TIDMDFX
RNS Number : 9447G
Defenx plc
29 July 2019
29 July 2019
Defenx PLC
("Defenx", the "Company" or the "Group")
Full Year Results for the Year Ended 31 December 2018
and
Notice of AGM
Defenx Plc (AIM: DFX), the cyber-security software group,
announces its full year results for the year ended 31 December 2018
("2018 Accounts").
Notice of AGM
The Annual General Meeting ("AGM") of the Company will be held
at the offices of Strand Hanson, 26 Mount Row, London, W1K 3SQ, on
2 September 2019 at 12:00 p.m.
The Company's 2018 Accounts are now available on its website and
will be posted to shareholders, along with the Notice of AGM,
shortly.
Following the publication of the 2018 Accounts, the Company is
pleased to announce that it is expected that trading in the
Company's ordinary shares on AIM will be restored at 7:30 a.m.
today, 29 July 2019.
Enquiries
Defenx PLC
Anthony Reeves - Executive Chairman 020 3198 9414
IFC Advisory (Financial PR and IR)
Tim Metcalfe / Heather Armstrong 020 3934 6630
Strand Hanson Limited (Nominated and Financial
Adviser)
Richard Tulloch / Stuart Faulkner / James Bellman 020 7409 3494
WH Ireland (Broker)
Adrian Hadden 020 7220 1666
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014.
Chairman's statement
Whilst 2018 was a challenging year for the Company and one of
great change, we have emerged more appropriately positioned for the
future. Given that Defenx is an IT company, perhaps the best way to
describe 2018 was as a 'reboot' year.
Strategic partnership with BV Tech
Our relationship with BV Tech continues to develop, with them as
both a supportive, and now majority, shareholder and as our key
strategic partner.
The EUR950,000 loan announced in October 2018 was subsequently
switched into a convertible loan. That amount was drawn (and
converted into shares) in three stages in October 2018 and in
January and March 2019. As a consequence, BV Tech now owns 67.1% of
Defenx.
In April 2019, we signed a sales and distribution agreement with
BV Tech with two main elements. The first gives them sole rights to
sell our products to certain organisations within the Italian
defence, space, national security and critical infrastructures
sectors until December 2023. In return, Defenx has received EUR1.0
million and going forward will receive 50% of any sales in excess
of EUR5.0 million across that period. The second made BV Tech a
(non-exclusive) distributor of our products through to the end of
2021, and they have committed to purchase products to a minimum
value of EUR150,000 per quarter (total EUR1.2 million) in the
period to December 2020. In addition, we entered into a software
services agreement with BV Tech which defines our product
development roadmap with a cap of EUR1.2 million for 2019
development spend with BV Tech.
Product Development
As has been reported previously, we terminated our relationship
with our product developers in Romania in Q1 2018; moving that
responsibility to BV Tech. In April 2019 we cemented further that
relationship with a software services agreement with BV Tech until
at least December 2020, working to an agreed product route-map.
Our next generation data security products for personal
computers and mobile devices provide three pillars of protection,
securing devices, data and messaging. We are particularly excited
by some of the innovations in the new product portfolio.
The English language version of our Security Suite (antivirus
for Windows devices) was released in January 2019, followed by the
Italian language version in June 2019 and further languages are
expected to follow. Next generation versions for mobile are
expected to be available shortly, with the Mobile Parental Control
modules for Apple and Android having already been released in
February and April 2019 respectively. Secure Mail is currently in
final testing for imminent release with Mobile Communications
expected shortly thereafter. Finally, we are upgrading the
infrastructure for Cloud backup; migration is scheduled for
completion in Q4 2019. We will work with BV Tech to develop our
secure messaging for delivery in 2020.
Management
A significant element of the reboot has been in the changed
composition of the Board and senior management. In April 2018, the
Company's founder Andrea Stecconi resigned from the Board, followed
by Alessandro Poerio a month later. Andrea has continued with the
Group in a customer relations role, whereas Alessandro left to
pursue other interests. As a consequence of those departures, I
became interim Executive Chairman on 1 June 2018.
In July 2018, both Chief Financial Officer Philipp Prince and
Non-executive Director Leonard Seelig also resigned, whilst
Raffaele Boccardo, the President of BV Tech, assumed the additional
role of interim Deputy Executive Chairman. Philipp was replaced by
Clive Eplett as interim-CFO, but given the interim nature of his
appointment, he did not join the Board.
In August 2018, Nic Hellyer and Giorgio Beretta were appointed
as Non-executive Directors, and chairs of the remuneration and
audit committees respectively.
Our search for the right person to become CEO continues, with
our preference being to make that appointment first, then recruit a
permanent CFO to work alongside the new CEO.
Current trading, outlook and funding
As expected, and inevitably in the circumstances, 2018 revenues
were again lower than past years, whilst we prepared our next
generation products for launch readiness.
Offsetting that, we have reduced costs wherever possible. In
particular, we eradicated marketing contributions to distributors
that, in practice, were not generating a worthwhile return on
spend. Headcount costs have also been reduced, both during the year
and subsequently. Other operating costs have also been cut where
possible without jeopardising the Group's future.
Our biggest charge to the profit and loss account was a further
EUR1.9 million amortisation against development intangible assets.
This non-cash charge represents 95% of cost of sales and 32% of all
costs (excluding interest).
The consequence of these changes is a reduction in the operating
loss to EUR3.5 million from EUR11.9 million in 2017.
The first quarter of 2019 continued in very similar vein to
2018, but the second quarter benefited from the sales agreements
with BV Tech reported above. Marketing of our next generation
products is expected to commence in during the second half of 2019,
restarting the business after our 'reboot'.
As at 24 July 2019, the Group had cash resources of
approximately EUR120,000, which is sufficient through to the end of
August 2019, and, therefore, the Company remains reliant on the
continued financial support of its major shareholder, BV Tech,
going forward.
After a difficult period, we therefore look forward to the
future with renewed optimism, with the release of our next
generation products supporting our three pillars strategy and a
further strengthened relationship with our largest shareholder, BV
Tech.
Anthony Reeves
Interim Executive Chairman
26 July 2019
Products and technology
Defenx is a cyber security company that offers a range of
products for the mobile, PC and network security markets.
Broad product portfolio
The Defenx proposition is to solve our end-user's data security
needs on all their connected devices.
Our new generation products provide consumers, corporates and
public-sector organisations with three pillars of data security on
personal computers and mobile devices, securing devices, data and
messaging.
Our current portfolio comprises the following products:
Product Key features
Defenx Mobile Security Defenx Mobile Security Suite includes antivirus,
Suite anti-phishing, webcam protection, microphone
anti-capture, and anti-theft protection as well
as SIM protection and safe browsing. The next
generation product in this regard should be available
shortly.
Available in 12 languages for Android and iOS.
=======================================================
Defenx Defenx
PC Security
Antivirus Suite
& includes
Security antivirus,
Suite anti-spam,
firewall,
identity
protection,
safe
browsing,
privacy
and
parental
controls.
Available
in
five
languages
for
Windows
10,
8,
7,
Vista
and
XP
desktop
and
laptop
PCs.
There
is
also
a
network
version.
=======================================================
Defenx Defenx
Parental Parental
Control Control
protects
under-age
smartphone
and
tablet
users
from
inappropriate
content
and
enables
parents
to
manage
their
children's
online
activity.
Parents
can
view
call
and
messaging
history,
photos
and
be
alerted
when
their
child
arrives
or
leaves
specific
locations.
The
app
also
includes
some
Defenx
SOS
features.
Available
for
Android
and
iOS
(the
latter
in
beta
version).
=======================================================
Defenx Defenx
Privacy Privacy
Advisor Advisor
is
a
free
app
that
allows
users
to
monitor
access
to
their
personal
data
by
installed
apps.
A
growing
number
of
seemingly
useful
apps
for
smartphones
can,
in
fact,
invade
your
privacy,
putting
your
personal
information
at
risk.
Available
for
free
on
Android.
=======================================================
Defenx Defenx
SOS SOS
Help keeps
Me loved
ones
safe
by
alerting
a
designated
parent
or
guardian
by
email,
SMS
or
via
a
call
centre
in
an
emergency
such
as
an
unexpected
fall
or
attack.
The
panic
function,
triggered
by
a
Bluetooth-
connected
button
or
simply
by
dropping
the
smartphone,
triggers
the
alert.
Available
in
two
languages
for
Android.
=======================================================
Defenx Defenx
Cloud Cloud
Backup Backup
(Memopal)
protects
files
by
securely
saving
a
copy
to
the
cloud.
Because
it
keeps
all
file
changes
forever,
users
always
have
a
clean
version
to
restore,
for
example,
following
a
ransomware
attack.
It
also
provides
a
sync
folder
allowing
the
latest
version
of
saved
files
to
be
accessed
from
any
computer,
device
and
online.
Available
in
16
languages
for
Windows,
Apple,
Linux,
Android,
iOS
and
one
NAS
platform.
=======================================================
Defenx Secure Messaging Defenx ECS/ECM, built on the software acquired
(ECS/ECM) from BV Tech, employs standard protocols, encryption
algorithms and open-source software components
to provide secure telephone conversations and
encrypted messages and attachments.
Scheduled to be available in three languages
for Android, iOS and Blackberry smartphones in
2020.
=======================================================
Our market and opportunity
Global and regional drivers
Our target markets are extensive, comprising consumer, corporate
and public-sector users of digital devices. Our opportunity lies in
the increasing number of connected devices, the volume and
sophistication of cyber-attacks and the growth in users'
willingness to use online services and regulation.
More connected devices
-- According to the GSMA, at the end of 2018, two-thirds of the
world's population had a mobile subscription - a total of 5.1
billion unique subscribers. By 2025, GSMA forecast this to rise to
nearly 5.8 billion. Smartphone penetration also continues to grow
with an estimated 3.1 billion mobile internet users in 2018
increasing to 4.0 billion by 2025 (GSMA The Mobile Economy
2019).
-- It is not just mobile devices, but the internet of things
("IoT") too. GSMA forecasts that the IoT market will grow from an
installed base of 9.1 billion devices in 2018 to 25.2 billion
devices by 2025, the implications of which are only just beginning
to be felt.
Industrialisation of cyber-crime
Computer fraud is becoming industrialised.
-- Some concentrate on developing new methods of attack and
seeking to stay ahead of the legitimate software industry and
cyber-security providers, who then franchise their methodologies to
operators who can use them in a variety of ways.
-- Those franchisees then operate the bought-in technologies and
exploit them for criminal gain.
More attacks and data breaches
-- Form-jacking became the new 'get-rich-quick' scheme for
cyber-criminals, with a monthly average of 4,800 websites being
compromise and consumer credit card details harvested.
-- Ransomware continues to plague businesses and consumers,
though lower returns to criminals resulted in lower activity.
-- Android remains the key target for hackers because so many
devices are not regularly updated to the latest software. Android's
dominant market share makes it our key focus.
-- Adoption of IoT technology continues with many devices having
poor security; once connected to home or corporate networks, they
offer an easy way in for hackers.
-- Following the plunge in Bitcoin values, Symantec identified a
decline in 'coin mining' in 2018, although it remained popular due
to low barriers to entry and minimal overhead for the attacker.
More data/online digital services
-- Migration to smartphones that operate on highspeed mobile
networks, coupled with increasing consumer propensity to engage in
the digital world, is driving mobile data traffic up in all
regions. According to Ericsson, global mobile data traffic for all
devices will increase eight-fold between 2017 and 2023, reaching
110 exabytes per month. Smartphones will account for close to 95%
of total mobile data traffic by 2023 (Ericsson Mobility Report,
November 2017).
More regulation
-- Regulatory compliance has been stimulating spending on
security, notably in Europe with the GDPR that came into effect 25
May 2018.
-- The Facebook-Cambridge Analytica scandal is just one example
where data privacy concerns may well see further regulation likely
to affect security costs on corporates and public sector
organisations.
Financial review
2018 was a challenging year for Defenx and, as a consequence,
the financial key performance indicators shifted from operational
measures to cash management and funding. With new sales effectively
stalling, it became imperative to control costs and ensure cash was
and continues to be sufficient to bridge the business until sales
revenue from our next generation of products can provide positive
cashflow for the Group.
Revenue
Reported revenue in the year was EUR1.42 million (2017:EUR2.93
million), of which 59% (EUR0.84 million) of this comes from the
release of previously deferred income. Further, new invoicing in
the second half of 2018 was only EUR0.31 million.
Sales via distributors were suspended during 2018 when it became
clear that, after accounting for our marketing cost contributions
to distributors and difficulties in cash collection, this channel
was not proving profitable.
Gross margin
On those new sales that were made in 2018, there were no
significant marginal (additional) costs on each sale. Therefore,
cost of sales comprises primarily fixed costs of hosting (for the
Defenx backup products), interim updates of security suite products
and amortisation of the development costs. Hence, as a KPI, gross
margin becomes a largely academic measure for the year.
Operating costs
The Board has focused more therefore on reducing overheads
wherever possible. Headcount, excluding the Board, has been reduced
significantly, to 6 at the year-end compared to an average of 15 in
2017. Discretionary costs have been minimised wherever possible,
though the AIM quote makes a certain level of cost unavoidable,
EUR289,000 (2017:EUR234,000).
There were no performance-related bonuses during this or the
preceding year.
Impairments
We took the precaution to write down a further EUR1.35 million
(being 100% of the unimpaired balance) against debtors in dispute,
where collection against a legal settlement agreement is proving
more troublesome than anticipated.
Having reviewed the development cost intangible asset, we
determined that, after the year's amortisation charge of EUR1.9
million, no further impairment provision was warranted.
During the year, the Company converted EUR2.9 million of
intercompany debt owed by Defenx Italia SRL into shares,
recapitalising that business to make good historical losses. That
amount was immediately impaired in full in the books of the
Company.
Operating loss
The pre-tax Group loss for the year consequently was only 32% of
that reported in 2017, at EUR3.8 million (2017: EUR11.8
million)
Taxation
There is no current tax charge in the year and a small release
of deferred taxation arising for the treatment of interest on the
convertible bond. Deferred tax assets have not been recognised on
temporary timing differences or accumulated losses as it is not
sufficiently certain that the Group will be able to utilise them in
the near future.
Net loss and loss per share
The loss after tax attributable to ordinary shareholders of
Defenx was EUR3.73 million (2017: EUR11.64 million). This equates
to a loss per share of EUR0.154 (2017: EUR1.030) undiluted and
EUR0.150 (2017: EUR0.796) diluted.
In light of the Group's loss for the year and substantial profit
and loss reserves deficit, the Board cannot propose a dividend.
Future dividend policy will be kept under review.
Cash flow
Non-cash charges to the profit and loss account resulted in the
net cash outflow for the year being EUR1.4 million, funded by
EUR1.4 million net proceeds of share issues. The Group also repaid
EUR0.46 million of debt in the year, resulting in a reduction in
cash holdings of EUR0.8 million.
Since the year-end, the Company has drawn down on the remaining
EUR0.7 million of the convertible loan from BV Tech, which was
subsequently converted in full into new ordinary shares in the
Company, as well as receiving EUR1.0 million from the sales
agreement entered into BV Tech entered into in April 2019.
Following payments to BV Tech under the services agreement entered
into as the same time and the payment of historic liabilities, the
Group had cash of approximately EUR120,000 as at 24 July 2019.
Intangible assets
During the year, the company spent EUR0.9 million on its
software codebase, of which EUR0.5 million was capitalised, with
the remainder being treated as of a maintenance nature, so charged
to cost of sales. The development cost intangible asset of EUR3.5
million will be written off over three years.
Financing
In October 2018 the Company entered into a EUR0.95 million
convertible, unsecured loan arrangement with BV Tech. The loan was
drawn in three instalments, in October 2018 and January and March
2019, with the cash being used for general corporate purposes. In
each case, the loan was converted to new ordinary shares in the
Company immediately following drawdown, at the price agreed at the
outset, being GBP0.08 per share.
There were no other new borrowings in the year across the
Group.
Gross debt at the year-end was EUR1.79 million (2017: EUR2.20
million) and net debt was EUR1.69 million (2017: EUR1.24 million).
This equates to a debt-equity ratio of 107.8% (2017: 30.9%)
compared to the Board's target of 25%. The substantial change
reflects the significant reduction in net assets caused by the
posted losses, which exceeded the reduction in the cash value of
the Company's debt.
Going concern
As noted above, at 24 July 2019, the Group had cash resources of
approximately EUR120,000, which is sufficient through to the end of
August 2019, and, therefore, the Company remains reliant on the
continued financial support of its major shareholder, BV Tech,
going forward.
The sales and distribution agreements signed with BV Tech in
April 2019 also provide a baseline cash revenue stream for 2019 and
2020. Those and any other sales in Italy bring an additional cash
benefit; rather than having to pay over Italian output VAT to the
exchequer, it can be offset against the R&D tax credit claimed
in 2017, boosting the Group cash flow by a further 22% (the current
VAT rate in Italy).
On the basis of the above, with the general release of next
generation Defenx products and the continuing support of BV Tech,
satisfy the Board that Defenx remains a going concern.
Principal risks and uncertainties
The Board is responsible for developing a comprehensive risk
framework and a system of internal controls.
Principal risk Mitigation
Technology
The industry in which Defenx New products and features
operates is in the process of are assessed against their
continual change, reflecting target markets and in response
technical developments as industry to customer feedback prior
and government standards and to development.
practices change and emerge. Defenx works with expert development
The markets in which Defenx operates support from BV Tech, which
are competitive and rapidly evolving. has a track record of assessing
The Group's next generation of and integrating software to
products may become less competitive meet customer demand.
or even obsolete as competitors
introduce new products and customer
behaviour changes.
=======================================
Building sales
The Group's historical B2B2C Under our new marketing approach,
sales model proved to involve reliance on this channel is
greater sales and cash collection likely to be reduced dramatically,
risk than was anticipated at with more stringent credit
the time. control on any remainder.
In future, the Group will seek BV Tech's sales and marketing
to achieve a sales mix of Software-as-a-Service resources and existing trading
(SaaS) and direct corporate and relationships enable access
public sector sales. There is that would otherwise be difficult
a risk this alternative route for the Group to obtain. The
to market proves difficult to distribution agreements signed
implement. with BV Tech have provided
an immediate and substantial
sales boost.
=======================================
Competition
The markets in which Defenx operates Defenx's next generation of
are competitive and rapidly evolving. products will be optimised
The Group will continue to need for mobile devices, the fastest
to invest in its next generation growing product and highest
of products to ensure they compete volume category.
with market alternatives . The relationship with BV Tech
Many of the Group's competitors effectively provides resource
have greater scale with significant scale and access to markets
financial, technical, sales and that Defenx does not itself
marketing resource and may therefore have.
be better able to generate sales.
