TIDMSWG
RNS Number : 1759U
Shearwater Group PLC
29 July 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 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 GBP35.9m (FY21: GBP31.8m)
-- Adjusted EBITDA(1) up 19% to GBP4.4m (FY21: GBP3.7m) with margin maintained at 12%
-- Adjusted profit before tax(2) up 24% to GBP3.0m (FY21: GBP2.4m)
-- 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 GBP5.6m as of 31 March 2022 (31 March 2021 adjusted
net cash: GBP6.0m) 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
.
Enquiries:
Shearwater Group plc www.shearwatergroup.com
David Williams, Chairman c/o Alma PR
Phil Higgins, CEO
Cenkos Securities plc - NOMAD
and Joint Broker
Ben Jeynes / Max Gould - Corporate
Finance
Alex Pollen / Michael Johnson -
Sales +44 (0) 20 7397 8900
Berenberg - Joint Broker
Matthew Armitt / Mark Whitmore +44 (0) 20 3207 7800
Alma PR shearwater@almapr.co.uk
Justine James / Susie Hudson / +44 (0) 20 3405 0205
Joe Pederzolli
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 .
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 GBP35.9m (FY21:
GBP31.8m), 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 GBP4.4m
(FY21: GBP3.7m), our third consecutive year of adjusted EBITDA
growth, which has contributed to a statutory profit before tax of
GBP0.9m (2021: GBP0.0m). Our balance sheet is strong with a net
cash(1) balance of GBP5.6m as at 31 March 2022 (31 March 2021:
GBP7.3m), in a year that included the repayment of residual legacy
loans and a deferred VAT payment of GBP1.3m, 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
GBPm GBPm %
------------------------ ----- ----- ------
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
GBPm GBPm %
------------------------ ----- ----- ----
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 GBP12.9 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(R), Forecast Analysis: Information Security and Risk
Management, Worldwide, August 2021,
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
GBP0.9 million for the year (2021: GBP0.0m).
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 GBP2.6 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
GBP14.5 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 GBP0.7 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
GBPm GBPm % 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% (GBP4.1
million) to GBP35.9 million (2021: GBP31.8 million).
The table below provides a breakdown of revenues for the current
year:
2022 2021
GBPm GBPm % 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 GBP4.4 million in the
year (2021: GBP3.7 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
GBPm GBPm % 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% (GBP1.0 million) in the year to GBP6.2 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 GBP0.3 m in
the year to GBP1.8 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 GBP0.1 million incorporate a GBP0.1
million year-on-year saving (2021: GBP0.2 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 GBP0.3 million (2021: GBP0.3 million) is in line
with the prior year and incorporates GBP0.3 million of depreciation
of right of use assets (2021: GBP0.2 million).
Amortisation of intangible assets - computer software
Amortisation of computer software has increased by GBP0.2
million to GBP1.0 million (2021: GBP0.8 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
GBP3.0 million (2021: GBP2.4 million), a 24% increase on the prior
year, which is driven by the improvement in underlying EBITDA of
GBP0.7 million and a GBP0.1 million reduction in finance charges
which has been offset by a GBP0.2 million increase in internally
developed software amortisation.
Amortisation of intangible assets - acquired intangibles
Amortisation of acquired intangible assets of GBP2.1 million
(2020: GBP2.1 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 GBP0.1m which
were settled in the year.
Reported profit before tax
Reported profit before tax for the year of GBP0.9m (2021: GBP0.0
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 GBP1.2 million includes a
GBP0.5 million charge for the current year plus GBP0.7 million
movements in deferred taxation which includes a GBP1.1 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 GBP0.11 (diluted GBP0.10)
(2021: Adjusted earnings per share GBP0.10 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 GBP0.01 compares against a positive basic and diluted
earnings per share of GBP0.01 delivered in the prior period.
Statement of financial position
Intangible assets
Intangible assets decreased in the year by GBP2.0 million to
GBP52.6 million at 31 March 2022 (2021: GBP54.6 million). This
movement incorporates GBP1.1 million of investment into continued
development of the Group's software assets (2021: GBP0.7 million),
less GBP3.1 million amortisation, of which GBP2.1 million relates
to amortisation of acquired intangibles.
