TIDMECSC
RNS Number : 4857H
ECSC Group PLC
13 March 2018
13 March 2018
ECSC Group plc
('ECSC' or the 'Company' or the 'Group')
Final Results for the year ended 31 December 2017
ECSC Group plc (AIM: ECSC), a provider of cyber security
services, announces its audited final results for the year ended 31
December 2017.
IFRS 15, a new accounting standard for revenue recognition, came
into force on 1 January 2018. The Group has adopted IFRS 15 from 1
January 2018 and will apply the standard for the first time to its
Interim and Final results for the year ended 31 December 2018. The
results contained in this announcement are prepared under the
accounting policies of the Group contained in Group's Admission
Document, in accordance with IAS 18. For more details, please refer
to the Financial Review on page 8 of this announcement.
Highlights
-- Organic revenue growth of 9.5% to GBP4.12m (2016: GBP3.76m)
Consulting revenue up 15% to GBP2.45m (2016: GBP2.12m)
Managed Services revenue up 10% to GBP1.24m (2016: GBP1.12m),
within which the recurring revenue element was up 20% to GBP0.97m
(2016: GBP0.81m)
Vendor Product and Other revenues down 16% to GBP0.43m (2016:
GBP0.51m)
10 new Managed Services contracts secured in the year with an
annualised contract value of GBP0.32m
-- Gross Profit of GBP1.76m (2016: GBP2.28m), driven by the
scaling of Consulting and Managed Services headcount
-- EBITDA loss (pre-exceptional costs of GBP0.28m) of GBP2.92m (2016: GBP0.49m profit)
-- Operating Loss (pre-exceptionals) of GBP3.17m (2016: GBP0.34m profit)
-- Cash outflow of GBP3.4m, leaving cash of GBP1.6m at year end (2016: GBP4.99m)
-- Cost restructuring executed in the final quarter, materially
reducing monthly operating losses and the rate of cash burn
-- Basic Earnings per Share loss of of 37.7 pence (2016: loss of 7.7 pence)
-- Diluted Earnings per Share* loss of 37.7 pence (2016: loss of 7.7 pence)
* In accordance with IAS 33, the effect of anti-dilutive potential shares has been ignored
** The comparative figures above are for the 12 months ended 31
December 2016
Ian Mann, CEO of ECSC, commented:
"Our first year as a public company has been a period of
significant change for the Group. We have delivered on our planned
investment and achieved growth, but we have experienced a number of
challenges. These have had a detrimental effect on reported
performance.
"During the year we have invested heavily to drive growth in the
business. Our consulting resources and sales team have been
expanded and we now have a full 24 hours Security Operations
capability with the opening of our new centre in Brisbane,
Australia. We have continued to invest in the proprietary software
embedded in our managed security devices at the heart of our
Managed Services offering. All of this has been achieved in line
with the plans we set out at the time of the IPO.
"However, the rate of revenue growth has been significantly less
than expected in our plans. As we reported during the year,
corporate decision-making cycles have been longer than anticipated,
especially in Managed Services. This has delayed conversion of the
sales pipeline. As a result, our revenues and profits have fallen
short of the levels planned at the IPO. In response to this
situation, the Board took action to reduce costs, bringing down
operating losses and the rate of cash burn. However, we have done
this in ways which protect key revenue generating resources,
thereby providing a platform that has the best chance to deliver
future growth and shareholder value.
"Despite these challenges, I am encouraged that further growth
can be achieved in 2018. Our clients continue to recognise the
growing importance of cyber security and the market is developing
in ways favourable to our skills and offerings."
The information contained in this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014. Upon publication of this
announcement, this inside information is now considered to be in
the public domain.
Enquiries:
ECSC Group plc
Nigel Payne (Non-Executive Chairman)
Ian Mann (Chief Executive Officer)
Stephen Hammell (Chief Financial
Officer) +44 (0) 1274
www.ecsc.co.uk 736 223
Stockdale Securities (NOMAD and +44 (0) 20 7601
Broker) 6100
Robert Finlay
Hanan Lee
Alma PR (Financial PR)
Joshua Royston +44 (0) 20 8004
Hilary Buchanan 4217
For more information please visit or contact the following:
www.ecsc.co.uk
Notes to Editors
ECSC is a proven provider of cyber security services with a
blue-chip client base that offers a comprehensive range of
solutions.
The Company has over 16 years' experience in the design,
implementation and management of cyber security solutions. ECSC's
consultancy-led approach, and its combination of custom
methodologies and in-house proprietary technologies, enables the
Company to provide individually tailored services to its clients.
The Company has significant intellectual property, including
bespoke products delivering remotely managed cyber security
services and custom-made internal support and delivery systems.
The Company floated on AIM in December 2016 to accelerate its
growth strategy and to take advantage of the importance attached to
cyber security by company boards as a result of the recent
proliferation of high profile cyber security breaches.
Chairman's Statement
ECSC completed its IPO in December 2016 against a backdrop of
growth in the cyber security market. This growth was driven by
three factors - the continued incidence of high profile cyber
security breaches, the implementation of the 2018 Data Protection
Act, incorporating the General Data Protection Regulations ('GDPR')
in May 2018, and the priority accorded to cyber security in the
corporate boardroom.
Following the IPO, the Board set about executing its strategy to
utilise newly acquired growth capital to scale the business and
leverage ECSC's position in this growing market. In executing its
strategy, the degree of scale change implemented within the
business has been substantial and has seen investment into the
Company's operational infrastructure, an increase in its sales and
consulting resources, and further development of its proprietary
security software embedded within its managed security devices.
Whilst this increase in resources has been largely delivered in
line with the Board's expectations, revenue growth has been below
expectations. ECSC continues to see corporate boards recognising
the importance of cyber security and allocating budgets for
effective solutions. The need for board level involvement and a
consequential extended approval process has, however, extended the
sales cycle beyond that originally anticipated. With a slower
ramp-up of sales clearly evidenced, in September 2017 the Board
reduced its full year revenue and earnings expectations.
At the same time and in response to lower revenue levels, the
Board implemented a significant and targeted cost efficiency
programme to materially reduce cash burn whilst protecting key
revenue generating resources. Notwithstanding the success of this
programme, the combination of reduced revenue yield whilst
scaling-up resources and the slower sales cycle generally, has
resulted in a substantial financial loss for the year, somewhat
higher than original expectations set at the time of the IPO -
albeit in line with the Board's revised expectations set in
September 2017.
With a reduced cash burn and augmented resources in place, ECSC
has an improved platform of technical and commercial resources from
which to leverage the still-evident market opportunity. The
absolute priority for ECSC now is higher and faster revenue growth,
and the Board will continue to monitor the rate of growth closely
and will manage resources accordingly.
On behalf of the Board, I would like to thank all of our
clients, staff and advisors for their continued support and
commitment during the year.
Nigel Payne
Non-Executive Chairman
12 March 2018
Chief Executive's Review
Our first year as a public company has been a period of
significant change for the Group that has required the business to
confront a number of challenges and obstacles. Whilst there have
been some successes along the way, revenue growth of 9.5% in the
year was significantly slower than expectations, and this has had a
detrimental effect on reported performance. Each of our Operating
Segments - Consulting, Managed Services and Vendor Products - have
encountered and addressed challenges in the year.
Consulting
Consulting has grown by 15% during the year, which was slightly
above the market growth rate but below market expectations at the
time of the IPO. During the year, we expanded headcount from 14 to
a peak of 26, reducing to 20 by the year end. I have been pleased
with the quality of staff recruited, especially the new Service
Directors, whose role is to safeguard, and further develop, the
high quality of services we deliver to clients.
