Final Results
23/03/2022 07:00
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RNS Number : 6792F ECSC Group PLC 23 March 2022
23 March 2022
ECSC Group plc
('ECSC' or the 'Company' or the 'Group')
Final Results for the Year Ended 31 December 2021
Strong revenue growth delivering positive Adjusted EBITDA
ECSC Group plc (AIM: ECSC) a leading provider of cyber security services,
announces its audited final results for the year ended 31 December 2021.
Financial Highlights
· Organic revenue up 8% to £6.14m (2020: £5.66m)
· Managed Detection and Response ("MDR") division recurring revenue
growth of 7% to £2.59m (2020: £2.42m)
· Assurance division repeat revenue increased to 81% (2020: 73%)
· Adjusted EBITDA* profit £0.17m (2020: £0.38m)
· Agreed a new £1.0m loan to support Group's organic growth plans
· Cash at the period end was £1.17m, including new £1.0m loan and
£0.02m of Covid-19 related government support (31 December 2020: £1.12m,
including £0.42m of Covid-19 related government support).
* Adjusted EBITDA excludes one-off charges and share based charges (see note
13)
Operational Highlights
· Continued development of partner programme, partner revenue
proportion increased to 11% (2020: 4%)
· Continued development of proprietary Artificial Intelligence (AI)
software, 15% of revenue (2020: 14%)
Ian Mann, Chief Executive Officer of ECSC, commented:
"The Group made good progress during the 2021 financial year, and we are
pleased to report a return to growth in both divisions, and continued to be
Adjusted EBITDA positive.
"Responding to the Covid-19 pandemic, the Group re-engineered its sales and
delivery processes to reflect and cater for the new working patterns of our
clients, with a renewed focus on our core strengths and expertise. As a
result, we have been able to deliver increased value to our clients in
preventing, detecting, and responding to cyber security breaches, with a
marked increase in sales across both divisions.
"Market demand remains strong as businesses continue to recognise the value of
sound cyber security solutions to avoid costly breaches and disruptive down
time, especially with the return to office working.
"Momentum has continued into Q1 2022, and we look forward to keeping the
market updated on our progress."
Enquiries:
ECSC Group
plc
+44 (0) 1274 736 223
David Mathewson (Non-Executive Chairman)
Ian Mann (Chief Executive Officer)
Allenby Capital (Nominated Adviser and Broker) +44 (0) 203 3285
656
David Hart / Piers Shimwell (Corporate Finance)
Tony Quirke (Equity Sales and Corporate Broking)
Yellow Jersey (PR and
IR)
+44 (0) 203 0049 512
Sarah Hollins
Annabel Atkins
For more information please visit the following: https://investor.ecsc.co.uk/
Notes to Editors:
Founded in 2000, ECSC Group plc (AIM: ECSC) is the UK's longest running
full-service cyber security service provider. With an extensive range of
in-house developed proprietary technologies, including advanced Artificial
Intelligence (AI) systems, ECSC provides expert security breach prevention and
advisory support to organisations across all sectors.
ECSC operates from two Security Operations Centres (SOCs): one in Yorkshire,
UK, and the other in Brisbane, Australia. ECSC offers flexible 24/7/365
cyber security monitoring, detection, and response support to its clients,
either as a fully managed service or to enhance an organisation's existing
cyber security systems. In addition, ECSC's Assurance division provides
guidance, certification to industry standards, and extensive testing services
to allow organisations to assess their cyber security protection.
The Company's broad client base ranges from e-commerce start-ups to global
blue-chip organisations, including 10% of the FTSE 100.
For more information please visit the following: https://investor.ecsc.co.uk/
(https://investor.ecsc.co.uk/)
Chairman's Statement
These results show a clear return to growth across the Group, both within
Managed Detection and Response ("MDR") and Assurance divisions. It is also
pleasing to see that the percentage of Group revenue from MDR recurring
revenue has now grown to nearly half from being about a quarter at the IPO.
This confirms the ongoing requirements for all organisations to maintain their
cyber security defences and breach detection capability. We continue to emerge
from the challenges of the Covid-19 pandemic in a stronger position.
Despite some ongoing impact caused by the pandemic and the economic risks
associated with Brexit, the Group has continued to demonstrate resilience and
financial progress based on quality of delivery and unrivalled client
reputation and retention. I am proud of the way the team has adapted and
innovated as business practices continue to change, affecting both sales and
delivery processes.
The ongoing risk of ransomware and its potentially catastrophic impact,
combined with the multi-million-pound fines related to the UK General Data
Protection Regulation (UK-GDPR), substantiate that all organisations must
build resilience into their cyber security protection, detection and response
capabilities. ECSC remains a trusted partner to help organisations of all
sizes achieve this.
The continued growth in 24/7/365 detection services, delivered through the
Security Operations Centres (SOCs) in the UK and Australia, supported by the
ECSC Kepler Artificial Intelligence (AI), shows the importance of early breach
detection to contain an incident and limit damaging consequences such as
ransomware. For all but the largest global organisations, the outsourcing of
this critical function continues to be the logical choice, and ECSC has the
technology, people, and certified processes to deliver.
The Group's successful agreement of a £1.0m new growth loan demonstrates
additional confidence in our operations and results.
On behalf of the board, I would like to thank all of our clients, partners,
team, advisors, and investors for their continued support throughout a
challenging year for us all.
