TIDMFLX
RNS Number : 7264U
Falanx Group Limited
07 December 2021
Falanx Group Limited
("Falanx" or "the Company")
Interim results
Falanx Group Limited ("Falanx", AIM: FLX), the global cyber
security and intelligence services** provider, announces its
interim results for the six months ended 30 September 2021.
Highlights for six months to 30 September 2021
Cyber Security division (continuing business) in line with the
trading update given on 13 October 2021
-- Revenues from continuing operations GBP1.80m (2020: GBP1.40m) an
increase of 28%
-- Gross margin from continuing operations 40% (2020: 27%) driven by
high utilisation levels and lower external licence fees following
successful customer migration to single cyber security monitoring
platform ("Triarii")
-- Ongoing cyber division adjusted EBITDA* profit of GBP0.1m (2020:
loss GBP0.28m)
-- Continuing Group adjusted EBITDA loss GBP0.40m (2020: GBP0.67m),
a reduction of 40%
-- GBP1.0m loan investment by BOOST&Co in August 2021
-- Cash balances at 30 September 2021 GBP0.51m (2020: GBP0.22m), normal
working capital position and HMRC in terms
-- Loss per share 0.13p (2020: 0.33p) from continuing operations
-- Shareholders' funds GBP1.99m (2020: GBP3.58m)
Post Period Financial Highlights
-- The Assynt Strategic Intelligence ("Assynt") division disposed 6
October 2021 for a cash enterprise value of GBP4.6m. In the six
months to 30 September 2021 this division recorded revenues of GBP1.00m
(2020: GBP1.05m) and an adjusted EBITDA loss of GBP0.02m (2020:
profit GBP0.05m)
-- Second GBP1.5m tranche of loan investment from BOOST&Co received
October 2021 on the same terms as the August drawdown. Total amount
GBP2.5m.
-- Cash balance at 30 November 2021 GBP4.3m, trade debtors were GBP0.55m,
and trade creditors were GBP0.24m
Operational highlights
-- Disposal of the Assynt Strategic intelligence division allows expansion
of and investment in the Cyber Security division
-- Strong inflow of customer orders in the Cyber Division, with high
staff utilisation levels has contributed to the adjusted EBITDA
profitability
-- Move to a single Triarii monitoring service complete, leading to
significantly lower support costs whilst increasing customer functionality
-- Largest ever cyber order received in April 2021 for GBP1m of penetration
testing to be delivered over three years from a global financial
services company
-- N-Able completed spinout from Solar Winds in July 2021, confirming
the opportunity to address this market of 25,000 MSP users and 500,000
end user customers with our cyber security services. Conversations
are ongoing and Falanx expects this to start benefitting the next
financial year
-- The launch of the new f:CEL (falanx: Cyber Exposure Level) product
designed to help customers understand their Cyber risk at an affordable
price point, supporting SMEs through to larger organisations, with
Enterprise class service available for SMEs. Increasing partner
interest supports confidence in its growth potential
* Adjusted EBITDA is a non-IFRS headline measure used by
management to measure the Group's performance and is based on
operating profit before the impact of financing costs, IFRS16,
share based payment charges, depreciation, amortisation, impairment
charges and highlighted items
** Former operations sold in October 2021
Alex Hambro, (Non-executive Chairman) of Falanx, commented:
" Following the disposal of Assynt in October 2021, Falanx is
now a 'pure play' Cyber Security services business which is well
positioned and financed to address the growing market opportunity
created by constantly increasing risks in the digital world.
Customer demand has grown significantly compared with the
pre-pandemic environment. Our new initiatives are gaining interest
from both direct customers and from our larger partners, and we are
beginning to achieve sales of these innovative services. Our core
service offerings of penetration testing, and protective monitoring
are doing well, have moved into profitability and provide us with a
solid foundation for growth with their large customer bases.
We view the future for Falanx with increasing optimism. We are
operating in an exciting high growth market where there is
increasing corporate and customer activity, and we look forward to
updating shareholders with our progress over the next few months.
"
Enquiries:
Falanx Group Limited Via IFC
Alex Hambro Chairman
Mike Read CEO
Ian Selby CFO
Stifel Nicolaus Europe Limited, Nomad
and Joint Broker
Alex Price / Fred Walsh + 44 (0) 207 710 7600
IFC Advisory Ltd
Financial PR & IR
Graham Herring / Zach Cohen +44 (0) 203 934 663
About Falanx
Falanx Group Limited, is a cyber defence provider providing
enterprise class defensive and offensive security solutions to SME.
For further information: http://www.falanx.com/
Business Review
The business review focusses solely on the ongoing cyber
operations of the Group.
Falanx Cyber Defence has achieved a much-improved financial
performance in the six months to 30 September 2021. The division
recorded revenues of GBP1.8m (2020: GBP1.4m) and adjusted EBITDA
profits of GBP0.1m (2002: loss GBP0.28m). Gross margins were 40%
(2020: 27%) with the improvement arising from much improved
utilisation of professional services staff which were adversely
impacted by project delays during the COVID-19 crisis in 2020.
