TIDMFLX

RNS Number : 4075V

Falanx Group Limited

03 December 2019

3 December 2019

Falanx Group Limited

("Falanx" or "the Company")

Interim results

Falanx Group Ltd ("Falanx", AIM: FLX), the global cybersecurity and intelligence provider, announces its interim results for the six months ended 30 September 2019.

Highlights

 
      --   Group revenues increased 21% to GBP2.64m (H1 2018: GBP2.18m). 
      --   31% increase in the intelligence business unit ("Assynt") H1 
            sales to GBP0.93 (2018: GBP0.71m), Cyber business unit increased 
            by 16% to GBP1.71m (H1 2018: GBP1.48m) 
      --   Group monthly recurring revenues in September 2019 of GBP0.29m 
            (September 2018: GBP0.22m). Overall recurring revenues comprised 
            56% (2018: 53%) of total revenue in the 6 month period 
      --   6m to 30 September 2019 Adjusted EBITDA loss GBP0.93m (H1 2018: 
            GBP0.71m) after GBP0.3m spend in readiness for our major Cyber 
            opportunities 
      --   Cash at period end of GBP708k (H1 2018: GBP69k) with receivables 
            of GBP1.76m (H1 2018: GBP1.18m). The receivables balance has 
            reduced post-period by circa GBP0.2m and collections remain 
            strong 
      --   The new Security Operations Centre ("SOC") in Reading is now 
            fully operational and ready to support SolarWinds 
 

Mike Read, Chief Executive Officer of Falanx, commented:

"We are reporting strong revenue growth of 21% for this six-month period during which we have invested to position ourselves for the considerable opportunities for our business. The move to the new premises in Reading has delivered a stronger operational infrastructure for the Group as we prepare to support SolarWinds, and we expect this to deliver benefits in the second half of the current financial year as they rollout their product. The second half has been historically a stronger period in terms of demand and delivery of our services, and we are delighted that it has started well with increased activity for our Cyber business. This combines well with the major increase in recurring revenue for the Assynt division as it has moved into sustainable profitability in recent months."

"The Board continues its focus on driving top line growth and reducing costs as it targets cashflow breakeven. Demand for our services is increasing as the Company sees strong growth in its sales pipeline. As a result, the Board is confident that the Company will deliver on its growth strategy and continues to view the future with optimism."

Enquiries (Via IFC):

 
 Falanx Group Limited                  www.falanx.com 
  Mike Read, Chief Executive Officer 
  Ian Selby, Chief Financial Officer 
 Stifel Nicolaus Europe Limited,       + 44 (0) 207 710 7600 
  Nomad and Joint Broker Fred 
  Walsh / Alex Price / Neil Shah 
                                        +44 (0) 203 621 4120 
  Turner Pope Investments (TPI) 
  Ltd, Joint Broker 
  Ben Turner / James Pope 
                                        +44 (0) 203 934 6630 
  IFC Advisory Ltd, Financial           falanx@investor-focus.co.uk 
  PR & IR 
  Graham Herring / Zach Cohen 
 

About Falanx

Falanx Group Limited, is a global intelligence and cyber defence provider working with blue chip and government clients. It operates a cyber monitoring platform for corporate and governmental customers which utilises a combination of proprietary and third-party processes and technologies. For more information: http://www.falanx.com/

Chairman's statement

This six-month period has seen a continued improvement in trading with revenue growth of 21% over the same period last year of which approximately 80% was organic. The Group has also delivered improved margins in the Assynt business based on an enlarged recurring revenue base. Stronger revenue performance in the Cyber division was generated alongside a major investment programme. Operational changes have been made in this division and the gross margin has improved in the second quarter which is expected to continue. At the same time, the Assynt division has seen a significant increase in its recurring revenue base and improvements in gross margin, both of which have now led the division to operating profitability on a consistent run rate. The investment programme in the business is largely complete and we are pleased that the new SOC in Reading is now fully operational and ready to support the SolarWinds rollout.