Billing rates for Consulting days have been robust and
consistent during the year. The main challenge has been managing
staff utilisation levels against the backdrop of rapid headcount
expansion and the slower than expected revenue growth, which has
served to constrain margins generated. This was addressed by
reducing headcount in the final quarter of the year, which now
better matches the activity levels we are experiencing.
The Consulting segment has now launched its GDPR service
offering which has seen an increase in sales order intake in recent
months.
Managed Services
The growth of Managed Services recurring revenue is a
fundamental pillar of the Board's expansion strategy. Accordingly,
Managed Services has seen significant investment in the year,
including the establishment of a 24/7/365 Security Operations
Centre ('SOC') in Brisbane, Australia, and an Incident Response
unit in London, and continued investment into ECSC proprietary
software, used within our security devices. Headcount was expanded
from 18 to a peak of 25, reducing slightly to 23 by year end. I was
pleased with the process to establish our Australian SOC in
particular, which was completed on time and within budget, and is
providing an advantage to us in new sales processes, especially
where competitors lack this capability, and in expanding revenue
from existing clients who wish to utilise the new facility.
During the year, we won 10 new Managed Service contracts, from a
variety of sectors, with an annualised contract value of GBP324k,
driving revenue growth of 10% in this segment. However, this was
below our expectations at the time of the IPO and the main
challenge we have faced during the year has been the closure rate
of new Managed Services contracts. With the increased importance
attached to cyber security by corporate boards, the decision-making
process to enter into new contracts has been much longer than we
anticipated and this has slowed pipeline conversion. With the lower
than expected revenue, and the need to maintain headcount to
support service delivery, margin performance has also been below
market expectations at the time of the IPO.
The Board continues to see this revenue stream as a priority for
growth and, with the technical infrastructure fully in place, the
priority is to secure additional contracts to leverage the
performance of this segment.
Vendor Products
Sales of third-party Vendor Products has been lower in the year.
This is not a strategic segment of the business and is not viewed
as a value-added service offering.
Sales & Marketing
The largest investment made in the year has been the expansion
of our sales team, including establishing an
internal telesales team in Leeds and the take-on of new external
field sales staff. Headcount was increased from 8 at IPO to 38,
reducing to 26 by year end. Whilst the initial recruitment and
training process was executed on time and budget, a number of new
recruits under-performed.
In response to the challenges the business has faced, the sales
team was reorganised in October 2017, with headcount reduced, new
leadership installed, and the structure of the team adjusted to
increase the level of resource committed to the Managed Services
pipeline, to better match the market opportunity. We have also
delivered enhanced training support to the retained staff, focusing
our efforts on our better performers.
I have been pleased with our investment in Marketing, where
headcount was increased from 2 to 4 in the year. The expanded team
have focused their activities on campaigns and events, and have
promoted our presence in the cyber security market efficiently and
effectively.
Chief Executive's Review
Technology Development
We have continued to invest in ECSC proprietary software in the
year, including developing our Managed Services software embedded
within our managed devices in light of emerging security threats,
and enhancing our internal systems to facilitate improved workflows
and reporting.
Central Infrastructure
To support the scale-up of the Group, we have invested in
central functions in the year, strengthening the capability of our
Finance and HR teams, and investing in an internal IT system
upgrade to improve robustness and performance. These changes have
been achieved efficiently and within budget.
Market Prospects & Organic Growth Strategy
The UK cyber security market continues to exhibit growth rates
of 10%-12% pa and remains an attractive segment of the wider IT
sector. Moreover, the growth of outsourced managed services
continues to outstrip the cyber security market as a whole.
Against this backdrop, I am confident that the organic growth
strategy of ECSC remains appropriate. Managed Services remains the
strategic focus of the Group, to build our recurring revenue
streams and target the fastest growing segment of the market,
supported by the increased commitment of sales and marketing
resources.
Sales Pipeline
Since the reorganisation of the sales team in October 2017,
significant effort has been made to build the quality and size of
the Managed Services pipeline, supported by new marketing
activities. The Managed Services pipeline is now at the highest
level seen in the last 12 months. However, the challenge remains
the timely conversion of this pipeline into reported revenue, and
this is the focus of the sales team at present.
Outlook
Following a year of transformation, ECSC now has a platform to
pursue the opportunity in the cyber security market. The absolute
priority for the Group is driving faster revenue growth and I look
forward to providing a further update on progress in due
course.
Ian Mann
Chief Executive Officer
12 March 2018
Financial Review
Principal Activities
The principal activity of the Group during the year continued to
be the provision of professional cyber security services, including
Consulting, Managed Services and the sale of Vendor Products.
Comparative Financial Information
The comparative figures in these statutory accounts are for the
15 months ended 31 December 2016. To assist the reader in
year-on-year comparative analysis, the following table has been
prepared that sets out financial performance for the 12 months
ended December 2016:
12 months 12 months** 15 months
ended ended ended
31 December 31 December 31 December
2017 2016 2016
GBP'000 GBP'000 GBP'000
Revenue
Consulting 2,449 2,121 2,562
Managed Services 1,235 1,124 1,330
Vendor Products 168 230 235
Other 263 282 383
------------- ------------- -------------
4,115 3,757 4,510
------------- ------------- -------------
Gross Profit
Consulting 1,228 1,389 1,701
Managed Services 481 877 1,059
Vendor Products 38 37 37
Other 15 (23) (10)
------------- ------------- -------------
1,762 2,281 2,787
------------- ------------- -------------
EBITDA (pre-Exceptionals)* (2,915) 489 630
------------- ------------- -------------
EBITDA (after Exceptionals) (3,190) (486) (345)
------------- ------------- -------------
Operating (Loss)/Profit
(pre-Exceptionals) (3,169) 343 453
------------- ------------- -------------
Operating (Loss)/Profit
(after Exceptionals) (3,444) (632) (522)
------------- ------------- -------------
* EBITDA is defined as Earnings before Interest, Tax, Depreciation and Amortisation.
** The comparative figures for the 12 months ended 31 December
2016 are unaudited.
Revenue & Organic Growth
Total revenue in the year ended 31 December 2017 was GBP4.12m,
up 9.5% on the comparable prior period (revenue in the 12 months
ended 31 December 2016 was GBP3.76m). Within this, Consulting
revenue grew by 15% to GBP2.45m (2016: GBP2.12m), a positive
performance in a period where the business has invested heavily in
new capacity.
Managed Services revenue rose by 10% in the year to GBP1.24m
(2016: GBP1.12m). This was driven by 20% growth in recurring
revenues from contracted clients, which expanded to GBP0.97m (2016:
GBP0.81m), underpinned by 10 new contract wins in the year with an
annualised value of GBP0.32m. Managed Services set-up revenues also
rose to GBP0.22m (2016: GBP0.16m). Incident Response revenues were
lower in the year, falling to GBP0.05m (2016: GBP0.16m), due to a
relatively low volume of call-outs.
Vendor Products revenue in the year was modest at GBP0.17m, down
slightly on prior year (2016: GBP0.23m).
Margin Generation
Gross Profit in the year was GBP1.76m at 43% margin (2016:
GBP2.28m at 61% margin). This was broadly as expected, given the
rapid scale-up of Consulting and Managed Services capacity in the
year.
Consulting margin fell to 50% in the year (2016: 65%). The
underlying billing rates for Consulting days has been robust during
the year, with the decline in margin driven by lower utilisation of
new staff during the rapid scale-up of the segment. With the
current pool of Consultants now better matched to our activity
levels, the Board expects Consulting margin to more closely track
the trend of revenue generated.
Financial Review (continued)
Managed Services margin fell to 39% (2016: 78%), reflecting
expansion of the Managed Services headcount, investment into the
Australian SOC to provide 24/7/365 service capability, and a
reduction in the development activities of the team, with the
amount capitalised into Intangible Assets in the year falling to
GBP0.14m (2016: GBP0.22m). With the investment in new Managed
Services infrastructure now complete, the Board expects Managed
Services margin to more closely track the trend of revenue
generated.
