RNS Number : 6776G

Shearwater Group PLC

28 July 2021

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.

28 July 2021


("Shearwater", or the "Group")

Final Results

Strong cash generation and growth in underlying EBITDA; well-positioned for FY22

Shearwater Group plc (AIM: SWG), the organisational resilience group that provides cybersecurity advisory and managed security services, is pleased to announce its final results for the year ended 31 March 2021.


   --      Group revenue in the period of GBP31.8m (FY20: GBP33.0m) 
   --      GBP4.3m from the Software division (FY20: GBP5.5m) 
   --      GBP27.4m from the Services division (FY20: GBP27.5m) 

-- Underlying EBITDA of GBP3.7m (FY20: GBP3.4m) ahead of market expectations, against the backdrop of a challenging market

   --      Underlying EBITDA margin of 12% (FY20: 10%) 
   --      Underlying profit before tax for the year of GBP2.4m (FY20: GBP2.2m) 
   --      Adjusted basic and diluted earnings per share of 10p (FY20: adjusted earnings per share 8p) 

-- Strong financial position with a year-end adjusted net cash(1) balance of GBP6.0 million (31 March 2020: GBP1.4m net debt)

   --      Continued progress in delivering strategic initiatives 


   --      155 new customer wins in the period (FY20: 150) 

-- New Software revenue of GBP1.3m secured from new clients and up-selling (FY20: GBP2.1m), with FY20 benefiting from a large one-off contract, plus non-recurring sales associated with widespread moves by customers to remote working in the prior year

   --      Proportion of revenue which is recurring in nature remained stable at c.40% (FY20: c.40%) 
   --      GBP0.7m of revenue generated through cross-selling 
   --      67% of client base with long-standing relationships of more than three years 

Post-period highlights and outlook:

   --      Trading in Q1 FY22 was strong, with positive signs of returning business confidence 

-- Hiring across all areas of the Group's businesses, with a budgeted plan to increase headcount in both sales and technical roles in FY22 to support the future growth of the Group

-- Currently assessing a pipeline of potential acquisitions whilst maintaining the Group's disciplined approach to assessing opportunities

-- Well positioned in a high growth sector, with healthy cash balances and undrawn bank facilities providing a robust liquidity position and a strong management team continuing to move the Group forward

(1) Net cash adjusted to account for outstanding GBP1.3m VAT deferral due to be paid from existing cash balances in FY22.

Phil Higgins, CEO of Shearwater Group, commented:

"I am pleased to report Shearwater's FY21 results reflecting the successful development of the Group in the face of an unprecedented year. We adapted well to challenging circumstances and continued to win new clients, expanded our scope with many existing clients , made progress against our growth strategy and last, but not least, delivered good growth in underlying EBITDA. I would like to take this opportunity to thank all of the Group's staff for their continued hard work and dedication.

We are now extremely well-positioned for continued growth following the significant progress made over the last two years. We are looking to the future with optimism, with the Company well-positioned in a market only set to expand further, with a strong balance sheet and a clear vision to become the provider of choice in delivering next generation technology, professional advisory and cyber security services and solutions.

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 4 August 2021 at 12:30. Investors can sign up to Investor Meet Company for free and add to meet Shearwater Group via https://www.investormeetcompany.com/shearwater-group-plc/register-investor .


 Shearwater Group plc                   www.shearwatergroup.com 
  David Williams                         c/o Alma PR 
  Phil Higgins 
 Cenkos Securities plc - NOMAD and 
  Joint Broker 
  Ben Jeynes / Max Gould - Corporate 
  Julian Morse / Michael Johnson 
  - Sales                               +44 (0) 20 7397 8900 
 Berenberg - Joint Broker 
  Matthew Armitt / Mark Whitmore        +44 (0) 20 3207 7800 
 Alma PR                                shearwater@almapr.co.uk 
  Susie Hudson / Caroline Forde /        +44 (0) 20 3405 0205 
  Joe Pederzolli 

About Shearwater Group plc

Shearwater Group plc is an award-winning group providing cyber security, managed security and professional advisory solutions to create a safer online environment for organisations and their end users.

The Group's differentiated full service offering spans identity and access management and data security, cybersecurity solutions and managed security services, and security governance, risk and compliance. Its growth strategy is focused on building a scalable group that caters to the entire spectrum of cyber security and managed security needs, through a focused buy and build approach.

The Group is headquartered in the UK, serving customers globally across a broad spectrum of industries.

Shearwater shares are listed on the London Stock Exchange's AIM under the ticker "SWG". For more information, please visit www.shearwatergroup.com .

