REG - Shearwater Group PLC - Results for the six months ended 30 September 2022
29/11/2022 07:00
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RNS Number : 8501H Shearwater Group PLC 29 November 2022
This announcement contains inside information for the purposes of Article 7 of
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
announcement via a Regulatory Information Service, this inside information is
now considered to be in the public domain.
29 November 2022
SHEARWATER GROUP PLC
("Shearwater", or the "Group")
Interim Results for the six months ended 30 September 2022
Continued confidence in delivering revenue in line with full year market
expectations
Shearwater Group plc, the cybersecurity, advisory and managed security
services group, is pleased to announce its unaudited results for the six
months ended 30 September 2022.
Financial highlights
· A strong pipeline of second half opportunities across both
Software and Services underpins confidence in delivering full year revenue in
line with market expectations.
· The Group has delivered a robust first half trading performance
despite challenging economic conditions with revenue increasing to £10.8
million (H1 FY22: £10.6 million), driven by new client wins and successful
contract renewals.
· Adjusted H1 FY23 EBITDA(1) was down at £0.1 million (H1 FY22:
£1.3 million), reflecting the impact of the weaker Sterling against the USD
during the first half period and primarily relating to a £0.9 million
unrealised FX charge on future USD liabilities at 30 September 2022, of which
£0.2 million had unwound by 31 October 2022. Excluding the H1 FX impacts
underlying profit performance would have been in line with the prior year.
· Net cash at 30 September 2022 was down at £0.9 million
reflecting the expected working capital absorption during the period, which is
expected to reverse in the second half. As at the end of October 2022 Net Cash
was £1.5 million with further improvement forecast in the balance of the
year.
Business highlights
· Significant progress in the Software division with new GeoLang
product launch and enhanced functionality at SecurEnvoy provides confidence to
the second half outlook, with strong levels of interest from the marketplace
following an initial purchase of GeoLang products by an international bank.
· Signed a global distribution network agreement with Ingram Micro
Inc, one of the world's largest providers of technology, to promote the
Group's identity and access authentication product solutions.
· Robust performance in the Services division, including securing
an expanded contract with a multinational blue-chip organisation.
· 20% increase in revenue generating security consultant capacity
during the period, reflecting continued investment to support ongoing demand.
· 52 new customer wins during the period across the group, with
encouraging traction in Software at the period end.
(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. )
Phil Higgins, Chief Executive Officer of Shearwater Group PLC, commented: "The
Group has delivered a solid trading performance amidst a challenging trading
environment. As we move into the traditionally weighted second half, we are
bolstered by a pipeline of further advisory work, penetration testing and
managed security services opportunities, as well as the launch of our new
Software capability which have been received well. With good visibility of
revenues and an expanded, global footprint, there is growing momentum across
the Group as we move into a more favourable macroeconomic environment in H2,
with confidence levels higher than they were this time last year."
Enquiries:
Shearwater Group plc www.shearwatergroup.com (http://www.shearwatergroup.com/)
David Williams, Chairman c/o Alma PR
Phil Higgins, CEO
Cenkos Securities plc - NOMAD and Broker +44 (0) 20 7397 8900
Ben Jeynes / Max Gould - Corporate Finance
Alex Pollen / Michael Johnson - Sales
Alma PR shearwater@almapr.co.uk (mailto:shearwater@almapr.co.uk)
Justine James / 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/) .
Chief Executive's review
Overview
Cyber security has expanded to encompass every aspect of our digital society,
we are at the precipice of a time when every facet of society will need to be
protected and defended against the constantly expanding threat of
cyber-attack. This situation offers considerable opportunities for Shearwater
and underpins our Group-wide confidence in future growth. In the period we
experienced increased customer account penetration expanding our Services
delivery, most notably to our larger telco, banking and retail customers, in
addition to securing new blue-chip customers.
We are pleased with the sales performance of our Services division, including
the recent improvements in utilisation across our consulting offerings driven
by a growing client base. Confidence across Services remains high for the
second half underpinned by the increased visibility from our contract
pipeline.
Although Software revenue performance in H1 was modest we have made good
progress launching new features in both GeoLang and SecurEnvoy which have been
well received by the marketplace. Additionally, we have expanded our
geographic reach in SecurEnvoy, having signed an agreement with a North
American distributor, Ingram Micro Inc, one of the world's largest providers
of technology. These developments have received strong client feedback which
has resulted in a growing pipeline of customer opportunities, which we aim to
convert to revenue in H2.
