REG - Shearwater Group PLC - Final Results
29/07/2022 07:00
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RNS Number : 1759U Shearwater Group PLC 29 July 2022
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EU Regulation 596/2014 (as amended), which forms part of domestic UK law
pursuant to the European Union (Withdrawal) Act 2018. Upon publication of this
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29 July 2022
SHEARWATER GROUP PLC
("Shearwater", or the "Group")
Final Results
Revenue and adjusted EBITDA ahead of market expectations
Shearwater Group plc (AIM: SWG), the cybersecurity, advisory and managed
security services group, is pleased to announce its final results for the
year ended 31 March 2022.
Highlights:
· Group delivers strong organic revenue growth, up 13% to a Group
record of £35.9m (FY21: £31.8m)
· Adjusted EBITDA(1) up 19% to £4.4m (FY21: £3.7m) with margin
maintained at 12%
· Adjusted profit before tax(2) up 24% to £3.0m (FY21: £2.4m)
· Adjusted basic earnings per share up 10% at 11p (FY21: 10p)
· Strong financial position with zero debt and a year-end net cash
balance of £5.6m as of 31 March 2022 (31 March 2021 adjusted net cash:
£6.0m) following the early repayment of residual legacy loans alongside
continued investment in the Software division during the period
Operational Highlights:
· Average new customer spend up 43% year-on-year with 186 new
customer wins in the period (FY21: 155)
· Software product set strengthened with SecurEnvoy developing its
cloud Identity and Access Management ('IAM') platform
· Investment in international infrastructure to underpin future
growth in new territories
· 20 new clients introduced to Group companies through
cross-selling, up 54% year-on-year and fuelling future revenue opportunities
· 64% of client base with long-standing relationships of more than 3
years (FY21: 67%)
Outlook:
· FY23 Q1 trading in line with management expectations with good
visibility of repeat revenue opportunities and high levels of enquiries
· Continue to review focused M&A opportunities
(1) Adjusted EBITDA is defined as profit before tax, before one off
exceptional items, share based payment charges, finance charges, impairment of
intangible assets, fair value adjustments to deferred consideration, other
income, depreciation and amortisation.
(2) Adjusted Profit Before Tax defined as net profit before tax, exceptional
items, share based payments, other income, fair value adjustment for deferred
consideration and amortisation of acquired goodwill.
Phil Higgins, CEO of Shearwater Group, commented:
"I am pleased to announce a year of double-digit revenue and adjusted EBITDA
growth for the Group. Key performance highlights include a strong year for
advisory work, penetration testing and managed security services. Developing
trusted long term client relationships whilst deepening our expertise has
allowed us to provide extended offerings to our blue-chip clients resulting in
securing some of the largest contracts in our history. In addition, seeing the
size of the opportunity in the identity and access management software space,
we have continued to invest significantly in our platform catering to this
area. This market backdrop, alongside the strength of our teams and security
of our financial position, provide us with great confidence into the current
financial year and beyond.
"Finally, I would like to take this opportunity to thank our staff for their
continued support and commitment in delivering these results."
Investor Presentation
Shearwater Group's CEO, Phil Higgins, CFO, Paul McFadden and Marcus Willett CB
OBE, a member of the Group's Advisory Panel, will provide a live investor
presentation relating to the results, via the Investor Meet Company platform
on Wednesday, 3 August 2022 at 12:30.
Investors can sign up to Investor Meet Company for free and add to meet
Shearwater Group via
https://www.investormeetcompany.com/shearwater-group-plc/register-investor
(https://www.investormeetcompany.com/shearwater-group-plc/register-investor) .
Enquiries:
Shearwater Group plc www.shearwatergroup.com
David Williams, Chairman c/o Alma PR
Phil Higgins, CEO
Cenkos Securities plc - NOMAD and Joint Broker +44 (0) 20 7397 8900
Ben Jeynes / Max Gould - Corporate Finance
Alex Pollen / Michael Johnson - Sales
Berenberg - Joint Broker +44 (0) 20 3207 7800
Matthew Armitt / Mark Whitmore
Alma PR shearwater@almapr.co.uk
Justine James / Susie Hudson / Joe Pederzolli +44 (0) 20 3405 0205
About Shearwater Group plc
Shearwater Group plc is an award-winning group providing cyber security,
managed security and professional advisory solutions to create a safer online
environment for organisations and their end users.
The Group's differentiated full service offering spans identity and access
management and data security, cybersecurity solutions and managed security
services, and security governance, risk and compliance. Its growth strategy is
focused on building a scalable group that caters to the entire spectrum of
cyber security and managed security needs, through a focused buy and build
approach.
The Group is headquartered in the UK, serving customers globally across a
broad spectrum of industries.
Shearwater shares are listed on the London Stock Exchange's AIM under the
ticker "SWG". For more information, please visit www.shearwatergroup.com
(http://www.shearwatergroup.com) .
Chairman's statement
Producing record results against a background plagued with uncertainties
caused by Covid has been no mean feat and our executive team, together with
subsidiary directors and their teams, should be congratulated for an
outstanding achievement.
In addition, our non-executive team and Advisory Panel, have been active in
using their extensive network of contacts to promote our Group, leading to
some useful introductions and opportunities.
We are fortunate to be in a sector of the market with good growth potential
and we are now starting to see our results reflect all the hard work put in
over the past few years. The companies within our Group are well established
and run by experienced teams who have built up a deep understanding of their
clients' needs. Operating in a constantly evolving marketplace this
understanding of what is required for effective cyber management has led to
both contract renewals from existing customers and winning new customers,
hence the growth in revenues reflected in our results.
With all this concerted effort we are now operating from a position of
strength, as can be demonstrated by the increased revenues, record profits and
debt free, cash rich balance sheet. This means that we are a much more
attractive company to join, both from the point of good quality staff to
further strengthen our teams and from the point of view of vendors of
businesses thinking of joining forces with us. We are certainly a very
different proposition to where we were a few years ago.
Operating responsibly is very important to us and in FY22 we were pleased to
reduce our carbon emissions by 13% year on year, as well as retaining a carbon
neutral status for the third consecutive year. We also introduced a company
share option plan during the year, in addition to the existing 2021 Save As
You Earn scheme, to allow our employees to benefit in our Group's future
success.
I would like to take this opportunity to thank the entire Shearwater team for
their continued hard work. This year's strong performance reflects the quality
and diligence of all our people and on behalf of our Board; I wish to offer
them my sincere thanks. I also wish to thank our loyal shareholders for their
continued support.
David Williams
Chairman
28 July 2022
Chief Executive's review
I am incredibly pleased to be reporting on another year of significant
progress for Shearwater Group, during which we have delivered substantial
operational advances and produced record financial results.
We have won an encouraging amount of new business this year whilst continuing
to provide an excellent service to existing customers. Group revenue for the
period was £35.9m (FY21: £31.8m), representing an increase of 13% on the
prior year, all of which is organic. Organic growth was our focus this year
and delivering on this year-on-year revenue growth demonstrates the health of
our business and strong demand for our offering. Revenue growth was driven by
a mix of high-value renewals from long term customers in addition to a number
of significant new contract wins for our Services division.
In addition, the Group delivered Adjusted EBITDA of £4.4m (FY21: £3.7m), our
third consecutive year of adjusted EBITDA growth, which has contributed to a
statutory profit before tax of £0.9m (2021: £0.0m). Our balance sheet is
strong with a net cash((1)) balance of £5.6m as at 31 March 2022 (31 March
2021: £7.3m), in a year that included the repayment of residual legacy loans
and a deferred VAT payment of £1.3m, alongside continued investment in our
Software division.
As a growing, profitable business with a solid financial position, we are very
well placed for the future. We operate in a high growth sector and have an
established reputation as a top-tier provider of cybersecurity, professional
advisory and managed security services. We move into FY23 with a strong sense
of optimism.
Growth Strategy
Our vision remains unchanged in becoming the provider of choice, delivering
next generation cyber technology, professional advisory and cyber security
services and solutions. Within our Software division we aim to build a 'must
have' next generation converged access management and data discovery platform.
Within our Services division, we aim to be the partner of choice delivering
managed security solutions, test and advisory consulting; again, providing an
end-to-end offering.
Both our Services and Software divisions are award-winning, validating our
group companies' abilities to deliver meaningful products and services that
meet the increasing complex demands of our corporate client base.
Our strategy across the year has focused on the strengthening of our business
through organic growth. Long-term contract renewals alongside new customer and
contract wins have allowed us to achieve this.
Having newly established a Mergers & Acquisitions Committee, we continue
to search and review potential opportunities with a clear strategic fit. We
have an active pipeline of acquisition opportunities in the pursuit of a
business that would add to our Software portfolio, add scale in Services, or
drive synergies across the Group.
Group Operational Review
During the year we introduced 186 new customers across both divisions, with an
increased average order value per customer against the prior year. This
included a number of blue-chip organisations. In addition, we again retained
an extremely high proportion of existing customers with 64% now categorised as
having a long-term relationship with the Group((2)).
We pride ourselves on the quality of our staff and have had success with
recruitment during the period, adding several new employees across the Group,
including international placements. To manage wage inflation, we are
leveraging talent supplies across the geographic breadth of the Group. We were
also pleased to enhance our reward packages in the year, reflecting the hard
work of our teams, and believe this makes us an attractive place to work.
Our expanded employee base now sees workers placed across mainland Europe as
well as the US. Pursuing our ambition of an increasing international presence,
during the period we were delighted to open a Brookcourt entity in the
Netherlands, giving the Company easier access to its suite of customers based
across mainland Europe. Moreover, we are currently in the process of setting
up Pentest Ireland and SecurEnvoy has also recently added a Middle Eastern
distributor.
We have continued to progress with our cross-selling initiative as we aim to
tap accretive value from within the Group. Cross-selling in the period
resulted in 20 new clients being introduced to Group companies, up 54% versus
the prior year. There remain great opportunities to further expand
cross-selling across the Group in future periods.
Segmental Review
Software
The FY22 focus in Software was on new product development and good progress
has been made in this area with significant investment made in R&D.
Overall, divisional sales have softened year-on-year, due to the development
of new product functionality taking slightly longer than originally expected
and therefore not all new modules and features have been introduced to the
market. We continue to believe that the upsell of our enhanced product sets to
new and existing customers will drive sales growth, albeit we now expect to
see this happen in the medium term. We have been encouraged by the early
success of our 'Identity and Access' sales, which we have invested in over the
last year, and which represents a key opportunity for the Group in the future.
2022 2021
£m £m %
Revenue 3.3 4.3 (23%)
Gross profit 2.2 3.5 (36%)
Gross margin % 67% 80%
Overheads 0.7 1.3
Adjusted EBITDA 1.5 2.2 (29%)
Adjusted EBITDA margin % 46% 50%
As previously communicated, our ambition in Software is to build the 'must
have' next generation converged access management and data discovery platform,
which we envisage to become first choice for organisations needing to connect
securely and with confidence to the digital world. We have moved towards this
goal with numerous developments of both SecurEnvoy and GeoLang's products.
SecurEnvoy's 'SecureIdentity platform' has seen significant investment, with
key features added such as the 'Migration Wizard', which gives c.1,000
on-premise customers the ability to seamlessly migrate to the new cloud
platform. Other enhancements have been made in both security and user
experience, with the release of 'Passwordless' authentication being well
received, and the unique 'True User Location Technology', which allows
organisations to both create explicit geographic safe zones for accessing
corporate information.
Gartner predicts that the worldwide information security and risk spend from
2019-2025 (Identity and Access management) will grow at a CAGR of 22.8%((3)).
Post-period end, our R&D teams continue to enhance our products, whilst
the Board seeks potential software acquisitions in order to build out the
capabilities of our converged access management and data discovery platform.
Services
In the Services division, we were delighted to secure a number of significant
wins and renewals which drove a strong increase in sales, flowing through into
improved Adjusted EBITDA.