Gross margins also increased due to the cyber security monitoring
service moving to a single Triarii platform and the consequent
elimination of certain 3(rd) party licence fees from July 2021
onwards.
The division won GBP2.5m (2020: GBP1.5m) of orders for
penetration testing in the period. Included in this was the
division's largest ever contract which was won in April 2021. This
was from an existing global financial services customer and is for
the provision of Penetration Testing services over a three-year
period.
Triarii MDR / "Detection in Depth"
Triarii as the service brand gives our customers and partners a
choice of technology stack, depending on their personal and
technical preference. Our standard (default) Triarii offering is
built on the enterprise-class elastic stack, including the big data
database, SIEM tool and Elastic Endpoint Security (formerly
Endgame). Our alternate offering replaces these technology
components with Microsoft Azure sentinel and Endpoint technologies
and are especially relevant for clients already heavily invested in
Microsoft Azure.
Both stacks are then supported by a range of other tools looking
at activity in a range of places both within and outside a client's
network, resulting in our Detection in Depth approach wherein we
look in multiple locations for signs of potential hostile
activity.
The licensing cost of running Triarii has been significantly
reduced from our previous technologies - which have both now been
retired from service.
Falanx : Cyber Exposure Level ("f:CEL")
This new solution plays an important role in protecting a
company from cyber-attacks. The more an organisation understands
its security posture, the more it understands the risk it carries
of being attacked. f:CEL emulates the reconnaissance phase often
adopted by criminals in deciding whether to attack a business. A
rapidly deployed, automated service, this can be offered at mass
levels to get a view of the overall risk of an entire community of
companies (e.g., customers, suppliers, policy holders and many
more) providing insight into the risk carried by a community and
the steps to take to mitigate that risk at individual entity
level.
Pricing for f:CEL is disruptive, being affordable by even the
smallest of businesses. The user can select the timing and
frequency as to when they run the service so an ongoing picture of
their security situation can be obtained. f:CEL is sold mainly by
annual subscriptions (with an effective average monthly price of
circa GBP40) which generates a predictable stream of high-quality
recurring revenue. Users can select when to run their reports
during the subscription period, so that they can have an ongoing
view as to how their security profile is changing and with
comparison to a wider cohort. The reports create a valuable
database which can be used to help provide users, depending on the
outcome of their report and in relation to a wider cohort, with
their cyber security needs such as penetration testing or
protective monitoring, and as the userbase expands this data is
expected to become an increasingly valuable asset.
The platform has been developed internally using a combination
of proprietary and standard components. This has allowed us to
leverage our deep experience and sector expertise, to create a
platform which can be highly configured to deal with a particular
client or market requirement, which increases the relevance of our
reports to their users. We are in discussions with several larger
partners (in addition to N-able) who each have thousands of
potential f:CEL users, and we look forward to announcing further
progress on this in the coming months.
Outlook Statement
The investment in our Triarii and f:CEL services has created two
new service lines each with strong potential and increasing demand.
They are typically sold on a recurring revenue basis which
generates predictable cash flows and revenues over a period, and
therefore increases the quality of our revenues and profits. The
Cyber Security business has had high levels of interest shown by
both longer term and newer partners. Our partners have large market
access (typically with several thousand end user clients) and are
engaging with us on its deployment, and we are adding further
similar partners. With these services we are well positioned to
address the growing needs of SMEs for increased defensive cyber
security protection, and this fits alongside our highly skilled
penetration testing teams who carry out offensive testing of our
clients' IT infrastructures.
The board believes that the results of f:CEL reporting will
improve the awareness in organisations as to their cyber
vulnerabilities and risks and will provide a channel for further
potential sales of XDR and penetration testing into large
userbases.
To properly exploit the potential of these services, the
division will be using its increased financial resources to expand
its sales and marketing efforts with the recruitment of certain
strategic hires, initiation of marketing programs and ongoing
investment in service delivery and innovation. We will also be
expanding the highly skilled penetration testing team to satisfy
growing demand.
The Group's much stronger financial position, supported by good
trading so far in the second half of the year, will also help
enable acquisitions of complementary cyber security business to be
made. Acquisitions are filtered to have highly relevant products
and services, addressable customer bases and to be both earnings
enhancing and cash generative.
Financial Performance
Continuing Operations (Cyber Security Division)
Revenues from continuing operations grew by 28% to GBP1.8m from
GBP1.4m in the previous year, and much improved utilisation, and a
streamlined technology platform, helped the gross margin to
increase to 40% (2020: 27%). This combined with firm control of the
division's operating cost base (which fell by a further 4%), helped
the division to produce an adjusted EBTIDA profit of cGBP0.1m
(2020: GBP0.28m loss). Central costs were GBP0.49m (2020:
GBP0.39m), with the prior period benefitting from the salary
sacrifice scheme which was initiated as part of the Group's initial
response to the COVID-19 crisis.
Overall, the adjusted EBITDA loss from continuing operations was
reduced by 40% to GBP0.4m (2020: GBP0.6m).