As a result, the Group expects to benefit from a strong and growing pipeline
of Software and Services opportunities in the second half. The Group continues
to serve blue-chip customers globally across a broad spectrum of industries,
and with an expanded footprint in Europe and North America, and a strengthened
team, there is a strong sense of optimism across all our businesses.
The Group has delivered robust financial results amidst a challenging trading
environment with revenue, in the traditionally quieter first half, of £10.8
million (H1 FY22: £10.6 million) and adjusted EBITDA of £0.1 million (H1
FY22: £1.3 million). Adjusted EBITDA was impacted by the weaker Sterling
against the USD during the first half period, primarily relating to a £0.9
million unrealised FX charge related to future USD liabilities at 30 September
2022. Excluding the impact of these significant FX movements the underlying
performance of the business would have been in line with the prior year. The
strengthening of the pound since the half year has already unwound this 30
September 2022 impact by £0.2 million as at 31 October 2022. Furthermore,
forward contracts have been put in place, post the period end, which protect
75% of the exposure against further downside should sterling weaken again.
Net cash was £0.9 million as at 30 September 2022 (30 September 2021: £4.4
million) reflecting the expected working capital absorption in the period
which is forecast to unwind in the second half. As at 31 October 2022 net cash
had increased to £1.5 million, with further improvement forecast by the year
end. The Group continues to maintain a strong balance sheet and continues to
benefit from its revolving credit facility of £4.0 million, which remained
undrawn throughout the first half period.
Current trading and outlook
Trading in the second half has started strongly with the Group 6% ahead of the
prior year for the 7 months ended 31 October, and the Board remain confident,
based on delivering the existing pipeline of opportunities, of a full year
revenue performance in line with market expectations.
Our Services division, having been bolstered by a number of H1 wins with
multinational organisations, continues to benefit from an increasing number of
opportunities which our expanded and experienced team are well-equipped to
deal with as the pipeline grows. Confidence across the Software division is
also strong as we continue to expand our footprint and launch new products to
market.
As we move into the typically weighted second half, we have good visibility of
H2 revenue opportunities including those identified from existing contract
renewals. Furthermore, projects that were delayed due to the pandemic have
restarted and are progressing well. Our consulting utilisation rates are
increasing with a healthy orderbook, professional advisory enquires are
growing and our solutions business is strong.
Growth strategy
The market opportunity which lies within the cybersecurity space has never
been more apparent and provides us with a strong degree of confidence moving
forwards. 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 reach and established reputation in dealing with such
issues, underlines the market opportunity for the Group.
Our vision remains unchanged in becoming the provider of choice, delivering
professional advisory, cyber security services and solutions, and next
generation cyber technology. Within our award-winning 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.
Within our Software division we aim to deliver a 'must have' next generation
converged access management and data discovery platform. We continue to invest
in our software to bring new service offerings to market whilst seeking
potential software acquisitions in order to further build out the
capabilities.
Alongside organic growth, our M&A strategy remains, highlighted by the
newly established Mergers & Acquisitions Committee, who 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.
Operational review
Our Group comprises of two divisions, Services (85% revenue) and Software (15%
revenue). Our Services division clients are largely blue chips, and we have
particular strength in the banking, telco and technology sectors. Our Software
offerings are sold through distributors to the global reseller channel.
We continue to invest in talent globally, to enhance performance and support
our vision across both the Services and Software divisions. We now have an
expanded footprint, winning clients in new territories while retaining
long-term clients. During the period we increased our total headcount by 11 to
99 while also investing in staff training which will benefit the Group in the
second half and beyond.
We continue to promote cross-selling across the Group, with momentum in H2
expected to gain traction following the latest software product launches. We
are pleased to report that c.70% of cross-sales from 2021 are still clients
today and we aim to continue to build upon this strong performance. There
remain great opportunities to further expand cross-selling across the Group
with significant opportunities identified in both the Services and Software
businesses.
KPI Review
- 52 new customer wins in the period (30 September 2021: 90)
- New software revenue of £0.2 million (30 September 2021: £0.4
million)
- Good visibility with c.30% of H2 revenues identified from either
contracted, scheduled or existing contract renewals, this excludes the
pipeline of cross-selling opportunities and other new projects currently in
the pipeline from new and existing customers.
- 1% of revenues are now generated through cross-selling (2021:
2%) with an element of this being repeatable in nature
Services
We have been encouraged by a number of wins within our Services division which
have helped drive the strong H1 revenue performance, most notably securing an
expanded contract with a multinational blue-chip organisation. Our solution
business has also expanded having won new enterprise clients as well as
becoming a supplier on the UK Governments G-Cloud approved suppliers list.
