BRSD.L Regulatory News (BRSD)

29 September 2022

BrandShield Systems plc

("BrandShield," the "Company," or the "Group")

Half year results for the six months ended 30 June 2022

Average Recurring Revenue, up 71% in H1 2022, continues to underpin operational progress

BrandShield Systems plc (AIM: BRSD), a leading provider of cybersecurity solutions for brand oriented digital risk protection, announces its results for the six months ended 30 June 2022.

Financial highlights

· H1 2022 Annual Recurring Revenue1 ("ARR") up 71% to $6.67m (H1 2021: $3.89m)

· Strong momentum continued with the August 2022 ARR figure reaching $7.26m, up 68% vs. August 2021 and up 39% vs. December 2021

· Delivered revenue growth of 59.9% to $2.83m in H1 2022 (H1 2021: $1.77m)

· Cash of $2.18m at period end (31 Dec 2021: $2.07m)

· Raised £2.5m (gross) in the period to further accelerate sales and marketing activities, expansion of advertising, sales promotion and digital marketing campaigns and ongoing B2B public relations and brand building activities

1Annual Recurring Revenue is a non GAAP measure and an industry specific measure

Operational highlights

· Strong new business momentum achieved in the first half of 2022, increasing by 23 customers in the period to 153 customers, with growth continued to 163 customers by the end of August 2022.

22% increase in Full Time Employees to 60 at end of June 2022 (December 2021: 49). Ongoing investment in the operational and sales and marketing functions, to broaden the Company's sales footprint and drive additional ARR growth

· Secured a number of contracts in the period with clients from a broad range of sectors, including new or extended contracts with companies operating in the financial services, pharmaceutical, fashion, crypto, entertainment, sports, and cosmetics sectors, including:

o  One of the world's largest international consumer electronics businesses

o  An online gaming client that focuses on the crypto gaming sub-sector

o  A further leading global pharmaceutical company

· BrandShield 3.0 launched in January 2022 to help increase levels of customer interaction and ultimately detect levels of online threats

Post period-end and Outlook

· Conversion rates from the new business pipeline continue to be very high and, as the impact of our expanded sales team globally delivers results, the size of the pipeline is growing strongly 

· Announced formal partnership with The Sandbox, decentralised gaming virtual world and a subsidiary of Animoca Brands, which was formed to ensure the safety and security of crypto wallets and NFT assets bought and sold over the marketplace

· Well placed to deliver ongoing sales growth in H2 2022, including Q4 which is traditionally the quarter which delivers the greatest growth for the Company

· The Company remains confident of trading in line with expectations for FY 2022 and in its growth prospects in the medium-term

Broking Arrangements

With effect from 1 October 2022 Shore Capital will be the Company's sole broker (having previously been the Company's joint broker) following the end of Tennyson Securities' engagement as joint broker.  

Yoav Keren, Chief Executive Officer of BrandShield, commented:

"We are delighted to report that trading has remained strong, building on the significant sales traction highlighted in our full year results published in July. The tangible impact of our expanded sales team, particularly in the United States, is now having a positive impact of our ability to deliver improved levels of ARR, our key performance metric. 

"We are exceptionally proud of our growing client list both in terms of numbers and their leading position in their respective sectors. There is a growing realisation amongst brands of all sizes of the threat posed to their reputation and financial performance from illicit activity online and outside of their influence. BrandShield continues to offer cutting edge protection that they simply would not be able to achieve from within their own resources or from inside-the-perimeter cybersecurity solutions."

Enquiries:

About BrandShield

BrandShield is a leading cybersecurity company founded in Israel by cybersecurity experts that protect the world's largest brands and consumers from phishing attacks, online fraud, and other online threats posed by dangerous cybercriminals. Through its AI/ML platform, BrandShield identifies, tracks, and eliminates online threats for global brands and organizations, including Bristol Myers Squibb, Levi's, NewBalance, Swisscom, and the Pharmaceutical Security Institute. BrandShield is quoted on the London Stock Exchange AIM under ticker symbol BRSD. To learn more about BrandShield, please visit the company website at www.BrandShield.com.

