REG - Crossword Cybersec - Interim Results & Notice of Investor Presentation
28/09/2023 07:00
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RNS Number : 9081N Crossword Cybersecurity PLC 28 September 2023
Crossword Cybersecurity Plc
Interim Results & Notice of Investor Presentation
28 September 2023 - London, UK - Crossword Cybersecurity Plc
(http://www.crosswordcybersecurity.com/) (AIM:CCS, "Crossword", the "Company"
or the "Group"), the cybersecurity solutions company focused on cyber strategy
and risk, today announces its unaudited interim results for the 6 months ended
30 June 2023.
In the first half of 2023, Crossword shifted its focus from one of acquiring
new products and building out the team towards establishing a clear path to
profitability with its current suite of products and dedicated staff.
Profitability will be underpinned by continuing strong revenue growth, margin
improvement and cost containment.
Financial Highlights
· Revenue of £1.9m for the 6 months ended 30 June 2023, an increase of
27% from the same period in the previous year.
· ARR at the end of H1 2023 was £2.7m, growth of 35% compared to the
same period in the prior year.
· Strong revenue growth was experienced across all revenue lines.
· In H1 2023, overall gross margin increased to 20% compared to 16% in
H1 2022.
· Consulting margin continues to improve as revenue scales to achieve
critical mass.
· 80% growth in the higher margin product revenues helped to drive
margin improvement.
· Administrative expenses have stabilised in 2023. Excluding one-off
professional fees in H1 2023, administrative expenses have increased by less
than 2% over the same period in the prior year. With increasing revenue,
this represents a reduction of 20% in administrative expenses as a percentage
of revenue in H1 2023.
· Investment in Managed Services' platform and operations, to support
future revenue growth. This had a short-term adverse impact on Managed
Services' margin which was reflected in margin for the period.
Operational Highlights
· Software Engineering services revenue in H1 2023 helped to strengthen
ties with a key partner and provided a valuable development opportunity for
staff.
· Crossword has leveraged its 100+ client base to cross sell and has
increased emphasis on targeting its larger clients that can make full use of
Crossword's range of products and services.
Post Period Highlights
· Following the General Meeting in July 2023, the company has authority
to issue £2.5m additional debt.
· On 31 August the Company announced that it had entered into
agreements for a five-year, unsecured, convertible loan up to the value of
£2,015,000. The funds raised will be used to support sales and marketing,
product and services development and to provide general working capital.
Outlook
· Crossword has a strong sales pipeline the continued conversion of
which will drive revenue to achieve market expectations for the full year to
31 December 2023.
· Crossword's diversified product and services offering will drive
scale while managing risk.
· Crossword is targeting a drop by half in administrative expenses as a
percentage of revenue in 2024 compared to 2022.
· Focus on margin improvement will ensure that there is a clear,
carefully managed route to achieving profitability in the medium term.
· The Company is projecting the revenue growth rate for 2024 to be
circa 30%, to achieve total revenue of circa £8m in 2024.
· Crossword is aiming to deliver EBITDA and cash breakeven on a monthly
basis during the second half of 2024.
Tom Ilube CBE, CEO at Crossword Cybersecurity Plc, said:
"As the economic landscape continues to be challenging for many, Crossword is
fortunate to be operating in the cyber security sector where client spend has
held up well in the first half of the year. I am pleased to present the
interim accounts of Crossword Cybersecurity plc for the 6 month period to 30
June 2023. During this period, we have made significant progress on our path
to profitability and continue in our mission to reduce cyber risks for our
clients by providing a portfolio of innovative products and services.
In an environment of increasing number and complexity of cyber-attacks,
Crossword's business model centred around specialist cyber security products
and services with distinct USPs and a strongly growing Consulting division,
saw continued strong revenue growth in the first half of 2023.
We are grateful for the continued support of our shareholders. The
investment round earlier this month is intended to take Crossword to EBITDA
and cash breakeven in the second half of 2024. We are also grateful for our
dedicated employees, and valued customers for their ongoing support. Together,
we will navigate the challenges and opportunities that lie ahead to deliver
results for our shareholders, and a lower risk cyber environment for our
clients and partners to operate in.
I am excited about the opportunities with AI and LLMs (Large Language
Models). We are exploring initiatives with industry partners and leading
academics to investigate the application of Generative AI to cyber security.