Confidence across Services remains high to deliver a strong second half
performance.
As reported above, earnings in the period were impacted by the weakening of
sterling against the USD and particularly a £0.9 million charge relating to
revaluation of US dollar liabilities due in May 2023 and May 2024. Adjusting
for the impact of FX related movements in the first half would have resulted
in gross margins in line with the prior year.
Additional year-on-year investment into recruitment and training of revenue
generating consultants has provided an additional 20% of revenue generating
capacity to service the increased demand for advisory services going
forward.
H1 FY23 H1 FY22 YOY 12 months to 31 March 2022
£ (000) £ (000) % £ (000)
Revenue 9,136 8,689 5% 32,540
Gross profit 1,571 2,639 (40%) 8,602
Gross profit margin % 17% 30% 26%
Overheads 1,738 1,735 3,939
Adjusted EBITDA (167) 905 4,663
Adjusted EBITDA % (2%) 10% 14%
Software
We have continued to expand our geographical footprint within our Software
division, successfully securing our first north American distributor, Ingram
Micro Inc (NYSE:IM), one of the world's largest providers of technology to
promote identity solutions. With Ingram Micro Inc having offices and
representatives in 61 countries, SecurEnvoy authentication products are now
available to their partner network globally. Furthermore, we have also
secured a contract with TD SYNNEX (NYSE:SNX), a leading Canadian distributor.
These new distributor agreements provide an additional c.200 partners across
North America with access to SecurEnvoy solutions and provide a fantastic
opportunity to further expand our client base in the world's largest market,
North America.
GeoLang's optical character recognition ("OCR") feature allows customers to
search scanned documents and PDFs for sensitive data and it is now being used
by a leading international bank with a number of scheduled presentations to
other leading corporates. SecurEnvoy's newly released geolocation enhancement
allows customers to control and restrict the geographic location someone can
log in to the corporate network giving greater control over network access.
SecurEnvoy's new distribution agreements extend our market beyond our c.350
resellers, increasing it to c.550, allowing both managed service providers
(MSP) and managed security service providers (MSSP) to represent our software
as their own to their client base on a white label basis.
Additional investment in new sales roles, in addition to a temporary increase
in cloud platform hosting costs have impacted gross profitability in the
period which otherwise would have been in line with the prior period. Cloud
platform costs will return to their previous levels early in H2.
H1 FY23 H1 FY22 YOY 12 months to 31 March 2022
£ (000) £ (000) % £ (000)
Revenue 1,654 1,887 (12%) 3,336
Gross profit 1,144 1,462 (22%) 2,221
Gross profit margin % 69% 77% - 67%
Overheads 441 552 (20%) 686
Adjusted EBITDA 703 910 (23%) 1,535
Adjusted EBITDA % 43% 48% - 46%
Finance review
Revenue
Revenue of £10.8 million (H1 FY22: £10.6 million) is marginally ahead of the
prior year with increased spending from long term Services clients
contributing to the year-on-year improvement.
The services division has delivered 5% year-on-year revenue growth in the
period with the Group's advisory revenues having performed robustly delivering
an improvement, which, in addition to the continued growth of security
solutions revenues has offset some delays which have impacted managed services
revenue, which we now expect to occur in H2. Software revenues for the period
of £1.7 million were, as expected, £0.2 million behind the prior year (H1
FY22: £1.9 million) due to a prior year GeoLang revenue that was not due to
repeat in the current period and a year-on-year reduction in new business
revenues from our legacy product-set. As we move into H2 it is pleasing to see
a significant increase in interest for our newly developed software products
which creates some exciting opportunities to add highly profitable incremental
revenues to the Group's software division.
Adjusted EBITDA
Adjusted EBITDA of £0.1 million (H1 FY22: £1.3 million) was down on the
prior year driven by the impact of the strengthening USD against sterling in
the first half of the financial year. Excluding the FX impacts the Group would
have delivered an Adjusted EBITDA in line with the prior year.
The FX impact includes a £0.9 million unrealised foreign exchange charge
relating to US dollar liabilities due in May 2023 and May 2024 that have been
revalued at 30 September 2022 which has impacted the Group's Service Division
in the period. At 31 October 2022 this exchange impact had unwound by £0.2
million. Post the reporting date, forward contracts have been put in place
which protects 75% of the exposure against further downside should sterling
weaken.
