This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014 (as amended), which forms part of domestic UK law pursuant to the European Union (Withdrawal) Act 2018. Upon publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.
29 July 2022
SHEARWATER GROUP PLC
("Shearwater", or the "Group")
Final Results
Revenue and adjusted EBITDA ahead of market expectations
Shearwater Group plc (AIM: SWG), the cybersecurity, advisory and managed security services group, is pleased to announce its final results for the year ended 31 March 2022.
Highlights:
· Group delivers strong organic revenue growth, up 13% to a Group record of £35.9m (FY21: £31.8m)
· Adjusted EBITDA1 up 19% to £4.4m (FY21: £3.7m) with margin maintained at 12%
· Adjusted profit before tax2 up 24% to £3.0m (FY21: £2.4m)
· Adjusted basic earnings per share up 10% at 11p (FY21: 10p)
· Strong financial position with zero debt and a year-end net cash balance of £5.6m as of 31 March 2022 (31 March 2021 adjusted net cash: £6.0m) following the early repayment of residual legacy loans alongside continued investment in the Software division during the period
Operational Highlights:
· Average new customer spend up 43% year-on-year with 186 new customer wins in the period (FY21: 155)
· Software product set strengthened with SecurEnvoy developing its cloud Identity and Access Management ('IAM') platform
· Investment in international infrastructure to underpin future growth in new territories
· 20 new clients introduced to Group companies through cross-selling, up 54% year-on-year and fuelling future revenue opportunities
· 64% of client base with long-standing relationships of more than 3 years (FY21: 67%)
Outlook:
· FY23 Q1 trading in line with management expectations with good visibility of repeat revenue opportunities and high levels of enquiries
· Continue to review focused M&A opportunities
1 Adjusted EBITDA is defined as profit before tax, before one off exceptional items, share based payment charges, finance charges, impairment of intangible assets, fair value adjustments to deferred consideration, other income, depreciation and amortisation.
2 Adjusted Profit Before Tax defined as net profit before tax, exceptional items, share based payments, other income, fair value adjustment for deferred consideration and amortisation of acquired goodwill.
Phil Higgins, CEO of Shearwater Group, commented:
"I am pleased to announce a year of double-digit revenue and adjusted EBITDA growth for the Group. Key performance highlights include a strong year for advisory work, penetration testing and managed security services. Developing trusted long term client relationships whilst deepening our expertise has allowed us to provide extended offerings to our blue-chip clients resulting in securing some of the largest contracts in our history. In addition, seeing the size of the opportunity in the identity and access management software space, we have continued to invest significantly in our platform catering to this area. This market backdrop, alongside the strength of our teams and security of our financial position, provide us with great confidence into the current financial year and beyond.
"Finally, I would like to take this opportunity to thank our staff for their continued support and commitment in delivering these results."
Investor Presentation
Shearwater Group's CEO, Phil Higgins, CFO, Paul McFadden and Marcus Willett CB OBE, a member of the Group's Advisory Panel, will provide a live investor presentation relating to the results, via the Investor Meet Company platform on Wednesday, 3 August 2022 at 12:30.
Investors can sign up to Investor Meet Company for free and add to meet Shearwater Group via https://www.investormeetcompany.com/shearwater-group-plc/register-investor.
Enquiries:
| Shearwater Group plc David Williams, Chairman Phil Higgins, CEO
| www.shearwatergroup.com c/o Alma PR |
| Cenkos Securities plc - NOMAD and Joint Broker Ben Jeynes / Max Gould - Corporate Finance Alex Pollen / Michael Johnson - Sales
| +44 (0) 20 7397 8900 |
| Berenberg - Joint Broker Matthew Armitt / Mark Whitmore
| +44 (0) 20 3207 7800 |
| Alma PR Justine James / Susie Hudson / Joe Pederzolli | shearwater@almapr.co.uk +44 (0) 20 3405 0205 |
About Shearwater Group plc
Shearwater Group plc is an award-winning group providing cyber security, managed security and professional advisory solutions to create a safer online environment for organisations and their end users.
The Group's differentiated full service offering spans identity and access management and data security, cybersecurity solutions and managed security services, and security governance, risk and compliance. Its growth strategy is focused on building a scalable group that caters to the entire spectrum of cyber security and managed security needs, through a focused buy and build approach.
The Group is headquartered in the UK, serving customers globally across a broad spectrum of industries.
Shearwater shares are listed on the London Stock Exchange's AIM under the ticker "SWG". For more information, please visit www.shearwatergroup.com.
Chairman's statement
Producing record results against a background plagued with uncertainties caused by Covid has been no mean feat and our executive team, together with subsidiary directors and their teams, should be congratulated for an outstanding achievement.
In addition, our non-executive team and Advisory Panel, have been active in using their extensive network of contacts to promote our Group, leading to some useful introductions and opportunities.
We are fortunate to be in a sector of the market with good growth potential and we are now starting to see our results reflect all the hard work put in over the past few years. The companies within our Group are well established and run by experienced teams who have built up a deep understanding of their clients' needs. Operating in a constantly evolving marketplace this understanding of what is required for effective cyber management has led to both contract renewals from existing customers and winning new customers, hence the growth in revenues reflected in our results.
With all this concerted effort we are now operating from a position of strength, as can be demonstrated by the increased revenues, record profits and debt free, cash rich balance sheet. This means that we are a much more attractive company to join, both from the point of good quality staff to further strengthen our teams and from the point of view of vendors of businesses thinking of joining forces with us. We are certainly a very different proposition to where we were a few years ago.
