2015 Full Year Preliminary Results

19 April 2016

Defenx PLC("Defenx" or the "Company")

2015 Full Year Preliminary Results

Defenx PLC (AIM: DFX), the mobile security software solutions company, is pleased to announce its preliminary results for the year ended 31 December 2015.

Financial Highlights

Operational Highlights

· Launched Defenx Mobile Security Suite for iOS and Enterprise NAS Antivirus software (under the Seagate Security brand)

· Key customer 3Italia launched Defenx-branded security software

· Secured two major channel partners

· Windows 10 launch - Defenx Mobile Security Suite now addresses the top three smartphone operating systems and over 90% of the market Worldwide

· Established management, reporting and systems suitable for AIM and to support future growth; appointed two non-executive directors, including our Chairman, significantly strengthening the board of directors

Andrea Stecconi, Chief Executive Officer of Defenx plc, commented: 

"2015 has been a year of good progress for Defenx and we have continued to grow the business financially and are delighted to report that we finished the year slightly ahead of market expectations. We successfully completed our IPO on AIM in December where we raised £2.1 million to invest in our business.

We have had a strong start to 2016, launching Windows Phone 10 and Defenx Cloud Backup products. I would like to take this opportunity to thank our staff and shareholders whose hard work and support have facilitated the growth seen in 2015, which we hope to continue."

Enquiries:

About Defenx

Founded in 2009, Defenx is a fast-growing and profitable security software company that offers a range of products for the mobile, PC and network security markets. Defenx security software is priced competitively, fully featured and efficient (reduced use of memory, processing capacity and therefore power).

A flexible marketing strategy, focused on white-label and profit-share arrangements with distributors, telecoms companies and hardware manufacturers, enables Defenx to compete with established industry incumbents. Since inception, Defenx has sold over 3.1 million security software licenses, primarily in Europe, the Middle East and Africa.

Defenx's global distribution partners currently include 3Italia, the fourth largest Italian mobile network operator, and Seagate Technology, a world-leader in disk drive manufacturing, amongst others including telecoms operators, systems integrators and original equipment manufacturers. Defenx was admitted to trading on AIM on 3 December 2015, raising £2.1 million to accelerate its growth through new channel partners and product development.

CHAIRMAN'S STATEMENT

I was delighted to be asked to join the board of Defenx in October 2015 prior to its successful AIM IPO in December 2015. Although we have only been a listed company for a short time, I believe that we have made much progress across the business and confidence is high. It is thanks to the hard work put in by our talented management team, as well as those working across and with the business, that we have been able to make this progress and give us the foundation from which to grow our operation.

Highlights

I am pleased that in our maiden results as a listed company, Defenx has reported an 88% increase in revenue to €4.5 million and an operating profit before exceptional AIM admission costs of €979,000, making this our fourth consecutive year of profitable growth. At the turn of the year, over 900,000 Defenx users around the globe were protected by our software and security updates.

The IPO in December together with the funds raised strengthens our balance sheet and gives us the flexibility to invest in sales and technology and consider acquisitions where they complement our strategy for growth.

As a company we have worked hard in 2015 to bring together a team that has the right combination of sector knowledge and corporate experience to enable us to deliver on our vision and strategy. We have also taken the opportunity to structure the business for growth with new employment terms, systems and procedures.

Board and Management

Along with my arrival on the board, Defenx also secured the services of Leonard Seelig as non-executive director. Leonard chairs the Audit Committee and sits on the Remuneration Committee, which I chair. Philipp Prince joined Defenx as our CFO in July 2015 and has many years' experience in corporate finance at BDO where he was a partner. Philipp comes to us from Enecsys, a Silicon Valley-based business.

The senior management team is led by our founder, Andrea Stecconi, CEO and includes Guido Branca, COO, highly experienced in IT and telecom systems implementation, Mauro Celentano, Technical Director and Angelo Motti, Commercial Director.

Outlook

So far in 2016, we have launched Defenx Mobile Security Suite for Windows 10 along with updates for Android and iOS. Our strategic partnership with Memopal saw the launch of Defenx Cloud Backup, which has already generated significant interest from our channel partners. Meanwhile development continues on products aimed at families and SMEs.

This is an exciting time to be part of Defenx as we seek to build on the momentum from 2015. As a profitable and fast-growing mobile security solutions company, I am confident Defenx will have an exciting 2016. The whole board looks forward to meeting shareholders at the AGM on Wednesday 22 June 2016.