ECSC continues to be well-positioned in the growing cyber security
marketplace, and we are now firmly back on our organic growth strategy and
related recruitment activities.
David Mathewson
Non-Executive Chairman
22 March 2022
Chief Executive Officer's Review
The Group made good progress during the 2021 financial year, and we are
pleased to report a return to growth in both divisions, and continued to be
Adjusted EBITDA positive.
The Assurance division has also seen a significant increase in repeat revenue
from existing clients, confirming the exceptional service quality and value
perceived by clients in their breach prevention and certification activities.
Post Covid-19 Challenges and Opportunities
The Covid-19 pandemic has demanded changes to both our sales and delivery
processes, presented the opportunity to challenge existing beliefs and, in the
process, re-engineer operations to reflect new realities.
A good example of this is our sales process that, pre-pandemic, relied
extensively on multiple face-to-face meetings. The necessities of our
Covid-19 response meant that we had to rapidly change this approach and
embrace remote, video-based, sales and scoping processes. As a result, we
have completely re-engineered the sales operation and supporting functions,
reflecting the new working patterns of our clients and reducing the direct
sales headcount, whilst increasing sales in the process.
We have then extended a wider strategic review of our core strengths and
associated target clients to facilitate a better fit with more profitable
services lines and client relationships.
Inflationary Pressures
2021 saw significant inflationary pressures and wage expectations of skilled
and experienced cyber security professionals. As a result, we have instigated
a formal annual pricing review. This resulted in increases in daily consulting
rates averaging 10% in August 2021. We anticipate this price pressure to
continue with the current global uncertainties and resulting UK and global
inflation. ECSC's committed staff policy is to pay in the top 20% of market
rates for each role, combined with industry leading career development.
Current Ukraine Conflict
Many clients are concerned about the potential for an increase in cyber
attacks originating from Russia. These concerns may be well-placed, and
confirm the importance of achieving and maintaining an appropriate level of
cyber security protection and breach detection for all organisations.
Growth Strategy
We are confident that the organic growth strategy of ECSC remains appropriate.
Despite the continued challenges of 2021, we are seeing the results of process
re-engineering and a focus on our core expertise and delivering value to our
clients in preventing, detecting, and responding to, cyber security breaches.
Key Performance Indicators
The Key Performance Indicators below were established in 2018 to enable
meaningful measurement of the Group's performance.
Performance Indicator Rationale 2021 2020 2019 Management Comment
Measurement of the success of the organic growth strategy The Group saw an increase in Assurance and MDR revenue due to further
investment in the organic growth strategy and recovery from Covid
Revenue Growth 8% (4%) 10%
MDR Recurring Revenue Growth Visibility of the success of
increasing the percentage of revenue from long-term 7% 22% 27% Continued growth due to new contract wins and contract expansions
recurring revenues
MDR Recurring Revenue Proportion Visibility of the success of
increasing the percentage 42% 43% 34% In line with the strategy to increase this proportion
of revenue from long-term
recurring revenues
Combined measurement of
MDR Order Book new client contracts together with renewals of existing client contracts £2.2m £2.6m £2.6m The management team's favoured overall measure of progress in managed services
MDR Gross Margin Delivery efficiency measurement 61% 73% 68% Increased investment in this division
Assurance Repeat Revenue Quasi-recurring from longer- term consulting clients Indicative of strong client retention and continued trust in ECSC quality
81% 73% 73%
Assurance Gross Margin Delivery efficiency measurement A reflection on capacity required for growth and management of consultant
workload
63% 58% 54%
Research and Development Continued investment in technology and intellectual property development Increased investment in technologies for the future
(% of revenue) 15% 14% 13%
Ian Mann
Chief Executive Officer
22 March 2022
Financial Review
Principal Activities
The principal activity of the Group during the year continued to be the
provision of professional cyber security services, including Assurance, MDR
and the sale of Vendor Products.
Comparative Financial Information
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Revenue
Assurance 3,123 2,724
MDR 2,886 2,732
Vendor Products 93 125
Other 42 82
6,144 5,663
Gross Profit
Assurance 1,965 1,576
MDR 1,757 1,994
Vendor Products 15 25
Other (63) (47)
3,674 3,548
Adjusted EBITDA*
Other Income 282 297
Sales & Marketing Costs (2,018) (1,713)
Administration Expenses (1,773) (1,757)
165 375
EBITDA**
Share Based Payments (100) (101)
Exceptional Items (145) (65)
(80) 209
Depreciation and Amortisation (400) (480)
Adjusted Operating Loss* (235) (105)
Operating Loss (480) (271)
* Adjusted Operating Loss and Adjusted EBITDA excludes exceptional charges and
share based charges.
* * EBITDA is defined as Earnings before Interest, Tax, Depreciation and
Amortisation
(As defined in note 13 in the Financial Statement).
Revenue & Organic Growth
In the year ended 31 December 2021, total revenue increased by 8% to £6.14m
(2020: £5.66m). Within this, our Assurance division saw strong sales with
revenue growing by 15% to £3.12m (2020: £2.72m).
The MDR division also saw a growth in revenue of 6% in the year to £2.89m
(2020: £2.73m). This includes recurring revenue which rose to £2.59m (2020:
£2.42m), workshop and event revenue of £0.02m (2020: nil) and Incident
Response revenue which fell to £0.28m (2020: £0.31m).