Chief Executive Officer's review

Introduction

The focus for the first half of 2022 remained on continuing the rapid expansion of BrandShield's offering worldwide and in turn driving growth of the Company's Annual Recurring Revenue ("ARR") to $6.67m representing 28% growth relative to December 2021, and 71% growth versus the same period in the prior year, the key KPI for the Group. This was underpinned by the conversion of clients across a number of sectors and the ongoing investment in and expansion of the Company's marketing and sales functions. This positive trend has continued through August 2022, with ARR up 68% from August 2021, to $7.26m. Traditionally Q4 is the quarter which delivers the greatest growth for the Company.

Revenues for the six months ended 30 June 2022 increased 59.9% to $2.83m compared to H1 2021 ($1.77m), with the Group reporting a loss for the period of $4.11m (H1 2021: loss of $1.77m), which was in-line with management's expectations. As at 30 June 2022, the Group had cash of $2.2 million (31 Dec 2021: $1.2m).

As at 30 June 2022, the loss includes Share Based Payments of $1.2m; the Company recognised the expense in the income statement according to the fair value of the share options and warrants determined using Black Scholes valuation model.

The Company secured several additional contracts in the period with clients from a broad range of sectors. These have included new or extended contracts with companies operating in the financial services, pharmaceutical, fashion, crypto, entertainment, sports, cosmetics and other sectors.

Market dynamics

It has been widely reported that the Covid-19 pandemic has accelerated digitisation with the growth in e-commerce being a clear example of this. Alongside this growth, there has been a significant increase in associated fraudulent activity as cyber criminals seek to exploit individuals through phishing scams, impersonation and counterfeiting.

Therefore, the opportunity for BrandShield is significant, and growth in our key target markets is showing no signs of abating and is apparent across myriad sectors - as demonstrated by the diverse nature of our new business wins in H1 2021 - including pharmaceutical companies engaged in the development of vaccines.

Our unique proposition

We believe that our technology is well-placed to lead this transition to a more digitised economy as enterprises increase their online protection and move from focusing on internal cyber security to requiring solutions for external threats, providing comprehensive digital risk protection solutions. BrandShield's market leading solutions are underpinned by:

· A mature product, creating higher barriers to entry

· Ongoing investment in R&D to ensure market leadership is maintained

· AI/ML powered technology

· Strong threat network detection capabilities

· Unique image recognition and Optical Character Recognition (OCR) - focusing on detection of emerging threats on social media and ecommerce marketplaces

· Big data investigation tools with multi-brand and platform capabilities

· Strong takedown capabilities across all digital threats

In addition, BrandShield adopts a multi-layered approach to the detection and mitigation of online threats, which includes: Data, Analysis, Prioritisation, Interface and Action.

Strategy

The Company remains in a strong growth phase in which the focus continues to be on client conversion and driving Annual Recurring Revenue. The growth to 153 clients at the end of H1 is strong evidence of both the Company's ability to convert new clients and to retain and indeed secure upsells to existing clients who have remained with BrandShield for several years. 

In February, the Company announced a contract with one of the world's largest international consumer electronics businesses. This was followed by announcing a win with an online gaming client that focuses on the crypto gaming sub-sector. This is an increasingly strong sector of growth given its propensity to be targeted by fraudulent attacks. A further leading global pharmaceutical company agreed a contract in April and the Company announced its formal partnership with The Sandbox in July, post-period end. The Sandbox is a leading, decentralised gaming virtual world and a subsidiary of Animoca Brands, which was formed to ensure the safety and security of crypto wallets and NFT assets bought and sold over the marketplace.

Securing new clients remains the result of a mixture of inbound enquiries, referrals from existing clients and our expanding outbound sales and marketing teams around the globe. The Company is actively expanding our USA based sales team and will be in a position to announce new and leading hires in this area in the near future. 