It is extremely challenging for any single company to keep track of and
evaluate the many applications that are emerging, so Crossword is looking to
bring together its major clients to engage with this exciting area.
2023 is shaping up to be another year of strong growth for Crossword with a
pipeline of opportunities to drive revenue in the second half of 2023. Our
challenge is to convert this strong pipeline into signed contracts, and this
will depend on our clients' and prospects' spend holding up during H2. We
are forecasting continued growth into 2024, with revenue growth of 30% to
circa £8m."
Investor Call
Members of the Executive Team will provide a live presentation relating
to the Interim Results via the Investor Meet Company platform on Monday 2nd
Oct 2022 at 12:00pm BST.
The presentation is open to all existing and potential shareholders. Questions
can be submitted pre-event via your Investor Meet Company dashboard up until
9:00am the day before the meeting or at any time during the live
presentation. Investors can sign up to Investor Meet Company for free and
add to meet CROSSWORD CYBERSECURITY PLC via:
https://www.investormeetcompany.com/crossword-cybersecurity-plc/register-investor
(https://www.investormeetcompany.com/crossword-cybersecurity-plc/register-investor)
Investors who already follow Crossword on the Investor Meet Company platform
will automatically be invited.
- Ends -
Contacts
Crossword Cybersecurity plc - Tel: +44 (0) 333 090 2587
Email: info@crosswordcybersecurity.com
Tom Ilube, Chief Executive Officer
Mary Dowd, Chief Financial Officer
Grant Thornton (Nominated Adviser) - Tel: +44 (0) 20 7383 5100
Colin Aaronson / Jamie Barklem / Ciara Donnelly
Hybridan LLP (Broker) - Tel: +44 (0)203 764 2341
Claire Louise Noyce
For media enquiries contact:
Duncan Gurney, GingerPR
duncan@gingerpr.co.uk - Tel: +44 (0)1932 485 300
About Crossword Cybersecurity plc
Crossword offers a range of cyber security solutions to help companies
understand and reduce cyber security risk. We do this through a combination of
people and technology, in the form of SaaS and software products, consulting,
and managed services. Crossword's areas of emphasis are cyber security
strategy and risk, supply chain cyber, threat detection and response, and
digital identity and the aim is to build up a portfolio of cyber security
products and services with recurring revenue models in these four areas. We
work closely with UK universities and our products and services are often
powered by academic research-driven insights. In the area of cybersecurity
strategy and risk our consulting services include cyber maturity assessments,
industry certifications, and virtual chief information security officer
(vCISO) managed services.
Crossword's end-to-end supply chain cyber standard operating model (SCC SOM)
is supported by our best-selling SaaS platform, Rizikon Assurance, along with
cost-effective cyber audits, security testing services and complete managed
services for supply chain cyber risk management. Threat detection and response
services include our Nightingale AI-based network monitoring, our Trillion and
Arc breached credentials tracking platforms, and incident response.
Crossword's work in digital identity is based on the World Wide Web Consortium
W3C verifiable credentials standard and our current solution, Identiproof,
enables secure digital verification of individuals to prevent fraud.
Crossword serves medium and large clients including FTSE 100, FTSE 250 and
S&P listed companies in various sectors, such as defence, insurance,
investment and retail banks, private equity, education, technology and
manufacturing and has offices in the UK, Poland and Oman. Crossword is traded
on the AIM market of the London Stock Exchange.
Visit Crossword at https://www.crosswordcybersecurity.com/
(https://www.crosswordcybersecurity.com/)
CHIEF EXECUTIVE OFFICER'S REVIEW
I am pleased to present the interim accounts of Crossword Cybersecurity plc
for the 6 month period to 30 June 2023. During this period, we have made
significant progress on our path to profitability and continue in our mission
to reduce cyber risks for our clients by providing a portfolio of innovative
products and services.
Financial Performance: Our financial performance during this period has been
strong. Revenue of £1.9m for the 6 months ended 30 June 2023, was an increase
of 27% over the same period in the previous year. We have not seen a
slow-down in cyber security spend amongst our core regulated and critical
national infrastructure clients. Strong revenue growth was experienced across
all revenue lines and ARR at the end of H1 2023 was £2.7m, which is growth of
35% compared to the same period in the prior year. Software Engineering
services revenue in H1 2023 helped to strengthen ties with a key partner and
provided a valuable development opportunity for staff. Crossword continued
to leverage its 100+ client base to cross sell. We have increased emphasis
on targeting our larger clients that can make full use of Crossword's range of
products and services to drive scale while managing risk.