Anthony ReevesChairman18 April 2016

CHIEF EXECUTIVE'S STATEMENT

2015 was a transformative year in the development of Defenx.

We successfully joined AIM, the junior market of the London Stock Exchange, on 3 December after a year of hard work. I am pleased that the shareholders who invested in our private placing during 2014 have seen this next stage of development and an uplift in the value of their investment. I hope they and our IPO investors will continue to support us on our journey.

The IPO is also important for the Group as not only does it give us access to equity capital markets as we seek to grow the business, but it has also resulted in enhanced governance and improved disciplines which we implemented in preparation for our IPO.

You have already heard from our Chairman on the appointments to the Board. We have also improved our infrastructure across the organisation by formalising employment contracts, introducing new remuneration structures aligned with our strategy and implementing cloud-based systems that facilitate the production of and access to sales and financial information and reports.

Delivering the strategy

Defenx's strategy can be framed simply as technology marketing: we know how to develop security software and market solutions to meet the needs of end-users.

During the year we successfully launched Defenx Mobile Security Suite for iOS, the Enterprise NAS software for our storage partner, Seagate, and completed the systems integration with 3Italia enabling them to bill customers on a monthly basis from their webstore and over 3,000 outlets across Italy.

At the start of 2015, two new channel partners joined us. I am pleased to report that they both exceeded the annual sales targets set at the outset. We also implemented new agreements with channel partners under which Defenx provides a contribution towards their marketing activities, payable in arrears, but only if they achieve the pre-agreed sales targets. We expect this to increase the effectiveness of marketing activities undertaken by our channel partners and to improve our working capital position.

By 31 December 2015, agreements have been signed with seven major distributors who, in turn, have access to hundreds of re-sellers across Europe, the Middle East & Africa. In 2016, we intend to further Defenx's marketing efforts across Africa, Asia and Latin America.

Our in-house Sales Resource Management (SRM) system allows our partners to save time and costs, so they can easily manage license inventory and reordering. The SRM control panel allows resellers to see when their customers are ready for renewal and plan marketing campaigns to renew or up-sell. The SRM can be accessed online 24 hours a day, 7 days a week, 365 days a year.

Product development

Using the proceeds of the private placing from 2014, we were able to continue the development of our software. Immediately following the IPO, our software developers started work on a range of upgrades and new products at an expected cost of around €2 million. In April 2016, we announced the launch of Defenx Mobile Security Suite for Windows 10 and Defenx Cloud Backup.

Defenx Mobile Security Suite for Windows 10 Phone was the first major product release since the IPO and delivers on the commitment made at the time to complete the development of full Windows 10 and PC compatibility. Defenx Mobile Security Suite, already available for Android and iOS, now runs on over 90% of smartphone platforms.

Defenx Cloud Backup significantly expands our product portfolio. It offers online backup, synchronisation and sharing of files across multiple mobile and desktop devices. The suite of features, such as online-only access to free-up memory/disk space, unlimited version history and selective backup, is commonly not available with other products. Defenx Cloud Backup is available in 16 different languages.

New feature and upgrade work continues for Android and iOS along with the development of Defenx Privacy Advisor and mobile device management solutions for families and SMEs to broaden the Defenx product offering further.

Financial

I am pleased that despite the pressures of the IPO, we were able to grow revenue during 2015 to €4.5 million, an 88% year-on-year increase on 2014. We also maintained our record of profitable growth since 2012. We report in detail on the financial performance of Defenx during 2015 in the Financial Review below.

We continue to operate a lean team, believing that a broader range of expertise can be mobilised more rapidly and cost effectively on an outsourced basis. In addition to the three executive directors, there have been on average three senior staff working from our Swiss office. Other sales, marketing, development and finance resources have been engaged as needed on an outsourced basis.

Corporate and social responsibility

Our software is optimised for mobile devices running on battery power. We seek to maximise its efficiency by reducing the impact on processing capacity and memory. Our products therefore have lower power consumption reducing the frequency of battery recharging: a small, but scalable contribution to the environment.

In common with many businesses, our greatest impact on the environment comes from travel, notably air travel. We seek to use modern communications to limit air travel as far as possible.

Current trading and outlook

Trading in the first quarter is in line with expectations. Our focus continues to be delivery of new and updated products to drive sales growth through existing and new channel partners.

In light of the modest funds raised at IPO, senior management including the Executive Directors, agreed to a one third reduction of their contractual salary entitlements for 2016, a saving of around €200,000.