The income statement below details both statutory and alternative measures
which, in the Directors' opinion provides additional relevant information to
the reader in assessing the adjusted performance of the business.
H1 FY23 H1 FY22 Change 12 months to 31 March 2022
£ (000) £ (000) % £ (000)
Revenue 10,790 10,576 2% 35,876
Gross profit 2,715 4,101 (34%) 10,823
Gross profit margin % 25% 39% 30%
Overheads 2,653 2,840 7% 6,425
Adjusted EBITDA 61 1,261 (95%) 4,398
Adjusted EBITDA margin % 1% 12% 12%
Finance charge 31 56 110
Depreciation 127 136 263
Amortisation of intangible assets - computer software 396 526 1,050
Adjusted (loss)/profit before tax (494) 543 2,975
Amortisation of acquired intangible assets 1,050 1,050 2,099
Share based payments 82 31 10
Other income - (20) (70)
(Loss) before tax (1,625) (518) 936
Taxation (credit)/charge (306) (138) 1,228
Loss after tax (1,319) (380) (292)
Finance charges
The year-on-year reduction in Finance charges reflects savings on interest on
loan balances that were fully repaid in the prior year.
Depreciation
Depreciation, which includes Right of Use assets is tracking in line with the
previous year.
Amortisation of intangibles assets - computer software
A reduced amortisation charge in the period reflects assets that were fully
written off in the prior period.
Adjusted profit before tax
Adjusted loss before tax of £0.5 million (H1 FY22: adjusted profit before tax
£0.5 million) driven by lower Adjusted EBITDA offset by savings in
amortisation of intangible computer software, finance charges and
depreciation.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets of £1.1 million (H1 FY22: £1.1
million) is in line with the previous year.
Other income
Other income in the prior year consists of the early repayment discount
relating to a £0.3 million loan liability which was repaid in April 2021.
Share based payments
A charge of £0.1million (H1 FY22: £0.03 million) has been incurred in
relation to long-term incentive plans.
Earnings per share
Adjusted basic and diluted loss per share of £0.01 (H1 FY22: earnings per
share £0.02) incorporates the year-on-year reduction in adjusted
profit/(loss) after tax. Reported basic loss per share of £0.06 and diluted
loss per share of £0.05 (H1 FY22: basic and diluted loss per share £0.02)
includes the year-on-year reduction in adjusted profit/(loss) after tax,
increased share-based payments less other income recognised in the prior year.
Loss before tax
A reduced loss before tax in the period of £1.6million (H1 FY22: £0.5
million) recognises the year-on-year reduction in adjusted profit/(loss)
before tax plus increases in share-based payments less other income recognised
in the period.
Statement of Cash flow
The Group saw an operating cash outflow in the first half of the year of £3.9
million which is primarily driven by an operating cash outflow associated with
a large contract won in the prior year, which will become cash positive going
forward and an expected client receipts that were remitted before the period
end but not received until early October. As in previous years H2 is expected
to generate an operational cash inflow.
During the period the Group increased its investment into the development of
internally created software and services with expenditure up 58% on a
year-on-year basis. As we move into H2 it is pleasing to see a number of these
products and services now live and creating new sales opportunities for new
and existing clients.
2022 2021 12 months to 31 March 2022
£ (000) £ (000) £ (000)
Adjusted EBITDA 61 1,261 4,398
Movements in working capital (3,959) (3,523) (4,656)
Cash used / generated from operations (3,898) (2,262) (258)
Capital expenditure (net of disposal proceeds) (686) (433) (1,146)
Tax paid - (31) (62)
Interest paid (26) (35) (70)
Payments of lease liabilities (108) (112) (220)
Loan repayments (-) (250) (724)
FX and other 13 (3) 6
Movement in cash (4,705) (3,126) (2,474)
Opening cash and cash equivalents 5,575 8,049 8,049)
Closing cash and cash equivalents 870 4,923 5,575
Loans - (520) -
Net cash / (debt) 870 4,403 5,575
Despite the operating cash outflow reported in H1, the Group continued to
collect cash in an efficient manner, maintaining strong cash collection with
minimal bad debts. Unaudited net cash was £1.5 million as at 31 October
2022.
Alternative performance measures
This review includes alternative performance measures ('APMs') alongside the
standard IFRS measures. The Directors believe that alternative measures
provide additional relevant information regarding the adjusted performance of
the business. APMs are used to enhance the comparability of information
between reporting periods by adjusting for one off exceptional and other items
that affect the IFRS measure. Consequently, the Directors and management use
APM's in addition to IFRS measures to assess the adjusted performance of the
business.