Business review

Cyber Security division

The division generated revenues of GBP1.71m in the six months to 30 September 2019, a rise of 16% over the same period in 2018. Our current revenue mix is around 66% professional services and 34% monthly recurring revenues ("MRR") from our managed services product lines. Our professional services revenues grew by 18% while our MRR revenues grew by 9%. Our overall churn levels were less than 10% and were primarily driven by specific customer changes. Gross margins were 30% (2018: 42%). This fall was largely the result of product mix and certain utilisation issues which reduced gross profit by approximately GBP0.15m. These have now been remedied, more detail of which appears below, with improved performance in the second quarter continuing into the second half of the current financial year. During the period we, as planned, invested significantly in expanding our overall sales and marketing capabilities as well as building out the division's delivery capability and physical infrastructure, including the planned Solar Winds program. As a result of these investment plans, the division's adjusted EBITDA loss increased to GBP0.43m (2018: GBP0.13m).

SolarWinds is live and additional improvements are expected to commence in the first calendar quarter of 2020. The mid-market product continues to grow, and we are also expecting this to progress in early 2020.

Over the summer we reviewed the effectiveness of certain our utilisation processes and have adjusted our procedures and product mix to improve gross margin performance. Our customer offerings now better align with the needs of the readily addressable market and we are delivering against these with much greater efficiency. GBP0.1m of operational costs related to certain sales staff will not be present in the second half of the year.

We have a strong pipeline of opportunities across the division, including much larger potential deals for MRR services, which are progressing very well, and our order book remains strong. We have completed the bulk of the infrastructure upgrades to support Solar Winds, and the margin improving cost efficiencies introduced in the second quarter should provide the basis of a much-improved financial performance in the second half of the year and beyond. We believe we are now well-positioned to deliver shareholder value against this growing market opportunity.

Strategic Intelligence

Falanx Assynt, the Falanx Group's geopolitical and strategic intelligence business, generated revenues of GBP0.93m in the six months to 30 September 2019, a rise of 31% over the same period in 2018. Our strategy since mid-2018 has been to move away from spot revenues to predictable MRR and we are pleased that this now represents approximately 95% of total revenue. We invested in sales and marketing expansion at the start of the year and this delivered an increase of circa 75% of MRR between April and September 2019. Gross margins consequently increased to 36% (2018: 25%). This investment, which commenced at the start of the calendar year, produced a strong EBITDA profit performance at the end of the period and this momentum has carried over into the second half of the year. Overall it recorded an EBITDA loss of GBP0.01m (2018: profit GBP0.01m).

Over the half year, the division has won and commenced several new, large, long-term contracts, predominantly with new clients based outside the UK. Our non-UK client base now represents some 78% of revenues. The bulk of this came from our embedded analyst offering, which has been our fastest growing service line, and has helped provide content for our high margin report subscription. These new contracts are beginning to feed into our monthly revenues, which we anticipate will provide further revenue growth in H2. The pipeline remains strong and continues to improve as do the quantum and quality of opportunities, many of which are international. We are further expanding our offering in the Assynt Report subscription service to add greater content, including further expansion into emerging markets such as sub-Saharan Africa.

We are planning to close contracts on several further MRR opportunities in the second half of the current financial year. We expect these, combined with the much-improved recent financial performance, to provide the foundations of a much stronger result in the current financial year and beyond.

Technology division

We have continued to invest in our innovative technology platform (Project Furnace) which has the potential to support other data-driven business models. While we currently use this technology within our own SOC, we see the greatest opportunity for platform in areas beyond our core security services and we are evaluating appropriate strategies to best maximise returns from this investment.

Outlook

The second half of the year has historically been a stronger period in terms of demand for our services and we are delighted that it has started well with increased activity for our cyber business. This combines well with the increase in recurring revenue for the Assynt division as it has moved into profitability in recent months. Our gross margins have recently improved, and we expect this trend to continue in the second half of the year.

The Board continues its focus on driving profitable top line growth and further reducing costs as it targets cashflow breakeven. Demand for our services is increasing as the Company sees strong growth in its sales pipeline. As a result, the Board is confident that the Company will deliver on its growth strategy and continues to view the future with optimism.