Since the beginning of the year, we have engaged additional sales resources based in the UK, agreed revised terms with our development partner in Romania and signed sales and distribution contracts with Brigantia (UK), Metrological (Holland) and Memopal (Italy).

We actively continue to seek new channel partners across Europe, the Middle East and Africa. A number of negotiations are at an advanced stage and I hope to be able to announce further progress soon. Longer term, we continue to engage with potential partners in Asia and Latin America and hope to broaden our geographic footprint during 2016.

I continue to believe that with our B2B2C strategy described above, increasingly coming into shape, Defenx is well-positioned to deliver value to shareholders in the year ahead.

Andrea StecconiChief Executive Officer18 April 2016

FINANCIAL REVIEW

Revenues

Group revenues grew 88% to €4.49 million (2014: €2.38 million) driven primarily by new channel partner wins at the start of 2015. Mobile revenues continued to account for around 70% of our business with the balance from PC and Server segments. Although we see the focus on mobile device protection continuing, we are beginning to see the sale of software bundles - providing protection for Mobile, PC and, in due course, Server, segments - increasing in popularity.

Margins

Gross profit margins increased to 88.6% (2014: 85.4%) due to sales growth exceeding the rise in amortisation charges to €477,000 (2014: €160,000) following the launch of Defenx Mobile Security Suite for iOS and a full year's amortisation of our NAS software. Cost of sales also includes sales commissions, expensed customer integration and software maintenance costs.

With the introduction of Defenx Cloud Backup in March 2016, for which there are additional storage, connectivity and labour costs of sales, we anticipate gross margins will fall modestly during 2016 dependent on the mix of security software license and Cloud backup service sales.

The operating profit margin (before exceptional costs) of 21.8% (2014: 33.8%) reflects the step change in the Group's cost base this year creating the platform for growth we now have. Being largely fixed costs, we anticipate operating margins improving during 2016.

Expenses

Marketing contributions and staff costs account for the majority of the Group's ongoing operating expenses.

Marketing contributions towards developing the Defenx brand, which are typically paid to channel partners only upon the achievement of pre-agreed sales targets, increased to €1.45 million (2014: €0.74 million) a modest rise to 32.3% (2014: 31.2%) as a proportion of sales.

Staff costs increased to €691,000 (2014: €114,000) with the three additions to the board and alignment of remuneration to market rates. We continue to engage sales and development resources as contractors at an additional cost during the year of €114,000 (2014: €130,000) excluding software development costs that have been capitalised.

In light of the modest funds raised at IPO, the Executive Directors' contractual service contracts for 2016 were varied. Each of Andrea Stecconi, Guido Branca and Philipp Prince agreed to convert £40,000 of their salary entitlement into a profit related bonus. This reduces their base salary to £80,000 each for 2016.

The Group aims to incentivise and retain key staff through the use of share options and implemented share option schemes during the year. The Group incurred a share based payment charge of €60,343 (2014: €nil) in respect of the 465,625 share options granted to directors and staff and 60,989 warrants granted at IPO.

Other administrative expenses increased to €692,000 (2014: €327,000).

Profitability

Operating profit before exceptional costs rose 22% to €979,000 (2014: €804,000). Exceptional IPO costs of €614,000 and net interest expenses resulted in profit before tax of €362,000 (2014: €761,000).

With the transition to the Euro as the Group's functional currency on 1 January 2015, reflecting the currency in which the majority of the Group's business is transacted, there are no longer any exchange differences on consolidation.

Taxation

The Group's effective tax rate for the year was 64.6% (2014: 26.9%) reflecting the loss incurred by Defenx plc itself. Although we expect to be able to utilise the carried forward UK tax losses, there is insufficient certainty to justify recording a deferred tax asset on the balance sheet. We keep the Group's operations under review to ensure taxes are paid that fairly reflect activities in the UK and Switzerland.

Cash flow

The net cash outflow from operating activities was €1.92 million (2014: €534,000) reflecting an increase in net trade receivables to €2.17 million (2014: €561,000) and the one-off payment of IPO related fees in December. We continue to work with our channel partners to accelerate the receipt of debtors, although extended terms are common in Southern Europe, the Middle East and Africa.

The cash outflow from investing activities reflects continued investment in our software assets. During the year, capitalised software development costs were €1.35 million (2014: €1.21 million).

The net cash inflow from financing activities reflects the €2.78 million net proceeds of the IPO received in December 2015 and the final closings from the 2014 private placing of €735,000.