2022 2021
£m £m %
Revenue 32.5 27.4 19%
Gross profit 8.6 6.4 34%
Gross margin % 26% 23%
Overheads 3.9 3.4
Adjusted EBITDA 4.7 3.1 52%
Adjusted EBITDA margin % 14% 11%
As announced in January 2022, Pentest secured a significant new contract win
with a global technology business, supplying vulnerability assessment and
penetration testing services in relation to a major new project. In March 2022
Brookcourt Solutions won two significant contracts; the first of which, a
three-year advanced endpoint cyber defence solution contract with a global
financial organisation, totalled US$4.1 million. This was shortly followed by
the win of a contract with a leading telecommunications and media company for
the monitoring of the organisation's new 5G network totalling an initial
£12.9 million. These new business wins, compounded by a strong rate of
contract renewals during the period, have contributed to the strong
performance of the Services side of our business.
Market Opportunity
The cybersecurity market continues to offer considerable opportunities and
underpins Group wide confidence in future growth. The increasing number of
cybersecurity attacks taking place globally, driven on further by the war in
Ukraine, is contributing to the growth of the global market, with the
importance of businesses deploying cybersecurity solutions to detect and
mitigate the risk of attacks becoming paramount.
In line with the wider market trend, we have seen an increasing number of
enquiries across the Group for cybersecurity engagements year-on-year, as well
as increased interest for consulting engagements across the Company. We have
also seen a slight resurgence in appliance-based cyber solutions post-COVID
and have been successfully managing our hardware supply chains. With the
number of businesses being compromised steadily increasing, trends such as
ransomware and DDOS attacks are only set to become more prevalent moving
forwards. The growing need for our services, coupled with Shearwater's global
presence and established reputation in dealing with such issues, underlines
the market opportunity for the Group.
Current Trading and Outlook
We have been encouraged by Q1 FY23 trading, which is in line with management's
expectations, and have good visibility of repeat revenue opportunities in the
current year. With Shearwater achieving revenue growth, strengthened by a
robust financial position, we look to the future with optimism. Whilst
continuing to pursue organic growth and drive cross-selling initiatives across
the Group, we remain focused on fulfilling our acquisition ambitions. We are
well-positioned in a market only set to expand further and the potential of
our business is evident. We look forward to reporting on our continued
progress moving forwards.
Philip Higgins
Chief Executive Officer
28 July 2022
((1) Net cash includes cash and cash equivalents less loan
balances.)
((2) Represents clients where we have a relationship in excess of
three years)
((3) Gartner®, Forecast Analysis: Information Security and Risk
Management, Worldwide, August 2021,)
https://www.gartner.com/document/4004647?ref=solrResearch&refval=331977943
(https://www.gartner.com/document/4004647?ref=solrResearch&refval=331977943)
(.) (GARTNER is a registered trademark and service mark of Gartner, Inc.
and/or its affiliates in the U.S. and internationally and is used herein with
permission. All rights reserved. The Gartner content described herein, (the
"Gartner Content") represent(s) research opinion or viewpoints published, as
part of a syndicated subscription service, by Gartner, Inc. ("Gartner"), and
are not representations of fact. Gartner Content speaks as of its original
publication date (and not as of the date of this [type of filing]) and the
opinions expressed in the Gartner Content are subject to change without
notice.)
Financial review
Overview
A positive performance in the current year has seen the Group deliver a third
consecutive year of increased profitability with adjusted EBITDA up 19% and
Adjusted profit before tax up 24% following strong revenue performance from
the Group's Services division. This has resulted in a Reported profit before
tax of £0.9 million for the year (2021: £0.0m).
The improvement in profitability is driven by revenue growth of 13% which
includes much improved advisory revenues, which were impacted by the COVID19
crisis during the previous year, in addition to robust security solution and
managed services & warranties revenues which has offset some softness in
software division's revenues which were impacted by delays in deployment of
new software. Encouragingly, we have started to see growth in new product
revenues in the current year and are optimistic that these revenues can be
accelerated in the coming year(s).
During the year the Group introduced 186 new customers, a 20% increase on the
number of new customers introduced during the previous year (2021: 155) which
contributed £2.6 million of business from new customers which is a 43%
increase on the previous year.
The Group has continued to enjoy strong customer retention with 64% of
revenues coming from long-term clients with in excess of 3 years trading
history with the business, which demonstrates the strength of our business's
offerings.
Over 40% of the Group's revenue is of a repeatable nature and as we look
towards the coming year we have improved visibility with £14.5 million of
repeatable revenue opportunities already identified for 2023.
As part of its strategy, the Group has continued to invest in the development
of new technologies within its Software division with investment for the
current year equating to 33% of the Group's software revenues. Investment into
software development was increased during the current year in order to ensure
that we are positioned to maximise the opportunity to grow software revenues
in the coming years.
During the year the Group paid down the remaining loan liabilities of £0.7
million, which related to the Pentest acquisition early leaving the business
with a healthy balance sheet as it now looks to further develop it organic
business in addition to in-organic opportunities.
Details of the Group's summarised financial performance for the year are
detailed below:
2022 2021
£m £m % change
Revenue 35.9 31.8 13%
Gross profit 10.8 9.9
Overheads (underlying) (6.4) (6.2)
Adjusted EBITDA 4.4 3.7 19%
Adjusted EBITDA margin 12% 12%
Finance charge (0.1) (0.2)
Depreciation (0.3) (0.3)
Amortisation of intangible assets - computer software (1.0) (0.8)
Adjusted profit before tax 3.0 2.4 24%
Amortisation of acquired intangible assets (2.1) (2.1)
Share-based payments (0.1) (0.3)
Other operating income 0.1 -
Profit before tax 0.9 -
Taxation (charge)/credit (1.2) 0.1
(Loss)/profit after tax (0.3) 0.1
Revenue
Revenue for the year-ended 31 March 2022 grew by 13% (£4.1 million) to
£35.9 million (2021: £31.8 million).
The table below provides a breakdown of revenues for the current year:
2022 2021
£m £m % change
Managed services and warranties 16.4 16.2 1%
Security solutions 10.6 6.2 70%
Advisory and engineering 5.6 5.1 10%
Software licenses 3.3 4.3 (23%)
Total revenue 35.9 31.8 13%
Managed Services & warranties included the addition of a number of new
material contracts from existing clients in the period which offsets the gap
left by some multi-year deals sold in previous years which were not renewable
in the current year.
Security Solutions revenues in the period were positively impacted by
increased activity, which is in part driven by clients returning to the office
and resuming projects that may have slowed or been put on hold. The increase
in revenue has been generated by new business from both new and existing
clients.
Following a challenging prior period which saw many businesses temporarily
suspend advisory engagements due to COVID19 related lockdown measures, it is
pleasing to report that our professional advisory businesses saw increased
demand for their services during the year, with solid day rates and increased
utilisation rates contributing to a 10% year-on-year increase in the Group's
'Advisory and Engineering' revenues.
Renewals of 'On Premise' multi-factor authentication software of c.80%
remained in line with the previous period, demonstrating commitment from our
existing long-term clients, however, the impact of additional development work
which delayed the go to live date of some new products/functionalities has
resulted in lower than expected software licence revenues in the current year.
As we look forward, the introduction of new cloud based
product/functionalities provides an exciting opportunity to introduce new
product/functionalities to both new and existing customers.
Adjusted EBITDA
The Group delivered adjusted EBITDA of £4.4 million in the year (2021:
£3.7 million), 19% ahead of the prior year which has delivered a blended
adjusted EBITDA Margin of 12%, in line with the prior year (2021: 12%).
The table below provides a breakdown of the Group's adjusted EBITDA:
2022 2021
£m £m % change
Services & Software 6.2 5.2 18%
Central administrative expenses (1.8) (1.5) (17%)
Adjusted EBITDA 4.4 3.7 19%
Adjusted EBITDA margin % 12% 12%
Adjusted EBITDA profitability from our trading entities has increased by 18%
(£1.0 million) in the year to £6.2 million which reflects a blended trading
adjusted EBITDA margin of 17% (2021: 17%). The Groups services division
delivered an improved gross profit margin of 26% (2021: 23%) with materially
improved performance from the Groups advisory businesses contributing to this
improvement. The software division saw a softening of its gross profitability
in the year owing to the later timing of the release of new product
functionalities that has delayed revenues in addition to a large multi-year
enterprise sale sold in the GeoLang business that benefited the prior year
that has not being replicated in the current year.
Central administrative expenses have increased by £0.3 m in the year to £1.8
million which reflects increased salary costs, details of which can be found
in the remuneration report, plus additional marketing expenditure to support
promotion of the Group.
Finance charges
Net finance charges of £0.1 million incorporate a £0.1 million year-on-year
saving (2021: £0.2 million) on interest payable on loan balances following
the early repayment of the Group's remaining loan liabilities, which related
to the acquisition of Pentest, during the year.
Depreciation
Depreciation of £0.3 million (2021: £0.3 million) is in line with the
prior year and incorporates £0.3 million of depreciation of right of use
assets (2021: £0.2 million).
Amortisation of intangible assets - computer software
Amortisation of computer software has increased by £0.2 million to
£1.0 million (2021: £0.8 million), and includes a full years amortisation
of GeoLang development expenditure in addition to increased amortisation in
SecurEnvoy, reflecting the incremental increase in software investment.
Adjusted profit before tax
The Group delivered adjusted profit before tax for the year of £3.0 million
(2021: £2.4 million), a 24% increase on the prior year, which is driven by
the improvement in underlying EBITDA of £0.7 million and a £0.1 million
reduction in finance charges which has been offset by a £0.2 million
increase in internally developed software amortisation.
Amortisation of intangible assets - acquired intangibles
Amortisation of acquired intangible assets of £2.1 million
(2020: £2.1 million) is in line with the previous year.
Other operating income
Other operating income includes early repayment discounts recognised on the
repayment of loan liabilities of £0.1m which were settled in the year.
Reported profit before tax
Reported profit before tax for the year of £0.9m (2021: £0.0 million)
reflects the improved profitability from trading detailed within adjusted
profit before tax in addition to reduced share based payment charges and other
operating income.
Taxation
Taxation charge in the period of £1.2 million includes a £0.5 million
charge for the current year plus £0.7 million movements in deferred taxation
which includes a £1.1 million charge reflecting the amending of deferred tax
rates to 25% following the recent enactment by the UK Government.
Earnings/(loss) per share
Adjusted basic earnings per share of £0.11 (diluted £0.10) (2021: Adjusted
earnings per share £0.10 basic and diluted) represents a 10% year-on-year
increase with the additional trading profitably driving the improvement.
Whilst the average number of shares has remained broadly the same on a
year-on-year basis the taxation rate relating to deferred taxation has
increased significantly which has resulted in a reduction in reported earnings
per share for the period. Reported basic and diluted loss per share of £0.01
compares against a positive basic and diluted earnings per share of £0.01
delivered in the prior period.
Statement of financial position
Intangible assets
Intangible assets decreased in the year by £2.0 million to £52.6 million
at 31 March 2022 (2021: £54.6 million). This movement incorporates £1.1
million of investment into continued development of the Group's software
assets (2021: £0.7 million), less £3.1 million amortisation, of which
£2.1 million relates to amortisation of acquired intangibles.
Property, plant and equipment
Property, plant and equipment decreased in the year by £0.1 million to
£0.3 million at 31 March 2021 (2021: £0.4 million). Additions of
£0.2 million include £0.1 million for a new office lease which has been
recognised as a right of use asset from January 2022. Other movements in the
period include depreciation in the year of £0.3 million.
Trade and other receivables
Trade and other receivables have increased by £10.6 million in the year
from £9.6 million to £20.2 million at 31 March 2022. Material movements
include a £14.5 million increase in accrued income primarily driven by
£12.3million relating to revenue billed after the year-end. Trade receivables
have reduced by £4.4 million, which incorporates some timing of year-end
billing which moved to April 2022.
