

2019



£'000

£'000

£'000






Loss before Tax


(340)

(558)

(750)

UK Corporation at rate of 19%


(65)

(106)

(143)

Expenses not deductible for tax purposes


2

1

2

Income not taxable for tax purposes


-

-

-

Exercise of Share Options


-

-

-

Difference between current and Deferred Tax rates


-

-

-

Over/under provision in prior period - Corporation Tax


-

-

-

Over/under provision in prior period - Deferred Tax


(23)

(12)

26

Tax losses on which Deferred Tax not recognised


63

105

141

Total Tax Credit


(23)

(12)

26

 

 

Deferred Tax Assets & Liabilities

 

 



Unaudited

Unaudited

Audited



6 months

6 months

Year



ended

ended

ended



30 June

30 June

31 December



2019

2019

2019



£'000

£'000

£'000

Deferred Tax Assets


86

126

77

Deferred Tax Liabilities


(85)

(111)

(99)

Deferred Tax - Net Liabilities


1

15

(22)

 

 

Deferred Tax Assets of £86k is recognised in respect of unutilised trading losses, Share Based Payments and short-term timing differences. Deferred Tax Liabilities of £86k 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 £5.71m (June 2019: £4.96m). A Deferred Tax Asset of £22k has been recognised as at 30 June 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.

 

8.    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:

 

 



6 months

6 months

Year



ended

ended

ended



30 June

30 June

31 December



2020

2019

2019



£'000

£'000

£'000

Net Loss attributable to Equity Holders of the Company


(317)

(546)

(776)

Add back: Exceptional Costs


54

-

6

Add back: Share Based Payments


57

65

105

Adjusted Loss


(206)

(481)

(665)






Number of Ordinary Shares ('000)





Initial Weighted Average


9,098

9,098

9,098

Equity Raise


909

-

-

Basic Number of Ordinary Shares


10,007

9,098

9,098

Weighted Average Dilutive Shares in Period


769

598

661

Diluted Number of Ordinary Shares


10,776

9,696

9,759






Earnings per Share (pence):





Basic Earnings per Share


(3.2)

(6.0)

(8.5)

Diluted Earnings per Share**


(3.2)

(6.0)

(8.5)

Adjusted Earnings per Share


(2.1)

(5.3)

(7.3)

 

** In accordance with IAS 33, the effect of anti-dilutive potential shares has been ignored

 

 

9.    Intangible Assets

 

GROUP & COMPANY

 

Development Costs

 

 

Costs

£'000



As at 01 January 2019

891

Additions

194

As at 31 December 2019

1,085



As at 01 January 2020

1,085

Additions (6 months)

106

As at 30 June 2020

1,191



Amortisation




As at 01 January 2019

479

Additions

177

As at 31 December 2019

656



As at 01 January 2020

656

Additions (6 months)

89

As at 30 June 2020

745



Net Book Value




As at 31 December 2019

429



As at 30 June 2020

446

 

 

 

 

10.  Cash & Cash Equivalents

 

 


Unaudited

Unaudited

Audited


GROUP

GROUP

GROUP


As at

As at

As at


30 June

30 June

31 December


2020

2019

2019


£'000

£'000

£'000

Cash & Cash Equivalents

1,258

190

351

 

 

11. 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 £500,000.

 

These payment facilities are secured by a debenture in favour of Barclays that creates fixed and floating charges over the assets of the Company.

 

 

12.  Controlling Party

 

ECSC Group plc does not have an ultimate controlling party.

 

13.        Adjusted (Loss) before Taxation and Adjusted EBITDA

 

 

Adjusted (Loss)/Profit before Taxation

 

 

 

 

Adjusted EBITDA:

 

 

 

 

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 Limited

28 Campus Road

Listerhills Science Park

Bradford

BD7 1HR

18 April 2017

Dormant





ECSC Labs Limited

28 Campus Road

Listerhills Science Park

Bradford

BD7 1HR

18 April 2017

Dormant





ECSC Australia Limited

28 Campus Road

Listerhills Science Park

Bradford

BD7 1HR

29 September 2016

Intermediary holding company

 

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 Pty Limited

Governor Phillip Tower Level 36

1 Farrer Place

Sydney

NSW 2000

20 March 2017

Provision of professional cyber security services

 

The share capital of each Group entity is as follows:

 

Entity

Ordinary Shares in Issue

Nominal Value

Investment at Cost

ECSC Services Limited

1 share

£1

£1

ECSC Labs Limited

1 share

£1

£1

ECSC Australia Limited

1 share

£1

£1

ECSC Australia Pty Limited

100 shares

AUD 1

 AUD 100





Total



£60

 

* 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 [email protected] or visit www.rns.com.

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