RNS Number : 5248M
ECSC Group PLC
22 September 2021
 

 

 

22 September 2021

ECSC Group plc

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

Unaudited interim results for the six months ended 30 June 2021

Strong growth across MDR and Assurance divisions

 

ECSC Group plc (AIM: ECSC), the provider of cyber security services, announces its unaudited interim results for the six months ended 30 June 2021.

 

Financial Highlights

·      Group revenue up 15% to £3.01m (H1 2020: £2.61m)

·      Managed Detection and Response ("MDR") division revenue (managed services and incident response) up 17% to £1.45m (H1 2020: £1.24m)

·      Assurance division (testing, standards and certification services) revenue up 20% to £1.49m (H1 2020: £1.24m)

·      Gross Profit up 24% to £1.82m (H1 2020: £1.46m)

·      Adjusted* EBITDA** profit of £19k (H1 2020: £52k)

·      Cash of £0.59m at period end, including £0.14m of COVID-19 related medium-term government support (30 June 2020: £1.26m, including £0.77m of COVID-19 related medium-term government support). The Group's bank facility of £0.5m remains unutilised.

 

*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 pleased to report strong growth across both our MDR and Assurance divisions,  driven in part by a rise in cyber security incidents.  Contributing to this is the number of organisations opting for remote and cloud working during the COVID-19 pandemic.

"Cyber security remains a key priority for all organisations, particularly as many employees begin to shift to a hybrid of remote and office working, calling for increased focus on cyber security. Ransomware attacks also continue to pose a significant threat to organisations, with a high number of companies suffering substantial disruption. 

"We look forward to keeping the market informed 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 (NOMAD and Broker)
David Hart
Piers Shimwell

+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 with excellent remote working practices, reflecting well on the capable and experienced management team who are now focussed on the many opportunities arising in the market.

Strong growth across each of the divisions has driven an improved financial performance across the business.

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.

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.

ECSC is well positioned in a growing market, and we look forward with confidence to continuing to deliver improved operating results.

On behalf of the Board, I would like to thank all of our clients, staff, channel partners and advisors for their continued support.

 

David Mathewson

Non-Executive Chairman

22 September 2021

 

 

Chief Executive Officer's Statement

 

Ongoing Strategy

 

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

 

The Assurance division, comprising testing, standards, and certifications, remains key for new client acquisition and is delivering an increasing proportion of repeat revenue. This is testament to the quality of delivery ECSC provides as well as excellent client relationships.

 

The MDR division now accounts for 48% of revenue, compared with 29% at the Company's IPO at the end of 2016.

 

We have continued to invest in ECSC proprietary technologies, including continuing development of our MDR Artificial Intelligence ("AI"), which is embedded within many of our managed services. We see new opportunities to augment the vital people skills within the operation with both machine learning and neural networks.

 

 

 

 

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.

 

The disruption caused by the global pandemic and the associated re-engineering of our operations has led the management team to re-examine all areas of our client acquisition strategy and operations.  This widespread review is an ongoing process, and we will make any necessary changes to ensure ECSC remains ideally placed to deliver for its clients.

 

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

2021

(interim)

Dec

2020

(full year)

Jun

2020

(interim)

Revenue Growth

Measurement of the success of the organic growth strategy

15%

(4%)

(1%)

Managed Detection and Response Recurring Revenue Growth

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

 

12%

 

22%

 

25%

Managed Detection and Response Recurring Revenue Proportion

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

 

44%

 

43%

 

45%

Managed Detection and Response Order Book

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

£2.7m

£2.6m

£2.9m

Managed Detection and Response Gross Margin

Delivery efficiency measurement

64%

73%

67%

Assurance Repeat Revenue

Quasi-recurring from longer-term consulting clients

83%

73%

69%

Assurance Gross Margin

Delivery efficiency measurement

61%

58%

51%

Research and Development (of revenue)

Investment in future cyber technologies, service enhancements and intellectual property

16%

14%

14%

 

 

Ian Mann

Chief Executive Officer

22 September 2021
 

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.