Cost Restructure & Exceptional Costs
During the final quarter of the year ended 31 December 2017, the
Directors undertook a cost restructure to reduce the operating
losses of the Group and reduce the rate of cash burn following the
rapid scale-up of the first half of the year.
The objective was to reduce the operating cost base by GBP0.16m
per month, which was achieved by reducing headcount by 25 staff and
by stricter control of overheads. The headcount reductions impacted
Consulting, Managed Services, Sales, and Central staff.
In achieving these recurring cost savings, a number of one-off,
exceptional costs were incurred, including payments in lieu of
notice, redundancy payments and lease cancellation costs. These
exceptional costs totalled GBP0.28m in the year, the bulk of which
were incurred in the final quarter.
EBITDA & Operating Loss
EBITDA (pre-Exceptionals) in the year was a loss of GBP2.92m
(2016: GBP0.49m profit), reflecting both the rapid scaling of the
business in the first half of the year and the cost savings of the
final quarter. EBITDA (after Exceptionals) in the year was a loss
of GBP3.19m (2016: loss of GBP0.48m).
Operating Loss (pre-Exceptionals) in the year was GBP3.17m
(2016: Operating Profit of GBP0.34m). Operating Loss (after
Exceptionals) in the year was GBP3.44m (2016: loss of
GBP0.63m).
Cash Flow
The cash balance at the start of the year was GBP4.99m, boosted
by the IPO proceeds. During the year, the cash balance has fallen
due to the EBITDA loss (GBP2.92m), exceptional costs (GBP0.28m),
working capital investment (GBP0.16m), capital expenditure
(GBP0.42m), and development costs (GBP0.14m). The main items of
capital expenditure are computer equipment for new staff, an
internal IT system upgrade, leasehold property improvements, and
the establishment costs for the new SOC in Australia. The internal
IT upgrade was part-funded by a Finance Lease of GBP0.06m.
During the year, the Group received a refund of GBP0.18m from
HMRC in respect of a surrender of R&D Tax Credits from earlier
periods. In addition, Stockdale Securities Limited exercised its
Equity Warrant, subscribing for 89,941 new Ordinary Shares. This
resulted in a cash inflow of GBP0.15m.
The cash balance at 31 December 2017 was GBP1.6m.
Balance Sheet
The Group balance sheet at 31 December 2017 had Net Assets of
GBP2.39m (2016: GBP5.55m), with the largest asset being the cash
balance of the Group. Retained Earnings and Distributable Reserves
as at 31 December 2017 were a cumulative loss of GBP3.46m (2016:
cumulative loss of GBP0.05m).
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, that the business continues to attract new clients
and is not overly dependent on any single client, that the business
continues to retain key staff following the restructuring, that the
business has no Corporation Tax liability to HMRC, and that the
Group has only modest financing facilities that are not subject to
financial covenants. Moreover, having reduced the monthly operating
losses significantly by way of the cost restructure, the rate of
cash burn has also been significantly reduced.
In undertaking their review, the Directors have prepared
financial projections for the years ending 31 December 2018 and
2019, a review which assumed continued revenue growth and cost
efficiency.
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.
As such, the Directors have concluded that the cash balance at
31 December 2017 is sufficient to fund the ongoing growth and
development of the Group and meet its' liabilities as they fall due
for at least the next 12 months.
Financial Review (continued)
Key Performance Indicators ('KPIs')
The Directors monitor business performance against a number of
financial and non-financial KPIs, including revenue growth and
gross margin by Operating Segment, EBITDA margin, performance
against budget and prior year, cash burn rate, client
concentration, volume of client complaints and industry awards. The
principal KPIs have been disclosed in this Financial Review.
IFRS 15 Adoption
The Directors will adopt the application of IFRS 15 'Revenue
from contracts with customers' from 1 January 2018, applying the
fully retrospective method of transition. 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.
The adoption of IFRS 15 will impact the timing of the
recognition of set-up revenues at the commencement of a new Managed
Service contract. In the year ended 31 December 2017, the set-up
element of a Managed Service contract was recognised as revenue in
full on delivery of the respective products and services, with the
Managed Service element deferred and released to revenue over the
term of the contract. Under IFRS 15, the set-up element also has to
be deferred and recognised as revenue over the term of the
contract. The effect of this change will be to reduce set-up
revenues recognised in the year ended 31 December 2018.
Dividend
The Board has not declared a dividend for the year ended 31
December 2017 (2016: GBP0.25m).
Stephen Hammell
Chief Financial Officer
12 March 2018
ECSC Group plc
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2017
Restated*
15 months
Year ended ended
31 December 31 December
2017 2016
Note GBP'000 GBP'000
Revenue 5 4,115 4,510
Cost of Sales (2,353) (1,723)
------------- -------------
Gross Profit 5 1,762 2,787
Other Income 6 121 158
Sales & Marketing Costs (2,545) (1,245)
Administrative Expenses (2,782) (2,222)
Operating (Loss)/Profit
before Exceptional Items (3,169) 453
Exceptional Items 22 (275) (975)
---------------------------- ----- ------------- -------------
Operating Loss 7 (3,444) (522)
Finance Income 6 5
------------- -------------
Loss before Taxation 8 (3,438) (517)
Taxation Credit 10 29 118
------------- -------------
Loss for the Period (3,409) (399)
------------- -------------
Other Comprehensive Income - -
Total Comprehensive Income
for the Period (3,409) (399)
------------- -------------
Attributable to Equity
Holders of the Company (3,409) (399)
(Loss)/Earnings per Share 11 pence pence
Basic Loss per Share (37.7) (7.7)
Diluted Loss per Share (37.7) (7.7)
* The comparative figures have been restated in accordance with
Note 3.