Vendor Products revenue in the year fell by 26% to £0.09m (2020: £0.13m).
Margin Generation
Gross Profit for the year was £3.67m, yielding a 60% margin (2020: £3.55m,
yielding a 63% margin). This small margin decrease was a consequence of a fall
in the margin in the MDR division to 61% (2020: 73%) due to significant
investment and significant wage inflation in that area of the business. The
Board expects the MDR margin to increase in the future.
The Assurance margin rose to 63% in the year (2020: 58%). This was due to cost
controls over the period. The Board expects the Assurance margin to continue
at a similar level in the future.
EBITDA & Operating Loss
Adjusted EBITDA for the year, which excludes one-off charges and share based
charges, was £0.17m (2020: £0.38m). EBITDA for the year was a loss of
£0.08m (2020: profit of £0.21m). During 2020 the Group benefited from
Government grants of £0.3m (2021: £nil).
Adjusted Operating Loss for the year, which excludes one-off charges and share
based charges, was £0.23m (2020: loss of £0.11m). The Operating Loss in the
year was £0.48m (2020: loss of £0.27m).
Cash Flow
Cash and cash equivalents increased by £0.05m (2020: £0.77m) to £1.17m
(2020: £1.12m) as at 31 December 2021 primarily due to increase margin across
the Assurance division and the proceeds from the £1.0m loan taken on during
the year. During the year £0.40m was repaid of Covid-19 related government
support received in 2020, £0.02m of government support remains outstanding as
at 31 December 2021. The Group continued to invest in Research and Development
during the year, receiving a refund of £0.21m (2020: £0.29m) from HMRC in
respect of a surrender of R&D Tax Credits from earlier periods.
Intangible Asset
Intangible asset costs have increased to £1.47m (2020: £1.28m). This is
offset by accumulated amortisation of £0.99m (2020: £0.82m). The Group's
development cost for the year was £0.19m. The Net Book Value of Intangible
Assets as at 31 December 2021 was therefore £0.48m (2020: £0.46m).
Tangible Asset
Property, plant and equipment (PPE) cost have increased to £0.98m (2020:
£0.95m). This is offset by accumulated depreciation of £0.89m (2020:
£0.81m). The Group's capital expenditure for the year was £0.03m. The Net
Book Value of Tangible Assets as at 31 December 2021 was £0.09m (2020:
£0.15m). The Group plans to increase investment in tangible assets in the
future.
Trade and other receivables
Trade and other receivables decreased to £0.68m (2020: £0.81m) as at 31
December 2021. This includes £0.46m of Trade receivables (2020: £0.61m).
Trade and other payables
Trade and other payables decreased to £1.49m (2020: £2.09m) as at 31
December 2021. This includes £0.68m of deferred income (2020: £0.88m).
Borrowings
In December 2021, the Group entered into a new five-year Growth loan facility
with Growth Lending Limited. The net proceeds of this facility will be used
for working capital purposes and to support the Group's overall organic growth
strategy.
The new borrowing facility compromises an initial advance upon completion of a
£1.0m, with the option to draw down a further advance of £0.5m after six
months, subject to an agreed level of adjusted EBITDA being achieved.
The facility term is 60 months with straight-line amortisation of the loan
commencing after six months. The interest rate on each advance is at the
higher of 9.0% per annum or the monthly average SONIA plus 7%. There is an
arrangement fee of 1.5% of the facility amount paid on completion, with a 5%
early prepayment charge.
The loan was arranged by Funding Friends Limited which received a fee of 1% of
the loan on completion in respect of advisory fees. The Loan facility is
secured by a fixed charge over the assets of the Company.
As at the year end the carrying value of the loan was £963k (2020: £nil)
which is the principal amount of £1.0m stated after direct fees incurred and
interest accrued to the year end.
Key Performance Indicators
The Key Performance Indicators are set out above.
Capital reduction (https://investor.ecsc.co.uk/)
On 26 August 2021, the Company completed a reduction of its share capital,
whereby the entire amount of £6.1 million standing to the credit of the
Company's share premium account was cancelled thereby creating distributable
reserves, which will allow the Company to pay dividends or make distributions
to its shareholders and/or undertake a buyback of its ordinary shares in due
course, should it be appropriate or desirable to do so.
The Capital Reduction has no effect on the overall net asset position of the
Company.
Balance Sheet
The Group's Balance Sheet as at 31 December 2021 had Net Assets of £0.22m
(2020: £0.65m). Retained Earnings and Distributable Reserves as at 31
December 2021 were a cumulative loss of £0.37m after the capital reduction
(2020: cumulative loss of £5.94m).
Going Concern
The Directors have assessed the going concern status of the Group by reference
to a number of factors. In particular, the Directors have considered the
strong rate of growth in the cyber security market; the fact that business
continues to attract new clients and is not overly dependent on any single
client; the fact that the business continues to retain key staff, and that the
Group has a secured new loan facility with Growth Lending Limited, the net
proceeds of which will be used for working capital purposes and to support the
Group's overall organic growth strategy. The new borrowing facility
compromises an initial £1.0m term loan received on 24 December 2021 and a
further £0.5m loan to be drawn down after six months, subject an agreed level
of adjusted EBITDA being achieved. The facility term is 60 months with an
interest rate at the higher of 9% per annum or the monthly average SONIA plus
7%. The Board is positive about the future EBITDA trajectory of the Company
and continues to manage the cash position of the Company carefully. These
factors give the Directors confidence in relation to going concern.