Financial review

Consolidated Statement of Comprehensive Income

Revenue

Group revenues grew by 21% to GBP2.64m (2018: GBP2.19m) with both divisions recording organic growth. The Cyber division grew by 16% to GBP1.71m from stronger utilisation and monitoring revenues and the Intelligence division grew by 31% to GBP0.93m as a result of a much larger base of recurring revenue contracts. This recurring revenue contract base grew significantly in September 2019 and was some 80% higher that it was in April 2019.

Gross margin

Overall margin fell from 36% to 32% primarily caused by certain aspects of utilisation and product mix in the Cyber division. This division's margin fell from 42% to 30% attributable to investment in new staff, Solar Winds capacity, certain 3(rd) party costs and revenue mix. Action was taken to change processes and certain services with the result that margins have improved in recent months and further improvement is expected going forward. The Assynt business increased its gross margin from 25% to 36% as a result of a much stronger revenue performance and contribution from embedded analyst and report revenues.

Underlying operating costs

Our overall underlying operating cost base increased by approximately 18% to GBP1.77m. Assynt costs increased by approximately GBP0.17m relating to business development in support of the increase in recurring revenue contracts. Cyber costs increased by GBP0.20m, although we do not expect all this increase to be reflected in H2 2019. A significant element of this increase was as a result of the expansion of sales and marketing costs, increasing support for anticipated Solar Winds sales, and approximately GBP70,000 relating to the reallocation of certain costs from central group ("Other Segment"). This was reflected in the annual results to 31 March 2019 but not in the interims for that period. Central overheads fell by c.GBP0.1m to GBP0.48m reflecting the redeployment of resources into operations and investment programs. Our average headcount in the period was 78 (2018: 68).

Overall, we expect our current operating cost base to support our revenue growth expectations in the near term.

Adjusted EBITDA

As a result of the planned expansion our loss at this level increased from GBP0.71m to GBP0.93m.

Adjusting items

The Group recorded GBP0.35m (2018: GBP0.08m) of items outside of usual trading. GBP0.13m related to non-capitalised development costs related to Project Furnace. A further GBP0.13m related to investment in infrastructure and the IT environment which has now been largely completed. The remaining GBP0.09m related to staff changes and a legal action to recover monies from former parties.

Depreciation and amortisation

As a result of increased capital expenditure on infrastructure the Group's depreciation charge increased to c.GBP0.07m (2018: GBP0.04m) on depreciation relating to physical assets and a further amortisation charge of cGBP0.16m (2018: GBP0.15m), of which the vast bulk related to the amortisation of intangibles in the Cyber division arising from acquired customer bases in prior financial years.

Loss for the period

Overall the Group recorded a Loss of GBP1.55m (GBP0.97m). Loss per share increased marginally from 0.37p to 0.39p.

Consolidated Statement of Financial Position

As part of the planned expansion of capacity against Solar Wind and to support further Cyber division growth, specifically a larger talent pool, the SOC was relocated from Birmingham to Reading during the period. This has been accounted for as a lease under IFRS16 and an asset of GBP0.67m recorded relating to its future value, as well as an offsetting lease liability of GBP0.44m, have been recorded. These are expected to be amortised over a period of 5 years. Intangibles increased by GBP0.63m compared to September 2018. Approximately GBP0.46m of this relates to an IFRS3 revaluation of the good will intangible asset recorded in the accounts for the year ended 31 March 2018. The remainder represents investment in Project Furnace. The bulk of the capital investment program has been completed and a much lower level is planned going forward.

Trade and other receivables increased by approximately GBP0.58m compared with 30 September 2018. This was mainly due to higher business volumes and higher level of prepayments including rental deposits compared to that at 30 September 2018. Since then the receivables balances has fallen by circa GBP0.2m. Overall debtors fell from 31 March 2019, and certain overdue items were collected in October 2019. Debtors were largely in terms and at the end of the period and trade debtors represented approximately 47 days of sales (2018: 38 days), with the increase arising from short-term timing issues and collections have been strong since the balance sheet date. Contract Liabilities (deferred income) reduced slightly mainly caused by short term timing issues. Trade creditors were largely in terms and represented a normal trading cycle. Accrued revenues are converting to cash in a short timescale in line with previous periods.