Operating responsibly is very important to us and in FY22 we were pleased to reduce our carbon emissions by 13% year on year, as well as retaining a carbon neutral status for the third consecutive year. We also introduced a company share option plan during the year, in addition to the existing 2021 Save As You Earn scheme, to allow our employees to benefit in our Group's future success.
I would like to take this opportunity to thank the entire Shearwater team for their continued hard work. This year's strong performance reflects the quality and diligence of all our people and on behalf of our Board; I wish to offer them my sincere thanks. I also wish to thank our loyal shareholders for their continued support.
David Williams
Chairman
28 July 2022
Chief Executive's review
I am incredibly pleased to be reporting on another year of significant progress for Shearwater Group, during which we have delivered substantial operational advances and produced record financial results.
We have won an encouraging amount of new business this year whilst continuing to provide an excellent service to existing customers. Group revenue for the period was £35.9m (FY21: £31.8m), representing an increase of 13% on the prior year, all of which is organic. Organic growth was our focus this year and delivering on this year-on-year revenue growth demonstrates the health of our business and strong demand for our offering. Revenue growth was driven by a mix of high-value renewals from long term customers in addition to a number of significant new contract wins for our Services division.
In addition, the Group delivered Adjusted EBITDA of £4.4m (FY21: £3.7m), our third consecutive year of adjusted EBITDA growth, which has contributed to a statutory profit before tax of £0.9m (2021: £0.0m). Our balance sheet is strong with a net cash(1) balance of £5.6m as at 31 March 2022 (31 March 2021: £7.3m), in a year that included the repayment of residual legacy loans and a deferred VAT payment of £1.3m, alongside continued investment in our Software division.
As a growing, profitable business with a solid financial position, we are very well placed for the future. We operate in a high growth sector and have an established reputation as a top-tier provider of cybersecurity, professional advisory and managed security services. We move into FY23 with a strong sense of optimism.
Growth Strategy
Our vision remains unchanged in becoming the provider of choice, delivering next generation cyber technology, professional advisory and cyber security services and solutions. Within our Software division we aim to build a 'must have' next generation converged access management and data discovery platform. Within our Services division, we aim to be the partner of choice delivering managed security solutions, test and advisory consulting; again, providing an end-to-end offering.
Both our Services and Software divisions are award-winning, validating our group companies' abilities to deliver meaningful products and services that meet the increasing complex demands of our corporate client base.
Our strategy across the year has focused on the strengthening of our business through organic growth. Long-term contract renewals alongside new customer and contract wins have allowed us to achieve this.
Having newly established a Mergers & Acquisitions Committee, we continue to search and review potential opportunities with a clear strategic fit. We have an active pipeline of acquisition opportunities in the pursuit of a business that would add to our Software portfolio, add scale in Services, or drive synergies across the Group.
Group Operational Review
During the year we introduced 186 new customers across both divisions, with an increased average order value per customer against the prior year. This included a number of blue-chip organisations. In addition, we again retained an extremely high proportion of existing customers with 64% now categorised as having a long-term relationship with the Group(2).
We pride ourselves on the quality of our staff and have had success with recruitment during the period, adding several new employees across the Group, including international placements. To manage wage inflation, we are leveraging talent supplies across the geographic breadth of the Group. We were also pleased to enhance our reward packages in the year, reflecting the hard work of our teams, and believe this makes us an attractive place to work.
Our expanded employee base now sees workers placed across mainland Europe as well as the US. Pursuing our ambition of an increasing international presence, during the period we were delighted to open a Brookcourt entity in the Netherlands, giving the Company easier access to its suite of customers based across mainland Europe. Moreover, we are currently in the process of setting up Pentest Ireland and SecurEnvoy has also recently added a Middle Eastern distributor.
We have continued to progress with our cross-selling initiative as we aim to tap accretive value from within the Group. Cross-selling in the period resulted in 20 new clients being introduced to Group companies, up 54% versus the prior year. There remain great opportunities to further expand cross-selling across the Group in future periods.
Segmental Review
Software
The FY22 focus in Software was on new product development and good progress has been made in this area with significant investment made in R&D. Overall, divisional sales have softened year-on-year, due to the development of new product functionality taking slightly longer than originally expected and therefore not all new modules and features have been introduced to the market. We continue to believe that the upsell of our enhanced product sets to new and existing customers will drive sales growth, albeit we now expect to see this happen in the medium term. We have been encouraged by the early success of our 'Identity and Access' sales, which we have invested in over the last year, and which represents a key opportunity for the Group in the future.
| | 2022 | 2021 | |
| | £m | £m | % |
| Revenue | 3.3 | 4.3 | (23%) |
| Gross profit | 2.2 | 3.5 | (36%) |
| Gross margin % | 67% | 80% | |
| Overheads | 0.7 | 1.3 | |
| Adjusted EBITDA | 1.5 | 2.2 | (29%) |
| Adjusted EBITDA margin % | 46% | 50% | |
As previously communicated, our ambition in Software is to build the 'must have' next generation converged access management and data discovery platform, which we envisage to become first choice for organisations needing to connect securely and with confidence to the digital world. We have moved towards this goal with numerous developments of both SecurEnvoy and GeoLang's products.