ECSC Group plc
Consolidated Statement of Financial Position
As at 31 December 2017
As at As at
31 December 31 December
2017 2016
Note GBP'000 GBP'000
ASSETS
Non-current Assets
Intangible Assets 12 400 363
Property, Plant and Equipment 13 539 298
Total Non-current Assets 939 661
------------- -------------
Current Assets
Inventory 53 -
Trade and Other Receivables 14 1,130 1,033
Corporation Tax Recoverable 6 122 183
Cash and Cash Equivalents 1,597 4,987
Total Current Assets 2,902 6,203
------------- -------------
TOTAL ASSETS 3,841 6,864
------------- -------------
LIABILITIES
Current Liabilities
Trade and Other Payables 15 (1,380) (1,264)
Finance Leases 16 (20) -
Total Current Liabilities (1,400) (1,264)
------------- -------------
Non-current Liabilities
Deferred Tax Liability 10 (15) (49)
Finance Leases 16 (41) -
Total Non-current Liabilities (56) (49)
------------- -------------
TOTAL LIABILITIES (1,456) (1,313)
------------- -------------
NET ASSETS 2,385 5,551
------------- -------------
EQUITY
Equity attributable to
Owners of the Parent:
Share Capital 17 91 90
Share Premium Account 17 5,661 5,512
Share Option Reserve 17 93 -
Retained Earnings 17 (3,460) (51)
TOTAL EQUITY 2,385 5,551
------------- -------------
ECSC Group plc
Consolidated Statement of Changes in Equity
For the year ended 31 December 2017
Share Share
Share Premium Option Retained
Capital Account Reserve Earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance as at
30 September
2015 22 75 - 602 699
Profit and Total
Comprehensive
Income for the
period ended
31 December 2016 - - - (399) (399)
Transactions:
Dividends - - - (254) (254)
Issue of Shares 2 83 - - 85
Bonus Issue 26 (26) - - -
Issue of Shares
at IPO 30 4,970 - - 5,000
Exercise of Share
Options 10 723 - - 733
Share Issue Costs - (313) - - (313)
Balance as at
31 December 2016 90 5,512 - (51) 5,551
Profit and Total
Comprehensive
Income for the
year ended
31 December 2017 - - - (3,409) (3,409)
Transactions:
Exercise of Equity
Warrant 1 149 - - 150
Grant of Share
Options - - 93 - 93
Balance as at
31 December 2017 91 5,661 93 (3,460) 2,385
-------- -------- -------- --------- --------
ECSC Group plc
Consolidated Cash Flow Statement
For the period ended 31 December 2017
15 months
Year ended ended
31 December 31 December
2017 2016
Note GBP'000 GBP'000
Cash Flow from Operating
Activities
Loss before Taxation (3,438) (517)
Adjustment for:
Exceptional Items - IPO
Costs 22 - 975
Amortisation of Intangibles 12 100 112
Depreciation of Property,
Plant and Equipment 13 154 65
Loss on Disposal of Equipment 6 -
Share Based Payment Charge 20 93 -
Cash (used in)/from Operating
Activities before changes
in Working Capital (3,085) 635
Change in Inventory (53) 1
Change in Trade and Other
Receivables 14 (218) (410)
Change in Trade and Other
Payables 15 116 643
Cash generated from Operating
Activities (3,240) 868
Corporation Tax Received/(Paid) 178 36
Net Cash Flow (used in)/from
Operations (3,062) 905
Acquisition of Property,
Plant and Equipment 13 (358) (296)
Disposal Proceeds 17 -
Development Costs Capitalised 12 (137) (221)
Net Cash Flow used in Investing
Activities (478) (517)
Dividends Paid 21 - (254)
Proceeds from Issuance
of Shares 20 150 5,818
Exceptional Items - IPO
Costs 22 - (1,288)
Net Cash Flow from Financing
Activities 150 4,276
Net Increase in Cash &
Cash Equivalents (3,390) 4,663
------------- -------------
Cash & Cash Equivalents
at beginning of Period 4,987 324
Cash & Cash Equivalents
at end of Period 1,597 4987
ECSC Group plc
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
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
financial statements for the year ended 31 December 2017 were
approved by the Board of Directors on 12 March 2018.
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 financial statements for the year ended 31 December 2017
have been prepared in accordance with International Financial
Reporting Standards, International Accounting Standards and
Interpretations (collectively 'IFRS') issued by the International
Accounting Standards Board ('IASB') as adopted by the European
Union ('adopted IFRS').
The financial statements for the year ended 31 December 2017
(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.
The information in this preliminary statement has been extracted
from the financial statements for the year ended 31 December 2017
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 2017
has yet to be delivered to the Registrar of Companies. The auditors
have reported on these accounts. Their report was not qualified and
did not contain a statement under Section 498 of the Companies Act
2006. The figures for the year ended 31 December 2017 and 15 months
ended 30 December 2016 do not constitute statutory accounts within
the meaning of section 434 of the Companies Act 2006. The accounts
for the 15 months ended 30 December 2016 have been reported on by
the Company's auditor and delivered to the Registrar of
Companies.
The report of the auditor for the year ended 31 December 2017
was:
-- unqualified;
-- did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their
report; and
-- did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
The presentation of certain costs in 2016 have been restated.
Certain staff costs have been re-allocated from Administrative
Expenses to Cost of Sales. This is to allocate direct Consulting
and Managed Services staff costs against revenue earned in these
activities. The effect of this change is to increase Cost of Sales
and to reduce Administrative Expenses by GBP708k in the 15 months
ended 31 December 2016. This change has no impact on the reported
profit/loss or EBITDA for that period or on the opening and closing
Statement of Financial Position for the comparative period.
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.
The preliminary announcement was approved by the Board and
authorised for issue on 12 March 2018.
4. Critical Accounting Judgements, Estimates and Sources of Estimation Uncertainty
In applying the accounting policies, the Directors may at times
be required to make critical accounting judgements and estimates
about the carrying amount of assets and liabilities. These
estimates and assumptions, when made, are based on historical
experience and other factors that the Directors consider are
relevant.
The key estimates and assumptions concerning the future and
other key sources of estimation uncertainty at the end of the
financial year, that have significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year, are stated below.
Going Concern
Management apply their judgement in reviewing whether the Group
has adequate resources to continue in operational existence for the
foreseeable future, which is considered to be at least the next 12
months.
Revenue Recognition
Management consider the nature of the Company's contracts with
clients and recognise revenue on an appropriate basis in accordance
with IFRS. This process involves the use of judgements and
estimates.
Managed Services contracts include an up-front recognition of
revenue on the provision of services identified as set-up
activities (software installation, configuration, tuning, testing;
security governance consulting), with the remaining revenue
deferred and recognised on a straight line basis over the term of
the contract. The identification of set-up activities requires
management judgement, whilst the allocation of contracted revenue
to those activities requires management estimates. In the year
ended 31 December 2017, within Managed Services revenue of
GBP1,235k (2016: GBP1,330k), set-up revenues of GBP215k were
recognised up-front (2016: GBP185k). If the judgements and
estimates were changed to recognise less set-up revenue, more
Managed Services contracted revenue would be deferred in the
balance sheet and recognised over the term of the contract.
Development Costs Capitalised & Amortised
Management apply their judgement in determining whether an
identified intangible software asset meets the criteria for
capitalisation under IAS 38.
Management estimate the percentage of development staff time
used to enhance and improve the Company's intangible software
assets in order to capitalise a proportion of salary costs each
period. In the year ended 31 December 2017, the amount of staff
time capitalised into Intangible Assets was GBP137k (2016:
GBP221k).
Development Costs capitalised into Intangible Assets are
amortised over management's estimate of the useful economic life of
the asset recognised. In the year ended 31 December 2017, the
useful economic life of all Intangible Assets was estimated to be 5
years, resulting in an amortisation charge of GBP100k (2016:
GBP112k). If the useful economic life of Intangible Assets was
estimated to be 3 years, the amortisation charge would have been
approximately GBP189k (2016: GBP152k).
The carrying value of Intangible Assets as at 31 December 2017
was GBP400k (2016: GBP363k).
Research and Development ('R&D') Tax Claim
A credit of GBP121k (2016: GBP182k) has been recognised in the
Statement of Comprehensive Income as a result of an R&D Tax
Claim being made in respect of the year ended 31 December 2017. The
R&D Tax Claim is based on management's estimate of the amount
of development staff time expended on projects judged to be
dedicated to overcoming technological uncertainties in the cyber
security field.
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: Consulting
(including Remote Support services), Managed Services, 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 has fixed assets located in the UK (Cost of GBP758k;
NBV of GBP491k) and Australia (Cost of GBP56k; NBV of GBP48k).
The Group's revenue and gross profit by operating segment for
the year ended 31 December 2017 were as follows:
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Revenue
Consulting 2,449 2,562
Managed Services 1,235 1,330
Vendor Products 168 235
Other 263 383
4,115 4,510
------------- -------------
Gross Profit
Consulting 1,228 1,701
Managed Services 481 1,059
Vendor Products 38 37
Other 15 (10)
1,762 2,787
------------- -------------
Revenue by country for the year ended 31 December 2017 was as
follows:
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
United Kingdom 4,036 4,234
USA 42 91
South Africa - 65
Eire 16 58
France 5 32
Egypt - 15
Channel Islands 11 15
Czech Republic 5 -
4,115 4,510
------------- -------------
6. Other Income
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Other Income 121 158
------------- -------------
A credit has been recognised within Other Income as a result of
R&D Tax Credit surrenders. For the year ended 31 December 2017,
the surrender resulted in a credit of GBP121k, included within
Corporation Tax Recoverable.