=======================================
Recruitment and retention of
staff and contractors The Board, including the new
The success of Defenx depends Non-executive Directors, are
upon high-quality staff and contractors highly experienced. The recruitment
with the relevant expertise and process, particularly the
experience to broaden and sell recruitment of a CEO and a
the Group's products and solutions. permanent CFO, remains a key
Failure to attract and retain area of Board focus.
high calibre skills into key The agreements signed with
roles will adversely affect the BV Tech both secures continuity
Group's performance and profitability. regarding product development
and provides access to sales
channels not otherwise available
to the Group.
=======================================
Principal risk Mitigation
Working capital and funding
Even with the latest sales agreements Costs and cash resources are
with BV Tech, the Company only being managed closely.
has sufficient funds through Continuing to work closely
to the end of August 2019 and with BV Tech to develop the
is reliant on the continued financial Group's products and sales
support of BV Tech. pipeline.
If building new third party sales
takes longer than anticipated,
further funding may also be needed.
============================================================
Cyber security and data protection
As a provider of security solutions, The Group and BV Tech's development
Defenx may become a high-profile team actively monitor Defenx's
target and the Group's networks cyber exposure and its preparedness
and products may have vulnerabilities against a range of types of
that have from time to time been, threat.
and may in future be, targeted The Group's IT team:
by attacks designed to disrupt * monitors suspicious activities;
the Group's business and harm
its reputation.
As a custodian of end-user data, * investigates and reports on any actual or suspected
the Group is exposed to data incidents; and
loss and breaches of data protection
regulations in the markets in
which it operates. * regularly implements improvements in the Group's
Such attacks and/or data loss security infrastructure.
could adversely affect the Group's
reputation, performance and operations.
Staff are trained to mitigate
cyber risks by adopting appropriate
best-practice.
============================================================
Operations overseas
A significant proportion of Defenx's The Group has operating subsidiaries
revenues has historically and in the UK, Italy and Switzerland,
is expected to continue to be providing operating options
generated outside the UK, where within and outside the EU.
the Brexit process remain unresolved. Selling into different national
The Group may be adversely affected markets mitigates the risk
by changes in local and regional of adverse changes in one.
economic, political and social The Group incurs the majority
conditions such as changes in of its costs, generates most
law and regulation, taxation, of its revenues and prepares
currency restrictions. its financial reports in Euros.
In addition, fluctuating exchange This natural hedging reduces
rates and the costs of conversion the impact of fluctuations
and exchange controls may have in foreign currencies.
an unfavourable impact on profitability,
particularly if reported in Sterling.
============================================================
Board of Directors
Anthony (Tony) Reeves
Interim Executive Chairman
============================================================================
Appointed to the Board: 1 October 2015
============================================================================
Committee Membership: None
Tony has over 45 years' experience in the recruitment sector and
was the executive chairman of Kellan Group plc, the AIM quoted
recruitment business. Prior to this, he was chairman and chief
executive officer of the Hotgroup plc from 2001 until its acquisition
by Trinity Mirror Group plc in 2005. In 1986 Tony formed Lifetime
Corporation, an overseas recruitment agency operating primarily
in the Middle East, which was reversed into a business listed
on the American Stock Exchange and sold to Olsten for US$660 million
with US$1 billion sales. He is also a private investor in various
early stage companies and vice president of Chelsea Football Club.
============================================================================
Raffaele Boccardo
Interim Executive Deputy Chairman
============================================================================
Appointed to the Board: 7 August 2017
============================================================================
Committee Membership: None
Raffaele graduated from the Faculty of Electronic Engineering
of the University of Genoa, has a Master's in Management and International
Studies from Enrico Mattei School of Milan and a Phd in Electronic
Engineering, also from the University of Genoa. In the past 25
years he has been participating with leading major national and
international ICT technology and innovation projects, working
at the side of leading players like Finmeccanica, Olivetti, Telecom
Italia. Raffaele is President and founder of BV Tech Group, one
of the main players in the Italian ICT market. He is currently
working with main national and international Institutions and
Corporations for the continuous improvement of Cyber Security
in Critical Infrastructures in the picture of existing and continuously
developing International, European and National Legislations.
============================================================================
Giorgio Beretta
Non-executive Director
============================================================================
Appointed to the Board: 1 August 2018
============================================================================
Committee Membership: Audit (chairman), Remuneration
Giorgio is a qualified accountant with over 30 years' experience
as Auditor where he has been involved in the assistance of various
important private and public companies and, since 2007, has joined
the Corporate Finance department as partner at BDO Italia SpA.
He has a breadth of listed company and advisory experience, having
advised on numerous IPOs, M&A transactions and fund raisings,
as well as sitting as Chairman of VR Way SA, the first AIM Milan
listed company.
============================================================================
Nicholos (Nic) Hellyer
Non-executive Director
============================================================================
Appointed to the Board: 1 August 2018
============================================================================
Committee Membership: Audit, Remuneration (Chairman)
Nic is a Fellow of the Institute of Chartered Accountants in England
and Wales and has significant experience with Official List and
AIM companies, both as an adviser and from current board positions.
He has extensive contacts in the City and wide experience of dealing
with shareholders, both private and institutional. In addition,
he has considerable experience of M&A, again both from an advisory
and corporate board perspective.
He is currently Finance Director of AIM quoted Pelatro Plc, a
global precision marketing software specialist as well as Byotrol
Plc, a consumer products company.
============================================================================
As set out in the Directors' report, Philipp Prince, Chief
Financial Officer, and Leonard Seelig, Non-executive Director,
resigned from the Board on 11 July 2018.
Chairman's statement on governance
Dear shareholder
As Chairman of the Board of Directors of Defenx Plc (Defenx, or
the Company/Group as the context requires), it is my responsibility
to ensure that Defenx has both sound corporate governance and an
effective Board. As Chairman of the Company, my responsibilities
include leading the Board effectively, overseeing the Company's
corporate governance model, communicating with shareholders, and
ensuring that good information flows freely between the Executive
and Non-executives Directors in a timely manner. My leadership of
the Board is undertaken in a manner which ensures that the Board
retains integrity and effectiveness and includes creating the right
Board dynamic and ensuring that all important matters, in
particular strategic decisions, receive adequate time and attention
at Board meetings.
It is the Board's job to ensure that Defenx is managed for the
long-term benefit of all shareholders, with effective and efficient
decision-making. Corporate governance is an important part of that
role, reducing risk and adding value to our business.
The Directors recognise the value of good corporate governance
in every part of its business. As Defenx is an AIM quoted company,
it is required to adopt a recognised corporate governance code and
disclose how it complies with that code and, to the extent Defenx
departs from the corporate governance provisions outlined by that
code, it must explain its reasons for doing so. The Directors have
adopted the requirements of the Quoted Companies Alliance's
Corporate Governance Code for Small and Mid-Size Quoted Companies
(the "QCA Code"), to the extent that they consider it appropriate
having regard to the Company's size, board structure, stage of
development and resources. The Directors considers that compliance
with the QCA Code will enable them to serve the interests of all
our key stakeholders, including the Company's shareholders, and
will promote the maintenance and creation of long-term value in the
Company. This report describes our approach to governance,
including information on relevant policies, practices and the
operation of the Board and its Committees. A statement detailing
how the Company has applied and complies with the QCA code, and
areas of any non-compliance, is provided in the corporate
governance section of our website
https://investors.defenx.com/corporate-governance.
The reports from the Committees' Chairmen explain how Defenx is
seeking to develop its governance framework following the strategic
partnership with BV Tech. We see the evolution of good governance
going hand-in-hand with renewed growth of the Group. We believe
that high standards of governance make an important contribution to
shareholder value now and in the future.
Key governance related matters that have occurred during the
financial year include the following:
-- On 24 May 2018, Alessandro Poerio tendered his resignation as
Director of the Company in order to pursue other interests and left
the Company on 31 May 2018. As set out in the circular sent to
shareholders on 6 April 2018, it was envisaged that Philipp Prince,
Chief Financial Officer, and Leonard Seelig, independent
Non-executive Director, would step down from the Board. As
announced on 11 July 2018, Philipp Prince completed the handover of
his responsibilities to our interim Chief Financial Officer, Clive
Eplett, and resigned from the Board. Leonard Seelig resigned from
the Board at the same time.
On 1 August 2018, Giorgio Beretta and Nic Hellyer were appointed
to the Board as Non-executive Directors.
Anthony Reeves
Interim Executive Chairman
26 July 2019
The Board
The Board comprises a balanced mix of Executive and
Non-executive Directors with a combination of relevant skills and
experience, designed to ensure there is effective leadership of the
Group.
Anthony Reeves (formerly a Non-executive Director), Giorgio
Beretta and Nic Hellyer are considered by the Board to be
independent. In determining that they are independent the Board
considered the individual's interests in the Company's shares and
the share options granted to them. The Board determined that these
interests aligned the Directors' interests with those of the Group
and bearing in mind the small percentages held, that they remained
independent. Raffaele Boccardo is not considered to be independent
by virtue of his employment as CEO of BV Tech and his majority
ownership stake in BV Tech, the Company's majority shareholder.
The Board is responsible for setting strategy, performance and
for the stewardship of the Group, within the framework of effective
controls which enable risk to be assessed and managed. Importance
is placed on maintaining a robust control environment.
Anthony Reeves as interim Executive Chairman is responsible for
the leadership of the Board, ensuring its effective operation and
setting the agenda.
Advisers
The Board has regular contact with its advisers to ensure that
it is aware of changes to generally accepted corporate governance
procedures and requirements and that the Group remains, at all
times, compliant with applicable rules and regulations. The Company
holds appropriate insurance cover in respect of possible legal
action against its Directors. The Company's Nomad supports the
Board's development, specifically providing guidance on corporate
governance and other regulatory matters, as required.
All Directors may receive independent professional advice at
Defenx's expense, if necessary, for the performance of their
duties.
The Directors have access to the services of a Company Secretary
through Liam O'Donoghue, who provides advice on company secretarial
and corporate governance matters. In addition, the Directors are
able to take independent legal advice at the Company's expense if
so required.
The Executive Directors work full time for the Company. The
Non-executive Directors are each contracted to spend a minimum of
12 days per annum on Defenx business.
In order to keep Director skillsets up to date, the Board uses
third parties to advise the Directors of their responsibilities
including receiving advice from the Company's external lawyers,
including upon the Convertible Loan Agreement signed in October2018
and the agreements signed with BV Tech in April 2019. The Board
proposes to introduce a facility for Directors to receive training
on relevant developments on a more regular basis. The Board reviews
the appropriateness and opportunity for continuing professional
development in order to keep each Director's skillset up-to-date.
In addition to their general Board responsibilities, Non-executive
Directors are encouraged to be involved in specific workshops or
meetings, in line with their individual areas of expertise. The
Board shall review annually the appropriateness and opportunity for
continuing professional development, whether formal or
informal.
The Board will seek to take into account any Board imbalances
for future nominations. The Company is committed to a culture of
equal opportunities for all employees regardless of gender. The
Board aims to be diverse in terms of its range of culture,
nationality and international experience. It is the Board's
intention as the size and complexity of the Company grows, to set
and aim to achieve gender diversity objectives pursuant to a
defined diversity policy.
Board meeting attendance
The Board normally meets on a monthly basis. During the year,
the Board met on sixteen scheduled occasions.
Director Position Board Remun-eration Audit committee
meetings committee meetings
attended meetings attended
in 2018 attended
Non-Executive Chairman (until
31 May 2018)
Interim Executive Chairman
Anthony Reeves (from 1 June 2018) 16/16 3/3 3/3
================================= ========== ============== ================
Deputy Chairman & Non-Executive
Director (until 11 July 2018)
Interim Executive Deputy
Raffaele Boccardo Chairman (from 11 July 2018) 12/16 3/3 3/3
================================= ========== ============== ================
Alessandro Poerio Chief Executive Officer 10/10* n/a n/a
(appointed
20 November
2017; resigned
24 May 2018)
================================= ========== ============== ================
Andrea Stecconi Chief Executive Officer (until 8/8* n/a n/a
(resigned on 20 November 2017)
24 April 2018) Executive Director (from
20 November 2017)
================================= ========== ============== ================
Philipp Prince Chief Financial Officer 11/11* n/a n/a
(resigned 11
July 2018)
================================= ========== ============== ================
Leonard Seelig
(resigned 11
July 2018) Non-executive Director 11/11* 2/2* 2/2*
================================= ========== ============== ================
Nicholos Hellyer Non-executive Director 3/3* 1/1* 1/1*
================================= ========== ============== ================
Giorgio Beretta Non-executive Director 3/3* 1/1* 1/1*
================================= ========== ============== ================
* figures based on number of meetings held whilst the Director
was in-post, being only part of the year.
There were also four ad-hoc Board meetings convened in relation
to items of special business in April, July, August and October
2019, which were attended by all Directors in post at the time the
meeting was held.
Board performance evaluation
The Board is committed to undertaking reviews of Board and
Committee performance and of individual Board members every year.
The first review will be conducted once new executive directors
have been appointed and in post for a reasonable period.
Risk management and internal control
The structure of the Board is subject to continual review to
ensure that it is appropriate for the Company. Over the next 12
months the Company intends to review the performance of the Board
as a whole to ensure that its members collectively function in an
efficient manner, focusing more closely on defined objectives and
targets for improving performance, as well as reviewing the
effectiveness of each Committee. The Directors consider that the
Company and Board are not yet of a sufficient size for a full Board
performance evaluation to make commercial and practical sense,
although the Board currently runs a self-evaluation process whereby
the Chairman annually assesses the individual contributions of each
of the members of the team to ensure that:
- Their contribution is relevant and effective;
- That they are committed; and
- Where relevant, they have maintained their independence.
Therefore, the Board accepts that the Company does not comply
with this aspect of the QCA Code, although in frequent Board
meetings/calls, the Directors discuss areas where they feel a
change would be beneficial for the Company, and the Company
Secretary remains on hand to provide advice. As the Company grows,
it intends to expand the Board and, with expansion, re-consider the
need for a formal Board evaluation.
The Company has not yet adopted a policy on succession planning.
The Company will consider succession planning in respect of the
Board and other members of senior management as appropriate, as
part of its review of Board effectiveness over the next 12
months.
Corporate Culture
The Board recognises that its decisions regarding strategy and
risk may impact the corporate culture of the Company as a whole and
that this will impact the performance of the Group. It is aware
that the tone set by the Board and by its decisions regarding
strategy and risk may impact the corporate culture of the Company
as a whole and on the way that employees and other stakeholders
behave.
The Group operates in a manner that encourages an open and
respectful dialogue with employees, customers and other
stakeholders and the Board considers that sound ethical values and
behaviours are crucial to the ability of the Company to achieve its
corporate objectives. The Group is committed to the highest
standards of personal and professional ethical behaviour, and this
must be reflected in every aspect of the way in which the Company
operates. The Board places great importance on this aspect of
corporate life and seeks to ensure that this flows through all that
the Company does.
The Directors consider that at present the Group has an open
culture facilitating comprehensive dialogue and feedback and
enabling positive and constructive challenge. The Executive
Directors regularly meet with senior management and discuss staff
well-being, development and staff feedback. Employees are
encouraged to engage directly with Directors, and the Group seeks
to promote Group values and behaviour through a top-down
approach.
Strategy, Risk management and internal control
A description of the Group's business model and strategy can be
found in the Strategic Report.
The Board is responsible for determining the nature and extent
of major risks facing the Group and for establishing and
maintaining a risk management framework and system of internal
financial controls. The Executive Directors report any new or
changed risks, and any changes in risk management/control to the
Board. The Board discusses all business matters having regard to
the risks for the Group and to the extent that risks inherent in a
particular activity are considered significant, appropriate action
is taken and steps taken to mitigate the issue. The overall
objective of the Board is to set policies that seek to reduce risk
as far as possible without unduly affecting the Company's
competitiveness and flexibility.
The Board is satisfied that the procedures in place meet the
particular needs of the Group in managing the risks to which it is
exposed. The Board is satisfied with the effectiveness of the
system of internal controls, but by their very nature, these
procedures can provide reasonable, not absolute, assurance against
material misstatement or loss. The Board has delegated
responsibility to the Audit Committee for ensuring that the
Company's management reviews, monitors and reports on the integrity
of the consolidated financial statements of the Company and related
financial information. The Audit Committee will maintain effective
working relationships with the Board of Directors, executive
management and the external auditors and will monitor the
independence and effectiveness of the auditors and the audit. The
Company has strict segregation of duties and authority controls
which are reviewed annually by the auditors whom report their
findings to the Audit Committee.
The Board has reviewed the need for an internal audit function
and has decided that, given the nature of the Group's business and
assets and the overall size of the Group, the systems and
procedures currently employed provide sufficient assurance that a
sound system of internal controls are in place, which safeguards
the shareholders' investment and the Group's assets. An internal
audit function is therefore considered unnecessary. However, the
Board will continue to monitor the need for this function.
A summary of the principal risks identified by the Group and how
these are mitigated is set out. The key elements of the Group's
risk framework and internal control systems are:
-- A schedule of matters reserved for decision by the Board;
-- Defined responsibilities and authority limits;
-- Close involvement of the Executive Directors and other
members of senior management in day-to-day operations;
-- Monthly management reporting; and
-- Comprehensive annual budgeting process and monitoring of performance against budget.
Going concern
As at 24 July 2019, the Group had cash resources of
approximately EUR120,000, which is sufficient through to the end of
August 2019, and, therefore, the Company remains reliant on the
continued financial support of its major shareholder, BV Tech,
going forward.
In considering the Group's going concern position, the Directors
have taken into account BV Tech's support for the Group to date,
that has included the provision of a loan facility of EUR0.95
million in October 2018, now fully drawn and converted to equity,
bring its aggregate investment in the Company's equity to EUR4.6
million, the sales agreements signed in April 2019 and receipt of a
non-binding letter of support from BV Tech for EUR350,000 in July
2019.
Taking into account the above, the Directors are satisfied that
the Group has adequate resources to continue in operational
existence for the foreseeable future and, accordingly, continue to
adopt the going concern basis in preparing the Group and Company
financial statements.
Relations with shareholders
The Directors are committed to regular engagement with
shareholders and prospective investors and will make themselves
available as appropriate.
In accordance with good governance, the Company entered into a
relationship agreement with its major shareholder, BV Tech, to
ensure that the Company is capable at all times of carrying on its
business independently of BV Tech and its associates and for the
benefit of the shareholders as a whole.