SecurEnvoy's 'SecureIdentity platform' has seen significant investment, with key features added such as the 'Migration Wizard', which gives c.1,000 on-premise customers the ability to seamlessly migrate to the new cloud platform. Other enhancements have been made in both security and user experience, with the release of 'Passwordless' authentication being well received, and the unique 'True User Location Technology', which allows organisations to both create explicit geographic safe zones for accessing corporate information.
Gartner predicts that the worldwide information security and risk spend from 2019-2025 (Identity and Access management) will grow at a CAGR of 22.8%(3).
Post-period end, our R&D teams continue to enhance our products, whilst the Board seeks potential software acquisitions in order to build out the capabilities of our converged access management and data discovery platform.
Services
In the Services division, we were delighted to secure a number of significant wins and renewals which drove a strong increase in sales, flowing through into improved Adjusted EBITDA.
| | 2022 | 2021 | |
| | £m | £m | % |
| Revenue | 32.5 | 27.4 | 19% |
| Gross profit | 8.6 | 6.4 | 34% |
| Gross margin % | 26% | 23% | |
| Overheads | 3.9 | 3.4 | |
| Adjusted EBITDA | 4.7 | 3.1 | 52% |
| Adjusted EBITDA margin % | 14% | 11% | |
As announced in January 2022, Pentest secured a significant new contract win with a global technology business, supplying vulnerability assessment and penetration testing services in relation to a major new project. In March 2022 Brookcourt Solutions won two significant contracts; the first of which, a three-year advanced endpoint cyber defence solution contract with a global financial organisation, totalled US$4.1 million. This was shortly followed by the win of a contract with a leading telecommunications and media company for the monitoring of the organisation's new 5G network totalling an initial £12.9 million. These new business wins, compounded by a strong rate of contract renewals during the period, have contributed to the strong performance of the Services side of our business.
Market Opportunity
The cybersecurity market continues to offer considerable opportunities and underpins Group wide confidence in future growth. The increasing number of cybersecurity attacks taking place globally, driven on further by the war in Ukraine, is contributing to the growth of the global market, with the importance of businesses deploying cybersecurity solutions to detect and mitigate the risk of attacks becoming paramount.
In line with the wider market trend, we have seen an increasing number of enquiries across the Group for cybersecurity engagements year-on-year, as well as increased interest for consulting engagements across the Company. We have also seen a slight resurgence in appliance-based cyber solutions post-COVID and have been successfully managing our hardware supply chains. With the number of businesses being compromised steadily increasing, trends such as ransomware and DDOS attacks are only set to become more prevalent moving forwards. The growing need for our services, coupled with Shearwater's global presence and established reputation in dealing with such issues, underlines the market opportunity for the Group.
Current Trading and Outlook
We have been encouraged by Q1 FY23 trading, which is in line with management's expectations, and have good visibility of repeat revenue opportunities in the current year. With Shearwater achieving revenue growth, strengthened by a robust financial position, we look to the future with optimism. Whilst continuing to pursue organic growth and drive cross-selling initiatives across the Group, we remain focused on fulfilling our acquisition ambitions. We are well-positioned in a market only set to expand further and the potential of our business is evident. We look forward to reporting on our continued progress moving forwards.
Philip Higgins
Chief Executive Officer
28 July 2022
(1) Net cash includes cash and cash equivalents less loan balances.
(2) Represents clients where we have a relationship in excess of three years
(3) Gartner®, Forecast Analysis: Information Security and Risk Management, Worldwide, August 2021, https://www.gartner.com/document/4004647?ref=solrResearch&refval=331977943. GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved. The Gartner content described herein, (the "Gartner Content") represent(s) research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. ("Gartner"), and are not representations of fact. Gartner Content speaks as of its original publication date (and not as of the date of this [type of filing]) and the opinions expressed in the Gartner Content are subject to change without notice.
Financial review
Overview
A positive performance in the current year has seen the Group deliver a third consecutive year of increased profitability with adjusted EBITDA up 19% and Adjusted profit before tax up 24% following strong revenue performance from the Group's Services division. This has resulted in a Reported profit before tax of £0.9 million for the year (2021: £0.0m).
The improvement in profitability is driven by revenue growth of 13% which includes much improved advisory revenues, which were impacted by the COVID19 crisis during the previous year, in addition to robust security solution and managed services & warranties revenues which has offset some softness in software division's revenues which were impacted by delays in deployment of new software. Encouragingly, we have started to see growth in new product revenues in the current year and are optimistic that these revenues can be accelerated in the coming year(s).
During the year the Group introduced 186 new customers, a 20% increase on the number of new customers introduced during the previous year (2021: 155) which contributed £2.6 million of business from new customers which is a 43% increase on the previous year.
The Group has continued to enjoy strong customer retention with 64% of revenues coming from long-term clients with in excess of 3 years trading history with the business, which demonstrates the strength of our business's offerings.
Over 40% of the Group's revenue is of a repeatable nature and as we look towards the coming year we have improved visibility with £14.5 million of repeatable revenue opportunities already identified for 2023.
As part of its strategy, the Group has continued to invest in the development of new technologies within its Software division with investment for the current year equating to 33% of the Group's software revenues. Investment into software development was increased during the current year in order to ensure that we are positioned to maximise the opportunity to grow software revenues in the coming years.
During the year the Group paid down the remaining loan liabilities of £0.7 million, which related to the Pentest acquisition early leaving the business with a healthy balance sheet as it now looks to further develop it organic business in addition to in-organic opportunities.