   Chairman's statement 
   It is pleasing to report a record set of results for the Group, ahead 
   of underlying EBITDA expectations, for the year ended 31 March 2021. 
   Following the reorganisation and streamlining of our Group in FY20, 
   the benefits have shone through in the performance we achieved against 
   the backdrop of the pandemic. Not only is there now a more cohesive 
   culture within the Group, with all divisions contributing to the cross 
   fertilisation of opportunities, we have strengthened our financial position 
   and our margins, whilst continuing to invest to ensure we are providing 
   the very best services and solutions for our clients as we continue 
   to expand. 
   I would like to take this opportunity to thank all our staff and clients 
   for their understanding and efforts during what has been a difficult 
   period of uncertainty for everyone. Furthermore, I would like to extend 
   my thanks to our Non-Executive Directors and the members of our Advisory 
   Panel for their wise counsel and continued assistance, which has proven 
   Growth opportunities 
   Moving forwards, the Group is in a good position to expand through attracting 
   additional talented individuals, winning new business, extending contracts 
   with existing clients, or through acquisitions. The ability to capitalise 
   on these opportunities is underpinned by our strong balance sheet. 
   The Group continues to assess a pipeline of potential acquisitions, 
   with the ambition to take the Group to the next stage of its development. 
   As always, we are looking for deals that fit within our strategy of 
   enhancing our existing Software division or where they add clients to 
   our Services division, in doing so, the Group is an attractive acquiror 
   given the ability for vendors to develop their businesses more effectively 
   as part of the Group than they would be able to independently. 
   It does take time to find such opportunities, and the Group will remain 
   disciplined in respect of its acquisition criteria, but we are now in 
   better shape than ever before. Our pipeline is healthy, and we are confident 
   we will find success in securing businesses that will be of benefit 
   to our shareholders. 
   Our commitment to responsible business 
   I am also delighted to report on the continued commitment of the Group 
   to responsible business practices. We are particularly proud of the 
   progress made with our sustainability initiatives over the period. 
   As an early adopter, the Group launched its zero-carbon program in March 
   2019 and I am pleased to report that we have now fully offset all our 
   Group's carbon emissions for two years. 
   We also evolved our efforts further in partnership with DODO.eco, a 
   specialist carbon reduction consultancy. The Group continues to carry 
   out its charitable initiatives, with Group companies undertaking fundraisers 
   for The Brain Tumour Charity, Action for Children, and Xploro among 
   others. At the Group level we made a significant donation to Save The 
   Children during the period and we will continue to commit the business 
   towards responsible business initiatives moving forwards. 
   We entered FY22 upbeat, despite the ongoing macroeconomic uncertainty 
   associated with Covid-19 and have seen positive signs of returning business 
   confidence with trading in Q1 FY22 strong. We are well positioned in 
   a high growth sector, have a healthy net cash balance, a robust liquidity 
   position and a strong team in place to continue to move our Group forward. 
   Significant progress was made in FY21 and I am excited for the year 
   David Williams 
   27 July 2021 
   Chief Executive's review 
   I am pleased to report on what has been a good year for Shearwater; 
   a year in which we have clearly delivered against what we set out to 
   achieve despite the challenging external circumstances. 
   I am proud to say that this year we have continued to provide an excellent 
   service and quality products to our clients, won new business, made 
   progress against our growth strategy and last, but not least, to have 
   achieved good growth in underlying EBITDA, profit before tax and our 
   net cash balance, all against the backdrop of a truly unprecedented 
   environment. Pleasingly, this is the second year in a row our teams 
   have delivered numbers either meeting or exceeding analyst expectations. 
   Having delivered a substantial turn-around in FY20, over the past year 
   our focus has been largely to navigate the headwinds posed by Covid-19, 
   whilst continuing to pursue new business and drive forward strategic 
   initiatives. It was a year of two halves. We were impacted by Covid-19 
   related decision-making delays, and the inability to provide on-site 
   advisory services in H1. However, we still delivered a resilient performance 
   in the first half with underlying EBITDA ahead of the prior year, due 
   to our diverse range of offerings and the benefits of margin expansion 
   flowing through. This was built on further in the second half, when 
   improvements in business confidence drove a substantial increase in 
   sales when compared to the same period one year prior. Our sales are 
   typically weighted towards the final quarter of the year as organisations 
   finalise their annual budgets and we saw this trend play out once again 
   in FY21. 
   Group revenue for the period was GBP31.8m (FY20: GBP33.0m), reflecting 
   the impact of the pandemic, however thanks to margin growth and strong 
   cost control we achieved an underlying EBITDA of GBP3.7m, up 9% on the 
   prior year (FY20: GBP3.4m). 
   Additionally, we strengthened our balance sheet substantially, with 
   strong cash collection, cash management and the payment of legacy debts 
   resulting in a year end net cash balance of GBP7.3m as at 31 March 2021 
   (31 March 2020: GBP1.4m net debt). GBP1.3m of year-end net cash is allocated 
   to be applied towards the settlement of deferred VAT payments relating 
   to FY21 revenues but this still amounts to the strongest financial position 
   in the Group's history, positioning us well for growth in FY22 and beyond. 
   During the period the business introduced 155 new clients across both 
   divisions, which was slightly ahead of the prior year (2020: 150) and 
   demonstrates the relevance of our products and services during what 
   has been a challenging time for many businesses. Our Software division 
   generated GBP1.3m of new and uplift sales which included the first sales 
   of some of our new product offerings, which we now expect to make meaningful 
   contributions in the coming years. Finally, it is pleasing to report 
   that the Group has maintained renewal rates in excess of 40%. 
   A key strategic achievement has been the notable growth in the level 
   of cross-selling seen between Group businesses, following the introduction 
   of several initiatives designed to encourage collaboration in FY20 and 
   early FY21 in order to create incremental opportunities. Revenue generated 
   via new business introductions taking place between Group subsidiaries 
   for the period was GBP0.7m, demonstrating the early success of this 
   part of our growth strategy, and there remain great opportunities to 
   further expand cross-selling across the Group in future periods. 
   With business confidence returning, cyber threats and customer awareness 
   of the threats that they pose to their organisations continuing to increase 
   and a strong platform for growth established, we are in an exciting 
   position. We are set to build upon our successes and to drive the expansion 
   of the business in the coming period. 
   I would like to thank sincerely the entire Shearwater team for robustly 
   responding to the challenges faced this year with determination and 
   a drive to succeed. They have worked incredibly hard to deliver the 
   results we are reporting, continuing to collaborate and innovate, and 
   we hugely appreciate all they have achieved. 
   Growth strategy 
   Our vision is for the Group to become the provider of choice delivering 
   Next Generation Technology, Professional Advisory, and Cyber Security 
   Services and Solutions. Our offerings help our clients identify and 
   manage risk, maintain compliance and defend against the constant barrage 
   of cyber security threats. Within our Software division we aim to build 
   the next generation converged access management and data discovery solutions, 
   which we expect to become the 'must-have' product when connecting securely 
   and with confidence to the connected world. For our award-winning Services 
   division, we aim to be the partner of choice delivering managed security 
   solutions, test and advisory consulting; again providing an end-to-end 
   offering. Our opportunity will grow as we increase in scale, expand 
   overseas and further consolidate the market. 
   The way in which we aim to achieve this is through building a group 
   of cyber security, managed security and professional advisory companies 
   with leading products, solutions or service capabilities whose full 
   potential can be unlocked through active management and capital investment. 
   Our strategy has evolved across the last year but continues to be based 
   around a focused acquisition strategy and the acceleration of the Group's 
   growth. Whilst we have not made an acquisition in the period, as we 
   held fast to our strict acquisition criteria, we have made good strides 