BV Tech is the Company majority shareholder and is currently
interested in 25,964,850 ordinary shares representing approximately
67.1% of the Company's issued share capital.
In October 2018 BV Tech agreed to provide the Company with an
unsecured loan of EUR0.95 million with repayment due by 1 January
2020. That loan was drawn in three instalments in October 2018,
December 2018 and March 2019 and in each instance the loan was
converted immediately to ordinary shares at the agreed issue price
of 8 pence per share.
Information received by the Board
The Board receives information on at least a monthly basis
enabling it to review operational and financial performance
(including sales activity, software development progress and
working capital management); forecasts (including comparison with
market expectations); potentially significant transactions; and
strategy.
Website
Our corporate website at investors.defenx.com provides access to
Company information, announcements, published financial reports and
contact details.
AGM
The forthcoming AGM will be held on 2 September 2019, providing
an opportunity for the shareholders to meet and raise questions of
the Chairman, other Directors and senior management.
Audit committee report
Dear shareholder
I present my Audit Committee Report for the year ended 31
December 2018, which has been prepared by the Committee and
approved by the Board.
The Committee is responsible for reviewing and reporting to the
Board on financial reporting, internal control and risk management,
and for reviewing the performance, independence and effectiveness
of the external auditors in carrying out the statutory audit. The
Committee advises the Board on the statement by the Directors that
the Annual Report when read as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group's performance, business model and
strategy.
During the year, the Committee's primary activity involved
meeting with the external auditors, considering material issues and
areas of judgement, and reviewing and approving the interim and
year end results and accounts.
In addition, the Committee reviewed the audit and tax services
provided by Haysmacintyre LLP, the Group's external auditors. The
Committee concluded that Haysmacintyre LLP are delivering the
necessary audit scrutiny and that the tax services provided did not
pose a threat to their objectivity and independence. Accordingly,
the Committee recommended to the Board that Haysmacintyre LLP be
re-appointed for the next financial year.
In the coming year, in addition to the Committee's ongoing
duties, the Committee will:
-- consider significant issues and areas of judgement with the
potential to have a material impact on the financial statements,
including impairments of the Company's debtors, investments and
technologies; and
-- keep the need for an internal audit function under review,
having regard to the Company's strategy and resources.
Giorgio Beretta
Chairman of the Audit Committee
26 July 2019
Audit committee and attendance
The Audit Committee currently comprises Giorgio Beretta (Chair)
and Nic Hellyer. On 1 August 2018, Anthony Reeves and Raffaele
Boccardo stepped down from the Audit Committee pending the
appointment of full time Executive Directors.
Prior to his resignation on 11 July 2018, Leonard Seelig chaired
the Committee. Giorgio Beretta was appointed as chairman on 1
August 2018. The Board considers that Giorgio Beretta has
sufficient relevant financial experience to chair the Audit
Committee given that he is a qualified accountant with over 30
years' experience and is a partner at BDO Italia.
The Committee is required by its terms of reference to meet at
least twice a year.
Objectives and responsibilities
The Committee is responsible for monitoring the integrity of the
Group's financial statements, including its Annual and Interim
Reports, preliminary results announcements and any other formal
announcements relating to its financial performance prior to
release.
The Committee's main responsibilities can be summarised as
follows:
-- to review the Company's internal financial controls and risk management systems;
-- to monitor the integrity of the financial statements and any
formal announcements relating to the Group's financial performance,
reviewing significant judgements contained in them;
-- to make recommendations to the Board in relation to the
appointment of the external auditors and to recommend to the Board
the approval of the remuneration and terms of engagement of the
external auditors;
-- to review and monitor the external auditors' independence and
objectivity, taking into consideration relevant UK professional and
regulatory requirements;
-- to develop and implement policy on the engagement of the
external auditors to supply non-audit services, taking into account
relevant ethical guidance regarding the provision of non-audit
services by the external auditors; and
-- to report to the Board, identifying any matters in respect of
which it considers that action or improvement is needed, and to
make recommendations as to steps to be taken.
The terms of reference are reviewed annually and are available
on the Company's website at investors.defenx.com.
Significant issues considered during the year ending 31 December
2018
During 2018, the Committee:
-- met with the external auditors to review and approve the
annual audit plan and receive their findings and report on the
annual audit;
-- considered significant issues and areas of judgement with the
potential to have a material impact on the financial statements,
including impairments of the Group's investments and
technologies;
-- considered the integrity of the published financial
information and whether the Annual Report and Accounts taken as a
whole are fair, balanced and understandable and provide the
information necessary to assess the Group's position and
performance, business model and strategy;
-- Agreed the change of auditors of Defenx Italia SRL from RSM to Mazars; and
-- reviewed and approved the interim and year end results and accounts.
The significant accounting areas and judgements considered by
the Committee were:
Revenue recognition
The Committee again discussed the limited information available
on the activation of licences sold to B2B2C customers. The
Committee also considered the change in policy wording to state
explicitly that deferred revenues would not be released if the
related trade receivable had not been collected. On this basis and
under the Group's current revenue recognition policy, the Committee
continued to be satisfied that the consequential judgement taken on
licences sold and not activated and the timing of release of
deferred revenue in the accounts was appropriate.
The Committee also appraised the implications on revenue
recognition of IFRS 15, concluding that the existing policy applied
equally to the principles of IFRS 15.
Recoverability of debtors
The Committee continued to review the track record of receipts
from slow-paying debtors and deterioration following the
announcement of performance and integration issues in October 2017.
The Committee sought regular updates from management as to the
status of trade receivables (and related customer claims) and
negotiations with customers to reach commercially acceptable
settlements. In light of this, the Committee reviewed and accepted
management proposals for a further exceptional impairment of trade
receivables and was satisfied that net trade receivables were
fairly stated.
Valuation of intangible assets
The Committee reviewed the basis of capitalisation and
considered the intangible value attributed to its intangible
software development costs.
It considered the asset impairment calculations prepared by
management in light of the current and projected trading levels and
is satisfied that the full year impairments and resultant net book
values were prepared appropriately and on a reasonable basis.
Going concern
The Committee reviewed the cash flow forecasts for the Group and
discussed the key assumptions and risks relevant to their
achievement. The Committee was satisfied that the basis for
adopting the going concern basis in preparing the Group and Company
financial statements, set out in note 1, was reasonable.
Risk review process
The Audit Committee is responsible for reviewing the financial
risks and the internal controls relating thereto but the Board as a
whole has responsibility for reviewing the overall business risks
and risk management framework. The Group's principal risks and
uncertainties are set out in the Strategic Report together with
mitigating actions and the internal controls and risk management
procedures are summarised in the Corporate Governance Report.
External auditor
The Committee reviewed the effectiveness of the audit process in
respect of the year ended 31 December 2017 and immediately prior to
publishing this report in respect of the year ended 31 December
2018. In doing so, the Committee considered the reports produced by
Haysmacintyre LLP, met the audit engagement partner and discussed
the audit with the Chief Financial Officer. The Committee continues
to be satisfied that the external auditors are delivering the
necessary scrutiny and robust challenge in their work. Accordingly,
the Committee recommended to the Board that it is appropriate to
re-appoint Haysmacintyre LLP as the Group's external auditors for
the next financial year.
External audit and non-audit services
During the year, Haysmacintyre LLP provided tax advisory
services. An analysis of the audit and non-audit fees is provided
in note 6 to the financial statements. The Committee considered the
independence and objectivity of Haysmacintyre LLP in carrying out
both tax and audit services. The Committee was satisfied with the
written assurances received that the non-audit work undertaken by
Haysmacintyre LLP did not pose a threat to their objectivity and
independence.
Remuneration committee report
Dear shareholder
As Chairman of Defenx's Remuneration Committee, I present the
Remuneration Committee Report for the year ended 31 December 2018,
which has been prepared by the Committee and approved by the
Board.
The Remuneration Committee is responsible for determining the
remuneration policy for the executive Directors and other members
of senior management, and for overseeing the Company's long-term
incentive plans. The Board as a whole is responsible for
determining Non-executive Directors' remuneration.
As an AIM quoted company, the Directors' Remuneration Report
Regulations do not apply to Defenx and so the report that follows
is disclosed voluntarily and has not been subject to audit. The
Annual Report on remuneration will again be subject to an advisory
vote by shareholders at our forthcoming AGM and we hope to receive
your support.
The Committee will continue to monitor market trends and
developments in order to assess those relevant for the Group's
future remuneration policy.
Remuneration decisions for 2018
In light of the financial performance of the Group, no annual
bonuses are payable for the year ended 31 December 2018.
There were no long-term incentive awards during the year.
In recognition of his switch from Non-executive to interim
Executive Chairman, and his additional time commitment in the
management of Defenx, Anthony Reeves' remuneration was increased
commensurately from GBP30,000 per year to GBP90,000 per year.
Remuneration policy for 2019 and future years
Future salary awards and increases will be set in line with
relevant market levels and to retain and attract high quality
executives. Performance elements of remuneration will have clearly
defined and challenging targets that link rewards to business
performance in the short and medium-term. All variable elements of
remuneration are subject to clawback or repayment in the event of
serious financial misstatement or misconduct.
There have been no long-term incentive awards since admission to
AIM. It remains our intention to make performance-based awards once
the Board has been rebuilt.
Nic Hellyer
Chairman of the Remuneration Committee
26 July 2019
Committee members and attendance
In the first part of the year, the members of the Committee were
Anthony Reeves (Chairman), Leonard Seelig and Raffaele Boccardo.
The Committee were aware that the Company Chairman should not chair
the Remuneration Committee. Following Leonard Seelig's resignation
on 11 July 2018, Nic Hellyer and Giorgio Beretta were appointed on
1 August 2018 both joined the Remuneration Committee and the former
took over the role of Chairman. Anthony Reeves and Raffaele
Boccardo then stepped down from the Committee pending the
appointment of full time Executive Directors.
The terms of reference are reviewed annually and are available
on the Company's website at investors.defenx.com.
Single total figure of remuneration for the Directors
The table below sets out the total single figure remuneration
received by each Director who served during the year ended 31
December 2018.
EUR Salary Benefits Pension Annual Cash Long-term Total
or fees bonus total incentive
Executive
========= ========= ======== ======= ======== =========== ========
Anthony Reeves 65,000 - - - 65,000 - 65,000
========= ========= ======== ======= ======== =========== ========
Raffaele Boccardo
========= ========= ======== ======= ======== =========== ========
Alessandro Poerio
(appointed
20 November
2017, resigned
24 May 2018) 27,271 - - - 27,271 - 27,271
========= ========= ======== ======= ======== =========== ========
Andrea Stecconi
(resigned 24
April 2018) 9,008 - - - 9,008 - 9,008
========= ========= ======== ======= ======== =========== ========
Philipp Prince
(resigned 11
July 2018) 81,871 6,380 5,258 - 93,509 - 93,509
========= ========= ======== ======= ======== =========== ========
Sub-total 183,150 6,380 5,258 - 194,788 - 194,788
========= ========= ======== ======= ======== =========== ========
Non-executive
========= ========= ======== ======= ======== =========== ========
Nicholos Hellyer
(appointed
1 August 2018) 14,133 - - - 14,133 - 14,133
========= ========= ======== ======= ======== =========== ========
Giorgio Berretta
(appointed
1 August 2018) 14,133 - - - 14,133 - 14,133
========= ========= ======== ======= ======== =========== ========
Leonard Seelig
(resigned 11
July 2018) 18,555 - - - 18,555 - 18,555
========= ========= ======== ======= ======== =========== ========
Sub-total 46,821 - - - 46,821 - 46,821
========= ========= ======== ======= ======== =========== ========
Total 229,971 6,380 5,258 - 241,609 - 241,609
=================== ========= ========= ======== ======= ======== =========== ========
Alessandro Poerio was appointed to the Board as Chief Executive
Officer on 20 November 2017 replacing Andrea Stecconi, who remained
on the Board as an Executive Director during the year but resigned
from the Board on 24 April 2018. There were no termination payments
during the year. Subsequent to the year end, Alessandro Poerio and
Philipp Prince received termination payments of EUR40,000 and
EUR29,000 respectively.
The table below sets out the total single figure remuneration
received by each Director who served during the year ended 31
December 2017.
EUR Salary Benefits Pension Annual Cash Long-term Total
or fees bonus total incentive
Executive
========= ========= ======== ======= ======== =========== ========
Alessandro Poerio
(appointed
20 November
2017, resigned
24 May 2018) 20,465 - - - 20,465 - 20,465
========= ========= ======== ======= ======== =========== ========
Andrea Stecconi
(resigned 24
April 2018) 122,264 - 5,240 - 127,504 - 127,504
========= ========= ======== ======= ======== =========== ========
Philipp Prince
(resigned 11
July 2018) 120,405 2,062 9,354 - 131,821 33,309 165,130
========= ========= ======== ======= ======== =========== ========
Sub-total 263,134 2062 14,594 - 279,790 33,309 313,099
========= ========= ======== ======= ======== =========== ========
Non-Executive
========= ========= ======== ======= ======== =========== ========
Anthony Reeves 62,029 - - - 62,029 3,517 65,546
========= ========= ======== ======= ======== =========== ========
Leonard Seelig
(resigned 11
July 2018) 59,707 - - - 59,707 2,824 62,531
========= ========= ======== ======= ======== =========== ========
Sub-total 121,736 - - - 121,736 6,341 128,077
========= ========= ======== ======= ======== =========== ========
Total 384,870 2,062 14,594 - 401,526 39,650 441,176
=================== ========= ========= ======== ======= ======== =========== ========
Base salary
The Executive Directors' service agreements are as follows:
with Defenx PLC with Defenx SA with Defenx Italia
SRL
2018 2019 2018 2019 2018 2019
=========== ===== =========== ===== ============== =====
Alessandro Poerio GBP25,000 - - - EUR100,000 -
=========== ===== =========== ===== ============== =====
Andrea Stecconi GBP15,000 - CHF130,000 - - -
=========== ===== =========== ===== ============== =====
Philipp Prince GBP105,000 - - - - -
=========== ===== =========== ===== ============== =====
Andrea Stecconi resigned from the Board on 24 April 2018.
Alessandro Poerio resigned from the Board on 24 May 2018. Philipp
Prince resigned from the Board on 11 July 2018.
Benefits and pension
Alessandro Poerio and Andrea Stecconi received customary
benefits by way of social contributions to relevant authorities in
Italy and Switzerland respectively. Philipp Prince received medical
and life insurance cover and was entitled to pension contributions
of 5% of salary plus up to a further 5% of salary on a matched
basis consistent with other UK staff.
Annual bonus
For the year ended 31 December 2018
The financial performance targets, primarily based on revenue
growth and free cash flow, have not been met. Accordingly, no
annual bonuses are payable for the year ended 31 December 2018.
Remuneration policy for Non-executive Directors
The current annual fees together with the dates of the letters
of appointment are:
Date of letter 2018 2017
Anthony Reeves 7 October 2015 GBP90,000 GBP30,000
=============== ========== ==========
Raffaele Boccardo 4 August 2017 - -
=============== ========== ==========
Nicholos Hellyer 1 August 2018 GBP42,000 -
=============== ========== ==========
Giorgio Beretta 1 August 2018 GBP42,000 -
=============== ========== ==========
Following the resignation of Alessandro Poerio, from 1 June
2018, Anthony Reeves became Interim Executive Chairman, involving a
greater time commitment. In recompense, his base remuneration was
increased from GBP2,500 per month to GBP7,500 per month with effect
from that date. With effect from 11 July 2018, when Raffaele
Boccardo become Interim Executive Chairman, it was agreed that the
Company would pay BV Tech GBP7,500 per month for his services,
subject to a maximum of GBP70,000 in any 12 month period.
Long-term incentives for Executive and Non-executive
Directors
Option Schemes
The Company established an EMI Option Scheme to provide
incentives to employees, including Directors, to achieve the
longer-term objectives of the Group, to give suitable recognition
to the ability and industry of the individuals concerned and to
attract and retain suitably experienced and able people, by
providing them with the opportunity to acquire ownership interests
in the Company.
The vesting of the existing options is not conditional on
performance conditions; the only condition being that the
individual remains an employee of the Group. Future awards will
vest solely on performance.
The following share option awards have been granted to Executive
Directors under the EMI Option Scheme:
Date of grant Number Price Vesting period Expiry date
Philipp Prince 22 July 2015 42,000 GBP0.80 Over 36 months 22 July 2025
============== ======== ======== ==================== =============
Philipp Prince 3 December 125,000 GBP1.48 One third on 2 December
2015 first anniversary; 2025
balance over
following 24
months from grant
============== ======== ======== ==================== =============
The EMI status of the EMI Option Scheme ceased upon the approval
of the subscription and open offer at an EGM on 23 April 2018 as a
result of BV Tech's resultant shareholding exceeding 50%.
The Company established an Unapproved Share Option Scheme and
the following options have been granted under this scheme:
Date of grant Number Price Vesting period Expiry date
Anthony Reeves 3 December 15,625 GBP1.48 One third on 2 December
2015 first anniversary; 2025
balance over
following 24
months from grant
============== ======= ======== ==================== ============
Leonard Seelig 3 December 12,500 GBP1.48 One third on 2 December
2015 first anniversary; 2025
balance over
following 24
months from grant
============== ======= ======== ==================== ============
As a result of their resignation, any options (in either scheme)
held by Philipp Prince and Leonard Seelig had lapsed without
exercise by 31 December 2018.
Directors' interests in shares and share scheme interests
The Directors' beneficial interests in shares, together with
their respective families, as at 31 December 2018 are shown below
together with their interests in share schemes.
Long-term incentives
Subject to Vested
but
continued not Required Current
yet Beneficially holding holding
employment exercised owned Total interest (% salary) (% salary)
============
Anthony Reeves 5,208 10,417 31,250 46,875 - 0.24%
=========== =========== ============= =============== ============ ============
Raffaele Boccardo* - - 25,964,850 25,964,850 - 28.08%
=========== =========== ============= =============== ============ ============
*Raffaele Boccardo is President and CEO of BV Tech and is deemed
to be beneficially interested in the shares in the company held by
BV Tech on account of his 86% interest in BV Tech.
BV Tech have acquired a total of 25,964,850 ordinary shares,
representing 67.1% of the Company's issued share capital, between
31 December 2016 and 18 March 2019. Save for this, there have been
no changes to the Directors' shareholdings between 31 December 2016
and 30 June 2019.
None of the Directors had an interest in the shares of any
subsidiary undertaking of the Company or in any significant
contracts of the Group save as set out in note 25 to the financial
statements.
Terms of office for Executive and Non-executive Directors
Alessandro Poerio's and Andrea Stecconi's service agreements
were subject to termination by either party on six-months' notice.
