TIDMECSC

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 GBP3.01m (H1 2020: GBP2.61m) 

-- Managed Detection and Response ("MDR") division revenue (managed services and incident response) up 17% to GBP1.45m (H1 2020: GBP1.24m)

-- Assurance division (testing, standards and certification services) revenue up 20% to GBP1.49m (H1 2020: GBP1.24m)

   --      Gross Profit up 24% to GBP1.82m (H1 2020: GBP1.46m) 
   --      Adjusted* EBITDA** profit of GBP19k (H1 2020: GBP52k) 

-- Cash of GBP0.59m at period end, including GBP0.14m of COVID-19 related medium-term government support (30 June 2020: GBP1.26m, including GBP0.77m of COVID-19 related medium-term government support). The Group's bank facility of GBP0.5m 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:

 
                                                                    Jun        Dec       Jun 
       Performance                       Rationale                  2021       2020      2020 
         Indicator                                                (interim)   (full    (interim) 
                                                                               year) 
                           Measurement of the success 
Revenue Growth              of the organic growth strategy          15%       (4%)       (1%) 
-------------------------  ------------------------------------  ----------  ------- 
                           Visibility of the success of 
Managed Detection           increasing the percentage of 
 and Response Recurring     revenue from long-term recurring 
 Revenue Growth             revenues                                 12%        22%       25% 
-------------------------  ------------------------------------  ----------  ------- 
                           Visibility of the success of 
Managed Detection           increasing the percentage of 
 and Response Recurring     revenue from long-term recurring 
 Revenue Proportion         revenues                                 44%        43%       45% 
-------------------------  ------------------------------------  ----------  ------- 
Managed Detection          Combined measurement of new            GBP2.7m    GBP2.6m   GBP2.9m 
 and Response Order         client contracts together with 
 Book                       renewals of existing client 
                            contracts 
-------------------------  ------------------------------------  ----------  ------- 
Managed Detection 
 and Response Gross 
 Margin                    Delivery efficiency measurement          64%        73%       67% 
-------------------------  ------------------------------------  ----------  ------- 
Assurance Repeat           Quasi-recurring from longer-term 
 Revenue                    consulting clients                      83%        73%       69% 
-------------------------  ------------------------------------  ----------  ------- 
Assurance Gross 
 Margin                    Delivery efficiency measurement          61%        58%       51% 
-------------------------  ------------------------------------  ----------  ------- 
                           Investment in future cyber 
Research and Development    technologies, service enhancements 
 (of revenue)               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 
                                  GBP'000    GBP'000      GBP'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) 
------------------------------  ---------  ---------  ----------- 
Operating Loss                      (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 GBP3.01m, up 15% on the comparable prior period (revenue in the six months ended 30 June 2020 was GBP2.61m). Within this, Assurance revenue was up by 20% to GBP1.49m (June 2020: GBP1.24m).

Managed Detection and Response division revenue increased by 17% to GBP1.45m (June 2020: GBP1.24m). Within this division, Incident Response revenues increased to GBP0.14m (June 2020: GBP0.07m) during the period.

Vendor Products revenue in the period fell by 30% to GBP0.05m, (June 2020: GBP0.07m), and remains a small part of ECSC's business, contributing only 2% of revenues.

Margin Generation

Gross Profit in the period was GBP1.82m representing a 60% gross margin (prior year interim period: GBP1.46m 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 GBP0.02m (June 2020: Adjusted EBITDA of GBP0.05m). EBITDA in the period was a loss of GBP0.08m (June 2020: EBITDA loss of GBP0.06m).

Adjusted Operating loss in the period was GBP0.19m (June 2020: Adjusted Operating loss of GBP0.21m). Operating loss in the period was GBP0.28m (June 2020: operating loss of GBP0.32m).

Cash Flow

Cash and cash equivalents decreased by GBP0.67m to GBP0.59m 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 GBP0.14m from GBP0.77m as at 30 June 2020.