Trade and other payables
Trade and other payables have increased by £2.3 million in the year from
£12.2 million to £14.5 million at 31 March 2022. Material movements
include a £6.9 million increase in accruals and other payables which
includes the costs associated with transactions in the final month of the
year, a £3.2 million decrease in trade payables, reflecting a change in
timing of the receipt of supplier invoicing, a £1.9 million decrease in
other taxation and social security which included £1.3 million of deferred
VAT from the prior year which was repaid in full during the year and
£0.4 million increase in corporation tax liabilities.
Creditors: amounts falling due after more than one year
Creditor amounts falling due after more than one year have increased in the
year by £2.8 million from £4.0 million to £6.8 million at 31 March 2022.
Accruals and other payables represent costs relating to transactions in the
final month of the year. Reductions include £0.8 million of loan balances
relating to the Pentest acquisition which were repaid in the year,
£0.3 million reduction in deferred tax relating to acquired intangible
assets and £0.1 million decrease in lease liabilities relating to office
leases held by the Group.
Statement of cash flows
Following two years of strong reported operating cash flows the Group has
experienced some unwinding of working capital in the year which has along with
additional investment into software development and the early repayment of
loan liabilities resulted in a year-on-year reduction in the year-end adjusted
net cash of £0.4m. The working capital movement reported in the year relates
to the timing of contract renewals which has led to expected client receipts
moving into following quarter. The Group continues to collect cash effectively
with minimal bad debt to date.
The table below provides a summary of cash flows in the year:
2022 2021
£m £m
Adjusted EBITDA 4.4 3.7
Movements in working capital (4.7) 2.9
Cash (used)/generated from operations (0.3) 6.6
Adjusted cash (used)/generated from operations (0.3) 5.3
Adjusting items* - 1.3
Cash (used)/generated from operations (0.3) 6.6
Capital expenditure (net of disposal proceeds) (1.1) (0.7)
Tax paid (0.1) -
Interest paid (0.1) -
Payments of lease liabilities (0.2) (0.3)
Proceeds from issue of share capital - 3.8
Loan repayments (0.7) (4.2)
FX and other 0.1 (0.5)
Movement in cash (2.4) 4.7
Opening cash and cash equivalents 8.0 3.3
Closing cash and cash equivalents 5.6 8.0
Loans - (0.7)
Net cash 5.6 7.3
Adjusting items(1) - (1.3)
Adjusted net cash 5.6 6.0
Adjusting items(1) comprise a previously agreed deferred VAT payment plan with
HMRC which was paid in full in the current year.
Capital expenditure
Capital expenditure of £1.1 million (2021: £0.7 million) in the year
represents external and internal capitalisation of software costs for
developing our software businesses' product sets. Expenditure of property,
plant and machinery remains minimal.
Financing activities
Financing activities of £1.0 million (2021: £1.1 million) include £0.7
million relating to repayments of loans balances and £0.2m repayment of lease
liabilities.
Key performance indicators
The Board believes that revenue and adjusted EBITDA are key metrics to monitor
the performance of the Group, as they provide a good basis to judge underlying
performance and are recognised by the Group's shareholders. Adjusted profit
before tax is another measure we are using to track the underlying performance
of the Group. These metrics are presented within the financial KPIs section of
the Report and Accounts.
Alternative performance measures
The Group uses alternative performance measures alongside statutory measures
to manage the performance of the business. In the opinion of the Directors,
alternative performance measures can provide additional relevant information
on past and future performance to the reader in assessing the underlying
performance of the business.
Paul McFadden
Chief Financial Officer
28 July 2022
Consolidated statement of comprehensive income
for the year ended 31 March 2022
Note 2022 2021
£'000 £'000
Revenue 3 35,876 31,766
Cost of sales (25,053) (21,871)
Gross profit 10,823 9,895
Administrative expenses 4 (6,435) (6,501)
Depreciation and amortisation (3,412) (3,200)
Other operating income 70 37
Total operating costs (9,777) (9,664)
Operating profit 1,046 231
Adjusted EBITDA 4,398 3,705
Depreciation and amortisation (3,412) (3,200)
Share-based payments (10) (311)
Other operating income 70 37
Operating profit 1,046 231
Finance income - 2
Finance cost 6 (110) (200)
Profit before taxation 936 33
Income tax (charge)/credit 7 (1,228) 112
(Loss)/profit for the year and attributable to equity holders of the Company (292) 145
Other comprehensive income
Items that may be reclassified to profit and loss:
Write off of FVTOCI reserve 14 -
Exchange differences on translation of foreign operations (1) (3)
Total comprehensive (loss)/income for the year (279) 142
(Loss)/earnings per ordinary share attributable to the owners of the parent
Basic and diluted (£ per share) 8 (0.01) 0.01
Adjusted basic (£ per share) 8 0.11 0.10
Adjusted diluted (£ per share) 8 0.10 0.10
Adjusted EBITDA is a non-GAAP company specific measure which is considered to
be a key performance indicator of the Group's financial performance.
The results above are derived from continuing operations.
Consolidated statement of financial position
for the year ended 31 March 2022
Note 2022 2021
£'000
£'000
Assets
Non-current assets
Intangible assets 9 52,564 54,616
Property, plant and equipment 10 315 405
Total non-current assets 52,879 55,021
Current assets
Trade and other receivables 11 20,155 9,611
Cash and cash equivalents 5,575 8,049
Total current assets 25,730 17,660
Total assets 78,609 72,681
Liabilities
Current liabilities
Trade and other payables 12 14,519 12,237
Total current liabilities 14,519 12,237
Non-current liabilities
Creditors: amounts falling due after more than one year 13 7,884 3,956
Total non-current liabilities 7,884 3,956
Total liabilities 22,403 16,193
Net assets 56,206 56,488
Capital and reserves
Share capital 17 22,278 22,277
Share premium 34,581 34,581
FVTOCI reserve - 14
Other reserves 24,386 24,376
Translation reserve 23 24
Accumulated losses (25,062) (24,784)
Equity attributable to owners of the Company 56,206 56,488
Total equity and liabilities 78,609 72,681
Consolidated statement of changes in equity
for the year ended 31 March 2022
Share capital Share premium FVTOCI reserve Other reserve Translation reserve Accumulated losses Total equity
(note 17)
Group £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 April 2020 22,107 34,581 14 20,714 27 (24,929) 52,514
Profit for the year - - - - - 145 145
Other comprehensive loss for the year - - - - (3) - (3)
Total comprehensive income for the year - - - - (3) 145 142
Contributions by and distributions to owners
Issue of share capital 170 - - 3,351 - - 3,521
Share-based payments - - - 311 - - 311
At 31 March 2021 22,277 34,581 14 24,376 24 (24,784) 56,488
Loss for the year - - - - - (292) (292)
Other comprehensive loss for the year - - (14) - (1) 14 (1)
Total comprehensive loss for the year - - (14) - (1) (278) (293)
Contributions by and distributions to owners
Issue of share capital 1 - - - - - 1
Share-based payments - - - 10 - - 10
At 31 March 2022 22,278 34,581 - 24,386 23 (25,062) 56,206
Consolidated cash flow statement
for the year ended 31 March 2022
Note 2022 2021
£'000
£'000
Cash flows from operating activities
Loss/profit for the year (292) 145
Adjustments for:
Amortisation of intangible assets 4 3,149 2,860
Depreciation of right of use assets 4 207 263
Depreciation of property, plant and equipment 4 56 77
Share-based payment charge 4 10 311
Other income 4 (70) -
Fair value adjustment of deferred consideration 4 - (37)
Finance income - (2)
Finance cost 110 200
Income tax 1,228 (112)
Cash flow from operating activities before changes in working capital 4,398 3,705
Decrease/(increase) in trade and other receivables (10,040) 894
(Decrease)/increase in trade and other payables 5,384 2,029
Cash (used)/generated from operations (258) 6,628
Net foreign exchange movements 5 3
Finance cost paid (50) (38)
Tax paid (62) -
Net cash (used)/generated from operating activities (365) 6,593
Investing activities
Purchase of property, plant and machinery 10 (49) (45)
Purchase of intangibles 9 (1,097) (709)
Proceeds from disposal of tangible assets - 17
Net cash used in investing activities (1,146) (737)
Financing activities
Proceeds from issue of share capital - 3,750
Interest paid 22 (91) -
Repayment of loan liabilities - principal amount 22 (652) (4,151)
Expenses paid in connection with share issues - (466)
Repayment of lease liabilities 22 (220) (281)
Net cash used in financing activities (963) (1,148)
Net (decrease)/increase in cash and cash equivalents (2,474) 4,708
Foreign exchange movement on cash and cash equivalents - (2)
Cash and cash equivalents at the beginning of the period 8,049 3,343
Cash and cash equivalents at the end of the period 5,575 8,049
Notes to the consolidated financial statements
for the year ended 31 March 2022
General information
The financial information set out above does not constitute the Company's
Annual Report and Accounts for the year ended 31 March 2022. The Annual Report
and Accounts for 2021 have been delivered to the Registrar of Companies and
those for 2022 will be delivered shortly. The auditor's report for the
Company's 2022 Annual Report and Accounts was unqualified and did not contain
an emphasis of matter paragraph nor any statement under Section 498 of the
Companies Act 2006.
Whilst the financial information included in this results announcement has
been prepared in accordance with UK adopted international accounting
standards, this announcement does not itself contain sufficient information to
comply with UK adopted international accounting standards.
The Annual Report and Accounts for the year ended 31 March 2022 are available
on the Company's website: https://shearwatergroup.com/investor-overview/
(https://shearwatergroup.com/investor-overview/)
Going concern
After making enquiries, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for at least
twelve months from the date of signing the financial statements. Accordingly,
they continue to adopt the going concern basis in preparing the consolidated
financial statements.
Having successfully navigated the initial COVID19 crisis, where the Directors
took steps to ensure that the Group was in a robust position, the Group is in
good financial health having completed the agreed deferred VAT payment plan in
the current year. In addition to this the Group settled in full its remaining
loan liabilities of c.£0.7million ahead of the contracted repayment dates.
The Directors continue to regularly review the Groups' going concern position,
considering the impact of potential future trading downturns should there be
another COVID19 related crisis or economic downturn. Over the past year the
Group has seen improving trading conditions which has resulted in strong
recovery from its advisory businesses which were impacted by the initial
COVID19 crisis in the prior year.
The Group has continued to grow in the current year delivering improved
revenue and profitability. Revenue of £35.9 million (2021: £31.8 million),
adjusted EBITDA of £4.4 million (2021: £3.7 million) and profit before tax
of £0.9 million (2021: £0.03 million) all demonstrating improved
year-on-year performance
At 31 March 2022 the Group has been able to report a robust financial position
and is well capitalised with a net cash position of £5.6 million (2021: £7.3
million) and an untouched three‑year £4.0 million Group revolving credit
facility with Barclays Bank plc in place until 23 March 2024.
The Directors have reviewed detailed budget cash flow forecasts for the period
to 31 March 2024 and have challenged the assumptions used to create these
budgets. The budget figures are carefully monitored against actual outcomes
each month and variances are highlighted and discussed at Board level on a
quarterly basis as a minimum.
The Board has reviewed current trading to 30 June 2022 and is pleased to
report that trading is tracking in line with budget for the first quarter.
The Directors have reviewed and challenged a reverse stress test scenario on
the Group up to March 2024. The purpose of the reverse stress test for the
Group is to test the impact on the Group's cash if the assumptions in the
budget are altered.
The reverse stress test assumes significant adjustments to the Group's budget
which include the removal of all new business revenue across both Software and
Services divisions, reduction of renewal rates in our Software division to 60%
at October 2022 and then 40% from October 2023 (currently c.80%), scaling back
of revenues in our Services division leaving just critical managed services
revenues and already contracted revenues. Costs have been scaled back
sensitively in line with the reduction in revenues. The resulting outcome of
the stress-test forecasts that the Group would have sufficient cash resources
to services its liabilities during the periods reviewed. This assumes that the
revolving credit facility would not be utilised.