Adjusting items were much lower at GBP0.02m (2020: GBP0.21m) and
reflected lower investment costs and professional fees.
Discontinued Operations (Assynt Strategic Intelligence
Division)
The Assynt strategic intelligence recorded revenues of GBP1.0m
(2020: GBP1.1m) and its gross margin declined to 23% from 28%, and
it produced an adjusted EBITDA loss of GBP0.02m (2020: GBP0.05m
profit). This division was disposed of on 6 October 2021, and on
disposal approximately GBP0.43m of divisional liabilities were
taken on by the purchaser.
Overall Group
Overall, the Group's revenues were GBP2.8m (2020: GBP2.5m) with
a gross margin of 34% (2020: 27%) and had an adjusted EBTIDA loss
of GBP0.4m (2020: GBP0.6m).
Depreciation and amortisation charges were GBP0.25m (2020:
GBP0.26m), with the vast majority being the routine amortisation of
the customer bases acquired in 2018, as well as property lease
costs related to IFRS16. Share option charges were GBP0.02m (2020:
GBP0.24m), with the comparative period representing higher costs
associated with the grant of share options under the salary
sacrifice scheme in April 2020.
Interest payable GBP0.04m (2020: GBP0.02m) included financing
costs associated with the lease of the Reading office as well as
the interest payable on the loan from BOOST&Co which commenced
in August 2021.
Overall, the loss from continuing operations for the period fell
to GBP0.71m (2020: GBP1.33m) against an overall loss of GBP0.75m
(2020: GBP1.35m). The loss per share (both on a basic and fully
diluted basis) from continuing operations was 0.13p (2020: 0.33p)
and on an overall basis was 0.15p (2020: 0.34p)
Consolidated Statements of Financial Position at & Cash
Flow
Non-current assets were GBP4.0m (2020: GBP5.8m) and principally
comprised of the acquired customers bases and associated goodwill.
The GBP1.44m investment in Furnace Technology (which was spun out
of Falanx in December 2019) was fully impaired in the year ended 31
March 2021.
Cash receipts were strong, with no incidence of bad debt being
recorded, and debtor days were 42 (2020: 48 days). Net cash outflow
from operations was GBP0.88m (2020: inflow GBP0.19m). This
reflected the positive impact of HMRC deferrals in the prior year
as a response to COVID-19, and the consequent repayments of circa
GBP0.25m in the current year, as well as timings of certain large
customer receipts at the start of the period.
At 30 September net liabilities (mainly related to deferred
incomes) of approximately GBP0.43m were held on the balance sheet
related to the discontinued business and these were transferred to
the purchaser on 6 October 2021.
In August 2021 the Company drew down the first GBP1.0m (of a
GBP2.5m facility & before costs) of secured loan form
BOOST&Co, the key terms of which are:
-- Annual interest of 11%, and straight-line amortisation of the
loan commencing after 12 months
-- The loan carries a 3% early prepayment fee on the then amount outstanding
The proceeds of this loan (and its subsequent extension) are to
provide investment capital in the expansion of the Cyber division
both through the investment in sales and marketing, service
innovation and the expansion of delivery capability, as well as
supporting value enhancing acquisitions of cyber security
businesses.
Cash balances as at 30 September 2021 were GBP0.51m (2020:
GBP0.22m) and overall shareholders' funds were GBP2.0m (2020:
GBP3.9m).
Events after the reporting period
-- On 6 October 2021 the Group disposed of the Assynt strategic
intelligence division. This included Falanx Assynt Ltd and
including its four overseas wholly owned subsidiaries in the UAE,
USA, Hong Kong, and Ireland. Assynt was acquired by Cross Atlantic
Solutions Partners LLC, ("CAS") which is backed by funds advised by
a US based investment firm focused on investing in information,
marketing, and tech-enabled services businesses.
The consideration (before usual deal costs) was comprised of a
total consideration of GBP4.6 million before the deduction of a
working capital adjustment of approximately GBP0.5 million. GBP0.35
million of the consideration is held in a 3(rd) party escrow
account against any potential warranty claims against standard
issues for twelve months from completion.
Falanx made certain warranties to CAS in respective of Assynt's
historic business and the Company has put in a normalised level of
working capital at completion as referenced above. All of Assynt's
employees transferred as part of the transaction, and Falanx is
providing certain administration services to Assynt until the end
of January 2022 as part of an orderly hand over under an agreement
negotiated on an arm's length basis.
-- On 13(th) October 2021 the Group drew down the final GBP1.5m
of the Boost loan facility, under identical terms as the initial
GBP1.5m drawdown in August 2021 outlined above.
-- Cash balances on 30 November 2021 were GBP4.3m following the
payment of the vast majority of deal costs related to the disposal
of Assynt, working capital adjustments and certain cyclical
payments. At this date trade debtors were GBP0.55m, and trade
creditors were GBP0.24m and the group had a normal working capital
profile, with all amounts due to HMRC being within agreed
terms.