The Board have included the above factors in determining its financial
forecasts for the period through to December 2023. In those forecasts they
have considered the available headroom against the facilities available to
them and considered scenarios under which the level of revenue expected may
not be achieved but taking in to account mitigating actions. The directors are
satisfied that under reasonable downside scenarios they still have financial
resources to met liabilities as they fall due.
Dividend
The Board has not declared a dividend for the year ended 31 December 2021
(2020: £nil).
Gemma Basharan
Chief Financial Officer
22 March 2022
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Note £'000 £'000
Revenue 5 6,144 5,663
Cost of Sales (2,470) (2,115)
Gross Profit 5 3,674 3,548
Other Income 282 297
Sales & Marketing Costs (2,018) (1,713)
Administration Expenses (2,418) (2,403)
Operating Loss before Exceptional Items and Share Based Payments (235) (105)
Share Based Payments 100 101
Exceptional Items 145 65
Operating Loss (480) (271)
Finance Cost (42) (48)
Loss before Taxation 13 (522) (319)
Taxation Charge/(Credit) 6 (5) 50
Loss for the year (527) (269)
Other Comprehensive Income - -
Total Comprehensive Loss for the year (527) (269)
Attributed to Equity Holders of the Company (527) (269)
Loss per Share pence pence
Basic Loss per Share 7 (5.3) (2.7)
Diluted Loss per Share 7 (5.3) (2.7)
Consolidated Statement of Financial Position
As at 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Note £'000 £'000
ASSETS
Non-current Assets
Intangible Assets 8 483 455
Property, Plant and Equipment 9 88 148
Right-of-use Assets 11 613 746
Deferred Tax Asset 6 147 118
Total Non-current Assets 1,331 1,467
Current Assets
Inventory 9 9
Trade and Other Receivables 675 811
Corporation Tax Recoverable 289 216
Cash and Cash Equivalents 10 1,168 1,122
Total Current Assets 2,141 2,158
TOTAL ASSETS 3,472 3,625
LIABILITIES
Current Liabilities
Trade and Other Payables (1,489) (2,085)
Borrowings 12 (105) -
Lease Liability 11 (107) (143)
Total Current Liabilities (1,701) (2,228)
Non-current Liabilities
Deferred Tax Liability 6 (124) (90)
Borrowings 12 (858) -
Lease Liability 11 (568) (659)
Total Non-current Liabilities (1,550) (749)
TOTAL LIABILITIES (3,251) (2,977)
NET ASSETS 221 648
EQUITY
Equity attributable to Owners of the Parent:
Share Capital 100 100
Share Premium Account - 6,098
Share Option Reserve 492 392
Retained Earnings/(Losses) (371) (5,942)
TOTAL EQUITY 221 648
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
Share Share Retained
Share Premium Option Earnings/
Capital Account Reserve (Losses) Total
£'000 £'000 £'000 £'000 £'000
Balance as at 31 December 2019 91 5,661 291 (5,673) 370
Loss and Total Comprehensive:
Total comprehensive loss for the year - - - (269) (269)
Transactions with shareholders
Issue of Shares 9 437 - - 446
Share Based Payments - - 101 - 101
Total transactions with shareholders 9 437 101 - 547
Balance as at 31 December 2020 100 6,098 392 (5,942) 648
Loss and Total Comprehensive:
Total comprehensive loss for the year - - - (527) (527)
Transactions with shareholders
Share Based Payments - - 100 - 100
Reduction of capital - (6,098) - 6,098 -
Total transactions with shareholders - (6,098) 100 - 100
Balance as at 31 December 2021 100 - 492 (371) 221
Consolidated Cash Flow Statement
For the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Note £'000 £'000
Cash Flow from Operating Activities
Loss before Taxation (522) (319)
Adjustment for:
Amortisation of Intangibles 8 166 168
Depreciation of Right-of-use Assets 11 143 175
Depreciation of Property, Plant and Equipment 9 91 137
Loss/(gain) on Disposal of Tangible Asset 4 (4)
Finance costs 42 48
Share Based Payments 100 101
Cash used up in Operating Activities before
changes in Working Capital 24 306
Change in Inventory - 17
Change in Trade and Other Receivables (146) (214)
Change in Trade and Other Payables (624) 268
Cash (used in)/ generated from Operating Activities (746) 377
R&D tax credit received 209 343
Net Cash (used in)/ generated from Operating Activities (537) 720
Acquisition of Property, Plant and Equipment (34) (5)
Disposal Proceeds - 6
Development Costs capitalised (194) (194)
Net Cash Flow used in Investing Activities (228) (193)
Principal paid on lease liabilities (172) (195)
Interest paid on loans and borrowings (2) (7)
Net proceeds from issue of loan 985 -
Proceeds from issue of shares - 500
Costs of share issuance - (54)
Net Cash generated from Financing Activities 811 244
Net increase in Cash & Cash Equivalents 46 771
Cash & Cash Equivalents at beginning of period 1,122 351
Cash & Cash Equivalents at end of period 1,168 1,122
Notes
1. Corporate Information
ECSC Group plc is incorporated in England and Wales and admitted to trading on
the AIM market of the London Stock Exchange (AIM: ECSC).