In 2016 a surrender in respect of the FY14, FY15 and FY16
periods was submitted that resulted in a credit of GBP182k
(included within Corporation Tax Recoverable), with GBP135k
recognised in Other Income and GBP47k recognised in Corporation Tax
Charge (see note 10). In 2016 grant income of GBP23k was also
recognised in Other Income.
7. Operating Loss
Operating Loss is stated after charging:
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Depreciation of Owned Assets 154 65
Amortisation of Intangibles
- Development Costs 100 112
Auditors Remuneration - Audit
Services 32 23
Auditors Remuneration - Non-Audit
Services:
- Taxation Compliance Services 11 5
- Other Taxation Services 7 13
- Other Assurance Services 10 112
Operating Lease Charge - Property 90 56
Operating Lease Charge - Other 43 78
Inventories Expensed 92 149
-------------- -------------
8. Adjusted (Loss)/Profit before Taxation and Adjusted
EBITDA
Adjusted (Loss)/Profit before Taxation
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Loss before Taxation (3,438) (517)
Exceptional Items 275 975
Adjusted (Loss)/Profit before
Taxation (3,163) 458
------------- -------------
Adjusted EBITDA
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Operating (Loss)/Profit (3,169) 453
Depreciation 154 65
Amortisation 100 112
EBITDA (2,915) 630
Exceptional Items (275) (975)
Adjusted EBITDA (3,190) (345)
------------- -------------
9. Employee Benefit Expense
Employee costs (including Directors) during the periods amounted
to:
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Wages and Salaries 4,867 2,386
Social Security Costs 536 250
Pension Contributions 97 70
5,500 2,705
------------- -------------
In the year ended 31 December 2017, Employee Benefit Expense
includes the element of Exceptional Costs (see note 22) that are
staff related.
Directors' remuneration is as follows:
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Salaries, Bonus, Benefits-in-Kind 632 362
Pension Contributions 31 27
Share Based Payments 51 -
Social Security Costs 73 44
787 433
------------- -------------
Amounts paid to the highest paid Director in the period were as
follows:
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Salaries, Bonus, Benefits-in-Kind 220 137
Pension Contributions 17 6
237 143
------------- -------------
The average monthly number of employees during the year was:
15 months
Year ended ended
31 December 31 December
2017 2016
No. No.
Directors 6 7
Operational 97 34
------------- -------------
Total 103 41
------------- -------------
10. Taxation
Recognised in the Statement of Comprehensive Income
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
UK Corporation Tax - Prior Year
Adjustment - (62)
UK Corporation Tax - Current
Tax on Profit for the Year 5 (47)
------------- -------------
Corporation Tax Charge/(Credit) 5 (109)
Deferred Tax Credit (34) (9)
Total Tax Credit (29) (118)
------------- -------------
Reconciliation of Total Tax Charge/(Credit)
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Loss before Tax (3,438) (517)
-------------- -------------
UK Corporation at rate of 19.5%/19.0%
(2016: 20.5%/20.0%) (658) (103)
Expenses not deductible for tax
purposes 2 169
Income not taxable for tax purposes (14) -
Exercise of Share Options - (175)
Difference between current and
Deferred Tax rates - (9)
Over/under provision in prior
period - Corporation Tax 5 -
Over/under provision in prior
period - Deferred Tax (34) -
Tax losses on which Deferred
Tax not recognised 670 -
Total Tax Credit (29) (118)
-------------- -------------
Deferred Tax Assets & Liabilities
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Deferred Tax Assets 95 41
Deferred Tax Liabilities (110) (90)
Deferred Tax - Net Liability (15) (49)
-------------- -------------
Deferred Tax Assets of GBP95k are recognised in respect of
unutilised trading losses, Share Based Payments and short-term
timing differences. Deferred Tax Liabilities of GBP110k arise on
timing differences in the carrying value of certain of the
Company's assets for financial reporting purposes and for
corporation tax purposes. These will reverse as the fair value of
the related assets are depreciated over time. Deferred Tax balances
have been calculated at the rate of 17%, being the rate of
Corporation Tax rate expected to be in force when the timing
differences reverse.
Unutilised Trading Losses
The Company continues to carry forward unutilised trading losses
of GBP3,831k (unutilised trading losses were GBP622k as at 31
December 2016). A Deferred Tax Asset of GBP75k has been recognised
as at 31 December 2017 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.
11. 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 (after adding-back exceptional costs incurred in the period;
see note 22) by Diluted Number of Ordinary Shares.
The calculation of Basic, Diluted and Adjusted Earnings per
Share is as follows:
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Net Profit attributable to
Equity Holders of the Company (3,409) (399)
Add back: Exceptional Costs 275 975
-------------- --------------
Adjusted Profit (3,134) 576
-------------- --------------
Number of Ordinary Shares ('000):
Initial Weighted Average 8,994 2,395*
Bonus Issue - 2,635
Exercise of Share Options - 40
IPO Placing - 125
Equity Warrant 53 -
-------------- --------------
Basic Number of Ordinary Shares 9,047 5,195
Weighted Average Dilutive Shares
in Period 129 -
Diluted Number of Ordinary
Shares 9,176 5,195
-------------- --------------
Earnings per Share (pence):
Basic Earnings per Share (37.7) (7.7)
Diluted Earnings per Share** (37.7) (7.7)
Adjusted Earnings per Share (34.2) 11.1
* Stated after share split in period ended 31 December 2016
** In accordance with IAS 33, the effect of anti-dilutive
potential shares has been ignored
On 28 October 2016, the Company passed a resolution to
consolidate the A and B Ordinary Shares of GBP1 each in issue into
a single class of shares. A resolution was then passed to split
each existing Ordinary Share of GBP1 each in issue into 100
Ordinary Shares with a nominal value of 1 pence each. The Company
then passed a resolution to issue 110 Ordinary Shares of 1 pence
each by way of a Bonus Issue pro rata to existing shareholders. In
accordance with IFRS this has been reflected in weighted average
number of Ordinary Shares above.
During the year ended 31 December 2017, Ordinary Shares were
issued as follows:
-- On 9 June 2017, the Company allotted 89,941 Ordinary Shares
to Stockdale Securities Limited following
their election to exercise the Equity Warrant granted at the time of the IPO of the Company.
This share issue is taken into account in calculating the Basic
Number of Ordinary Shares.
During the year ended 31 December 2017, the following dilutive
events have occurred:
-- On 19 and 22 May 2017, the Company granted options over
269,285 Ordinary Shares to selected employees, of which 190,300
remain outstanding at year end;
-- On 10 November 2017, the Company granted options over 42,624
Ordinary Shares to selected employees, of which 41,184 remain
outstanding at year end;
-- On 7 December 2017, the Company granted options over 148,000
Ordinary Shares to selected employees, all of which remain
outstanding at year end;
-- As at 31 December 2017, the Company had allocated options over 20,836 Ordinary Shares to the Non-Executive Directors.
These dilutive events are taken into account in calculating
Diluted Number of Ordinary Shares.