 

 

Unaudited

Unaudited

Audited

 

6 months

6 months

Year ended

 

30 June

30 June

31 December

 

2021

2020

2020

 

£'000

£'000

£'000

Revenue

 

 

 

Assurance

1,489

1,241

2,724

Managed Detection and Response

1,450

1,239

2,732

Vendor Products

49

70

125

Other

19

58

82

 

3,007

2,608

5,663

Gross Profit

 

 

 

Assurance

905

633

1,576

Managed Detection and Response

932

834

1,994

Vendor Products

8

14

25

Other

(29)

(19)

(47)

 

1,816

1,462

3,548

Adjusted EBITDA*

 

 

 

Other Income

117

211

297

Sales & Marketing Costs

(1,025)

(844)

(1,713)

Administration Expenses

(889)

(777)

(1,757)

 

19

52

375

EBITDA**

 

 

 

Share Based Payments

(69)

(57)

(101)

Exceptional Items

(26)

(54)

(65)

 

(76)

(59)

209

 

 

 

 

Depreciation and Amortisation

(206)

(260)

(480)

 

 

 

 

Adjusted Operating Loss*

(187)

(208)

(105)

(282)

(319)

(271)

 

 

* 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 2021 was £3.01m, up 15% on the comparable prior period (revenue in the six months ended 30 June 2020 was £2.61m).  Within this, Assurance revenue was up by 20% to £1.49m (June 2020: £1.24m).

 

Managed Detection and Response division revenue increased by 17% to £1.45m (June 2020: £1.24m). Within this division, Incident Response revenues increased to £0.14m (June 2020: £0.07m) during the period.

 

Vendor Products revenue in the period fell by 30% to £0.05m, (June 2020: £0.07m), and remains a small part of ECSC's business, contributing only 2% of revenues.

 

Margin Generation

 

Gross Profit in the period was £1.82m representing a 60% gross margin (prior year interim period: £1.46m representing a 56% gross margin). This was due to improved margins in the Assurance division.

 

Assurance margin rose to 61% in the period (prior year interim period: 51%). This was due to the 20% increase in Assurance revenue over the prior period and improvements in utilisation.

 

Managed Detection and Response margin fell to 64% (prior year interim period: 67%) due to an increase in investment in the MDR division during the period.

 

EBITDA & Operating Loss

 

Adjusted EBITDA for the period, which excludes one-off charges and share based charges, was  £0.02m (June 2020: Adjusted EBITDA of £0.05m). EBITDA in the period was a loss of £0.08m (June 2020: EBITDA loss of £0.06m).

 

Adjusted Operating loss in the period was £0.19m (June 2020: Adjusted Operating loss of £0.21m). Operating loss in the period was £0.28m (June 2020: operating loss of £0.32m).

 

Cash Flow

 

Cash and cash equivalents decreased by £0.67m to £0.59m as at 30 June 2021, primarily due to an increase in investment across the business and reducing the COVID-19 related medium-term government support to £0.14m from £0.77m as at 30 June 2020. 

 

The Board has also renewed ECSC's £0.5m invoice discounting facility with Barclays Bank following annual review in July 2021. As at 30 June 2021 this was unutilised.

 

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

 

Capital reduction

 

Subsequent on 26 August 2021, the Company completed a reduction of its share capital, whereby the entire amount of £6.1 million standing to the credit of the Company's share premium account was cancelled thereby creating distributable reserves, which will allow the Company to pay dividends or make distributions to its shareholders and/or undertake a buyback of its ordinary shares in due course, should it be appropriate or desirable to do so.

 

The Capital Reduction will have no effect on the overall net asset position of the Company and will be reflected in the full year report.