Philipp Prince's service agreement was subject to termination by
either party on three-months' notice. Anthony Reeves and Leonard
Seelig, whilst acting as Non-executive Directors provided their
services under letters of appointment, which were terminable on
three-months' notice by either party. On becoming Interim Executive
Directors, Anthony Reeves' and Raffaele Boccardo's revised service
contracts provide for an initial notice period of three months
followed by a rolling one-month period thereafter (and their
Non-executive Director terms of appointment, should their roles
revert as such, are terminable on three months' and one months'
notice, respectively). Giorgio Beretta and Nic Hellyer's contracts
are terminable on three months' notice.
Directors' report
The Directors present their report together with the audited
financial statements for the year ended 31 December 2018.
Principal activity
Defenx PLC is a public limited company incorporated in England
and Wales, registered number 08993398, with its registered office
at 201 Temple Chambers, 3-7 Temple Avenue, London, EC4Y 0DT. Defenx
PLC is quoted on the AIM market of the London Stock Exchange.
Its principal activity is to provide security solutions with a
range of products for mobile devices and PCs, protecting them
against hackers and data loss. Management and control is exercised
from the UK and Defenx's main countries of operation are Italy and
Switzerland.
Review of business
The Strategic Report provides a review of the business, the
Group's trading for the year ended 31 December 2018, key
performance indicators and an indication of research and future
developments, as well as the principal risks and uncertainties
facing the business.
Future developments
Working with BV Tech, Defenx will continue to develop its next
generation products, releasing in 2019 first the security suite,
then backup, before moving onto secure messaging in 2020. Sales and
marketing efforts will focus on direct sales to the public sector,
corporate and retail sectors.
Results and dividend
The results for the year ended 31 December 2018 are set out in
the consolidated statement of comprehensive income. As the Company
has no distributable reserves, the Directors are not able to
recommend the payment of a dividend. Further, the Board believes it
is in the Company's interests to retain future earnings to fund
working capital needs and achieve capital growth.
Directors
The Directors who served during the year ended 31 December 2018
and up to the date of signing the financial statements were as
follows:
A Poerio (resigned 24 May 2018)
A Stecconi (resigned 24 April 2018)
P Prince (resigned 11 July 2018)
A Reeves
R Boccardo
L Seelig (resigned 11 July 2018)
G Beretta (appointed 1 August 2018)
N Hellyer (appointed 1 August 2018)
In accordance with the Articles of Association, each Director
must retire from office at the third AGM after the AGM or general
meeting, as the case may be, at which he was appointed or last
re-appointed.
Accordingly, Anthony Reeves will retire at the forthcoming AGM
and, being eligible, will offer himself for re-election.
Directors' interests
Details of the Directors' interests in the shares of the Company
and details of options granted under the Group's share scheme are
set out in the Remuneration Report. No Director has any beneficial
interest in the share capital of any subsidiary undertaking.
Qualifying indemnity provision
The officers of the Company are indemnified in respect of
proceedings which might be brought by a third party. No cover is
provided in respect of fraudulent or dishonest transactions.
Financial risk management policies and objectives
A summary of the Group's key operating risks is set out. The
Group's risk management policies and objectives including exposure
to price risk, credit risk, liquidity and cash flow risk are
contained in note 20 to the financial statements.
Share capital
Full details of changes in the Company's share capital during
the year and after the year end are set out in notes 21 and 27 to
the financial statements respectively. Details of employee share
options and warrants are set out in note 21 .
Substantial shareholdings
At 30 June 2019, the Company's significant shareholders
were:
Number of shares Holding
BV Tech SpA 25,964,850 67.1%
================= ========
Political donations
During the year ended 31 December 2018 the Group made no
political donations.
Events after the reporting date
Details of significant events since the balance sheet date are
contained in note 27 to the financial statements.
Provision of information to the auditors
Each of the Directors who held office at the date of approval of
this Directors' Report confirms that:
-- so far as he is aware, there is no relevant audit information
of which the Company's and Group's auditor is unaware; and
-- he has taken all the steps he ought to have taken as a
Director in order to make himself aware of any information needed
by the Company and the Group's auditors in connection with their
report and to establish that the auditors are aware of that
information.
Auditor
Haysmacintyre LLP has expressed its willingness to continue in
office as auditor to the Company. A resolution to reappoint
Haysmacintyre LLP will be proposed at the forthcoming AGM.
AGM
The AGM will be held on 2 September 2019. The notice of AGM and
the ordinary and special resolutions to be put to the meeting will
be notified to shareholders separately from these accounts.
Approval
The Directors' report was approved on behalf of the Board on 26
July 2019.
Anthony Reeves
Interim Executive Chairman
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report
and the Group and Company financial statements in accordance with
applicable UK law and those IFRSs as adopted by the European
Union.
Under Company law the Directors must not approve the Group and
Company financial statements unless they are satisfied that they
present fairly the financial position, financial performance, and
cash flows of the Group and Company for that period. In preparing
those financial statements, the Directors are required to:
-- Select suitable accounting policies;
-- Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- Provide additional disclosures when compliance with the
specific requirements in IRFSs is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Group's financial position and financial
performance;
-- State that the Group and the Company have complied with IFRSs
subject to any material departures disclosed and explained in the
financial statements; and
-- Make judgements and estimates that are reasonable and prudent.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that the financial statements comply with the Companies Act
2006 and Article 4 of the IAS regulation. They are also responsible
for safeguarding the assets of the Company and the Group and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the UK may differ from
legislation in other jurisdictions.
Each of the Directors, whose names are listed in the Strategic
Report above, confirms that, to the best of his knowledge:
-- The Group financial statements which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of
the Group.
-- The Strategic Report includes a fair review of the
development and performance of the business and the position of the
Group and the Company, together with a description of the principal
risks and uncertainties that it faces.
-- The Directors consider that the Annual Report and Accounts,
taken as a whole is fair, balanced and understandable.
This responsibility statement was approved by the Board on 26
July 2019.
Anthony Reeves Raffaele Boccardo
Interim Executive Chairman Interim Deputy Executive Chairman
Independent auditors' report to the members of Defenx PLC
Opinion
We have audited the financial statements of Defenx Plc (the
'parent company') and its subsidiaries (together the 'Group') for
the year ended 31 December 2018 which comprise the Consolidated
Statement of Comprehensive Income, Consolidated and Company
Statements of Financial Position, Consolidated and Company
Statements of Cash Flows, Company and Consolidated Statements of
Changes in Equity and notes to the financial statements, including
a summary of significant accounting policies. The financial
reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
In our opinion, the financial statements:
-- give a true and fair view of the state of the Group's and
Parent Company's affairs as at 31 December 2018 and of the Group's
loss for the year then ended;
-- have been properly prepared in accordance with IFRSs as adopted by the European Union; and
-- have been prepare in accordance with the requirements of the Companies Act 2006
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the group
in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC's Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Material uncertainty related to going concern
We draw attention to note 1 in the financial statements, which
indicates that the Group and Company has prepared forecasts of its
performance for the next two years and that these forecasts show a
shortfall in funding under certain sales scenario sensitivities.
These events or conditions, along with the other matters as set
forth in note 1, indicate that a material uncertainty exists that
may cast significant doubt on the parent company's ability to
continue as a going concern. Our opinion is not modified in respect
of this matter.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Revenue recognition
The Group records significant revenues from business to business
sales to third party distributers on a non-contingency basis with a
commitment to ongoing maintenance. Our response to this presumed
risk of material misstatement arising from improper revenue
recognition was to consider the nature of classes of sales
transactions and review methodologies for recognition and where
appropriate, the deferral of income.
Recovery of trade receivables
The Group has continued to record slow recovery of trade
receivable balances and has consequently made significant provision
for those balances due at the reporting date.
Our audit work included but was not restricted to an assessment
of the assumptions used in calculating bad debt provisions as well
as referring to correspondence from third parties in respect to the
likelihood of recoverability.
Going concern
The Group has recorded significantly reduced revenues, an
operating loss and net cash outflow during the year which results
in a risk to its ability to continue as a going concern by being
unable to meet its liabilities as and when they fall due from
twelve months of the approval of these financial statements.
Our audit work included but was not restricted to a review of
forecasts over the forthcoming twelve months and comparison to the
overall business plan; a review of the non-binding letter of
support from BV Tech and their financial standing; analysis of
detailed budgets and working capital forecasts; consideration of
the Group's capacity to continue trading over the forthcoming
twelve months; and review and confirmation of upcoming funding
plans to ensure sufficient capital is available. We have noted a
material uncertainty related to going concern which is highlighted
in this audit report.
Valuation of intangible assets
The Group has significant intangible assets arising both from
internal development and acquisitions of third party entities
(namely Defenx Italia SRL, formerly Memopal SRL), including both
goodwill and separately identifiable intangible assets. There is a
risk that on consolidation the value of these assets is
overstated.
Our audit work included but was not restricted to reviewing the
impairment reviews prepared by management and giving scrutiny of
associated calculations and forecasts used in determining expected
future results. Our review was performed in conjunction with recent
results and our understanding of the Group's business model.
Our application of materiality
The scope and focus of our audit was influenced by our
assessment and application of materiality. We define materiality as
the magnitude of misstatement that could reasonably be expected to
influence the readers and the economic decisions of the users of
the financial statements. We use materiality to determine the scope
of our audit and the nature, timing and extent of our audit
procedures and to evaluate the effect of misstatements, both
individually and on the financial statements as a whole.
Materiality for the Group Financial Statements as a whole was
set at EUR90,000, determined with reference to the revenue of the
Group on a consolidated basis and the loss for the year. We report
to the Audit Committee any corrected or uncorrected misstatements
arising exceeding EUR4,500.
Performance materiality was set at EUR67,500, being 75% of
materiality.
An overview of the scope of our audit
Our audit scope included all components and was performed to
component materiality. Our audit work therefore covered 100% of
group revenue, group profit and total group assets and liabilities.
It was performed to the materiality levels set out above.
The audit of Defenx Italia SRL, one of the Group's subsidiaries,
was performed by a component auditor in accordance with our group
audit instructions.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We
have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and
the parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the
strategic report or the directors' report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and the parent company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an Auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Ian Cliffe (Senior Statutory Auditor) 10 Queen Street Place
For and on behalf of Haysmacintyre LLP, Statutory Auditors
London
26 July 2019 EC4R 1AG
Consolidated statement of comprehensive income
Year ended Year ended
31 December 31 December
2018 2017
Note EUR000 EUR000
====================================================== ============ ============
Revenue 5 1,420 2,928
Cost of sales 6 (1,988) (2,553)
================================================== === ============ ============
Gross (loss)/profit (568) 375
Other operating income 6 853 772
Sales & marketing expenses 6 (7) (1,975)
Research, development & operations expenses 6 (198) (712)
Administrative expenses 6 (2,250) (906)
Impairment of trade receivables 6 (1,349) (3,020)
Impairment of intangible fixed assets 6 - (6,286)
Operating expenses before transaction
costs (3,804) (12,899)
================================================== === ============ ============
Operating loss before transaction costs (3,519) (11,752)
Transaction costs 6 - (101)
================================================== === ============ ============
Operating loss (3,519) (11,853)
Finance income 8 - 1
Finance expense 8 (278) (184)
================================================== === ============ ============
Loss before tax (3,797) (12,036)
Income tax credit 9 11 235
================================================== === ============ ============
Loss and total comprehensive lost for
the year (3,786) (11,801)
================================================== === ============ ============
Attributable to:
Equity holders of the parent (3,730) (11,641)
Non-controlling interests (56) (160)
================================================== === ============ ============
Loss and total comprehensive loss for
the year (3,786) (11,801)
================================================== === ============ ============
Loss per share - loss for the year attributable
to equity holders of the parent
Basic 10 (EUR0.154) (EUR1.030)
Diluted 10 (EUR0.150) (EUR0.976)
================================================== === ============ ============
The loss for the year arises from the Group's continuing
operations.
There were no other items of comprehensive income.
Consolidated statement of financial position
31 December 31 December
2018 2017
Note EUR000 EUR000
======================================= ======= ============ ============
Non-current assets
Property, plant and equipment 11 104 135
Intangible assets 12 3,513 4,904
Research and development tax credit
income 17 1,149 1,596
======================================= ======= ============ ============
4,766 6,635
======================================= ======= ============ ============
Current assets
Trade and other receivables 14 600 1,243
Research and development tax credit
income 17 483 179
Cash and short-term deposits 15, 24 95 951
======================================= ======= ============ ============
1,178 2,373
======================================= ======= ============ ============
Total assets 5,944 9,008
======================================= ======= ============ ============
Current liabilities
Trade and other payables 16 (2,303) (851)
Deferred revenue 18 (253) (621)
Loans and borrowing 19 (396) (663)
Income taxes payable - (385)
======================================= ======= ============ ============
(2,952) (2,520)
======================================= ======= ============ ============
Non-current liabilities
Deferred revenue 18 - (887)
Loans and borrowing 19 (1,392) (1,533)
Deferred tax liabilities 9 (30) (42)
======================================= ======= ============ ============
(1,422) (2,462)
======================================= ======= ============ ============
Total liabilities (4,374) (4982)
======================================= ======= ============ ============
Net assets 1,570 4,026
======================================= ======= ============ ============
Capital and reserves
Called up share capital 21 635 287
Share premium 21 12,446 11,370
Merger reserve 22 1,641 1,641
Shares to be issued reserve 22 - 37
Convertible bond option reserve 19, 22 164 164
Share based payment reserve 22 153 210
(Deficit in) retained earnings (13,278) (9,548)
======================================= ======= ============ ============
Equity attributable to equity holders
of the parent 1,761 4,161
Non-controlling interests (191) (135)
======================================= ======= ============ ============
Total equity 1,570 4,026
======================================= ======= ============ ============
Anthony Reeves Raffaele Boccardo
Executive Chairman Deputy Executive Chairman
Company statement of financial position
Company registration number: 08993398
31 December 31 December
2018 2017
Note EUR000 EUR000
======================================== ======= ============ ============
Non-current assets
Intangible assets 12 - -
Investments in subsidiary undertakings 13 1,859 1,779
======================================== ======= ============ ============
1,859 1,779
Current assets
Trade and other receivables 14 93 79
Loans to subsidiary undertakings 239 3,135
Cash and short-term deposits 15, 24 16 860
======================================== ======= ============ ============
348 4,074
======================================== ======= ============ ============
Total assets 2,207 5,853
======================================== ======= ============ ============
Current liabilities
Trade and other payables 16 (630) (296)
Deferred revenue 18 (2) (221)
Loans and borrowing 19 - (154)
======================================== ======= ============ ============
(632) (671)
======================================== ======= ============ ============
Non-current liabilities
Loans and borrowing 19 (1,154) (1,062)
Deferred consideration - -
Deferred tax liabilities 9 (30) (42)
======================================== ======= ============ ============
(1,184) (1,104)
======================================== ======= ============ ============
Total liabilities (1,816) (1,775)
======================================== ======= ============ ============
Net assets 391 4,078
======================================== ======= ============ ============
Capital and reserves
Called up share capital 21 635 287
Share premium 21 12,446 11,370
Merger reserve 22 946 946
Shares to be issued reserve 22 - 37
Convertible bond option reserve 19, 22 164 164
Share based payment reserve 22 153 210
Deficit in retained earnings (13,953) (8,936)
======================================== ======= ============ ============
Equity attributable to equity holders 391 4,078
======================================== ======= ============ ============
The Company's loss for the year ended 31 December 2018 was
EUR5,017,000 (2017: EUR7,694,000).