Property, plant and equipment
Property, plant and equipment decreased in the year by GBP0.1
million to GBP0.3 million at 31 March 2021 (2021: GBP0.4 million).
Additions of GBP0.2 million include GBP0.1 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 GBP0.3 million.
Trade and other receivables
Trade and other receivables have increased by GBP10.6 million in
the year from GBP9.6 million to GBP20.2 million at 31 March 2022.
Material movements include a GBP14.5 million increase in accrued
income primarily driven by GBP12.3million relating to revenue
billed after the year-end. Trade receivables have reduced by GBP4.4
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 GBP2.3 million in the
year from GBP12.2 million to GBP14.5 million at 31 March 2022.
Material movements include a GBP6.9 million increase in accruals
and other payables which includes the costs associated with
transactions in the final month of the year, a GBP3.2 million
decrease in trade payables, reflecting a change in timing of the
receipt of supplier invoicing, a GBP1.9 million decrease in other
taxation and social security which included GBP1.3 million of
deferred VAT from the prior year which was repaid in full during
the year and GBP0.4 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 GBP2.8 million from GBP4.0 million to
GBP6.8 million at 31 March 2022. Accruals and other payables
represent costs relating to transactions in the final month of the
year. Reductions include GBP0.8 million of loan balances relating
to the Pentest acquisition which were repaid in the year, GBP0.3
million reduction in deferred tax relating to acquired intangible
assets and GBP0.1 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
GBP0.4m. 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
GBPm GBPm
----------------------------------------------- ----- -----
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 GBP1.1 million (2021: GBP0.7 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 GBP1.0 million (2021: GBP1.1 million)
include GBP0.7 million relating to repayments of loans balances and
GBP0.2m 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
2022 2021
Note GBP'000 GBP'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 9 36 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)/i ncome for the year (279) 142
------------------------------------------------ ---- -------- --------
(Loss)/earnings per ordinary share attributable
to the owners of the parent
Basic and diluted (GBP per share) 8 (0.01) 0.01
Adjusted basic (GBP per share) 8 0.11 0.10
Adjusted diluted (GBP 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
2022 2021
Note GBP'000 GBP'000
--------------------------------------------- ---- --------- --------
Assets
Non-current assets
Intangible assets 9 5 2,564 54,616
Property, plant and equipment 10 3 15 405
Total non-current assets 5 2,879 55,021
--------------------------------------------- ---- --------- --------
Current assets
Trade and other receivables 11 2 0,155 9,611
Cash and cash equivalents 5 ,575 8,049
--------------------------------------------- ---- --------- --------
Total current assets 2 5,730 17,660
--------------------------------------------- ---- --------- --------
Total assets 7 8,609 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 2 2,278 22,277
Share premium 3 4,581 34,581
FVTOCI reserve - 14
Other reserves 2 4,386 24,376
Translation reserve 2 3 24
Accumulated losses ( 25,062) (24,784)
--------------------------------------------- ---- --------- --------
Equity attributable to owners of the Company 56,206 56,488
--------------------------------------------- ---- --------- --------
Total equity and liabilities 7 8,609 72,681
--------------------------------------------- ---- --------- --------
Consolidated statement of changes in equity
for the year ended 31 March 2022
Share
capital
(note Share FVTOCI Other Translation Accumulated Total
17) premium reserve reserve reserve losses equity
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
2022 2021
Note GBP'000 GBP'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/
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.GBP0.7million 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 GBP35.9 million
(2021: GBP31.8 million), adjusted EBITDA of GBP4.4 million (2021:
GBP3.7 million) and profit before tax of GBP0.9 million (2021:
GBP0.03 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 GBP5.6 million (2021: GBP7.3 million) and an untouched three --
year GBP4.0 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 GBP41,069 (2021:
GBP27,191). 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 GBP0.05 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 GBP5,000 (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 To be adopted
Reporting Standard (IFRS/IAS) Effective date 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
IAS 16) 1 January 2022 1 April 2022
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
GBP'000 GBP'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 software development) 1,050 761
------------------------------------------------------ ------- -------
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 31 March 31 March 31 March
2022 2022 2021 2021
GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'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 GBP16.2 million and
GBP5.2 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 GBP13.3 million and GBP4.3 million
respectively to the Group's Services division.