Overall shareholders' funds stood at GBP6.12m (2018: GBP3.93m)

Consolidated Cash Flow Statement

Our cash resources were used to support investment reflected in trading losses in operations at both an operational level and capital expenditure level. As referenced above circa GBP0.35m of non-underlying expenditure was incurred. Our working capital profile was broadly neutral, and this reflected a relatively lower level of creditors compared to the period to 30 September 2018. Overall our net use of cash in operating activities was GBP1.27m (2018: GBP0.53m) reflecting a greater level of investment than in the prior period.

Overall capital investment was GBP0.46m (2018: GBP0.27m) reflecting the investment in physical infrastructure around the SOC move, IT infrastructure, and the investment in Project Furnace.

Overall cash balances stood at GBP0.71m (2018: GBP0.07m).

FALANX GROUP LIMITED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS PERIODED 30 SEPTEMBER 2019

 
                                               6 Months      6 Months       Year to 
                                                     to            to 
                                            30 Sep 2019        30 Sep        31 Mar 
                                                                 2018          2019 
                                            (Unaudited)   (Unaudited)     (Audited) 
 
                                                    GBP           GBP           GBP 
 Revenue                                      2,640,117     2,185,998     5,212,136 
 Cost of sales                              (1,794,647)   (1,388,436)   (2,924,210) 
-----------------------------------------  ------------  ------------  ------------ 
 Gross profit                                   845,470       797,562     2,287,926 
 
 Administrative expenses                    (2,391,737)   (1,765,429)   (4,144,508) 
 Operating Loss                             (1,546,267)     (967,867)   (1,856,582) 
 
 Analysis of operating loss 
 Operating loss                             (1,546,267)      (967,867   (1,856,582) 
 Share option expense                            45,000             -        60,715 
 Depreciation and amortisation                  226,725       181,358       369,071 
 Exceptional costs                              348,225        79,709       180,921 
 Adjusted EBITDA loss                         (926,317)     (706,800)   (1,245,875) 
 
 Finance income                                   1,428           292         1,526 
 Finance expense                                (5,593)       (2,228)       (4,257) 
-----------------------------------------  ------------  ------------  ------------ 
 Net finance expense                            (4,165)       (1,936)       (2,731) 
 Loss before income tax                     (1,550,432)     (969,803)   (1,859,313) 
 Income tax credit                                    -             -        28,442 
-----------------------------------------  ------------  ------------  ------------ 
 Loss for the period                        (1,550,432)     (969,803)   (1,830,871) 
 
 Other comprehensive income: 
 Re-translation of foreign subsidiaries             779             -         3,053 
 
 Total comprehensive loss for the 
  period                                    (1,549,653)     (969,803)   (1,827,818) 
-----------------------------------------  ------------  ------------  ------------ 
 
 Earnings per share 
----------------------------------------   ------------  ------------  ------------ 
 Basic earnings per share                       (0.39)p       (0.37)p       (0.58)p 
 Diluted earnings per share                     (0.39)p       (0.37)p       (0.58)p 
-----------------------------------------  ------------  ------------  ------------ 
 
 
 

FALANX GROUP LIMITED

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2019

 
                                            6 Months      6 Months       Year to 
                                                  to            to 
                                         30 Sep 2019   30 Sep 2018   31 Mar 2019 
                                         (Unaudited)   (Unaudited)     (Audited) 
 
                                                 GBP           GBP           GBP 
Assets 
Non-current assets 
Property, plant & equipment including 
 leases                                      236,138       123,130       111,852 
Right-of-use assets                          523,020             -             - 
Intangible assets                          5,447,692     4,816,729     5,386,573 
                                           6,206,850     4,939,859     5,498,425 
--------------------------------------  ------------  ------------  ------------ 
Current assets 
Inventory                                      3,828         3,828         3,828 
Trade and other receivables                1,758,518     1,177,987     2,112,097 
Cash and cash equivalents                    708,055        69,223     2,443,686 
                                           2,470,401     1,251,038     4,559,611 
--------------------------------------  ------------  ------------  ------------ 
 