Anthony Reeves Raffaele Boccardo
Executive Chairman Deputy Executive Chairman
Consolidated statement of cash flows
Year ended Year ended
31 December 31 December
2018 2017
Note EUR000 EUR000
=============================================== ===== ============= =============
Cash flows from operating activities
Loss for the year (3,786) (11,801)
Income tax credit (11) (235)
=============================================== ===== ============= =============
Loss before tax (3,797) (12,036)
Adjustments to reconcile loss before
tax to net cash flows:
Net interest expense 8 278 184
Depreciation of property, plant and
equipment 11 43 48
Amortisation of intangible assets 12 1,881 1,292
Impairment of intangible assets 12 - 6,286
Impairment of trade receivables 14 1,349 3,021
Share based payments (credit)/expense 21 (94) 52
=============================================== ===== ============= =============
Operating cash flows before movements
in working capital (340) (1,153)
=============================================== ===== ============= =============
(Increase)/decrease in trade and other
receivables (706) 1,011
Increase/(decrease) in trade and other
payables 1,452 (1,738)
Decrease in provisions (1,255) (86)
============= =============
(509) (813)
============= =============
Interest paid (278) (146)
Tax paid (243) (215)
=============================================== ===== ============= =============
Net cash flow from operating activities (1,370) (2,327)
=============================================== ===== ============= =============
Investing activities
Purchase of property, plant and equipment 11 (12) (51)
Development costs - internally and contractor
developed 12 (490) (1,828)
Net cash used in investing activities (502) (1,879)
=============================================== ===== ============= =============
Financing activities
Net proceeds from issue of share capital 21 1,424 3,440
19,
Proceeds from borrowings 23 72 1,750
19,
Repayment of borrowings 23 (458) (1,070)
=============================================== ===== ============= =============
Net cash from financing activities 1,038 4,120
=============================================== ===== ============= =============
Net decrease in cash and cash equivalents (834) (86)
Cash and cash equivalents at 1 January 929 1,015
=============================================== ===== ============= =============
Cash and net cash equivalents at 31
December 15 95 929
=============================================== ===== ============= =============
Company statement of cash flows
Year ended Year ended
31 December 31 December
2018 2017
Note EUR000 EUR000
=============================================== ===== ============= =============
Cash flows from operating activities
Loss for the year (5,017) (7,695)
Income tax credit (12) (5)
=============================================== ===== ============= =============
Loss before tax (5,029) (7,700)
Adjustments to reconcile loss before
tax to net cash flows:
Net interest income 72 (92)
Amortisation of intangible assets 12 - 101
Impairment of investments 13 - 65
Impairment of loans to subsidiary 2,897 6,404
Share based payments expense 22 (94) 54
=============================================== ===== ============= =============
Operating cash flows before movements
in working capital (2,154) (1,168)
=============================================== ===== ============= =============
(Increase)/decrease in trade and other
receivables (14) 262
Increase/(decrease) in trade and other
payables 334 (867)
Increase/(decrease) in provisions (219) 17
============= =============
101 (588)
============= =============
Interest received - -
Interest paid (72) (108)
Tax paid - -
=============================================== ===== ============= =============
Net cash flow from operating activities (2,125) (1,864)
=============================================== ===== ============= =============
Investing activities
Development costs - internally and contractor
developed 12 - (1,869)
Investment in subsidiary 13 (80) -
Loans to subsidiary - (533)
=============================================== ===== ============= =============
Net cash used in investing activities (80) (2,402)
=============================================== ===== ============= =============
Financing activities
Net proceeds from issue of share capital 21 1,424 3,440
19,
Proceeds from borrowings 24 - 1,358
19,
Repayment of borrowings 24 (63) (716)
=============================================== ===== ============= =============
Net cash from financing activities 1,361 4,082
=============================================== ===== ============= =============
Net increase in cash and cash equivalents (844) (184)
Cash and cash equivalents at 1 January 860 1,043
=============================================== ===== ============= =============
Cash and net cash equivalents at 31
December 15 16 859
=============================================== ===== ============= =============
Consolidated statement of changes in equity
Shares Convertible Share
Share to be bond based Non
Share premium Merger issued option payment Retained Controlling Total
capital account reserve reserve reserve reserve earnings Total Interests equity
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
============= ======== ======== ======== ======== ============ ======== ========= ========= ============ =========
As at 1
January
2017 197 5,542 1,641 - 0 156 2,093 9,629 21 9,650
Profit /
(loss)
for the
year - - - - - - (11,641) (11,641) (160) (11,801)
Shares
issued 90 5,828 - - - - - 5,918 4 5,922
Shares to be
issued - - - 37 - - - 37 - 37
Convertible
bond
issue - - - - 164 - - 164 - 164
Share based
payments - - - - - 54 - 54 - 54
============= ======== ======== ======== ======== ============ ======== ========= ========= ============ =========
As at 31
December
2017 287 11,370 1,641 37 164 210 (9,548) 4,161 (135) 4,026
Loss for the
year - - - - - - (3,730) (3,730) (56) (3,786)
Shares
issued 348 1,076 - - - - 1,424 - 1,424
Shares to be
issued - - - (37) - - - (37) - (37)
Share based
payments - - - - - (57) - (57) - (57)
============= ======== ======== ======== ======== ============ ======== ========= ========= ============ =========
As at 31
December
2018 635 12,446 1,641 - 164 153 (13,278) 1,761 (191) 1,570
============= ======== ======== ======== ======== ============ ======== ========= ========= ============ =========
Company statement of changes in equity
Shares Convertible Share
Share to be bond based
Share premium Merger issued option payment Retained
capital account reserve reserve reserve reserve earnings Total
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
======================== ======== ======== ======== ======== ============ ======== ========= ========
As at 1 January 2017 197 5,542 946 - - 156 (1,242) 5,599
Loss for the year - - - - - - (7,694) (7,694)
Shares issued 90 5,828 - - - - - 5,918
Shares to be issued - - - 37 - - - 37
Convertible bond issue - - - - 164 - - 164
Share based payments - - - - - 54 - 54
======================== ======== ======== ======== ======== ============ ======== ========= ========
As at 31 December 2017 287 11,370 946 37 164 210 (8,936) 4,078
Loss for the year - - - - - - (5,017) (5,017)
Shares issued 348 1,076 - - - - - 1,424
Shares to be issued - - - (37) - - - (37)
Share based payments - - - - - (57) - (57)
======================== ======== ======== ======== ======== ============ ======== ========= ========
As at 31 December 2018 635 12,446 946 - 164 153 (13,953) 391
======================== ======== ======== ======== ======== ============ ======== ========= ========
Notes to the consolidated financial statements
Defenx PLC is a public limited company incorporated in the UK on
11 April 2014, trading from 105 Victoria Street, London, SW1E 6QT.
The Company's ordinary shares are traded on AIM. The consolidated
financial statements comprise Defenx PLC and its subsidiaries,
Defenx SA, a company incorporated in Switzerland, and Defenx Italia
SRL (formerly Memopal SRL), a company incorporated in Italy
(together referred to as the "Group"), for the year ended 31
December 2018.
The Company has taken advantage of the exemption available under
section 408 of the Companies Act 2006 and has not presented the
parent's own income statement. The parent's loss for the period
ended 31 December 2018 amounted to EUR5,017,000 (2017:
EUR7,694,000).
1. Basis of preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards and Interpretations
(collectively IFRSs) issued by the International Accounting
Standards Board (IASB) as adopted by the European Union (adopted
IFRSs).
The preparation of the financial statements in compliance with
adopted IFRSs requires the use of certain critical accounting
estimates. It also requires management to exercise judgement in
applying the accounting policies. The areas where significant
judgements and estimates have been made in preparing the financial
statements and their effect are disclosed in note 3.
Basis of measurement
These financial statements have been prepared on a historical
cost basis, except for the following items (refer to individual
accounting policies for details):
-- Financial instruments - fair value through profit or loss
-- Financial instruments - available for sale
-- Contingent consideration
-- Net defined benefit liability
-- Cash-settled share-based payment liabilities.
Basis of consolidation: business combinations and merger
accounting
The financial statements have been prepared on a consolidated
basis in line with the principles laid out in IFRS 3: Business
Combinations. The Group's accounting policy on business
combinations is set out in note 2a) below.
The standard states that in instances where group
reconstructions have taken place, such as in the case of a share
for share exchange, guidance should be taken from the appropriate
national GAAP in preparing the financial statements. The Directors
have therefore considered the implications of UK FRS 6:
Acquisitions and Mergers and considered it appropriate to adopt
merger accounting in respect of the acquisition of Defenx SA by the
parent company in 2014. This resulted in a merger reserve in the
consolidated statement of financial position, being the difference
between the nominal value of new shares issued by the parent
company for the acquisition of the shares and the subsidiary's own
issued share capital.
The merger reserve is also used where more than 90% of the
shares in a subsidiary are acquired and the consideration includes
the issue of new shares by the parent company, thereby attracting
merger relief under the Companies Act 2006.
Going concern
The strategic report outlines the activities of the Group along
with factors which may affect its future development and
performance. The Group's financial position is discussed in the
Financial Review along with details of its cash flow and
liquidity.
As at 31 December 2018 the Group had net assets of EUR1.57
million (31 December 2017: EUR4.03 million) as set out in the
consolidated statement of financial position. The Directors have
prepared detailed forecasts of the Group's performance for the two
years commencing 1 January 2019. The forecasts contain certain
assumptions about the level of future sales, margins and the level
of cash recovery from trading, taking a more conservative view than
the forecasts considered in determining the impairment of
intangible fixed assets.
As at 24 July 2019, the Group had cash resources of
approximately EUR120,000, which is sufficient through to the end of
August 2019, and, therefore, the Company remains reliant on the
continued financial support of its major shareholder, BV Tech,
going forward. BV Tech has provided a non binding letter of support
for EUR350,000 in this regard.
During 2017, BV Tech subscribed for an aggregate EUR1.43 million
in ordinary shares in the Company. In April 2018, by way of a
subscription and underwritten open offer, BV Tech invested a
further EUR1.08 million in the Company. On 1 October 2018 a loan
agreement was entered into with BV Tech, whereby BV Tech provided
an unsecured loan of EUR0.95 million with repayment due by 1
January 2020. The loan was then amended such that it became a
convertible loan of the same quantum and on the same material
terms.
In April 2019, Defenx Italia SRL signed a sales and distribution
agreement with BV Tech with two main elements. The first gives sole
rights to sell Defenx products to certain organisations within the
Italian defence, space, national security and critical
infrastructures sectors until December 2023. The second appointed
BV Tech as a (non-exclusive) distributor of Defenx products
generally. The contractual value of the former is EUR1m plus 50% of
any sales in excess of EUR5m and under the latter, a commitment to
purchase products to a minimum value of EUR150,000 per quarter
(total EUR1.2m) up to December 2020. Together, these agreements
give a substantial minimum sales revenue and cash inflow.
After considering the forecasts and the risks, the Directors
recognise the uncertainty over future performance, consider it
attainable and are satisfied that the Group has adequate resources
to continue in operational existence for the foreseeable future
with the continued support of its major shareholder, BV Tech, and,
accordingly, continue to adopt the going concern basis in preparing
the Group and Company financial statements.
2. Principal accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies are
consistent with those applied in the prior financial year and are
applied by all Group entities unless otherwise stated.
a) Business combinations and goodwill
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, which is measured at acquisition
date fair value, and the amount of any non-controlling interests in
the acquiree. For each business combination, the Group elects
whether to measure the non-controlling interests in the acquiree at
fair value or at the proportionate share of the acquiree's
identifiable net assets. Acquisition related costs are expensed as
incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition
date.
Any contingent consideration to be transferred by the acquirer
will be recognised at fair value at the acquisition date.
Contingent consideration classified as an asset or liability that
is a financial instrument and within the scope of IAS39 Financial
Instruments: Recognition and Measurement, is measured at fair value
with the changes in fair value recognised in the statement of
income.
Goodwill is initially measured at cost (being the excess of the
aggregate of the consideration transferred and the amount
recognised for non-controlling interests and any previous interest
held over the net identifiable assets acquired and liabilities
assumed). If the fair value of the net assets acquired is in excess
of the aggregate consideration transferred, the Group re-assesses
whether it has correctly identified all of the assets acquired and
all of the liabilities assumed and reviews the procedures used to
measure the amounts to be recognised at the acquisition date. If
the reassessment still results in an excess of the fair value of
net assets acquired over the aggregate consideration transferred,
then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group's cash generating
units (CGU) that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree
are assigned to those units.
Where goodwill has been allocated to a CGU and part of the
operation within that unit is disposed of, the goodwill associated
with the disposed operation is included in the carrying amount of
the operation when determining the gain or loss on disposal.
Goodwill disposed in these circumstances is measured based on the
relative values of the disposed operation and the portion of the
cash-generating unit retained.
b) Revenue recognition
Revenue is recognised to the extent that it is probable that
economic benefits will flow to the Group and the revenue can be
reliably measured in accordance with IFRS 15 Revenue from Contracts
with Customers. Revenue is measured at the fair value of the
consideration received or receivable for the sale of goods or
services provided in the normal course of business, net of all
related discounts and sales taxes.
The Group's revenues to date comprise sales of software
licences, the majority of which are for 12 months with a limited
number for two, three and five years. These term-based agreements
include free upgrades and enhancements on a when-and-if-available
basis. The Group recognises the software licence portion of revenue
at the time of delivery while the portion attributable to upgrades
and enhancements is deferred and recognised in the statement of
comprehensive income on a straight-line basis over the period of
the relevant agreement.
To the extent that the related trade receivable has not been
settled in cash, deferred revenue is not recognised in the
statement of comprehensive income but transferred and offset
against the trade receivables balance in the statement of financial
position.
Customers have no right of return; once sold, licences are
neither refundable nor returnable. However, where it is in the
commercial interests of the Group, management may negotiate the
return or exchange of unsold licences.
c) Foreign currency
The Group's and the Company's functional and presentation
currency is the Euro.
Transactions in foreign currencies are initially recorded at the
respective functional currency rates ruling when the transactions
occurred. Foreign currency monetary assets and liabilities are
translated at the rates ruling on the reporting date. Differences
arising on settlement or translation are recognised in profit or
loss. Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange rates
at the dates of the initial transactions.
d) Trade and other receivables
Trade receivables are stated at fair value, being the lower of
their original invoiced value and recoverable amount. A provision
for impairment is made where there is objective evidence that the
Group will not be able to recover balances in full. Indications of
impairment include customers in financial difficulty or seriously
in default against agreed payment terms. There is no material
variance between carrying and fair values.
e) Property, plant and equipment
Property, plant and equipment are recognised initially at cost.
After initial recognition, these assets are carried at cost less
any accumulated depreciation and impairment losses. Cost comprises
the aggregate amount paid, and the fair value of any other
consideration given to acquire the asset.
Depreciation is calculated on a straight-line basis over the
estimated useful lives of the assets, and is applied separately to
each identifiable component, as follows:
-- Cloud equipment: 3 to 7 years
-- Office equipment: 5 to 10 years
An item of property, plant and equipment and any significant
part initially recognised is de-recognised upon disposal or when no
future economic benefits are expected from its use or disposal. Any
gain or loss arising on de-recognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the statement of profit or loss
when the asset is de-recognised.
The residual values, useful lives and methods of depreciation of
property, plant and equipment are reviewed at each financial year
end and adjusted prospectively, if appropriate.
f) Intangible assets
Identifiable intangible assets are recognised when the Group
controls the asset, it is probable that future economic benefits
attributable to the asset will flow to the Group and the cost of
the asset can be reliably measured. Intangible assets acquired
separately are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is their fair
value at the date of acquisition.
Following initial recognition, intangible assets are carried at
cost less any accumulated amortisation and accumulated impairment
losses. Internally generated intangibles, excluding capitalised
development costs, are not capitalised and the related expenditure
is reflected in profit or loss in the period in which the
expenditure is incurred.
Research costs are expensed as incurred. Development
expenditures on an individual project are recognised as an
intangible asset when the Group can demonstrate:
-- The technical feasibility of completing the intangible asset
so that the asset will be available for use or sale
-- Its intention to complete and its ability and intention to use or sell the asset
-- How the asset will generate future economic benefits
-- The availability of resources to complete the asset
-- The ability to measure reliably the expenditure during development
Following initial recognition of the development expenditure as
an asset, the asset is carried at cost less any accumulated
amortisation and accumulated impairment losses. Amortisation of the
asset begins when development is complete, and the asset is
available for use. It is amortised over the period of expected
future benefit. Amortisation is recorded in cost of sales. During
the period of development, the asset is tested for impairment
annually.
Amortisation is calculated on a straight-line basis over the
estimated useful lives of the assets, and is applied separately to
each identifiable component, as follows:
-- Development costs: 3 to 5 years
-- Customer relationships: 3 years
g) Impairment of assets
At each balance sheet date, the Directors review the carrying
amounts of property, plant, equipment and intangible assets to
determine whether there is any indication that those assets have
suffered an impairment. If any such indication exists, the
recoverable amount of the asset, which is the higher of its fair
value less costs to sell and its value in use, is estimated in
order to determine the extent of the impairment loss. Where the
asset does not generate cash flows that are independent of other
assets, the Directors estimate the recoverable amount of the
cash-generating unit to which the asset belongs.
Recoverable amounts are based on a calculation of expected
future cash flows discounted to their present value using pre-tax
discount rates that reflect market assessments of the time value of
money and risks specific to the asset for which the expected future
cash flows have not been adjusted.
Any impairment charge is recognised in the statement of income
in the period in which it occurs for assets carried at cost if the
recoverable amount is less than the carrying value. Where an
impairment loss subsequently reverses due to a change in the
original estimate, the carrying amount of the asset is increased to
the lower of the initial costs and the revised estimate of its
recoverable amount.
h) Research and development tax credits
Defenx Italia SRL received R&D tax credits in Italy in the
year. On the basis that these are not calculated as a function of
profits and the benefit can also be offset against tax liabilities
other than taxes on profits, the most appropriate basis for
accounting is under IAS20 relating to government grants.
Accordingly, the recoverable amount is disclosed as a current or
non-current asset as appropriate.
The tax credit also forms a subsidy against the cost of the
underlying intangible asset. This element is shown separately
within Deferred Revenue (rather than netted off against the
carrying value of the asset) and is released to the consolidated
statement of comprehensive income to offset the part of the
amortisation charge relating to the subsidised element of the asset
cost.
i) Pension costs
The Group makes defined contributions to its employees' pension
plans according to the laws of the country of employment. The
pension costs charged in the financial statements represent the
contributions payable by the Group and Company during the year.
j) Share-based payments
In accordance with IFRS 2 Share-based payments reflects the
economic cost of awarding shares and share options to employees and
Directors by recording an expense in the statement of income equal
to the fair value of the benefit awarded. The expense is recognised
in the statement of income over the vesting period of the award
with a corresponding increase in equity via the share-based payment
reserve.
Fair value is measured by the use of a Black-Scholes model,
which takes into account conditions attached to the vesting and
exercise of the options. The expected life used in the model is
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
Where awards are granted to employees of the subsidiary, the
fair value of the award at grant is recorded in the parent
company's financial statements as an increase in the value of the
investment with a corresponding increase in equity via the
share-based payment reserve.
The dilutive effect of outstanding options is reflected as
additional share dilution in the computation of diluted earnings
per share.
k) Leased assets and obligations
Leases are classified as finance leases when the terms of the
lease transfer substantially all the risks and rewards of ownership
to the Group. All other leases are classified as operating
leases.
l) Operating leases
Assets leased under operating leases are not recorded on the
statement of financial position. Rental payments are charged
directly to the statement of income on a straight-line basis over
the lease term.
m) Current and deferred taxation
Current tax is the expected tax payable on taxable income for
the year, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustments to tax payable in respect
of previous years.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profits ('temporary differences') and is
accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all
taxable temporary differences.
Deferred tax assets are generally recognised to the extent that
it is probable that taxable profits will be available against which
deductible temporary differences can be utilised. Where there are
deductible temporary differences arising in subsidiaries, deferred
tax assets are recognised only where it is probable that they will
reverse in the foreseeable future and taxable profits will be
available against which the temporary differences can be
utilised.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled, or the asset is
realised. Deferred tax is charged or credited to the statement of
income.
n) Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held
with banks, other short-term highly liquid investments with
original maturities of three months or less and bank overdrafts.
Bank overdrafts are shown within borrowings in current liabilities
in the statement of financial position.
o) Trade and other payables
Trade payables are recognised at fair value. There is no
material variance between book and fair values.
p) Borrowings
Bank loans and overdrafts are recorded initially at their fair
value, net of direct transaction costs and finance charges and are
recognised in the statement of income over the term of the
instrument. There is no material variance between book and fair
values.
q) Convertible debt
The proceeds received on issue of the Group's convertible debt
are allocated into their liability and equity components. The
amount initially attributed to the debt component equals the
discounted cash flows using a market rate of interest that would be
payable on a similar debt instrument that does not include an
option to convert. Subsequently, the debt component is accounted
for as a financial liability measured at amortised cost until
extinguished on conversion or maturity of the bond. The balance of
the proceeds is allocated to the equity conversion option and is
recognised in the 'Convertible debt option reserve' within
shareholders' equity, net of income tax effects. Issue costs
incurred are allocated between liability and equity in proportion
to the value of each component.
3. Judgements and estimates
The Board makes judgements and assumptions concerning the future
that affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. The resulting
accounting estimates calculated using these judgements and
assumptions will, by definition, seldom equal the related actual
results but are based on historical experience and expectations of
future events. Actual results may differ from these estimates.