Alternative performance measures used include:
§ Adjusted EBITDA
§ Adjusted profit before tax
§ Adjusted profit after tax
§ Adjusted earnings per share
Adjusting items include:
Exceptional items which are one off by their nature such as acquisition costs
or re-organisation costs and do not form part of the underlying operational
cost of the business.
Share based payment charges awarded form a long-term remuneration incentive to
certain staff. Despite this plan not having a cash cost to the business, a
share-based payment charge is taken to the statement of comprehensive income
which we believe does not form part of the underlying operating cost of the
business.
Other income in the prior year generated from early repayments discounts for
loan liabilities is one off in its nature and therefore not a consistent
income stream.
Acquisition amortisation of identified intangible assets acquired as part of
an acquisition are charged to the statement of comprehensive income but do not
form part of the underlying operating cost of the business.
A full reconciliation between adjusted and reported results is detailed below:
Six months to 30 September H1 FY23 H1 FY22
£ (000) £ (000)
Adjusted EBITDA 61 1,261
Share based payments charge (82) (31)
EBITDA (21) 1,230
Six months to 30 September H1 FY23 H1 FY22
£ (000) £ (000)
Adjusted (loss)/profit before tax (493) 543
Acquisition amortisation (1,050) (1,050)
Share based payments charges (82) (31)
Other income - 20
Reported loss before tax (1,625) (518)
Six months to 30 September H1 FY23 H1 FY22
£ (000) £ (000)
Adjusted profit after tax (298) 570
Acquisition amortisation (939) (939)
Share based payments charge (82) (31)
Other income - 20
Reported loss after tax (1,319) (380)
Six months to 30 September H1 FY23 H1 FY22
£ (000) £ (000)
Adjusted basic & diluted EPS (0.01) 0.02
Acquisition amortisation (0.04) (0.04)
Share based payments charge (0.00) 0.00
Other income 0.00 0.00
Reported diluted EPS (0.05) (0.02)
Principal risks and uncertainties
The Group works to minimise its exposure to operational, financial and other
risks however in pursuit of achieving its growth strategy there will always be
an element of risk that needs to be considered. The Group's principal risks
and uncertainties, as detailed in the financial statements for the year ended
31 March 2022, are all still considered to be valid. Over the past six months
these risks and uncertainties have remained very much in place.
Statement of Directors' responsibilities
We confirm that to the best our knowledge that:
§ The condensed interim set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the United
Kingdom;
§ The interim report includes a fair review of information required by DTR
4.2.7R (indication of important events during the first six months and
description of principal risks and uncertainties for the remaining six months
of the year); and
§ The interim report includes a fair review of the information required by
DTR 4.2.8R (disclosure of related parties transactions and any change
therein).
Phil
Higgins
Paul McFadden
Chief Executive
Officer
Chief Financial Officer
Consolidated statement of comprehensive income
for the 6 months to 30 September 2022
2022 2021
(unaudited) (unaudited)
Note £ (000) £ (000)
Revenue 3 10,790 10,576
Cost of sales (8,075) (6,475)
Gross profit 2,715 4,101
Administrative expenses (2,736) (2,871)
Depreciation and amortisation (1,573) (1,712)
Other operating expenses/income - 20
Total operating costs (4,309) (4,563)
Operating loss (1,594) (462)
Adjusted EBITDA 61 1,261
Depreciation and amortisation (1,573) (1,712)
Exceptional items - -
Share-based payments (82) (31)
Other operating expenses/income - 20
Operating loss (1,594) (462)
Finance cost 4 (31) (56)
Loss before taxation (1,625) (518)
Income tax credit 5 306 138
Loss for the period and attributable to equity holders of the Company (1,319) (380)
Other comprehensive income
Items that may be reclassified to profit and loss:
Change in financial assets at fair value through OCI - -
Exchange differences on translation of foreign operations 14 1
Total comprehensive loss for the period (1,305) (379)
Earnings / (loss) per ordinary share attributable to the owners of the parent
Basic (£ per share) 6 (0.06) (0.02)
Diluted (£ per share) 6 (0.05) (0.02)
Adjusted basic and diluted (£ per share) 6 (0.01) 0.02
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
as at 30 September 2022
2022 2021
(unaudited) (unaudited)
