TIDMSWG
RNS Number : 4020L
Shearwater Group PLC
05 September 2023
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.
5 September 2023
SHEARWATER GROUP PLC
("Shearwater", or the "Group")
Final Results
Improving prospects, well-placed to capture significant market
opportunity
Shearwater Group plc (AIM: SWG), the cybersecurity, advisory and
managed security services group, announces its final results for
the year ended 31 March 2023.
Highlights:
-- Group revenue of GBP26.7m (FY22: GBP35.9m) primarily impacted by contract delays in Q4
-- Adjusted EBITDA(1) of GBP(0.2)m (FY22: GBP4.4m), reflecting effect of lower revenues
-- Adjusted loss before tax(2) of GBP1.3m (FY22: profit before tax of GBP3.0m)
-- Strong financial position with net cash as at 31 March 2023 of GBP4.0m (FY22: GBP5.6m)
Operational Highlights:
-- Q4 characterised by order delays, materially impacting revenue and profitability
-- Decisive action taken during the period to streamline and
optimise operations, ensuring the business emerges leaner and more
productive
-- Although performance reflects the cautious approach to
customer decisions, engagement levels remained high with 113
additional net new clients onboarded during the year
-- The Group continues to benefit from its strong customer base
of blue-chip organisations across a range of sectors
-- The Group won five awards during the period including the
title of 'Security Company of the Year 2022' from the Computing
Security Awards for the second consecutive year
Board update
-- Paul McFadden, CFO has informed Board of his decision to step
down from the Board, and will remain in place until a successor is
appointed
Outlook:
-- Strong prospects in light of improving market conditions,
with an increasing number of post-period green shoots and
opportunities
-- Q1 trading is in line with management's expectations, with
customer engagement efforts proving successful in bolstering a
growing pipeline, showing year-on-year growth, and delayed orders
from the previous year now being fulfilled
-- Shearwater's solutions continue to be relevant to the
increasing security demands in today's environment
-- The business continues to maintain a healthy balance sheet
which will be further strengthened through forecast cash generation
in FY24
(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:
"While it is frustrating that FY23 performance was impacted by
external factors beyond our control, we have emerged a more agile,
specialised business and better-placed to capitalise on the
opportunities ahead. With the threat of cybersecurity
ever-increasing for organisations, our best-in-class reputation and
all-encompassing offering, combined with the operational
enhancements initiated during FY23, provide the Board with
unwavering confidence in the medium and long-term prospects of the
Group.
"We continue to be bolstered by an experienced Board, leadership
team and industry thought leaders, and we look forward to
delivering solid, sustainable revenues and profit growth in the
years ahead".
Investor Presentation
Shearwater Group's CEO, Phil Higgins and CFO, Paul McFadden,
will provide a live investor presentation relating to the results,
via the Investor Meet Company platform on Friday 8 September 2023
at 12:00.
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
Adrian Hadden / Ben Jeynes- Corporate
Finance
Henry Nicol / Dale Bellis / Michael Johnson
- Sales +44 (0) 20 7397 8900
Alma PR shearwater@almapr.co.uk
Justine James / Joe Pederzolli +44 (0) 20 3405 0205
About Shearwater Group plc
Shearwater Group plc is an award-winning group providing cyber
security, managed security and professional advisory solutions to
create a safer online environment for organisations and their end
users.
The Group's differentiated full service offering spans identity
and access management and data security, cybersecurity solutions
and managed security services, and security governance, risk and
compliance. Its growth strategy is focused on building a scalable
group that caters to the entire spectrum of cyber security and
managed security needs, through a focused buy and build
approach.
The Group is headquartered in the UK, serving customers globally
across a broad spectrum of industries.
Shearwater shares are listed on the London Stock Exchange's AIM
under the ticker "SWG". For more information, please visit
www.shearwatergroup.com .
Chairman's statement
Following several years of consistent growth, it is
disappointing to have to report poor results for FY23. These were
impacted by the delay in a number of contracts in Q4 where,
traditionally, large contracts are awarded as a result of the
procurement cycle of several of our large customers. It is worth
noting that two of the four delayed contracts have now been secured
and we anticipate being successful with the remaining contracts in
the coming months.
Crucially, our Company remains robust, with hard-working staff,
loyal customers and a reputation for delivering excellent service.
This is backed up by a strong balance sheet with significant net
cash. Our Group companies have been operating in this market for
upwards of two decades and thus draw on a wealth of experience in
providing ever-evolving solutions for our customers.
Further investment in both technology and people means that we
continue to benefit from the ongoing streamlining of our
businesses. Phil, in his Chief Executive's review, sets this out in
more detail as well as outlining the potential we have going
forward. We are fortunate to be in a sector which has plenty of
opportunities to grow and our staff have been working hard on a
number of initiatives that are starting to show good potential.
I want to thank our staff, our Non-executive Directors and our
Advisory Panel for their efforts and sincerely believe that all the
hard work and investment is reflected in much improved trading in
the current year.
Finally, after five years with our company, Paul McFadden, our
CFO, has decided to leave us but he will remain in place until a
successor is appointed and settled into the role. We thank Paul for
his efforts during his time with us and wish him well with his new
career opportunity.
David Williams
Chairman
4 September 2023
Chief Executive's review
The year to 31 March 2023 was challenging across the cyber
security industry and Shearwater was not immune to this. Whilst we
entered the second half of the year with stronger momentum,
macroeconomic challenges impacted customers' investment decisions
heavily in the fourth quarter, resulting in customers deferring
contract start dates, and in some cases, needing to implement
spending freezes.
As announced at the end of March 2023, our financial performance
for the year ended 31 March 2023 was impacted by these
well-documented market headwinds in addition to a number of
exceptional, one-off trading expenses. It is important to note that
whilst it is disappointing these impacts have affected the Group's
performance in the period under review, we consistently won new
business from existing clients, as well as securing new
clients.
In respect to FY23, Group revenue for the period was GBP26.7
million (FY22: GBP35.9 million). Adjusted EBITDA(1) was (GBP0.2
million) (FY22: GBP4.4 million) which was also impacted by the
weaker Sterling / US dollar in H1 FY23, primarily relating to a
GBP0.8 million unrealised FX charge related to future US dollar
liabilities. This was a one-off and the appropriate hedging is now
in place to mitigate future FX exposure. Loss before tax of GBP9.6
million (2022: profit GBP0.9 million) includes a GBP6.0 million
impairment charge relating to the write down of goodwill. Further
details on this can be found in the finance review.
Our balance sheet remains strong with a net cash position as at
31 March 2023 of GBP4.0 million (2022: GBP5.5 million). While our
FY23 results reflect the more cautious approach to decisions taken
by our customers, engagement levels remained reassuringly high
during the period and post period end we are starting to see
budgets reopen once again and present opportunities for the Group
which would have otherwise fallen in FY23.
Group operational review
In the period, we successfully onboarded 113 additional net new
clients and have continued to pursue cross-selling opportunities.
Over the past three years we have recognised c.GBP1.3 million in
cross-sell, with 39 additional clients having gained advantages
across multiple companies within our Group. We now look forward
with more confidence, bolstered by a robust balance sheet, improved
visibility with a growing pipeline of opportunities. We continue to
work with a number of blue-chip organisations, with a breadth of
clients across a range of sectors. We are witnessing a growing
preference among clients for Software as a Service (SaaS) and
managed service offerings, as this helps drive enhanced
efficiencies and significant cost savings. The transition to this
model will aid in smoothing our revenues and achieving greater
revenue visibility for the future.
Notwithstanding the market challenges, Shearwater achieved
recognition and success during the year, earning five prestigious
awards, including the title of 'Security Company of the Year 2022'
from the Computing Security Awards for the second consecutive year.
These awards serve as a testament to the value we continue to
deliver to our clients and the high regard we hold within the
industry.
In response to the challenges faced in FY23, Shearwater took
decisive action to streamline and optimise its operations. It was
important to review certain aspects of the Group, and the decisions
taken during the year ensure that we will emerge a leaner, more
unified business. Whilst we remain committed to our primary
objective of long-term, profitable growth, in response to the
challenges faced we have focused on reconfiguring the Group,
maximising internal efficiencies to ensure we are rightsized to
deal with opportunities moving forwards.
We aim to further enhance our internal efficiencies by merging
GeoLang with SecurEnvoy to form a unified software company, which
will be referred to as SecurEnvoy Data Discovery. Furthermore, we
are merging the client-facing activities of Xcina IS and Xcina
Consulting into Brookcourt Solutions. This integration will result
in improved efficiencies, reduced complexity, and a simplified
message for the Group.
Services
The majority of the Group's revenues come from its Services
division, which contributed 89% of total revenues in the period.
Revenue is generated through contract wins and renewals amongst a
large and growing customer base of blue-chip organisations.
Despite the backdrop, we were pleased to successfully secure
significant contract wins during the period, including securing a
GBP6.3 million contract to deliver a solution to secure a leading
global bank's email platform, swiftly followed by an additional
GBP1m to secure their applications database. Additionally, we
successfully secured a GBP1.3 million Penetration Testing contract
for a leading global software company, won a GBP1.0 million project
to deliver a data security solution for a prominent global media
company, and expanded a previously reported multi-million pound
forensic monitoring solution for a leading Telco by an additional
GBP0.7 million. Furthermore, we secured renewals to continue
providing secure printing solutions to a world-leading retail group
and a cloud-based security solution to help prevent distributed
denial of service (DDoS) attacks for a renowned pharmaceutical and
chemist. These are just a few examples of the diverse range of
deals we won during this period.
We are seeing an emerging preference for one-year contracts
compared to the more typical three-year contracts. While our
well-established clients continue to strengthen their defences
through multi-year contracts, our newer and smaller customers find
greater flexibility in annual contracts, enabling them to explore
diverse security options.