Total assets                               8,677,251     6,190,897    10,058,036 
--------------------------------------  ------------  ------------  ------------ 
 
Equity 
Capital and reserves attributable 
 to equity holders of the Company 
Share premium account                     17,903,427    13,968,734    17,903,427 
Translation reserve                        (107,801)      (80,894)     (108,580) 
Shares to be issued reserve                  403,959       245,369       358,959 
Retained earnings                       (12,077,184)  (10,196,293)  (10,526,752) 
Total equity                               6,122,401     3,936,916     7,627,054 
--------------------------------------  ------------  ------------  ------------ 
 
Liabilities 
Non-current liabilities 
Deferred tax liability                         7,172         9,133         7,593 
Finance lease liability                      441,696             -             - 
--------------------------------------  ------------  ------------  ------------ 
                                             448,868         9,133         7,593 
 
Current liabilities 
Trade and other payables                   1,095,265     1,151,115     1,313,558 
Contract liabilities                       1,010,717     1,093,733     1,109,831 
Total liabilities                          2,105,982     2,244,848     2,423,389 
--------------------------------------  ------------  ------------  ------------ 
 
Total liabilities                          2,554,850     2,253,981     2,430,982 
--------------------------------------  ------------  ------------  ------------ 
 
Total equity and liabilities               8,677,521     6,190,897    10,058,036 
--------------------------------------  ------------  ------------  ------------ 
 
 

FALANX GROUP LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 
                                    Share       Retained   Translation   Share option         Total 
                                  capital       earnings       reserve    and warrant 
                                                                              reserve 
                                      GBP            GBP           GBP            GBP           GBP 
 
 Balance at 1 April 2018       13,868,734    (8,695,881)     (111,633)        255,483     5,316,703 
 Loss for the year                      -    (1,830,871)             -              -   (1,830,871) 
 Re-translation of foreign 
  subsidiaries                          -              -         3,053              -         3,053 
 Transactions with owners: 
 
 Issue of share capital         4,255,000              -             -              -     4,255,000 
 Cost of share capital 
  issue                         (220,307)              -             -              -     (220,307) 
 Share based payment charge             -              -             -        103,476       103,476 
 
 Balance as at 31 March 
  2019                         17,903,427   (10,526,752)     (108,580)        358,959     7,627,054 
----------------------------  -----------  -------------  ------------  -------------  ------------ 
 
 Loss for the period                    -    (1,550,432)             -              -   (1,550,432) 
 Re-translation of foreign 
  subsidiaries                                         -           779              -           779 
 Transactions with owners: 
 Issue of share capital                 -                            -              -             - 
                                                       - 
 Costs of issue of share                -                            -              -             - 
  capital                                              - 
 Share based payment charge             -              -             -         45,000        45,000 
 
 Balance as at 30 September 
  2019                         17,903,427   (12,077,184)     (107,801)        403,959     6,122,401 
----------------------------  -----------  -------------  ------------  -------------  ------------ 
 

FALANX GROUP LIMITED

CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIODED 30 SEPTEMBER 2019

 
                                               6 Months      6 Months       Year to 
                                                     to            to 
                                                 30 Sep   30 Sep 2018        31 Mar 
                                                   2019                        2019 
                                            (Unaudited)   (Unaudited)     (Audited) 
                                                    GBP           GBP           GBP 
 Cash flows from operating activities 
 Profit/(Loss) before tax                   (1,550,432)     (969,803)   (1,859,313) 
 Adjustments for: 
 Depreciation                                    69,704        35,801        75,526 
 Amortisation of intangibles                    157,021       145,557       293,546 
 Share based payment                             45,000             -        60,715 
 Net finance (income)/cost recognised 
  in profit or loss                               4,165         1,936         2,731 
                                            (1,274,542)     (786,509)   (1,426,795) 
 Changes in working capital: 
 Decrease in inventories                              -           554           554 
 Decrease/(increase) in trade 
  and other receivables                         353,254       344,960     (588,755) 
 (Decrease)/increase in trade 
  and other payables                          (352,510)      (87,047)        98,006 
-----------------------------------------  ------------  ------------  ------------ 
 Cash used in operations                    (1,273,798)     (528,042)   (1,916,990) 
 Interest paid                                    (311)       (2,228)       (4,257) 
-----------------------------------------  ------------  ------------  ------------ 
 Net cash used in operating activities      (1,274,109)     (530,270)   (1,921,247) 
-----------------------------------------  ------------  ------------  ------------ 
 
