TIDMSWG
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 GROUP PLC
("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.
Highlights:
-- 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
KPIs
-- 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
.
Enquiries:
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
Finance
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
invaluable.
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.
Outlook
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
ahead.
David Williams
Chairman
27 July 2021
Chief Executive's review
Overview
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.
Software
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.
Software
-------------------------------------------------
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.
Services
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
overheads.
Services
------------------------------------------------
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
Overview
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)
------------------------------------- ------ ------ ---------
Revenue
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
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
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
assets.
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
year.
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
loss:
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
2021 2020
GBP (000) GBP (000)
--------------- ---- ---------- --------------------- ---------- ------------ ------------
Assets
Non-current
assets
Intangible
assets 54,616 56,767
Property, plant
and equipment 405 692
Deferred tax
asset - 186
Total
non-current
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
----------------- ---------- --------------------- ---------- ------------ ------------
Liabilities
Current
liabilities
Trade and other
payables 12,237 14,586
Total current
liabilities 12,237 14,586
----------------- ---------- --------------------- ---------- ------------ ------------
Non-current
liabilities
Creditors:
amounts falling
due after more
than one
year 3,956 4,393
Total
non-current
liabilities 3,956 4,393
----------------- ---------- --------------------- ---------- ------------ ------------
Total
liabilities 16,193 18,979
----------------- ---------- --------------------- ---------- ------------ ------------
Net assets 56,488 52,514
----------------- ---------- --------------------- ---------- ------------ ------------
Capital and
reserves
Share capital 22,277 22,107
Share premium 34,581 34,581
FVTOCI reserve 14 14
Other reserves 24,376 20,714
Translation
reserve 24 27
Accumulated
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,
Chief
Executive
Officer
27 July 2021
Consolidated statement of changes in equity
for the year ended 31 March 2021
Share
capital
(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)
Other
comprehensive
loss
for the year - - (4) - 7 - 3
Total
comprehensive
loss
for the year - - (4) - 7 (1,504) (1,501)
Contributions by and
distributions
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
Other
comprehensive
loss
for the year - - - - (3) - (3)
Total
comprehensive
profit
for the year - - - - (3) 145 142
Contributions by and
distributions
to owners
Issue of share
capital 170 - - 3,351 - - 3,521
Share based
payments - - - 311 - - 311
At 31 March 2021 22,277 34,581 14 24,376 24 (24,784) 56,488
----------------- -------------- ---------- --------- ---------- ------------ ------------ --------
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.
Leases
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.
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 1(st) and 2(nd) line
support to the client.
-- Software licences for the new 'Authentication as a Services'
product whereby the customer accesses the product via a cloud
environment maintained by the Company is recognised in two parts,
whereby 80% of the subscription is recognised at the point that the
licence key is provided to the customer with the remaining 20%
recognised evenly over the length of the contract. This deferred
proportion represents the obligation to maintain and support the
platform that the software runs on.
Services
-- Sale of third-party hardware, software 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.
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.
-- 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.
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.
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)
Add/(remove):
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
FR SEAEFWEFSEDW
(END) Dow Jones Newswires
July 28, 2021 02:00 ET (06:00 GMT)
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