In H1 2023, overall gross margin increased to 20% compared to 16% in H1 2022.
The consulting margin continues to improve as revenue scales to achieve
critical mass. The Company invested in Managed Services' platform and
operations, to support future revenue growth. This had a short-term adverse
impact on Managed Services margin. 80% growth in the higher margin product
revenues helped to drive margin improvement.
Administrative expenses have stabilised in 2023, with a strong foundation now
in place to drive the revenue growth and path to profitability. Excluding
one-off professional fees in H1 2023, administrative expenses have increased
by less than 2% over the same period in the prior year. With increasing
revenue, this represents a reduction of 20% in administrative expenses as a
percentage of revenue in H1 2023. Crossword is targeting a drop by half in
administrative expenses as a percentage of revenue in 2024 compared to 2022.
During H1 2023 we reduced headcount by c12% and have a strong cost control
drive.
The momentum from 2022 placed Crossword in a strong position to achieve
revenue growth to circa £6m in 2023 and focus on margin improvement will
ensure that there is a clear, carefully managed route to achieving
profitability in the medium term. Furthermore, the Company is projecting the
revenue growth rate for 2024 to be circa 30%, to achieve total revenue of
circa £8m in 2024. Crossword is aiming to deliver EBITDA and cash breakeven
on a monthly basis during the second half of 2024.
Operational Highlights: In addition to our financial achievements, we have
made significant strides operationally. In April 2023 we announced completion
of £375,000 convertible loan notes, £250,000 of which I subscribed for.
Additionally, in late August 2023 Crossword entered into agreements for a five
year, unsecured convertible loan to the value of £2,015,000. Following
issue of these new Convertible Loan Notes, the Company will have £485,000
capacity for further debt. The funds raised will be used to support sales
and marketing, product and services development and to provide general working
capital.
An example of how Crossword is supporting clients to reduce cyber risks, and
to cross sell, is the contract awarded in June 2023 with a FTSE 250
engineering company to provide forward looking Dark Web Threat Intelligence
services. The service will be delivered via Crossword's Trillion platform
(https://www.crosswordcybersecurity.com/trillion) using its market leading
credential leak and online discussion monitoring services. The technical
solution will be backed up by expert human analysis to deliver the service.
The FTSE 250 engineering company is already a Consulting client. The close
relationship between the consulting team and the product team at Crossword
helped identify the benefits the client will derive from the Dark Web Threat
Intelligence services.
Our commitment to innovation and excellence has resulted in our inclusion in
the CYBERTECH100 (https://fintech.global/cybertech100/) in May 2023. This is
an annual list of 100 of the world's most innovative CyberTech companies
selected by a panel of industry experts and analysts. Companies were
selected for inclusion in the fourth annual CyberTech100 based on their
innovative use of technology to solve a significant industry problem or
generate cost savings or efficiency improvements across the security value
chain. CYBERTECH100 considers that these are the companies every financial
institution needs to know about as they consider and develop their information
security and financial crime fighting strategies.
During the first half of 2023, our product development teams made great
strides including in the development of Rizikon modules for use in our Supply
Chain Cyber practice, which we offer in response to client demand and the
substantial increase in supply chain cyber threat levels. The integrated
practice provides a set of controls, processes, and tools, along with a range
of managed services, advice and training to massively reduce the risk of
direct cyber-attacks as well as threats via third parties across a company's
supply chain. Our Trillion development team also progressed new features and
modules.
The whole company is focused on our path to profitability, aiming to achieve
EBITDA and cash breakeven on a monthly basis during the second half of 2024.
Cybersecurity Landscape: The cybersecurity landscape continues to evolve
rapidly, presenting both challenges and opportunities. We remain vigilant in
adapting to emerging threats and technologies, ensuring that our solutions are
at the forefront of the industry. Our dedication to staying ahead of the curve
positions us well for future success.
I am excited about the opportunities with AI and LLMs (Large Language
Models). We are exploring initiatives with industry partners and leading
academics to investigate the application of Generative AI to cyber security.