The Board has also renewed ECSC's GBP0.5m 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 GBP6.1 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    GBP'000    GBP'000      GBP'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         GBP'000         GBP'000         GBP'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 GBP376k 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 
                                   GBP'000  GBP'000  GBP'000   GBP'000  GBP'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    GBP'000    GBP'000      GBP'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 (GBP'000, GBP) as this is the currency of the primary economic environment that the Company operates in.

   4.         Accounting Policies 

The principal accounting policies applied in the preparation of the financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated.

   4.1       Basis of Accounting 

The financial statements have been prepared on the historical cost basis except as stated.

New 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           2020) 
                                               effective 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: IFRS            14-May-2020      01-Jan-2022             TBC 
 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 
---------------------------  ---------------  ---------------- 
 

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, GBP0.1m remained outstanding in this regard.

As at 30 June 2021, the Group had cash and cash equivalents of GBP0.59m (2020: GBP1.26m) and achieved an Adjusted EBITDA profit of GBP0.02m (2020: GBP0.05m), reducing the operating loss to GBP0.28m (2020: GBP0.32m).

The Board has also renewed the GBP0.5m 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 
                                       GBP'000      GBP'000      GBP'000      GBP'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 
                          GBP'000    GBP'000      GBP'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 
                           GBP'000    GBP'000      GBP'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 
                                     GBP'000    GBP'000      GBP'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 
                                      GBP'000    GBP'000      GBP'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 
                                    GBP'000    GBP'000      GBP'000 
Deferred Tax Assets                     139         86          118 
Deferred Tax Liabilities              (132)       (85)         (90) 
Deferred Tax - Net Liabilities            7          1           28 
--------------------------------  ---------  ---------  ----------- 
 

Deferred Tax Assets of GBP139k is recognised in respect of unutilised trading losses, Share Based Payments and short-term timing differences. Deferred Tax Liabilities of GBP132k 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 GBP5.06m (June 2020: GBP5.71m). A Deferred Tax Asset of GBP46k 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 
                                       GBP'000    GBP'000      GBP'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                    GBP'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 
                            GBP'000    GBP'000      GBP'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 GBP500,000.

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 
                           GBP'000    GBP'000      GBP'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 
                                  GBP'000    GBP'000      GBP'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 
                                  GBP'000    GBP'000      GBP'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        28 Campus Road         18 April 2017           Dormant 
  Limited              Listerhills Science 
                       Park 
                       Bradford 
                       BD7 1HR 
 
 ECSC Labs Limited    28 Campus Road         18 April 2017           Dormant 
                       Listerhills Science 
                       Park 
                       Bradford 
                       BD7 1HR 
 
 ECSC Australia       28 Campus Road         29 September 2016       Intermediary holding 
  Limited              Listerhills Science                            company 
                       Park 
                       Bradford 
                       BD7 1HR 
 

ECSC Australia Limited currently has the following wholly-owned subsidiary, which is incorporated and registered in Australia:

 
 Name of Subsidiary   Registered Office   Date of Incorporation   Principal Activity 
 
 ECSC Australia       Governor Phillip    20 March 2017           Provision of professional 
  Pty Limited          Tower Level 36                              cyber security 
                       1 Farrer Place                              services 
                       Sydney 
                       NSW 2000 
 

The share capital of each Group entity is as follows:

 
 Entity              Ordinary Shares   Nominal Value   Investment at 
                            in Issue                            Cost 
 ECSC Services               1 share            GBP1            GBP1 
  Limited 
 ECSC Labs Limited           1 share            GBP1            GBP1 
 ECSC Australia              1 share            GBP1            GBP1 
  Limited 
 ECSC Australia           100 shares           AUD 1         AUD 100 
  Pty Limited 
 
 Total                                                         GBP60 
 

* AUD = Australian dollars

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END

IR EANNFADFFEFA

(END) Dow Jones Newswires

September 22, 2021 02:00 ET (06:00 GMT)

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