Details of the Group's summarised financial performance for the year are detailed below:
| | 2022 £m | 2021 £m |
% change |
| Revenue | 35.9 | 31.8 | 13% |
| Gross profit | 10.8 | 9.9 | |
| Overheads (underlying) | (6.4) | (6.2) | |
| Adjusted EBITDA | 4.4 | 3.7 | 19% |
| Adjusted EBITDA margin | 12% | 12% | |
| Finance charge | (0.1) | (0.2) | |
| Depreciation | (0.3) | (0.3) | |
| Amortisation of intangible assets - computer software | (1.0) | (0.8) | |
| Adjusted profit before tax | 3.0 | 2.4 | 24% |
| Amortisation of acquired intangible assets | (2.1) | (2.1) | |
| Share-based payments | (0.1) | (0.3) | |
| Other operating income | 0.1 | - | |
| Profit before tax | 0.9 | - | |
| Taxation (charge)/credit | (1.2) | 0.1 | |
| (Loss)/profit after tax | (0.3) | 0.1 | |
Revenue
Revenue for the year-ended 31 March 2022 grew by 13% (£4.1 million) to £35.9 million (2021: £31.8 million).
The table below provides a breakdown of revenues for the current year:
| | 2022 | 2021 | |
| | £m | £m | % change |
| Managed services and warranties | 16.4 | 16.2 | 1% |
| Security solutions | 10.6 | 6.2 | 70% |
| Advisory and engineering | 5.6 | 5.1 | 10% |
| Software licenses | 3.3 | 4.3 | (23%) |
| Total revenue | 35.9 | 31.8 | 13% |
Managed Services & warranties included the addition of a number of new material contracts from existing clients in the period which offsets the gap left by some multi-year deals sold in previous years which were not renewable in the current year.
Security Solutions revenues in the period were positively impacted by increased activity, which is in part driven by clients returning to the office and resuming projects that may have slowed or been put on hold. The increase in revenue has been generated by new business from both new and existing clients.
Following a challenging prior period which saw many businesses temporarily suspend advisory engagements due to COVID19 related lockdown measures, it is pleasing to report that our professional advisory businesses saw increased demand for their services during the year, with solid day rates and increased utilisation rates contributing to a 10% year-on-year increase in the Group's 'Advisory and Engineering' revenues.
Renewals of 'On Premise' multi-factor authentication software of c.80% remained in line with the previous period, demonstrating commitment from our existing long-term clients, however, the impact of additional development work which delayed the go to live date of some new products/functionalities has resulted in lower than expected software licence revenues in the current year. As we look forward, the introduction of new cloud based product/functionalities provides an exciting opportunity to introduce new product/functionalities to both new and existing customers.
Adjusted EBITDA
The Group delivered adjusted EBITDA of £4.4 million in the year (2021: £3.7 million), 19% ahead of the prior year which has delivered a blended adjusted EBITDA Margin of 12%, in line with the prior year (2021: 12%).
The table below provides a breakdown of the Group's adjusted EBITDA:
| | 2022 | 2021 | |
| | £m | £m | % change |
| Services & Software | 6.2 | 5.2 | 18% |
| Central administrative expenses | (1.8) | (1.5) | (17%) |
| Adjusted EBITDA | 4.4 | 3.7 | 19% |
| Adjusted EBITDA margin % | 12% | 12% |
|
Adjusted EBITDA profitability from our trading entities has increased by 18% (£1.0 million) in the year to £6.2 million which reflects a blended trading adjusted EBITDA margin of 17% (2021: 17%). The Groups services division delivered an improved gross profit margin of 26% (2021: 23%) with materially improved performance from the Groups advisory businesses contributing to this improvement. The software division saw a softening of its gross profitability in the year owing to the later timing of the release of new product functionalities that has delayed revenues in addition to a large multi-year enterprise sale sold in the GeoLang business that benefited the prior year that has not being replicated in the current year.
Central administrative expenses have increased by £0.3 m in the year to £1.8 million which reflects increased salary costs, details of which can be found in the remuneration report, plus additional marketing expenditure to support promotion of the Group.
Finance charges
Net finance charges of £0.1 million incorporate a £0.1 million year-on-year saving (2021: £0.2 million) on interest payable on loan balances following the early repayment of the Group's remaining loan liabilities, which related to the acquisition of Pentest, during the year.
Depreciation
Depreciation of £0.3 million (2021: £0.3 million) is in line with the prior year and incorporates £0.3 million of depreciation of right of use assets (2021: £0.2 million).
Amortisation of intangible assets - computer software
Amortisation of computer software has increased by £0.2 million to £1.0 million (2021: £0.8 million), and includes a full years amortisation of GeoLang development expenditure in addition to increased amortisation in SecurEnvoy, reflecting the incremental increase in software investment.
Adjusted profit before tax
The Group delivered adjusted profit before tax for the year of £3.0 million (2021: £2.4 million), a 24% increase on the prior year, which is driven by the improvement in underlying EBITDA of £0.7 million and a £0.1 million reduction in finance charges which has been offset by a £0.2 million increase in internally developed software amortisation.
Amortisation of intangible assets - acquired intangibles
Amortisation of acquired intangible assets of £2.1 million (2020: £2.1 million) is in line with the previous year.
Other operating income
Other operating income includes early repayment discounts recognised on the repayment of loan liabilities of £0.1m which were settled in the year.