 

 

Gemma Basharan

Chief Financial Officer

22 September 2021

 

 

 

Consolidated Statement of Comprehensive Income

For the 6 months ended 30 June 2021

 

 

 

 

 

Unaudited

Unaudited

Audited

 

 

6 months

6 months

Year

 

 

ended

ended

ended

 

 

30 June

30 June

31 December

 

 

2021

2020

2020

 

Note

£'000

£'000

£'000

 

 

 

 

 

Revenue

5

3,007

2,608

5,663

Cost of Sales

 

(1,191)

(1,146)

(2,115)

Gross Profit

5

1,816

1,462

3,548

Other Income

6

117

211

297

Sales & Marketing Costs

 

(1,025)

(844)

(1,713)

Administration Expenses

 

(1,190)

(1,148)

(2,403)

 

 

 

 

 

Operating Loss before Exceptional Items

 

(187)

(208)

(105)

Share Based Payments

 

69

57

101

Exceptional Items

 

26

54

65

 

 

 

 

 

Operating Loss

 

(282)

(319)

(271)

Finance Income

 

-

-

-

Finance Cost

 

(20)

(21)

(48)

Loss before Taxation

 

(302)

(340)

(319)

Taxation (Charge)/ Credit

7

(21)

23

50

Loss for the Period

 

(323)

(317)

(269)

 

 

 

 

 

Other Comprehensive Income

 

-

-

-

 

 

 

 

 

Total Comprehensive Loss for the Period

 

(323)

(317)

(269)

 

 

 

 

 

Attributed to Equity Holders of the Company

 

 

 

 

 

 

 

 

 

Loss Earnings per Share

8

pence

pence

pence

Basic Loss per Share

 

(3.2)

(3.2)

(2.7)

Diluted Loss per Share

 

(3.2)

(3.2)

(2.7)

 

 

 

 

 

 

 

Consolidated Statement of Financial Position

As at 30 June 2021

 

 

Unaudited

Unaudited*

Audited

 

 

6 months ended

6 months ended

6 months ended

 

 

30 June 2021

30 June 2020

31 December 2020

 

Note

£'000

£'000

£'000

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

Non-current Assets

 

 

 

 

Intangible Assets

9

489

446

455

Property, Plant and Equipment

 

103

212

148

Right of use Assets

 

677

825

746

Deferred Tax Asset

7

139

86

118

Total Non-current Assets

 

1,408

1,569

1,467

 

 

 

 

 

Current Assets

 

 

 

 

Inventory

 

9

10

9

Trade and Other Receivables

 

719

751

811

Corporation Tax Recoverable

 

333

472

216

Cash and Cash Equivalents

10

591

1,258

1,122

Total Current Assets

 

1,652

2,491

2,158

 

 

 

 

 

TOTAL ASSETS

 

3,060

4,060

3,625

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

Trade and Other Payables

 

(1,799)

(2,535)

(2,085)

Lease Liabilities

 

(119)

(153)

(143)

Total Current Liabilities

 

(1,918)

(2,688)

(2,228)

 

 

 

 

 

Non-current Liabilities

 

 

 

 

Deferred Tax Liability

7

(132)

(85)

(90)

Lease Liabilities

 

(616)

(730)

(659)

Total Non-current Liabilities

 

(748)

(815)

(749)

 

 

 

 

 

TOTAL LIABILITIES

 

(2,666)

(3,503)

(2,977)

 

 

 

 

 

NET ASSETS

 

394

557

648

 

 

 

 

 

EQUITY

 

 

 

 

Equity attributable to Owners of the Parent:

 

 

 

 

Share Capital

 

100

100

100

Share Premium Account

 

6,098

6,098

6,098

Share Option Reserve

 

461

349

392

Retained Earnings

 

(6,265)

(5,990)

(5,942)

 

 

 

 

 

TOTAL EQUITY

 

394

557

648

 

* A prior year restatement of £376k is accounted for to remove trade receivables and contract liabilities in relation to amounts invoiced but not due as at 30 June 2020 where the performance obligation had not commenced at that date. Trade receivables and contract liabilities are stated net in respect of advance billing in line with the requirements of IFRS 15.