We have strengthened the Group's Services offering: Xcina
Consulting now offers a new third-party risk management service
which has already started to attract new clients since its launch,
and Pentest now provides 'secure coding workshop training' for
developers, to protect their applications, and their organisations,
through secure coding. Brookcourt has introduced various AI and
Deep Learning managed services to address the needs of the
medium-size client marketplace. To meet the increasing demand, we
expanded our team of revenue-generating and service-deployment
personnel while also utilising contractors to address short-term
workload peaks. Moreover, we bolstered our sales team at Brookcourt
with additional talent in sales and sales management, fuelling our
expectations for future growth.
2023 2022
GBPm GBPm %
--------------------------- ------ ------ --------
Revenue 23.8 32.5 (27%)
Gross profit 4.7 8.6 (44%)
Gross margin % 20% 26%
Overheads 4.6 3.9
--------------------------- ------ ------ --------
Adjusted EBITDA(1) 0.1 4.7 (94%)
Adjusted EBITDA margin % 1% 14%
--------------------------- ------ ------ --------
The steps taken to integrate our businesses have strengthened
the team's position to seize future opportunities. As the year
unfolds, we will explore further strategies to continue maximising
efficiencies.
Software
The Group has made more tangible operational progress in
Software in FY23. Whilst the proportion of revenue generated from
our Software division during the period was 11%, notably, the
increased spend on R&D over the past two years has now
strengthened our position in the market. This is typified by our
latest products, including the introduction of a fully functional
enterprise-ready software developed by GeoLang, which is being used
by a leading UK bank and attracting interest from our existing
client base and prospects; and SecurEnvoy's newly released Access
management as a Service platform ('Release 3') of our updated
SecurEnvoy software, which helps organisations manage and control
access to their systems and software. With SecurEnvoy's solution,
organisations can enhance their security measures, ensure
regulatory compliance, reduce supply chain risk and simplify the
management of users accessing corporate systems via a single
sign-on.
2023 2022
GBPm GBPm %
--------------------------- ------ ------ -------
Revenue 2.9 3.3 (12%)
Gross profit 1.8 2.2 (18%)
Gross margin % 63% 67%
Overheads 0.8 0.7
--------------------------- ------ ------ -------
Adjusted EBITDA(1) 1.0 1.5 (33%)
Adjusted EBITDA margin % 34% 46%
--------------------------- ------ ------ -------
We are excited by the impacts the integration of GeoLang and
SecurEnvoy will have, creating a more cohesive software company
going forward. This union aims to enhance operational performance
and achieve cost-effectiveness. Leveraging SecurEnvoy's extensive
network of global resellers, we can now offer an expanded software
portfolio worldwide, integrating the newly developed GeoLang
Sensitive Data Discovery solution under the esteemed SecurEnvoy
brand.
Growth strategy
Our vision remains steadfast in becoming the preferred provider
of choice, delivering next generation cyber technology,
professional advisory and advanced cyber security services and
solutions. Whilst the market conditions led to a focus on
strengthening organic growth, M&A remains part of our future
strategy, however, the focus in the shorter term needs to be on
building organic revenue as we see a significant opportunity in the
medium term in the sectors we serve.
Within our Services division, we aim to be the preferred partner
of choice delivering managed security solutions, penetration
testing and advisory consulting services; providing an end-to-end
offering. Within our Software division, we aim to build a 'must
have' next-generation converged access management and data
discovery platform utilising our zero trust access solution
protecting users, devices and data, wherever the location.
Our strategic focus over the medium term is a return to
delivering solid, sustainable revenues and profit growth in the
years ahead, which we are confident of achieving.
Market opportunity
Shearwater Group's solutions cater to the increasing security
demands in today's environment and align with evolving regulations
for corporate clients. We operate in high-growth markets and, as
projected by Gartner, the global market revenue for information
security and risk spending is estimated to exceed $267 billion by
2026.
The well-publicised corporate cyber-attacks have drawn
significant attention to the alarming trend of AI being weaponised,
and it is of utmost importance to proactively mitigate risk and
fortify their cyber security measures. Organisations are under
growing pressure to ensure adherence to stringent regulatory
frameworks and protect sensitive data from breaches and we have a
clear strategy in place to exploit the considerable market
opportunity ahead across both our Services and Software
divisions.
Shearwater Group offers access to a differentiated full-service
cyber security offering in a rapidly expanding market. Further to
supportive market trends, our robust growth strategy, strong
financial position, prestigious customer base, industry
recognition, and talented team, we are poised to capitalise on
opportunities and deliver substantial returns on investment.
Current trading and outlook
We are starting to see more green shoots and opportunities
following a challenging year, with the wider macroeconomic backdrop
starting to improve, the Board is encouraged about the
forward-looking prospects for the business. Cyber security remains
integral to organisations, and we believe we are well placed to
capture the strong market opportunity ahead. While Shearwater is
not alone in dealing with industry-wide challenges, the underlying
growth drivers across the cyber security sector undoubtedly remain
and we are well configured as a business following the decisive
action taken in FY23. Although we are disappointed not to be
updating shareholders with the FY23 financial performance we had
been hoping for, we now have a more solid foundation on which to
return to a growth trajectory. As we enter FY24, we do so with
cautious optimism despite potential wider economic headwinds and
their impact on our clients' budgets.
Q1 trading results are meeting our management's expectations,
and our customer engagement efforts are proving successful in
bolstering our growing pipeline, showing year-on-year growth. We
have experienced a positive development as some delayed orders from
the previous year have been fulfilled, and we've acquired new
clients, with the remaining delayed orders expected to be fulfilled
later this year. Our cross-selling initiatives have seen a
promising start, with numerous new engagements underway.
Furthermore, we are delighted to observe that our professional
advisory and penetration testing consultancy utilisation rates have
improved significantly, with robust projects extending into Q3 and
beyond. This progress is particularly encouraging as it enhances
visibility and confidence in this segment of our business.
In the market, our position remains strong, which has been
further reinforced after the successful launch of our latest
software developments. These advancements have led to an increase
in renewals, and our newly introduced managed cyber-service
offerings have already gained interest from customers, especially
among untapped SME clients, with several proof of concepts (POC)
already initiated. Moreover, our new Secure Code Training programme
has attracted new students, with additional project opportunities
on the horizon.
An exciting highlight has been witnessing numerous substantial
international cyber solution wins originating from our existing
corporate client base. Our relationships with leading global
corporate clients continue to present promising opportunities.
On the financial front, we are pleased to report that our
balance sheet remains robust, and we are experiencing good cash
flow.
Looking ahead, the evolving landscape of AI and machine learning
technologies presents us with even greater opportunities. We are
well positioned to provide technology refresh and consulting
services to our larger, well-established clients, helping them stay
ahead of their adversaries.
Overall, the current outlook is positive, and we are confident
in our ability to leverage emerging trends and sustain our growth
trajectory in the cyber security market.
Philip Higgins
Chief Executive Officer
4 September 2023
Financial review
Overview
The Group's financial performance in the year to 31 March 2023
was significantly impacted by strong market headwinds and delays in
entering into a number of material contracts in the period in the
Group's Services division. As a result, revenue was down 26% to
GBP26.7 million. The Group's Software division continued to retain
a large proportion of its long-standing customer base, however
slower than expected new business sales also impacted revenue in
the year. The lower revenues resulted in reduced EBITDA year on
year at GBP(0.2) million which also includes the impact of
additional costs relating to an unrealised foreign exchange charge
for revaluing US dollar liabilities in the period as well as
one-off fees relating to establishment of overseas operations.
A non-cash impairment of GBP6.0 million has been recorded in the
current year reflecting a write down of goodwill held for the
Group's SecurEnvoy and Xcina assets.
However, the Group retains a healthy balance sheet with no debt
and a net cash position of GBP4.0 million (2022: GBP5.6 million) at
31 March 2023. During the year the Group generated positive
operating cash flows and increased its investment in the
development of new software offerings within its Software division
which it expects to successfully monetise in future years.
Following a review of the Group in early 2023, a re-organisation
commenced which is expected to deliver a GBP1.0 million reduction
in the Group's fixed cost base.
Details of the Group's summarised financial performance for the
year are detailed below:
2023 2022
GBPm GBPm
-------------------------------------------------------- ------- -------
Revenue 26.7 35.9
Gross profit 6.4 10.8
Administrative expenses (underlying)(1) (6.6) (6.4)
-------------------------------------------------------- ------- -------
Adjusted EBITDA (0.2) 4.4
Adjusted EBITDA margin -% 12%
Finance charge (0.1) (0.1)
Depreciation (0.2) (0.3)
Amortisation of intangible assets - computer software (0.8) (1.0)
-------------------------------------------------------- ------- -------
Adjusted (loss)/profit before tax (1.3) 3.0
Amortisation of acquired intangible assets (2.1) (2.1)
Impairment of intangible assets (6.0) -
Share-based payments (0.1) (0.1)
Exceptional items (0.1) (0.1)
Other operating income - 0.1
-------------------------------------------------------- ------- -------
(Loss)/profit before tax (9.6) 0.9
Taxation credit/(charge) 1.5 (1.2)
-------------------------------------------------------- ------- -------
(Loss) after tax (8.2) (0.3)
-------------------------------------------------------- ------- -------
1 Administrative expenses (underlying) excludes items that are
not included within Adjusted EBITDA such as finance charges,
depreciation, amortisation, impairment, share-based payment
charges, exceptional items and other operating income.
Revenue
Revenue for the year ended 31 March 2023 of GBP26.7 million was
26% down on the prior year (2022: GBP35.9 million).