Reported profit before tax
Reported profit before tax for the year of £0.9m (2021: £0.0 million) reflects the improved profitability from trading detailed within adjusted profit before tax in addition to reduced share based payment charges and other operating income.
Taxation
Taxation charge in the period of £1.2 million includes a £0.5 million charge for the current year plus £0.7 million movements in deferred taxation which includes a £1.1 million charge reflecting the amending of deferred tax rates to 25% following the recent enactment by the UK Government.
Earnings/(loss) per share
Adjusted basic earnings per share of £0.11 (diluted £0.10) (2021: Adjusted earnings per share £0.10 basic and diluted) represents a 10% year-on-year increase with the additional trading profitably driving the improvement. Whilst the average number of shares has remained broadly the same on a year-on-year basis the taxation rate relating to deferred taxation has increased significantly which has resulted in a reduction in reported earnings per share for the period. Reported basic and diluted loss per share of £0.01 compares against a positive basic and diluted earnings per share of £0.01 delivered in the prior period.
Statement of financial position
Intangible assets
Intangible assets decreased in the year by £2.0 million to £52.6 million at 31 March 2022 (2021: £54.6 million). This movement incorporates £1.1 million of investment into continued development of the Group's software assets (2021: £0.7 million), less £3.1 million amortisation, of which £2.1 million relates to amortisation of acquired intangibles.
Property, plant and equipment
Property, plant and equipment decreased in the year by £0.1 million to £0.3 million at 31 March 2021 (2021: £0.4 million). Additions of £0.2 million include £0.1 million for a new office lease which has been recognised as a right of use asset from January 2022. Other movements in the period include depreciation in the year of £0.3 million.
Trade and other receivables
Trade and other receivables have increased by £10.6 million in the year from £9.6 million to £20.2 million at 31 March 2022. Material movements include a £14.5 million increase in accrued income primarily driven by £12.3million relating to revenue billed after the year-end. Trade receivables have reduced by £4.4 million, which incorporates some timing of year-end billing which moved to April 2022.
Trade and other payables
Trade and other payables have increased by £2.3 million in the year from £12.2 million to £14.5 million at 31 March 2022. Material movements include a £6.9 million increase in accruals and other payables which includes the costs associated with transactions in the final month of the year, a £3.2 million decrease in trade payables, reflecting a change in timing of the receipt of supplier invoicing, a £1.9 million decrease in other taxation and social security which included £1.3 million of deferred VAT from the prior year which was repaid in full during the year and £0.4 million increase in corporation tax liabilities.
Creditors: amounts falling due after more than one year
Creditor amounts falling due after more than one year have increased in the year by £2.8 million from £4.0 million to £6.8 million at 31 March 2022. Accruals and other payables represent costs relating to transactions in the final month of the year. Reductions include £0.8 million of loan balances relating to the Pentest acquisition which were repaid in the year, £0.3 million reduction in deferred tax relating to acquired intangible assets and £0.1 million decrease in lease liabilities relating to office leases held by the Group.
Statement of cash flows
Following two years of strong reported operating cash flows the Group has experienced some unwinding of working capital in the year which has along with additional investment into software development and the early repayment of loan liabilities resulted in a year-on-year reduction in the year-end adjusted net cash of £0.4m. The working capital movement reported in the year relates to the timing of contract renewals which has led to expected client receipts moving into following quarter. The Group continues to collect cash effectively with minimal bad debt to date.
The table below provides a summary of cash flows in the year:
| | 2022 £m | 2021 £m |
| Adjusted EBITDA | 4.4 | 3.7 |
| Movements in working capital | (4.7) | 2.9 |
| Cash (used)/generated from operations | (0.3) | 6.6 |
| Adjusted cash (used)/generated from operations | (0.3) | 5.3 |
| Adjusting items* | - | 1.3 |
| Cash (used)/generated from operations | (0.3) | 6.6 |
| Capital expenditure (net of disposal proceeds) | (1.1) | (0.7) |
| Tax paid | (0.1) | - |
| Interest paid | (0.1) | - |
| Payments of lease liabilities | (0.2) | (0.3) |
| Proceeds from issue of share capital | - | 3.8 |
| Loan repayments | (0.7) | (4.2) |
| FX and other | 0.1 | (0.5) |
| Movement in cash | (2.4) | 4.7 |
| Opening cash and cash equivalents | 8.0 | 3.3 |
| Closing cash and cash equivalents | 5.6 | 8.0 |
| Loans | - | (0.7) |
| Net cash | 5.6 | 7.3 |
| Adjusting items1 | - | (1.3) |
| Adjusted net cash | 5.6 | 6.0 |
Adjusting items1 comprise a previously agreed deferred VAT payment plan with HMRC which was paid in full in the current year.
Capital expenditure
Capital expenditure of £1.1 million (2021: £0.7 million) in the year represents external and internal capitalisation of software costs for developing our software businesses' product sets. Expenditure of property, plant and machinery remains minimal.
Financing activities
Financing activities of £1.0 million (2021: £1.1 million) include £0.7 million relating to repayments of loans balances and £0.2m repayment of lease liabilities.
Key performance indicators
The Board believes that revenue and adjusted EBITDA are key metrics to monitor the performance of the Group, as they provide a good basis to judge underlying performance and are recognised by the Group's shareholders. Adjusted profit before tax is another measure we are using to track the underlying performance of the Group. These metrics are presented within the financial KPIs section of the Report and Accounts.