FALANX GROUP LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS PERIODED 30 SEPTEMBER 2021
6 Months 6 Months Year to
to to
30 Sep 2021 30 Sep 31 Mar
2020 2021
(Unaudited) (Unaudited) (Audited)
GBP GBP GBP
------------------------------------------- ------------ ------------ ------------
Revenue - continuing operations 1,794,862 1,400,414 3,119,724
Revenue - discontinued operations 993,735 1,062,481 2,124,437
-------------------------------------------- ------------ ------------ ------------
Revenue 2,788,597 2,462,895 5,244,161
Cost of sales (1,844,979) (1,786,474) (3,668,176)
-------------------------------------------- ------------ ------------ ------------
Gross profit - continuing operations 718,920 379,819 1,016,937
Gross profit - discontinued operations 224,698 296,602 559,048
-------------------------------------------- ------------ ------------ ------------
Gross profit 943,618 676,421 1,575,985
Administrative expenses (1,654,212) (2,010,370) (5,095,355)
Operating loss (710,594) (1,333,949) (3,519,370)
Operating loss from continuing operations (671,435) (1,297,963) (3,455,158)
Operating loss from discontinued
operations (39,159) (35,986) (64,212)
-------------------------------------------- ------------ ------------ ------------
Analysis of operating loss
Operating loss (710,594) (1,333,949) (3,519,370)
Share option expense 20,000 242,478 175,949
Depreciation and amortisation 254,865 258,294 533,482
Impairment of Furnace equity investment - - 340,000
Impairment of Furnace loan receivable - - 1,100,000
Highlighted costs 26,264 212,287 110,354
Adjusted EBITDA loss from continuing
operations (385,734) (673,714) (1,350,520)
Adjusted EBITDA loss from discontinued
operations (23,731) 52,824 90,935
Finance income - 4 4
Finance expense (36,312) (16,810) (32,574)
-------------------------------------------- ------------ ------------ ------------
Net finance expense (36,312) (16,806) (32,570)
Loss before income tax (746,906) (1,350,755) (3,551,940)
Income tax credit 1,050 - -
------------------------------------------- ------------ ------------ ------------
Loss for the period from continuing
operations (707,506) (1,334,769) (3,487,728)
Loss from discontinued operations,
net of tax (38,350) (35,986) (64,212)
-------------------------------------------- ------------ ------------ ------------
Loss for the period (745,856) (1,350,755) (3,551,940)
-------------------------------------------- ------------ ------------ ------------
Other comprehensive income:
Re-translation of foreign subsidiaries (1,432) (2,684) 5,403
(1,432) (2,684) 5,430
Total comprehensive loss for the
period (747,288) (1,353,439) (3,546,537)
-------------------------------------------- ------------ ------------ ------------
Loss per share from continuing operations
------------------------------------------- ------------ ------------ ------------
(0.33) (0.75)
Basic loss per share (0.13) p p p
(0.33) (0.75)
Diluted loss per share (0.13) p p p
-------------------------------------------- ------------ ------------ ------------
Loss per share from continuing and discontinued
operations
---------------------------------------------------------- ------------ ------------
(0.34) (0.77)
Basic loss per share (0.14) p p p
(0.34) (0.77)
Diluted loss per share (0.14) p p p
FALANX GROUP LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2021
6 Months 6 Months Year to
to to
30 Sep 2021 30 Sep 2020 31 Mar 2021
(Unaudited) (Unaudited) (Audited)
GBP GBP GBP
Assets
Non-current assets
Property, plant & equipment 125,679 187,165 155,831
Intangible assets 3,531,661 3,729,594 3,702,840
Right of use asset 308,781 417,762 363,271
Investments with fair value through Profit
and Loss - 340,000 -
Loan Receivable - 1,100,000 -
3,966,121 5,774,521 4,221,942
------------------------------------------- ----------- ------------ -----------
Current assets
Trade and other receivables 930,628 1,103,389 1,076,216
Cash and cash equivalents 512,972 223,054 545,321
1,443,600 1,326,443 1,621,537
------------------------------------------- ----------- ------------ -----------
Assets in a disposal group classified
as held for sale 190,214 - -
------------------------------------------- ----------- ------------ -----------
Total assets 5,599,935 7,100,964 5,843,479
------------------------------------------- ----------- ------------ -----------
Equity
Capital and reserves attributable to
equity holders of the Company
Share premium account 4,039,125 17,903,427 4,033,161
Translation reserve (109,209) (115,864) (107,777)
Share based payment reserve 767,243 829,803 747,243
2022 liabilities reserve 1,000,000 - 1,000,000
Retained earnings (3,689,845) (14,758,835) (2,943,989)
Total equity 2,007,314 3,858,531 2,728,638
------------------------------------------- ----------- ------------ -----------
Liabilities
Non-current liabilities
Deferred tax liability 8,479 9,529 9,529
Lease liability 203,081 301,339 252,874
Borrowings 968,830 - 42,129
Other payables 5,532 242,734 5,409
------------------------------------------- ----------- ------------ -----------
1,185,922 553,602 309,401
Current liabilities
Trade and other payables 1,286,839 1,688,178 1,592,715