 Cash flows from investing activities 
 Interest received                                1,428           292         1,526 
 Acquisition of property, plant 
  and equipment                               (245,590)      (22,804)      (51,251) 
 Expenditure on development cost              (218,139)     (229,283)     (461,008) 
 Acquisition of subsidiary net 
  of cash acquired                                    -      (19,803)      (19,803) 
 Net cash used in investing activities        (462,301)     (271,598)     (530,536) 
-----------------------------------------  ------------  ------------  ------------ 
 
 Cash flows from financing activities 
 Proceeds from issue of shares                        -             -     4,155,000 
 Costs of share issuance                              -             -     (177,545) 
 Net cash generated from financing 
  activities                                          -             -     3,977,455 
-----------------------------------------  ------------  ------------  ------------ 
 
 Decrease/(increase) in cash equivalents    (1,736,410)     (801,868)       421,241 
 Cash and cash equivalents at 
  beginning of the period                     2,443,686       914,961       914,961 
 Foreign exchange gains on cash 
  and cash equivalents                              779      (43,870)         3,053 
-----------------------------------------  ------------  ------------  ------------ 
 Cash and cash equivalents at 
  end of the period                             708,055        69,223     2,443,686 
-----------------------------------------  ------------  ------------  ------------ 
 
 

FALANX GROUP LIMITED

NOTES TO INTERIM FINANCIAL STATEMENTS FOR THE PERIODED 30 SEPTEMBER 2019

   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. The Company is UK based and its Head Office is at Five Kings House, 1 Queen St Pl, London EC4R 1QS.

   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 of 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 2019. These interim financial statements do not constitute statutory accounts within the meaning of the Companies Act. These results reflect the impacts of IFRS's 9, 15 and 16 which were not required in the comparative period. Adjustments required for IFRS 9 and 15 were trivial and the Group only had short term leases outstanding at 30 September 2018 and therefore no restatement has been made.

In relation to IFRS 16, the Group recognised a right-to-use asset and a lease liability at the lease commencement date. The right-to-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred less any lease incentives received.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement dat. Discounted using the interest rate implicit in the lease or, if that rate cannot be determined, the Group's incremental borrowing rate.

This interim financial information has not been reviewed nor audited by the auditors. The interim financial information was approved by the Board of Directors on 2 December 2019. The information for the year ended 31 March 2019 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 2019. 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

The Group made losses of GBP1.55m (2018: GBP0.97m) in the 6-month period to 30 September 2019 of which GBP0.92 (2018: GBP0.71m) relates to the Adjusted EBITDA performance of the business. Cash balances as at 30 September 2019 were GBP0.71m and these are seen by the Board as sufficient to achieve break even and cash generation on its current organic plans. The group expects gross margins in the Cyber division to be stronger in the second half of the year and beyond, and also expects lower operational costs as well as a much lower capital expenditure program. The Assynt division has recently started to benefit from a much larger base of profitable monthly recurring revenues. Should the Group not achieve its revenue, margin and growth targets, the Board routinely prepares alternative stress test scenarios to deal with lower performance and any ensuing shortfall in working capital. This assumes that cost reductions and discretionary expansion spend would be curtailed as well as cessation of certain investment spends. Other measures could involve the disposal of assets or business units. Furthermore, the Group could seek, as in previous years, the support of investors and Directors (debt or equity) and has received offers of invoice discounting facilities should it want them. The Group has also received the support of its bankers in previous years for the provision of overdraft facilities.. Based upon the above the Directors have a reasonable expectation that the Group has adequate working capital for the twelve months following the date of approving these interim results. For this reason, they continue to adopt the going concern basis in preparing these interim results.

   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 2019.

   4.   Segmental reporting 

The Directors consider that the Group's internal financial reporting is organised along product and service lines as referenced in the Business Review and Finance reports, 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. Other segments represent central group functions as well as certain R&D development activities under Project Furnace.