The table below provides a breakdown of revenues for the current
year:
2023 2022
GBPm GBPm
---------------------------------- ------ ------
Services
Managed services and warranties 11.2 16.4
Security solutions 6.1 10.6
Advisory and engineering 6.5 5.6
Software
Software licences 2.9 3.3
---------------------------------- ------ ------
Total revenue 26.7 35.9
---------------------------------- ------ ------
Within Services, whilst the number of customers receiving
managed services & warranties remained broadly the same,
revenues in the period were impacted by the timing of a number of
projects, with a few larger clients that were expected to complete
in the period but were delayed. It is expected that the majority of
these delayed projects will fall into FY24.
Advisory revenues grew by 18% on a year-on-year basis with
increased demand for Brookcourt's engineering and Pentest's
consulting services fuelling this growth. Additional investment in
revenue-generating consultants was made in the period to service
demand for these services in FY24.
Software licences revenue was impacted by lower than expected
new business sales of the legacy 'On Premise' multi-factor
authentication software. Renewal rates with existing customers have
remained at c.80%, demonstrating the reliance and value many
long-standing clients place on this product. Investment into
developing the next generation software as a cloud-based platform
provides an opportunity to drive additional incremental revenues in
the future.
Adjusted EBITDA
The Group delivered adjusted EBITDA of GBP(0.2) million in the
year (2022: GBP4.4 million), which was primarily impacted by the
revenue shortfalls in the period, despite lower central costs.
Delayed sales and reduced new business sales from our Software
division impacted gross margins by 6% to 24% for the year (2022:
30%).
The table below provides a breakdown of the Group's adjusted
EBITDA:
2023 2022
GBPm GBPm
---------------------------------- ------- -------
Services and Software 1.1 6.2
Central administrative expenses (1.3) (1.8)
Adjusted EBITDA (0.2) 4.4
---------------------------------- ------- -------
Adjusted EBITDA margin % - 12%
---------------------------------- ------- -------
We expect to re-establish higher gross profitability in the
coming year by:
-- Increasing utilisation of advisory resource, we have good
forward visibility of confirmed sales for H1 which will enhance
utilisation.
-- Driving new business sales from newly released software
products.
-- Completing delayed contracts from the FY23 year.
Central administrative expenses decreased by GBP0.5 million in
the year to GBP1.3 million reflecting a reduction in corporate and
professional costs.
Finance charges
Net finance charges of GBP0.1 million are in line with prior
year (2022: GBP0.1 million). The Group settled its remaining loan
liabilities in the previous year.
Depreciation
Depreciation of GBP0.2 million (2022: GBP0.3 million) is
slightly reduced from the prior year and incorporates GBP0.2
million of depreciation of right of use assets which is reduced
from the prior year.
Amortisation of intangible assets - computer software
Amortisation of computer software has reduced by GBP0.2 million
to GBP0.8 million (2022: GBP1.0 million) and includes increased
amortisation of GeoLang data discoveries product development
expenditure in addition to increased amortisation in SecurEnvoy.
This is offset by savings for projects that were fully amortised in
the prior year.
Adjusted (loss)/profit before tax
The Group delivered adjusted loss before tax for the year of
GBP1.3 million (2022: GBP3.0 million profit), the reduction in
profitability is impacted by the reduced EBITDA in the current year
(detailed above) less a small year-on-year reduction in internally
developed software amortisation.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets of GBP2.1 million
(2022: GBP2.1 million) is in line with the previous year.
Impairment of intangible assets
A non-cash impairment charge of GBP6.0 million has been made in
the current year against goodwill values held for the Group's
SecurEnvoy, Xcina Consulting and Xcina IS assets. Further details
can be found in note 9 of the consolidated Group financial
statements.
Share-based payments
Share-based payment charges of GBP0.1 million (2022: GBP0.1
million) incorporate a full year's charge for the Group's Company
Share Options Plan (CSOP), in addition to charges for the Group's
Save As You Earn scheme (SAYE), Employee Share Options Plan (ESOP)
and a reduced year-on-year charge for the Group's share incentive
scheme which lapsed in the current year.
Exceptional items
Exceptional items of GBP0.1 million include one-off expenses
relating to a review of the operations and the subsequent
re-organisation costs incurred in the year.
Other operating income
Other operating income includes early repayment discounts
recognised on the repayment of loan liabilities of GBP0.1 million
which were settled in the previous year.
Reported (loss)/profit before tax
Reported loss before tax for the year of GBP9.6 million (2022:
GBP0.9 million profit) reflects the reduced trading detailed within
adjusted profit before tax, in addition to one-off impairment
charges and exceptional items detailed above.
Taxation
A taxation credit in the period of GBP1.5 million includes a
GBP0.7 million credit for the current year, GBP0.4 million
adjustments in respect of previous years' tax provision plus GBP0.3
million movements in deferred taxation.
Earnings/(loss) per share
Adjusted basic loss per share of GBP0.00 (2022: adjusted
earnings per share GBP0.11 basic and GBP0.10 diluted) represents a
year-on-year reduction reflecting the weaker trading results in the
year. The average number of shares remained broadly the same
year-on-year. Reported basic loss per share of GBP0.34 (diluted
GBP0.33) compares against a basic and diluted loss per share of
GBP0.01 in the prior year.
Statement of financial position
Intangible assets
Intangible assets decreased in the year by GBP7.7 million to
GBP44.9 million at 31 March 2023 (2022: GBP52.6 million). This
movement incorporates GBP1.3 million of investment into continued
development of the Group's software assets (2022: GBP1.1 million),
less GBP2.9 million amortisation, of which GBP2.1 million relates
to amortisation of acquired intangibles and GBP0.8 million
amortisation of developed computer software. In addition to this
there is a GBP6.0 million impairment charge relating to the write
down of goodwill for the Group's SecurEnvoy and Xcina
businesses.
Property, plant and equipment
Property, plant and equipment increased in the year by GBP0.1
million to GBP0.4 million at 31 March 2023 (2022: GBP0.3 million).
Additions of GBP0.4 million include GBP0.3 million for the
extension of an existing office lease which has been recognised as
a right of use asset. Other movements in the period include
depreciation in the year of GBP0.3 million.
Trade and other receivables
Trade and other receivables have decreased by GBP0.5 million in
the year from GBP20.2 million to GBP19.6 million at 31 March 2023.
Significant movements include an GBP8.7 million decrease in accrued
income following the invoicing of a large contract billed in early
April 2022, some of which has contributed to an increase in trade
receivables, which increased GBP8.2 million year-on-year.
Trade and other payables
Trade and other payables have decreased by GBP2.2 million in the
year from GBP14.5 million to GBP12.3 million at 31 March 2023.
Material movements include a GBP1.3 million decrease in trade
payables, GBP0.4 million reduction in corporation tax liabilities
and GBP0.3 million reduction in deferred income.
Creditors: amounts falling due after more than one year
Creditor amounts falling due after more than one year have
increased in the year by GBP1.3 million from GBP7.9 million to
GBP9.2 million at 31 March 2023. A GBP1.5 million increase in
accruals and other payables relates to a number of long-term
contracts with long-standing clients and a GBP0.2 million increase
in lease liabilities relates to an existing office lease that was
extended during the year for a further five years. A GBP0.3 million
reduction to deferred tax balances includes a reduction of GBP0.4
million relating to deferred tax held for acquired intangible
assets less deferred tax balances created on new software
projects.
Statement of cash flows
Continued investment has been made in the Group's Software
division, with over GBP1.0 million invested into internally
developed software, the latest of which, SecurEnvoy's Access
Management v.3 went live in May 2023. Despite challenging trading,
as detailed later in this report, the Group generated GBP0.4
million of adjusted operational cash flow in the period with H2
delivering strong operating cash inflows. The Group continued to
collect cash effectively, with minimal bad debt.
The table below provides a summary of cash flows in the
year:
2023 2022
GBPm GBPm
------------------------------------------------- ------- -------
Adjusted EBITDA (0.2) 4.4
Movements in working capital 0.5 (4.7)
Cash generated/(used) from operations 0.3 (0.3)
------------------------------------------------- ------- -------
Adjusted cash generated/(used) from operations 0.4 (0.3)
Exceptional items (0.1) -
Cash generated/(used) from operations 0.3 (0.3)
------------------------------------------------- ------- -------
Capital expenditure (net of disposal proceeds) (1.3) (1.1)
Tax paid (0.3) (0.1)
Finance costs paid (0.1) (0.1)
Payments of lease liabilities (0.2) (0.2)
Loan repayments - (0.7)
FX and other - 0.1
------------------------------------------------- ------- -------
Movement in cash (1.6) (2.4)
Opening cash and cash equivalents 5.6 8.0
------------------------------------------------- ------- -------
Closing cash and cash equivalents 4.0 5.6
Loans - -
------------------------------------------------- ------- -------
Net cash 4.0 5.6
------------------------------------------------- ------- -------
(In addition to the statutory presentation of cash flow, the
Directors also review a summarised presentation of cash flow which
highlights the key components of the Group's cash flow.)
Capital expenditure
Capital expenditure of GBP1.3 million (2022: GBP1.1 million) in
the year includes primarily 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 GBP0.2 million (2022: GBP1.0 million)
for repayment of lease liabilities is in line with the previous
year. In the prior year the Group repaid GBP0.7 million of
remaining loan balances.
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 Annual Report..
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.
The table within note 2 details definitions of adjusted EBITDA
and adjusted (loss)/profit before tax measures. Note 8 details
definition of adjusted EPS.