   against strategic initiatives designed to accelerate growth. This includes 
   the aforementioned progress with cross -- selling, R&D investment, new 
   client wins and the renewal of existing client contracts, as well as 
   the continued amalgamation of central functions to unlock synergy savings. 
   Moving forwards, we have an active pipeline of acquisition opportunities. 
   Any future acquisition will be earnings enhancing as well as increasing 
   our ability to provide an end-to-end offering to our clients. 
   Operational Review 
   Our Group is split into two segments, Software (14% of revenue, 41% 
   of operating profit(2) ) and Services (86% of revenue, 59% of operating 
   profit(2) ). 
   Our Software division designs and builds leading edge software to help 
   clients secure their corporate environments and helps make them compliant 
   with applicable regulations. The Services division is focused on delivering 
   the Group's managed security and cyber solutions, test, advisory and 
   consultancy offerings, as well as our strategic third-party partners' 
   technical solutions. 
   Shearwater remains largely UK-focused, however we service clients across 
   46 countries globally. The Group's international footprint has grown 
   during the year by adding new additional reseller partners representing 
   our software to their clients in new territories. This is being enhanced 
   by our recruitment program into the US, forming a key part of the Group's 
   growth strategy. 
   We pride ourselves on the quality of our staff and the strong relationships 
   we have with both our vendors and clients, with 67% of clients having 
   a long-term relationship with the Group. 
   Further detail on the progress of our two divisions is outlined below. 
   Our Software division has performed well. Whilst revenue declined year-on-year, 
   reflecting a one-off large bespoke contract secured in the prior period 
   which did not repeat in FY21, we have made good progress in the development 
   of our offering and expect to see the benefits of the improved range 
   flow through in FY22. 
                                  2021   2020 
                                  GBPm   GBPm      % 
    Revenue                        4.3    5.5   -21% 
    Gross profit                   3.5    4.1 
    Gross margin %                 80%    75% 
    Overheads                      1.3    1.4 
   ----------------------------  -----  -----  ----- 
    Underlying EBITDA              2.2    2.7   -19% 
    Underlying EBITDA margin %     50%    49% 
   We have invested significantly in R&D this year, in line with our aim 
   of becoming a leading Security-as-a-Service converged platform provider 
   - a 'one stop shop' for all an organisation's Access Management needs. 
   The Access Management Software market is forecast by Gartner to grow 
   to a value of US$9.2bn globally in 2025. We have added several new cloud 
   -- based applications and capabilities (for example a new location matrix) 
   to enhance this offering and its development roadmap has generated strong 
   interest from both clients and industry analysts. 
   Notwithstanding the one-off large bespoke contract secured in the prior 
   period which did not repeat in FY21 we have been pleased with the rate 
   at which both SecurEnvoy and Geolang have secured new business during 
   the pandemic. SecurEnvoy now serves roughly 1,100 clients in 36 countries, 
   with key notable contract wins coming from a major UK high street retailer 
   and a large Nordic healthcare systems provider with 20,000 users. Over 
   the period, SecurEnvoy experienced strong growth in the DACH territory 
   securing over 50% more new client logos versus the previous year. Notable 
   contract wins for Geolang came via a top global management consulting 
   firm, for the provision of its data discovery product. 
   In the Services division, we were able to maintain revenue at prior 
   year levels despite the challenging environment and were pleased to 
   deliver improved underlying EBITDA driven by improved margins and lower 
                                  2021   2020 
                                  GBPm   GBPm     % 
    Revenue                       27.4   27.5    0% 
    Gross profit                   6.4    6.1 
    Gross margin %                 23%    22% 
    Overheads                      3.3    3.8 
   ----------------------------  -----  -----  ---- 
    Underlying EBITDA              3.1    2.3   36% 
    Underlying EBITDA margin %     11%     8% 
   Our Services companies secured a number of significant contract wins 
   in FY21. As announced at the end of December 2020, Brookcourt signed 
   two significant new contract wins to be delivered over a three year 
   period for a British multinational investment bank and financial services 
   company. This was shortly followed by signing a five-year supply agreement 
   with a global fashion retailer headquartered in New York, testament 
   to the Group's growing international presence. Pentest secured a long 
   term partnership with a leading UK IT service provider, to provide penetration 
   testing and adversary simulation to the company's existing customer 
   base as well as new prospects while Xcina Consulting signed a 3-year 
   contract with a UK bank headquartered in Africa to deliver business 
   risk services. 
   We launched a number of new service lines across the group embracing 
   new and innovative ways of working. The use of drone laptops, for example, 
   has enabled us to carry out remote infrastructure testing despite social 
   distancing measures. Across the group we are seeing a significant shift 
   from appliance-based deployments to virtual stack infrastructure via 
   subscription and/or software-based computing. 
   As previously alluded to, cross-selling has been integral to the creation 
   of opportunities across our Services division. I am delighted with the 
   manner in which our portfolio companies have been creating opportunities 
   for one another. Pentest for example, supplied 15 leads into other Shearwater 
   companies, and received 28 sales leads from the staff incentive scheme, 
   winning 10 of these as new clients to date. Brookcourt also introduced 
   significant business for Pentest, Xcina and Geolang. Beyond this, Group 
   companies are increasingly working together to provide a multi-disciplinary 
   response to clients' demands. 
   The strong relationships between our businesses will remain integral 
   to our future growth and remain pertinent to our growth strategy. Despite 
   the pressure the pandemic placed on organisations globally, we managed 
   to maintain a healthy day rate across the year and the fact that we 
   have been able to win new business in such a challenging market provides 
   real reason for optimism moving forwards. 
   Market Opportunity 
   Our confidence moving forwards is underpinned by the opportunities which 
   lie within the market. The frequency of cyber-crime activity has increased 
   significantly, and it is now considered one of the biggest threats faced 
   by an organisation. As of February 2021, the UK government reported 
   that the UK cyber security industry is now valued at over GBP8.9 billion(3) 
   following record investment last year. Similarly, Lindy Cameron, CEO 
   of the National Cyber Security Centre ("NCSC"), warned in June 2021 
   that ransomware was the key threat facing the UK(4) , urging the public 
   and businesses to take it seriously. 
   With such a large number of people set to continue working from home 
   moving forwards, Covid-19 has accentuated the need for businesses to 
   create a safer and more secure online environment for staff, clients 
   and end users, with a greater number of people at risk to cyber-crime 
   whilst working from home. The growing need for our services highlights 
   the market opportunity within the sector. 
   Current Trading and Outlook 
   Following on from the strong trading and positive signs of returning 
   business confidence noted in H2 FY21, trading in Q1 FY22 was strong. 
   We are hiring across all Group businesses, with a budgeted plan to increase 
   headcount in both sales and technical roles in FY22 to support long-term 
   growth. We have a healthy pipeline of new projects to convert requiring 
   this investment. 
   Moving forwards, the Group has a great opportunity for growth ahead, 
   with Shearwater having established a strong market position in a rapidly 
   expanding sector. Our differentiated offering sets us apart from competitors, 
   in addition to a quality team, and a strong financial position. We look 
   forward to the future with confidence. 
   (2) Operating profit represents divisional split of profitability before 
   central head office administrative expenses 
   (3) https://www.gov.uk/government/news/record-year-for-uks-89bn-cyber-security-sector 
   (4) https://www.ncsc.gov.uk/news/rusi-lecture 
   Phil Higgins 
   Chief Executive Officer 
   27 July 2021 
   Financial Review 
   The Group has demonstrated its resilience against the backdrop of the 
   ongoing COVID19 pandemic, delivering improved year-on-year profitability 
   with underlying profit before tax 9% ahead of FY20. While revenue decreased 
   slightly in the period owing to the impact of COVID-19 on some of our 
   advisory businesses and delayed client decision-making, the Group has 
   maintained a high level of cash conversion which has significantly strengthened 
   our financial position. 