Reportable segments

The reportable segment results for the period ended 30 September 2019 are as follows:

 
 Six months ended 30                                             Other 
  September 2019 
                                  Intelligence       Cyber    segments         Total 
                                           GBP         GBP         GBP           GBP 
-------------------------------  -------------  ----------  ----------  ------------ 
 Assynt report                         890,083                       -       890,083 
 Professional services                  40,640   1,220,751           -     1,261,391 
 Monitoring managed services                       488,643           -       488,643 
-------------------------------  -------------  ----------  ----------  ------------ 
 Revenues from external 
  customers                            930,723   1,709,394           -     2,640,116 
-------------------------------  -------------  ----------  ----------  ------------ 
 Gross margin                          338,023     507,447                   845,470 
-------------------------------  -------------  ----------  ----------  ------------ 
 Segment Reported EBITDA              (18,861)   (482,785)   (764,356)   (1,319,542) 
 Share option expense                    4,274       9,799      30,927        45,000 
 Exceptional costs                           -      41,758     305,467       348,225 
 Segment Adjusted EBITDA              (14,587)   (431,228)   (480,501)       926,317 
-------------------------------  -------------  ----------  ----------  ------------ 
 Finance costs - net                       372       (299)     (4,238)       (4,165) 
 Depreciation and amortisation        (14,836)   (155,746)    (56,143)     (226,725) 
 Segment profit/(loss) 
  for the period                      (33,325)   (692,370)   (824,737)   (1,550,432) 
-------------------------------  -------------  ----------  ----------  ------------ 
 
 
 Six Months Ended 30                                             Other 
  September 2018 
                                  Intelligence       Cyber    segments       Total 
                                           GBP         GBP         GBP         GBP 
-------------------------------  -------------  ----------  ----------  ---------- 
 Assynt report                         642,024                       -     642,024 
 Professional services                  66,399   1,030,780           -   1,079,179 
 Monitoring managed services                       446,795           -     446,795 
-------------------------------  -------------  ----------  ----------  ---------- 
 Revenues from external 
  customers                            708,423   1,477,575           -   2,185,998 
-------------------------------  -------------  ----------  ----------  ---------- 
 Gross margin                          179,174     618,388           -     797,562 
-------------------------------  -------------  ----------  ----------  ---------- 
 Segment Reported EBITDA                 7,340   (162,264)   (631,585)   (786,509) 
 Exceptional costs                           -      37,925      41,784      79,709 
 Segment Adjusted EBITDA                 7,340   (124,339)   (589,801)   (706,800) 
-------------------------------  -------------  ----------  ----------  ---------- 
 Finance costs - net                   (1,338)       (828)         230     (1,936) 
 Depreciation and amortisation         (3,359)   (175,196)     (2,803)   (181,358) 
 Segment profit/(loss) 
  for the period                         2,643   (338,288)   (634,158)   (969,803) 
-------------------------------  -------------  ----------  ----------  ---------- 
 
 
 
 Year Ended 31 March 2019                                          Other 
                                  Intelligence       Cyber       segment         Total 
                                           GBP         GBP           GBP           GBP 
 Assynt report                       1,402,196           -             -     1,402,196 
 Professional services                 238,765   2,567,845             -     2,806,610 
 Monitoring managed services                 -   1,003,330             -     1,003,330 
-------------------------------  -------------  ----------  ------------  ------------ 
 Revenues from external 
  customers                          1,640,961   3,571,175             -     5,212,136 
-------------------------------  -------------  ----------  ------------  ------------ 
 Gross Margin                          548,966   1,738,960             -     2,287,926 
 
 Segment Reported EBITDA              (54,706)    (88,250)   (1,344,555)   (1,487,511) 
 Share option expense                    5,766      13,221        41,728        60,715 
 Exceptional costs (Note 
  5)                                         -     128,997        51,924       180,921 
 Segment Adjusted EBITDA              (48,940)      53,968   (1,250,903)   (1,245,875) 
-------------------------------  -------------  ----------  ------------  ------------ 
 