12. Intangible Assets
Development Costs
GBP'000
Cost
As at 30 September 2015 346
Additions 221
As at 31 December 2016 567
----------
As at 1 January 2017 567
Additions 137
As at 31 December 2017 704
----------
Amortisation
As at 30 September 2015 92
Amortisation Charge
for the Period 112
As at 31 December 2016 204
----------
As at 1 January 2017 204
Amortisation Charge
for the Year 100
As at 31 December 2017 304
----------
Net Book Value
As at 30 September 2015 254
----------
As at 31 December 2016 363
----------
As at 31 December 2017 400
----------
13. Property, Plant and Equipment
Leasehold Office Computer Motor
Property Equipment Equipment Vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 30 September
2015 46 19 95 - 160
Additions - 33 181 82 296
Disposals - - (27) - (27)
At 31 December
2016 46 52 249 82 429
---------- ----------- ----------- ---------- ----------
Additions 53 67 299 - 419
Disposals - - (1) (33) (34)
At 31 December
2017 99 119 547 49 814
---------- ----------- ----------- ---------- ----------
Depreciation
At 30 September
2015 17 8 68 - 93
Charge for Period 7 4 45 9 65
Disposal - - (27) - (27)
---------- ----------- ----------- ---------- ----------
At 31 December
2016 24 12 86 9 131
---------- ----------- ----------- ---------- ----------
Charge for Period 10 17 113 14 154
Disposals - - - (10) (10)
At 31 December
2017 34 29 199 13 275
---------- ----------- ----------- ---------- ----------
Net Book Value
At 30 September
2015 29 11 27 - 67
---------- ----------- ----------- ---------- ----------
At 31 December
2016 22 40 163 73 298
---------- ----------- ----------- ---------- ----------
At 31 December
2017 65 90 348 36 539
---------- ----------- ----------- ---------- ----------
As at 31 December 2017, assets held under Finance Leases had a
Net Book Value of GBP61k (2016: nil). The
depreciation charge of the respective assets in the year was nil
(2016: nil).
14. Trade Receivables and Other Receivables
As at As at
31 December 31 December
2017 2016
GBP'000 GBP'000
Trade Receivables 994 928
Other Receivables 10 8
Prepayments and Accrued Income 126 97
1,130 1,033
------------- -------------
The carrying amount of Trade and Other Receivables approximates
to their fair value.
15. Trade Payables and Other Payables
As at As at
31 December 31 December
2017 2016
GBP'000 GBP'000
Trade Payables 130 484
Other Taxation and Social Security 327 210
Accruals 277 143
Deferred Income 613 388
Other Payables 33 39
1,380 1,264
------------- -------------
The carrying amount of Trade and Other Payables approximates to
their fair value.
16. Finance Leases
The Group entered into a Finance Lease in November 2017 to fund
investment in IT equipment. Capital repayments under the Finance
Lease are structured as follows:
As at As at
31 December 31 December
2017 2016
GBP'000 GBP'000
Payable in one year or less 20 -
Payable between one and two years 20 -
Payable between two and five
years 21 -
Payable in five years or more - -
Finance Lease Balance 61 -
-------------- --------------
Total payments under the Finance Lease are as follows:
Capital Interest Total
Payable in one year or
less 20 1 21
Payable between one and
two years 20 1 21
Payable between two and
five years 21 - 21
Payable in five years
or more - - -
Finance Lease Balance 61 2 63
-------- --------- ------
There have been no cash flows arising from changes in
liabilities from financing activities (2016: none).
17. Share Capital
Ordinary Share Capital
As at 1 October 2015, the Ordinary Share Capital had a nominal
value of GBP1 per share. At this time, there were two classes of
Ordinary Shares, A Shares and B Shares, ranking equally in all
respects.
Ordinary Shares Number
of Shares
Number of Issued Ordinary
Authorised and Fully Share
Shares Paid Capital
GBP'000
As at 1 October 2015:
A Shares 16,178 16,178 16
B Shares 6,203 6,203 6
----------- ---------- --------
Total Ordinary Shares of
GBP1 each 22,381 22,381 22
Issue of Ordinary Shares 1,569 1,569 2
Ordinary Shares of GBP1 each
(Single Class) 23,950 23,950 24
----------- ---------- --------
Ordinary Shares of 1 pence
each 2,395,000 2,395,000 24
Bonus Issue 2,634,500 2,634,500 26
Ordinary Shares of 1 pence
each as at 28 October 2016 5,029,500 5,029,500 50
Admission to AIM:
Exercise of Share Options 970,620 970,620 10
Placing on Admission 2,994,011 2,994,011 30
As at 31 December 2016 8,994,131 8,994,131 90
----------- ---------- --------
On 14 October 2015, 1,569 shares were issued for GBP85k,
resulting in a credit to Share Premium Account of GBP83k.
On 28 October 2016, the Company passed a resolution to
consolidate the A and B Ordinary Shares of GBP1 each in issue into
a single class of shares.
On 28 October 2016, the Company passed a resolution to split
each existing Ordinary Share of GBP1 each in issue into 100
Ordinary Shares and reduce the nominal value to 1 pence per
share.
On 28 October 2016, the Company passed a resolution to issue 110
Ordinary Shares of 1 pence each for every 100 shares held by way of
a Bonus Issue pro rata to the existing shareholders.
These ordinary shares carry no right to fixed income and have no
preferences or restrictions attached to them.
On 14 December 2016, 970,620 new Ordinary Shares were issued
immediately prior to Admission on AIM to satisfy the exercise of
share options.
As part of the Admission (and in accordance with the terms of
the Placing Agreement) 2,994,011 shares were allotted and issued to
new investors.
Consideration of GBP5,818k was received in respect of the above
transactions in the period ended 31 December 2016.
During the period ended 31 December 2017, the movement in Share
Capital was:
Ordinary Shares of 1 pence Number
each: of Shares
Number of Issued Ordinary
Authorised and Fully Share
Shares Paid Capital
GBP'000
As at 1 January 2017 8,994,131 8,994,131 90
Increase in Authorised Share
Capital 2,998,000 - -
Exercise of Equity Warrant - 89,941 1
At at 31 December 2017 11,992,131 9,084,072 91
----------- ---------- --------
On 22 June 2017, the Authorised Share Capital of the Company was
increased by 2,998,000 by way of an Ordinary Resolution.
On 9 June 2017, Stockdale Securities Limited exercised its
Equity Warrant, subscribing for 89,941 new Ordinary Shares at an
exercise price of 167 pence per share. This resulted in a capital
inflow of GBP150k and a credit to the Share Premium Account of
GBP149k.
Share Premium Account
The balance of the Share Premium Account represents amounts
received in excess of the nominal value (1 pence per share) of
Ordinary Shares. This account is non-distributable.
Share Option Reserve
The balance of the Share Option Reserve represents the
accumulated amounts charged to the Statement of Comprehensive
Income in respect of Share Based Payments. This reserve is
non-distributable.
Retained Earnings
The balance of the Retained Earnings account represents the
accumulated retained profits or losses of the Group. This account
is a distributable reserve, provided that the accumulated balance
is positive.
18. Financial Instruments and Financial Risk Management
The Group's principal financial instruments comprise:
-- Cash and Cash Equivalents
-- Trade Receivables
-- Other Receivables
-- Trade Payables
-- Accruals
-- Other Payables
-- Finance Lease Liabilities
The Group's accounting policies, including the criteria for
recognition, and the basis on which income and expenses are
recognised in respect of each class of financial asset and
financial liability, are set out in note 4.14 to the Annual Report.
The information about the extent and nature of these recognised
financial instruments, including significant terms and conditions
that may affect the amount, timing and certainty of future cash
flows, are disclosed in the respective notes, where applicable. The
Group does not use financial instruments for speculative
purposes.
The principal financial instruments used by the Group, from
which financial instrument risk arises, are as follows:
As at As at
31 December 31 December
2017 2016
Financial Assets GBP'000 GBP'000
Trade Receivables 994 928
Other Receivables 10 8
Cash and Cash Equivalents 1,597 4,987
Total Financial Assets 2,601 5,923
------------- -------------
Financial Liabilities
Trade Payables 130 484
Accruals 277 143
Other Payables 33 39
Finance Leases 61 -
Total Financial Liabilities 501 666
------------- -------------
Fair Values
The Directors have assessed that the fair values of Cash and
Cash Equivalents, Trade Receivables, Trade Payables, Other Payables
and Finance Leases approximate to their carrying amounts largely
due to the short-term maturities of these instruments. There are no
fair value adjustments to assets or liabilities charged to the
Statement of Comprehensive Income.