In the period a total of £2.5m funds were raised prior to associated costs. This has allowed the Company to continue to focus on driving new client acquisition. In the period the following initiatives have been undertaken:

· Continue to invest in and grow the sales and marketing teams

· Specific expansion of the sales teams in the US and UK

· Establishing a broader marketing footprint

· Expansion of advertising, sales promotion and digital marketing campaigns

· Ongoing B2B public relations and brand building activities

BrandShield 3.0 was launched in early 2022. It was developed in accordance with the latest market requirements and to meet the most recent digital risk protection and brand protection challenges. The Software-as-a-Service ("SaaS") technology includes a completely new and robust infrastructure and its innovative user interface is both intuitive and enables more ways to detect threat networks and carry out immediate takedowns whilst covering more threats in less time.

BrandShield 3.0 provides both new and existing customers with the following benefits: 

· Ease of use: complete responsiveness and customisation, unification of system processes and pages, and intuitive step by step detections and takedowns

· Greater speed: new technologies have been implemented, significant upgrades of databases and servers, improved coding and machine processes, which have added to a much faster solution 

· Superior automation: increased levels of automation for detection, analysis and takedowns

Key hires

The US accounts for the majority of the Company's client base and new business pipeline, and as such remains a key focus of our expanding sales footprint. The Company is currently undertaking a recruitment process in the US which will further expand our pipeline of opportunity in this key region for BrandShield. 

Outlook

Growth in client numbers and associated ARR remains incredibly encouraging and the Board is resolute in its strategy of reinforcing this as the market opportunity continues to present itself. The Company looks forward to updating the market in our full year results building on what is traditionally a very strong final quarter of the year and the foundations laid in our recently expanded sales and marketing efforts. 

The Company remains confident in trading in line with management expectations for the full year 2022 and in the growth prospects in the medium-term.

Yoav Keren

Chief Executive Officer

29 September 2022

UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION ON BRANDSHIELD SYSTEMS PLC FOR THE 6 MONTH PERIOD ENDED 30 JUNE 2022

CONSOLIDATED INCOME STATEMENT

For the periods ended 30 June

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the periods ended 30 June

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Unaudited

UNAUDITED CONSOLIDATED CASH FLOW STATEMENTS

For the periods ended 30 June

Non-cash transactions

The Company operates an equity-settled, share-based scheme under which the Company receives services from employees as consideration for equity instruments (options) of the Company. The value of the employee services received is expensed in the Income Statement and its value is determined by reference to the fair value of the options granted, calculated using the Black Scholes model. In the period to 30 June 2022 4,433,552 options were issued at a fair value of 0.08 USD per option.

NOTES TO THE FINANCIAL INFORMATION

1. General information and basis of preparation

The principal activity of BrandShield Systems plc (the 'Company') is the development of a brand protection and online threat hunting solution to prevent, detect and remove online threats, through its research and development centre in Israel.

Basis of preparation

The condensed consolidated interim financial statements ("Interim Financial Statements") of the Group have been prepared in accordance with the AIM Rules for Companies and UK adopted international accounting standards and the Companies Act 2006. They have been prepared under the assumption that the Group operates on a going concern basis. As permitted, the Group has chosen not to fully adopt IAS 34 in preparing the Interim Financial Statements. The Interim Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets at fair value through profit or loss.

The Interim Financial Information has been prepared under the same basis of preparation and accounting policies as adopted in the audited annual financial statements for the period to 31 December 2021, which were authorised by the Board on 30 June 2022. The Interim Financial Statements should be read in conjunction with these annual financial statements.

The interim financial information is presented in US Dollars.

Going concern

The financial statements have been prepared on the assumption that the group will continue as going concern. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations.

The wording included in the going concern policy and relevant disclosures within the Annual Report for the year ended 31 December 2021 is still applicable to the group as at 30 June 2022.

Critical accounting estimates

The preparation of Interim Financial Statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. The key assumptions used in preparation of the Interim Financial Information are in conformity with the assumptions used in the annual financial statements unless otherwise stated.