Paul McFadden
Chief Financial Officer
4 September 2023
Consolidated statement of comprehensive income
for the year ended 31 March 2023
2023 2022
Note GBP'000 GBP'000
---------------------------------------------------------------------- -------- ------------------------ ----------
Revenue 3 26,686 35,876
Cost of sales (20,236) (25,053)
---------------------------------------------------------------------- -------- ------------------------ ----------
Gross profit 6,450 10,823
Administrative expenses (12,875) (6,435)
Depreciation and amortisation (3,131) (3,412)
Other operating income - 70
Total operating costs (16,006) (9,777)
---------------------------------------------------------------------- -------- ------------------------ ----------
Operating (loss)/profit (9,556) 1,046
---------------------------------------------------------------------- -------- ------------------------ ----------
Adjusted EBITDA (201) 4,398
Depreciation and amortisation (3,131) (3,412)
Impairment of intangible assets (6,014) -
Exceptional items 4 (125) -
Share-based payments (85) (10)
Other operating income - 70
Operating (loss)/profit (9,556) 1,046
---------------------------------------------------------------------- -------- ------------------------ ----------
Finance cost 6 (77) (110)
---------------------------------------------------------------------- -------- ------------------------ ----------
(Loss)/profit before taxation (9,633) 936
---------------------------------------------------------------------- -------- ------------------------ ----------
Income tax credit/(charge) 7 1,458 (1,228)
---------------------------------------------------------------------- -------- ------------------------ ----------
Loss for the year and attributable to equity holders of the Company (8,175) (292)
---------------------------------------------------------------------- -------- ------------------------ ----------
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 7 (1)
---------------------------------------------------------------------- -------- ------------------------ ----------
Total comprehensive (loss)/income for the year (8,168) (279)
---------------------------------------------------------------------- -------- ------------------------ ----------
Earnings per ordinary share attributable to the owners of the parent
Basic (GBP per share) 8 (0.34) (0.01)
Diluted (GBP per share) 8 (0.33) (0.01)
Adjusted basic (GBP per share) 8 (0.00) 0.11
Adjusted diluted (GBP per share) 8 (0.00) 0.10
---------------------------------------------------------------------- -------- ------------------------ ----------
Adjusted EBITDA is a non-GAAP Group-specific measure which is
considered to be a key performance indicator of the Group's
financial performance. Please see note 2 for a definition of
Adjusted EBITDA.
The results above are derived from continuing operations.
Consolidated statement of financial position
As at 31 March 2023
2023 2022
(restated)
Note GBP'000 GBP'000
---------------------------------------------------------- ------ ---------- ------------
Assets
Non-current assets
Intangible assets 9 44,939 52,564
Property, plant and equipment 10 433 315
Deferred tax asset 14 742 -
Trade and other receivables 11 7,280 9,777
Total non-current assets 53,394 62,656
---------------------------------------------------------- ------ ---------- ------------
Current assets
Trade and other receivables 11 12,346 10,378
Cash and cash equivalents 3,964 5,575
---------------------------------------------------------- ------ ---------- ------------
Total current assets 16,310 15,953
---------------------------------------------------------- ------ ---------- ------------
Total assets 69,704 78,609
---------------------------------------------------------- ------ ---------- ------------
Liabilities
Current liabilities
Trade and other payables 12 12,348 14,519
---------------------------------------------------------- ------ ---------- ------------
Total current liabilities 12,348 14,519
---------------------------------------------------------- ------ ---------- ------------
Non-current liabilities
---------------------------------------------------------- ------ ---------- ------------
Creditors: amounts falling due after more than one year 13 9,233 7,884
Total non-current liabilities 9,233 7,884
---------------------------------------------------------- ------ ---------- ------------
Total liabilities 21,581 22,403
---------------------------------------------------------- ------ ---------- ------------
Net assets 48,123 56,206
---------------------------------------------------------- ------ ---------- ------------
Capital and reserves
Share capital 16 22,278 22,278
Share premium 34,581 34,581
FVTOCI reserve - -
Other reserves 23,442 24,386
Translation reserve 30 23
Accumulated losses (32,208) (25,062)
---------------------------------------------------------- ------ ---------- ------------
Equity attributable to owners of the Company 48,123 56,206
---------------------------------------------------------- ------ ---------- ------------
Total equity and liabilities 69,704 78,609
---------------------------------------------------------- ------ ---------- ------------
The financial statements were approved and authorised for issue
by the Board and signed on their behalf on 4 September 2023.
Philip Higgins
Chief Executive Officer
Registered number: 05059457
Consolidated statement of changes in equity
for the year ended 31 March 2023
Share Share FVTOCI Other Translation Accumulated Total
capital premium reserve reserve reserve losses equity
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ---------- ---------- ---------- ---------- ------------- ------------- ----------
At 1 April 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
------------------------ ---------- ---------- ---------- ---------- ------------- ------------- ----------
Loss for the
year - - - - - (8,175) (8,175)
Other comprehensive
income for the
year - - - - 7 - 7
Expiry of share
options - - - (1,029) - 1,029 -
------------------------ ---------- ---------- ---------- ---------- ------------- ------------- ----------
Total comprehensive
loss for the
year - - - (1,029) 7 (7,146) (8,168)
Contributions
by and
distributions
to owners
Issue of share - - - - - - -
capital
Share-based payments - - - 85 - - 85
------------------------ ---------- ---------- ---------- ---------- ------------- ------------- ----------
At 31 March
2023 22,278 34,581 - 23,442 30 (32,208) 48,123
------------------------ ---------- ---------- ---------- ---------- ------------- ------------- ----------
Consolidated cash flow statement
for the year ended 31 March 2023
2023 2022
Note GBP'000 GBP'000
------------------------------------------------------ ------ ---------- ----------
Cash flows from operating activities
Loss for the year (8,175) (292)
Adjustments for:
Amortisation of intangible assets 4 2,891 3,149
Depreciation of right of use assets 4 184 207
Depreciation of property, plant and equipment 4 56 56
Share-based payment charge 4 85 10
Other income 4 - (70)
Impairment of intangible assets 4 6,014 -
Exceptional items 4 125 -
Finance cost 77 110
Income tax (1,458) 1,228
------------------------------------------------------ ------ ---------- ----------
Cash flow from operating activities before
changes in working capital (201) 4,398
Decrease/(increase) in trade and other receivables 813 (10,040)
(Decrease)/increase in trade and other payables (248) 5,384
------------------------------------------------------ ------ ---------- ----------
Cash generated by/(used in) operations 364 (258)
------------------------------------------------------ ------ ---------- ----------
Net foreign exchange movements 10 5
Finance cost paid (83) (50)
Tax paid (285) (62)
------------------------------------------------------ ------ ---------- ----------
Net cash generated/(used) from operating activities
before exceptional items 6 (365)
------------------------------------------------------ ------ ---------- ----------
Net cash flows on exceptional items (80) -
------------------------------------------------------ ------ ---------- ----------
Net cash used in operating activities (74) (365)
------------------------------------------------------ ------ ---------- ----------
Investing activities
Purchase of property, plant and machinery 10 (57) (49)
Purchase of intangibles 9 (1,280) (1,097)
Net cash used in investing activities (1,337) (1,146)
------------------------------------------------------ ------ ---------- ----------
Financing activities
Interest paid - (91)
Repayment of loan liabilities - principal amount - (652)
Repayment of lease liabilities 21 (200) (220)
------------------------------------------------------ ------ ---------- ----------
Net cash used in financing activities (200) (963)
------------------------------------------------------ ------ ---------- ----------
Net decrease in cash and cash equivalents (1,611) (2,474)
Foreign exchange movement on cash and cash - -
equivalents
------------------------------------------------------ ------ ---------- ----------
Cash and cash equivalents at the beginning
of the period 5,575 8,049
------------------------------------------------------ ------ ---------- ----------
Cash and cash equivalents at the end of the
period 3,964 5,575
------------------------------------------------------ ------ ---------- ----------
Notes to the consolidated financial statements
for the year ended 31 March 2023
These Consolidated Financial Statements have been prepared in
accordance with UK adopted International Accounting Standards and
are in conformity with the requirements of the Companies Act 2006.
They do not include all of the information required for full annual
statements and should be read in conjunction with the 2023 Annual
Report.
The comparative figures for the financial year 31 March 2022
have been extracted from the Group's statutory accounts for that
financial year. The statutory accounts for the year ended 31 March
2022 have been filed with the registrar of Companies. The auditor
reported on those accounts: their report was (i) unqualified, (ii)
did not include references to any matters to which the auditor drew
attention by way of emphasis without qualifying the reports and
(iii) did not contain statements under section 498(2) or (3) of the
Companies Act 2006.
The statutory accounts for the year ended 31 March 2023 were
approved by the Board of Directors on 4 September 2023 and will be
delivered to the Registrar of Companies following the Company's
Annual General Meeting on 29 September 2023.
The financial information contained in this announcement does
not constitute statutory accounts for the year ended 31 March 2023
or 2022 as defined by Section 434 of the Companies Act 2006.
Going concern
Having made 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 these financial statements. Accordingly, they continue to
adopt the going concern basis in preparing these consolidated
financial statements.
The Directors continue to regularly review the Group's going
concern position, considering the impact of potential future
trading downturns should there be another global event or further
economic challenges. Over the past year the Group has experienced
challenging trading conditions which has resulted in delays to
projects, which impacted the business's performance in the current
year.
At 31 March 2023, the Group has been able to report a robust
financial position and is well capitalised with a net cash position
of GBP4.0 million (2022: GBP5.6 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 30 September 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 is pleased to report that current trading is tracking
ahead of the prior year, with trading for the first quarter ended
30 June 2023 in line with managements expectations. Furthermore, a
reorganisation of some of the Group's companies has resulted in
c.GBP1.0 million of annualised cost savings made to date.