   Despite the challenges faced by some of our businesses, we chose not 
   to furlough any staff as we believed the long-term demand for our services 
   remained strong and the contract delays we experienced were only temporary. 
   This has borne out as we began to see delayed engagements being realised 
   in the second half of the fiscal year. We did utilise an option to defer 
   tax payments to HMRC which will be repaid in the next fiscal year. 
   As we now focus our attentions to the future, we do so with a much-improved 
   financial position. We are optimistic of what lies ahead of us in the 
   coming year and beyond. 
   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 below details reported and alternative performance measures: 
                                            2021    2020 
                                            GBPm    GBPm   % change 
   -------------------------------------  ------  ------  --------- 
    Revenue                                 31.8    33.0        -4% 
    Gross profit                             9.9    10.2 
    Overheads (underlying)                   6.2     6.8 
   -------------------------------------  ------  ------  --------- 
    Underlying EBITDA                        3.7     3.4        +9% 
    Underlying EBITDA margin                 12%     10% 
    Finance charge                           0.2     0.6 
    Depreciation                             0.3     0.3 
    Amortisation of intangible assets 
     - computer software                     0.8     0.3 
   -------------------------------------  ------  ------  --------- 
    Underlying profit before tax             2.4     2.2        +9% 
    Amortisation of acquired intangible 
     assets                                  2.1     2.1 
    Exceptional items                          -     0.7 
    Share based payments                     0.3     0.3 
    Fair value adjustment for deferred 
     consideration                             -     0.1 
    Contingent consideration                   -     0.3 
   -------------------------------------  ------  ------  --------- 
    Profit/(loss) before tax                 0.0   (1.3) 
    Taxation (credit)/charge               (0.1)     0.2 
    Profit/(loss) after tax                  0.1   (1.5) 
   -------------------------------------  ------  ------  --------- 
   In the year ended 31 March 2021 revenue decreased 4% (GBP1.2m) to GBP31.8m 
   (2020: GBP33.0m). COVID-19 lockdown restrictions impacted some of our 
   businesses, with advisory revenues 27% behind the prior year as a result 
   of clients choosing to delay consultancy engagements until they can 
   be undertaken in person. In H2, our Services division saw strong sales 
   of managed services, warranties and monitoring solutions which grew 
   17% year-on-year helping to offset the deficit in advisory revenues. 
   Our Software division saw a year-on-year decrease in revenues as a result 
   of a one-off revenue spike in the previous year that was not repeated 
   in the current year, however it is pleasing to note that we secured 
   the first sales of some of our new product offerings which we believe 
   will drive incremental revenues moving forward. 
   Underlying EBITDA 
   The Group delivered strong underlying EBITDA of GBP3.7m in the year 
   (2020: GBP3.4m), 9% ahead of the prior year and ahead of market expectations. 
   Margin improvement has driven the increase in profitability, with our 
   EBITDA margin of 12% ahead of the prior year (2020: 10%). Both Software 
   and Services divisions reported improved underlying EBITDA margins, 
   with the Software division seeing improved gross margins as a result 
   of a small reorganisation to its sales and marketing function in the 
   prior year which has resulted in a blended EBITDA margin of 50% for 
   the current year (2020: 49%). Our Services division has seen EBITDA 
   margins increase to 11% (2020: 8%) with improved gross margins reflecting 
   the continued change in revenue mix which has seen managed services 
   and warranties revenue replacing one-off security solutions revenues. 
   The division has utilised the Group's shared services function which 
   has created efficiencies which has led to some administrative savings. 
   Finance charges 
   Finance charges of GBP0.2m have reduced by GBP0.4m (2020: GBP0.6m) following 
   the settlement of legacy loans. The Group has replaced a previously 
   utilised invoice discounting facility with a more cost-effective three-year 
   GBP4.0m revolving credit facility with Barclays Bank plc. As at 31 March 
   2021 this facility remained unutilised. 
   Depreciation of GBP0.3m (2020: GBP0.3m) is in line with the prior fiscal 
   period and incorporates GBP0.3m of depreciation of right of use assets. 
   Amortisation of intangible assets - computer software 
   Amortisation of computer software has increased by GBP0.5m to GBP0.8m 
   (2020: GBP0.3m), following the go-live of a number of internally developed 
   software projects. 
   Underlying profit before tax 
   The Group delivered underlying profit before tax for the year of GBP2.4m 
   (2020: GBP2.2m), a 9% increase on the prior year, which is driven by 
   the improvement in underlying EBITDA of GBP0.3m and a GBP0.4m reduction 
   in finance charges which has been offset by a GBP0.5m increase in internally 
   developed software amortisation. 
   Amortisation of intangible assets - acquired intangibles 
   Amortisation of acquired intangible assets of GBP2.1m (2020: GBP2.1m) 
   is in line with the previous year. 
   Exceptional items 
   There have been no exceptional items in the year. Exceptional items 
   in the prior year of GBP0.7m included GBP0.3m of one-off costs incurred 
   as part of the reorganisation of the Group implemented by the incoming 
   CEO in April 2019 which included the costs associated with discontinuation 
   of a few smaller business areas which had not achieved the required 
   return on investment. GBP0.3m costs relate to the acquisition of Pentest 
   and the remaining GBP0.1m is for legacy one-off legal costs. 
   Fair value adjustment for deferred consideration 
   The fair value adjustment for deferred consideration relates to the 
   remaining share consideration owed to the previous owners of GeoLang 
   Holdings Limited. Shares were issued in the year settling the remaining 
   GBP0.2m deferred consideration. 
   Contingent consideration 
   There has been no contingent consideration paid in the year. Contingent 
   consideration in the prior year of GBP0.3m represented the issue of 
   14,388,567 ordinary shares (pre-share consolidation) of the Group to 
   the GeoLang sellers. These additional consideration shares were issued 
   pursuant to the acquisition of GeoLang Holdings Limited announced on 
   4 April 2018. 
   Taxation credit in the period of GBP0.1m includes a GBP0.2m charge for 
   the current year less GBP0.3m movements in deferred taxation from the 
   unwinding of deferred tax liabilities created for acquired intangible 
   Earnings/(loss) per share 
   Adjusted basic and diluted earnings per share of GBP0.10 (2020: Adjusted 
   earnings per share GBP0.08) and reported basic and diluted earnings 
   per share of GBP0.01 (2020: loss GBP0.07) represents the continued improvement 
   the business has made in the last twelve months. 
   Statement of financial position 
   Intangible assets 
   Intangible assets decreased in the year by GBP2.2m to GBP54.6m at 31 
   March 2021 (2020: GBP56.8m). This movement comprises GBP0.7m of internally 
   developed software additions which includes the continued development 
   of our cloud IAM platform (UD), less GBP2.9m amortisation in the year, 
   of which GBP2.1m relates to amortisation of acquired intangibles. 
   Property, plant and equipment 
   Property, plant and equipment decreased in the year by GBP0.3m to GBP0.4m 
   at 31 March 2021 (2020: GBP0.7m). Minimal additions of GBP0.1m include 
   GBP0.06m for a new office lease which has been recognised as a right 
   of use asset from January 2021. Other movements in the period include 
   depreciation in the year of GBP0.3m and a small disposal which is less 
   than GBP0.1m. 
   Trade and other receivables 
   Trade and other receivables have decreased by GBP0.9m in the year from 
   GBP10.5m to GBP9.6m at 31 March 2021. Material movements include a GBP0.4m 
   increase in trade receivables which was driven by strong year-end sales, 
   less a GBP1.2m reduction of prepayments which included a prior year 
   prepaid third-party expense relating to sales which were recognised 
   post year-end. 
   Trade and other payables 
   Trade and other payables have decreased by GBP2.4m in the year from 
   GBP14.6m to GBP12.2m at 31 March 2021. Material movements include a 
   GBP4.1m decrease in loan balances which were repaid in the year, a GBP1.6m 
   increase in other taxation and social security which includes GBP1.3m 
   of VAT deferment the Group chose to utilise following the announcement 
   of the government's range of COVID-19 support schemes, GBP0.4m increase 
   in trade, other payables and accruals which have increased as a result 
   of additional third-party costs which relate to year-end revenues, and 
   GBP0.3m decrease in deferred consideration relating to holdback share 
   consideration for the GeoLang acquisition which was issued in the year. 
   Creditors: amounts falling due after more than one year 
   Creditor amounts falling due after more than one year have decreased 
   by GBP0.4m to GBP4.0m at 31 March 2021. Reductions include a GBP0.3m 