Balance sheet

The net book value of capitalised development costs increased to €2.61 million (2014: €1.72 million) reflecting the completion of work on Defenx Mobile Security of iOS, our Enterprise NAS product and the integration work with a number of channel partners' systems. Having assessed the sales prospects for our software products, the Board is satisfied that carrying value of these intangible assets is appropriate.

Net current assets increased to €3.21 million (2014: €326,000) including year end trade receivables of €2.83 million (2014: €1.02 million) and cash balances of €1.33 million (2014: €206,000). Credit risk is managed by regular review of outstanding and overdue balances and dialogue with customers. Collections since the year end so far exceed the amounts agreed with customers and represent a reduction in receivables as a proportion of sales. The provision for bad debts fell to €270,000 (2014: €417,000).

Cash deposits are held in Euro, Sterling, Swiss Francs and US Dollars and placed on deposit in the UK and Switzerland. Cash forecasts are updated monthly to ensure that sufficient cash is available for foreseeable requirements. The Group had no debt at 31 December 2015.

The deferred revenue provision increased to €315,000 (2014: €145,000) representing the proportion of 2015 sales attributable to the provision of virus definition updates and support over the license period outstanding at the year end.

Defenx closed the year with a significantly stronger balance sheet. Total equity attributable to equity holders increased to €5.81 million (2014: €2.05 million) representing a net asset value per share of €1.28 (2014: €0.64).

EPS and dividends

The earnings per share (EPS) for the year was 4.2¢ (2014: 16.7¢) undiluted and 3.9¢ (2014: 15.9¢) diluted.

At this stage in the Group's development, we intend to reinvest profits in future growth. The Board will review the dividend policy in light of the Group's funding requirements each year. The medium term intention is to become a dividend paying business.

The Group is in a strong financial position to continue to grow and exploit many exciting opportunities ahead.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

The profit for the year arises from the Group's continuing operations and is attributable to equity holders of the parent company, Defenx plc.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The movement on the merger reserve during the year ended 31 December 2014 resulted from the issue of share capital by Defenx SA prior to the share for share exchange taking place with Defenx plc.

CONSOLIDATED CASH FLOW STATEMENT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Defenx plc is a public limited company incorporated in the UK on 11 April 2014. The Company's ordinary shares are traded on AIM. The consolidated financial statements comprise Defenx plc and its subsidiary, Defenx SA, a company incorporated in Switzerland (together referred to as the "Group"), for the year ended 31 December 2015.

1. Basis of preparation

Statement of compliance

The financial information contained in this announcement has been prepared on the basis of the accounting policies set out in the statutory accounts for the year ended 31 December 2015. While the financial information has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Group expects to publish full financial statements that comply with IFRS on 11 May 2016 (see note 12).

Going concern

The Chief Executive Officer's Review above 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 above along with details of its cash flow and liquidity.

As at 31 December 2015 the Group had net assets of €5,812,442 (31 December 2014: €2,048,209) as set out in the consolidated statement of financial position. The directors have prepared detailed forecasts of the Group's performance for the next two years. The forecasts contain certain assumptions about the level of future sales, margins and the level of cash recovery from trading.

After considering the forecasts and the risks, 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.

Correction of prior period errors

In January 2014, Defenx SA entered into a loan facility that was repaid by Defenx plc from the proceeds of the private placing later in the year. The fees and interest on this loan were not charged to profit and loss. As a consequence, interest expense was understated.

In November 2014, Defenx SA invoiced a new customer for software licenses. The Group's policy is to agree to make contributions to customers' marketing efforts contingent on agreed sales targets. However, Defenx SA did not accrue for the marketing contribution in its 2014 accounts. As a consequence, expenses were understated.

These errors have been corrected by restating each of the affected financial statement items for the period as follows:

2. Segmental analysis

The Group currently has three reportable product segments: Mobile, PC and NAS, which reflect the three separate product categories for which software is developed and sold. The Group does not analyse costs or assets other than intangible assets by segment. The Group does not analyse costs or assets by geographical region.

Revenue by product segment and geographic market (based on customer location) for the Group is as follows:

Non-current assets (capitalised development costs) by product segment for the Group are as follows:

3. Profit from operations

AIM admission costs of €366,817, including auditors' remuneration of €26,579, were charged to the share premium account.