In the event that the performance of the Group is not in line with the
projections, action will be taken by management to address any potential cash
shortfall for the foreseeable future. The actions that could be taken by the
Directors include both a review and restructuring of employment‑related
costs. Additionally, the Directors could also negotiate access to other
sources of finance from our lenders.
Overall, the sensitised cash flow forecast demonstrates that the Group will be
able to pay its debts as they fall due for the period to at least 31 August
2023 and therefore the Directors are satisfied there are no material
uncertainties to disclose regarding going concern. The Directors are therefore
satisfied that the financial statements should be prepared on the going
concern basis.
Critical accounting judgements, estimates and assumptions
The preparation of financial statements requires management to make
judgements, estimates and assumptions that affect the amounts reported for
income and expenses during the year and that affect the amounts reported for
assets and liabilities at the reporting date.
Revenue recognition of material contracts
Management make judgements, estimates and assumptions in determining the
revenue recognition of material contracts sold by the Groups Services
division. The Group work with large enterprise clients, providing services and
solutions to support the clients needs. In many cases a third parties product
or service will be provided as part of a solution. Management will consider
the implications around timing of recognition, with factors such as
determining the point control passes to the client and the subsequent
fulfilment of the Groups' performance obligations. In addition to this
management will consider if it is acting as agent or principal. Further
details of how the Group determine revenue recognition and if it is acting as
agent or principal can be found within the relevant notes within this section.
Business combinations
Management make judgements, estimates and assumptions in assessing the fair
value of the net assets acquired on a business combination, in identifying and
measuring intangible assets arising on a business combination, and in
determining the fair value of the consideration. If the consideration includes
an element of contingent consideration, the final amount of which is dependent
on the future performance of the business, management assess the fair value
of that contingent consideration based on their reasonable expectations of
future performance. In determining the fair value of intangible assets
acquired, key assumptions used include expected future cash flows, growth
rates, and the weighted average cost of capital.
Impairment of goodwill, intangible assets and investment in subsidiaries
Management make judgements, estimates and assumptions in supporting the fair
value of goodwill, intangible assets and investments in subsidiaries. The
Group carries out annual impairment reviews to support the fair value of these
assets. In doing so, management will estimate future growth rates, weighted
average cost of capital and terminal values. Further information can be found
on note 9.
Leases
Management make judgements, estimates and assumptions regarding the life of
leases. Management continue to review all existing leases, which all relate to
office space, and will look to reduce the number of offices across the Group
it they are not sufficiently utilised. For this reason management have assumed
that the life of leases does not extend past the current contracted expiry
date. A judgement has been taken with regard to the incremental borrowing rate
based upon the rate at which the Group can borrow money.
Basis of consolidation
The Group's consolidated financial statements incorporate the results and net
assets of Shearwater Group plc and all its subsidiary undertakings made up to
31 March each year. Subsidiaries are all entities over which the Group has
control (see note 3 of the Company financial statements). The Group controls
an entity when the Group is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group. They are
deconsolidated from the date that control ceases. Where necessary, adjustments
are made to the financial statements of subsidiaries to bring the accounting
policies used into line with those used by the Group. All inter-group
transactions, balances, income and expenses are eliminated on consolidation.
Business combinations and goodwill
Business combinations are accounted for using the acquisition accounting
method. This involves recognising identifiable assets (including previously
unrecognised intangible assets) and liabilities of the acquired business at
fair value. Any excess of the cost of the business combination over the
Group's interest in the net fair value of the identifiable assets and
liabilities is recognised in the consolidated statement of financial position
as goodwill and is not amortised. To the extent that the net fair value of
the acquired entity's identifiable assets and liabilities is greater than the
cost of the investment, a gain is recognised immediately in the consolidated
statement of comprehensive income.
After initial recognition, goodwill is stated at cost less any accumulated
impairment losses, with the carrying value being reviewed for impairment at
least annually and whenever events or changes in circumstances indicate
that the carrying value may be impaired. Goodwill assets considered
significant in comparison to the Group's total carrying amount of such assets
have been allocated to cash-generating units or groups of cash-generating
units. Where the recoverable amount of the cash-generating unit is less than
its carrying amount including goodwill, an impairment loss is recognised in
the consolidated statement of comprehensive income.
Acquisition costs are recognised in the consolidated statement of
comprehensive income as incurred.
Revenue
The Group recognises revenue in accordance with IFRS 15: Revenue from
Contracts with Customers. Revenue with customers is evaluated based on the
five-step model under IFRS 15: Revenue from Contracts with Customers: (1)
identify the contract with the customer; (2) identify the performance
obligations in the contract; (3) determine the transaction price; (4) allocate
the transaction price to separate performance obligations; and (5) recognise
revenues when (or as) each performance obligation is satisfied.
Revenue recognised in the statement of comprehensive income but not yet
invoiced is held on the statement of financial position within accrued income.
Revenue invoiced but not yet recognised in the statement of comprehensive
income is held on the statement of financial position within deferred revenue.
The Group's revenues are comprised of a number of different products and
services across our two divisions, details of which are provided below:
Software
§ Software licences whereby the customer buys software that it sets up and
maintains on its premises is recognised fully at the point the licence
key/access has been granted to the client. The Group sells the majority of its
services through channels and distributors who are responsible for providing
first and second line support to the client.
§ Software licences for the new 'Authentication as a Services' product
whereby the customer accesses the product via a cloud environment maintained
by the Company is recognised in two parts, whereby 80% of the subscription is
recognised at the point that the licence key is provided to the customer with
the remaining 20% recognised evenly over the length of the contract.
This deferred proportion represents the obligation to maintain and support
the platform that the software runs on.
Services
§ Sale of third-party hardware, software, warranties and internal support:
a) where the contract entails only one performance obligation to provide
software or hardware, revenue is recognised in full at a point in time upon
delivery of the product to the end client. This delivery will either be in the
form of the physical delivery of a product or the emailing of access codes to
the client for them to access third‑party software or warranties; and
b) where a contract to supply external hardware, software and/or warranties
also includes an element of ongoing internal support, multiple performance
obligations are identified and an allocation of the total contract value is
allocated to each performance obligation based on the standalone costs of each
performance obligation. The respective costs of each performance obligation
are traceable to supplier invoice and applying the fixed margins, standalone
selling prices are determined. Internal support is recognised equally over the
period of time detailed in the contract.
§ Sales of consultancy services are usually based on a number of
consultancy days that make up the contracted consideration. Consultancy days
generally comprise of field work and (where required) report writing and
delivery which are considered to be of equal value to the client. Revenue is
recognised over time based on the number of consultancy days provided within
the period compared to the total in the contract.
Principal versus agent considerations
In instances where the Group is involving another party in providing goods or
services to a customer the Group considers whether the nature of its promise
is a performance obligation to provide the specified goods or services itself
or to arrange for those goods or services to be provided by the other party to
determine whether it is a principal or an agent. The business will firstly
identify the specific goods and/or services to be supplied to the customer.
In determining whether the business is acting as agent or principal the
business assesses whether it controls each specified good or service before
that good is transferred to the customer. It will consider:
§ Who is responsible for fulfilling the promise to provide the specific
product or service
§ If the business is carrying a liability risk for the specific good or
service prior to it being supplied to the customer
§ If the business has discretion over pricing
In addition to the points noted above, the business also considers the
following unique selling points:
§ Pre-sales process,
In some cases the business invests heavily in working with the customer to
understand their requirements, before designing/recommending a solution that
integrates various third-party product or service to meet the customers
requirements.
§ Levels of ongoing services
In some cases whilst, not always contracted the business will continue to
support the customer as needed to ensure that their solution is working. This
may include co-ordination of the maintenance and support with third parties,
provision of engineers to remove and send back faulty product.
Where the Group is a principal, revenues are recognised on a gross basis in
the statement of comprehensive income while when an agent revenues are
recognised on a net basis in the statement of comprehensive income.
Segmental reporting
For internal reporting and management purposes, the Group is organised into
two reportable segments based on the types of products and services from which
each segment derives its revenue - Software and Services. The Group's
operating segments are identified on the basis of internal reports that are
regularly reviewed by the chief operating decision maker in order to allocate
resources to the segment and to assess its performance.
Current and deferred income tax
The charge for taxation is based on the profit or loss for the year and takes
into account deferred tax. Deferred tax is the tax expected to be payable or
recoverable on temporary differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding tax based in
the computation of taxable profit or loss and is accounted for using the
balance sheet method.
The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the balance sheet date in the countries
where the Group's subsidiaries operate and generate taxable income. Management
periodically evaluate positions taken in tax returns with respect to
situations where applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of amounts expected to
be paid to the tax authorities.
Deferred tax assets are only recognised to the extent that it is probable that
future taxable profit will be available in the foreseeable future against
which the temporary differences can be utilised.
Deferred income tax assets and liabilities are measured at the rates that are
expected to apply when the related asset is realised, or liability settled,
based on tax rates and laws enacted or substantively enacted at the reporting
date.
Intangible assets
Intangible assets are carried at cost less accumulated amortisation and
accumulated impairment losses. Intangible assets acquired as part of a
business combination are recognised outside goodwill if the assets are
separable or arise from contractual or other legal rights and their fair value
can be measured reliably. Material expenditure on internally developed
intangible assets is taken to the consolidated statement of financial position
if it satisfies the six‑step criteria required under IAS 38.
Intangible assets with a finite life have no residual value and are amortised
over their expected useful lives as follows:
Computer software (including in-house developed software)
2-5 years straight-line basis
Customer relationships
1-15 years straight-line basis
Software
10 years straight-line basis
Tradenames
10 years straight-line basis
The amortisation expense on intangible assets with finite lives is recognised
in the statement of comprehensive income within administrative expenses. The
amortisation period and the amortisation method for intangible assets with
finite useful lives are reviewed at least annually.
The carrying value of intangible assets is reviewed for impairment whenever
events or changes in circumstances indicate the carrying value may not be
recoverable.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated
depreciation. Cost includes the original purchase price of the asset plus any
costs of bringing the asset to its working condition for its intended use.
Depreciation is provided at the following annual rates, on a straight-line
basis, in order to write down each asset to its residual value over its
estimated useful life.
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at the end of each reporting period.
Plant and machinery
20-33% per annum
Office
equipment
25% per annum
Right of use
assets
Shorter of useful life of the asset or lease term
Gains and losses on disposals are determined by comparing the proceeds with
the carrying amount and are recognised, as adjusted items if significant,
within the statement of comprehensive income.
Financial instruments
Shearwater's financial assets and financial liabilities are recognised in the
Group's balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
Financial assets
Trade and other receivables are measured at amortised cost less a provision
for doubtful debts, determined as set out below in 'impairment of financial
assets'. Any write-down of these assets is expensed to the statement of
comprehensive income.
Equity investments not qualifying as subsidiaries, associates or jointly
controlled entities are measured at fair value through other comprehensive
income (FVTOCI), with fair value changes recognised in other comprehensive
income (OCI) and dividends recognised in profit or loss.
Impairment of financial assets
The impairment model under IFRS 9 reflects expected credit losses, as opposed
to only incurred credit losses under IAS 39. Under the impairment approach in
IFRS 9, it is not necessary for a credit event to have occurred before credit
losses are recognised. Instead, the Group always accounts for expected credit
losses and changes in those expected credit losses. The amount of expected
credit losses are updated at each reporting date.
The impairment model only applies to the Group's financial assets that are
debt instruments measured at amortised costs or FVTOCI as well as the Group's
contract assets and issued financial guarantee contracts. The Group has
applied the simplified approach to recognise lifetime expected credit losses
for its trade receivables and contracts assets as required or permitted by
IFRS 9.
Expected credit losses are calculated with reference to average loss rates
incurred in the three most recent reporting periods then adjusted taking into
account forward-looking information that may either increase or decrease the
current rate. The Group's average combined loss rate is 0.9% (2021: 0.3%).