2. General Information
This results announcement may contain certain statements about the future
outlook of ECSC Group plc. Although the Directors believe their expectations
are based on reasonable assumptions, any statements about future outlook may
be influenced by factors that could cause actual outcomes and results to be
materially different.
3. Basis of Preparation
This financial information for the year ended 31 December 2021 has been
prepared in accordance with UK adopted international accounting standards
(collectively 'UKIAS) and as applied in accordance with the provisions of the
Companies Act 2006.
The information in this preliminary statement has been extracted from the
financial statements for the year ended 31 December 2021 and, as such, does
not contain all the information required to be disclosed in the financial
statements prepared in accordance with IFRS. The Group's Annual Report for the
year ended 31 December 2021 has yet to be delivered to the Registrar of
Companies. The auditors have reported on these accounts. The figures for the
year ended 31 December 2021 and the ended 31 December 2020 do not constitute
statutory accounts within the meaning of section 434 of the Companies Act
2006.
The financial statements have been presented in thousands of Pounds Sterling
(£'000, GBP) as this is the currency of the primary economic environment that
the Company operates in.
The preliminary announcement was approved by the Board on 22 March 2022 and
authorised for issue.
The statutory accounts for the year ended 31 December 2021 were approved by
the Board on 22 March 2022 and will be delivered to the Registrar of Companies
in due course. The statutory accounts for the period ended 31 December 2021
will be made available on the Company's website www.ecsc.co.uk at least 21
days before the Annual General Meeting.
4. Accounting Policies
The principal accounting policies applied in the preparation of the financial
statements are set out below. These policies have been consistently applied to
all periods presented, unless otherwise stated.
4.1 Basis of Accounting
The financial statements have been prepared on the historical cost basis
except as stated.
New IFRS standards, amendments to and interpretations not applied to published
standards
The following new standards, amendments to standards and interpretations will
be mandatory for the first time in future financial years:
Issued date IASB mandatory effective date (UK mandatory effective date) UK Adoption status (EU pre 31 December 2020)
New Standards
IFRS 17 Insurance contracts including Amendments to IFRS 17 (issued on 25 June 18-May-2017 and 25-June 2020 01-Jan-2023 TBC
2020)
Amendments to existing standards
Amendments to IAS 1: Classification of Liabilities as Current or Non-current 23-Jan-2020 01-Jan-2023 TBC
Amendments to: IFRS 3 Business Combinations; IAS 16 Property, Plant and 14-May-2020 01-Jan-2022 TBC
Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets
Annual Improvements to IFRSs (2018-2020 Cycle): IFRS 1, IFRS 9, Illustrative 14-May-2020 01-Jan-2022 TBC
Examples accompanying IDRS 16, IAS 41
Amendments to IFRS 16 Leases COVID 19-Related Rent Concessions 28-May-2020 01-Jun-2020 Endorsed
Amendments to IFRS 4 Insurance Contracts - deferral of IFRS 9 25-June-2020 01-Jan-2021 Adopted by UKEB
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate 27-Aug-2020 01-Jan-2021 Adopted by UKEB
Benchmark Reform - Phase 2
Amendments to IAS 8 - Definition of Accounting Estimates 12-Feb-2021 01-Jan-2023 TBC
Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting 12-Feb-2021 01-Jan-2023 TBC
policies
Amendments to IFRS 16 Leases COVID 19-Related Rent Concessions beyond 30 June 31-Mar-2021 01-Apr-2021 Adopted by UKEB
2021
Amendments to IAS 12 - Deferred Tax related to Assets and Liabilities arising 07-Feb-2021 01-Jan-2023 TBC
from a single Transaction
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, being no shorter
than 12 months from the date of approving the Annual Report. In conducting
this review, the Directors have considered a range of factors, including the
market prospects for cyber security services, client relationships and
dependency, supplier relationships and dependency, actual or potential
litigation, staff retention and reliance, relationships with HMRC and
regulators, financing arrangements, historic trading and cash flow
performance, current trading and cash flow performance, and future trading and
cash flow expectations. In undertaking their review, the Directors have
prepared financial projections for the years ending 31 December 2022 and 2023,
a review which assumes continued revenue growth and cost efficiency.
The budget figures are closely monitored against actuals on a monthly basis.
Variances that may arise are discussed a Board level on a monthly basis during
a review of the monthly numbers. In the event that this revenue and cost
performance is not achieved, the Directors have also considered a sensitivity
analysis based on lower revenue growth, increase in salaries inflation and
have formulated contingency plans for this scenario, which enable the Group to
preserve its financial resources.
In light of the continued COVID-19 pandemic, the Directors have continued to
carefully monitor the situation especially the Group's going concern position
to ensure the Group is in a robust place to manage additional risks and
uncertainties created by the pandemic. During 2021, the Group demonstrated its
ability to grow under these challenging conditions achieving an 8% growth in
revenue and maintained a positive adjusted EBITDA profit. As at 31 December
2021, the Group had an adjusted EBITDA profit of £0.2m (2020: £0.4m), and an
operating loss of £0.5m (2020: £0.3m) due to an increase in Sales and
Marketing costs.