The Directors have reviewed and challenged a reverse stress test
scenario on the Group up to September 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 scaling back of services revenues
to include just contracted and firm revenues, upcoming support
renewals and existing managed services revenues plus a materially
reduced assumption from September 2023 onwards for professional
advisory budgeted revenues which have been adjusted by between
30%-50%. Software revenues have been reduced with all new business
lines removed with the exception of the Access Management product
new business revenues which have been reduced by 60%.
Costs have been scaled back prudently in line with the reduction
in revenues. The resulting outcome of the stress-test forecasts
that the Group would have sufficient cash resources to service 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 30 September 2024 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 contract
Management make judgements, estimates and assumptions in
determining the revenue recognition of material contracts sold by
the Group's Services division. The Group works with large
enterprise clients, providing services and solutions to support the
clients' needs. In many cases a third-parties products or services
will be provided as part of a solution. Management will consider
the implications around timing of recognition, with factors such as
determining the point control passes to the client and the
subsequent fulfilment of the Group's performance obligations. In
addition to this, management will consider if it is acting as agent
or principal. Further details of how the Group determines 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 continues to review all existing
leases, which all relate to office space, and will look to reduce
the number of offices across the Group if they are not sufficiently
utilised. For this reason, management have assumed that the life of
leases does not extend past the current contracted expiry date. A
judgement has been taken with regard to the incremental borrowing
rate based upon the rate at which the Group can borrow money.
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 2 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 part of the subscription is recognised at the point that
the licence key is provided to the customer, with the remaining
part 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 products or services 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 and 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
Trade names 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.
Office equipment 25% - 33% 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.
The Group has introduced a policy to use derivatives where there
is a material surplus or deficit of non-sterling receipts and
payments. Forward contracts are measured at each balance sheet
based on the prevailing closing exchange rates with exchange
gains/(losses) recognised in the statement of comprehensive
income.
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 0.24% (2022: 0.9%). 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 0.24% is discounted by 20%, meaning a 0.19% 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 GBP29,864 (2022:
GBP41,069). 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 GBP0.04 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.
Forward contracts
Foreign exchange risk arises when individual group operations
enter into transactions denominated in a currency other than their
functional currency. During the year the Group introduced the use
of forward contracts within its foreign exchange policy. Where the
risk to the Group is considered to be significant, the Group will
enter into a forward foreign exchange contract. Further details can
be found in note 18.
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 of 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 which it
uses to discount all identified leases across the Group. The Group
has one type of right of use assets, all of which are located in
the United Kingdom.
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
17.
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 2022, 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.
Effective To be adopted
International Financial Reporting Standard (IFRS/IAS) date by the Group
-------------------------------------------------------------- ----------- ---------------
IAS 1 Presentation of Financial Statements and IFRS Practice 1 January 1 April 2023
Statement 2 (Amendment - Disclosure of Accounting Policies) 2023
IAS 8 Accounting policies, Changes in Accounting Estimates 1 January 1 April 2023
and Errors (Amendment - Definition of Accounting Estimates) 2023
IAS 12 Incomes Taxes (Amendment - Deferred Tax related to 1 January 1 April 2023
Assets and Liabilities arising from a Single Transaction) 2023
-------------------------------------------------------------- ----------- ---------------
2. Measure of profit
To provide shareholders with a better understanding of the
trading performance of the Group, additional alternative
performance measures ('APMs') are included; Adjusted EBITDA and
Adjusted (loss)/profit before tax have been calculated as
(loss)/profit before tax after adding back the following items,
which can distort the underlying performance of the Group:
Adjusted (loss)/profit before tax
-- Amortisation of acquired intangibles.
-- Share-based payments.
-- Impairment of intangible assets.
-- Fair value adjustment to deferred consideration.
-- Other operating income.
-- Exceptional items
Adjusted EBITDA
In addition to the adjusting items highlighted above in the
adjusted (loss)/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 (loss)/profit before tax reconciles
to (loss)/profit before tax as follows:
2023 2022
GBP'000 GBP'000
-------------------------------------------------------- ---------- ----------
(Loss)/profit before tax (9,633) 936
Amortisation of acquired intangibles 2,099 2,099
Impairment of intangible assets 6,014 -
Exceptional items 125 -
Share-based payments 85 10
Other income - (70)
-------------------------------------------------------- ---------- ----------
Adjusted (loss)/profit before tax (1,310) 2,975
-------------------------------------------------------- ---------- ----------
Finance costs 77 110
Depreciation 240 263
Amortisation of intangible assets - computer software
(including in-house software development) 792 1,050
-------------------------------------------------------- ---------- ----------
Adjusted EBITDA (201) 4,398
-------------------------------------------------------- ---------- ----------
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 2023 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
2023 2023 2022 2022
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------- ------------- ------------- -------------
Services(1) 23,830 149 32,540 4,663
Software(1) 2,856 977 3,336 1,535
---------------------------------- ------------- ------------- ------------- -------------
Group trading EBITDA(1) 26,686 1,126 35,876 6,198
Group costs(1) (1,327) (1,800)
---------------------------------- ------------- ------------- ------------- -------------
Adjusted EBITDA (201) 4,398
Amortisation of intangibles (2,891) (3,149)
Impairment of intangible assets (6,014) -
Depreciation (240) (263)
Exceptional items (125) -
Share-based payments (85) (10)
Other income - 70
Finance cost (77) (110)
---------------------------------- ------------- ------------- ------------- -------------
(Loss)/profit before tax (9,633) 936
---------------------------------- ------------- ------------- ------------- -------------
(1 Figures disclosed in the profit column for Services and
Software profitability is adjusted EBITDA.)
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).
2023 2022
GBP'000 GBP'000
------------------------------- ---------- ----------
United Kingdom 18,585 29,531
Europe (excluding the UK)(1) 6,043 4,508
North America 1,620 1,470
Rest of the world 438 367
------------------------------- ---------- ----------
26,686 35,876
------------------------------- ---------- ----------
1. Includes sales of GBP3,935,680 (2022: GBP2,444,899) and
GBP682,853 (2022: GBP775,835) to Netherlands and Germany
respectively.
All of the Group's non-current assets are held within the United
Kingdom.
One customer within the Group makes up more than 10% of the
Group's revenue. This customer contributed GBP8.0 million to the
Group's Services division. In the prior year, two customers made up
more than 10% of the Group's revenue, contributing GBP16.2 million
and GBP5.2 million respectively to the Group's Services
division.
4. Expenses and auditor's remuneration
Operating (loss)/profit is stated after charging:
2023 2022
GBP'000 GBP'000
----------------------------------------------------------- ---------- ----------
Depreciation of fixed assets 240 263
Amortisation of intangibles 2,891 3,149
External auditor's remuneration:
- Audit fee for annual audit of the Group and Company
financial statements 103 45
- Audit fee for annual audit of the subsidiary financial
statements 179 165
Share-based payments 85 10
Impairment of intangible assets 6,014 -
Exceptional items 125 -
Unrealised loss on forward contract 407 -
Other operating income - (70)
----------------------------------------------------------- ---------- ----------
Exceptional items include costs incurred for strategic review of
the business and subsequent reorganisation which commenced at the
end of the financial year.
5. Staff costs
Total staff costs within the Group comprise of all Directors'
and employee costs for the financial year.
2023 2022
GBP'000 GBP'000
------------------------ ---------- ----------
Wages and salaries 6,864 6,428
Social security costs 835 743
Pension costs 207 202
Share-based payments 85 10
---------- ----------
7,991 7,383
------------------------ ---------- ----------
The weighted average monthly number of employees, including
Directors, employed by the Group and Company during the year
was:
2023 2022
---------------------- ------ ------
Administration 20 19
Production 53 43
Sales and marketing 26 26
------ ------
99 88
---------------------- ------ ------
Details of Directors' remuneration can be found within the
annual report on remuneration.
6. Interest costs
2023 2022
GBP'000 GBP'000
------------------------------------------------ ---------- ----------
Interest payable on revolving credit facility 56 66
Interest payable on lease liabilities 15 12
Other interest payments 6 13
Interest payable on loan balances - 19
---------- ----------
77 110
------------------------------------------------ ---------- ----------
7. Taxation
2023 2022
GBP'000 GBP'000
-------------------------------------------------------------- ---------- ----------
Current tax:
UK corporation tax at current rates on UK (loss)/profit for
the year - 442
Over provision in respect of prior year (442) -
-------------------------------------------------------------- ---------- ----------
(442) 442
-------------------------------------------------------------- ---------- ----------
Foreign tax 2 13
-------------------------------------------------------------- ---------- ----------
Total current tax charge (440) 455
-------------------------------------------------------------- ---------- ----------
Deferred tax movement in the period (1,018) 773
-------------------------------------------------------------- ---------- ----------
Income tax (credit)/charge (1,458) 1,228
-------------------------------------------------------------- ---------- ----------
Reconciliation of taxation:
-------------------------------------------------------------- ---------- ----------
(Loss)/profit before tax (9,633) 936
-------------------------------------------------------------- ---------- ----------
Profit multiplied by the average rate of corporation tax in
the year of 19% (2022: 19%) (1,830) 178
Tax effects of:
Expenses not deductible for tax purposes 1,532 411
Adjustments for previous periods (442) -
Foreign tax rate differences (1) (1)
Increase to deferred tax asset owing to changing tax rate (136) -
from 1 April 2023
Enhanced R&D relief (130) (94)
Other items (277) 786
Brought forward losses (174) (52)
-------------------------------------------------------------- ---------- ----------
Income tax (credit)/charge (1,458) 1,228
-------------------------------------------------------------- ---------- ----------
(Other items include movements in deferred tax which includes an
adjustment made in the prior year to revalue deferred tax
liabilities from 19% to 25%.)