This percentage rate is then applied to current receivable balances using a
probability risk spread as follows:
§ 80% of debt not yet due (i.e. the Group's average combined loss rate of
0.9% is discounted by 20%, meaning a 0.72% provision would be made to debt not
yet due);
§ 85% of debt that is <30 days overdue;
§ 90% of debt that is 30-60 days overdue;
§ 95% of debt that is 60-90 days overdue; and
§ 100% of debt that is >90 days overdue.
Management have performed the calculation to ascertain the expected credit
loss, which works out to £41,069 (2021: £27,191). This movement has been
recognised in the statement of comprehensive income. To date, the Group
has a record of minimal bad debts with less than £0.05 million being written
off in the past three years.
The Group derecognises a financial asset only when the contractual rights to
the cash flows from the asset expire, or when it transfers the financial
asset and substantially all the risks and rewards of ownership of the asset to
another entity. On derecognition of a financial asset measured at amortised
cost, the difference between the asset's carrying amount and the sum of the
consideration received and receivable is recognised in the statement of
comprehensive income.
Financial liabilities
Trade and other payables
Financial liabilities within trade and other payables are
initially recognised at fair value, which is usually the invoiced amount.
They are subsequently carried at amortised cost using the effective interest
method (if the time value of money is significant).
Loans are initially recognised at fair value, which is the amount stated in
the loan agreement. Subsequently, loan balances are restated to include any
interest that has become payable.
Lease liabilities have been recognised at fair value in line with the
requirements of IFRS 16. Details of lease disclosures are included in note 15.
Deferred consideration which relates to the future issue of ordinary shares
has been initially recognised at fair value based on the closing share price
at the reporting date. Deferred consideration is revalued and recognised at
fair value based on the closing share price for all future reporting dates.
Movements in fair value between periods are reported in the statement of
comprehensive income.
The Group derecognises financial liabilities when, and only when, the Group's
obligations are discharged, cancelled or they expire. The difference between
the carrying amount of the financial liability derecognised and the
consideration paid and payable, including any non-cash assets transferred or
liabilities assumed, is recognised in the statement of comprehensive income.
Leases
IFRS 16: Leases which supersedes IAS 17: Leases and IFRIC 4: Determining
whether an arrangement contains a lease sets out the principles for
recognition, measurement, presentation and disclosures of leases and requires
lessees to account for most leases under a single on-balance sheet model.
Right of use assets
In determining if a lease exists, management considers if a contract conveys
the right to control the use of an identified asset for a period of time in
return for a consideration. When assessing whether a contract states a right
to control the use of an identified asset, management considers:
§ if a contract involves the use of an identified asset, this could be
specified explicitly or implicitly and should be physically distinct;
§ if the Group has obtained the right to gain substantially all of the
economic benefit from the use of the asset throughout the period of use; and
§ if the Group has the right to direct the use of the asset.
Identified 'Right of use assets' since 1 April 2019 are valued at the
commencement date of the lease (this is usually the date the underlying asset
is available for use). For leases that began prior to 1 April 2019 a right of
use asset has been created at 1 April 2019 when the Group adopted IFRS 16.
Right of use assets are depreciated on a straight-line basis from the
commencement date (this is usually the date the underlying asset is available
for use, or 1 April 2019 if the lease commenced before this date) to the
earlier of the end of useful life of the right of use asset or the end of the
lease term. The right of use asset may be subject to impairment following
certain remeasurement of lease liabilities.
Details of the Group's right of use assets are contained in note 10 of the
consolidated financial statements.
Lease liability
At the commencement date of a lease (or 1 April 2019 for leases which
commenced before this date) the Group recognises lease liabilities, measuring
them at the present value of lease payments at commencement of the lease (or
1 April 2019 for leases which commenced before this date) discounted at the
determined incremental borrowing rate.
The lease liability is measured at the amortised cost using the effective
interest method. Should there be a change in expected future lease payments
arising from a lease modification or if the Group changes its assessment of
whether it will exercise an extension or termination option, the lease
liability would be remeasured.
Remeasurement of a lease liability will give rise to a corresponding
adjustment being made to the carrying value of the right to use asset.
Lease liabilities are detailed in notes 12, 13 and 15 of the consolidated
financial statements.
Practical expedients
IFRS 16 provides for certain optional practical expedients, including those
related to the initial adoption of the standard. The Group applies the
following practical expedients when applying IFRS 16 to leases previously
classified as operating leasing under IAS 17:
§ applied a single discount rate to all leases with similar characteristics;
§ applied the exemption not to recognise right of use assets and liabilities
for leases with less than twelve months of the lease term remaining as at the
date of initial application; and
§ applied the exemption for low-value assets whereby leases with a value
under £5,000 (usually IT equipment) have been classed as short-term leases
and not recognised on the statement of financial position even if the initial
term of the lease from the lease commencement date may be more than twelve
months.
Incremental borrowing rate
IFRS 16 states that all components of a lease liability are required to be
discounted to reflect the present value of the payments. Where a lease (or
Group of leases) does not state an implicit rate an incremental borrowing rate
should be used.
The incremental borrowing rate should represent what the lessee would have to
pay to borrow over a similar term and with similar security, the funds
necessary to obtain an asset of similar value to the right of use asset in a
similar economic environment.
The Group has applied an incremental borrowing rate of 3.5% which it uses to
discount all identified leases across the Group.
Share-based payments
In order to calculate the charge for share-based payments as required by IFRS
2, the Group makes estimates principally relating to assumptions used in its
option-pricing model as set out in note 18.
The cost of equity-settled transactions with employees, and transactions with
suppliers where fair value cannot be estimated reliably, is measured with
reference to the fair value of the equity instrument. The fair value of
equity‑settled instruments is determined at the date of grant, taking into
account market-based vesting conditions. The fair value is determined using an
option pricing model.
No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition, which are treated
as vesting irrespective of whether or not the market condition is satisfied,
provided that all other performance conditions are satisfied.
At each reporting date before vesting, the cumulative expense is calculated,
representing the extent to which the vesting period has expired and
management's best estimate of the achievement or otherwise of non-market
conditions, the number of equity instruments that will likely vest, or in the
case of an instrument subject to market condition, be treated as vesting as
described above. The movement in cumulative expense since the previous
reporting date is recognised in the statement of comprehensive income, with
the corresponding entry in equity.
Pensions
The Group operates a defined contribution personal pension scheme. The assets
of this scheme are held separately from those of the Company in an
independently administered fund. The pension charge represents contributions
payable by the Company to the fund.
Uncertainty over income tax treatments
IFRIC 23 provides guidance on the accounting for current and deferred tax
liabilities and assets in circumstances in which there is uncertainty over
income tax treatments. The interpretation requires:
§ the Group to determine whether uncertain tax treatments should be
considered separately, or together as a Group, based on which approach
provides better predictions of the resolution;
§ the Group to determine if it is probable that the tax authorities will
accept the uncertain tax treatment; and
§ if it is not probable that the uncertain tax treatment will be accepted,
measure the tax uncertainty based on the most likely amount or expected value,
depending on whichever method better predicts the resolution of the
uncertainty. This measurement is required to be based on the assumption that
each of the tax authorities will examine amounts they have a right to examine
and have full knowledge of all related information when making those
examinations.
New standards and interpretations applied
There were no new standards or amendments or interpretations to existing
standards that became effective during the year that were material to the
Group.
No new standards, amendments or interpretations to existing standards having
an impact on the financial statements that have been published and that are
mandatory for the Group's accounting periods beginning on or before 1 April
2021, or later periods, have been adopted early.
New standards and interpretations not applied
The following new standards, amendments and interpretations have not been
adopted in the current year.
International Financial Effective date To be adopted
Reporting Standard (IFRS/IAS)
by the Group
Reference to the Conceptual Framework (Amendments to IFRS 3) 1 January 2022 1 April 2022
Property, Plant and Equipment - Proceeds before Intended Use (Amendments to 1 January 2022 1 April 2022
IAS 16)
Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37) 1 January 2022 1 April 2022
Annual Improvements to IFRS Standards 2018-2020 1 January 2022 1 April 2022
The Group has reviewed the impact of these new accounting standards and
amendments and believes the impact is not material to the Group's financial
statements.
2. Measure of profit
To provide shareholders with a better understanding of the trading performance
of the Group, adjusted EBITDA and adjusted profit before tax have been
calculated as profit before tax after adding back the following items, which
can distort the underlying performance of the Group:
Adjusted profit/(loss) before tax
§ Amortisation of acquired intangibles
§ Share-based payments
§ Impairment of intangible assets
§ Fair value adjustment to deferred consideration
§ Other operating income
Adjusted EBITDA
In addition to the adjusting items highlighted above in the underlying profit
before tax:
§ Finance costs
§ Finance income
§ Depreciation (including amortisation of right of use assets)
§ Amortisation of intangible assets - computer software (including in-house
software development)
Adjusted EBITDA and adjusted profit before tax reconciles to profit before tax
as follows:
2022 2021
£'000 £'000
Profit before tax 936 33
Amortisation of acquired intangibles 2,099 2,099
Share-based payments 10 311
Fair value adjustment to deferred consideration - (37)
Other income (70) -
Adjusted profit before tax 2,975 2,406
Finance costs 110 200
Finance income - (2)
Depreciation 263 340
Amortisation of intangible assets - computer software (including in-house 1,050 761
software development)
Adjusted EBITDA 4,398 3,705
3. Segmental information
In accordance with IFRS 8, the Group's operating segments are based on the
operating results reviewed by the Board, which represents the chief operating
decision maker.
The Group is organised into two reportable segments based on the types of
products and services from which each segment derives its revenue - Software
and Services.
Segment information for the twelve months ended 31 March 2022 is presented
below. The Group's assets and liabilities are not presented by segment as the
Directors do not review assets and liabilities on a segmental basis.
Revenue Profit Revenue Profit
Year ended Year ended Year ended Year ended
31 March 2022 31 March 2022 31 March 2021 31 March 2021
£'000 £'000 £'000 £'000
Services 32,540 4,663 27,448 3,076
Software 3,336 1,535 4,318 2,169
Group total 35,876 6,198 31,766 5,245
Group costs (1,800) (1,540)
Adjusted EBITDA 4,398 3,705
Amortisation of intangibles (3,149) (2,860)
Depreciation (263) (340)
Share-based payments (10) (311)
Fair value adjustment to deferred consideration - 37
Other income 70 -
Finance income - 2
Finance cost (110) (200)
Profit before tax 936 33
Segmental information by geography
The Group is domiciled in the United Kingdom and currently the majority of its
revenues come from external customers that are transacted in the United
Kingdom. A number of transactions which are transacted from the United Kingdom
represent global framework agreements, meaning our services, whilst transacted
in the United Kingdom, are delivered globally. The geographical analysis of
revenue detailed below is on the basis of country of origin in which the
master agreement is held with the customer (where the sale is transacted).
2022 2021
£'000 £'000
United Kingdom 29,531 23,424
Europe (excluding the UK) 4,508 6,863
North America 1,470 1,163
Rest of the world 367 316
35,876 31,766
All of the Group's non-current assets are held within the United Kingdom.
Two customers within the Group each make up more than 10% of the Group's
revenue. These two customers contribute £16.2 million and £5.2 million
respectively to the Group's Services division. In the prior year, two
customers made up more than 10% of the Group's revenue, contributing £13.3
million and £4.3 million respectively to the Group's Services division.
4. Expenses and auditor's remuneration
Operating profit is stated after charging:
2022 2021
£'000 £'000
Depreciation of fixed assets 263 340
Amortisation of intangibles 3,149 2,860
External auditor's remuneration:
- Audit fee for annual audit of the Group and Company financial statements 45 46
- Audit fee for annual audit of the subsidiary financial statements 165 149
Share-based payments 10 311
Other operating income (70) (37)
5. Staff costs
Total staff costs within the Group comprise of all Directors' and employee
costs for the financial year.