In December 2021, the Group entered into a borrowing facility with Growth
Lending Limited. The net proceeds of which will be used for working capital
purposes and to support the Group's overall organic growth strategy. The new
borrowing facility compromises an initial £1.0m term loan received on 24
December 2021 and a further £0.5m loan to be drawn down after six months
subject to an agreed level of adjusted EBITDA being achieved. The facility
term is 60 months with an interest rate at the higher of 9% per annum or the
monthly average SONIA plus 7%. The borrowings will support the short to medium
term needs of the business and improve the ability to drive growth. The Loan
facility is secured by a fixed charge over the assets of the Company. As at 31
December 2021, the Group had cash and cash equivalents of £1.17m (2020:
£1.12m).
Based on this review, the Directors have concluded that the Group has adequate
resources to meet its liabilities as they fall due and continue in operational
existence for the foreseeable future, which is considered to be at least the
next 12 months from the date of approval of the financial statements.
Consequently, the Directors have adopted the going concern basis in preparing
the financial statements.
4.3 Revenue Recognition
The core principle is that revenue should only be recognised as the client
receives the benefit of the goods or services provided under a commercial
contract, in an amount that reflects the consideration to which the provider
expects to be entitled for the transfer of the goods or services.
Performance obligations and timing of revenue recognition
Revenue comprises the sales value of goods and services supplied during the
year, exclusive of Value Added Tax and trade discounts. Revenue from the
provision of Consulting services is recognised as services are rendered, based
on the contracted daily billing rate and the number of days delivered during
the period.
Revenue from pre-paid contracts are deferred in the balance sheet and
recognised on utilisation of service by the client. Pre-paid revenue is
included within Assurance in note 5. Revenue from Managed Services &
response (MDR) contracts include multiple performance obligation as set out
below:
· Hardware - hardware revenue is recognised on delivery and is
included within other revenue as set out in note 5. This is when control of
hardware passes to the customer.
· Device build - Device build revenue is deferred and recognised on
a straight line basis over the term of the contract.
· Licensing - deferred and recognised on a straight line basis over
the invoice period, due to the performance obligation not being considered
distinct from management and monitoring performance obligation
· Management and monitoring - deferred and recognised on a straight
line basis over the invoice period.
· Revenue from the sale of products (vendor) is recognised when
control passes to the customer, which is considered to occur when the software
or hardware product has been delivered to the client.
Determining the transaction price
The Group's revenue is derived from fixed price contracts and therefore the
amount of revenues to be earned from each contract is determined by reference
to those fixed prices.
Costs of obtaining long-term contracts and costs of fulfilling contracts
Commissions paid to sales staff for work in obtaining 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.
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),
MDR, and Vendor Products. There were a small number of other transactions
recorded during each period which are not considered to be part of either of
the three reportable operating segments. These are presented below within the
'Other' caption and are not significant.
The Directors do not receive any information on the financial position of each
segment, including information on assets and liabilities. Accordingly, no such
information has not been presented.
The Group is not reliant on any single client, with no single client
accounting for 10% or more of revenue. All revenue recognised is derived from
external clients.
The Group has PPE located in the UK (cost of £919k; NBV of £88k) and
Australia (cost of £57k; NBV nil). The Group's revenue and gross profit by
operating segment for the year ended 31 December 2021 were as follows:
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Revenue
Assurance 3,123 2,724
MDR 2,886 2,732
Vendor Products 93 125
Other 42 82
Total Revenue 6,144 5,663
Gross Profit
Assurance 1,965 1,576
MDR 1,757 1,994
Vendor Products 15 25
Other (63) (47)
Gross Profit 3,674 3,548
Operating Loss (480) (271)
Finance Cost (42) (48)
Loss before Taxation (522) (319)
Revenue by country for the year ended 31 December 2021 was as follows:
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
United Kingdom 5,911 5,294
Europe 107 278
United States 36 -
Channel Islands 87 89
Other Countries 3 2
Total 6,144 5,663
The Group's United Kingdom revenue by operating segment for the year ended 31
December 2021 was as follows:
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Revenue United Kingdom
Assurance 3,025 2,367
MDR 2,759 2,724
Vendor Products 88 124
Other 39 79
Total 5,911 5,294
Contract Balances
Contract Contract Contract Contract
Assets Assets Liabilities Liabilities
2021 2020 2021 2020
£'000 £'000 £'000 £'000
At 1 January 34 43 (878) (866)
Commission expensed during the
period (91) (62) -
Commissions paid in advanced of
contract completion 77 53 -
Recognised as revenue during the
period - 3,286 3,390
Cash received in advanced of
performance during period - (3,091) (3,402)
At 31 December 2021 20 34 (683) (878)
6. Taxation
Recognised in the Statement of Comprehensive Income
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Corporation Tax Charge/(Credit) - -
Deferred Tax Charge/(Credit) 5 (50)
Total Tax Charge/(Credit) 5 (50)
Reconciliation of Total Tax Charge/(Credit)
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Loss before Tax (522) (319)
UK Corporation at rate of 19% (2020: 19%) (99) (61)
Expenses not deductible for tax purposes 2 2
Over/under provision in prior period - Deferred Tax 5 (50)
Tax losses on which Deferred Tax not recognised 97 59
Total Tax Charge/(Credit) 5 (50)
Deferred Tax Asset
2021 2020
£'000 £'000
At 1 Jan 118 77
Disallowable provisions 2 3
Profit and loss debit in respect of losses realised 87 13
Share based payments (60) 25
At 31 Dec 147 118
Deferred Tax Liability
2021 2020
£'000 £'000
At 1 Jan (90) (99)
Profit and loss credit in request of timing differences (34) 9
At 31 Dec (124) (90)
Deferred Tax Assets of £147k is recognised in respect of unutilised trading
losses, Share options of £19k (2020: £78k) and short-term timing differences
of £7k (2020: £5k). Deferred Tax Liabilities of £124k 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% (2020: 19%),
being the rate of Corporation Tax expected to be in force when the timing
differences reverse.