Market Risk
Market risk is the risk that the fair value of future cash flows
of a financial instrument will fluctuate due to changes in market
prices. Market risk comprises 3 types of risk - commodity price
risk, interest rate risk, foreign currency risk. The Group has
limited exposure to each of these risks, as discussed below.
Capital Management
The Group manages its capital to ensure that it will be able to
continue as a going concern while attempting to maximise the return
to stakeholders through the optimisation of the debt and equity
structure. The capital structure of the Group consists of issued
Share Capital, Retained Earnings and Finance Leases.
The Group does not generally enter into derivative transactions
(such as interest rate swaps and forward foreign currency
contracts) and it is, and has been throughout the period covered by
these financial statements, the Group's policy that no trading in
financial derivative instruments shall be undertaken.
Credit Risk
Credit risk is the risk that a counter-party will cause a
financial loss to the Group by failing to discharge its obligations
to the Group. The Group manages its exposure to this risk by
applying limits to the amount of credit exposure to any one
counterparty and employs strict minimum credit worthiness criteria
as to the choice of counterparty. The maximum exposure to credit
risk for receivables and other financial assets is represented by
their carrying amount. The Group considers credit risk to be low
due to its processes and the nature of its clients, which includes
a broad spread of large corporates, SMEs, and public sector
organisations.
The Group establishes an allowance for impairment that
represents its estimate of incurred losses in respect of the Trade
and Other Receivables as appropriate. The allowance comprises a
provision against individually significant exposures.
Trade Receivables
Trade Receivables, net of impairment provisions, for the Group
as at 31 December 2017 were GBP994k (2016: GBP928k). These Trade
Receivables are not secured by any collateral or credit insurance.
Normal credit terms are 30 days.
As at 31 December 2017, Trade Receivables past due for the Group
total GBP141k (2016: GBP206k) of which GBP2k (2016: GBP5k) have
been impaired.
As at 31 December 2017, Trade Receivables of GBP139k (2016:
GBP201k) were past due but not impaired, as follows:
As at As at
31 December 31 December
2017 2016
GBP'000 GBP'000
Up to 3 months 113 114
3 months to 6 months 24 82
6 months to 12 months 2 5
139 201
------------- -------------
Cash Holdings
The Group only holds cash at mainstream banking institutions to
mitigate the credit risk on cash deposits. The credit rating of the
principal banking institution is A (Standard & Poor's).
Interest Rate Risk
The Group's exposure to changes in interest rates relates to
Cash holdings and Finance Leases.
Cash is held either on current or short term deposits at a
floating rate of interest determined by the relevant bank's
prevailing base rate.
The outstanding balance of Finance Leases at 31 December 2017
was GBP61k. This relates to a single facility at a fixed rate of
interest.
Interest Rate Sensitivity
When reviewing sensitivity to movement in interest rates it is
noted that interest rates are at historically low levels and that
Cash balances significantly outweigh debt balances.
The Directors consider that any downward movement in interest
rates would be immaterial to the Group. The Directors consider that
an upward movement in interest rates would benefit the Group,
although the impact of a 1% rise in interest rates would be
immaterial.
Foreign Currency Exchange Risks
Foreign currency risk is the risk that the fair value or future
cash flows of an exposure will fluctuate because of the changes in
foreign exchange rates. The Group's exposure to the risk of changes
in foreign exchange rates relates primarily to the Group's
operating activities when revenue or expenses are denominated in a
foreign currency.
The Group does not hedge its foreign currencies. Transactions
with customers are mainly denominated in GBP.
The Group has suppliers that invoice in US dollars and
Australian dollars. The balances exposed to credit risk at year end
are as follows:
As at As at
31 December 31 December
2017 2016
GBP'000 GBP'000
US Dollars 2 14
Australian Dollars 5 -
7 14
------------- -------------
Liquidity Risks
Liquidity risk arises from the Group's management of working
capital. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as they fall due. The Group's
policy is to ensure that it will always have sufficient cash to
allow it to meet its liabilities when they become due.
The maturity profile of the Group's financial liabilities at the
reporting dates, based on contractual undiscounted payments, are
summarised below:
As at As at
31 December 31 December
2017 2016
Due within 3 months GBP'000 GBP'000
Trade Payables, Other Taxation
and Social Security, Accruals,
Other Payables 767 876
------------- -------------
19. Related Party Transactions
During the year, dividends were paid to the Directors and their
close family members as follows:
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Dividends paid to Directors
and their close family members - 254
-------------- -------------
Merlin Consultancy
During the year ended 31 December 2017, Merlin Consultancy Ltd,
a company owned by Nigel Payne (Non-Executive Chairman), invoiced
ECSC Group plc GBP13k for services rendered. These transactions
were entered into on an arm's length basis. The balance payable as
at 31 December 2017 was GBPnil (2016: GBPnil).
Non-Executive Directors' Share Options
The three Non-Executive Directors of ECSC Group plc agreed to
change the payment of service fees under their Letters of
Appointment from cash payments to the grant of nil exercise price
share options in October 2017. The monthly entitlement to share
options for each Non-Executive Director is calculated by dividing
1/12th of their respective annual service fee by the average
closing middle market share price for the 5 business days preceding
the end of each month. As the share options are granted in lieu of
cash fees and are not performance based, they are not subject to
performance criteria nor do they have minimum holding periods. This
arrangement became effective on 1 October 2017 and was terminated
on 1 January 2018.
During the period October 2017 to December 2017, the Company
allocated options over 20,836 shares under this scheme. Within this
total, Nigel Payne was allocated 8,014 options, Stephen Vaughan was
allocated 6,411 options and David Mathewson was allocated 6,411
options.
These options were not formally granted during the year ended 31
December 2017. It is intended that these options will be granted
during March 2018 following publication of the financial results of
the Company.
Unicorn Asset Management
In October 2017, ECSC Group plc provided professional cyber
security services to Unicorn Asset Management, a substantial
shareholder in the Company, generating Consulting revenue of
GBP20k. This transaction was entered into on an arm's length basis.
The balance receivable as at 31 December 2017 was GBPnil (2016:
GBPnil).
Directors' Loans
In October 2015, loans totalling GBP85k were granted to two
Directors to enable them to exercise share options. The loans were
interest free and were repayable on a sale or flotation of the
Company, or earlier at the borrowers' discretion. The loans were
discounted to GBP80k and were fully repaid in the period ended 31
December 2016. An additional loan of GBP13k was made to a Director
in the period ended 31 December 2016. This loan was interest free
and was repaid in the period ended 31 December 2016.
During the year ended 31 December 2017, there were no new loan
advances to Directors.
20. Share Based Payments
Share Based Payment Schemes
The Company operates a number of equity-settled Share Based
Payment schemes, as follows:
-- Enterprise Management Incentive ('EMI') Scheme
-- Save As You Earn ('SAYE') Share Option Scheme
-- Non-Executive Director Remuneration Scheme ('NED Scheme')
EMI Scheme
The EMI Scheme provides the opportunity for eligible Directors
and employees to buy ECSC ordinary shares at a future date in
accordance with the scheme rules. The options are subject to the
option holder's continuing employment, are not transferable, and
have a life of 10 years. All grants under the scheme are subject to
approval by the Remuneration Committee.
During the year there were two grants of options under this
scheme:
May 2017
In May 2017, the Company granted options over 269,824 shares at
an exercise price of 167 pence per share, subject to a 3 year
vesting period, to 31 employees. There were no performance
conditions attaching to this grant.
Within this grant, Lucy Sharp, a Director of the Company, was
granted options over 69,758 shares.