2022 2021
£'000 £'000
Wages and salaries 6,428 6,114
Social security costs 743 715
Pension costs 202 247
Share-based payments 10 311
7,383 7,387
The weighted average monthly number of employees, including Directors employed
by the Group and Company during the year was:
2022 2021
Administration 19 20
Production 43 45
Sales and marketing 26 27
88 92
6. Interest costs
2022 2021
£'000 £'000
Interest payable on revolving credit facility 66 36
Interest payable on loan balances 19 143
Other interest payments 13 3
Interest payable on lease liabilities 12 18
110 200
7. Taxation
2022 2021
£'000 £'000
Current tax:
UK corporation tax at current rates on UK profit for the year 442 185
Adjustments for previous periods - 16
442 201
Foreign tax 13 3
Total current tax charge 455 204
Deferred tax movement in the period 773 (316)
Income tax charge/(credit) 1,228 (112)
Reconciliation of taxation:
Profit before tax 936 33
Profit multiplied by the average rate of corporation tax in the year of 19% 178 6
(2021: 19%)
Tax effects of:
Expenses not deductible for tax purposes 411 453
Adjustments for previous periods - 16
Foreign tax rate differences (1) 3
Fair value adjustment to deferred consideration - (7)
Enhanced R&D relief (94) (36)
Other items 786 (140)
Brought forward losses (52) (407)
Income tax charge/(credit) 1,228 (112)
In the March 2021 Budget it was announced that legislation will be introduced
in Finance Bill 2021 to increase the main rate of UK corporation tax from 19%
to 25%, effective 1 April 2023. As substantive enactment was prior to the
balance sheet date, the deferred tax balances at 31 March 2022 are now
measured at 25%.
8. Earnings per share
Adjusted earnings per share has been calculated using adjusted earnings
calculated as profit after taxation but before:
§ Amortisation of acquired intangibles after tax
§ Share-based payments
§ Impairment of intangible assets
§ Exceptional items after tax
§Fair value adjustment to deferred consideration
§ Other operating income
Basic profit per share is calculated by dividing the profit attributable to
the ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period.
For diluted earnings per share, the weighted average number of shares in issue
is adjusted to assume conversion of all the potential dilutive ordinary
shares. The potential dilutive shares are dilutive for the twelve months ended
31 March 2022 and 2021. Adjusted earnings per share is potentially dilutive in
the year to 31 March 2022 and 2021. Please see notes 17 and 18 of the
consolidated financial statements for more details.
The calculation of the basic and diluted profit per ordinary share from total
operations attributable to shareholders is based on the following data:
2022 2021
£'000 £'000
Net profit from total operations
(Loss)/profit for the purposes of basic and diluted earnings per share being (292) 145
net profit attributable to shareholders
Add/(remove):
Amortisation of acquired intangibles 1,878 1,877
Share-based payments 10 311
Adjustment to deferred tax liability relating to acquired intangibles(1) 1,014 -
Fair value adjustment to deferred consideration - (37)
Other income (70) -
Adjusted earnings for the purposes of adjusted earnings per share 2,540 2,296
Number Number
Number of shares
Weighted average number of ordinary shares for the purpose of basic and
adjusted earnings per share
23,809,807 23,612,892
Weighted average number of ordinary shares for the purpose of basic and
adjusted diluted earnings per share
24,723,962 23,780,441
£ £
Basic and diluted (loss) / earnings per share (0.01) 0.01
Adjusted basic earnings per share 0.11 0.10
Adjusted diluted earnings per share 0.10 0.10
1 Adjustment to deferred tax liability relating to acquired intangibles
represents the impact of the rate change to 25%which was announced in the
March 2021 Budget which has increased the deferred tax liability for acquired
intangibles.
9. Intangible assets
Goodwill Customer Software Tradenames Gold Total
£'000 relationships £'000 £'000 exploration £'000
£'000 £'000
Cost
At 1 April 2020 36,660 10,838 6,834 6,826 1,005 62,163
Additions - - 709 - - 709
At 31 March 2021 36,660 10,838 7,543 6,826 1,005 62,872
Additions - - 1,097 - - 1,097
At 31 March 2022 36,660 10,838 8,640 6,826 1,005 63,969
Accumulated amortisation
At 1 April 2020 - 1,747 1,642 1,002 1,005 5,396
Amortisation for the year - 942 1,243 675 - 2,860
At 31 March 2021 - 2,689 2,885 1,677 1,005 8,256
Amortisation for the year - 934 1,532 683 - 3,149
At 31 March 2022 - 3,623 4,417 2,360 1,005 11,405
Net book amount
At 31 March 2022 36,660 7,215 4,223 4,466 - 52,564
At 31 March 2021 36,660 8,149 4,658 5,149 - 54,616
At 31 March 2020 36,660 9,091 5,192 5,824 - 56,767
Software intangible assets comprise acquired software assets plus software
assets developed both in-house and externally.
The Group tests goodwill annually for impairment. The recoverable amount of
goodwill is determined as the higher of the value-in-use calculation or fair
value less cost of disposal for each cash‑generating unit (CGU). The
value-in-use calculations use pre-tax cash flow projections based on financial
budgets and forecasts approved by the Board covering a three-year period.
These pre-tax cash flows beyond the three-year period are extrapolated using
estimated long-term growth rates. The Group has five separate cash-generating
units. For all five cash‑generating units a weighted average cost of capital
of 13.24% and a terminal value, based on a long-term growth rate of 2%
calculated on year five cash flow has been used when testing goodwill.
The following key assumptions around revenue growth are summarised in the
table below.
Cash generating units
SecurEnvoy GeoLang Brookcourt Solutions Xcina Consulting Pentest
Year 1 14% 305% 9% 36% 25%
Year 2 25% 25% 6% 20% 20%
Year 3 20% 25% 6% 20% 15%
Year 4 20% 20% 6% 8% 14%
Year 5 20% 20% 6% 7% 13%
4 year CAGR(1) 21% 23% 6% 14% 15%
(1 4 year CAGR represents the average growth rate per year between FY23 to
FY27.)
Sensitivity analysis has been performed on each of the Groups' cash generating
units ('CGU') which incorporates changes in assumed revenue growth rates and
profit margin growth in addition to terminal value revenue growth rate and
weighted cost of capital (WACC). Outcomes of the following sensitivities are
detailed below:
§ Reducing the terminal value by 2% from 2% to 0% demonstrates valuation
headroom above the carrying value of goodwill and identified intangible assets
across all CGUs.
§ Increasing the weighted average cost of capital by 4% from 13.24% to
17.24% demonstrates valuation headroom above the carrying value of goodwill
and identified intangible assets across all CGUs. An increase in the weighted
average cost of capital of 5% to 18.24% would flag insufficient headroom in
two of the Groups' five CGUs (SecurEnvoy and Pentest) resulting in an
impairment of £1.1 million.
§ A number of sensitivities around revenue growth have been assumed which
include:
- Assuming no revenue growth from FY24 onwards for Brookcourt
Solutions Limited.
- Assuming reduced utilisation rates for our professional advisory
businesses of between 3% and 8%.
- Reducing revenue growth assumptions by 10%, assuming a terminal
value more in line with the current rate of inflation for SecurEnvoy Limited.
A 5% reduction in the assumed annual revenue growth rates for each CGU from
FY24 would flag insufficient headroom in one of the Group's five CGUs
(Pentest) resulting in an impairment of £0.1 million.
Each of the scenarios tested demonstrates valuation headroom above the
carrying value. The Directors do not currently feel that there is a reasonably
possible change in assumptions that would drive an impairment in the remaining
three CGUs.
Gold exploration assets date back to before 2017 when the Group was known as
Aurum Mining plc whose principal activity was mining and exploration.
10. Property, plant and equipment Right of use assets Office equipment Total
£'000 £'000 £'000
Cost
At 1 April 2020 740 351 1,091
Additions 60 45 105
Disposals (259) (31) (290)
At 31 March 2021 541 365 906
Additions 125 49 174
Disposals (90) - (90)
At 31 March 2022 576 414 990
Accumulated depreciation
At 1 April 2020 222 177 399
Charge for the period 263 77 340
Disposals (227) (11) (238)
At 31 March 2021 258 243 501
Charge for the period 207 57 263
Disposals (90) - (90)
At 31 March 2022 375 300 674
Net book amount
At 31 March 2022 201 114 315
At 31 March 2021 283 122 405
At 31 March 2020 518 174 692
Depreciation of property, plant and equipment is charged to depreciation and
amortisation expenses within the statement of comprehensive income
11. Trade and other receivables
2022 2021
£'000 £'000
Trade receivables 4,538 8,965
Accrued income 14,847 341
Prepayments and other receivables 770 305
20,155 9,611
The movement for the provision in expected credit losses is stated below:
2022 2021
£'000 £'000
At 1 April 27 26
Movement in expected credit loss provision 14 1
At 31 March 41 27
12. Trade and other payables
2022 2021
£'000 £'000
Trade payables 4,573 7,724
Accruals and other payables 8,289 1,345
Other taxation and social security 599 2,484
Deferred income 456 441
Corporation tax 444 30
Lease liabilities 158 193
Loans - 20
14,519 12,237
Prior year other taxation and social security included £1.3m deferred VAT
which was paid during the current year.
13. Creditors: amounts falling due after more than one year
2022 2021
£'000 £'000
Accruals and other payables 3,958 -
Deferred tax 3,878 3,105
Lease liabilities 48 96
Loans - 755
7,884 3,956
Prior year Loan balances include £0.5 million loan to Secarma for the
acquisition of Pentest Limited, repayable on 9 April 2022 which was repaid
early on 15 October 2021. The remaining £0.2 million represents a working
capital loan which was provided to support the initial working capital
requirements of Pentest Limited, repayable on 9 April 2022 which was repaid
early on 12 April 2021.
14. Deferred tax
2022 2021
£'000 £'000
Non-current liabilities
Liability at 1 April 3,105 3,422
Deferred tax charge/(credit) in the statement of comprehensive income 773 (316)
Total deferred tax 3,878 3,105
Deferred tax balance at 31 March 2022 includes a £3.4 million (2021: £2.8
million) deferred tax liability for acquired intangible assets including
software and trademarks.
2022 2021
£'000 £'000
Non-current assets
At 1 April - 186
Utilisation of deferred tax asset - (186)
Total deferred tax asset - -
The Group has tax losses of £2.4m within its parent company Shearwater Group
plc that are available for offset against future taxable profits of the
entity. A deferred tax asset has not currently been recognised in respect of
these losses as they may not be used to offset profits elsewhere in the Group
and they have arisen in Company whose future taxable profits are uncertain.
15. Lease liabilities
Lease liabilities at 31 March 2022, which includes the addition of a new
office lease, are detailed below:
Property
Lease liabilities £'000
At 1 April 2020 523
Additions 60
Disposals (31)
Interest expense 18
Payments to lease creditors (281)
At 31 March 2021 289
Additions 125
Disposals -
Interest expense 12
Payments to lease creditors (220)
At 31 March 2022 206
The maturity analysis of lease liabilities is detailed below:
Lease liabilities - (contractual undiscounted cash flows) 2022 2021
£'000 £'000
Less than one year 177 213
One to five years 51 112
More than five years - -
Total undiscounted lease liabilities at 31 March 228 325
There are no leases with a term of more than five years.
Lease liabilities included in the statement of financial position at 31 March 2022 2021
£'000 £'000
Current 158 193
Non-current 48 96
Amounts recognised in the statement of comprehensive income 2021
2022 £'000
£'000
Interest on lease liabilities 12 18
Expenses related to short‑term leases - 20
Expenses related to low-value assets - -
Depreciation of right of use assets (note 10) 207 263
Amounts recognised in the statement of cash flows 2021
2022 £'000
£'000
Payment of principal 220 281
Payment of interest 12 18
Total cash outflows 232 299
16. Deferred consideration
2022 2021
£'000 £'000
Liability at 1 April - 275
Holdback consideration shares issued - (238)
Fair value adjustment to deferred consideration - (37)
- -
In the prior year the Group settled the final deferred consideration owed to
the previous owners of GeoLang Holdings Limited, which resulted in an
additional 129,601 ordinary shares being issued to the vendors of GeoLang
Holdings Limited.