Contract liabilities 386,677 907,658 1,108,317
Lease liability 99,926 92,995 95,997
Borrowings 9,594 - 7,871
1,783,036 2,688,831 2,804,900
------------------------------------------- ----------- ------------ -----------
Liabilities directly associated with
assets in the disposal group classified
as held for sale 623,663 - -
------------------------------------------- ----------- ------------ -----------
Total liabilities 3,592,620 3,242,433 3,114,841
------------------------------------------- ----------- ------------ -----------
Total equity and liabilities 5,599,935 7,100,964 5,843,479
------------------------------------------- ----------- ------------ -----------
FALANX GROUP LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Accumulated Translation Share based 2022
capital losses Reserve payment Liabilities Total
reserve reserve
GBP GBP GBP GBP GBP
---------------------------- ------------- ------------- ------------ ------------ ------------ ------------
Balance at 1 April
2020 17,903,427 (13,408,080) (113,180) 587,325 - 4,969,492
Loss for the year - (3,551,940) - - - (3,551,940)
Re-translation of foreign
subsidiaries - - 5,403 - - 5,403
Transactions with owners:
Capital reconstruction (15,000,000) 14,000,000 - - 1,000,000 -
Issue of share capital 1,247,600 - - - - 1,247,600
Costs of issue of share
capital (117,866) - - - - (117,866)
Share based payment
charge - - - 175,949 - 175,949
Forfeited share options
reversed through reserves - 16,031 - (16,031) - -
Balance at 31 March
2021 4,033,161 (2,943,989) (107,777) 747,243 1,000,000 2,728,638
---------------------------- ------------- ------------- ------------ ------------ ------------ ------------
Loss for the year - (745,856) - - - (745,856)
Re-translation of foreign
subsidiaries - - (1,432) - - (1,432)
Transactions with owners:
Issue of share capital 5,964 - - - - 5,964
- - - 20,000 - 20,000
Balance as at 30 September
2021 4,039,125 (3,689,845) (109,209) 767,243 1,000,000 2,007,314
---------------------------- ------------- ------------- ------------ ------------ ------------ ------------
FALANX GROUP LIMITED
CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIODED 30 SEPTEMBER
2021
6 Months 6 Months Year to
to to
30 Sep 30 Sep 2020 31 Mar
2021 2021
(Unaudited) (Unaudited) (Audited)
GBP GBP GBP
Cash flows from operating activities
Profit/(Loss) before tax (746,906) (1,350,755) (3,551,940)
Adjustments for:
Depreciation 33,608 39,588 75,753
Amortisation of intangibles 166,766 164,215 348,748
Amortisation of right of use assets 54,491 54,491 108,981
Impairment of investment in Furnace - - 340,000
Impairment of loan receivable - - 1,100,000
Share based payment 20,000 242,478 175,949
Loss on disposal of equipment / fixtures 77 - -
and fittings
Amortisation of borrowing cost 2,361 - -
Net finance cost recognised in profit
or loss 36,312 16,806 32,569
(433,291) (833,177) (1,369,940)
Changes in working capital:
Increase/(decrease) in trade and other
receivables (39,760) 1,066,247 1,093,419
Decrease in trade and other payables (403,510) (44,627) (126,756)
--------------------------------------------- ------------ ------------ ------------
Cash generated from / used in operations (876,561) 188,443 (403,277)
Interest paid (11,003) (1,605) (3,774)
Tax paid 1,050 - -
--------------------------------------------- ------------ ------------ ------------
Net cash used in / generated from operating
activities (886,514) 186,838 (407,277)
--------------------------------------------- ------------ ------------ ------------
Cash flows from investing activities
Interest received - 4 4
Acquisition of property, plant and
equipment (3,987) (31,330) (36,161)
Expenditure on development cost - - (157,779)
Net cash used in investing activities (3,987) (31,326) (193,936)
--------------------------------------------- ------------ ------------ ------------
Cash flows from financing activities
Repayment under finance lease (47,133) (43,851) (89,413)
Interest paid on lease liabilities (11,923) (15,205) (28,799)
Proceeds from bank borrowing - 50,000 50,000
Repayment of bank borrowing (3,104) - -
Proceeds from borrowing 1,000,000 - -
Loan transaction costs (70,834) - -
Interest paid on borrowing (13,386) - -
Proceeds from issue of shares 5,964 - 1,247,600
Costs of share issuance - - (117,866)
Net cash used in financing activities 859,584 (9,056) 1,061,623
--------------------------------------------- ------------ ------------ ------------
Decrease/(increase) in cash equivalents (30,917) 146,456 (460,636)
Cash and cash equivalents at beginning
of the period 545,321 79,282 79,282
Foreign exchange gains on cash and
cash equivalents (1,432) (2,684) 5,403
--------------------------------------------- ------------ ------------ ------------
Cash and cash equivalents at end of
the period 512,972 223,054 545,321
--------------------------------------------- ------------ ------------ ------------
FALANX GROUP LIMITED
NOTES TO INTERIM FINANCIAL STATEMENTS FOR THE PERIODED 30
SEPTEMBER 2021
1. General information
Falanx (the "Company") and its subsidiaries (together the
"Group") operate in the security and intelligence markets.