The judgements and key sources of estimation uncertainty that
may have a significant effect on the amounts recognised in the
financial statements are discussed below:
Revenue recognition (note 2b)
Judgement is required in the assessment of licence activation
timing and the resultant period over which deferred revenue is
released to the statement of income. Licences can be activated
immediately upon sale (e.g. for online sales), sometime after sale
(e.g. through our B2B2C customers) or not at all (e.g. typically
where our licences are sold as a bundle). Management has estimated
the average period from which deferred revenues start to be
released. The share of revenue attributable to upgrades and
enhancements that is deferred represents a small proportion of
total revenue. Therefore, although the period over which deferred
revenue is released is uncertain, the impact on the financial
statements is not materially dependent on this judgement.
Recovery of trade receivables
In July 2018 compromise agreements were reached with four major
customers, including a write down of the amount payable to Defenx
by those customers. An impairment provision was made in 2017 to
reduce the carrying value of these trade debtors to reflect the
amount collectable under the agreements. In 2018, the remaining
balance has been impaired to nil, because payments scheduled in
2019 have not been received.
Impairment of assets (note 12)
Judgement is required in the impairment assessment of assets,
notably intangible software development costs. Recoverable amounts
are based on a calculation of expected future cash flows, which
require assumptions and estimates of future performance to be made.
Cash flows are discounted to their present value using pre-tax
discount rates based on the Directors market assessment of risks
specific to the asset.
4. Changes in accounting policies and disclosures
New standards adopted during the year
There were two new standards or interpretations effective for
the first time for periods beginning on or after 1 January 2018
that apply to the Group's financial statements although neither has
a significant impact.
IFRS 9 Financial Instruments
IFRS 9 replaced IAS 39 for accounting periods commencing on or
after 1 January 2018. It impacts the classification and measurement
of financial instruments and requires certain additional
disclosures. The changes to recognition and measurement of
financial instruments and changes to hedge accounting rules do not
have major impact on the Group's current accounting treatment or
hedging activities due to the simple nature of our financial
instruments. The standard also requires entities to use an expected
credit loss model for impairment of financial assets instead of an
incurred credit loss model.
The Directors anticipate that IFRS 9 will not have a material
impact on the financial statements due to the significant
impairment against trade receivables in 2017 and 2018. Future
provisioning policy will reflect improved customer credit
assessment and acceptance procedures as the Group shifts towards a
mix of retail and direct corporate customer bases.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 replaced IAS 18 Revenue, IAS 11 Construction Contracts
and related interpretations. The standard introduced a single,
five-step revenue recognition model that is based upon the
principle that revenue is recognised at the point that control of
goods or services is transferred to the customer. The standard also
updates revenue disclosure requirements.
Defenx currently sells products as conventional term licences or
on a renewing subscription basis. The software licence portion of
term licence sales is recognised at the time of delivery to third
party distributors who assume the risks and rewards associated with
the onward sale of these licenses to end users, with the portion
attributable to upgrades and enhancements deferred and recognised
on a straight-line basis over the activated licence term.
Subscription sales and related direct costs are wholly recognised
over the subscription term once all recognition criteria are
met.
The Directors specifically considered the application of IFRS 15
to the revenue recognition of the Group's term licence contracts.
Having assessed the commercial arrangements with customers in the
context of IFRS 15, the Board concluded that the earlier accounting
policy and methodology continued to be equally appropriate under
the new accounting standard. Accordingly, no change in accounting
treatment arose or was been applied as a consequence of IFRS 15 and
no adjustment made to either sales or deferred revenue.
New standards, interpretations and amendments not yet
effective
There are a number of standards and interpretations which have
been issued by the International Accounting Standards Board that
are effective in future accounting periods that the Group has
decided not to adopt early. The most significant of these is IFRS
16 Leases (mandatorily effective for periods beginning on or after
1 January 2019).
Their likely impact is as follows:
IFRS 16 Leases
IFRS 16 will replace IAS 17 for accounting periods commencing on
or after 1 January 2019 and will require all leases to be
recognised on the balance sheet. The new standard brings most
leases on-balance sheet for lessees under a single model,
eliminating the distinction between operating and finance leases.
Instead of recognising an operating expense for its operating lease
payments, the Group will instead recognise interest on its lease
liabilities and amortisation on its right-of-use assets.
During the year, the Group had only one operating lease within
the scope of IFRS 16 covering two vehicle leases. For the year
ended 31 December 2018, reported EBITDA would have increased by the
amount of its current operating lease cost, which was approximately
EUR10,000 (2017: EURnil). Therefore, the Directors anticipate that
IFRS 16 will not have a material impact on the financial
statements.
Other
None of the following other standards issued by the IASB have
had, or are expected to have, a material impact on the Group:
-- IFRIC 22 Foreign Currency Translations and Advance Consideration (effective 1 January 2018)
-- Amendments to IFRS 2 classification and Measurement of
Share-based payment Transactions (effective 1 January 2018)
-- Amendments to IFRS 4: Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts (effective 1 January 2018)
-- Amendments to IAS 40: Transfers of Investment Property (effective 1 January 2018)
-- Annual Improvements to IFRS Standards 2014-2016 cycle dealing
with matters in IFRS 1 First-time Adoption and IAS 28 Investments
in Associates and Joint Ventures (effective1 January 2018)
-- IFRIC 23 Uncertainty over Income Tax Positions (effective 1 January 2019)
-- Amendments to IFRS 9 Prepayment Features with Negative Compensation (effective 1 January 2019)
-- Amendments to IAS 28: Long-term Interests in Associates and
Joint Ventures (effective 1 January 2019)
-- IFRS 17 Insurance Contracts (effective 1 January 2021)
5. Segmental analysis
The Group operates as a single division selling three main
categories of product:
-- Security - anti-malware software protection for mobile, PC and network devices
-- Protection - client, server and web-based applications to
monitor, manage and secure the online activities of individuals,
families and corporate employees
-- Backup - Cloud-based backup and synchronisation solutions to
protect data and securely share it
Accordingly, the Group has a single reportable segment. This is
consistent with the internal reporting provided to the chief
operating decision-maker, identified Executive Board Directors.
Revenue by product category for the Group is as follows:
31 December 31 December
2018 2017
EUR000 EUR000
============================= ============ ============
Revenue by product category
Security 874 2,293
Backup 545 614
Other 1 21
============================= ============ ============
1,420 2,928
============================= ============ ============
Non-current assets (capitalised development costs) by product
segment for the Group are as follows:
31 December 31 December
2018 2017
EUR000 EUR000
======================================== ============ ============
Non-current assets by product category
Security 1,779 4,002
Protection 26 44
Backup 331 993
2,136 5,039
======================================== ============ ============
Impairment losses by segment are disclosed in note 12. The Group
does not analyse costs or assets other than intangible assets by
product platform.
Geographical segments
The Group is managed centrally and accordingly the Group does
not analyse costs or assets by geographical region. Revenue by
customer location is as follows:
31 December 31 December
2018 2017
EUR000 EUR000
================================================== ============ ============
Revenue by geographic market (customer location)
Europe (EU including the UK) 1,030 2,203
Europe (Non-EU) 336 725
Other 54 -
================================================== ============ ============
1,420 2,928
================================================== ============ ============
6. Operating profit
31 December 31 December
2018 2017
The operating loss is stated after charging: EUR000 EUR000
======================================================== ============ ============
Cost of sales
External Development costs 107 791
Amortisation of intangible assets (note 12) 1,881 1,292
======================================================== ============ ============
Other operating income
Research & development tax credit income (838) (772)
Operating expenses before transaction costs
Marketing contributions - 1,550
Impairment of trade receivables (note 14) 1,349 3,020
Depreciation of property, plant and equipment
(note 11) 43 48
Impairment of intangible assets (note 12) - 6,286
Staff costs (note 7) 677 1,278
Lease payments - land and buildings 103 116
Lease payments - plant and machinery 10 139
AIM listing and related costs 289 234
Net foreign exchange losses/(gains) 4 (61)
Share based payment expense (Note 21) (153) 54
Transaction costs
Costs in respect of the strategic partnership
with BV Tech - 101
Auditors' remuneration (included within administrative
expenses)
Audit services
Parent company and group audit 35 26
Audit of the parent company's subsidiary - 23
Non-audit services
Tax compliance and other fees 4 9
======================================================== ============ ============
Total auditors' remuneration 58 58
======================================================== ============ ============
In 2018, EUR156,000 (2017:EUR234,000) of share issuance costs in
respect of the Open Offer in April 2018 and subscriptions by BV
Tech and placing in April and August 2017 were charged to the share
premium account.
7. Staff Costs
Staff costs (including Directors' emoluments) incurred in the
year were as follows:
31 December 31 December
2018 2017
EUR000 EUR000
============================== ============ ============
Wages and salaries 620 1,057
Social security costs 82 142
Pension costs 32 25
Share based payments expense (57) 54
============================== ============ ============
677 1,278
============================== ============ ============
The average monthly number of permanent employees during the
period was as follows:
31 December 31 December
2018 2017
Number Number
================================================ ============ ============
Executive Directors* 1 2
Sales & marketing* 3 4
Research, development & operations 3 7
Administration* 2 2
================================================ ============ ============
9 15
================================================ ============ ============
* of which employed by the Company 2 4
EUR000 EUR000
================================================ ============ ============
Directors' emoluments
Emoluments (including non-executive Directors'
fees) 241 402
================================================ ============ ============
EUR EUR
================================================ ============ ============
Highest paid Director
Emoluments 94 132
================================================ ============ ============
Included in directors' emoluments is EUR5,000 (2017: EUR15,000)
in respect of payments to defined contribution pension schemes.
8. Finance income and expenses
31 December 31 December
2018 2017
EUR000 EUR000
============================================= ============ ============
Finance income
Interest income - 1
============================================= ============ ============
Finance expense
Bank overdrafts, loans, invoice discounting
and other 4 18
Supply chain finance 20 49
Vendor loans 2 39
Convertible bond 252 78
============================================= ============ ============
278 184
============================================= ============ ============
9. Taxation
No liability to UK, Swiss or Italian income tax arose on
ordinary activities for the year ended 31 December 2018. The tax
(credit)/charge for 2017 was as follows:
31 December 31 December
2018 2017
EUR000 EUR000
=================================================== ============ ============
Current tax
Current tax on loss for the year - -
Adjustment for over provision in prior periods - (224)
=================================================== ============ ============
- (224)
Deferred tax
Origination and reversal of temporary differences (11) (11)
=================================================== ============ ============
Total income tax expense (11) (235)
=================================================== ============ ============
The reasons for the difference between the actual income tax
charge for the year and the standard rate of corporation tax in the
UK applied to the profit for the year are as follows:
31 December 31 December
2018 2017
EUR000 EUR000
Loss for the year (3,786) (11,801)
Tax credit (11) (235)
===================================================== ============ ============
Loss before tax (3,797) (12,036)
===================================================== ============ ============
Tax using Defenx PLC's domestic tax rate
of 19% (2017: 19.25%) (721) (2,317)
Expenses not deductible for tax purposes (14) 217
Research & development tax credits (159) (185)
Adjustment for over provision in prior periods - (200)
Temporary timing differences (57) 1,509
Effect of higher tax rates in Italy and Switzerland - (85)
Losses carried forward for future offset 951 837
===================================================== ============ ============
At the effective income tax rate - (224)
===================================================== ============ ============
The aggregate tax rate in Switzerland was 20% during the year
(2017: 20.0%). The corporation tax rate in the UK was reduced from
20% to 19% effective 1 April 2017 and 17% effective 1 April
2020.
The accumulated tax losses available to the Group at 31 December
2018 were EUR9.3 million (2017: EUR4.2 million). These losses
relate to activities and are available indefinitely for offsetting
against future taxable profits, of Defenx PLC in the UK, Defenx SA
in Switzerland and Defenx Italia SRL in Italy. Losses have, where
permitted, been carried back for offset against prior year tax
payable. Loss carry back is not permitted in Switzerland.
Deferred tax is calculated in full on temporary differences
under the liability method using tax rates of 19%, (2017: 19.25%,
24% (2017: 24.0%) and 20% (2017: 20.0%) being the respective
effective rates of tax applicable in UK, Italy and Switzerland
where the deferred tax arises. There were no deferred tax
liabilities arising from these calculations at the year end.
No deferred tax asset is recognised in respect of either
temporary timing differences or accumulated tax losses as it is not
sufficiently certain that the Group will be able to utilise them in
the near future. Accordingly, the deferred tax credit for the
financial year relates to the release of the brought forward
deferred tax liability as follows:
Consolidated statement Consolidated statement
of of
financial position income
========================== ==========================
31 December 31 December 31 December 31 December
2018 2017 2018 2017
EUR000 EUR000 EUR000 EUR000
=============================== ============ ============ ============ ============
Accelerated amortisation
for accounts purposes - - - (80)
Disallowed bad debt
provision - - - (59)
Other timing differences (30) (42) (11) 49
Arising on acquisition of
Defenx Italia SRL - - - 79
Deferred tax (income)/expense (11) (11)
Net deferred tax (liability) (30) (42)
=============================== ============ ============ ============ ============
If the Group were able to recognise all unrecognised deferred
tax assets, the deficit in retained earnings would decrease by
EUR1.1 million (2017: EUR0.76 million).
10. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing the (loss)/profit
for the year attributable to ordinary equity holders of the parent
company, Defenx, by the weighted average number of ordinary shares
outstanding during the year.
Diluted EPS amounts are calculated by dividing the (loss)/profit
attributable to ordinary equity holders by the weighted average
number of ordinary shares outstanding during the year plus the
number of shares that the convertible bond would convert into plus
the weighted average number of ordinary shares that would be issued
on the exercise of dilutive options (note 21).
The following reflects the income and share data used in the
basic and diluted EPS computations:
31 December 31 December
2018 2017
EUR000 EUR000
============================================== ============ ============
Loss attributable to equity holders of the
parent for basic EPS (3,730) (11,641)
Effect of:
- interest on convertible bond 77 77
- tax effect of above items (15) (15)
============================================== ============ ============
(3,668) (11,579)
============================================== ============ ============
Weighted average number of ordinary shares
for basic EPS 23,812 11,237
Effect of:
- dilution from convertible bond 625 625
- dilution from deferred shares - -
- dilution from share options and warrants - -
- contingent shares on acquisition of Defenx - -
Italia SRL
============================================== ============ ============
Weighted average number of ordinary shares
for diluted EPS 24,437 11,862
============================================== ============ ============
Relevant transactions involving ordinary shares or potential
ordinary shares since 31 December 2018 are set out in note 27.
11. Property, plant and equipment
Cloud equipment Office equipment Total
EUR000 EUR000 EUR000
========================== ================ ================= =======
Cost
At 1 January 2017 193 275 468
Additions 41 10 51
=========================== ================ ================= =======
At 31 December 2017 234 285 519
Additions 12 - 12
At 31 December 2018 246 285 531
=========================== ================ ================= =======
Accumulated depreciation
At 1 January 2017 115 221 336
Depreciation charge 23 25 48
=========================== ================ ================= =======
At 31 December 2017 138 246 384
Depreciation charge 40 3 43
At 31 December 2018 178 249 427
=========================== ================ ================= =======
Net book value
At 31 December 2017 96 39 135
=========================== ================ ================= =======
At 31 December 2018 68 36 104
=========================== ================ ================= =======
There was no property, plant and equipment held under finance
leases. There was no property, plant and equipment in the statement
of financial position of the Company.
12. Intangible assets
Group
Goodwill Development Customer relationships Total
costs
EUR000 EUR000 EUR000 EUR000
============================ ========= ============ ======================= =======
Cost
At 1 January 2017 1,139 8,133 354 9,626
Additions - internally and
contractor developed - 1,828 - 1,828
Additions - purchased for
shares - 2,674 - 2,674
At 31 December 2017 1,139 12,635 354 14,128
Additions - internally and
contractor developed - 490 - 490
At 31 December 2018 1,139 13,125 354 14,618
============================ ========= ============ ======================= =======
Accumulated amortisation
At 1 January 2017 - 1,597 49 1,646
Amortisation charge - 1,174 118 1,292
Impairment charge 1,139 4,960 187 6,286
At 31 December 2017 1,139 7,731 354 9,224
Amortisation charge - 1,881 - 1,881
At 31 December 2018 1,139 9,612 354 11,105
=========================== ====== ====== ==== =======
Net book value
At 31 December 2017 - 4,904 - 4,904
========================== ======= ====== ==== =======
At 31 December 2018 - 3,513 - 3,513
========================== ======= ====== ==== =======
Development costs represent qualifying expenditure on the
development of software products for resale less accumulated
amortisation and impairment costs. The amortisation period of
development costs is three years from the time the asset is brought
into use. The additions made in 2018 were not brought into use
until 2019.
Development costs of EUR0.5 million (2017: EUR6.9 million) for
products under development at the year-end have not yet been
launched or amortised. The Group has no contractual commitments for
development costs at 31 December 2018 (2017: EURnil) but in April
2019 committed to development spend with BV Tech during 2019 of
EUR1.2 million.
Impairment
The Group is required to test, on an annual basis, whether
goodwill and intangibles have suffered any impairment or when there
are indications that the value of the assets might be impaired. The
recoverable amount is determined based on value in use
calculations. The use of this method requires the estimation of
future cash flows and the determination of a discount rate in order
to calculate the present value of the cash flows.
If the recoverable amount is estimated to be less than its
carrying amount, the carrying amount of the asset is reduced to its
recoverable amount. An impairment loss is recognised as an expense
immediately in the statement of income. Goodwill is considered
impaired if the carrying value of the cash-generating unit to which
it relates is greater than the higher of fair value less costs of
disposal and the value in use. Goodwill is allocated to the Group's
Backup segment cash-generating unit.
The Group has assessed the net present value of individual
products held as development costs against forecasts of future
sales of the related products, unit sales prices and costs over a
five-year period. No sales beyond five years have been included in
the calculations.
In October 2017, the Group announced that the delivery of
product updates to address certain recently-identified performance
issues and back-end integration was taking longer than expected and
that previously anticipated sales orders were unlikely to be
recognised in 2017, with a corresponding adverse impact on the
Group's financial performance for the year to 31 December 2017.
This had an adverse impact on the value in use of certain products
in that year resulting in the following impairments:
Group Company
========================== ==========================
31 December 31 December 31 December 31 December
2018 2017 2018 2017
EUR000 EUR000 EUR000 EUR000
=================== ============ ============ ============ ============
Development costs
Security - 3,292 - -
Protection - 1,668 - -
Backup - 1,326 - -
=================== ============ ============ ============ ============
- 6,286 - -
=================== ============ ============ ============ ============
The key assumptions in the value in use calculations are:
31 December 31 December
2018 2017
================================ ============ ============
Gross margin 60-85% 60-85%
Future marketing contributions 0% 0%
Discount rate 25% 25%
================================ ============ ============
Gross margins have been based on past experience and future
expectations in the light of anticipated economic and market
conditions. Discount rates are based on the Group's WACC adjusted
to reflect the Directors' assessment of specific risks related to
the cash generating unit. Growth rates beyond the first two years
are based on economic data pertaining to the region concerned.