Alternative performance measures
The Group uses alternative performance measures alongside statutory measures to manage the performance of the business. In the opinion of the Directors, alternative performance measures can provide additional relevant information on past and future performance to the reader in assessing the underlying performance of the business.
Paul McFadden
Chief Financial Officer
28 July 2022
Consolidated statement of comprehensive income
for the year ended 31 March 2022
|
| Note | 2022 £'000 | 2021 £'000 |
| Revenue | 3 | 35,876 | 31,766 |
| Cost of sales |
| (25,053) | (21,871) |
| Gross profit |
| 10,823 | 9,895 |
| Administrative expenses | 4 | (6,435) | (6,501) |
| Depreciation and amortisation |
| (3,412) | (3,200) |
| Other operating income |
| 70 | 37 |
| Total operating costs | | (9,777) | (9,664) |
| Operating profit |
| 1,046 | 231 |
| Adjusted EBITDA |
| 4,398 | 3,705 |
| Depreciation and amortisation |
| (3,412) | (3,200) |
| Share-based payments |
| (10) | (311) |
| Other operating income |
| 70 | 37 |
| Operating profit |
| 1,046 | 231 |
| Finance income |
| - | 2 |
| Finance cost | 6 | (110) | (200) |
| Profit before taxation |
| 936 | 33 |
| Income tax (charge)/credit | 7 | (1,228) | 112 |
| (Loss)/profit for the year and attributable to equity holders of the Company |
| (292) | 145 |
| Other comprehensive income |
|
|
|
| Items that may be reclassified to profit and loss: |
|
|
|
| Write off of FVTOCI reserve |
| 14 | - |
| Exchange differences on translation of foreign operations |
| (1) | (3) |
| Total comprehensive (loss)/income for the year |
| (279) | 142 |
| (Loss)/earnings per ordinary share attributable to the owners of the parent |
|
|
|
| Basic and diluted (£ per share) | 8 | (0.01) | 0.01 |
| Adjusted basic (£ per share) | 8 | 0.11 | 0.10 |
| Adjusted diluted (£ per share) | 8 | 0.10 | 0.10 |
Adjusted EBITDA is a non-GAAP company specific measure which is considered to be a key performance indicator of the Group's financial performance.
The results above are derived from continuing operations.
Consolidated statement of financial position
for the year ended 31 March 2022
|
| Note | 2022 | 2021 |
| Assets |
|
|
|
| Non-current assets |
|
|
|
| Intangible assets | 9 | 52,564 | 54,616 |
| Property, plant and equipment | 10 | 315 | 405 |
| Total non-current assets |
| 52,879 | 55,021 |
| Current assets |
|
|
|
| Trade and other receivables | 11 | 20,155 | 9,611 |
| Cash and cash equivalents |
| 5,575 | 8,049 |
| Total current assets |
| 25,730 | 17,660 |
| Total assets |
| 78,609 | 72,681 |
| Liabilities |
|
|
|
| Current liabilities |
|
|
|
| Trade and other payables | 12 | 14,519 | 12,237 |
| Total current liabilities |
| 14,519 | 12,237 |
| Non-current liabilities |
|
|
|
| Creditors: amounts falling due after more than one year | 13 | 7,884 | 3,956 |
| Total non-current liabilities |
| 7,884 | 3,956 |
| Total liabilities |
| 22,403 | 16,193 |
| Net assets |
| 56,206 | 56,488 |
| Capital and reserves |
|
|
|
| Share capital | 17 | 22,278 | 22,277 |
| Share premium |
| 34,581 | 34,581 |
| FVTOCI reserve |
| - | 14 |
| Other reserves |
| 24,386 | 24,376 |
| Translation reserve |
| 23 | 24 |
| Accumulated losses |
| (25,062) | (24,784) |
| Equity attributable to owners of the Company |
| 56,206 | 56,488 |
| Total equity and liabilities |
| 78,609 | 72,681 |
Consolidated statement of changes in equity
for the year ended 31 March 2022
|
| Share capital | Share premium | FVTOCI reserve | Other reserve | Translation reserve | Accumulated losses | Total equity |
| Group | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| At 1 April 2020 | 22,107 | 34,581 | 14 | 20,714 | 27 | (24,929) | 52,514 |
| Profit for the year | - | - | - | - | - | 145 | 145 |
| Other comprehensive loss for the year | - | - | - | - | (3) | - | (3) |
| Total comprehensive income for the year | - | - | - | - | (3) | 145 | 142 |
| Contributions by and distributions to owners |
|
|
|
|
|
|
|
| Issue of share capital | 170 | - | - | 3,351 | - | - | 3,521 |
| Share-based payments | - | - | - | 311 | - | - | 311 |
| At 31 March 2021 | 22,277 | 34,581 | 14 | 24,376 | 24 | (24,784) | 56,488 |
| Loss for the year | - | - | - | - | - | (292) | (292) |
| Other comprehensive loss for the year | - | - | (14) | - | (1) | 14 | (1) |
| Total comprehensive loss for the year | - | - | (14) | - | (1) | (278) | (293) |
| Contributions by and distributions to owners |
|
|
|
|
|
|
|
| Issue of share capital | 1 | - | - | - | - | - | 1 |
| Share-based payments | - | - | - | 10 | - | - | 10 |
| At 31 March 2022 | 22,278 | 34,581 | - | 24,386 | 23 | (25,062) | 56,206 |
Consolidated cash flow statement
for the year ended 31 March 2022
|
| Note | 2022 | 2021 |
| Cash flows from operating activities |
|
|
|
| Loss/profit for the year |
| (292) | 145 |
| Adjustments for: |
|
|
|
| Amortisation of intangible assets | 4 | 3,149 | 2,860 |
| Depreciation of right of use assets | 4 | 207 | 263 |
| Depreciation of property, plant and equipment | 4 | 56 | 77 |
| Share-based payment charge | 4 | 10 | 311 |
| Other income | 4 | (70) | - |
| Fair value adjustment of deferred consideration | 4 | - | (37) |
| Finance income |
| - | (2) |
| Finance cost |
| 110 | 200 |
| Income tax |
| 1,228 | (112) |
| Cash flow from operating activities before changes in working capital |
| 4,398 | 3,705 |