The Company is a public limited company which is listed on AIM
on the London Stock Exchange and is incorporated and domiciled in
the British Virgin Islands. The address of its registered office is
PO Box 173, Road Town, Tortola, British Virgin Islands.
2. Basis of preparation
These interim statements have been prepared on a basis
consistent with International Financial Reporting Standards (IFRS).
They do not contain all the information required for full financial
statements and should be read in conjunction with the consolidated
financial statements of the Group as at and for the year ended 31
March 2021. These interim financial statements do not constitute
statutory accounts within the meaning of the Companies Act.
The interim financial information has not been reviewed nor
audited by the auditors. The interim financial information was
approved by the Board of Directors on 6 December 2021. The
information for the year ended 31 March 2021 is extracted from the
statutory financial statements for that year which have been
reported on by the Group's auditors and delivered to the Registrar
of Companies. The audit report was unqualified.
The accounting policies applied by the Group in these interim
financial statements are the same as those applied by the Group in
its consolidated financial statements for the year ended and as at
31 March 2020. The interim report is the responsibility of, and has
been, approved by the Directors. The Directors are responsible for
preparing the interim financial statements in accordance with the
AIM rules for Companies.
Going Concern
These interim financial statements have been prepared on a going
concern basis, which notwithstanding the loss incurred for the
six-month period to 30 September 2021.
-- On 6(th) October 2021 the group disposed of its Assynt
strategic intelligence division for an enterprise value of GBP4.6m
cash. This division had been loss making in this six-month period
following a reduction in both revenue and gross margins.
-- On 13th October 2021 the Group drew down the final GBP1.5m of
loan from BOOST&Co. Both post balance sheet events have very
significantly improved the Group's cash position.
-- Trading has remained solid in the cyber security division
with strong order intake and a healthy pipeline of new business,
including significant opportunities for its Triarii and f:CEL
services which have recurring revenues with high gross margin. The
ongoing business is now purely focussed on the Cyber security
division, which benefits from very favourable macro-economic
conditions with the move to an online environment for many
businesses and the consequent rise in cyber security risks which
need to be mitigated.
-- The Group adjusted EBITDA loss for October 2021 was
approximately GBP90,000 and cash balances at 30 November 2021 were
GBP4.3m All amounts due to HMRC are either current or are the
subject to agreed payment plans which are being adhered to. The
Group's debtor book is performing well, and cash receipts are
strong, and on 30 November 2021 trade debtors and creditors stood
at GBP0.55m and GBP0.24m respectively
-- The Group has produced stress test as well as base case
financial forecasts which cover the period to 31 December 2022.
These reflect investment in organic expansion, and the stress test
scenario has been prepared on losses running at over three times
the current run rate for 12 months with no mitigation and no growth
in business. This shows that the Group should still have a positive
cash balance in December 2022.
Should this stringent stress test scenario not be achieved, then
further mitigating actions would be carried out to ensure that the
Group remains within its resources, and these would include a
reduction of planned capital expenditure, headcount reduction,
reducing discretionary spend and sales investment, freezing or
reducing pay and cancelling recruitment, and all of these are
within the director's control. Further actions could include
seeking further support from existing and new shareholders and debt
providers.
Based on the above, the Group expects to have will have
sufficient resources to meets its liabilities as they fall due for
at least 12 months from the date of these interim results.
Discontinued operations
In accordance with IFRS 5 'Non-current assets held for sale and
discontinued operations', the net results of Assynt Group Limited
and subsidiaries ("Assynt") are presented withing discontinued
operations in the consolidated statement of comprehensive income
(for which comparatives are restated) and the assets and
liabilities of these operations are presented separately on the
consolidated statement of financial position. Please see note 6 for
further details.
3. Critical accounting estimates and judgements
The preparation of financial information in accordance with
generally accepted accounting practice, in the case of the Group
being IFRS as adopted by the European Union, requires the Directors
to make estimates and judgements that affect the reported amount of
assets, liabilities, income and expenditure and the disclosures
made in the financial statements. Such estimates and judgements
must be continually evaluated based on historical experience and
other factors, including expectations of future events.
The significant judgements made by management in applying the
Group's accounting policies were the same as those applied in the
last annual financial statements for the year ended 31 March
2021.
4. Segmental reporting
The Directors consider that the Group's internal financial
reporting is organised along product and service lines and,
therefore, segmental information has been presented about business
segments. The segmental analysis of the Group's business was
derived from its principal activities as set out below. The
information below also comprises the disclosures required by IFRS 8
in respect of products and services as the Directors consider that
the products and services sold by the disclosed segments are
essentially similar and, therefore, no additional disclosure in
respect of products and services is required. The other segment
below and overleaf is made up of the parent company's
administrative operation.