It is extremely challenging for any single company to keep track of and
evaluate the many applications that are emerging, so Crossword is looking to
bring together its major clients to engage with in this exciting area.
The increase in ransomware attacks drove the launch of our Ransomware
Readiness Assessment service during H1 2023. Ransomware is a malware designed
to deny a user or organisation access to files on their computer. Ransomware
affected 66% of organizations in 2021, an increase of 78% over 2020, according
to Sophos's "The State of Ransomware 2022" report
(https://assets.sophos.com/X24WTUEQ/at/4zpw59pnkpxxnhfhgj9bxgj9/sophos-state-of-ransomware-2022-wp.pdf)
. The cost of these attacks can extend far beyond recovering systems and the
ransom, if paid. Successful ransomware attacks almost always result in a
significant portion of an organisation's data being stolen, with associated
costs including reputational damage, the loss of customers, a long-term loss
of productivity during systems recovery, rising insurance premiums and an
estimated 80% chance of a repeat attack.
Our Ransomware Readiness Assessment helps organisations reduce their exposure
to ransomware attacks, provides detailed assessments on areas requiring
protection and recommends how they should respond to attacks.
Outlook: Looking ahead, we remain optimistic about the future and are
projecting the revenue growth rate for 2024 to be circa 30%, to achieve total
revenue of circa £8m in 2024. While the cybersecurity industry remains
dynamic and competitive, our team's expertise and our commitment to innovation
will continue to drive our success.
In conclusion, I would like to express my gratitude to our dedicated
employees, loyal shareholders, and valued customers for their ongoing support.
Together, we will navigate the challenges and opportunities that lie ahead to
deliver results for our shareholders, and a lower risk cyber environment for
our clients and partners to operate in.
Condensed Consolidated Statement of Unaudited Audited Unaudited
Comprehensive Income
6 Months to
12 Months to
6 Months to
30 June 2023
31 December 2022
30 June 2022*
£ £ £
Revenue 1,941,995 3,648,000 1,525,234
Cost of Sales (1,560,960) (2,755,662) (1,282,216)
Other income - 39,814 -
Gross Profit 381,035 932,152 243,018
Administrative expenses (2,523,263) (4,967,499) (2,223,880)
Other operating expense (200,521) (304,457) (135,636)
Finance costs-other interest expense (183,574) (395,762) (155,365)
Foreign exchange (20,382) (1,569) (1,123)
Gain on remeasurement of financial assets and liabilities - 170,283 -
Loss for the year before taxation (2,546,705) (4,566,852) (2,272,986)
Tax credit / (expense) (3,429) 1,144,302 393,810
Loss for the Period (2,550,134) (3,422,550) (1,879,176)
Other Comprehensive Income
Items that may be reclassified to profit or loss:
Foreign exchange translation Gain / (Loss) 1,448 1,782 (146)
Total Other Comprehensive Income 1,448 1,782 (146)
Total Comprehensive Loss (2,548,686) (3,420,768) (1,879,322)
Loss for the period attributable to:
Owners of the parent (2,530,551) (3,408,149) (1,861,609)
Non-controlling interests (19,583) (14,401) (17,567)
Total Loss for the Period (2,550,134) (3,422,550) (1,879,176)
Total comprehensive loss for the period attributable to:
Owners of the parent (2,529,103) (3,406,367) (1,861,755)
Non-controlling interests (19,583) (14,401) (17,567)
Total Comprehensive Loss (2,548,686) (3,420,768) (1,879,322)
Loss Per Share (basic) (0.03) (0.04) (0.02)
Loss Per Share (diluted) (0.03) (0.04) (0.02)
All results are derived from continuing operations
* Restated as per 2022 Annual Report note 1.2
Condensed Consolidated Statement of Unaudited Audited Unaudited
Financial Position as at 30 June 2023
Group
Group
Group
30 June 2023 31 December 2022 30 June 2022
£
Non-Current Assets
Intangible assets 2,698,879 2,708,423 2,761,202
Tangible assets 34,770 45,039 21,146
Goodwill 875,277 875,277 875,277
Unlisted investment 456,834 456,834 456,834
Total non-current assets 4,065,760 4,085,573 4,114,459
Current Assets
Trade and other receivables 1,198,658 2,078,050 1,570,310
Current tax receivable 398,511 398,511 -
Cash and cash equivalents 424,498 2,077,771 579,444
Total current assets 2,021,667 4,554,332 2,149,754
Total Assets 6,087,427 8,639,905 6,264,213
EQUITY