Note £ (000) £ (000)
Assets
Non-current assets
Intangible assets 51,779 53,461
Property, plant and equipment 213 281
Trade receivable 7,094 -
Total non-current assets 59,086 53,742
Current assets
Trade and other receivables 7 13,960 5,580
Cash and cash equivalents 870 4,923
Total current assets 14,830 10,503
Total assets 73,916 64,245
Liabilities
Current liabilities
Trade and other payables 8 11,712 5,153
Total current liabilities 11,712 5,153
Non-current liabilities
Creditors: amounts falling due after more than one year 9 7,221 2,952
Total non-current liabilities 7,221 2,952
Total liabilities 18,933 8,105
Net assets 54,983 56,140
Capital and reserves
Share capital 10 22,278 22,277
Share premium 34,581 34,581
FVTOCI reserve - 14
Other reserves 24,468 24,407
Translation reserve 37 25
Accumulated losses (26,381) (25,164)
Equity attributable to owners of the Company 54,983 56,140
Total equity and liabilities 73,916 64,245
Consolidated statement of changes in equity
for the 6 months to 30 September 2022
Share capital Share premium FVTOCI Other reserves Translation reserve Accumulated losses Total equity
reserve
£ (000) £ (000) £ (000) £ (000) £ (000) £ (000) £ (000)
At 31 March 2021 (audited) 22,277 34,581 14 24,376 24 (24,784) 56,488
Loss for the period - - - - - (380) (380)
Other comprehensive profit for the period - - - - 1 - 1
Total comprehensive loss for the period - - - - 1 (380) (379)
Contribution by and distribution to owners
Share based payments - - - 31 - - 31
At 30 September 2021 (unaudited) 22,277 34,581 14 24,407 25 (25,164) 56,140
Profit for the period - - - - - 88 88
Other comprehensive loss for the period - - (14) - (2) 14 (2)
Total comprehensive profit for the period - - (14) - (2) 102 86
Contribution by and distribution to owners
Issue of share capital 1 - - - - - 1
Share based payments - - - (21) - - (21)
At 31 March 2022 (audited) 22,278 34,581 - 24,386 23 (25,062) 56,206
Loss for the period - - - - - (1,319) (1,319)
Other comprehensive income for the period - - - - 14 - 14
Total comprehensive loss for the period - - - - 14 (1,319) (1,305)
Contribution by and distribution to owners
Share based payments - - - 82 - - 82
At 30 September 2022 (unaudited) 22,278 34,581 - 24,468 37 (26,381) 54,983
Consolidated cash flow statement
for the 6 months to 30 September 2022
2022 2021
(unaudited) (unaudited)
Note £ (000) £ (000)
Cash flows from operating activities
Loss for the period (1,319) (380)
Adjustments for:
Amortisation of intangible assets 1,446 1,576
Depreciation of property, plant and equipment 127 136
Share-based payment charge 82 31
Other income - (20)
Finance cost 31 56
Income tax (306) (138)
Cash flow from operating activities before changes in working capital 61 1,261
Decrease/(increase) in trade and other receivables (726) 4,031
(Decrease)/increase in trade and other payables (3,233) (7,554)
Cash used / generated from operations (3,898) (2,262)
Net foreign exchange movements 12 (3)
Finance cost paid (26) (35)
Tax (paid) / credit - (31)
Net cash used / generated from operating activities (3,912) (2,331)
Investing activities
Purchase of property, plant and machinery (25) (12)
Purchase of software (661) (421)
Net cash used in investing activities (686) (433)
Financing activities
Proceeds from issue of share capital - -
Repayment of loan liabilities - (250)
Expenses paid in connection with share issues - -
Repayment of lease liabilities (108) (112)
Net cash used in financing activities (108) (362)
Net increase/(decrease) in cash and cash equivalents (4,706) (3,126)
Foreign exchange movement on cash and cash equivalents 1 -
Cash and cash equivalents at the beginning of the period 5,575 8,049
Cash and cash equivalents at the end of the period 870 4,923
Notes
1. General information
The interim consolidated financial information was authorised by the board of
directors for issue on 29 November 2022. The information for the six-month
period ended 30 September 2022 has not been audited and does not constitute
statutory accounts as defined in section 434 of the Companies Act 2006, and
should therefore be read in conjunction with the audited financial statements
of the Company and its subsidiaries for the year ended 31 March 2022, which
have been prepared in accordance with UK Adopted International Accounting
Standards (IFRS). The interim consolidated financial information does not
comply with IAS 34 Interim Financial Reporting, as permissible under the rules
of AIM.