   reduction in deferred tax relating to acquired intangible assets and 
   GBP0.1m decrease in lease liabilities relating to office leases held 
   by the Group. 
   Share capital 
   During the year 1,562,500 new ordinary shares of GBP0.10 each were issued 
   to new and existing institutional shareholders as part of a fundraise 
   which raised GBP3.75m. A further 129,602 new ordinary shares of GBP0.10 
   were issued to the previous owners of GeoLang Holdings for the remaining 
   acquisition consideration and a further 8,320 new ordinary shares were 
   issued to an adviser of the Group which exercised options during the 
   Statement of cash flows 
   The Group delivered strong operating cashflows in the year which, with 
   the addition of a small fundraise completed in April 2020, has led to 
   a significantly higher cash balance at 31 March 2021 of GBP8.0 million 
   (2020: GBP3.3m). Adjusted cash generated from operations of GBP5.3m 
   was slightly below the prior year (2020: GBP5.6m) with cash conversion 
   well in excess of 100% in the year. 
   Adjusting items in the year include GBP1.3m VAT deferral offered to 
   companies by the government during the year which will be repaid in 
   full in the coming year (2020: included GBP0.7m exceptional costs incurred 
   by the Group). 
   The table below provides a summary of cashflows in the year:                                                    2021    2020 
                                                       GBPm    GBPm 
   ------------------------------------------------  ------  ------ 
    Underlying EBITDA                                   3.7     3.4 
    Movements in working capital                        2.9     1.5 
    Cash generated from operations                      6.6     4.9 
   ------------------------------------------------  ------  ------ 
    Adjusted cash generated from operations             5.3     5.6 
    Adjusting items                                     1.3   (0.7) 
    Cash generated from operations                      6.6     4.9 
   ------------------------------------------------  ------  ------ 
    Capital expenditure (net of disposal proceeds)    (0.7)   (1.4) 
    Tax paid                                              -     0.4 
    Interest paid                                         -   (0.1) 
    Payments of lease liabilities                     (0.3)   (0.2) 
    Proceeds from issue of share capital                3.8       - 
    Proceeds from issue of loans                          -     0.5 
    Loan repayments                                   (4.2)   (1.3) 
    FX and other                                      (0.5)   (0.1) 
   ------------------------------------------------  ------  ------ 
    Movement in cash                                    4.7     2.7 
    Opening cash and cash equivalents                   3.3     0.6 
    Closing cash and cash equivalents                   8.0     3.3 
   ------------------------------------------------  ------  ------ 
    Loans                                             (0.7)   (4.7) 
   ------------------------------------------------  ------  ------ 
    Net cash / (debt)                                   7.3   (1.4) 
   ------------------------------------------------  ------  ------ 
   Capital expenditure 
   Capital expenditure of GBP0.7m (2020: GBP1.4m) in the year represents 
   capitalised software costs for developing our software businesses' product 
   sets. Expenditure of property, plant and machinery remains minimal with 
   expenditure of less than GBP0.05m in the period (2020: GBP0.02m). 
   Financing activities 
   In April 2020 the Group completed a fundraise of c.GBP3.8m which the 
   Group plans to use to part-finance its next acquisition. During the 
   year the Group settled GBP4.2m of legacy loan and deferred completion 
   cash, which with the addition of the fundraise has significantly improved 
   the Group's financial position at 31 March 2021. 
   Key performance indicators 
   The Board believes that revenue and underlying 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. 
   In addition to this, as we now start to see a more consistent run rate 
   of amortisation from internally developed software projects, underlying 
   profit before tax is another measure that we are using to track the 
   underlying performance of the Group. These metrics are presented within 
   the financial highlights on page 16. 
   A reconciliation of both underlying EBITDA and underlying profit before 
   tax to reported measures is detailed below: 
                                                         2021    2020 
                                                         GBPm    GBPm 
   --------------------------------------------------  ------  ------ 
    Underlying EBITDA                                     3.7     3.4 
    Exceptional items                                       -   (0.7) 
    Share based payments                                (0.3)   (0.3) 
    Fair value adjustment for deferred consideration        -   (0.1) 
    Contingent consideration                                -   (0.3) 
    Finance charge                                      (0.2)   (0.6) 
    Depreciation                                        (0.3)   (0.3) 
    Amortisation of intangible assets - computer 
     software                                           (0.8)   (0.3) 
    Amortisation of acquired intangible assets          (2.1)   (2.1) 
    Reported profit before tax                              -   (1.3) 
   --------------------------------------------------  ------  ------ 
                                                         2021    2020 
                                                         GBPm    GBPm 
   --------------------------------------------------  ------  ------ 
    Underlying profit before tax                          2.4     2.2 
    Amortisation of acquired intangible assets          (2.1)   (2.1) 
    Exceptional items                                       -   (0.7) 
    Share based payments                                (0.3)   (0.3) 
    Fair value adjustment for deferred consideration        -   (0.1) 
    Contingent consideration                                -   (0.3) 
    Reported profit before tax                              -   (1.3) 
   --------------------------------------------------  ------  ------ 
   Paul McFadden 
   Chief Financial Officer 
   27 July 2021 
   Consolidated statement of comprehensive income 
 for the year ended 31 March 2021 
                                                                2021        2020 
                                                    Note   GBP (000)   GBP (000) 
-------------------------------------------------  -----  ----------  ---------- 
 Revenue                                                      31,766      33,004 
 Cost of sales                                              (21,871)    (22,817) 
-------------------------------------------------  -----  ----------  ---------- 
 Gross profit                                                  9,895      10,187 
 Administrative expenses                                     (6,501)     (7,785) 
 Depreciation and amortisation                               (3,200)     (2,734) 
 Other operating expenses                                         37       (378) 
 Total operating costs                                       (9,664)    (10,897) 
-------------------------------------------------  -----  ----------  ---------- 
 Operating profit / loss                                         231       (710) 
 Underlying EBITDA                                             3,705       3,409 
  Depreciation and amortisation                              (3,200)     (2,734) 
  Exceptional items                                                -       (678) 
  Share based payments                                         (311)       (329) 
  Other operating expenses                                        37       (378) 
  Operating profit / loss                                        231       (710) 
-------------------------------------------------  -----  ----------  ---------- 
 Finance income                                                    2           8 
 Finance cost                                                  (200)       (560) 
 Profit / loss before taxation                                    33     (1,262) 
-------------------------------------------------  -----  ----------  ---------- 
 Income tax credit / (charge)                                    112       (242) 
 Profit / loss for the year and attributable 
  to equity holders of the Company                               145     (1,504) 
-------------------------------------------------  -----  ----------  ---------- 
 Other comprehensive income 
 Items that may be reclassified to profit and 
  Change in financial assets at fair value 
   through OCI                                                     0         (4) 
  Exchange differences on translation of foreign 
   operations                                                    (3)           7 
 Total comprehensive profit / loss for the 
  year                                                           142     (1,501) 
-------------------------------------------------  -----  ----------  ---------- 
 Earnings / loss per ordinary share attributable 
  to the owners of the parent 
   Basic and diluted (GBP per share)                   2        0.01      (0.07) 
   Adjusted basic and diluted (GBP per share)          2        0.10        0.08 