4. Expenses and auditor's remuneration
Operating profit is stated after charging:
2022 2021
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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% (2021: 19%) 178 6
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
GBP'000 GBP'000
-------------------------------------------------------- ---------- ----------
Net profit from total operations
(Loss)/profit for the purposes of basic and diluted
earnings per share being net profit attributable
to shareholders (292) 145
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
-------------------------------------------------------- ---------- ----------
GBP GBP
-------------------------------------------------------- ---------- ----------
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
Customer Gold
Goodwill relationships Software Tradenames exploration Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
Brookcourt
SecurEnvoy GeoLang 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 GBP1.1
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 GBP0.1
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.
Right of Office
use assets equipment Total
10. Property, plant and equipment GBP'000 GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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 GBP1.3m
deferred VAT which was paid during the current year.
13. Creditors: amounts falling due after more than one year
2022 2021
GBP'000 GBP'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 GBP0.5 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 GBP0.2
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
GBP'000 GBP'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 GBP3.4 million
(2021: GBP2.8 million) deferred tax liability for acquired
intangible assets including software and trademarks.
2022 2021
GBP'000 GBP'000
Non-current assets
At 1 April - 186
Utilisation of deferred tax asset - (186)
---------------------------------- -------- --------
Total deferred tax asset - -
---------------------------------- -------- --------
The Group has tax losses of GBP2.4m 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 GBP'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 2022 2021
flows) GBP'000 GBP'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 2022 2021
position at 31 March GBP'000 GBP'000
--------------------------------------------------------- --------- --------
Current 158 193
Non-current 48 96
--------------------------------------------------------- --------- --------
Amounts recognised in the statement of comprehensive 2022 2021
income GBP'000 GBP'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
--------------------------------------------------------- --------- --------
2022 2021
Amounts recognised in the statement of cash flows GBP'000 GBP'000
--------------------------------------------------------- --------- --------
Payment of principal 220 281
Payment of interest 12 18
--------------------------------------------------------- --------- --------
Total cash outflows 232 299
--------------------------------------------------------- --------- --------
16. Deferred consideration
2022 2021
GBP'000 GBP'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
GBP'000 GBP'000
------------------------------------------------ -------- --------
Allotted, called up and fully paid
Ordinary shares of GBP0.10 each (2021: GBP0.10
each) 2,382 2,381
Deferred shares of GBP0.90 each (2021: GBP0.90
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 GBP1. In
addition to this, immediately following consolidation, each
consolidated share was sub-divided into one ordinary share of
GBP0.10 ('Ordinary share') and one deferred share of GBP0.90
('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:
GBP3.1 million relating to the equity placing of 1,562,500 new
ordinary shares (net of costs).
GBP0.2 million relating to deferred consideration of 129,602
shares, issued to the previous owners of GeoLang Holdings
Limited.