2. Statement of accounting policies
The significant accounting policies applied in preparing the financial
statements are outlined below. These policies have been consistently applied
for all the years presented, unless otherwise stated
a) Basis of preparation
These interim consolidated financial statements have been prepared in
accordance with UK adopted International Accounting Standards ('IFRS') and
with those parts of the Companies Act 2006 applicable to companies reported
under IFRS.
The consolidated financial statements have been prepared under the historic
cost convention. The consolidated financial statements are presented in
sterling, the functional currency of Shearwater Group plc, the Parent Company.
All values are rounded to the nearest thousand pounds (£'000) except where
otherwise indicated.
b) 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 publication of these interim financial
statements. Accordingly, they continue to adopt the going concern basis in
preparing these consolidated financial statements.
The Directors have reviewed the Group's going concern position taking into
account its current business activities, performance to date against budgeted
targets and the factors likely to affect its future development which include
the Group's strategy, principal risks and uncertainties and its exposure to
credit and liquidity risks.
The business maintains a strong balance sheet with net assets of £55.0
million (H1 FY22: £56.1 million) which if you exclude intangible assets, PPE
and deferred taxation leaves an increased net asset position of £6.7 million
at 30 September 2022 (H1 FY22: £5.3 million). At 30 September 2022 the Group
had net cash of £0.9 million (H1 FY22: £4.4 million).
The Group's £4.0 million 3-year revolving credit facility with Barclays Bank
plc, signed on the 25 March 2021 remains in place which can provide working
capital support if required. To date this facility remains un-utilised.
The Directors have reviewed a detailed reforecast of trading which includes a
cash flow forecast for a period which covers a period of trading to March 2024
and have challenged the assumptions used to create these forecasts. This
forecast demonstrates that the Group is able to pay its debts as they fall due
during this period.
The Directors have reviewed a highly sensitised reverse stress test scenario
which has factored in what the Directors believe would be an extreme scenario
which incorporates the removal of all new business revenues across both
segments of the Group including a reduction of renewal rates in our software
division and a scaling back of revenues within our Services division. Costs
have also been scaled back in line with the reduction in revenues. 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 March 2024.
c) 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.
The significant judgements made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty were the
same as those described in the last annual financial statements.
Revenue recognition
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
products or services 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 Group's performance obligations. In addition to this
management will consider if it is acting as agent or principal.
Business Combinations
Management make judgments, 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 cashflows, 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 carry 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.
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
if 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.
d) Basis of consolidation
The group's interim consolidated financial statements incorporate the results
and net assets of Shearwater Group plc and all its subsidiary undertakings
made up to 30 September each year. Subsidiaries are all entities over which
the group has control. 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.
e) 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.
f) 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.
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
software products through channels and distributors who are responsible for
providing 1(st) and 2(nd) 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 e-mailing 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 include 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 obligations 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.
§ Sale 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.
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.
g) Use of additional performance measures
The Group presents adjusted EBITDA information which is used by the directors
for internal performance analysis and may not be comparable with similarly
titled measures reported by other companies. The term "adjusted EBITDA" refers
to operating profit or loss excluding amortisation of intangibles,
depreciation and impairment, share-based payments charge, exceptional items,
income tax expense, finance income, finance expenses or fair value adjustments
to deferred consideration provisions and contingent consideration paid.
h) 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. Please see note 3 for
more details.
i) 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 arises 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 6 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.
j) Property, plant and machinery
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.
20-33 per cent per annum
Plant and machinery
Office equipment 25 per cent 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.
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 reports its results in two segments as this
accurately reflects the way the Group is managed.
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 6 months ended 30 September 2022 is presented
below and excludes intersegment revenue as they are not material, and assets
as the Directors do not review assets and liabilities on a segmental basis.
Six-month period ended 30 September
2022 2022 2021 2021
Revenue Profit Revenue Profit
(unaudited) (unaudited) (unaudited) (unaudited)
£ (000) £ (000) £ (000) £ (000)
Services 9,136 703 8,689 905
Software 1,654 (167) 1,887 910
Group total 10,790 536 10,576 1,815
Group costs (475) (554)
Adjusted EBITDA 61 1,261
Amortisation of intangibles (1,446) (1,576)
Depreciation (127) (136)
Share-based payments (82) (31)
Other income - 20
Finance cost (31) (56)
Loss before tax (1,625) (518)
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).