Consolidated statement of financial position

 as at 31 March 
                                                                2021                        2020 
                                                           GBP (000)                   GBP (000) 
---------------  ----  ----------  ---------------------  ----------  ------------  ------------ 
  assets                                                      54,616                      56,767 
 Property, plant 
  and equipment                                                  405                         692 
 Deferred tax 
  asset                                                            -                         186 
  assets                                                      55,021                      57,645 
-----------------      ----------  ---------------------  ----------  ------------  ------------ 
 Current assets 
 Trade and other 
  receivables                                                  9,611                      10,505 
 Cash and cash 
  equivalents                                                  8,049                       3,343 
 Total current 
  assets                                                      17,660                      13,848 
-----------------      ----------  ---------------------  ----------  ------------  ------------ 
 Total assets                                                 72,681                      71,493 
-----------------      ----------  ---------------------  ----------  ------------  ------------ 
 Trade and other 
  payables                                                    12,237                      14,586 
 Total current 
  liabilities                                                 12,237                      14,586 
-----------------      ----------  ---------------------  ----------  ------------  ------------ 
  amounts falling 
  due after more 
  than one 
  year                                                         3,956                       4,393 
  liabilities                                                  3,956                       4,393 
-----------------      ----------  ---------------------  ----------  ------------  ------------ 
  liabilities                                                 16,193                      18,979 
-----------------      ----------  ---------------------  ----------  ------------  ------------ 
 Net assets                                                   56,488                      52,514 
-----------------      ----------  ---------------------  ----------  ------------  ------------ 
 Capital and 
 Share capital                                                22,277                      22,107 
 Share premium                                                34,581                      34,581 
 FVTOCI reserve                                                   14                          14 
 Other reserves                                               24,376                      20,714 
  reserve                                                         24                          27 
  losses                                                    (24,784)                    (24,929) 
 Equity attributable 
  to owners 
  of the Company                                              56,488                      52,514 
---------------------  ----------  ---------------------  ----------  ------------  ------------ 
 Total equity and 
  liabilities                                                 72,681                      71,493 
-----------------      ----------  ---------------------  ----------  ------------  ------------ 
 P Higgins, 
 27 July 2021 
   Consolidated statement of changes in equity 
 for the year ended 31 March 2021 
                            (Note       Share     FVTOCI       Other   Translation   Accumulated     Total 
                              18)     premium    reserve     reserve       reserve        losses    equity 
                                                     GBP                                               GBP 
 Group                  GBP (000)   GBP (000)      (000)   GBP (000)     GBP (000)     GBP (000)     (000) 
-----------------  --------------  ----------  ---------  ----------  ------------  ------------  -------- 
 At 1 April 2019           19,040      34,578         18      19,123            20      (23,425)    49,354 
 Loss for the 
  year                          -           -          -           -             -       (1,504)   (1,504) 
  for the year                  -           -        (4)           -             7             -         3 
  for the year                  -           -        (4)           -             7       (1,504)   (1,501) 
 Contributions by and 
 to owners 
 Issue of share 
  capital                   3,067           3          -           -             -             -     3,070 
 Merger relief 
  reserve                       -           -          -       1,262             -             -     1,262 
 Share based 
  payments                      -           -          -         329             -             -       329 
 At 31 March 2020          22,107      34,581         14      20,714            27      (24,929)    52,514 
-----------------  --------------  ----------  ---------  ----------  ------------  ------------  -------- 
 Profit for the 
  year                          -           -          -           -             -           145       145 
  for the year                  -           -          -           -           (3)             -       (3) 
  for the year                  -           -          -           -           (3)           145       142 
 Contributions by and 
 to owners 
 Issue of share 
  capital                     170           -          -       3,351             -             -     3,521 
 Share based 
  payments                      -           -          -         311             -             -       311 
 At 31 March 2021          22,277      34,581         14      24,376            24      (24,784)    56,488 
-----------------  --------------  ----------  ---------  ----------  ------------  ------------  -------- 
   Consolidated Cash Flow Statement 
 for the year ended 31 March 2021 
                                                          2020/21     2019/20 
                                                        GBP (000)   GBP (000) 
 --------------------------------------------    ---   ----------  ---------- 
 Cash flows from operating activities 
 Profit / loss for the year                                   145     (1,504) 
 Adjustments for: 
  Amortisation of acquired intangible 
   assets                                                   2,860       2,418 
  Depreciation of property, plant 
   and equipment                                              340         316 
  Share-based payment charge                                  311         329 
  Impairment of intangible assets                               -           - 
  Fair value adjustment of deferred 
   consideration                                             (37)          69 
  Contingent consideration                                      -         309 
  Finance income                                              (2)         (8) 
  Finance cost                                                200         560 
  Gain/loss on sale of asset                                    -         (1) 
  Income tax                                                (112)         242 
 Cash flow from operating activities 
  before changes in working capital                         3,705       2,730 
 Decrease/(increase) in trade and 
  other receivables                                           894       4,384 
 (Decrease)/increase in trade and 
  other payables                                            2,029     (2,239) 
 Cash generated from operations                             6,628       4,875 
---------------------------------------------     ---  ----------  ---------- 
 Net foreign exchange movements                                 3           8 
 Finance cost paid                                           (38)        (62) 
 Tax paid                                                       -         399 
---------------------------------------------     ---  ----------  ---------- 
 Net cash generated from operating 
  activities                                                6,593       5,220 
---------------------------------------------     ---  ----------  ---------- 
 Investing activities 
 Purchase of property, plant and 
  machinery                                                  (45)        (20) 
 Purchase of software                                       (709)     (1,409) 
 Proceeds from disposal of held-for-sale 
  assets                                                        -          27 
 Proceeds from disposal of tangible 
  assets                                                       17           1 
 Net cash used in investing activities                      (737)     (1,401) 
---------------------------------------------     ---  ----------  ---------- 
 Financing activities 
 Proceeds from issue of share capital                       3,750           2 
 Proceeds from issue of loans                                   -         500 
 Repayment of loan liabilities                            (4,151)     (1,341) 
 Expenses paid in connection with 
  share issues                                              (466)           - 
 Repayment of lease liabilities                             (281)       (236) 
 Net cash used in financing activities                    (1,148)     (1,075) 
---------------------------------------------     ---  ----------  ---------- 
 Net increase/(decrease) in cash and 
  cash equivalents                                          4,708       2,744 
----------------------------------------------    ---  ----------  ---------- 
 Foreign exchange movement on cash 
  and cash equivalents                                        (2)           2 
 Cash and cash equivalents at the beginning 
  of the period                                             3,343         597 
 Cash and cash equivalents at the 
  end of the period                                         8,049       3,343 
---------------------------------------------     ---  ----------  ---------- 