Future events may cause these assumptions to change, which could
have an adverse effect on the future results of the Group.
Company
The Company's intangible assets all relate to capitalised
software development costs.
Development Total
costs
EUR000 EUR000
================================== ============ ========
Cost
At 1 January 2017 1,830 1,830
Additions - internally developed 1,869 1,869
Additions - purchased 2,674 2,674
Transferred to Defenx Italia
SRL (6,373) (6,373)
==================================== ============ ========
At 31 December 2017 and 31 - -
December 2018
==================================== ============ ========
Accumulated amortisation
At 1 January 2017 - -
Amortisation charge 101 101
Transferred to Defenx Italia
SRL (101) (101)
================================ ====== ======
At 31 December 2017 and 31 - -
December 2018
================================ ====== ======
Net book value
At 31 December 2017 - -
================================ ====== ======
At 31 December 2018 - -
================================ ====== ======
13. Investment in subsidiaries
The following subsidiary undertakings have been included in the
financial statements:
Country of incorporation and Non-controlling
Name principal place of business Ownership interests
==================== ========================================= ===================== ===========================
Defenx SA Via Obino 14, Castel San Pietro 100.0% -
6874, Switzerland
Defenx Italia SRL
(formerly Memopal
SRL) Via Larga 7, 20122 Milan, Italy 95.2% 4.8%
==================== ========================================= ===================== ===========================
Both subsidiaries have only one class of ordinary share.
Both subsidiaries' principal activity is that of the parent,
namely the development, provision and distribution of software
solutions.
The movement in investments in the Company's statement of
financial position is:
31 December 31 December
2018 2017
EUR000 EUR000
================================ ============ ============
Opening balance 1 January 1,779 1,844
Additions 80 -
Impairment charge - (65)
================================ ============ ============
Closing balance at 31 December 1,859 1,779
================================ ============ ============
In December 2018, the ordinary share capital of Defenx Italia
SRL was increased by EUR80,059 with the Company's contribution
settled in cash. There was no change in the Group's ownership
interest.
Due to a procedural oversight, the 2017 accounts for Defenx SA
have not yet been filed with the Swiss authorities. This omission
is in the process of being rectified.
Subsidiaries profit/(loss) and capital and reserves
Profit/(loss) Capital and reserves
========================== ==========================
31 December 31 December 31 December 31 December
2018 2017 2018 2017
EUR000 EUR000 EUR000 EUR000
=================== ============ ============ ============ ============
Defenx SA (1,800) (6,525) (3,465) (1,665)
Defenx Italia SRL (1,164) (3,277) 643 1,807
=================== ============ ============ ============ ============
14. Trade and other receivables
Group Company
========================== ==========================
31 December 31 December 31 December 31 December
2018 2017 2018 2017
EUR000 EUR000 EUR000 EUR000
=================================== ============ ============ ============ ============
Gross trade receivables 5,013 4,833 - -
Offset deferred revenue (194) (619) - -
Provision for impairment (4,566) (3,217) - -
=================================== ============ ============ ============ ============
Net trade receivables 253 997 - -
Other receivables 347 246 93 79
Total trade and other receivables 600 1,243 93 79
=================================== ============ ============ ============ ============
Provisions for impairment
Opening balance at 1 January 3,217 196 - -
Utilised during the year - - - -
Net increase during the year 1,349 3,021 - -
=================================== ============ ============ ============ ============
Closing balance at 31 December 4,566 3,217 - -
=================================== ============ ============ ============ ============
Gross trade receivables of EUR4.41 million (2017: EUR4.41
million) relate to customers with whom the Group is in dispute.
Deferred revenues of EUR194,000 (2017: EUR619,000) due to be
recognised in the statement of comprehensive income relating to
these customers have been transferred from the deferred revenue
balance (note 18) and offset against gross trade receivables. The
provision for impairment relating to these customers has been
thereby reduced correspondingly.
The movement in the impairment provision for trade receivables
has been included in operating expenses in the statement of income.
Other classes of financial assets included within trade and other
receivables do not contain impaired assets.
At 31 December 2018, EUR187,000 (2017: EUR76,000) of trade
receivables had been sold to providers of invoice discounting
services. The Group is committed to underwrite any of the debts
transferred and therefore continues to recognise the debts sold
within trade receivables until the debtors repay or default. The
proceeds from transferring the debts are included in loans and
borrowing until the debts are collected or the Group makes good any
losses incurred by the lender.
At the year end, all amounts shown under receivables, except
offset deferred revenue, are due within one year.
The carrying value of trade and other receivables classified as
financial assets approximates to fair value.
Standard business to business trade credit terms are 30 days. No
credit is given for online sales.
15. Cash and cash equivalents
Cash and cash equivalents comprise balances on bank accounts,
cash in transit and cash floats held in the business. Finance
charges are accounted for on an accruals basis and charged to the
statement of income when the liability is recognised.
Cash and cash equivalents are held in Euro, Sterling, Swiss
Francs and US Dollars and placed on deposit in the UK, Italy and
Switzerland. The carrying value of cash and cash equivalents
classified as financial assets equals fair value.
16. Trade and other payables
Group Company
========================== ==========================
31 December 31 December 31 December 31 December
2018 2017 2018 2017
EUR000 EUR000 EUR000 EUR000
================================ ============ ============ ============ ============
Trade payables 1,592 424 623 149
Other payables and accruals 711 427 7 147
================================ ============ ============ ============ ============
Total trade and other payables 2,303 851 630 296
================================ ============ ============ ============ ============
Trade and other payables shown above are payable within one
year. The carrying value of trade and other payables classified as
financial liabilities measured at amortised cost approximates to
fair value.
Trade payables include EUR880,000 payable to BV Tech, primarily
for product development work, this balance being settled in full by
April 2019.
17. Research and development tax credits
Group Company
========================== ==========================
31 December 31 December 31 December 31 December
2018 2017 2018 2017
EUR000 EUR000 EUR000 EUR000
============================== ============ ============ ============ ============
At 1 January 1,775 - - -
Received during the year - 1,775 - -
Offset against taxes payable (143) - - -
============================== ============ ============ ============ ============
At 31 December 1,632 1,775 - -
============================== ============ ============ ============ ============
Current 483 179 - -
Non-current 1,149 1,596 - -
============================== ============ ============ ============ ============
In 2017, research and development tax credits were received in
Defenx Italia SRL for amounts invested in developing the Defenx
software product portfolio. The tax credit can be used to offset
various Italian tax liabilities such as VAT, social security and
income tax. No claim has been made for 2018.
18. Deferred revenue
Group Company
========================== ==========================
31 December 31 December 31 December 31 December
2018 2017 2018 2017
EUR000 EUR000 EUR000 EUR000
================================== ============ ============ ============ ============
At 1 January 1,508 590 221 -
Billings deferred during
the year (93) 918 - 221
Billings released to the
statement of income (130) (384) (219) -
Offset against trade receivables (194) (619) - -
Research and development - 1,775 - -
tax credit deferred during
the year
Research and development
tax credit released to the
statement of income (838) (772) - -
================================== ============ ============ ============ ============
At 31 December 253 1,508 2 221
================================== ============ ============ ============ ============
Current 253 621 2 221
Non-current - 887 - -
================================== ============ ============ ============ ============
Deferred revenue of EUR194,000 (2017: EUR619,000) relating to
certain customers has been transferred and offset against gross
trade receivables (see note 14).
19. Loans and borrowing
The book and fair value of interest bearing loans and borrowings
was:
Group Company
========================== ==========================
Ultimate 31 December 31 December 31 December 31 December
maturity 2018 2017 2018 2017
EUR000 EUR000 EUR000 EUR000
===================================== ============ ============ ============ ============
Current
Overdrafts On demand - 22 - -
Invoice discounting Up to 120
facility days 149 77 - -
Bank loans - unsecured 30/06/2019 102 200 - -
Bank loans - unsecured 22/11/2021 130 122 - -
Vendor loans from
business combinations 31/07/2018 15 242 - 154
======================== ============ ============ ============ ============ ============
396 663 - 154
====================================== ============ ============ ============ ============
Group Company
========================== ==========================
Ultimate 31 December 31 December 31 December 31 December
maturity 2018 2017 2018 2017
EUR000 EUR000 EUR000 EUR000
===================================== ============ ============ ============ ============
Non-current
Bank loans - unsecured 30/06/2019 - 103 - -
Bank loans - unsecured 22/11/2021 238 368 - -
Vendor loans from 31/07/2018 - - - -
business combinations
Convertible bonds 31/08/2020 1,154 1,062 1,154 1,062
======================== ============ ============ ============ ============ ============
1,392 1,533 1,154 1,062
===================================== ============ ============ ============ ============
Total loans and
borrowing 1,788 2,196 1,154 1,216
====================================== ============ ============ ============ ============
Overdrafts and other short facilities attract variable interest
at between 3% and 6% per annum. The bank and vendor loans, both
denominated in Euros, attract interest at 3% over 3-month EURIBOR
and at 8% fixed per annum respectively. The convertible bonds (see
below) carry a 10% per annum coupon. The average effective interest
rate for the year ended 31 December 2018 was 7.9% (2017: 8.4%).
The currency profile of the Group's loans and borrowings
was:
Group Company
========================== ==========================
31 December 31 December 31 December 31 December
2018 2017 2018 2017
EUR000 EUR000 EUR000 EUR000
============= ============ ============ ============ ============
Euro 634 1,134 - 154
Sterling 1,154 1,062 1,154 1,062
Swiss franc - - - -
============= ============ ============ ============ ============
1,788 2,196 1,154 1,216
============= ============ ============ ============ ============
At 31 December 2018, the Group had available EUR70,000 (2017:
EUR720,000) of undrawn committed borrowing facilities. During the
year a supply chain facility of GBP450,000, relating to the
Company, was withdrawn.
UK Bond Network secured convertible bonds
On 31 August 2017, the Company issued 1,250,000 secured
convertible bonds of 10% at a face value of GBP1 each. Interest is
paid quarterly.
The bonds are repayable three years from their issue date at a
total face value of GBP1.25 million, can be converted at any time
into shares at the rate of one share per GBP2 of loan ("Conversion
Price") at the holder's option and can be repaid by the Company at
any time on or after 31 August 2019, subject to the share price
being at least 130% of the Conversion Price for 20 consecutive
dealing days. During the year, the Conversion Price was adjusted to
GBP1.808 following the issue of new ordinary shares on 23 April
2018 and GBP1.5118 following the convertible loan agreement made
with BV Tech on 1 October 2018, as further set out in note 21
below.
The Company, Defenx SA and Defenx Italia SRL each entered into
an all assets debenture and guarantee and a security trust deed
(each in customary form) to provide security in respect of the
convertible bonds.
Under IAS 32, the convertible bonds are accounted for as a
compound financial instrument. The value of the liability component
and the equity conversion component were determined at the date the
instrument was issued. The fair value of the liability component,
included in non-current borrowings, was calculated using a market
interest rate for an equivalent instrument without conversion
option with the balance recorded as a convertible debt reserve.
The issue fees of EUR167,000 have been allocated between
liability and equity in proportion to the value of each component.
The value of the liability and its associated fees is held on the
balance sheet at amortised cost. This value will increase to its
principal value of GBP1.25 million over the life of the instrument,
with interest costs being taken to the Income Statement on a
monthly basis.
The fair value movement on the convertible bonds was as
follows:
31 December 31 December
2018 2017
EUR000 EUR000
==================================================== ============ ============
Fair value of convertible bonds brought forward/at
inception (31 August 2017) 1,062 981
Accrued interest not yet due for payment 10 38
Change in fair value of convertible bonds 82 43
Closing balance at 31 December 1,154 1,062
==================================================== ============ ============
Current element of convertible bond liability - -
==================================================== ============ ============
Non-current element of convertible bond liability 1,154 1,062
==================================================== ============ ============
20. Financial instruments and risk management
The Group is exposed through its operations to the following
financial risks:
-- credit risk
-- fair value or cash flow interest rate risk
-- foreign exchange risk
-- liquidity risk
In common with all other businesses, the Group is exposed to
risks that arise from its use of financial instruments. This note
describes the Group's objectives, policies and processes for
managing those risks and the methods used to measure them. Further
quantitative information in respect of these risks is presented
throughout these financial statements.
There have been no substantive changes in the Group's exposure
to financial instrument risks, its objectives, policies and
processes for managing those risks or the methods used to measure
them from previous periods unless otherwise stated in this
note.
General objectives, policies and processes
The overall objective of the Board is to set policies that seek
to reduce risk as far as possible without unduly affecting the
Group's competitiveness and flexibility.
The Group does not use derivative financial instruments such as
forward currency contracts, interest rate swaps or similar
instruments. The Group does not issue or use financial instruments
of a speculative nature.
Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises, are as follows:
-- trade receivables
-- cash and cash equivalents
-- trade and other payables
-- bank overdrafts
-- floating rate bank loans
A summary of the financial instruments held by category is
provided below:
Group Company
========================== ==========================
31 December 31 December 31 December 31 December
2018 2017 2018 2017
Financial assets EUR000 EUR000 EUR000 EUR000
=========================== ============ ============ ============ ============
Net trade receivables 253 997 - 1
Other receivables 347 246 93 78
=========================== ============ ============ ============ ============
Net receivables 600 1,243 93 79
=========================== ============ ============ ============ ============
Cash and cash equivalents 95 951 16 860
=========================== ============ ============ ============ ============
Trade receivables principally comprise amounts outstanding for
sales to customers and are typically payable between 90 and 120
days. The year-end average age of trade debtors was 151 days (2017:
183 days). An impairment review of outstanding trade receivables is
carried out at each period end and, if appropriate, a specific
amount provided for. A general provision is also maintained
reflecting the fact that some customers are small and do not have
strong credit histories.
Group Company
========================== ==========================
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2018 2017 2018 2017
Financial liabilities EUR000 EUR000 EUR000 EUR
============================= ============ ============ ============ ============
Trade payables 1,592 424 623 149
Other payables and accruals 711 427 7 147
Loans and borrowing 1,788 2,196 1,154 1,216
============================= ============ ============ ============ ============
Total payables 4,091 3,047 1,784 1,512
============================= ============ ============ ============ ============
Trade and other payables and accruals comprise amounts
outstanding for trade purchases and ongoing costs and are typically
payable within 90 days. The year-end average age of trade creditors
was 194 days (2017: 66 days). Where there is a contractual right of
set-off with a customer that is also a supplier, notably in
relation to marketing contributions payable to customers, relevant
receivable and payable balances are set against one another.
Financial instruments not measured at fair value
Financial instruments not measured at fair value include cash
and cash equivalents, trade and other receivables, trade and other
payables, and loans and borrowings.
Due to their short-term nature, the carrying value of cash and
cash equivalents, trade and other receivables, trade and other
payables approximates their fair value. Book values and expected
cash flows are reviewed by the Board and any impairment charged to
the statement of income in the relevant period.
There were no changes to the valuation techniques during the
period.
Cash and cash equivalents
Cash and cash equivalents comprise balances on bank accounts,
cash in transit and cash floats held in the business. Finance
charges are accounted for on an accruals basis and charged to the
statement of income when payable. Cash and cash equivalents are
held in Euro, Swiss Francs, Sterling and US Dollars and placed on
deposit in UK banks.
Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations. The Group is mainly exposed to credit
risk from credit sales.
The Group is exposed to credit risk in respect of these balances
such that, if one or more customers encounter financial
difficulties, this could materially and adversely affect the
Group's financial results. The Group attempts to mitigate credit
risk by assessing the credit rating of new customers prior to
entering into contracts and by entering contracts with customers
with agreed credit terms. The analysis below shows the ageing of
trade and other receivables and the movement in bad debt provision
in the year:
Group Company
========================== ==========================
31 December 31 December 31 December 31 December
2018 2017 2018 2017
Ageing of trade & other receivables EUR000 EUR000 EUR000 EUR000
===================================== ============ ============ ============ ============
Not due at reporting date 29 1,728 - -
Up to 3 months 201 931 - -
3 to 6 months 225 71 - -
Above 6 months 4,558 2,103 - -
===================================== ============ ============ ============ ============
Gross receivables 5,013 4,833 - -
Offset deferred revenue (194) (619) - -
Less: provision against receivables (4,566) (3,217) - -
===================================== ============ ============ ============ ============
Net receivables 253 997 - -
===================================== ============ ============ ============ ============
Sales to one customer based in Turkey amounted to approximately
60% (2017: 11%) of Group billings. No other individual customer
accounted for more than 5% of Group billings.
Customer credit risk is managed in accordance with the Group's
established policy and procedures which did not change in the year.
Customer credit quality is assessed and periodically reviewed based
on available information and individual credit limits defined based
on this assessment. Outstanding customer receivables are actively
monitored and reviewed at least quarterly. At 31 December 2018, the
Group had four customers (2017: four) that owed more than
EUR500,000, accounting for 73% (2017: 92%) of trade receivables
outstanding.
As at 31 December 2018, trade receivables of EUR418,000 (2017:
EUR733,000) were past due but not impaired.
The recoverability of trade receivables is assessed on a case by
case basis.
Fair value and cash flow interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The Group's exposure to the risk
of changes in market interest rates relates primarily to the
Group's debt obligations with floating interest rates.
The Group manages its interest rate risk while balancing the
fixed and variable rates available as its loans and borrowings are
renewed. The Group does not enter into interest rate swaps. At 31
December 2018, approximately 91% of the Group's borrowings are at a
fixed rate of interest (2017: 59%).
The following table demonstrates the sensitivity to a reasonably
possible change in interest rates on that portion of loans and
borrowings affected. With all other variables held constant, the
Group's profit before tax is affected by the impact on floating
rate borrowings, as follows:
Increase/decrease Effect on loss before
in basis points tax
========================== ==========================
31 December 31 December 31 December 31 December
2018 2017 2018 2017
EUR000 EUR000
======================== ============ ============ ============ ============
Increase in Euro rates +100 +100 - 9
Decrease in Euro rates -50 -50 - (4)
The assumed movement in basis points for the interest rate
sensitivity analysis is based on the currently observable market
environment.
Foreign exchange risk
Foreign exchange risk arises when Group entities enter into
transactions denominated in a currency other than their functional
currency. The Group's policy is, where possible, to allow customers
to settle liabilities denominated in the customer's functional
currency, primarily the Euro and Swiss franc.
