FLX.L Regulatory News (FLX)

18 August 2021

FALANX GROUP LIMITED

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

Trading Update & New Loan Facility

Falanx Group Limited (FLX.L), the AIM listed provider of cyber security and strategic intelligence services, is pleased to announce a trading update for the year ended 31 March 2021 and a new loan facility to support further investment.

· Revenues of c£5.2m for the year ended 31 March 2021 (2020: £5.8m), slight decline due to previously reported COVID-19 delays in the first half of the period

· Anticipated reduced loss at an adjusted EBITDA level for the year ended 31 March 2021 due to tight cost control

· Post-period, a new loan facility to support organic investment and potential earnings enhancing acquisition opportunities

· Cyber Security division traded strongly in the second half of the period and this encouraging sales performance has continued into the first four months of the current financial year

· Contract wins and increased industry recognition in the Assynt strategic intelligence division

Results for the year ended 31 March 2021

The Group recorded revenues of c£5.2m (2020: £5.8m), with the decline resulting from the impact of COVID-19 related delays (mainly in the Cyber Security division) which affected the first half of the financial year as highlighted in its interim results. In the second half of the financial year, the Cyber division experienced a greater intake of customer orders which were ahead of the pre-COVID-19 period. The utilisation of the Cyber Security professional services team significantly increased which supported an improvement in gross margin. A tight grip was maintained on operating costs, which helped the Group achieve a reduced loss at an adjusted EBITDA level compared with the year ended 31 March 2020.

Cash balances at 31 March 2021 were £0.55m (2020: £0.07m) and the Group had a normal working capital position with strong customer receipts.

The audit with BDO LLP is currently underway and Falanx will report its results in September 2021.

New Loan Facility to Support Investment

The Group is also pleased to announce a five-year Growth Loan facility with BOOST&Co.

The key terms are:

· Initial £1m loan secured over the Group's assets, expected to increase to £2.5m to fund acquisitions & investment programmes

· Annual interest of 11%, and straight-line amortisation of the loan commencing after 12 months

· The loan carries a 3% early prepayment fee on the then amount outstanding

As stated in February 2021, the proceeds of the Loan will enable the Group to make earnings enhancing acquisitions to strengthen its core Cyber division, as well as supporting the Group's overall organic growth plans. This loan was arranged by Welbeck Ventures Limited who received a fee of 2% of the loan on completion in respect of advisory fees. Alex Hambro, the non-executive chairman of Falanx, is also director of Welbeck. 

Joanna Scott, Managing Director at BOOST&Co, said: "We are delighted to be working with Falanx on its continuing growth journey and supporting UK businesses during this uncertain time. Falanx's innovative services, solid customer relationships, growing order book and market alignment combined with a strong management team put the business in a positive position to capitalise on its growth opportunities in the near future."

Trading for the year to 31 March 2022

Trading for the first four months of the current financial year has been encouraging and is in line with management's expectations.

· Order inflow has been good, and this trend is expected to continue

· Gross margins are improving in the Cyber division due to the increased order flow and high staff utilisation levels. Further improvement is expected in the near term as the move to a single Triarii cyber security monitoring platform completes

· This has noticeably improved the financial performance in the Cyber division, which is now profitable at an adjusted EBITDA level, compared with a loss of c£0.52m for the year to 31 March 2021

Overall, the Group's current run rate of losses at an adjusted EBITDA level is lower than in 2021 and it continues to focus on becoming sustainably profitable.

Cyber Security Division

The Company continues to gain new customers for its Triarii cyber security monitoring services and has a strong pipeline of business across several vertical markets. As well as providing an enhanced protective and monitoring service to clients, Triarii is a more efficient and capable platform for operating our Security Operating Centre ("SOC"), leading to greater synergies by operating across a single technology platform.

New customers have also benefitted from the inclusion of the Group's new standalone Managed EDR (Endpoint Detection and Response) as an enhanced entry-level protection against ransomware. This allows customers to adopt the much wider capabilities of the Group's Triarii MDR (Managed Detection and Response) service and its "Detection in Depth" approach.

The spinout of N-able (formerly SolarWinds MSP) into a separately traded public company, N-able, Inc ("N-able"), completed last month. A key strategy of N-able is to empower and protect its 25,000 MSP customers (and over 500,000 end users) with cybersecurity products and services, and the Company believes that it is very well positioned to address this market. Falanx has already been working closely with N-able to provide Triarii services to its customers and is a member of its Technology Alliance Program. Management is closely engaging with N-able and expects this spinout to benefit Falanx in the second half of 2021 by accelerating sales of its security products and services into their MSP customers and to widen the routes available for increased engagement.

The division's sales performance has improved, not only with the initial post COVID-19 rebound, but also from the sale of multi-year contracts. On average the division has received total orders £0.34m per month since 1 July 2020 compared with an average of £0.19m per month in the first six months of 2020. Falanx received its largest ever sales order in April 2021 with a £1m multi-year contract for penetration testing, only the first year of this is reflected in the average order value referred to above. This order was from an existing client, a leading and globally recognised financial services organisation, and management believes that there is a further opportunity for expansion on this account.

The pipeline of business continues to strengthen for both assessment and Triarii services, both in terms of quality and quantum. The recent record order intake and healthy orderbook is converting into revenue, driven through optimum utilisation of the highly motivated and expert team.

Assynt Strategic Intelligence Division

The Assynt business has continued to perform solidly and has achieved strong customer renewals. A £1.2m three-year contract with one of the world's largest technology companies has been further expanded with a requirement for embedded analysts in EU territories. This will be serviced from the Group's newly formed subsidiary in Ireland and is expected to generate revenues of c£1.0m over the next three years. Contracted (adjusted for undelivered contracts and known churn) monthly recurring revenues are currently circa £190,000, marking an increase of 19% since March 2021.

Falanx Assynt was recognised by Chambers & Partners in their 2021 rankings, listed as one of five firms in their tier of global Geopolitical Risk providers. Charles Hollis, the Managing Director of Assynt, was also rated among the top five individual practitioners globally.

Mike Read, CEO, commented: "Our much-improved trading, particularly in our core Cyber Security division combined with the new Boost loan puts us in strong position to exploit the major opportunities ahead, either by organic investment or by earnings enhancing acquisitions. I am optimistic about the opportunity with N-Able and its large customer base following the completion of their spin out later this month. This progress in Cyber, and the growing expanding contract base in our Assynt division underpin our plans for growing equity value."

Enquiries:

About Falanx

Falanx Group Limited, is a global intelligence and cyber defence provider working with blue chip and government clients. For more information: https://www.falanx.com/