17. Share capital
The table below details movements within the year:
Ordinary shares
In thousands of shares 2022 2021
In issue at 1 April 23,810 22,109
Share placing - 1,563
Share issue for deferred consideration - 130
Options exercised during the year 8 8
Number of shares 23,818 23,810
2022 2021
£'000 £'000
Allotted, called up and fully paid
Ordinary shares of £0.10 each (2021: £0.10 each) 2,382 2,381
Deferred shares of £0.90 each (2021: £0.90 each) 19,896 19,896
Total 22,278 22,277
In September 2019 a reorganisation of the Company's capital which resulted in
the consolidation of shares where every 100 shares were consolidated into one
ordinary share of £1. In addition to this, immediately following
consolidation, each consolidated share was sub-divided into one ordinary share
of £0.10 ('Ordinary share') and one deferred share of £0.90 ('Deferred
share').
Deferred shares for all practical purposes are valueless and it is the Board's
intention to repurchase, cancel or seek to surrender these deferred shares
using lawful means as the Board may at such time in the future decide.
The following issues of shares were undertaken in the twelve-month period
ended 31 March 2022:
On 22 March 2022, 8,320 options were exercised by a professional adviser to
the Group.
Other reserves included:
Share premium
This comprises of the amount subscribed for share capital in excess of the
nominal value less any transaction costs incurred in raising equity.
FVTOCI reserves
This comprises of gains/losses arising on financial assets classified as
available for sale. A fair value loss was recognised in the year relating to
Plymouth Minerals. This reserve has been written off in the current year.
Other reserves
These comprise of amounts expensed in relation to the share options, share
incentive scheme (see note 18) and merger relief from shares issued as
consideration to acquisitions and equity placings (net of costs).
Movements in the year ended 31 March 2021 include the following transactions
which have been recognised in the other reserve:
£3.1 million relating to the equity placing of 1,562,500 new ordinary shares
(net of costs).
£0.2 million relating to deferred consideration of 129,602 shares, issued to
the previous owners of GeoLang Holdings Limited.
18. Share-based payments
2022 2021
£'000 £'000
Subsidiary incentive scheme 72 210
Save as you earn (SAYE) 13 3
Share options - (CSOP) 13 -
Share options - (ESOP) (88) 98
10 311
Share options - (CSOP)
The following options over ordinary shares remained outstanding at 31 March
2022:
Options at Options Options Options Options at Exercise Date of First date Final date
1 April issued lapsed exercised 31 March price grant of exercise of exercise
2021 during during during 2022
the year the year the year
Directors:
P McFadden - 25,000 - - 25,000 £0.95 10/02/2022 10/02/2025 10/02/2027
Employees:
Employees - 89,998 - - 89,998 £0.95 10/02/2022 10/02/2023 10/02/2027
Employees - 11,112 - - 11,112 £0.95 10/02/2022 30/09/2023 10/02/2027
Employees - 542,000 - - 542,000 £0.95 10/02/2022 10/02/2025 10/02/2027
Total - 668,110 - - 668,110
The following illustrates the number and weighted average exercise price
(WAEP) of, and movements in, share options during the year.
2022
Number WAEP
£
Outstanding at the beginning of the year - -
Issued 668,110 0.95
Lapsed during the year - -
Exercised during the year ended 31 March - -
Outstanding at 31 March 668,110 0.95
Exercisable at 31 March - -
The share-based payment charge for options granted to employees and Directors
has been calculated using the Black-Scholes model and using the following
parameters:
2022
Share price at grant date £0.95
Exercise price £0.95
Expected option life (year) 5 years
Expected volatility (%) 43.4%
Expected dividends 0%
Risk-free interest rate (%) 1.54%
Option fair value £0.38
The calculation includes an estimated leaver provision of 29%.
The weighted average remaining contractual life of options outstanding at the
end of the year was four years and ten months.
Share options - (ESOP)
The following options over ordinary shares remained outstanding at 31 March
2022:
Options at Options Options Options Options at Exercise Date of First date Final date
1 April issued lapsed exercised 31 March price grant of exercise of exercise
2021 during during during 2022
the year the year the year
Directors:
P McFadden 7,875 - - - 7,875 £4.0 07/05/2018 07/05/2019 30/09/2023
Employees:
Employees 41,581 - 2,081 - 39,500 £4.0 09/05/2017 09/05/2018 08/05/2022
Employees 26,076 - 16,686 - 9,390 £4.0 13/11/2017 13/11/2018 12/11/2022
Employees 364 - 364 - - £4.0 08/01/2018 08/01/2019 07/01/2023
Employees 1,780 - 757 - 1,023 £4.0 01/03/2018 01/03/2019 28/02/2023
Employees 21,559 - 15,934 - 5,625 £4.0 04/04/2018 04/04/2019 03/04/2023
Employees 67,222 - 67,222 - - £3.6 17/10/2018 31/03/2019 30/09/2021
Employees 33,409 - 33,409 - - £3.6 17/10/2018 31/03/2019 30/04/2024
Employees 1,493 - 582 - 911 £1.6 01/03/2019 01/03/2020 01/07/2024
Employees 12,500 - 12,500 - - £2.0 24/04/2019 24/04/2020 30/09/2021
Employees 6,000 - 3,000 - 3,000 £4.0 01/06/2019 01/06/2020 30/09/2023
Employees 12,500 - 2,500 - 10,000 £2.0 01/10/2019 01/10/2020 30/09/2023
Employees - 27,936 - - 27,936 £0.95 10/02/2022 10/02/2025 10/02/2027
Non-employees:
Other 20,000 - 20,000 - - £1.0 03/10/2016 03/10/2016 03/10/2021
Other 16,640 - - 8,320 8,320 £0.1 27/02/2020 27/02/2021 31/03/2023
Total 268,999 27,936 175,035 8,320 113,580
The following options over ordinary shares remained outstanding at 31 March
2021:
Options at Options Options Options Options at Exercise Date of First date Final date
1 April issued lapsed exercised 31 March price grant of exercise of exercise
2020 during during during 2021
the year the year the year
Directors:
P McFadden 7,875 - - - 7,875 £4.0 07/05/2018 07/05/2019 30/09/2023
Employees:
Employees 52,933 - 11,352 - 41,581 £4.0 09/05/2017 09/05/2018 08/05/2022
Employees 33,306 - 7,230 - 26,076 £4.0 13/11/2017 13/11/2018 12/11/2022
Employees 1,063 - 699 - 364 £4.0 08/01/2018 08/01/2019 07/01/2023
Employees 4,880 - 3,100 - 1,780 £4.0 01/03/2018 01/03/2019 28/02/2023
Employees 26,000 - 4,441 - 21,559 £4.0 04/04/2018 04/04/2019 03/04/2023
Employees 70,000 - 2,778 - 67,222 £3.6 17/10/2018 31/03/2019 30/09/2021
Employees 34,722 - 1,313 - 33,409 £3.6 17/10/2018 31/03/2019 30/04/2024
Employees 2,654 - 1,161 - 1,493 £1.6 01/03/2019 01/03/2020 01/07/2024
Employees 25,000 - 25,000 - - £2.0 09/04/2019 09/04/2020 30/09/2021
Employees 12,500 - - - 12,500 £2.0 24/04/2019 24/04/2020 30/09/2021
Employees 9,000 - 3,000 - 6,000 £4.0 01/06/2019 01/06/2020 30/09/2023
Employees 12,500 - - - 12,500 £2.0 01/10/2019 01/10/2020 30/09/2023
Non-employees:
Other 20,000 - - - 20,000 £1.0 03/10/2016 03/10/2016 03/10/2021
Other - 24,960 - 8,320 16,640 £0.1 27/02/2020 27/02/2021 31/03/2023
Total 312,433 24,960 60,074 8,320 268,999
The following illustrates the number and weighted average exercise price
(WAEP) of, and movements in, share options during the year.
2022 2021
Number WAEP Number WAEP
£ £
Outstanding at the beginning of the year 268,999 3.3 312,433 3.3
Issued 27,936 0.95 24,960 0.1
Lapsed during the year 175,036 3.2 60,074 3.1
Exercised during the year ended 31 March 8,320 0.1 8,320 0.1
Outstanding at 31 March 113,580 2.8 268,999 3.2
Exercisable at 31 March 50,276 3.9 167,549 3.3
The weighted average share price of options exercised during the year was
£1.18 (2021: £1.42).
The share-based payment charge for options granted to employees and Directors
has been calculated using the Black-Scholes model and using the following
parameters:
2022 2021
Share price at grant date £0.95 to £4.30 £1.29 to £4.30
Exercise price £0.10 to £4.00 £0.10 to £4.00
Expected option life (year) 1 year to 6 years 1 year to 6 years
Expected volatility (%) 10.6% to 80.0% 40.0%
Expected dividends 0% 0%
Risk-free interest rate (%) 0.60% to 1.54% 0.70% to 1.53%
Option fair value £0.04 to £2.87 £0.00 to £2.90
The calculation includes an estimated leaver provision of 29% (2021: 3%).
The weighted average remaining contractual life of options outstanding at the
end of the year was one year and ten months (2020/21: two years and eight
months).
Share options - (SAYE)
The following options over ordinary shares remained outstanding at 31 March
2022:
Options at Options Options Options Options at Exercise Date of First date Final date
1 April issued lapsed exercised 31 March price grant of exercise of exercise
2021 during during during 2022
the year the year the year
Employees:
Employees 150,285 - 17,820 - 132,465 £1.515 25/01/2021 01/03/2024 30/09/2024
Total 150,285 - 17,820 - 132,465
The following options over ordinary shares remained outstanding at 31 March
2021:
Options at Options Options Options Options at Exercise Date of First date Final date
1 April issued lapsed exercised 31 March price grant of exercise of exercise
2020 during during during 2021
the year the year the year
Employees:
Employees - 150,285 - - 150,285 £1.515 25/01/2021 01/03/2024 30/09/2024
Total - 150,285 - - 150,285
The following illustrates the number and weighted average exercise price
(WAEP) of, and movements in, share options during the year.
2022 2021
Number WAEP Number WAEP
£ £
Outstanding at the beginning of the year 150,285 1.515 - -
Issued - - 150,285 1.515
Lapsed during the year 17,820 1.515 - -
Exercised during the year ended 31 March - - - -
Outstanding at 31 March 132,465 1.515 150,285 1.515
Exercisable at 31 March - - - -
The share-based payment charge for options granted to employees and Directors
has been calculated using the Black-Scholes model and using the following
parameters:
2021
Share price at grant date £1.420
Exercise price £1.515
Expected option life (year) 3 years 8 months
Expected volatility (%) 40.0%
Expected dividends 0%
Risk-free interest rate (%) 0.13%
Option fair value £0.394
The calculation includes an estimated leaver provision of 29%.
The market price of shares as at 31 March 2022 was £1.05 (31 March 2021:
£1.35). The range during the financial year was £0.74 to £2.15. At the date
of signing the financial statements the share price was 139.0p
The weighted average remaining contractual life of options outstanding at the
end of the year was two years and six months (2020/21: three years and six
months).
Subsidiary incentive scheme
On 29 September 2016, the Group established a share incentive scheme for
certain Directors and consultants to the Group, via the Group's subsidiary,
Shearwater Subco Limited (the 'subsidiary'), in order to align the interests
of the scheme participants directly with those of shareholders.
Pursuant to the subsidiary incentive scheme, the subsidiary issued 160,000 'B'
ordinary shares of £0.000001 in the capital of the subsidiary ('incentive
shares') on 18 January 2017 at a price of £0.032 per share. Subject to the
growth and vesting conditions both being satisfied, participants may elect to
sell their respective B shares to the Group and the Group shall acquire those
B shares in consideration for cash or by the issue of new ordinary shares at
the Group's discretion. The Group's intention is to settle these through the
issue of new ordinary shares in the Group.