18. Share-based payments
2022 2021
GBP'000 GBP'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 Options Options Options Options
at issued lapsed exercised at First Final
1 April during during during 31 March Exercise Date of date date
2021 the year the year the year 2022 price grant of exercise of exercise
----------- -------- --------- --------- ---------- --------- -------- ---------- ------------ ------------
Directors:
P McFadden - 25,000 - - 25,000 GBP0.95 10/02/2022 10/02/2025 10/02/2027
Employees:
Employees - 89,998 - - 89,998 GBP0.95 10/02/2022 10/02/2023 10/02/2027
Employees - 11,112 - - 11,112 GBP0.95 10/02/2022 30/09/2023 10/02/2027
Employees - 542,000 - - 542,000 GBP0.95 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
----------------------------------------- -------------
WAEP
Number GBP
----------------------------------------- ------- ----
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 GBP0.95
Exercise price GBP0.95
Expected option life (year) 5 years
Expected volatility (%) 43.4%
Expected dividends 0%
Risk-free interest rate (%) 1.54%
Option fair value GBP0.38
---------------------------- -------
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 Options Options Options Options
at issued lapsed exercised at
1 April during during during 31 March Exercise Date of First date Final date
2021 the year the year the year 2022 price grant of exercise of exercise
----------- -------- --------- --------- ---------- --------- -------- ---------- ------------ ------------
Directors:
P McFadden 7,875 - - - 7,875 GBP4.0 07/05/2018 07/05/2019 30/09/2023
Employees:
Employees 41,581 - 2,081 - 39,500 GBP4.0 09/05/2017 09/05/2018 08/05/2022
Employees 26,076 - 16,686 - 9,390 GBP4.0 13/11/2017 13/11/2018 12/11/2022
Employees 364 - 364 - - GBP4.0 08/01/2018 08/01/2019 07/01/2023
Employees 1,780 - 757 - 1,023 GBP4.0 01/03/2018 01/03/2019 28/02/2023
Employees 21,559 - 15,934 - 5,625 GBP4.0 04/04/2018 04/04/2019 03/04/2023
Employees 67,222 - 67,222 - - GBP3.6 17/10/2018 31/03/2019 30/09/2021
Employees 33,409 - 33,409 - - GBP3.6 17/10/2018 31/03/2019 30/04/2024
Employees 1,493 - 582 - 911 GBP1.6 01/03/2019 01/03/2020 01/07/2024
Employees 12,500 - 12,500 - - GBP2.0 24/04/2019 24/04/2020 30/09/2021
Employees 6,000 - 3,000 - 3,000 GBP4.0 01/06/2019 01/06/2020 30/09/2023
Employees 12,500 - 2,500 - 10,000 GBP2.0 01/10/2019 01/10/2020 30/09/2023
Employees - 27,936 - - 27,936 GBP0.95 10/02/2022 10/02/2025 10/02/2027
Non-employees:
Other 20,000 - 20,000 - - GBP1.0 03/10/2016 03/10/2016 03/10/2021
Other 16,640 - - 8,320 8,320 GBP0.1 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 Options Options Options Options
at issued lapsed exercised at
1 April during during during 31 March Exercise Date of First date Final date
2020 the year the year the year 2021 price grant of exercise of exercise
----------- -------- --------- --------- ---------- --------- -------- ---------- ------------ ------------
Directors:
P McFadden 7,875 - - - 7,875 GBP4.0 07/05/2018 07/05/2019 30/09/2023
Employees:
Employees 52,933 - 11,352 - 41,581 GBP4.0 09/05/2017 09/05/2018 08/05/2022
Employees 33,306 - 7,230 - 26,076 GBP4.0 13/11/2017 13/11/2018 12/11/2022
Employees 1,063 - 699 - 364 GBP4.0 08/01/2018 08/01/2019 07/01/2023
Employees 4,880 - 3,100 - 1,780 GBP4.0 01/03/2018 01/03/2019 28/02/2023
Employees 26,000 - 4,441 - 21,559 GBP4.0 04/04/2018 04/04/2019 03/04/2023
Employees 70,000 - 2,778 - 67,222 GBP3.6 17/10/2018 31/03/2019 30/09/2021
Employees 34,722 - 1,313 - 33,409 GBP3.6 17/10/2018 31/03/2019 30/04/2024
Employees 2,654 - 1,161 - 1,493 GBP1.6 01/03/2019 01/03/2020 01/07/2024
Employees 25,000 - 25,000 - - GBP2.0 09/04/2019 09/04/2020 30/09/2021
Employees 12,500 - - - 12,500 GBP2.0 24/04/2019 24/04/2020 30/09/2021
Employees 9,000 - 3,000 - 6,000 GBP4.0 01/06/2019 01/06/2020 30/09/2023
Employees 12,500 - - - 12,500 GBP2.0 01/10/2019 01/10/2020 30/09/2023
Non-employees:
Other 20,000 - - - 20,000 GBP1.0 03/10/2016 03/10/2016 03/10/2021
Other - 24,960 - 8,320 16,640 GBP0.1 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
------------------------------------ ------------- -------------
WAEP WAEP
Number GBP Number GBP
------------------------------------ ------- ---- ------- ----
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 GBP1.18 (2021: GBP1.42).