Accounting policies

The same accounting policies, presentation and methods of computation have been followed in the Interim Financial Statements as were applied in the Company's audited annual financial statements. No new standards were adopted in the period. There are no new standards issued but not yet effective that have been early adopted or are expected to have a material impact on the Company.

2. Revenue

Revenue is generated from the sale of online monitoring services. In the period ended 30 June 2022, 96% of sales were made overseas (The period ended 30 June 2021: 94.8%). The majority of overseas sales are made in the USA.

3. Research and Development expenses

Sales and marketing expenses

Operation expenses

4. Loss per share

Basic loss per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

Since the Company is loss making, the share options, warrants and convertible loans currently in issue are non-dilutive.

5. Trade and other receivables

6. Cash and cash equivalents

7. Short term loan and bank overdraft

BrandShield Ltd has entered into an agreement with Leumi Bank to provide a revolving credit line facility of up to 8 million NIS (c. $2.3 million) for 24 months. The credit line bears a competitive interest rate. The facility allows drawdown of up to four times Monthly Revenue (net of churn) and includes covenants of a type typical of such an agreement.

8. Trade and other payables

9. Related party transactions 

BrandShield Limited is connected to its predecessor Domain the Net Technologies Limited (the "Related Party"), a company registered in Israel. BrandShield Limited demerged from the Related Party in 2013 and has directors in common. Furthermore, the two parties share several operational costs, including sharing rental costs. There is a formal agreement between the Company and its related party (signed 17 May 2020).

BrandShield Limited is connected to its parent company BrandShield Systems plc. There is a formal service agreement between the two companies (signed 25 July 2021).

BrandShield Limited is connected to its subsidiary BrandShield Inc.

10. Share based payments

The Company operates an equity-settled, share-based scheme under which the Company receives services from employees as consideration for equity instruments (options and warrants) of the Company. The fair value of the third-party suppliers' services received in exchange for the grant of the options is recognised as an expense in the Income Statement or charged to equity depending on the nature of the service provided. The value of the employee services received is expensed in the Income Statement and its value is determined by reference to the fair value of the options granted:

· including any market performance conditions.

· excluding the impact of any service and non-market performance vesting conditions (for example, profitability or sales growth targets, or remaining an employee of the entity over a specified time period); and

· including the impact of any non-vesting conditions (for example, the requirement for employees to save).

The fair value of the share options and warrants are determined using the Black Scholes valuation model at the date of grant.

Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense or charge is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the Income Statement or equity as appropriate, with a corresponding adjustment to a separate reserve in equity.

When the options are exercised, the Company issues new shares. The proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium when the options are exercised.

11. Share capital and share premium

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

12. Financial assets at fair value through profit and loss

The Company reviews the fair value of its unquoted equity instruments at each Statement of Financial Position date. This requires management to make an estimate of the value of the unquoted securities in the absence of an active market.

The Company follows the guidance of IFRS 9 to determine when an investment at fair value through profit or loss is impaired. This determination requires significant judgement. In making this judgement, the Company evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of the short-term business outlook for the investee, including factors such as industry and sector performance and operational and financing cash flow. Management also considers external indicators such as technological advances and trends, commodity prices, investment performance and demand for the underlying commodity. Financial assets held at fair value through profit or loss are assessed individually.

Financial assets include the following:

At 30 June 2022, the Directors' view of fair value of the Company's investment in WeShop Ltd is $3,681,806 ($4,216,526 at 31 December 2021). This remains in line with the aggregate cost of investment. While WeShop remains pre-revenue, the Directors continue to believe that social commerce represents an exciting and authentic digital shopping opportunity, particularly post Covid-19 which has driven more traffic online and away from the high street. While the Directors are hopeful of a deliverable transaction at an attractive valuation, they consider it prudent to continue to fair value the asset at cost.

13. Subsequent events

No subsequent events were identified between the reporting period and issue of the interim financial information.

14.Availability of Interim Report

The interim report is available on www.brandshield.com