Falanx Group Ltd (LON:FLX), the AIM listed provider of cyber security and strategic intelligence services, today provided an update as to its expected results for the year ended 31 March 2020 and the impact of the ongoing global COVID-19 crisis.
Trading for the year ended 31 March 2020
The Group has experienced strong trading with circa £1m of significant new orders between December and mid-February in the Cyber division. These wins are significant as they are in addition to the usual run rate of the cyber business and are the result of new high-profile customer wins as well as incremental spend by existing customers. The Group has also been successful in cross-selling new services to its existing Penetration Test or Manage, Detect and Respond (“MDR”) customers. These new customer wins (the majority of the revenue for which will be recognised in the next financial year), combined with much stronger recurring revenues in the Assynt strategic intelligence division, result in the Board expecting to deliver revenues of circa £5.9m for the year ended 31 March 2020 representing growth of 13% on last year.
COVID-19 impact
In very recent weeks the COVID-19 crisis has begun to significantly affect the global economy. The protection of health and welfare of staff is paramount for Falanx and, to that end, in line with government guidance all employees are now working remotely. This has been made possible by our technical infrastructure in addition to our processes and protocols and has resulted in zero interruption to our service provision. We are, therefore, fully able to service our clients in this period with no loss of quality or service.
It is widely reported that the move to homeworking during COVID-19 will increase the vulnerability of all organisations to Cyber-attacks, as highlighted by the National Cyber Security Centre (NCSC) on 16 March 2020. Discussions with our customer base indicate that they expect to resume spending on cyber security-related measures once they move away from their immediate crisis planning, and their home-based working infrastructure has bedded in. Our Cyber division has put together a ‘Rapid Response’ set of measures for newly-distributed networks of home workers (https://falanxcyber.com/securing-wfh-solutions/).
The Company has already implemented, or is in the process of implementing, certain measures designed to strengthen the Company’s balance sheet and expected cash performance over the next few months. These include:
· voluntary salary sacrifices by certain directors, management and staff. The Company intends to compensate those participating by the issuance of new share options to those participating at an option price of 1 penny per share, an uplift of 75% above the closing price of 0.57 pence per share on 30 March 2020, the trading day immediately before this announcement. In order to seek to minimise future dilution to shareholders as much as possible, this new option pool is to be created partly by the waiver of certain share options granted in March and December 2018 to directors and senior managers. Further announcements will be made at the appropriate time;
· negotiated deferrals and reductions in property costs as well as other corporate overheads;
· near elimination of capital expenditure and major reductions to discretionary spending; and
· use of existing but undrawn banking facilities.
Overall, the Company currently expects to be able to operate effectively within its existing resources and will closely monitor the ongoing situation. Recent measures announced by the UK Government may provide further support. The Company has a solid base of recurring revenues (circa £3m per annum) and these provide resilience. The Company does not have undue risk associated with customer concentration or economy sector exposure.
COVID 19 in other countries
The Assynt division is a highly respected strategic intelligence consultancy specialising in the forecasting and interpretation of geopolitical business and security risks in emerging markets. Recent coverage has been extended to include the analysis of political, security, health and cyber-related risks from the outbreak of COVID-19 in these markets. Summaries of these reports are available at https://falanx.com/assynt/covid-19-coverage/.