Unutilised Trading Losses
The Company continues to carry forward unutilised trading losses of £5,448k
(2020: £5,111k). A Deferred Tax Asset of £122k (2019: £35k) has been
recognised as at 31 December 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.
7. Earnings per Share
Basic Earnings per Share is calculated by dividing the loss for the period
attributable to Equity Holders of the Company by the weighted average number
of Ordinary Shares outstanding during the period ('Basic Number of Ordinary
Shares').
Diluted Earnings per Share is calculated by dividing the loss for the period
attributable to Equity Holders of the Company by the weighted average number
of Ordinary Shares outstanding during the period plus the weighted average
number of Ordinary Shares that would be issued on conversion of all the
potential dilutive Ordinary Shares ('Diluted Number of Ordinary Shares'),
subject to the effect of anti-dilutive potential shares being ignored in
accordance with IAS 33.
Adjusted Earnings per Share is calculated by dividing Adjusted loss (after
adding-back exceptional costs incurred in the period; see note 13) by Diluted
Number of Ordinary Shares.
The calculation of Basic, Diluted and Adjusted Earnings per Share is as
follows:
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Net Loss attributable to Equity Holders of the Company (527) (269)
Add back: Exceptional Costs 145 65
Add back: Share Based Payments 100 101
Adjusted Loss (282) (103)
Number of Ordinary Shares ('000)
Initial Weighted Average 10,007 9,098
Shares issued in April 2020 - 909
Basic Number of Ordinary Shares 10,007 10,007
Weighted Average Dilutive Shares in Period 1,160 906
Diluted Number of Ordinary Shares 11,167 10,913
Earnings per Share (pence):
Basic Losses per Share (5.3) (2.7)
Diluted Losses per Share** (5.3) (2.7)
Adjusted Losses per Share (2.8) (1.0)
** In accordance with IAS 33, the effect of anti-dilutive potential shares has
been ignored.
During the prior year ended 31 December 2020, the following dilutive events
have occurred:
· On 17 April 2020, 909,091 ordinary shares were issued for £0.45m
(net of expenses of £0.05m).
· On 21 August 2020, the Company granted options over 588,037
Ordinary Shares to selected employees, including 144,758 to Director Lucy
Sharp, 103,602 to Director Ian Castle and 64,651 to Director Gemma Basharan,
of which 587,107 remain outstanding as at 31 December 2020.
· On 28 August 2020, the Company granted options over 450,000 Ordinary
Shares to selected employees, including 100,000 to Director Ian Mann, 100,000
to Director Lucy Sharp, 80,000 to Director Ian Castle and 80,000 to Director
Gemma Basharan, of which 450,000 remain outstanding as at 31 December 2020.
These dilutive events were taken into account in calculating Diluted Number of
Ordinary Shares.
8. Intangible Assets
Development Costs
Costs £'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 194
As at 31 December 2021 1,473
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 year 166
As at 31 December 2021 990
Net Book Value
As at 31 December 2020 455
As at 31 December 2021 483
9. Property, Plant and Equipment
Leasehold Office Computer Motor
Property Equipment Equipment Vehicles Total
£'000 £'000 £'000 £'000 £'000
Cost
At 1 January 2020 115 136 679 23 953
Additions - - 5 - 5
Disposals - - (5) - (5)
At 31 December 2020 115 136 679 23 953
Additions - - 34 - 34
Disposals (7) (4) - - (11)
At 31 December 2021 108 132 713 23 976
Depreciation
At 1 January 2020 63 75 518 14 670
Charge for Period 16 21 95 5 137
Disposals - - (2) - (2)
At 31 December 2020 79 96 611 19 805
Charge for Period 16 18 55 2 91
Disposals (5) (3) - - (8)
At 31 December 2021 90 111 55 2 888
Net Book Value
At 31 December 2020 36 40 68 4 148
At 31 December 2021 18 21 658 21 88
10. Cash & Cash Equivalents
GROUP GROUP COMPANY COMPANY
As at As at As at As at
31 December 31 December 31 December 31 December
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Cash & Cash Equivalents 1,168 1,122 1,165 1,119
11. Leases of low-value assets
On commencement of a contract (or part of a contract) which gives the group
the right to use an asset for a period of time in exchange for consideration,
the group recognises a right-of-use asset and a lease liability unless the
lease qualifies as a 'short-term' lease or a 'low-value' lease.
All leases are accounted for by recognising a right-of-use and a lease
liability except for:
· Leases of low-value assets
Leases where the underlying asset is 'low-value', £5k lease payments are
recognised as an expense on a straight-line basis over the lease term. The
group has elected to apply the 'low-value' lease exemption to all qualifying
leases, but the election can be made on a lease-by-lease basis.