Reportable segments
The reportable segment results for the period ended 30 September
2021 are as follows:
Corporate Total
Cyber segment Continuing Discontinued Total
operations operations
GBP GBP GBP GBP GBP
------------------------------- ---------- ----------- ------------ ------------- ----------
Assynt report - - 972,633 972,633
Professional services 1,407,699 - 1,407,699 21,102 1,428,801
Monitoring managed services 387,163 - 387,163 387,163
------------------------------- ---------- ----------- ------------ ------------- ----------
Revenues from external
customers 1,794,832 - 1,794,832 993,735 2,788,597
------------------------------- ---------- ----------- ------------ ------------- ----------
Gross margin 718,920 - 718,920 224,698 943,618
------------------------------- ---------- ----------- ------------ ------------- ----------
Segment Reported EBITDA 105,369 (515,186) (409,817) (25,912) (435,729)
Exceptional costs (21,242) 45,325 24,083 2,181 26,264
Segment Adjusted EBITDA 84,127 ( 469,861) (385,734) (23,731) (409,465)
------------------------------- ---------- ----------- ------------ ------------- ----------
(1 8,435
Finance costs - net ) (17,636) (60,071) (241) (104,785)
Depreciation and amortisation (155,954) (85,664) (241,618) (13,247) (254,865)
Share option expense - ( 20,000) (20,000) - (20,000)
Segment profit/(loss)
for the period (69,020) (638,486) (707,506) (39,400) (749,906)
------------------------------- ---------- ----------- ------------ ------------- ----------
The reportable segment results for the period ended 30 September
2020 are as follows:
Corporate Total
Cyber segment Continuing Discontinued Total
operations operations
GBP GBP GBP GBP GBP
------------------------------- ---------- ----------- ------------ ------------- ------------
Assynt report - - - 1,018,606 1,018,606
Professional services 941,496 - 941,496 43,875 985,371
Monitoring managed services 458,918 - 458,918 - 458,918
------------------------------- ---------- ----------- ------------ ------------- ------------
Revenues from external
customers 1,400,414 - 1,400,414 1,062,481 2,462,895
------------------------------- ---------- ----------- ------------ ------------- ------------
Gross margin 379,819 - 379,819 296,602 676,421
------------------------------- ---------- ----------- ------------ ------------- ------------
Segment Reported EBITDA (320,562) ( 492,160) (812,722) (20,455) (833,177)
Exceptional costs 40,478 9 8,530 139,008 7 3,279 212,287
(393,630
Segment Adjusted EBITDA (280,084) ) (673,714) 52,824 (620,890)
------------------------------- ---------- ----------- ------------ ------------- ------------
Finance costs - net ( 491) (16,315) (16,806) - (16,806)
Depreciation and amortisation (144,538) (98,225) (242,763) (15,531) (258,294)
Share option expense - (242,478) (242,478) - (242,478)
Segment profit/(loss)
for the period (485,591) (849,178) (1,334,769) (35,986) (1,350,755)
------------------------------- ---------- ----------- ------------ ------------- ------------
The reportable segment results for the year ended 31 March 2021
are as follows:
Corporate Total
Cyber segment Continuing Discontinued Total
operations operations
GBP GBP GBP GBP GBP
Assynt report - - - 2,016,062 2,016,062
Professional services 2,272,951 - 2,272,951 108,375 2,381,326
Monitoring managed services 846,773 - 846,773 - 876,773
------------------------------- ---------- ------------ ------------ ------------- ------------
Revenues from external
customers 3,119,724 - 3,119,724 2,124,437 5,244,161
------------------------------- ---------- ------------ ------------ ------------- ------------
Gross Margin 1,016,937 - 1,016,937 559,048 1,575,985
Segment Reported EBITDA (419,020) (918,607) (1,337,627) (32,312) (1,369,939)
Highlighted costs (Note
5) (27,369) 14,476 (13,093) 123,247 110,354
Segment Adjusted EBITDA (446,389) (904,131) (1,350,520) 90,935 (1,259,585)
------------------------------- ---------- ------------ ------------ ------------- ------------
Finance costs-net (1,346) (31,224) (32,570) - (32,570)
Depreciation and amortisation (308,590) (195,305) (503,895) (29,587) (533,482)
Impairment of Furnace
equity investment - (340,000) (340,000) - (340,000)
Impairment of Furnace
loan investment - (1,100,000) (1,100,000) - (1,100,000)
Share option expense (8,112) (165,524) (173,636) (2,313) (175,949)
Segment loss before tax
for the year (737,068) (2,750,660) (3,487,728) (64,212) (3,551,940)
------------------------------- ---------- ------------ ------------ ------------- ------------
Segment assets and liabilities as at 30 September 2021 and
capital expenditure for the period then ended are as follows:
Corporate Total
Cyber segment Continuing Discontinued Total
operations operations
GBP GBP GBP GBP GBP
----------------------- ----------- ---------- ------------ ------------- ----------
Contract assets 2,688 - 2,688 - 2,688
Other assets 3,811,082 1,535,630 5,346,712 250,535 5,597,247
Contract liabilities
(deferred income) 386,677 - 386,677 442,927 829,604
Other liabilities 1,4 07,674 1,174,606 2,582,280 180,736 2,763,016
Capital expenditure -