 

Consolidated Statement of Changes in Equity

For the 6 months ended 30 June 2021

 

 

 

 

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:

 

 

 

 

 

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

 

 

 

 

 

 

Loss and Total Comprehensive:

 

 

 

 

 

Total comprehensive loss for the year

-

-

-

(323)

(323)

Transactions with shareholders

 

 

 

 

 

Share Based Payments

-

-

69

-

69

 

 

 

 

 

 

Balance as at 30 June 2021

100

6,098

461

(6,265)

394

 

 

 

Consolidated Cash Flow Statement

For the 6 months ended 30 June 2021

 

 

 

 

 

Unaudited

Unaudited

Audited

 

 

6 months

6 months

Year

 

 

ended

ended

ended

 

 

30 June

30 June

31 December

 

 

2021

2020

2020

 

Note

£'000

£'000

£'000

 

 

 

 

 

Cash Flow from Operating Activities

 

 

 

 

 

 

 

 

 

Loss before Taxation

 

(302)

(340)

(319)

 

 

 

 

 

Adjustment for:

 

 

 

 

Amortisation of Intangibles

9

79

89

168

Depreciation of right-of use asset

 

80

69

175

Depreciation of Property, Plant and Equipment

 

47

102

137

Loss/ (gain) on Disposal of Asset

 

4

(4)

(4)

Finance Costs

 

20

21

48

Share Based Payment

 

69

57

101

Cash (used in) / generated from Operating Activities

 

 

 

 

Before changes in Working Capital

 

(3)

(6)

306

 

 

 

 

 

Change in Inventory

 

-

16

17

Change in Trade and Other Receivables

 

(25)

(124)

(214)

Change in Trade and Other Payables

 

(286)

774

268

 

 

 

 

 

Cash (used in)/ generated from Operating Activities

 

(314)

660

377

 

 

 

 

 

Corporation Tax received

 

-

-

343

 

 

 

 

 

Net Cash Flow (used in)/ generated from Cash flow from investing activities

 

(314)

660

720

 

 

 

 

 

Acquisition of Property, Plant and Equipment

 

(5)

(2)

(5)

Disposal Proceeds

 

-

6

6

Development Costs Capitalised

9

(113)

(106)

(194)

 

 

 

 

 

Net Cash Flow used in Investing Activities

 

(118)

(102)

(193)

 

Cash flow from financing activities

 

 

 

 

 

Principal paid on lease liabilities

 

(97)

(98)

(195)

Interest paid on loans and borrowings

 

(2)

-

(7)

Proceeds from issue of shares

 

-

500

500

Costs of share issuance

 

-

(54)

(54)

Net Cash (used in) / generated from Financing Activities

 

(99)

348

244

 

 

 

 

 

Net increase / (decrease) in Cash & Cash Equivalents

 

(531)

906

771

 

 

 

 

 

Cash & Cash Equivalents at beginning of period

 

1,122

351

351

 

 

 

 

 

Cash & Cash Equivalents at end of period

 

591

1,257

1,122

 

 

 

Notes to the Financial Statements

For the 6 months ended 30 June 2021

 

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 2021 were approved by the Board of Directors on 22 September 2021.

 

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 2021 have 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 financial statements for the period ended 30 June 2021 (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 (UK mandatory effective date)

UK Adoption status (EU pre 31 December 2020)

New Standards

 

 

 

IFRS 17 Insurance contracts

18-May-2017 and 25-June 2020

01-Jan-2023

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

Endorsed

Amendments to IAS 1 and IAS 8: Definition of Material

31-Oct-2018

01-Jan-2020

Endorsed

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

26-Sept-2019

01-Jan-2020

Endorsed

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

23-Jan-2020

01-Jan-2022

TBC

Amendments to: IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets

14-May-2020

01-Jan-2022

TBC

Annual Improvements to IFRSs (2018-2020 Cycle): IFRS 1, IFRS 9, Illustrative Examples accompanying IDRS 16, IAS 41

14-May-2020

01-Jan-2022

TBC

Amendments to IFRS 16 Leases COVID 19-Related Rent Concessions

14-May-2020

01-Jun-2020

Endorsed

Amendments to IFRS 4 Insurance Contracts - deferral of IFRS 9

25-June-2020

01-Jun-2021

Adopted by UKEB

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform - Phase 2

27-Aug-2020

01-Jun-2021

Adopted by UKEB

 

 

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.

 

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 took advantage of published time to pay plans on VAT.  As at 30 June 2021, £0.1m remained outstanding in this regard. 