Attributable to the owners of the Company
Share Capital 468,589 462,019 377,325
Share premium account 18,749,829 18,534,372 15,118,699
Convertible debt reserve 214,742 195,685 -
Equity reserve 439,329 370,762 313,262
Retained earnings (17,736,187) (15,235,500) (13,688,960)
Translation of foreign operations (11,762) (13,210) (15,138)
Attributable to owners of the parent 2,124,540 4,314,128 2,105,188
Non-controlling interests (173,110) (153,527) (156,695)
Total equity 1,951,430 4,160,601 1,948,493
LIABILITIES
Current Liabilities
Trade and other payables 2,258,183 2,456,783 2,282,918
Other current liabilities 17,000 17,000 1,381,594
Total current liabilities 2,275,183 2,473,783 3,664,512
Long Term Liabilities
Convertible loan notes 1,685,621 1,329,678 -
Bank loans 42,500 51,000 59,500
Other non-current liabilities 132,693 624,843 591,708
Total long term liabilities 1,860,814 2,005,521 651,208
Total Liabilities 4,135,997 4,479,304 4,315,720
Total Equity & Liabilities 6,087,427 8,639,905 6,264,213
Condensed Consolidated Statement of
Changes in Equity
Unaudited - six months ended 30 June 2023 Share Capital Share Premium Convertible Debt Reserve Equity Reserve Retained Earnings Translation Reserve Attributable to owners of the parent Non-controlling interests Total
£
At 1st January 462,019 18,534,372 195,685 370,762 (15,235,500) (13,210) 4,314,128 (153,527) 4,160,601
Issue of shares 6,570 215,457 - - - - 222,027 - 222,027
Issue of convertible debt - - 48,921 - - - 48,921 - 48,921
Transfer of convertible debt reserve to retained earnings - - (29,864) - 29,864 - - - -
Employee share schemes - value of employee services - - - 68,567 - - 68,567 - 68,567
Loss for the period - - - - (2,530,551) - (2,530,551) (19,583) (2,550,134)
Other comprehensive loss for the period - - - - - 1,448 1,448 - 1,448
At 30 June 468,589 18,749,829 214,742 439,329 (17,736,187) (11,762) 2,124,540 (173,110) 1,951,430
Audited - year ended 31 December 2022
At 1st January 374,786 14,971,221 - 240,310 (11,827,351) (14,992) 3,743,974 (139,126) 3,604,848
Issue of shares 87,233 3,750,012 - - - - 3,837,245 - 3,837,245
Transaction costs - (186,861) - - - (186,861) - (186,861)
Issue of convertible debt - - 195,685 - - - 195,685 - 195,685
Employee share schemes - value of employee services - - - 130,452 - - 130,452 - 130,452
Loss for the period - - - - (3,408,149) - (3,408,149) (14,401) (3,422,550)
Other comprehensive loss for the period - - - - - 1,782 1,782 - 1,782
At 31 December 462,019 18,534,372 195,685 370,762 (15,235,500) (13,210) 4,314,128 (153,527) 4,160,601
Unaudited - six months ended 30 June 2022
At 1st January 374,786 14,971,221 - 240,310 (11,827,351) (14,992) 3,743,974 (139,126) 3,604,847
Issue of shares 2,539 147,478 - - - - 150,017 - 150,017
Employee share schemes - value of employee services - - - 72,952 - - 72,952 - 72,952
Loss for the period - - - - (1,861,609) - (1,861,609) (17,567) (1,879,177)
Other comprehensive loss for the period - - - - - (146) (146) - (146)
At 30 June 377,325 15,118,699 - 313,262 (13,688,960) (15,138) 2,105,188 (156,693) 1,948,493
Condensed Consolidated Statement of Cashflows Unaudited Audited Unaudited
6 Months to
12 Months to
6 Months to
30 June 2023
31 December 2022
30 June 2022
Cashflows From Operating Activities £ £ £
Loss for the period (2,550,134) (3,422,550) (1,879,176)
Movement in trade and other receivables 879,392 (786,642) (279,314)
Movement in trade and other payables (530,200) 381,130 217,315
Depreciation 10,372 11,287 2,581
Amortisation 190,148 293,170 133,055
Finance costs 183,574 395,762 156,487
Gain on remeasurement of financial assets and liabilities - (170,283) -
Employee share schemes 68,567 130,452 72,952
Tax (credit) / expense 3,429 (1,144,302) (393,810)
Tax received / (paid) (3,429) 348,662 (2,907)
Net Cashflow from Operating Activities (1,748,281) (3,963,314) (1,972,817)
Cashflow From Investing Activities
Investment in intangible assets (180,605) (203,627) (96,291)
Purchase of tangible assets - (48,971) (17,061)
Acquisition of subsidiaries, net of cash acquired - (625,408) (625,408)
Net Cashflow from Investing Activities (180,605) (878,006) (738,760)
Cashflows From Financing Activities
Proceeds from issue of ordinary shares - 3,837,245 -
Share issuance costs - (186,861) -
Proceeds from issue of convertible loan notes 375,000 800,000 -