tangible 3,017 970 (3,987) - 3,987
Capital expenditure - - - - - -
intangible
----------------------- ----------- ---------- ------------ ------------- ----------
Segment assets and liabilities as at 30 September 2020 and
capital expenditure for the period then ended are as follows:
Corporate Total
Cyber segment Continuing Discontinued Total
operations operations
GBP GBP GBP GBP GBP
----------------------- ---------- ---------- ------------ ------------- ----------
Contract assets 56,925 - 56,925 21,811 78,736
Other assets 3,667,703 2,914,037 (6,584,740) 440,488 7,022,228
Contract liabilities
(deferred income) 266,008 - 266,008 641,650 907,658
Other liabilities 603,845 1,388,925 (1,992,770) 342,004 2,334,774
Capital expenditure -
tangible 2 7,046 4 ,284 (31,330) - 3 1,330
Capital expenditure - - - - - -
intangible
----------------------- ---------- ---------- ------------ ------------- ----------
Segment assets and liabilities as at 31 March 2021 and capital
expenditure for the year then ended are as follows:
Corporate Total
Cyber segment Continuing Discontinued Total
operations operations
GBP GBP GBP GBP GBP
----------------------- ---------- ---------- ------------ ------------- ----------
Contract assets 62,141 - 62,141 1,551 63,692
Other assets 3,741,016 1,526,695 5,267,711 374,615 5,642,326
Contract liabilities
(deferred income) 465,000 - 465,000 643,317 1,108,317
Other liabilities 588,087 1,029,262 (1,617,349) 389,175 2,006,524
Capital expenditure -
Tangible 31,007 5,154 36,161 - 36,161
Capital expenditure -
Intangible 157,780 - 157,780 - 157,780
----------------------- ---------- ---------- ------------ ------------- ----------
5. Earnings per share
Basic earnings 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.
6 Months 6 Months Year to
to to
30 Sep 2021 30 Sep 31 Mar 2021
2020
(Unaudited) (Unaudited) (Audited)
Loss attributable to equity holders
of the company (GBP) (794,329) (1,350,755) (3,551,940)
Weighted average number of ordinary
shares in issue 526,001,185 400,401,185 462,675,158
Basic loss per share (pence per share) (0.15) (0.34) (0.77)
---------------------------------------- ------------ ------------ ------------
As at 30 September 2021, the potentially dilutive ordinary
shares were anti-dilutive because the Group was loss-making.
6. Events after the reporting period
Disposal of Assynt
On 6 October 2021, Falanx announced that it had disposed of the
Assynt Strategic Intelligence Division ("Assynt") for an enterprise
value of GBP4.6 million in cash to Cross Atlantic LLC. As
substantial progress towards a sale had been made before 30
September 2021, the results of Assynt have been disclosed as
discontinued operations in the consolidated statement of
comprehensive income and the assets and liabilities of Assynt have
been classified as a disposal group held for sale in the
consolidated statement of financial position.
The estimated fair value less costs to sell exceeds the carrying
value of Assynt's net assets, and accordingly no impairment losses
have been recognised on reclassification as a disposal group.
The tables below show the results of the discontinued operations
which are included in the consolidated statement of comprehensive
income and consolidated cash flow statement, together with the
classes of assets and liabilities comprising the operations as held
for sale on the consolidated statement of financial position.
Income Statement for discontinued 6 Months 6 Months Year to
operations to to
30 Sep 2021 30 Sep 31 Mar
2020 2021
(Unaudited) (Unaudited) (Audited)
GBP GBP GBP
Revenue 993,735 1,062,481 2,124,437
Cost of sales (769,037) (765,879) (1,562,389)
------------------------------------ ------------ ------------ ------------
Gross profit 224,698 296,602 559,048
Administrative expenses (263,857) (332,188) (623,260)
Operating Loss (39,159) (35,986) (64,212)
Finance income
Finance expense (241) - -
----------------------------------- ------------ ------------ ------------
Net finance expense (241) - -
Loss before income tax (39,400) (35,986) (64,212)
Income tax credit 1050 - -
----------------------------------- ------------ ------------ ------------
Loss for the period (38,350) (35,986) (64,212)
------------------------------------ ------------ ------------ ------------
As at
30 Sep 2021
(Unaudited)
GBP
Assets of the disposal group
Property, plant & equipment 453
Intangible assets 4,413
Trade and other receivables 185,348
Cash and cash equivalents
Total assets 190,214
------------------------------------------ -----------
Liabilities of the disposal group
Deferred tax liability
Trade and other payables 180,736
Contract liabilities 442,927
Total liabilities 623,663
------------------------------------------ -----------
Net liabilities of the disposal group (433,449)
------------------------------------------ -----------
On 13(th) October 2021 the Group drew down the final GBP1.5m of
the Boost loan facility, under identical terms as the initial
GBP1.0m drawdown in August 2021 outlined above.
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IR EQLFBFLLEFBL
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