 

As at 30 June 2021, the Group had cash and cash equivalents of £0.59m (2020: £1.26m) and achieved an Adjusted EBITDA profit of £0.02m (2020: £0.05m), reducing the operating loss to £0.28m (2020: £0.32m).

 

The Board has also renewed the £0.5m invoice discounting facility with Barclays Bank following the annual review in July 2021. As at the 30 June 2021 this 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 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.

 

Performance obligations and timing of revenue recognition

 

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.

 

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

 

Contract Balances

 

 

 

Contract

Contract

Contract

Contract

 

Assets

Assets

Liabilities

Liabilities

 

30 June

31 December

30 June

31 December

 

2021

2020

2021

2020

 

£'000

£'000

£'000

£'000

 

 

 

 

 

At 1 January

34

43

(878)

(866)

Commission expensed during the period

(50)

(62)

-

-

Commissions paid in advanced of contract completion

60

53

-

-

Recognised as revenue during the period

-

-

1,637

3,390

Invoiced in advanced of performance during

-

-

(1,712)

(3,402)

period

 

 

 

 

 

44

34

(953)

(878)

 

 

 

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 period ended 30 June 2021 and comparative periods is as follows:

 

 

 

 

 

Unaudited

Unaudited

Audited

 

 

6 months

6 months

Year

 

 

ended

ended

ended

 

 

30 June

30 June

31 December

 

 

2021

2020

2020

 

 

£'000

£'000

£'000

 

 

 

 

 

Revenue

 

 

 

 

Assurance

 

1,489

1,241

2,724

MDR

 

1,450

1,239

2,732

Vendor Products

 

49

70

125

Other

 

19

58

82

Total Revenue

 

3,007

2,608

5,663

 

 

 

 

 

Gross Profit

 

 

 

 

Assurance

 

905

633

1,576

MDR

 

932

834

1,994

Vendor Products

 

8

14

25

Other

 

(29)

(19)

(47)

Gross Profit

 

1,816

1,462

3,548

 

 

 

 

 

Operating Loss

 

(282)

(319)

(271)

Finance Cost

 

(20)

(21)

(48)

Loss before Taxation

 

(302)

(340)

(319)

 

 

6.         Other Income

 

 

 

 

 

Unaudited

Unaudited

Audited

 

 

6 months

6 months

Year

 

 

ended

ended

ended

 

 

30 June

30 June

31 December

 

 

2021

2020

2020

 

 

£'000

£'000

£'000

Gain on sale of Asset

 

-

4

4

R&D Tax Credits

 

117

207

293

Total

 

117

211

297

 

 

 

 

 

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

 

 

2021

2020

2020

 

 

£'000

£'000

£'000

Corporation Tax Charge/(Credit)

 

-

-

-

Deferred Tax Charge/(Credit)

 

21

(23)

(50)

Total Tax Charge/ (Credit)

 

21

(23)

(50)

 

 

 

Reconciliation of Total Tax Charge Credit

 

 

 

 

Unaudited

Unaudited

Audited

 

 

6 months

6 months

Year

 

 

ended

ended

ended

 

 

30 June

30 June

31 December

 

 

2021

2020

2020

 

 

£'000

£'000

£'000

 

 

 

 

 

Loss before Tax

 

(302)

(340)

(319)

UK Corporation at rate of 19%

 

(57)

(65)

(61)

Expenses not deductible for tax purposes

 

1

2

2

Over/under provision in prior period - Deferred Tax

 

21

(23)

(50)

Tax losses on which Deferred Tax not recognised

 

56

63

59

Total Tax Charge/ (Credit)

 

21

(23)

(50)

 

 

 

 

Deferred Tax Assets & Liabilities

 

 

 

 

 

Unaudited

Unaudited

Audited

 

 

6 months

6 months

Year

 

 

ended

ended

ended

 

 

30 June

30 June

31 December

 

 

2021

2020

2020

 

 

£'000

£'000

£'000

Deferred Tax Assets

 

139

86

118

Deferred Tax Liabilities

 

(132)

(85)

(90)

Deferred Tax - Net Liabilities

 

7

1

28

 

 