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 GBP0.95 to GBP4.30 GBP1.29 to GBP4.30
Exercise price GBP0.10 to GBP4.00 GBP0.10 to GBP4.00
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 GBP0.04 to GBP2.87 GBP0.00 to GBP2.90
---------------------------- ------------------ ------------------
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 Options Options Options Options
at issued lapsed exercised at First Final
1 April during during during 31 March Exercise Date of date date
2021 the year the year the year 2022 price grant of exercise of exercise
----------- -------- --------- --------- ---------- --------- -------- ---------- ------------ ------------
Employees:
Employees 150,285 - 17,820 - 132,465 GBP1.515 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 Options Options Options Options
at issued lapsed exercised at First Final
1 April during during during 31 March Exercise Date of date date
2020 the year the year the year 2021 price grant of exercise of exercise
----------- -------- --------- --------- ---------- --------- -------- ---------- ------------ ------------
Employees:
Employees - 150,285 - - 150,285 GBP1.515 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
------------------------------------ -------------- --------------
WAEP WAEP
Number GBP Number GBP
------------------------------------ ------- ----- ------- -----
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 GBP1.420
Exercise price GBP1.515
Expected option life (year) 3 years 8 months
Expected volatility (%) 40.0%
Expected dividends 0%
Risk-free interest rate (%) 0.13%
Option fair value GBP0.394
----------------------------- ----------------
The calculation includes an estimated leaver provision of
29%.
The market price of shares as at 31 March 2022 was GBP1.05 (31
March 2021: GBP1.35). The range during the financial year was
GBP0.74 to GBP2.15. 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 GBP0.000001 in the capital of
the subsidiary ('incentive shares') on 18 January 2017 at a price
of GBP0.032 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 Number
issued to Nominal Number of Incentive
Directors Participation value of Incentive Group Number
are shown in the in increase Shares shares plc 31 of Shearwater Share-based
table in shareholder Issue of incentive 1 April March Shares payment
below: value price shares 2021 2022 issued charge
----------------- --------------- -------- ------------- ------------- ------------- -------------- -----------
D Williams 6.5% GBP0.032 GBP0.000001 65,000 65,000 - 29,145
P Higgins 7.5% GBP0.032 GBP0.000001 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 GBP937,623 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 GBP18,349.
Following this extension GBP955,972 will be recognised over the
life of the scheme which expires on 29 September 2022. In the
current year GBP71,742 (2021: GBP209,889) 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.
Fair value through
other comprehensive
Amortised cost income (available
(loans and receivables) for sales)
---------------------------- -------------------------- ----------------------
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'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 - -
---------------------------- ------------ ------------ ---------- ----------
Fair value through
other comprehensive
income (available
Amortised cost for sales)
---------------------------- -------------------------- ----------------------
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'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 GBP4.0 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
Net foreign currency financial assets/(liabilities) GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------- -------- -------- -------- --------
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 GBP1.2 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 GBP1.0 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
GBP0.2 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 GBP0.1 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 GBP4.0 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 GBP4.0 million revolving credit
facility (RCF) with its bank and GBP0.2 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
3 months 3 and 12 months 1 and 2 years 2 and 5 years Over 5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
3 months 3 and 12 months 1 and 2 years 2 and 5 years Over 5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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, GBP473,892 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, GBP1,838,065 representing deferred
completion cash (including interest) and GBP215,216 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, GBP1,783,334 representing deferred
completion cash (including interest) and GBP215,216 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 GBP239,442 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 GBP4.0 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
GBP'000 GBP'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
GBP'000 GBP'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
---------------------------------------------
Interest
savings Right of Right
on early use of use
Cash repayment Loan asset asset
2021 outflows of loans interest additions disposal 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
Right of Right of
use use
Cash Cash Loan asset asset
2020 outflows inflows interest additions disposal 2021
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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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END
FR SEESSUEESEIW
(END) Dow Jones Newswires
July 29, 2022 02:00 ET (06:00 GMT)
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