Repayment of convertible loan notes - (700,000) -
Interest paid on convertible loan notes (98,230) (189,640) (81,896)
Other interest paid (2,606) (16,495) -
Net Cash Inflow from Financing Activities 274,164 3,544,249 (81,896)
Net Increase in Cash & Cash Equivalents (1,654,722) (1,297,071) (2,793,473)
Foreign Currency Translation Difference 1,449 1,780 (145)
Cash and Cash Equivalent at the beginning of the period 2,077,771 3,373,062 3,373,062
Cash and Cash Equivalent at the end of the period 424,498 2,077,771 579,444
Notes to the Financial Information
1. Accounting policies
1.1 The group and its operations
Crossword Cybersecurity plc (the "Company") is a company incorporated on 6
March 2014 in the United Kingdom under the Companies Act 2006. The Company is
the parent company of the Crossword group of Companies focusing on the
cybersecurity sector. The principal activities are the development and
commercialisation of university research-based cyber security related software
and cybersecurity consulting.
The financial information includes the results of the Company and its
subsidiaries (together referred to as the "Group" and individually as "Group
entities".
1.2 Basis of preparation of financial information
The financial information has been prepared in accordance with the
requirements of the London Stock Exchange plc AIM Rules for Companies ("AIM
Rules") and in accordance with UK adopted International Financial Reporting
Standards ("IFRS") in conformity with the requirements of the Companies Act
2006 applicable to companies reporting under IFRS. As permitted, this Half
Yearly Financial Report has been prepared in accordance with the AIM Rules and
not in accordance with IAS 34 'Interim Financial Reporting'. The financial
information has been prepared on the historical cost basis, except for
accounting for business combinations and certain financial assets and
liabilities. The preparation of financial information in conformity with IFRS
requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group's
accounting policies. Changes in assumptions may have a significant impact on
the financial information in the year the assumptions changed. Management
believes that the underlying assumptions are appropriate.
The financial information does not comprise statutory accounts within the
meaning of section 435 of the Companies Act 2006. The financial information
together with the comparative information for the six months ended 30 June
2022 are unaudited with the audited information included for the 12 month
period ended 31 December 2022. The audited information received an audit
report which was unmodified and did not include a statement under section
498(2) or section 498(3) of the Companies Act 2006. The audit report for the
12 month period ended 31 December 2022 included an emphasis of matter relating
to going concern.
The financial information was approved by the Board of Directors on 27
September 2023 and authorised for issue on 28 September 2023.
The accounting policies used in the preparation of the financial information
for the six months ended 30 June 2023 are in accordance with the recognition
and measurement criteria of the International Financial Reporting Standards in
conformity with the requirements of the Companies Act 2006 and are consistent
with those which will be adopted in the annual financial statements for year
ending 31 December 2023.
These Interim Financial Statements have been prepared in accordance with the
accounting policies, methods of computation and presentation adopted in the
financial statements for the year ended 31 December 2022.
1.3 Going concern
The financial information has been prepared on a going concern basis. The
Group's business model has been enhanced following the three acquisitions in
2021 and early 2022. The Group's operations have incurred a loss in the
financial period whilst the Group's products and services continue to be
enhanced, developed and brought to market. The Directors forecast for the full
year 2023 show a trading loss with net cash outflows as the business continues
to develop and enhance its products and services and grows revenue. The Groups
operations in 2023 have been largely supported by cash inflows from customers,
funds from fundraises in 2021 and issuance of new loan notes in 2022 and 2023.
