02:00 Tue 03 Dec 2019
Falanx Group Limited - Interim Results
("
Interim results
Highlights
· |
Group revenues increased 21% to |
· |
31% increase in the intelligence business unit ("Assynt") H1 sales to |
· |
Group monthly recurring revenues in |
· |
6m to |
· |
Cash at period end of |
· |
The new |
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):
Mike Read, Chief Executive Officer Ian Selby, Chief Financial Officer
|
|
Ben Turner / James Pope
Graham Herring / Zach Cohen
|
+ 44 (0) 207 710 7600
+44 (0) 203 621 4120
+44 (0) 203 934 6630 |
About Falanx
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
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.
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
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
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 3rd 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
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
Adjusting items
The Group recorded
Depreciation and amortisation
As a result of increased capital expenditure on infrastructure the Group's depreciation charge increased to c.
Loss for the period
Overall the Group recorded a Loss of
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
Trade and other receivables increased by approximately
Overall shareholders' funds stood at
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
Overall capital investment was
Overall cash balances stood at
FALANX GROUP LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS PERIOD ENDED
|
|
6 Months to |
|
6 Months to |
|
Year to |
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
|
|
|
|
|
|
|
|
£ |
|
£ |
|
£ |
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
|
6 Months to |
|
6 Months to |
|
Year to |
|
|
|
|
|
|
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
|
|
|
|
|
|
£ |
|
£ |
|
£ |
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 capital |
Retained earnings |
Translation reserve |
Share option and warrant reserve |
Total |
|
£ |
£ |
£ |
£ |
£ |
|
|
|
|
|
|
Balance at |
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 |
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 |
17,903,427 |
(12,077,184) |
(107,801) |
403,959 |
6,122,401 |
FALANX GROUP LIMITED
CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD ENDED
|
6 Months to |
6 Months to |
|
Year to |
|
|
|
|
|
|
(Unaudited) |
(Unaudited) |
|
(Audited) |
|
£ |
£ |
|
£ |
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 PERIOD ENDED
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
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
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
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
Going Concern
The Group made losses of
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
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
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
Six months ended |
|
|
Other |
|
|
Intelligence |
Cyber |
segments |
Total |
|
£ |
£ |
£ |
£ |
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 |
|
|
Other |
|
|
Intelligence |
Cyber |
segments |
Total |
|
£ |
£ |
£ |
£ |
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 |
|
|
Other |
|
|
Intelligence |
Cyber |
segment |
Total |
|
£ |
£ |
£ |
£ |
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 |
Intelligence |
Cyber |
segments |
Total |
|
£ |
£ |
£ |
£ |
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 |
Intelligence |
Cyber |
segments |
Total |
|
£ |
£ |
£ |
£ |
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 |
Intelligence |
Cyber |
segment |
Total |
|
£ |
£ |
£ |
£ |
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 |
Intelligence |
Cyber |
segment |
Total |
|
£ |
£ |
£ |
£ |
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 to |
6 Months to |
Year to |
|
|
|
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
|
|
Loss attributable to equity holders of the company (£) |
(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
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