Notes to the Consolidated Financial Statements

General Information

The Group is a public limited company incorporated and domiciled in the UK. The address of its registered office is 22 Great James Street, London, WC1N 3ES.

The Group is listed on the Alternative Investment Market ('AIM') on the London Stock Exchange. The Group provides cyber solutions and operational resilience solutions to a range of end user markets.

   1.   Statement of accounting policies 

The significant accounting policies applied in preparing the financial statements are outlined below. These policies have been consistently applied for all the years presented, unless otherwise stated.

Basis of preparation

The Consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'), including International Accounting Standards ('IAS') and interpretations ('IFRS ICs') issued by the International Accounting Standards Board ('IASB') and its committees, and as adopted in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

The consolidated financial statements have been prepared under the historic cost convention, except for certain financial instruments that have been measured at fair value. The consolidated financial statements are presented in Sterling, the functional currency of Shearwater Group plc, the Parent Company. All values are rounded to the nearest thousand pounds (GBP'000) except where otherwise indicated.

Going concern

After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of signing these financial statements. Accordingly, they continue to adopt the going concern basis in preparing these consolidated financial statements.

In light of the continued evolution of the COVID-19 crisis the Directors have maintained a close eye on the Group's going concern position and have taken steps to ensure that the Group is in a robust position to manage potential trading downturns should they occur. Over the past year the Group demonstrated its ability to trade through challenging conditions which saw its advisory businesses impacted by COVID driven restrictions on movement that prevented face-to-face engagements for much of the year.

Despite these challenges, the Group has built on the prior year when it achieved its maiden EBITDA profit, delivering a GBP3.7m underlying EBITDA in the current year (2020: GBP3.4m) 9% ahead of the prior year. Cash conversion has remained in excess of 100% in the year with GBP6.6m generated from its ongoing operations.

At 31 March 2021 the Group has been able to report a much improved financial position and is well capitalised with a net cash position of GBP7.3m (2020: net debt GBP1.4m) and an untouched three-year GBP4.0 million Group revolving credit facility with Barclays Bank plc.

The Directors' have reviewed detailed budget cash flow forecasts for the period to at least 31 March 2023 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 Group has adapted to respond to the challenges arising from COVID-19 and the unique trading conditions that this has created and the Directors' believe the Group has a stable footing to develop its business over the immediate future.

The Board has reviewed current trading to 30 June 2021 and is pleased to report that trading is tracking in line with budget for the first quarter, with a number of businesses reporting material year-on-year improvement in trading which provides for increased optimism moving forward.

In response to the additional challenges created by Covid 19, the Board has reviewed and challenged what it believes to be an extreme scenario reverse stress test on the Group up to March 2023. The purpose of the reverse stress test for the Group is to test at what point the cash facilities would be fully utilised if the assumptions in the budget are altered.

The reverse stress test assumes significant adjustments to the Group's budget which include the removal of all new business revenue across both Software and Services divisions, reduction of renewal rates in our Software division to 50% (currently c80%), scaling back of revenues in our Services division leaving just critical managed services revenues and already contracted revenues. Costs have been scaled back sensitively in line with the reduction in revenues.

In the event that the performance of the Group is not in line with the projections, action will be taken by management to address any potential cash shortfall for the foreseeable future. The actions that could be taken by the Directors include both a review and restructuring of employment-related costs. Additionally, the Directors could also negotiate access to other sources of finance from our lenders.

Overall, the sensitised cash flow forecast demonstrates that the Group will be able to pay its debts as they fall due for the period to at least 31 March 2023 and therefore the Directors are satisfied there are no material uncertainties to disclose regarding going concern. The Directors are therefore satisfied that the financial statements should be prepared on the going concern basis.

Critical accounting judgements, estimates and assumptions

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for income and expenses during the year and that affect the amounts reported for assets and liabilities at the reporting date.

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.


Management make judgements, estimates and assumptions regarding the life of leases. At present, management are assessing all existing leases, which all relate to office space, as we look to reduce the number of offices across the Group. 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.


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 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 1(st) and 2(nd) line support to the client.

-- Software licences for the new 'Authentication as a Services' product whereby the customer accesses the product via a cloud environment maintained by the Company is recognised in two parts, whereby 80% of the subscription is recognised at the point that the licence key is provided to the customer with the remaining 20% recognised evenly over the length of the contract. This deferred proportion represents the obligation to maintain and support the platform that the software runs on.


-- Sale of third-party hardware, software and warranties:

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.

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.

Exceptional items

The Group's statement of comprehensive income separately identifies exceptional items. Such items are those that in the Directors' judgement are one-off in nature and need to be disclosed separately by virtue of their size and incidence. In determining whether an item or transaction should be classified as an exceptional item, the Directors' consider quantitative as well as qualitative factors such as the frequency, predictability of occurrence and significance. This is consistent with the way that financial performance is measured by management and reported to the Board. Exceptional items may not be comparable to similarly titled measures used by other companies. Disclosing adjusted items separately provides additional understanding of the performance of the Group. Please see note 4 for further details.

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                                            2-5 years straight-line basis 
   Customer relationships                                      1-15 years straight-line basis 
   Software                                                            10 years straight-line basis 
   Tradenames                                                      10 years straight-line basis 

The amortisation expense on intangible assets with finite lives is recognised in the statement of comprehensive income within administrative expenses. The amortisation period and the amortisation method for intangible assets with finite useful lives are reviewed at least annually.

The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.

Property, plant and equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation. Cost includes the original purchase price of the asset plus any costs of bringing the asset to its working condition for its intended use. Depreciation is provided at the following annual rates, on a straight-line basis, in order to write down each asset to its residual value over its estimated useful life.