4. Staff Costs

Staff costs (including directors' emoluments) incurred in the year were as follows:

The average monthly number of permanent employees during the period was as follows:

5. Finance income and expenses

6. Income tax

No liability to UK corporation tax arose on ordinary activities for the year ended 31 December 2015. The tax charge for both 2015 and 2014 arose in respect of operations in Switzerland as follows:

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:

The aggregate tax rate in Switzerland was 20.4% during the year (2014: 20.4%). The corporation tax rate in the UK was reduced from 21% to 20% effective 1 April 2015.

Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 20.4% (2014: 20.4%) being the effective rate of tax applicable in Switzerland where the deferred tax arises.

The accumulated tax losses available to the Group at 31 December 2015 were €553,284 (2014: €106,620). These losses all relate to activities, and are available indefinitely for offsetting against future taxable profits, of Defenx plc in the UK. No deferred tax asset is recognised in respect of these losses as it is not sufficiently certain that the Company will be able to utilise them in the near future. If the Group were able to recognise all unrecognised deferred tax assets, the retained profit would increase by €110,657 (2014: €21,324).

7. Earnings per share (EPS)

Basic EPS amounts are calculated by dividing the profit for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year.

Diluted EPS amounts are calculated by dividing the profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive deferred shares into ordinary shares.

The following reflects the income and share data used in the basic and diluted EPS computations:

The weighted average numbers of shares above reflect the 8 for 1 ordinary share consolidation implemented on 16 November 2015 as further disclosed in note 11. There have been no other relevant transactions involving ordinary shares or potential ordinary shares since 31 December 2014.

8. Intangible assets

The Group's intangible assets all relate to capitalised software development costs.

9. Trade and other receivables

All amounts shown under receivables are due within one year. The payments on account represent advances to an established software developer with whom the Group had agreed detailed specifications for work that had been started, but not invoiced prior the year end.

10. Trade and other payables

All amounts shown above are payable within one year.

11. Share capital

Ordinary share capital

The ordinary shares of £0.018 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 Pounds Sterling.

Defenx SA successfully implemented a share for share exchange whereby Defenx plc became the holding Company of the Group. Under the scheme of arrangement, Defenx SA's shares in issue on 3 June 2015 were exchanged on a one for one basis for Defenx plc shares. 22,816,716 newly issued ordinary shares were credited as fully paid. However, in accordance with the adoption of merger accounting as the basis of consolidation, the share exchange is assumed to have taken place at the beginning of the relevant period. All disclosures of shares in these financial statements reflect this change as though the exchange had always been in place.

On 12 October 2015, shareholders approved the consolidation of the ordinary share capital of Defenx plc on an 8 for 1 basis. This took effect on 16 November 2015 following which there were 4,673,258 ordinary shares in issue each with a nominal value of £0.018.

On 3 December 2015, a total of 1,425,654 ordinary shares of Defenx plc were issued upon the admission to AIM at a price of £1.48 per share.

Share issue costs of €823,493 (2014: €463,952) have been charged against the share premium account.

Deferred share capital

The deferred shares of £0.0001 carry no right to vote, no right 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 Pounds Sterling. Deferred shareholders have the right for five years from issue to convert their shares into ordinary shares for a consideration of £0.10 per share less the amount paid for each deferred share on a one for one basis. The Company must give prior notice to deferred shareholders in the event of a sale.

The Company has not issued any partly paid shares nor any convertible securities, exchangeable securities or securities with warrants. The Company does not hold any treasury shares.

12. Publication of non-statutory accounts

The financial information set out in this announcement does not constitute the statutory financial statements for the year ended 31 December 2015 and the year ended 31 December 2014 in accordance with section 434 of the Companies Act 2006 but is derived from those accounts.

The financial statements for the year ended 31 December 2014 were prepared in accordance with EU-Adopted IFRS and have been delivered to the Registrar of Companies. The financial statements for the year ended 31 December 2015 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditor's report on both accounts was unqualified, did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain statements under sections 498(2) or (3) of the Companies Act 2006.

The full audited financial statements of Defenx plc for the year ended 31 December 2015 are expected to be posted to shareholders on Thursday 12 May 2016 and will be available to the public at the Company's registered office, 42-50 Hersham Road, Walton-on-Thames, Surrey KT12 1RZ and available to view on the Company's website at www.defenx.com from the date of posting.

13. Annual General Meeting

The Annual General Meeting of the Company will be held on Wednesday 22 June 2016 at 12 noon at the offices of Fladgate LLP, 16 Great Queen Street, London WC2B 5DG.