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Falanx Group Limited (FLX)

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Tuesday 03 December, 2019

Falanx Group Limited

Interim Results

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 £2.64m (H1 2018: £2.18m).

·     

31% increase in the intelligence business unit ("Assynt") H1 sales to £0.93 (2018: £0.71m), Cyber business unit increased by 16% to £1.71m (H1 2018: £1.48m)

·     

Group monthly recurring revenues in September 2019 of £0.29m (September 2018: £0.22m). Overall recurring revenues comprised 56% (2018: 53%) of total revenue in the 6 month period 

·     

6m to 30 September 2019 Adjusted EBITDA loss £0.93m (H1 2018: £0.71m) after £0.3m spend in readiness for our major Cyber opportunities

·     

Cash at period end of £708k (H1 2018: £69k) with receivables of £1.76m (H1 2018: £1.18m). The receivables balance has reduced post-period by circa £0.2m 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

Mike Read, Chief Executive Officer

Ian Selby, Chief Financial Officer

 

www.falanx.com

 

Stifel Nicolaus Europe Limited, Nomad and Joint Broker Fred Walsh / Alex Price / Neil Shah

 

Turner Pope Investments (TPI) Ltd, Joint Broker

Ben Turner / James Pope

 

IFC Advisory Ltd, Financial PR & IR

Graham Herring / Zach Cohen

 

 

+ 44 (0) 207 710 7600

 

 

+44 (0) 203 621 4120

 

 

 

+44 (0) 203 934 6630

[email protected]

 

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 £1.71m 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 £0.15m. 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 £0.43m (2018: £0.13m).

 

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. £0.1m 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 £0.93m 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 £0.01m (2018: profit £0.01m).

 

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 £2.64m (2018: £2.19m) with both divisions recording organic growth.  The Cyber division grew by 16% to £1.71m from stronger utilisation and monitoring revenues and the Intelligence division grew by 31% to £0.93m 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 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 £1.77m. Assynt costs increased by approximately £0.17m relating to business development in support of the increase in recurring revenue contracts. Cyber costs increased by £0.20m, 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 £70,000 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.£0.1m to £0.48m 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 £0.71m to £0.93m.

 

Adjusting items

 

The Group recorded £0.35m (2018: £0.08m) of items outside of usual trading.  £0.13m related to non-capitalised development costs related to Project Furnace.  A further £0.13m related to investment in infrastructure and the IT environment which has now been largely completed.  The remaining £0.09m 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.£0.07m (2018: £0.04m) on depreciation relating to physical assets and a further amortisation charge of c£0.16m (2018:  £0.15m), 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 £1.55m (£0.97m). 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 £0.67m recorded relating to its future value, as well as an offsetting lease liability of £0.44m, have been recorded.  These are expected to be amortised over a period of 5 years. Intangibles increased by £0.63m compared to September 2018.  Approximately £0.46m 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 £0.58m 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 £0.2m. 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 £6.12m (2018: £3.93m)

 

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 £0.35m 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 £1.27m (2018: £0.53m) reflecting a greater level of investment than in the prior period.

 

Overall capital investment was £0.46m (2018: £0.27m) reflecting the investment in physical infrastructure around the SOC move, IT infrastructure, and the investment in Project Furnace.

 

Overall cash balances stood at £0.71m (2018: £0.07m).

 

 

 

 

 

FALANX GROUP LIMITED

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS PERIOD ENDED 30 SEPTEMBER 2019

 

 

 

 

6 Months to 

 

6 Months to

 

Year to

 

 

30 Sep 2019

 

30 Sep 2018

 

31 Mar 2019

 

 

(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)

 

 

(1,856,582)

Share option expense

 

45,000

 

 

60,715

Depreciation and amortisation

 

226,725 

 

 

369,071

Exceptional costs

 

348,225

 

 

180,921

Adjusted EBITDA loss

 

(926,317)

 

 

(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 to

 

6 Months to

 

Year to

 

30 Sep 2019

 

30 Sep 2018

 

31 Mar 2019

 

(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 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 PERIOD ENDED 30 SEPTEMBER 2019

 

 

 

6 Months to

6 Months to

 

Year to

 

30 Sep 2019

30 Sep 2018

 

31 Mar 2019

 

(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 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 £1.55m (2018: £0.97m) in the 6-month period to 30 September 2019 of which £0.92 (2018: £0.71m) relates to the Adjusted EBITDA performance of the business. Cash balances as at 30 September 2019 were £0.71m 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 September 2019

 

 

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 30 September 2018

 

 

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 31 March 2019

 

 

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 30 September 2019

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 30 September 2018

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 31 March 2019

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 31 March 2019

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

 

30 Sep 2019

30 Sep 2018

31 Mar 2019

 

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

 

 

 

 


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