Six-month period ended 30 September
2022 2021
(unaudited) (unaudited)
£ (000) £ (000)
United Kingdom 6,888 7,698
Europe (excluding the UK) 2,667 1,964
North America 972 550
Rest of the world 263 364
10,790 10,576
4. Finance expenses
Six-month period ended 30 September
2022 2021
(unaudited) (unaudited)
£ (000) £ (000)
Interest payable on bank revolving credit facility 26 35
Interest payable on lease liabilities 5 6
Interest payable on loan balances - 15
31 56
5. Income Tax
The tax expense recognised reflects managements' estimates of the tax charge
for the period and has been calculated using the estimated average tax rate of
UK corporation tax for the financial period of 19%.
6. Earnings/(loss) per share
Basic loss per share is calculated by dividing the loss attributable to the
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period.
For diluted loss 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 anti-dilutive for the six months ended 30
September 2021 as the Group is loss making.
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
and contingent consideration.
Adjusted earnings per share is potentially anti-dilutive in the six months to
30 September 2022 and potentially dilutive in the six months to 30 September
2021 and for the 12 months to 31 March 2022.
The calculation of the basic and diluted earnings per share from total
operations attributable to shareholders is based on the following data:
Six-month period ended 30 September
2022 2021
(unaudited) (unaudited)
£ (000) £ (000)
Net profit / loss from total operations
Earnings for the purposes of basic and diluted earnings / loss per share being (1,319) (380)
net loss attributable to shareholders
Add/(remove) 939 939
Amortisation of acquired intangibles
Share based payments 82 31
Other income - (20)
Fair value adjustment to deferred consideration - -
Adjusted earnings for the purpose of adjusted earnings per share (298) 570
Number of shares No No
Weighted average number of ordinary shares for the purpose of basic and 23,818,059 23,809,739
adjusted earnings per share
Weighted average number of ordinary shares for the purpose of basic and 24,604,916 23,954,771
adjusted diluted earnings per share
Earnings/(Loss) per share £ £
Basic loss per share (0.06) (0.02)
Diluted loss per share (0.05) (0.02)
Adjusted Basic and diluted (loss)/earnings per share (0.01) 0.02
7. Trade and other receivables
Period ended 30 September
2022 2021
(unaudited) (unaudited)
£ (000) £ (000)
Trade receivables 10,043 4,798
Accrued income 3,267 372
Prepayments and other receivables 469 410
Deferred tax asset 181 -
13,960 5,580
8. Trade and other payables Period ended 30 September
2022 2021
(unaudited) (unaudited)
£ (000) £ (000)
Accruals and other payables 6,709 1,480
Trade payables 2,757 2,027
Other taxation and social security 1,261 637
Deferred income 454 295
Corporation tax 444 36
Lease liabilities 87 158
Loans - 520
11,712 5,153
9. Creditors: amounts falling due after more than one year
Period ended 30 September
2022 2021
(unaudited) (unaudited)
£ (000) £ (000)
Deferred tax 3,744 2,927
Accruals and other payables 3,461 -
Lease liabilities 16 25
7,221 2,952
10. Share capital
The table below details movements in share capital during the year:
Six-month period ended 30 September
In thousands of shares 2022 2021
In issue at 31 March 23,810 23,810
Options exercised during the period - -
Share issue as part of acquisition consideration - -
Share issue for deferred consideration - -
Share placing - -
In issue at 30 September 23,810 23,810
2022 2021
£ (000) £ (000)
Allotted, called up and fully paid
Ordinary shares of £0.10 each 2,382 2,381
Deferred shares of £0.90 each 19,896 19,896
22,278 22,277
The Company did not issue any shares in the six-month period ended 30
September 2022.
11. Related party transaction
The Directors of the Group and their immediate relatives have an interest of
18% (H1 FY22: 17%) of the voting shares of the Group.
12. Events after the reporting date
There are no material events after the reporting period to report.
13. Cautionary statement
This Interim Report has been prepared solely to provide additional information
to shareholders to assess the Company's strategies and the potential for these
strategies to succeed. The Interim Report should not be relied on by any other
party or for any purpose. The Interim Report contains certain forward-looking
statements with respect to the financial condition, results of operations and
businesses of the Company. These statements are made in good faith based on
the information available to them up to the time of their approval of this
report. However, such statements should be treated with caution as they
involve risk and uncertainty because they relate to events and depend upon
circumstances that will occur in the future. There are a number of factors
that could cause actual results or developments to differ materially from
those expressed or implied by these forward-looking statements. The continuing
uncertainty in global economic outlook inevitably increases the economic and
business risks to which the Company is exposed. Nothing in this announcement
should be construed as a profit forecast.
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