| Decrease/(increase) in trade and other receivables |
| (10,040) | 894 |
| (Decrease)/increase in trade and other payables |
| 5,384 | 2,029 |
| Cash (used)/generated from operations |
| (258) | 6,628 |
| Net foreign exchange movements |
| 5 | 3 |
| Finance cost paid |
| (50) | (38) |
| Tax paid |
| (62) | - |
| Net cash (used)/generated from operating activities |
| (365) | 6,593 |
| Investing activities |
|
|
|
| Purchase of property, plant and machinery | 10 | (49) | (45) |
| Purchase of intangibles | 9 | (1,097) | (709) |
| Proceeds from disposal of tangible assets |
| - | 17 |
| Net cash used in investing activities |
| (1,146) | (737) |
| Financing activities |
|
|
|
| Proceeds from issue of share capital |
| - | 3,750 |
| Interest paid | 22 | (91) | - |
| Repayment of loan liabilities - principal amount | 22 | (652) | (4,151) |
| Expenses paid in connection with share issues |
| - | (466) |
| Repayment of lease liabilities | 22 | (220) | (281) |
| Net cash used in financing activities |
| (963) | (1,148) |
| Net (decrease)/increase in cash and cash equivalents |
| (2,474) | 4,708 |
| Foreign exchange movement on cash and cash equivalents |
| - | (2) |
| Cash and cash equivalents at the beginning of the period |
| 8,049 | 3,343 |
| Cash and cash equivalents at the end of the period |
| 5,575 | 8,049 |
Notes to the consolidated financial statements
for the year ended 31 March 2022
General information
The financial information set out above does not constitute the Company's Annual Report and Accounts for the year ended 31 March 2022. The Annual Report and Accounts for 2021 have been delivered to the Registrar of Companies and those for 2022 will be delivered shortly. The auditor's report for the Company's 2022 Annual Report and Accounts was unqualified and did not contain an emphasis of matter paragraph nor any statement under Section 498 of the Companies Act 2006.
Whilst the financial information included in this results announcement has been prepared in accordance with UK adopted international accounting standards, this announcement does not itself contain sufficient information to comply with UK adopted international accounting standards.
The Annual Report and Accounts for the year ended 31 March 2022 are available on the Company's website: https://shearwatergroup.com/investor-overview/
Going concern
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of signing the financial statements. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements.
Having successfully navigated the initial COVID19 crisis, where the Directors took steps to ensure that the Group was in a robust position, the Group is in good financial health having completed the agreed deferred VAT payment plan in the current year. In addition to this the Group settled in full its remaining loan liabilities of c.£0.7million ahead of the contracted repayment dates.
The Directors continue to regularly review the Groups' going concern position, considering the impact of potential future trading downturns should there be another COVID19 related crisis or economic downturn. Over the past year the Group has seen improving trading conditions which has resulted in strong recovery from its advisory businesses which were impacted by the initial COVID19 crisis in the prior year.
The Group has continued to grow in the current year delivering improved revenue and profitability. Revenue of £35.9 million (2021: £31.8 million), adjusted EBITDA of £4.4 million (2021: £3.7 million) and profit before tax of £0.9 million (2021: £0.03 million) all demonstrating improved year-on-year performance
At 31 March 2022 the Group has been able to report a robust financial position and is well capitalised with a net cash position of £5.6 million (2021: £7.3 million) and an untouched three‑year £4.0 million Group revolving credit facility with Barclays Bank plc in place until 23 March 2024.
The Directors have reviewed detailed budget cash flow forecasts for the period to 31 March 2024 and have challenged the assumptions used to create these budgets. The budget figures are carefully monitored against actual outcomes each month and variances are highlighted and discussed at Board level on a quarterly basis as a minimum.
The Board has reviewed current trading to 30 June 2022 and is pleased to report that trading is tracking in line with budget for the first quarter.
The Directors have reviewed and challenged a reverse stress test scenario on the Group up to March 2024. The purpose of the reverse stress test for the Group is to test the impact on the Group's cash if the assumptions in the budget are altered.
The reverse stress test assumes significant adjustments to the Group's budget which include the removal of all new business revenue across both Software and Services divisions, reduction of renewal rates in our Software division to 60% at October 2022 and then 40% from October 2023 (currently c.80%), scaling back of revenues in our Services division leaving just critical managed services revenues and already contracted revenues. Costs have been scaled back sensitively in line with the reduction in revenues. The resulting outcome of the stress-test forecasts that the Group would have sufficient cash resources to services its liabilities during the periods reviewed. This assumes that the revolving credit facility would not be utilised.