· Short term lease
Where the lease term is twelve months or less and the lease does not contain
an option to purchase the leased asset, lease payments are recognised as an
expense on a straight-line basis over the lease term.
The group sometimes negotiates break clauses in its property leases. On a
case-by-case basis, the group will consider whether the absence of a break
clause would exposes the group to excessive risk. Typically factors considered
in deciding to negotiate a break clause include:
· the length of the lease term;
· the economic stability of the environment in which the property
is located; and
· whether the location represents a new area of operations for the
group.
· Short-term lease expense £61k
· Low value lease expense £3k
Right-of-use Assets
A right-of-use asset is recognised at commencement of the lease and initially
measured at the amount of the lease liability, plus any incremental costs of
obtaining the lease and any lease payments made at or before the leased asset
is available for use by the group.
The right-of-use asset is subsequently measured at cost less accumulated
amortisation and any accumulated impairment losses. The amortisation methods
applied is on a straight-line basis over the term of the lease.
Amortisation charge for the year included in 'administrative expenses' for
right-of-use assets.
Office Motor IT
buildings vehicles equipment Total
£'000 £'000 £'000 £'000
At 1 January 2020 849 26 21 896
Additions - 22 - 22
Variable lease payment adjustment 4 - (1) 3
Amortisation (133) (22) (20) (175)
NBV at 31 December 2020 720 26 - 746
At 1 January 2021 720 26 - 746
Additions - 23 - 23
Disposal (13) - - (13)
Amortisation (123) (20) (143)
NBV at 31 December 2021 584 29 - 613
Lease Liability
The lease liability is initially measured at the present value of the lease
payments during the lease term discounted using the interest rate implicit in
the lease, or the incremental borrowing rate if the interest rate implicit in
the lease cannot be readily determined.
The lease term is the non-cancellable period of the lease plus extension
periods that the group is reasonably certain to exercise and termination
periods that the group is reasonably certain not to exercise.
The lease liability is subsequently increased for a constant periodic rate of
interest on the remaining balance of the lease liability and reduced for lease
payments.
Interest expense for the year on lease liabilities is recognised in 'finance
costs'.
Office Motor IT
buildings vehicles equipment Total
£'000 £'000 £'000 £'000
At 1 January 2020 889 23 19 931
Additions - 22 - 22
Variable lease payment adjustment 4 - (1) 3
Interest expense 37 2 2 41
Lease payments (150) (24) (21) (195)
NBV at 31 December 2020 780 23 (1) 802
At 1 January 2021 780 23 (1) 802
Additions - 23 - 23
Disposal (12) - - (12)
Interest expense 31 2 1 34
Lease payments (150) (22) - (172)
At 31 December 2021 649 26 - 675
Group and Company
Up to 12 1 to 5 more than
At 31 December 2021 months years 5 years
£'000 £'000 £'000
Lease payments 135 433 213
Interest expense (28) (69) (9)
Lease Liabilities 107 364 204
12. Borrowings
2021 2020
Current £'000 £'000
Loan 108 -
Interest 6 -
Direct fees (9) -
Net Borrowings 105 -
2021 2020
Non-current £'000 £'000
Loan 892 -
Direct fees (34) -
Net Borrowings 858 -
The Group has been provided with payments facilities by Barclays Bank PLC,
including a BACS payment facility and a credit card facility.
New borrowing facility
In December 2021, the Group entered into a new borrowing five-year Growth loan
facility with Growth Lending Limited, the net proceeds of which will be used
for working capital purposes and to support the Group's overall organic growth
strategy.
The new borrowing facility compromises an initial advance upon completion of
£1.0m and a further advance of £0.5m to be drawn down after six months
subject to an agreed level of adjusted EBITDA being achieved.
The facility term is 60 months with straight-line amortisation of the loan
commencing after 6 months. The interest rate on each advance is set at the
higher of 9.0% per annum or the monthly average SONIA plus 7%. There is an
arrangement fee of 1.5% of the facility amount paid on completion with a 5%
early prepayment.
The loan was arranged by Funding Friends Limited which received a fee of 1% of
the loan on completion in respect of advisory fees. The Loan facility is
secured by a fixed charge over the assets of the Company.
The effective interest rates on the Group's borrowings were as follows:
2021 2020
% %
Borrowings - £1m 9.0 -
The Maturity profile of the Group's non-current borrowing was as follows:
2021 2020
£'000 £'000
Between one and two years 214 -
Between two and five years 644 -
858 -
The Group's bank borrowing bear interest at floating rates, which represent
prevailing market rates.
13. Adjusted Loss before Taxation and Adjusted EBITDA
Adjusted Loss before Taxation
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Loss before Taxation (522) (319)
Share Based Payments 100 101
Exceptional Items 145 65
Adjusted Loss before Taxation (277) (153)
Adjusted EBITDA:
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Operating Loss (480) (271)
Depreciation and Amortisation 400 480
EBITDA** (80) 209
Share Based Payments 100 101
Exceptional Items 145 65
Adjusted EBITDA* 165 375
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Operating Loss (480) (271)
Share Based Payments 100 101
Exceptional Items 145 65
Adjusted Operating Loss* (235) (105)
* Adjusted Operating Loss and EBITDA excludes exceptional items and share
based payments.
* * EBITDA is defined as Earnings before Interest, Tax, Depreciation and
Amortisation.
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