The Directors have considered the Group's forecast business and cash
requirements. On 31 August 2023 the company entered into agreements for a five
year, unsecured, convertible loan of £2.015m to provide liquidity to the
group. The Directors have assessed the group business model and the required
levels of investment in its growth plans. The liquidity raised is at a level
to support the group to achieve EBITDA and cash breakeven in the second half
of 2024.
The Directors have concluded that the current position could give rise to a
material uncertainty arising from events or conditions that may cast
significant doubt on the entity's ability to continue as a going concern if
cash flows varied significantly from those expected to be generated by the
approved business model. However, based on the business model, the Directors
are confident that they can continue to adopt the going concern basis in
preparing the financial statements.
1.4 Basis of consolidation
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. Control exists when the Group has:
− the power over the investee;
− exposure, or rights, to variable returns from its involvement with the
investee; and
− the ability to use its power over the investee to affect the amount of the
investor's returns.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation. Uniform accounting policies are applied by the Group entities
to ensure consistency.
1.5 Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method.
The cost of the acquisition is measured as the aggregate of the fair values,
at the date of exchange, of assets given, liabilities incurred or assumed, and
equity instruments issued by the Group in exchange for control of
the acquiree. Acquisition related costs are recognised in the income statement
as incurred.
Any contingent consideration to be transferred by the Group is recognised at
fair value at the acquisition date. Subsequent changes to the fair value of
the contingent consideration that is deemed to be an asset or liability is
recognised in the consolidated income statement. Contingent consideration that
is classified as equity is not remeasured, and its subsequent settlement is
accounted for within equity.
Goodwill arising on acquisition is recognised as an asset and initially
measured at cost, being the excess of the cost of the business combination
over the Group's interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities recognised. For the purpose of
impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to the cash generating unit ("CGU") that is
expected to benefit from the synergies of the combination. CGU to which
goodwill has been allocated is tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired. Any
impairment loss is recognised directly in the income statement.
1.6 Revenue
Revenue comprises the fair value of consideration received or receivable for
licence income and the rendering of services in the ordinary course of the
Group's activities. Revenue is shown net of value added tax and trade
discounts. Income is reported as follows:
(a) Licence income
Technology and product licensing revenue represents amounts earned for
licences granted under licensing agreements and recognized over time. Revenues
relating to up-front payments are recognised when the obligations related to
the revenues have been completed. Revenues for maintenance and support
services are recognised in the accounting periods in which the services are
rendered.
(b) Rendering of Services
Services relate to implementation and deployment fees for the technology and
products licensed to customers. Revenue is recognised in the accounting
periods in which the services are rendered.
(c) Consulting
Consulting revenue is recognised when the performance obligation is met,
primarily at a point of time. Contracts are structured to support the revenue
recognition process by stating what the objectives and deliverables are for
each part of the project, and the revenue attributable to each deliverable.
2. Revenue and segmental information
An analysis of the Group's revenue for each period for its continuing
operations, is as follows:
£ Unaudited Audited Unaudited
6 Months to
12 Months ended
6 Months to
30 June 2023
31 December 2022
30 June 2022
Revenue from the sale of goods/licences 348,388 479,849 179,679
Revenue from the rendering of services - 64,667 7,719
Revenue from consulting services 1,439,208 3,013,884 1,337,835
Software engineering revenue 154,400 89,600 -
Total Revenue 1,941,995 3,648,000 1,525,234
The IFRS 8 Operating segments requires the Group to determine its operating
segments based on information which is provided internally. Based on the
internal reporting information and management structures within the Group, it
has been determined that there are two operating segments established in
accordance to differences between products and services - Software products
and Cybersecurity services.
These operating segments are based on the internal reports that are reviewed
and used by the Board of Directors (who are identified as the Chief Operating
Decision Makers ('CODM')) in assessing performance and in determining the
allocation of resources. There is no aggregation of operating segments.