In the March 2021 Budget it was announced that legislation will
be introduced in the 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 post balance sheet date, the
deferred tax balances at 31 March 2023 and 31 March 2022 are
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 anti-dilutive for the twelve months ended 31 March 2023 and for
the twelve months ended 31 March 2022. Adjusted earnings per share
is potentially dilutive in the year to 31 March 2022. Please see
notes 16 and 17 of the consolidated financial statements for more
details.
The calculation of the basic and diluted profit/loss per
ordinary share from total operations attributable to shareholders
is based on the following data:
2023 2022
GBP'000 GBP'000
----------------------------------------------------------- ---------- ----------
Net profit from total operations
Loss for the purposes of basic and diluted earnings
per share being net profit attributable to shareholders (8,175) (292)
Add/(remove):
Amortisation of acquired intangibles 1,878 1,878
Impairment of intangible assets 6,014 -
Exceptional items 101 -
Share-based payments 85 10
Adjustment to deferred tax liability relating to
acquired intangibles(1) - 1,014
Other income - (70)
Adjusted (loss)/earnings for the purposes of adjusted
earnings per share (97) 2,540
----------------------------------------------------------- ---------- ----------
Number Number
----------------------------------------------------- ------------ ------------
Number of shares
Weighted average number of ordinary shares for the
purpose of basic and adjusted earnings per share 23,818,674 23,809,807
Weighted average number of ordinary shares for the
purpose of diluted and adjusted diluted earnings
per share 24,549,536 24,723,962
----------------------------------------------------- ------------ ------------
GBP GBP
-------------------------------------- -------- --------
Basic earnings per share (0.34) (0.01)
Diluted earnings per share (0.33) (0.01)
Adjusted basic earnings per share (0.00) 0.11
Adjusted diluted earnings per share (0.00) 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 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
---------------------------- ---------- ---------------- ---------- ------------ -------------- ----------
Additions - - 1,280 - - 1,280
---------------------------- ---------- ---------------- ---------- ------------ -------------- ----------
At 31 March 2023 36,660 10,838 9,920 6,826 1,005 65,249
---------------------------- ---------- ---------------- ---------- ------------ -------------- ----------
Accumulated amortisation
At 1 April 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
---------------------------- ---------- ---------------- ---------- ------------ -------------- ----------
Amortisation for the year - 934 1,274 683 - 2,891
Impairment 6,014 - - - - 6,014
---------------------------- ---------- ---------------- ---------- ------------ -------------- ----------
At 31 March 2023 6,014 4,557 5,691 3,043 1,005 20,310
---------------------------- ---------- ---------------- ---------- ------------ -------------- ----------
Net book amount
At 31 March 2023 30,646 6,281 4,229 3,783 - 44,939
---------------------------- ---------- ---------------- ---------- ------------ -------------- ----------
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
---------------------------- ---------- ---------------- ---------- ------------ -------------- ----------
Software intangible assets comprise acquired software assets
plus software assets developed both in-house and externally. The
amortisation charge for the year includes GBP2.1 million
amortisation on acquired intangible assets and GBP0.8 million
amortisation of internally developed software assets.
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 12.6% 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 Xcina
SecurEnvoy GeoLang Solutions Consulting Pentest
----------------- ------------ --------- ------------ ------------- ---------
Year 1 (10)% 1,869% 47% 22% 34%
Year 2 16% (24)% 7% (6)% 6%
Year 3 12% 41% 13% 5% 6%
Year 4 23% 10% 6% 5% 6%
Year 5 23% 10% 6% 5% 6%
4 year CAGR(1) 18% 7% 8% 2% 6%
----------------- ------------ --------- ------------ ------------- ---------
4 year CAGR represents the average growth rate per year between
FY24 and FY28.
An impairment charge of GBP6.0 million has been recorded in the
current year, writing down the goodwill balance held for the
Group's SecurEnvoy, Xcina Consulting and Xcina IS businesses.
Sensitivity analysis has been performed on each of the Group's
cash-generating units ('CGUs') 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 1% from 2% to 1% would flag
insufficient headroom in one of the Group's five CGUs (SecurEnvoy)
resulting in a further impairment of GBP0.8 million.
-- Increasing the weighted average cost of capital by 1% from
12.6% to 13.6% would flag insufficient headroom in one of the
Group's five CGUs (SecurEnvoy) resulting in a further impairment of
GBP1.1 million.
-- A 10% reduction in the assumed annual revenue growth rates
for each CGU from FY25 (maintaining forecast gross profit margin %
and adjusting administrative expenses in line with the % revenue
reduction) would, subject to no other changes, flag insufficient
headroom in two of the Group's five CGUs (SecurEnvoy and Pentest)
resulting in a further potential impairment of GBP6.8 million.
-- A 15% reduction in the assumed annual revenue growth rates
for each CGU from FY25 (maintaining forecast gross profit margin %
and adjusting administrative expenses in line with the % revenue
reduction) would, subject to no other changes, flag insufficient
headroom in four of the Group's five CGUs (SecurEnvoy, GeoLang,
Brookcourt and Pentest) resulting in a further potential impairment
of GBP10.9 million.
Gold exploration assets date back to before 2017 when the Group
was known as Aurum Mining plc whose principal activity was mining
and exploration.
10. Property, plant and equipment
Right of
use Office
assets equipment Total
GBP'000 GBP'000 GBP'000
--------------------------- ---------- ------------ ----------
Cost
At 1 April 2021 541 365 906
Additions 125 49 174
Disposals (90) - (90)
--------------------------- ---------- ------------ ----------
At 31 March 2022 576 414 990
--------------------------- ---------- ------------ ----------
Additions 301 57 358
Disposals - (43) (43)
--------------------------- ---------- ------------ ----------
At 31 March 2023 877 428 1,305
--------------------------- ---------- ------------ ----------
Accumulated depreciation
At 1 April 2021 258 243 501
Charge for the period 207 57 264
Disposals (90) - (90)
--------------------------- ---------- ------------ ----------
At 31 March 2022 375 300 675
--------------------------- ---------- ------------ ----------
Charge for the period 185 55 240
Disposals - (43) (43)
--------------------------- ---------- ------------ ----------
At 31 March 2023 560 312 872
--------------------------- ---------- ------------ ----------
Net book amount
--------------------------- ---------- ------------ ----------
At 31 March 2023 317 116 433
--------------------------- ---------- ------------ ----------
At 31 March 2022 201 114 315
--------------------------- ---------- ------------ ----------
At 31 March 2021 283 122 405
--------------------------- ---------- ------------ ----------
Depreciation of property, plant and equipment is charged to
depreciation and amortisation expenses within the statement of
comprehensive income.
11. Trade and other receivables
2023 2022
(restated)
Non-current GBP'000 GBP'000
-------------------- ---------- -------------
Trade receivables 5,226 -
Accrued income 2,054 9,777
-------------------- ---------- -------------
7,280 9,777
-------------------- ---------- -------------
2023 2022
(restated)
Current GBP'000 GBP'000
------------------------------------ ---------- -------------
Trade receivables 7,475 4,538
Accrued income 4,081 5,070
Prepayments and other receivables 499 770
Corporation tax asset 291 -
------------------------------------ ---------- -------------
12,346 10,378
------------------------------------ ---------- -------------
The movement for the provision in expected credit losses is
stated below:
2023 2022
GBP'000 GBP'000
--------------------------------------------- ---------- ----------
At 1 April 41 27
Movement in expected credit loss provision (11) 14
--------------------------------------------- ---------- ----------
At 31 March 30 41
--------------------------------------------- ---------- ----------
12. Trade and other payables
2023 2022
GBP'000 GBP'000
------------------------------------- ---------- ----------
Trade payables 3,265 4,573
Accruals and other payables 8,031 8,289
Other taxation and social security 518 599
Forward contract 275 -
Deferred income 147 456
Corporation tax 7 444
Lease liabilities 105 158
12,348 14,519
------------------------------------- ---------- ----------
13. Creditors: amounts falling due after more than one year
2023 2022
GBP'000 GBP'000
------------------------------ ---------- ----------
Accruals and other payables 5,284 3,958
Deferred tax 3,602 3,878
Lease liabilities 216 48
Forward contract 131 -
9,233 7,884
------------------------------ ---------- ----------
14. Deferred tax
2023 2022
GBP'000 GBP'000
----------------------------------------------------------------- ---------- ----------
Non-current liabilities
Liability at 1 April 3,878 3,105
Deferred tax charge/(credit) in the statement of comprehensive
income (276) 773
----------------------------------------------------------------- ---------- ----------
Total deferred tax 3,602 3,878
----------------------------------------------------------------- ---------- ----------
Deferred tax balance at 31 March 2023 includes a GBP3.0 million
(2022: GBP3.4 million) deferred tax liability for acquired
intangible assets including software and trademarks.
2023 2022
GBP'000 GBP'000
--------------------------------------------- ---------- ----------
Non-current assets
At 1 April - -
Credit to statement of comprehensive income 742 -
--------------------------------------------- ---------- ----------
Total deferred tax asset 742 -
--------------------------------------------- ---------- ----------
The Group has tax losses of GBP3.0 million (2022: GBP0.7
million) across its Parent Company Shearwater Group plc and four
subsidiaries that are available for offset against future taxable
profits of the entity. A deferred tax asset has been recognised in
respect of tax losses brought forward and in the current year which
will be used to offset future taxable profits.
