Delay to orders sees ECSC shares tumble

ECSC has embarked on a strategy of organic growth, based on investment in its operations
ECSC has embarked on a strategy of organic growth, based on investment in its operations
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Shares in cyber security firm ECSC Group​ fell over 30 per cent after the firm warned that revenues will be lower than expected this year following ​a delay in orders.

The Bradford-based group said ​that ​whilst​ it is pleased with its new sales pipeline, the conversion into reported revenue is taking longer than anticipated. This has resulted in ​c​onsulting revenues falling six weeks behind anticipated growth and ​m​anaged ​s​ervices wins falling behind ​for ​slightly longer.

T​he group said ​​t​he market for cyber security remains positive​ and r​ecent high profile incidents have helped cyber security remain a priority for companies.

The group’s shares closed down 140p at 310p.

ECSC, which counts Barclays, GCHQ and Virgin East Coast Trains among its high profile clients, is gearing up for increased demand ahead of new regulations that will cost companies millions if they fail to prepare for​ ​cyber breaches.

Following high profile breaches at firms like mobile provider TalkTalk, new rules under the General Data Protection Regulations (GDPR) will come into force in May 2018.

Any firms that are cyber breached after this date will face a fine of 4 per cent of their global turnover.

TalkTalk was fined just £400,000, but if the cyber breach had occurred next June it would have faced a fine of around £72m.

ECSC is talking to a number of blue chip firms that are keen to avoid similar attacks. It already looks after 10 per cent of the FTSE 100.

In a trading update, ECSC said it has embarked on a strategy of organic growth, based on investment in its operations, to build ECSC into a leading cyber security business. It said good progress has been made this year in scaling the operations, with the growth in headcount and new operating locations all developing in line with management expectations.

The newly expanded sales team has completed a phase of induction and training and has been permitted a short period of time to establish and build the sales pipeline of new business. It said the sales team is currently on track to meet internal targets set for pipeline generation.

​However whilst the group is confident about the long-term success of the business, the delays in sales conversion will lead to a lower than expected level of revenue in 2017.

Given that the investment in the cost base has been completed, this lower level of revenue will result in an increase in the EBITDA loss for 2017. The group said it is monitoring the ramp-up of reported revenue very closely and managing the cost base accordingly.

Despite these delays, the group insisted its organic growth strategy is appropriate for the positive market background and the long-term outlook is encouraging.

Chief executive Ian Mann said: “The scale-up of the operations has progressed well so far. Whilst the new sales team is bedding-in, we are experiencing a delay in revenue growth that will directly impact 2017 results. However, we are seeing encouraging sales pipeline growth.”