 Finance costs-net                       (827)     (2,134)           230       (2,731) 
 Depreciation and amortisation        (16,103)   (309,995)      (42,973)     (369,071) 
 Segment profit/(loss) 
  for the year                        (71,636)   (400,379)   (1,387,297)   (1,859,313) 
-------------------------------  -------------  ----------  ------------  ------------ 
 

Segment assets, liabilities and capital expenditure for the period then ended are as follows:

 
                                                           Other 
 As at 30 September 2019    Intelligence       Cyber    segments       Total 
                                     GBP         GBP         GBP         GBP 
-------------------------  -------------  ----------  ----------  ---------- 
 Contract assets                  22,683      91,061           -     113,744 
 Other assets                    599,639   6,220,844   1,743,025   8,040,488 
 Contract liabilities 
  (deferred income)              578,980     421,737               1,010,717 
 Other liabilities               183,700     893,916     466,517   1,544,134 
 Capital expenditure - 
  tangible                           932     199,154     45,303,     245,560 
 Capital expenditure - 
  intangible                                  29,332     188,803     218,139 
-------------------------  -------------  ----------  ----------  ---------- 
 

Excludes impact of IFRS16

 
                                                           Other 
 As at 30 September 2018    Intelligence       Cyber    segments       Total 
                                     GBP         GBP         GBP         GBP 
-------------------------  -------------  ----------  ----------  ---------- 
 Contract assets                  42,680           -           -      42,680 
 Other assets                    524,291   4,244,967   1,379,355   6,184,613 
 Contract liabilities 
  (deferred income)              542,816     550,917           -   1,093,733 
 Other liabilities               186,024     532,757     441,467   1,160,248 
 Capital expenditure - 
  tangible                         2,203      20,601           -      22,804 
 Capital expenditure - 
  intangible                      53,965    436,790*           -     490,755 
-------------------------  -------------  ----------  ----------  ---------- 
 

*now classified within Other related to Furnace development

 
                                                         Other 
 As at 31 March 2019      Intelligence       Cyber     segment       Total 
                                   GBP         GBP         GBP         GBP 
-----------------------  -------------  ----------  ----------  ---------- 
 Contract assets                63,528     133,702           -     197,230 
 Other assets                2,085,245   5,252,009   2,039,553   9,376,807 
 Contract liabilities 
  (deferred income)            679,068     430,763           -   1,109,831 
 Other liabilities             267,139     665,231     388,781   1,321,151 
 Capital expenditure - 
  Tangible                       2,203      54,480           -      56,683 
 Capital expenditure - 
  Intangible                    76,265     673,483           -     749,748 
-----------------------  -------------  ----------  ----------  ---------- 
 
 
 As at 31 March 2019      Intelligence       Cyber     segment       Total 
                                   GBP         GBP         GBP         GBP 
-----------------------  -------------  ----------  ----------  ---------- 
 Contract assets                63,528     133,702           -     197,230 
 Other assets                2,085,245   5,252,009   2,039,553   9,376,807 
 Contract liabilities 
  (deferred income)            679,068     430,763           -   1,109,831 
 Other liabilities             267,139     665,231     388,781   1,321,151 
 Capital expenditure - 
  Tangible                       2,203      54,480           -      56,683 
 Capital expenditure - 
  Intangible                    76,265     673,483           -     749,748 
-----------------------  -------------  ----------  ----------  ---------- 
 
   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 2019        30 Sep        31 Mar 
                                                              2018          2019 
                                         (Unaudited)   (Unaudited)     (Audited) 
 
 Loss attributable to equity holders 
  of the company (GBP)                   (1,550,432)     (969,803)   (1,830,371) 
 Weighted average number of ordinary 
  shares in issue                        400,401,186   260,601,854   313,614,123 
 Basic (loss)/profit per share (pence 
  per share)                                  (0.39)        (0.37)        (0.58) 
--------------------------------------  ------------  ------------  ------------ 
 

As at 30 September 2019, the potentially dilutive ordinary shares were anti-dilutive because the Group was loss-making.

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END

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December 03, 2019 02:00 ET (07:00 GMT)

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