Deferred Tax Assets of £139k is recognised in respect of unutilised trading losses, Share Based Payments and short-term timing differences. Deferred Tax Liabilities of £132k 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 25%, 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 £5.06m (June 2020: £5.71m). A Deferred Tax Asset of £46k has been recognised as at 30 June 2021 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:

 

 

 

 

 

Unaudited

Unaudited

Audited

 

 

6 months

6 months

Year

 

 

ended

ended

ended

 

 

30 June

30 June

31 December

 

 

2021

2020

2020

 

 

£'000

£'000

£'000

Net Loss attributable to Equity Holders of the Company

 

(323)

(317)

(269)

Add back: Exceptional Costs

 

26

54

65

Add back: Share Based Payments

 

69

57

101

Adjusted Loss

 

(228)

(206)

(103)

 

 

 

 

 

Number of Ordinary Shares ('000)

 

 

 

 

Initial Weighted Average

 

10,007

9,098

9,098

Shares issued in April 2020

 

-

909

909

Basic Number of Ordinary Shares

 

10,007

10,007

10,007

Weighted Average Dilutive Shares in Period

 

1,107

769

906

Diluted Number of Ordinary Shares

 

11,114

10,776

10,913

 

 

 

 

 

Earnings per Share (pence):

 

 

 

 

Basic Loss per Share

 

(3.2)

(3.2)

(2.7)

Diluted Loss per Share**

 

(3.2)

(3.2)

(2.7)

Adjusted Loss per Share

 

(2.3)

(2.1)

(1.0)

 

** 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 1 January 2020

1,085

Additions

194

As at 31 December 2020

1,279

 

 

As at 1 January 2021

1,279

Additions

113

As at 30 June 2021

1,392

 

 

Amortisation

 

 

 

As at 1 January 2020

656

Charges for the year

168

As at 31 December 2020

824

 

 

As at 1 January 2021

824

Charges for the period

79

As at 30 June 2021

903

 

 

Net Book Value

 

 

 

As at 31 December 2020

455

 

 

As at 30 June 2021

489

 

 

 

 

10.       Cash & Cash Equivalents

 

 

 

 

Unaudited

Unaudited

Audited

 

GROUP

GROUP

Year

 

As at

As at

ended

 

30 June

30 June

31 December

 

2021

2020

2020

 

£'000

£'000

£'000

Cash & Cash Equivalents

591

1,258

1,122

 

 

11.       Secured Facilities

 

The Group has been provided with payments facilities by Barclays Bank, including a BACS payment facility and a credit card facility.

 

Barclays Bank also provides an invoice discounting facility of £500,000.

 

These payment facilities are secured by a debenture in favour of Barclays Bank 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) before Taxation

 

 

 

Unaudited

Unaudited

Audited

 

6 months

6 months

Year ended

 

30 June

30 June

31 December

 

2021

2020

2020

 

£'000

£'000

£'000

Loss before Taxation

(302)

(340)

(319)

Share Based Payments

69

57

101

Exceptional Items

26

54

65

Adjusted (Loss) before Taxation

(207)

(229)

(153)

 

 

 

Adjusted EBITDA:

 

 

 

Unaudited

Unaudited

Audited

 

6 months

6 months

Year ended

 

30 June

30 June

31 December

 

2021

2020

2020

 

£'000

£'000

£'000

 

 

 

 

Operating Loss

(282)

(319)

(271)

 

 

 

 

Depreciation and Amortisation

206

260

480

 

 

 

 

EBITDA**

(76)

(59)

209

 

 

 

 

Share Based Payments

69

57

101

Exceptional Items

26

54

65

 

 

 

 

Adjusted EBITDA*

19

52

375

 

 

 

 

 

Unaudited

Unaudited

Audited

 

6 months

6 months

Year ended

 

30 June

30 June

31 December

 

2021

2020

2020

 

£'000

£'000

£'000

 

 

 

 

Operating Loss

(282)

(319)

(271)

 

 

 

 

Share Based Payments

69

57

101

Exceptional Items

26

54

65

 

 

 

 

Adjusted Operating Loss*

(187)

(208)

(105)

 

* Adjusted Operating Loss and EBITDA excludes one-off charges and share based charges.

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

 

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

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