The Group is predominantly exposed to currency risk on sales and
purchases made from customers and suppliers based in the Eurozone.
Sales and purchases from customers and suppliers are made on a
central basis and the risk is monitored centrally, but not hedged
utilising any forward exchange contracts. Apart from these
particular cash flows the Group aims to fund expenses in the
respective currency and to manage foreign exchange risk at a local
level by matching the currency in which revenue is generated and
expenses are incurred. As at 31 December 2018, the Group's net
exposure to foreign exchange risk was as follows for those entities
with Euro presentational currencies.
Euro Sterling Swiss Franc US Dollar Total
EUR000 EUR000 EUR000 EUR000 EUR000
================================== ======== ========= ============ ========== ========
As at 31 December
2018
Trade and other receivables 506 94 - - 600
Cash and cash equivalents 77 16 2 - 95
Trade and other payables (1,207) (630) (466) - (2,303)
Loans and borrowings (626) (1,154) (8) - (1,788)
Net current assets/(liabilities) (1,250) (1,674) (472) (3,396)
================================== ======== ========= ============ ========== ========
As at 31 December
2017
Trade and other receivables 1,172 71 - - 1,243
Cash and cash equivalents 187 754 10 - 951
Trade and other payables (683) (140) (28) - (851)
Loans and borrowings (1,134) (1,062) - - (2,196)
Net current assets/(liabilities) (458) (377) (18) - (853)
================================== ======== ========= ============ ========== ========
The following tables demonstrate the sensitivity to a reasonably
possible change in Euro exchange rates, with all other variables
held constant. The Group's exposure to foreign currency changes for
all other currencies is not material.
Increase/decrease Effect on profit
in basis points before tax
========================== ==========================
31 December 31 December 31 December 31 December
2018 2017 2018 2017
EUR000 EUR000
============= ============ ============ ============ ============
Sterling +20 +20 (356) 75
-10 -10 178 (38)
Swiss franc +10 +10 86 2
-10 -10 (86) (2)
US Dollar +20 +20 - -
-20 -20 - -
============= ============ ============ ============ ============
Liquidity risk
Liquidity risk arises from the Group's management of working
capital. The risk is that the Group will encounter difficulty in
meeting its financial obligations as they fall due. The Group's
policy is to ensure that it will always have sufficient cash to
allow it to meet its liabilities when they become due. To achieve
this aim, it seeks to maintain cash balances to meet expected
requirements for a period of at least 90 days.
The Board receives rolling 12-month cash flow projections on a
quarterly basis as well as information regarding cash balances. At
the end of the financial year, these projections indicated that the
Group expected to have sufficient liquid resources to meet its
obligations under all reasonably expected circumstances.
The liquidity risk of each group entity is managed centrally.
Budgets are set locally and agreed by the Board in advance,
enabling the Group's cash requirements to be anticipated. Where
facilities of group entities need to be increased, approval must be
sought from the Chief Finance Officer. Where the amount of the
facility is above a certain level, agreement of the Board is
needed.
The table below analyses financial liabilities by contractual
maturities. Amounts disclosed in the table are the contractual
undiscounted cash flows.
Group Company
========================== ==========================
31 December 31 December 31 December 31 December
2018 2017 2018 2017
EUR000 EUR000 EUR000 EUR000
================================== ============ ============ ============ ============
Ageing of trade & other payables
Up to three months 1,024 851 377 296
Three to six months 418 - 46 -
Above six months 861 - 207 -
================================== ============ ============ ============ ============
2,303 851 630 296
================================== ============ ============ ============ ============
Ageing of loans and borrowing
Up to three months 425 306 - 57
Between three to 12 months 159 357 - 97
Between one and two years 1,204 226 1,154 -
Between two and five years - 1,307 - 1,062
Over five years - - - -
1,788 2,196 1,154 1,216
================================== ============ ============ ============ ============
Capital management
The Group's capital is made up of share capital, share premium,
merger reserve, non-controlling interests and retained profits
totalling EUR1.57 million at 31 December 2018 (2017: EUR4.03
million) as set out in the statement of changes in equity.
The Group's objectives when maintaining capital are:
-- to safeguard the ability to continue as a going concern, so
that the Group can continue to provide returns for shareholders and
benefits for other stakeholders; and
-- to provide an adequate return to shareholders by pricing
products and services commensurately with the level of risk.
The Group sets the amount of capital it requires in proportion
to risk. The Group manages its capital structure and makes
adjustments to it in the light of changes in economic conditions
and the risk characteristics of the underlying assets. The Group's
strategy is to finance working capital requirements from existing
cash resources and debt facilities while investment activity is
finance wherever possible with surplus cash resources or through
the issue of new shares where an acceptable return can be
generated.
The Group monitors capital on the basis of its debt-to-equity
ratio. This ratio is calculated as net debt to total equity as
defined above. Net debt is calculated as total debt (as shown in
the consolidated statement of financial position) less cash and
cash equivalents. The Group's strategy is to limit the
debt-to-equity ratio to 25% to balance leverage with the
availability of low cost debt, notably working capital facilities
in Italy. Any increase over this limit requires Board approval. The
debt-to-equity ratio at 31 December 2018 was 107.8% (2017: 30.9%)
as set out below:
31 December 31 December
2018 2017
EUR000 EUR000
================================= ============ ============
Loans and borrowing 1,788 2,196
Less: cash and cash equivalents (95) (951)
================================= ============ ============
Net debt 1,693 1,245
================================= ============ ============
Total equity 1,570 4,026
================================= ============ ============
Debt-to-equity ratio 107.8% 30.9%
================================= ============ ============
The increase in the debt-to-equity ratio during 2018 resulted
from the 84% reduction in total equity caused by the loss and the
24% increase in net debt for the financial year, notably the issue
of convertible bonds by the UK.
The composition of the Group's loans and borrowings is analysed
in note 19, as is the movement on its convertible bond issued
during the year. Other loans and borrowings consist entirely of
bank and short term financing which were subject only to negligible
non-cash changes during the year. All cash movements arising from
financing activities are analysed in the consolidated statement of
cash flows.
21. Share capital
Number of Share capital Share premium
shares
000 EUR000 EUR
========================================= ======= ============== ==============
As at 1 January 2017 8,618 197 5,542
Issue of new ordinary shares - BV Tech
subscription 862 18 1,134
Issue of new ordinary shares - BV Tech
asset consideration 1,982 42 2,632
Conversion of deferred shares 300 6 275
Conversion of adviser warrants 79 2 78
MBooster SRL fee shares 22 1 37
Issue of new ordinary shares - placing 933 18 1,633
Issue of new ordinary shares - BV Tech
subscription 156 3 273
Equity issue costs - - (234)
========================================= ======= ============== ==============
As at 31 December 2017 12,952 287 11,370
MBooster SRL fee shares 243 5 51
Subscription and open offer 14,963 310 1,067
Equity issue costs - - (156)
BV Tech loan conversion 1,652 33 114
As at 31 December 2018 29,810 635 12,446
========================================= ======= ============== ==============
Ordinary share capital
The ordinary shares of GBP0.018 carry the right to one vote per
share at general meetings of the Company and the rights to share in
any distribution of profits or returns of capital and to share in
any residual assets available for distribution in the event of a
winding up. The shares are denominated in Sterling.
On 24 January and 5 April 2018, 77,936 and 164,381 shares
respectively were issued to strategic adviser MBooster SRL at 1.8
pence per share in settlement of fees.
On 6 April 2018 14,962,899 shares were issued under a
subscription and open offer at 8 pence per share.
On 2 October 2018 1,652,232 shares were issued at 8 pence per
share following the conversion of the first draw down against the
convertible loan from BV Tech.
The Company has not issued any partly paid shares nor any
convertible securities or exchangeable securities. The Company does
not hold any treasury shares.
Share based payments
Defenx has established EMI and Unapproved Option Schemes as part
of the Group's incentive and retention strategy. Following the
change of control in April 2018, the EMI status no longer
applied.
Under the option schemes, the Group, at its discretion, may
grant share options over the ordinary shares of Defenx to employees
and Directors. The share options generally vest over 36 months,
either from inception or from the first anniversary of grant,
provided the holder remains in employment. There are no performance
conditions. The exercise price of the share options is equal to the
market price of the underlying shares on the date of grant. The
contractual term of the share options is 10 years and there are no
cash settlement alternatives.
The fair value of the options and warrants is estimated at the
grant date using a Black-Scholes pricing model, taking into account
the terms and conditions upon which the options were granted, and
the estimated share price volatility of the Company relative to
that of its competitors.
The fair value of options and warrants issued was estimated on
the date of grant using the following assumptions:
31 December 31 December
2018 2017
================================= ============ ============
Weighted average share price GBP1.140 GBP1.202
Weighted average exercise price GBP1.160 GBP1.215
Expected volatility 40% 40%
Risk free rate of return 1.5% 1.5%
Expected life (years) 5 5
Expected dividend yield 0% 0%
================================= ============ ============
The expected life of the share options is based on current
expectations and is not necessarily indicative of exercise patterns
that may occur. The full contractual life of options is ten years
and warrants is five years. The expected volatility reflects the
assumption that the historical volatility over a period similar to
the life of the options is indicative of future trends, which may
not necessarily be the actual outcome. Expected volatility was
determined by referring to the share prices of a selection of
comparable AIM quoted companies.
Year ended 31 December Year ended 31 December
2018 2017
========================= =========================
Number WAEP* Number WAEP*
Outstanding at 1 January 444,614 GBP1.274 523,364 GBP1.215
Granted during the year - - - -
Forfeited during the year (179,500) GBP1.321 - -
Exercised during the year - - (78,750) GBP0.886
Expired during the year - - - -
============================ ============= ========== ============ ===========
Outstanding at 31 December 264,114 GBP1.242 444,614 GBP1.274
Vested at 31 December 264,114 GBP1.242 364,572 GBP1.244
============================ ============= ========== ============ ===========
Exercisable at 31 December 264,114 GBP1.242 364,572 GBP1.244
============================ ============= ========== ============ ===========
* Weighted average exercise price
The weighted average remaining contractual life for the share
options outstanding as at 31 December 2018 was 3.9 years (2017: 6.1
years).
The range of exercise prices for options and warrants
outstanding at the end of the year was GBP0.80 to GBP2.00 (2017:
GBP0.80 to GBP2.00).
No options were granted during the year. The total
equity-settled share-based payment movement recognised in the year
was a reduction of EUR(57,000) (2017: increase, EUR54,000).
National Insurance is payable on gains made by employees on
exercise of share options granted to them. The Company has entered
into a reciprocal arrangement with employees such that the
employees will reimburse any National Insurance liability.
22. Reserves
The following describes the nature and purpose of each reserve
within equity:
Share premium The amount of capital contributed in excess
of the nominal value of each Ordinary GBP0.018
Share.
Merger reserve The amount arising from the use of merger
accounting (as set out in note 1) being the
difference between the parent's cost of investment
in Defenx SA and the issued share capital
of Defenx SA.
The merger reserve is also used where more
than 90% of the shares in a subsidiary are
acquired and the consideration includes the
issue of new shares by the parent, thereby
attracting merger relief under the Companies
Act 2006.
Shares to be issued Shares for which consideration has been received
reserve but which are not issued yet.
Convertible debt option Amount of proceeds on issue of convertible
reserve debt relating to the equity component (i.e.
option to convert the debt into share capital).
Share based payment Aggregate fair value of vested share based
reserve payments awarded
Retained earnings All other net gains and losses and transactions
with owners (e.g. dividends) not recognised
elsewhere.
23. Controlling party
Defenx PLC is controlled by BV Tech, a company registered in
Italy. At 31 December 2018 it held 57.2% of the Company's ordinary
shares. Following subsequent full drawdown and conversion of the
convertible loan agreed in October 2018, BV Tech's holding
currently stands at 67.1%.
24. Notes supporting statements of cash flows
For the purpose of the statement of cash flows, cash and cash
equivalents comprise the following at 31 December:
Group Company
========================== ==========================
31 December 31 December 31 December 31 December
2018 2017 2018 2017
EUR000 EUR000 EUR000 EUR000
================= ============ ============ ============ ============
Cash at bank 95 953 16 860
Bank overdrafts - (2) - -
================= ============ ============ ============ ============
95 951 16 860
================= ============ ============ ============ ============
Non-cash transactions from financing activities are shown in the
reconciliation of liabilities from financing transactions
below:
Non-current Current
loans and loans Convertible
borrowings and borrowings bond Total
EUR000 EUR000 EUR000 EUR000
=============================== ============ ================ ============ =======
At 1 January 2018 471 663 1,062 2,196
Cash flows - (500) - (500)
Fair value changes - - 82 82
Loans and borrowings becoming
current (233) 233 - -
Interest accruing in period - - 10 10
=============================== ============ ================ ============ =======
At 31 December 2018 238 396 1,062 1,788
=============================== ============ ================ ============ =======
25. Related party transactions
BV Tech strategic partnership
In 2017, the Company entered into a long-term strategic
partnership with BV Tech, a leading independent Italian corporate
IT and cyber security solutions provider, comprising, in part, a
software acquisition by the Company and cash subscription by BV
Tech, with the intention to enhance Defenx's product portfolio and
enable the Group to penetrate the European corporate market to
generate high-quality, recurring revenues in the medium term.
In October 2018, the Company entered into a convertible loan
agreement with BV Tech for EUR950,000, convertible to ordinary
shares at a price of 8 pence per share. The loan has been fully
drawn in three stages in October 2018 and January and March 2019.
In each case the loan was immediately converted to shares.
As set-out in note 27 below, in April 2019, the Company entered
into enhanced sales and distribution agreements with BV Tech.
The balance outstanding to BV Tech at the year-end was
EUR830,000 (2017: EURnil). All transactions were on arm's length
terms.
Key management personnel - Group
In the opinion of the Board, only the Executive Directors of the
Company are regarded as key management personnel.
Key management personnel compensation, including social
security, comprised the following:
31 December 31 December
2018 2017
EUR000 EUR000
================================ ============ ==============
Wages and salaries 183 263
Pension 5 15
Benefits 6 2
Share based payments expense - 33
194 313
============================== ============ ============
The remuneration of key management personnel is determined by
the remuneration committee having regard to the performance of
individuals and market trends.
Other related party transactions - Company
31 December 31 December
2018 2017
EUR000 EUR000
=================================================== ============ ============
Transactions between Defenx PLC and Defenx SA
Income - invoiced by Defenx PLC 200 160
Expenses - invoiced by Defenx SA - (69)
Interest receivable - invoiced by Defenx PLC 327 238
=================================================== ============ ============
Long-term loans from Defenx PLC to Defenx SA 3,151 3,268
Impairment of loans to subsidiary (3,268) (3,268)
Net long-term loans from Defenx PLC to Defenx (117) -
SA
=================================================== ============ ============
Transactions between Defenx PLC and Defenx Italia
SRL
Transfer of intangible fixed assets - contract
with Defenx PLC - 6,272
Long-term loans from Defenx PLC to Defenx Italia
SRL 583 6,272
Impairment of loans to subsidiary (3,136) (3,136)
Net long-term loans from Defenx PLC to Defenx
Italia SRL (2,554) 3,136
=================================================== ============ ============
Transactions between Defenx SA and Defenx Italia
SRL
Income - invoiced by Defenx SA - 385
Expenses - invoiced by Defenx Italia SRL - (583)
=================================================== ============ ============
Net trade receivables in Defenx SA with Defenx
Italia SRL 478 580
Impairment of net trade receivables - (580)
Net trade receivables in Defenx SA with Defenx (478) -
Italia SRL after impairment
=================================================== ============ ============
26. Commitments and contingencies
Operating lease commitments - Group as lessee
The Group has operating leases on office premises in London
(UK), Balerna (Switzerland) and Rome (Italy) on three, six and
three months' notice respectively, and for its primary data centre
in Rome. Future minimum rentals payable under non-cancellable
operating leases as at 31 December 2018 are EUR37,000 (2017:
EUR35,000) within one year.
Finance lease and hire purchase commitments
The Group has no finance lease or hire purchase commitments.
Commitments
At 31 December 2018, the Group had no commitments relating to
software development (2017: EURnil).
Contingent liabilities
The Directors are not aware of any contingent liabilities at 31
December 2018.
27. Events after the reporting date
In January 2019 and March 2019, the Company drew down EUR500,000
and EUR300,000 respectively against the convertible loan facility
from BV Tech. In each case, the loan was converted immediately into
ordinary shares, issued at 8 pence each, resulting in the issue of
5,631,259 and 3,267,842 shares respectively to BV Tech.
In April 2019, the Group signed agreements whereby BV Tech:
-- will have the sole rights to sell Defenx products to certain
bodies within the Italian defence, space, national security or
critical infrastructures sectors, through to the end of December
2023 for which BV Tech will pay Defenx a total consideration of
EUR1.0 million, which has been received in three instalments before
the end of June 2019. In addition, Defenx will receive a royalty
fee equal to 50% of any revenues from the sale of its products
(during the period to 31 December 2023) to such clients in excess
of EUR5.0 million;
-- has committed to purchase Defenx's products, with a minimal
value of EUR1.2 million, over a two year period, effective from 1
January 2019. Accordingly, Defenx will receive a minimum of EUR1.2
million in a number of instalments over the two year period from BV
Tech for such products. The previous restrictions regarding the
distribution of Defenx's products have also been removed, such that
BV Tech is now able to distribute, on a non-exclusive basis, all of
Defenx's products through any direct and indirect channel of
distribution or sales through to 31 December 2021. The value of any
Defenx products sold by BV Tech pursuant to this distribution
agreement will, unless agreed otherwise by the parties, be based on
the prices set out in the 2017 Distribution Agreement; and
-- will undertake to provide services to Defenx in respect of
its range of new and existing products over the course of 2019
pursuant to a software services agreement between the Group and BV
Tech. The aggregate fee payable by the Group to BV Tech for the
services under this services agreement is calculated and payable
monthly on a 'time spent' basis, capped at EUR1.2 million.
The services agreement contains warranties in favour of Defenx
Italia SRL in respect of the intellectual property created pursuant
to the services. BV Tech has the right of first refusal to extend
the services agreement for a further year on the same terms,
subject to its fees and/or timing for delivery of its services at
least matching terms proposed by third party suppliers, all other
criteria being at least equal. The services agreement contains a
number of termination rights of each party, for cause, rather than
for convenience.
The services agreement does not form part of the master services
agreement previously entered into with BV Tech, as announced on 27
September 2017.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SEDFIAFUSELW
(END) Dow Jones Newswires
July 29, 2019 02:00 ET (06:00 GMT)
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