The value of the incentive shares is discussed below. Neither of the growth or
vesting conditions were satisfied during the year. The subsidiary incentive
scheme is now closed and the Directors do not anticipate making any further
grants under the scheme.
Growth conditions
The growth condition is that the compound annual growth of the Group's equity
value must be at least 12.5% per annum. The growth condition takes into
account the new shares issued, dividends and capital returned to shareholders.
Vesting conditions
The incentive shares are subject to a vesting period which ends on 29
September 2022. The participants can exercise their right to require the Group
to purchase its incentive shares at any time up to 29 September 2022.
Value
Subject to the provisions detailed above, the incentive shares can be sold to
the Group for an aggregate value equivalent to 16% of the increase in market
capitalisation of all ordinary shares of the Group issued up to the date of
sale, allowing for any dividends and other capital movements.
Directors' incentive shares
The incentive shares issued to Directors are shown in the table below: Participation in increase in shareholder value Issue price Nominal value Shares of incentive shares Number of Incentive shares 1 April 2021 Number of Incentive Group plc 31 March 2022 Number of Shearwater Shares issued Share-based payment charge
D Williams 6.5% £0.032 £0.000001 65,000 65,000 - 29,145
P Higgins 7.5% £0.032 £0.000001 75,000 75,000 - 33,629
Valuation of incentive shares
The share-based payment charge for the incentive shares has been calculated
using a binomial valuation model at the grant date. The fair value amounted to
£937,623 based on an initial expiry date of 29 September 2019. An option to
amend the expiry date was exercised on 17 April 2020 to extend this expiry
date to 29 September 2022 which has increased the fair value by £18,349.
Following this extension £955,972 will be recognised over the life of the
scheme which expires on 29 September 2022. In the current year
£71,742 (2021: £209,889) has been recognised as an expense in the statement
of comprehensive income in respect of incentive shares. All 160,000 incentive
scheme shares were subscribed for by participants at unrestricted market
value.
19. Financial instruments
The Group uses financial instruments, other than derivatives, comprising cash
at bank and various items such as trade and other receivables and trade and
other payables that arise directly from its operations. The main purpose of
these financial instruments is to raise finance for the Group's operations.
The Group's financial assets and liabilities at 31 March 2022, as defined
under IFRS 9, are as follows. The fair values of financial assets and
liabilities recorded at amortised cost are considered to approximate their
book value.
Amortised cost (loans and receivables) Fair value through other comprehensive income (available for sales)
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Financial assets
Cash and cash equivalents 5,575 8,049 - -
Trade and other receivables 19,426 9,333 - -
Total financial assets 25,001 17,382 - -
Amortised cost Fair value through other comprehensive income (available for sales)
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Financial liabilities
Trade and other payables 16,821 9,069 - -
Loans and borrowings - 775 - -
Lease liabilities 205 289 - -
Total financial liabilities 17,026 10,133 - -
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group's risk
management objectives and policies and, whilst retaining ultimate
responsibility for them, it has delegated the authority for designing and
operating processes that ensure the effective implementation of the objectives
and policies to the Group's Finance function.
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 is exposed to financial risks in respect of:
§ capital risk;
§ foreign currency;
§ interest rates;
§ credit risk; and
§ liquidity risk.
A description of each risk, together with the policy for managing risk, is
given below.
Capital risk
The Group manages its capital to ensure that the Group and its subsidiaries
will be able to continue as going concerns while maximising the return to
stakeholders through the optimisation of equity and debt balances.
The capital structure of the Group consists of cash and cash equivalents,
borrowings, equity, comprising issued capital, reserves and accumulated losses
as disclosed in the consolidated statement of changes in equity.
The Board of Directors reviews the capital structure on a regular basis. As
part of this review, the Board considers the cost of capital and the risks
associated with each class of capital, against the purpose for which it is
intended.
The Group has a three-year £4.0 million revolving credit facility which is in
place to fund further growth and short‑term working capital requirements.
This facility was not utilised during the current year.
Market risk
Market risk arises from the Group's use of interest‑bearing, tradable and
foreign currency financial instruments. It is the risk that the fair value or
future cash flows of a financial instrument will fluctuate because of changes
in foreign exchange rates (currency risk), interest rates (interest rate
risk), or other market factors (other price risk).
Foreign currency risk
The Group is exposed to foreign currency risk on sales and purchases which are
denominated in a currency other than sterling. Exposures to exchange rates are
predominantly denominated in US dollars and euros. The Group seeks to reduce
foreign exchange exposures arising from transactions in various currencies
through a policy of matching, as far as possible, receipts and payments across
the Group in each individual currency. The Group does not currently use
derivatives to hedge translation exposures arising on the consolidation of its
overseas operations.
As of 31 March the Group's net exposure to foreign exchange risk was as
follows:
USD EUR
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Net foreign currency financial assets/(liabilities)
Trade receivables 202 392 735 2315
Trade payables (3,389) (4,423) (18) (669)
Other payables (9,364) - - -
Cash and cash equivalents 1,431 370 651 158
Total net exposure (11,121) (3,661) 1,369 1,805
The effect of a 10% strengthening of the US dollar against sterling at the
reporting date on the US dollar denominated trade receivables, payables and
cash and cash equivalents carried at that date would, all other variables held
constant, have resulted in a decrease of the pre-tax profit in the year and a
decrease in net assets of £1.2 million. A 10% weakening in the exchange rate
would, on the same basis, have increased the pre-tax profit in the year and
increased net assets by £1.0 million.
The effect of a 10% strengthening of the euro against sterling at the
reporting date on the euro denominated trade receivables, payables and cash
and cash equivalents carried at that date would, all other variables held
constant, have resulted in an increase of the pre-tax profit in the year and
an increase in net assets of £0.2 million. A 10% weakening in the exchange
rate would, on the same basis, have decreased the pre-tax profit in the year
and decreased net assets by £0.1 million.
Interest rate risk
The Group has minimal cash flow interest rate risk as it has no external
borrowings at variable interest rates.
Liquidity risk
The Group manages liquidity risk by maintaining adequate cash reserves and
credit facilities, by continuously monitoring forecast and actual cash flows,
and by matching the maturity profiles of financial assets and liabilities
wherever possible. In addition to this, the Group has a £4.0 million
revolving credit facility (RCF) which provides further contingency against
short-term working capital movements. At 31 March 2022 this facility had not
been utilised. There has been no change to the Group's exposure to liquidity
risks or the manner in which these risks are managed and measured during the
year. Further details are provided in the strategic report.
The liquidity risk of each Group entity is managed centrally by the Group's
Finance function. Each entity has a predefined facility based on the budget
which is set and approved by the Board in advance, which provides detail of
each entity's cash requirements. Any additional expenditure over budget
requires sign off by the Board. A quarterly reforecast which includes a cash
flow forecast is reviewed by management and approved by the Board.
The Group has a three-year £4.0 million revolving credit facility (RCF) with
its bank and £0.2 million of credit on corporate credit cards which are
settled in full on a monthly basis.
The maturity profile of the financial liabilities is summarised below. The
table has been drawn up based on the undiscounted cash flows of financial
liabilities based on the earliest date on which the Group can be required to
pay.
Up to Between Between Between Over 5 years
3 months 3 and 12 months 1 and 2 years 2 and 5 years £'000
£'000 £'000 £'000 £'000
As at
31 March 2022
Trade and other payables 8,609 4,253 3,959 - -
Loans and borrowings - - - - -
Lease liabilities 51 107 48 - -
Total 8,660 4,360 4,007 - -
Up to Between Between Between Over 5 years
3 months 3 and 12 months 1 and 2 years 2 and 5 years £'000
£'000 £'000 £'000 £'000
As at
31 March 2021
Trade and other payables 8,822 247 - - -
Loans and borrowings 20 - 755 - -
Lease liabilities 53 140 96 - -
Total 8,895 387 851 - -
Credit risk
The Group's principal financial assets are trade receivables and bank
balances. The Group is consequently exposed to the risk that its customers
cannot meet their obligations as they fall due. The Group's policy is that the
lines of business assess the creditworthiness and financial strength of
customers at inception and on an ongoing basis. The Group also reviews the
credit rating of its banks and financial institutions.
Ongoing review of the financial condition of trade and other receivables is
performed. Further details are in note 11. The carrying amount of financial
assets recorded in the financial statements represents the Group's maximum
exposure to credit risk. Whilst the Group's exposure to credit risk has
increased as the Group has grown, to date this has not materially increased
the Group's actual bad debt, which is partially due to the type of clients it
contracts with as well as effective due-diligence when issuing credit to its
clients.
20. Related party transactions
The Directors of the Group and their immediate relatives have an interest of
18% (2021: 17%) of the voting shares of the Group.
On 15 October 2021, £473,892 was paid to Secarma Limited, the previous owners
of Pentest Limited representing the final payment of a loan that was taken out
as part of the acquisition consideration.
During the prior year, £1,838,065 representing deferred completion cash
(including interest) and £215,216 representing the working capital true up
relating to the acquisition of Brookcourt Solutions Limited was paid to P
Higgins who serves as a Director of Shearwater Group plc, Shearwater Subco
Limited and Brookcourt Solutions Limited.
During the prior year, £1,783,334 representing deferred completion cash
(including interest) and £215,216 representing the working capital true up
relating to the acquisition of Brookcourt Solutions Limited was paid to D
Stacey who serves as a Director of Brookcourt Solutions Limited.
During the prior year £239,442 was paid to Secarma Limited, the previous
owners of Pentest Limited representing the first instalment of a loan that was
taken out as part of the acquisition consideration.
No dividends were made to the Company in either years by subsidiary
undertakings.
There were no other related party transactions for the Group during the
period.
21. Bank Loans
At 31 March 2022 the Group had not utilised the £4.0 million credit facility
it has in place with Barclays Bank plc. The facility was extended on 24 March
2021 for a further 3 years to 23 March 2024. A charge has been registered on
Shearwater Group plc and a number of its subsidiaries as security for the
facility.
22. Notes to support cash flow
Cash and cash equivalents comprise:
2022 2021
£'000 £'000
Cash available on demand 5,575 8,049
Net cash (decrease)/increase in cash and cash equivalents (2,474) 4,706
Cash and cash equivalents at the beginning of the year 8,049 3,343
Cash and cash equivalents at the end of the year 5,575 8,049
Cash and cash equivalents are held in the following currencies:
2022 2021
£'000 £'000
Sterling 3,495 7,444
US dollar 1,431 435
Euro 650 170
5,575 8,049
Reconciliation of liabilities from financing activities:
Non-cash changes
2021 Cash Interest savings on early repayment of loans Loan Right of use Right of use 2022
£'000 outflows £'000 interest asset asset £'000
£'000 £'000 additions disposal
£'000 £'000
Other loans 775 (724) - 19 - (70) -
Revolving credit facility interest payable - (46) - 66 - - 20
Other interest - paid - (23) 10 13 - - -
Other interest - not paid 1 (1) - - - - -
Payment of principal on lease liabilities 289 (220) - 12 125 - 206
Total 1,065 (1,014) 10 110 125 (70) 226
Non-cash changes
2020 Cash Cash Loan Right of use Right of use 2021
£'000 outflows inflows interest asset asset £'000
£'000 £'000 £'000 additions disposal
£'000 £'000
Other loans 4,783 (4,151) - 143 - - 775
Revolving credit facility interest payable - (35) - 35 - - -
Other interest - paid - (3) - 3 - - -
Other interest - not paid - - - 1 - - 1
Payment of principal on lease liabilities 524 (281) - 18 60 (32) 289
Total 5,307 (4,470) - 200 60 (32) 1,065
23. Events after the reporting period
There are no material events after the reporting period to report.
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