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

  Plant and machinery  20-33 per cent per annum 
Office equipment       25 per cent per annum 
                       Shorter of useful life of the asset 
Right of use assets     or lease term 

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised, as adjusted items if significant, within the statement of comprehensive income.

Financial instruments

Shearwater's financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

Trade and other receivables are measured at amortised cost less a provision for doubtful debts, determined as set out below in 'impairment of financial assets'. Any write-down of these assets is expensed to the statement of comprehensive income.

Equity investments not qualifying as subsidiaries, associates or jointly controlled entities are measured at fair value through other comprehensive income (FVTOCI), with fair value changes recognised in other comprehensive income (OCI) and dividends recognised in profit or loss.

Impairment of financial assets

The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39. Under the impairment approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Instead, the Group always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses are updated at each reporting date.

The new 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 0.3% (2020: 0.3%). This percentage rate is then applied to current receivable balances using a probability risk spread as follows:

-- 80% of debt not yet due (i.e. the Group's average combined loss rate of 0.3% is discounted by 20%, meaning a 0.24% 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 GBP27,191 (2020: GBP26,377). 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 3 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.

The Group utilised an invoice discounting facility in the prior year. Advances under this facility were initially recognised at fair value, which was the amount advanced. Subsequently, accrued interest was recognised as per the terms of the facility. The invoice discounting facility was closed on 20 March 2020 following the settlement of all outstanding advances.

Lease liabilities have been recognised at fair value in line with the requirements of IFRS16. Details of lease disclosures are included in note 16.

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.


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.

   --     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 11 of the consolidated financial statements.

Lease liability

At the commencement date of a lease (or 1 April 2019 for leases which commenced before this date) the group recognises lease liabilities, measuring them at the present value of lease payments at commencement of the lease (or 1 April 2019 for leases which commenced before this date) discounted at the determined incremental borrowing rate.

The lease liability is measured at the amortised cost using the effective interest method. Should there be a change in expected future lease payments arising from a lease modification or if the Group changes its assessment of whether it will exercise an extension or termination option, the lease liability would be remeasured.

Remeasurement of a lease liability will give rise to a corresponding adjustment being made to the carrying value of the right to use asset.

Lease liabilities are detailed in notes 13, 14 and 16 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 12 months of the lease term remaining as at the date of initial application

-- Applied the exemption for low-value assets whereby leases with a value under GBP5,000 (usually IT equipment) have been classed as short-term leases and not recognised on the statement of financial position even if the initial term of the lease from the lease commencement date may be more than twelve months.

Incremental borrowing rate

IFRS 16 states that all components of a lease liability are required to be discounted to reflect the present value of the payments. Where a lease (or Group of leases) does not state an implicit rate an incremental borrowing rate should be used.

The incremental borrowing rate should represent what the lessee would have to pay to borrow over a similar term and with similar security, the funds necessary to obtain an asset of similar value to the right of use asset in a similar economic environment.

The Group has applied an incremental borrowing rate of 3.5% which it uses to discount all identified leases across the Group.

Share-based payments

In order to calculate the charge for share-based payments as required by IFRS 2, the Group makes estimates principally relating to assumptions used in its option-pricing model as set out in note 19.

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.


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.

The Group elected to apply IFRIC 23 retrospectively with the cumulative effect recorded in retained earnings as at the date of initial application, 1 April 2019. The adoption of IFRIC 23 has had no impact on retained earnings or on corporate tax liabilities.

New standards and interpretations applied

There were no new standards or amendments or interpretations to existing standards that became effective during the year that were material to the Group.

No new standards, amendments or interpretations to existing standards having an impact on the financial statements that have been published and that are mandatory for the Group's accounting periods beginning on or before 1 April 2021, or later periods, have been adopted early.

New standards and interpretations not applied

The following new standards, amendments and interpretations have not been adopted in the current year.

                                                         Effective   To be adopted 
 International Financial Reporting Standard (IFRS/IAS)        date    by the Group 
------------------------------------------------------  ----------  -------------- 
 Onerous contracts - Cost of fulfilling a contract       1 January 
  (Amendment to IAS 37)                                       2022    1 April 2022 
 Property, plant and equipment: Proceeds before          1 January 
  intended use (Amendment to IAS 16)                          2022    1 April 2022 
 Annual improvements to IFRS standards 2018-2020 
  (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS         1 January 
  41)                                                         2022    1 April 2022 
 References to Conceptual Framework (Amendment           1 January 
  to IFRS 3).                                                 2022    1 April 2022 
------------------------------------------------------  ----------  -------------- 

The Group has reviewed the impact of these new accounting standards and amendments and believes the impact is not material to the Group's financial statements.

   2.   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 
   --     Contingent consideration 

Basic profit / loss per share is calculated by dividing the loss attributable to the ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

For diluted earnings/loss per share, the weighted average number of shares in issue is adjusted to assume conversion of all the potential dilutive ordinary shares. The potential dilutive shares are dilutive for the twelve months ended 31 March 2021 and anti-dilutive for the twelve months ended 31 March 2020 as the Group is loss making. Adjusted earnings per share is potentially dilutive in the year to 31 March 2021 and 2020. Please see notes 18 and 19 of the consolidated financial statements for more details.

The calculation of the basic and diluted loss per ordinary share from total operations attributable to shareholders is based on the following data:

                                                               2021         2020 
                                                          GBP (000)    GBP (000) 
------------------------------------------------------  -----------  ----------- 
 Net loss from total operations 
 Profit / loss for the purposes of basic and diluted 
  loss per share being net loss attributable to 
  shareholders                                                  145      (1,504) 
 Amortisation of acquired intangibles                         1,877        1,873 
 Share-based payments                                           311          329 
 Impairment of intangible assets                                  -            - 
 Exceptional items                                                -          609 
 Fair value adjustment to deferred consideration               (37)           69 
 Contingent consideration                                         -          309 
 Underlying earnings for the purposes of adjusted 
  earnings per share                                          2,296        1,685 
------------------------------------------------------  -----------  ----------- 
                                                                 No           No 
------------------------------------------------------  -----------  ----------- 
 Number of shares 
 Weighted average number of ordinary shares for 
  the purpose of basic and diluted and adjusted 
  basic earnings per share                               23,612,892   22,005,719 
 Weighted average number of ordinary shares for 
  the purpose of adjusted diluted earnings per share.    23,780,441   22,158,427 
------------------------------------------------------  -----------  ----------- 
                                                                GBP          GBP 
 Basic and diluted loss per share                              0.01       (0.07) 
 Adjusted basic and diluted earnings/(loss) per 
  share                                                        0.10         0.08 
------------------------------------------------------  -----------  ----------- 

3. Events after the reporting period

There are no material events after the reporting period to report.

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(END) Dow Jones Newswires

July 28, 2021 02:00 ET (06:00 GMT)

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