The CODM reviews EBITDA (earnings before interest, tax, depreciation and
amortisation). The accounting policies adopted for internal reporting to the
CODM are consistent with those adopted in the financial statements. The
information regarding the Group's reportable segments is presented below:
Unaudited - six months ended Software product and Services and Engineeing Services Consulting and Managed Services Eliminations Total
30 June 2023
£ £ £ £
Revenue 502,788 1,473,489 (34,282) 1,941,995
Cost of Sales (256,850) (1,322,673) 18,563 (1,560,960)
Gross Profit 245,938 150,816 (15,719) 381,035
Administrative expenses (2,259,412) (286,812) 22,961 (2,523,263)
Other operating expense (160,032) (40,488) - (200,521)
Financial income and expenses (93,565) (103,150) (7,242) (203,956)
Loss for the period before taxation (2,267,071) (279,634) - (2,546,705)
Tax credit / (expense) (3,429) - - (3,429)
Loss for the Period (2,270,500) (279,634) - (2,550,134)
Total Comprehensive Loss (2,269,052) (279,634) - (2,548,686)
Segment assets 10,237,468 1,738,105 (5,888,146) 6,087,427
Segment liabilities 4,052,078 3,240,974 (3,157,055) 4,135,997
EBITDA (1,816,723) (325,505) - (2,142,228)
Audited - year ended Software product and Services and Engineeing Services Consulting and Managed Services Eliminations Total
31 December 2022
£ £ £ £
Revenue 634,116 3,131,103 (117,219) 3,648,000
Cost of Sales (136,287) (2,619,375) - (2,755,662)
Other income 39,814 - - 39,814
Gross Profit 537,643 511,728 (117,219) 932,152
Administrative expenses (4,561,425) (523,292) 117,218 (4,967,499)
Other operating income (226,447) (78,010) - (304,457)
Financial income and expenses (29,958) (197,090) - (227,048)
Loss for the year before taxation (4,280,186) (286,666) - (4,566,852)
Tax credit / (expense) 1,144,302 - - 1,144,302
Loss for the Year (3,135,884) (286,666) - (3,422,550)
Total Comprehensive Loss (3,134,102) (286,666) - (3,420,768)
Segment assets 10,413,274 1,594,370 (3,367,738) 8,639,905
Segment liabilities 4,234,893 2,649,280 (2,404,869) 4,479,304
EBITDA (4,023,782) (11,565) - (4,035,347)
Unaudited - six months ended Software product and Services and Engineeing Services Consulting and Managed Services Eliminations Total
30 June 2022 *
£ £ £ £
Revenue 187,399 1,407,320 (69,485) 1,525,234
Cost of Sales (60,785) (1,221,432) - (1,282,216)
Gross Profit 126,614 185,888 (69,485) 243,017
Administrative expenses (2,051,278) (242,087) 69,485 (2,223,880)
Other operating expense (84,714) (50,922) - (135,636)
Financial income and expenses (67,134) (89,353) - (156,487)
Loss for the period before taxation (2,076,512) (196,474) - (2,272,986)
Tax credit / (expense) 393,810 - - 393,810
Loss for the Period (1,682,703) (196,474) - (1,879,176)
Total Comprehensive Loss (1,682,849) (196,474) - (1,879,322)
Segment assets 7,630,989 1,113,659 (2,480,434) 6,264,214
Segment liabilities 3,970,879 2,107,083 (1,762,242) 4,315,719
EBITDA (1,870,851) (111,135) - (1,981,985)
* Restated as per 2022 Annual Report note 1.2
3. Share Options
775,270 of share options were issued by Crossword Cybersecurity plc in the
period up to 30 June 2023, with total options issued amounted to 2,943,923.
The fair value of these share options is calculated by the Company using the
binomial model and Monte Carlo simulation model. The expense, where material,
is recognised on a straight-line basis over the period from the date of award
to the date of vesting, based on the Company's best estimate of the number of
shares that will eventually vest.
4. Loss per Share
Earnings per share is calculated by dividing the loss for the period
attributable to ordinary equity shareholders of the parent by the weighted
average number of ordinary shares outstanding during the year. During the
period the calculation was based on the loss for the period attributable to
owners of the parent of £2,530,551 (full year 2022: £3,408,149) divided by
the weighted average number of ordinary shares of 93,212,166 (full year 2022:
80,022,937).
5. Subsequent events
On 31 August 2023 the Company announced that it has entered into agreements
for a five year, unsecured, convertible loan to the value of £2.015m. The
funds raised will be used to support sales and marketing, product and services
development and to provide general working capital. The interest rate is fixed
at 12% and is payable at the end of the term.
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