During the year, options over 79,524 options have lapsed, such
that options over 190,300 shares remain exercisable in the
future.
December 2017
In December 2017, the Company granted options over 148,000
shares at an exercise price of 140 pence per share, subject to a 3
year vesting period, to 8 employees. There was a performance
condition attaching to this grant.
In order for the options to vest, the share price of the Company
must grow by at least 10% pa on a compound basis over the 3 year
vesting period from a start point of 140 pence per share. This is a
one-off performance condition that shall be tested at the end of
the vesting period, and does not require 10% growth in individual
years of the vesting period. If an event occurs before the expiry
of the vesting period that causes the option to become exercisable
under the scheme rules, then the Remuneration Committee, in its
sole discretion, may waive or modify downwards the performance
condition at the time of early vesting.
Within this grant, Stephen Hammell, a Director of the Company,
was granted options over 100,000 shares.
SAYE Scheme
The SAYE Scheme provides the opportunity for eligible Directors
and employees to buy ECSC ordinary shares at a future date at the
end of a linked savings contract. The options are subject to the
scheme rules, are not transferable and have a life of 10 years. All
grants under the scheme are subject to approval by the Remuneration
Committee.
In November 2017 the Company granted options over 42,624 shares
at an exercise price of 125 pence per share, subject to a 3 year
vesting period, to 30 employees who applied to join the scheme.
During the year, options over 1,440 options have lapsed, such
that options over 41,184 shares remain exercisable in the
future.
NED Scheme
In October 2017, the Company agreed to alter the payment of
service fees payable to its three Non-Executive Directors from
monthly cash payments to the grant of nil exercise share options.
Since the options are in lieu of cash payments, there are no
performance conditions attaching to the grant of these options and
they may be exercise on grant.
During the period October 2017 to December 2017, the Company
allocated options over 20,836 shares under this scheme. Within this
total, Nigel Payne was allocated 8,014 options, Stephen Vaughan was
allocated 6,411 options, and David Mathewson was allocated 6,411
options.
These options were not formally granted during the year ended 31
December 2017. It is intended that these options will be granted
during March 2018 following publication of the financial results of
the Company. From 1 January 2018, the payment of service fees has
returned to monthly cash payments.
Share Based Payment Charge
In accordance with the requirements of IFRS 2, the Company
calculated the fair value of the share options at the date of grant
using a Black Scholes option pricing model for the EMI and SAYE
Schemes. For the NED scheme, the fair value of the services
rendered was assessed.
A Share Based Payment charge is recognised by spreading the fair
value of the option over the maturity period, with allowance made
for options that have lapsed in the period.
The movement in the number of options during the year, the
option pricing assumptions, the option valuation at the grant date
and the Share Based Payment Charge in the year, for each scheme
described above, is as follows:
Scheme EMI EMI SAYE NED Total
(May '17) (Dec '17)
Number of Options:
Outstanding at 1 January - - - - -
2017
Granted during the year 269,824 148,000 42,624 20,836 481,284
Forfeited during the
year (79,524) - (1,440) - (80,964)
Exercised during the - - - - -
year
Expired during the year - - - - -
Outstanding at 31 December
2017 190,300 148,000 41,184 20,836 400,320
----------- ----------- -------------- -------- ---------
Exercisable at 31 December
2017 - - - 20,836 20,836
----------- ----------- -------------- -------- ---------
Option Pricing Assumptions:
Pricing Model Black Black Black Scholes
Scholes Scholes
Weighted average share
price at grant date
(pence) 312 135 131 125
Weighted average exercise
price (pence) 167 140 125 - 144
Weighted average contract 3 years 3 years 3 years 0 years
life
Weighted average risk
free rate 1% 1% 1% 1%
Volatility 40% 40% 40% 40%
----------- ----------- -------------- -------- ---------
Option Valuation:
Option Valuation at
grant date (GBP'000) 312 53 16 26 407
----------- ----------- -------------- -------- ---------
Share Based Payment
Charge in 2017:
Share Based Payment
Charge (GBP'000) 65 1 1 26 93
----------- ----------- -------------- -------- ---------
Weighted Average Exercise
Price:
At grant date, forfeit
date and end of period
(pence) 167 140 125 -
The weighted average contracted life of all options at the end
of the period is 9 years 2 months.
The volatility assumption, calculated at the standard deviation
of expected share price returns, is based on analysis of the share
prices of comparable companies over the last 3-5 years.
Although the NED Scheme options were not formally granted during
the period, a charge has been recognised in the Statement of
Comprehensive Income, as the services to which the Share Based
Payments relate were received by the Company during the period.
Since the NED scheme terminated on 31 December 2017, the fair value
of the allocated options has been charged in full during the year
ended 31 December 2017.
Exercise of Stockdale Warrant
On 9 June June 2017, Stockdale Securities Limited exercised its
Equity Warrant granted in December 2016 over 89,941 shares at an
exercise price of 167 pence per share. The share price on the day
of exercise was 445 pence.
21. Dividends
15 months
Year ended ended
31 December 31 December
2017 2016
Dividends Paid GBP'000 GBP'000
Ordinary A Shares - 167
Ordinary B Shares - 87
Ordinary Shares (single class) - -
Total - 254
--------------- -------------
Dividend per Share (unadjusted) GBP GBP
Ordinary A Shares - 10.31
Ordinary B Shares - 14.04
Ordinary Shares (single class) - -
----- ------
Dividend per Share (adjusted
to reflect the Share Split
and Bonus Issue described
in Note 20) GBP GBP
Ordinary A Shares - -
Ordinary B Shares - -
Ordinary Shares (single class) - 0.05
----- -----
22. Exceptional Costs
During the year ended 31 December 2017, the Company undertook a
restructuring exercise to reduce its operating costs and mitigate
its monthly operating losses. Costs savings were achieved by
reducing headcount in a number of departments and by reducing
overhead costs. In achieving these recurring cost savings, a number
of one-off, exceptional costs were incurred, including payments in
lieu of notice, redundancy payments and car termination costs.
These Exceptional Costs totalled GBP275k and were charged to the
Statement of Comprehensive Income in the year ended 31 December
2017.
Exceptional Costs are analysed as follows:
15 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Payments in Lieu of Notice 185 -
Redundancy Payments 5 -
Ex-gratia Payments 37 -
------------- -------------
Employee Benefit Expense 227 -
Taxation & Social Security
Costs 23
------------- -------------
Staff Related Costs 250 -
Car Termination Costs 18 -
Legal Costs 7 -
IPO Costs - charged to Statement
of Comprehensive Income - 975
IPO Costs - allocated to Share
Premium Account - 313
------------- -------------
Exceptional Costs 275 1,288
------------- -------------
As part of the process of admission to trading on AIM for the
first time in December 2016, costs of GBP1,288k were incurred. Of
this total, costs of GBP313k were allocated against Share Premium
Account. The remaining costs of GBP975k were charged to the
Statement of Comprehensive Income in the 15 months ended 31
December 2016.
23. 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 Date of Incorporation Principal
Office Activity
ECSC Services 28 Campus 18 April 2017 Dormant
Limited Road
Listerhills
Science Park
Bradford
BD7 1HR
ECSC Labs 28 Campus 18 April 2017 Dormant
Limited Road
Listerhills
Science Park
Bradford
BD7 1HR
ECSC Australia 28 Campus 29 September Intermediary
Limited Road 2016 holding company
Listerhills
Science 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 Date of Incorporation Principal
Office Activity
ECSC Australia Governor Phillip 20 March 2017 Provision
Pty Limited Tower Level of professional
36 cyber security
1 Farrer Place services
Sydney
NSW 2000
This information is provided by RNS
The company news service from the London Stock Exchange
END
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(END) Dow Jones Newswires
March 13, 2018 03:01 ET (07:01 GMT)
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