15. Lease liabilities
Lease liabilities at 31 March 2023, which include the extension
of some existing office leases, are detailed below:
Property
Lease liabilities GBP'000
------------------------------ ----------
At 1 April 2021 289
Additions 125
Interest expense 12
Payments to lease creditors (220)
------------------------------ ----------
At 31 March 2022 206
------------------------------ ----------
Additions 301
Interest expense 15
Payments to lease creditors (200)
------------------------------ ----------
At 31 March 2023 321
------------------------------ ----------
The maturity analysis of lease liabilities is detailed
below:
Lease liabilities - (contractual undiscounted cash 2023 2022
flows) GBP'000 GBP'000
----------------------------------------------------- ---------- ----------
Less than one year 118 177
One to five years 233 51
Total undiscounted lease liabilities at 31 March 351 228
----------------------------------------------------- ---------- ----------
There are no leases with a term of more than five years.
Lease liabilities included in the statement of financial 2023 2022
position at 31 March GBP'000 GBP'000
----------------------------------------------------------- ---------- ----------
Current 105 158
Non-current 216 48
----------------------------------------------------------- ---------- ----------
Amounts recognised in the statement of comprehensive 2023 2022
income GBP'000 GBP'000
------------------------------------------------------- ---------- ----------
Interest on lease liabilities 15 12
Expenses related to short--term leases - -
Expenses related to low-value assets - -
Depreciation of right of use assets (note 10) 185 207
2023 2022
Amounts recognised in the statement of cash flows GBP'000 GBP'000
------------------------------------------------------- ---------- ----------
Payment of principal 200 220
Payment of interest 15 12
------------------------------------------------------- ---------- ----------
Total cash outflows 215 232
------------------------------------------------------- ---------- ----------
16. Share capital
The table below details movements within the year:
Ordinary shares
-------------------
In thousands of shares 2023 2022
------------------------------------ --------- --------
In issue at 1 April 23,818 23,810
Options exercised during the year 8 8
------------------------------------ --------- --------
Number of shares 23,826 23,818
------------------------------------ --------- --------
2023 2022
GBP'000 GBP'000
------------------------------------------------------- ---------- ----------
Allotted, called up and fully paid
Ordinary shares of GBP0.10 each (2022: GBP0.10 each) 2,382 2,382
Deferred shares of GBP0.90 each (2022: GBP0.90 each) 19,896 19,896
------------------------------------------------------- ---------- ----------
Total 22,278 22,278
------------------------------------------------------- ---------- ----------
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 2023:
On 28 February 2023, 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.
Other reserves
These comprise of amounts expensed in relation to the share
options, share incentive scheme (see note 17) and merger relief
from shares issued as consideration to acquisitions and equity
placings (net of costs).
Movements in the year ended 31 March 2023 include the following
transactions which have been recognised in the other reserve:
A reallocation to retained earnings from capital and share-based
payments reserves of GBP1,029,953 relating to the share incentive
scheme and other of lapsed share options was made in the year.
Accumulated loss reserve
Accumulated loss reserves for the Group are made up of
cumulative profits and losses net of dividends and other
adjustments.
17. Share-based payments
2023 2022
GBP'000 GBP'000
------------------------------ ---------- ----------
Subsidiary incentive scheme 36 72
Save As You Earn (SAYE) 12 13
Share options - (CSOP) 38 13
Share options - (ESOP) (1) (88)
------------------------------ ---------- ----------
85 10
------------------------------ ---------- ----------
Share options - (CSOP)
The following options over ordinary shares remained outstanding
at 31 March 2023:
Options Options Options
Options issued lapsed Options at First Final
at during during exercised 31 date date
1 April the the during March Exercise Date of of of
2022 year year the year 2023 price grant exercise exercise
------------- --------- --------- --------- ----------- --------- ---------- ------------ ------------ ------------
Directors:
P McFadden 25,000 - - - 25,000 GBP0.95 10/02/2022 10/02/2025 10/02/2027
Employees:
Employees 89,998 - 2,778 - 87,220 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 514,064 - 82,000 - 432,064 GBP0.95 10/02/2022 10/02/2025 10/02/2027
------------- --------- --------- --------- ----------- --------- ---------- ------------ ------------ ------------
Total 640,174 - 84,778 - 555,396
------------- --------- --------- --------- ----------- --------- ---------- ------------ ------------ ------------
The following options over ordinary shares remained outstanding
at 31 March 2022:
Options Options Options
Options issued lapsed Options at First Final
at during during exercised 31 Date date date
1 April the the during March Exercise of of of
2021 year year the year 2022 price grant exercise 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(1) - 514,064 - - 514,064 GBP0.95 10/02/2022 10/02/2025 10/02/2027
--------------- ---------- --------- --------- ----------- --------- ---------- ------------ ------------ ------------
Total - 640,174 - - 640,174
--------------- ---------- --------- --------- ----------- --------- ---------- ------------ ------------ ------------
(1) An adjustment to the number of share options issued in the
prior year has been made. The number originally reported was
542,000 and included 27,936 share options issued and presented
under the company's ESOP.
The following illustrates the number and weighted average
exercise price (WAEP) of, and movements in, share options during
the year.
2023 2022
----------------- -----------------
WAEP WAEP
Number GBP Number GBP
------------------------------------------- --------- ------ --------- ------
Outstanding at the beginning of the year 640,174 0.95 - -
Issued - - 640,174 0.95
Lapsed during the year 84,778 0.95 - -
Exercised during the year ended 31 March - - - -
Outstanding at 31 March 555,396 0.95 640,174 0.95
------------------------------------------- --------- ------ --------- ------
Exercisable at 31 March 87,220 0.95 - -
------------------------------------------- --------- ------ --------- ------
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:
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 55%
(2022: 29%).
The weighted average remaining contractual life of options
outstanding at the end of the year was three years and eleven
months.
Share options - (ESOP)
The following options over ordinary shares remained outstanding
at 31 March 2023:
Options Options Options
Options issued lapsed Options at First Final
at during during exercised 31 date date
1 April the the during March Exercise Date of of of
2022 year year the year 2023 price grant exercise exercise
------------ --------- --------- --------- ----------- --------- ---------- ------------ ------------ ------------
Directors:
P McFadden 7,875 - - - 7,875 GBP4.0 07/05/2018 07/05/2019 30/09/2023
Employees:
Employees 39,500 - 39,500 - - GBP4.0 09/05/2017 09/05/2018 08/05/2022
Employees 9,390 - 4,140 - 5,250 GBP4.0 13/11/2017 13/11/2018 30/09/2023
Employees 1,023 - 569 - 454 GBP4.0 01/03/2018 01/03/2019 28/02/2023
Employees 5,625 - 312 - 5,313 GBP4.0 04/04/2018 04/04/2019 03/04/2023
Employees 911 - 387 - 524 GBP1.6 01/03/2019 01/03/2020 01/07/2024
Employees 3,000 - - - 3,000 GBP4.0 01/06/2019 01/06/2020 30/09/2023
Employees 10,000 - 2,500 - 7,500 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 8,320 - - 8,320 - GBP0.1 27/02/2020 27/02/2021 31/03/2023
------------ --------- --------- --------- ----------- --------- ---------- ------------ ------------ ------------
Total 113,580 - 47,408 8,320 57,852
------------ --------- --------- --------- ----------- --------- ---------- ------------ ------------ ------------
The following options over ordinary shares remained outstanding
at 31 March 2022:
Options Options Options
Options issued lapsed Options at First Final
at during during exercised 31 date date
1 April the the during March Exercise Date of of of
2021 year year the year 2022 price grant exercise 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 30/09/2023
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 illustrates the number and weighted average
exercise price (WAEP) of, and movements in, share options during
the year.
2023 2022
----------------- -----------------
WAEP WAEP
Number GBP Number GBP
------------------------------------------- --------- ------ --------- ------
Outstanding at the beginning of the year 113,580 2.8 268,999 3.3
Issued - - 27,936 0.95
Lapsed during the year 47,408 3.9 175,036 3.2
Exercised during the year ended 31 March 8,320 0.1 8,320 0.1
Outstanding at 31 March 57,852 2.2 113,580 2.8
------------------------------------------- --------- ------ --------- ------
Exercisable at 31 March 21,229 3.7 50,276 3.9
------------------------------------------- --------- ------ --------- ------
The weighted average share price of options exercised during the
year was GBP0.89 (2022: GBP1.18).
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:
Share price at grant date GBP0.95 to GBP4.30
Exercise price GBP0.10 to GBP4.00
Expected option life (year) 1 year to 6 years
Expected volatility (%) 10.6% to 80.0%
Expected dividends 0%
Risk-free interest rate (%) 0.60% to 1.54%
Option fair value GBP0.04 to GBP2.87
------------------------------- --------------------
The calculation includes an estimated leaver provision of 31%
(2022: 29%).
The weighted average remaining contractual life of options
outstanding at the end of the year was two years and two months
(2022: one year and ten months).
Share options - (SAYE)
The following options over ordinary shares remained outstanding
at 31 March 2023:
Options Options Options
Options issued lapsed Options at First Final
at during during exercised 31 date date
1 April the the during March Exercise Date of of of
2022 year year the year 2023 price grant exercise exercise
------------ --------- --------- --------- ----------- --------- ---------- ------------ ------------ ------------
Employees:
Employees 132,465 - 14,851 - 117,614 GBP1.515 25/01/2021 01/03/2024 30/09/2024
------------ --------- --------- --------- ----------- --------- ---------- ------------ ------------ ------------
Total 132,465 - 14,851 - 117,614
------------ --------- --------- --------- ----------- --------- ---------- ------------ ------------ ------------
The following options over ordinary shares remained outstanding
at 31 March 2022:
Options Options Options
Options issued lapsed Options at First Final
at during during exercised 31 date date
1 April the the during March Exercise Date of of of
2021 year year the year 2022 price grant exercise 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 illustrates the number and weighted average
exercise price (WAEP) of, and movements in, share options during
the year.
2023 2022
------------------ ------------------
Number WAEP Number WAEP
GBP GBP
------------------------------------------- --------- ------- --------- -------
Outstanding at the beginning of the year 132,465 1.515 150,285 1.515
Issued - - - -
Lapsed during the year 14,851 1.515 17,820 1.515
Exercised during the year ended 31 March - - - -
Outstanding at 31 March 117,614 1.515 132,465 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:
Share price at grant date 1.420
Exercise price 1.515
Expected option life (year) 3 years 7 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 33%
(2022: 29%).
Options held by Directors are disclosed in the Annual
Report.
The market price of shares as at 31 March 2023 was GBP0.50 (31
March 2022: GBP1.05). The range during the financial year was
GBP0.50 to GBP1.39. At the date of signing the financial statements
the share price was GBP0.485.
The weighted average remaining contractual life of options
outstanding at the end of the year was one year and six months
(2022: two 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 Parent Company and the Parent Company
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. The
subsidiary incentive scheme vesting period expired on 29 September
2022. Whilst the vesting condition of being employed were
satisfied, the growth conditions were not met and subsequently no
exercises were made. The Company will look to exercise a call
option to reclaim those B shares from the current holders.
Directors' incentive shares
The incentive shares issued to Directors are shown in the table
below:
Participation Number of Number of Number of
in increase Nominal incentive incentive Shearwater
in value shares shares Group plc Share-based
shareholder Issue of incentive 1 April 31 March shares payment
value price shares 2022 2023 issued charge
------------- ---------------- ---------- --------------- ------------ ------------ ------------- -------------
D Williams 6.5% GBP0.032 GBP0.000001 65,000 65,000 - GBP14,533
P Higgins 7.5% GBP0.032 GBP0.000001 75,000 75,000 - GBP16,768
------------- ---------------- ---------- --------------- ------------ ------------ ------------- -------------
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 expired on 29 September 2022. In the
current year GBP35,773 (2022: GBP71,742) 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.
18. 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 2023,
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
Amortised cost comprehensive income
(loans and receivables) (available for sales)
---------------------------- --------------------------
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ------------- ------------- ------------ ------------
Financial assets
Cash and cash equivalents 3,964 5,575 - -
Trade and other receivables 18,836 19,426 - -
------------------------------ ------------- ------------- ------------ ------------
Total financial assets 22,800 25,001 - -
------------------------------ ------------- ------------- ------------ ------------
2023 2022
GBP'000 GBP'000
------------------------------ ------------- -------------
Trade and other receivables
Trade receivables 12,701 4,579
Accrued income 6,135 14,847
18,836 19,426
------------------------------ ------------- -------------
Amortised cost Fair value through
(payables) profit or loss (FVPL)
---------------------------- --------------------------
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ------------- ------------- ------------ ------------
Financial liabilities
Trade and other payables 16,580 16,821 - -
Lease liabilities 320 205 - -
Forward contracts - - 407 -
------------------------------ ------------- ------------- ------------ ------------
Total financial assets 16,900 17,026 407 -
------------------------------ ------------- ------------- ------------ ------------
2023 2022
GBP'000 GBP'000
------------------------------ ------------- -------------
Trade and other payables
Trade payables 3,265 4,573
Accruals 13,302 12,120
Other creditors 13 128
16,580 16,821
------------------------------ ------------- -------------
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 in the Annual Report.
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. The current facility is in place until 23 March
2024.
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 has
introduced a policy to use derivatives where there is a material
surplus or deficit of non-sterling receipts and payments.
The following forward contracts were entered into in order to
mitigate the risk of further weakening of sterling against US
dollar.
Currency Amount (000) Maturity date Foreign exchange
rate
------------ -------------- ------------------ ------------------
US dollar 4,100 10 November 2023 1.138
US dollar 2,000 10 May 2024 1.140
------------ -------------- ------------------ ------------------
The above derivatives are remeasured at fair value at each
reporting date. This gives rise to a gain or loss, the entire
amount of which is recognised in the statement of comprehensive
income within administrative expenses.
As of 31 March the Group's net exposure to foreign exchange risk
was as follows:
USD EUR
---------------------- ----------------------
2023 2022 2023 2022
Net foreign currency financial assets/(liabilities) GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------ ---------- ---------- ---------- ----------
Trade receivables 228 202 148 735
Other receivables 1,390 - 4 -
Trade payables (2,537) (3,389) (43) (18)
Other payables (9,605) (9,364) (192) -
Cash and cash equivalents 1,929 1,431 551 651
------------------------------------------------------ ---------- ---------- ---------- ----------
Total net exposure before excluding forward
contracts (8,595) (11,120) 468 1,368
------------------------------------------------------ ---------- ---------- ---------- ----------
Forward contracts 6,100 - - -
Total net exposure (2,495) (11,120) 468 1,368
------------------------------------------------------ ---------- ---------- ---------- ----------
The effect of a 10% strengthening of the US dollar against
sterling at the reporting date on the US dollar-denominated trade
and other receivables, trade and other payables, forward contracts
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 GBP0.2 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 GBP0.2 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
GBP0.05 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 GBP0.04 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 2023 this facility had not been
utilised. The current revolving credit facility (RCF) is in place
until 23 March 2024. 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 assets and 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.
Between
Up to 3 and 12 Between Between Over 5
3 months months 1 and 2 years 2 and 5 years years
Financial assets GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ----------- ---------------- ---------------- ----------
As at 31 March 2023
Trade and other receivables 6,515 5,041 7,280 - -
Total 6,515 5,041 7,280 - -
------------------------------- ----------- ----------- ---------------- ---------------- ----------
Between
Up to 3 and 12 Between Between Over 5
3 months months 1 and 2 years 2 and 5 years years
Financial assets GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ----------- ---------------- ---------------- ----------
As at 31 March 2022
Trade and other receivables 7,064 2,584 5,143 4,634 -
Total 7,064 2,584 5,143 4,634 -
------------------------------- ----------- ----------- ---------------- ---------------- ----------
Between
Up to 3 and 12 Between Between
3 months months 1 and 2 years 2 and 5 years Over 5 years
Financial liabilities GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ----------- ----------- ---------------- ---------------- --------------
As at 31 March 2023
Trade and other payables 4,953 6,342 5,284 - -
Forward contracts - 275 131 - -
Lease liabilities 30 75 59 157 -
--------------------------- ----------- ----------- ---------------- ---------------- --------------
Total 4,983 6,692 5,474 157 -
--------------------------- ----------- ----------- ---------------- ---------------- --------------
Between
Up to 3 and 12 Between Between
3 months months 1 and 2 years 2 and 5 years Over 5 years
Financial liabilities 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 - -
Lease liabilities 51 107 48 - -
--------------------------- ----------- ----------- ---------------- ---------------- --------------
Total 8,660 4,360 4,007 - -
--------------------------- ----------- ----------- ---------------- ---------------- --------------
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.
19. Related party transactions
The Directors of the Group and their immediate relatives have an
interest of 19% (2022: 18%) of the voting shares of the Group. The
shareholdings of Directors and changes during the year are shown in
the Directors' report.
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.
20. Bank loans
At 31 March 2023 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 three 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.
21. Notes to support cash flow
Cash and cash equivalents comprise:
2023 2022
GBP'000 GBP'000
------------------------------------------------------------ ---------- ----------
Cash available on demand 3,964 5,575
------------------------------------------------------------ ---------- ----------
Net cash (decrease)/increase in cash and cash equivalents (1,611) (2,474)
------------------------------------------------------------ ---------- ----------
Cash and cash equivalents at the beginning of the year 5,575 8,049
------------------------------------------------------------ ---------- ----------
Cash and cash equivalents at the end of the year 3,964 5,575
------------------------------------------------------------ ---------- ----------
Cash and cash equivalents are held in the following
currencies:
2023 2022
GBP'000 GBP'000
------------ ---------- ----------
Sterling 1,914 3,494
US dollar 1,566 1,431
Euro 484 650
------------ ---------- ----------
3,964 5,575
------------ ---------- ----------
Reconciliation of liabilities from financing activities:
Non-cash changes
-------------------------
Right of
use
Cash Loan asset
2022 outflows interest additions 2023
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ---------- ----------- ----------- ------------ ----------
Other loans - - - - -
Revolving credit
facility interest
payable 20 (76) 56 - -
Other interest - (7) 6 - -
Payment of principal
on lease liabilities 206 (200) 15 301 321
------------------------ ---------- ----------- ----------- ------------ ----------
Total 226 (283) 77 301 321
------------------------ ---------- ----------- ----------- ------------ ----------
Non-cash changes
-----------------------------------------
Interest Early
savings Right of repayment
on early use discount
Cash repayment Loan asset on loan
2021 outflows of loans interest additions liabilities 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
------------------------ ---------- ----------- ------------ ----------- ------------ -------------- ----------
22. Prior year restatement
In the prior year, the trade and other receivables included
amounts that were not due for payment until after twelve months so
should have been classified as non-current assets.
The prior year consolidated statement of financial position has
been restated to correctly reclassify previously reported trade and
other receivables of GBP9,777,398 from current assets to
non-current as at 31 March 2022.
The restatement has no impact on the opening consolidated
statement of financial position at 1 April 2021 or the consolidated
statement of comprehensive income for the year ended 31 March
2022.
23. Events after the reporting period
After the year end, Brookcourt Solutions Limited, one of the
Group's subsidiaries, entered into two forward contracts totalling
$1.3 million at an average rate of $1.2412/GBP to offset foreign
exchange supplier exposure on a recently completed contract. The
two contracts dated 5 April 2023 and 6 April 2023 have a maturity
date for both contracts of 14 July 2023. Both contracts were
settled on 3 July 2023.
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END
FR SSFSLIEDSEDU
(END) Dow Jones Newswires
September 05, 2023 02:00 ET (06:00 GMT)
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