In the event that the performance of the Group is not in line with the projections, action will be taken by management to address any potential cash shortfall for the foreseeable future. The actions that could be taken by the Directors include both a review and restructuring of employment‑related costs. Additionally, the Directors could also negotiate access to other sources of finance from our lenders.
Overall, the sensitised cash flow forecast demonstrates that the Group will be able to pay its debts as they fall due for the period to at least 31 August 2023 and therefore the Directors are satisfied there are no material uncertainties to disclose regarding going concern. The Directors are therefore satisfied that the financial statements should be prepared on the going concern basis.
Critical accounting judgements, estimates and assumptions
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for income and expenses during the year and that affect the amounts reported for assets and liabilities at the reporting date.
Revenue recognition of material contracts
Management make judgements, estimates and assumptions in determining the revenue recognition of material contracts sold by the Groups Services division. The Group work with large enterprise clients, providing services and solutions to support the clients needs. In many cases a third parties product or service will be provided as part of a solution. Management will consider the implications around timing of recognition, with factors such as determining the point control passes to the client and the subsequent fulfilment of the Groups' performance obligations. In addition to this management will consider if it is acting as agent or principal. Further details of how the Group determine revenue recognition and if it is acting as agent or principal can be found within the relevant notes within this section.
Business combinations
Management make judgements, estimates and assumptions in assessing the fair value of the net assets acquired on a business combination, in identifying and measuring intangible assets arising on a business combination, and in determining the fair value of the consideration. If the consideration includes an element of contingent consideration, the final amount of which is dependent on the future performance of the business, management assess the fair value of that contingent consideration based on their reasonable expectations of future performance. In determining the fair value of intangible assets acquired, key assumptions used include expected future cash flows, growth rates, and the weighted average cost of capital.
Impairment of goodwill, intangible assets and investment in subsidiaries
Management make judgements, estimates and assumptions in supporting the fair value of goodwill, intangible assets and investments in subsidiaries. The Group carries out annual impairment reviews to support the fair value of these assets. In doing so, management will estimate future growth rates, weighted average cost of capital and terminal values. Further information can be found on note 9.
Leases
Management make judgements, estimates and assumptions regarding the life of leases. Management continue to review all existing leases, which all relate to office space, and will look to reduce the number of offices across the Group it they are not sufficiently utilised. For this reason management have assumed that the life of leases does not extend past the current contracted expiry date. A judgement has been taken with regard to the incremental borrowing rate based upon the rate at which the Group can borrow money.
Basis of consolidation
The Group's consolidated financial statements incorporate the results and net assets of Shearwater Group plc and all its subsidiary undertakings made up to 31 March each year. Subsidiaries are all entities over which the Group has control (see note 3 of the Company financial statements). The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All inter-group transactions, balances, income and expenses are eliminated on consolidation.
Business combinations and goodwill
Business combinations are accounted for using the acquisition accounting method. This involves recognising identifiable assets (including previously unrecognised intangible assets) and liabilities of the acquired business at fair value. Any excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets and liabilities is recognised in the consolidated statement of financial position as goodwill and is not amortised. To the extent that the net fair value of the acquired entity's identifiable assets and liabilities is greater than the cost of the investment, a gain is recognised immediately in the consolidated statement of comprehensive income.
After initial recognition, goodwill is stated at cost less any accumulated impairment losses, with the carrying value being reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may be impaired. Goodwill assets considered significant in comparison to the Group's total carrying amount of such assets have been allocated to cash-generating units or groups of cash-generating units. Where the recoverable amount of the cash-generating unit is less than its carrying amount including goodwill, an impairment loss is recognised in the consolidated statement of comprehensive income.
Acquisition costs are recognised in the consolidated statement of comprehensive income as incurred.
Revenue
The Group recognises revenue in accordance with IFRS 15: Revenue from Contracts with Customers. Revenue with customers is evaluated based on the five-step model under IFRS 15: Revenue from Contracts with Customers: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognise revenues when (or as) each performance obligation is satisfied.
Revenue recognised in the statement of comprehensive income but not yet invoiced is held on the statement of financial position within accrued income. Revenue invoiced but not yet recognised in the statement of comprehensive income is held on the statement of financial position within deferred revenue.
The Group's revenues are comprised of a number of different products and services across our two divisions, details of which are provided below:
Software
§ Software licences whereby the customer buys software that it sets up and maintains on its premises is recognised fully at the point the licence key/access has been granted to the client. The Group sells the majority of its services through channels and distributors who are responsible for providing first and second line support to the client.
§ Software licences for the new 'Authentication as a Services' product whereby the customer accesses the product via a cloud environment maintained by the Company is recognised in two parts, whereby 80% of the subscription is recognised at the point that the licence key is provided to the customer with the remaining 20% recognised evenly over the length of the contract. This deferred proportion represents the obligation to maintain and support the platform that the software runs on.
Services
§ Sale of third-party hardware, software, warranties and internal support:
a) where the contract entails only one performance obligation to provide software or hardware, revenue is recognised in full at a point in time upon delivery of the product to the end client. This delivery will either be in the form of the physical delivery of a product or the emailing of access codes to the client for them to access third‑party software or warranties; and
b) where a contract to supply external hardware, software and/or warranties also includes an element of ongoing internal support, multiple performance obligations are identified and an allocation of the total contract value is allocated to each performance obligation based on the standalone costs of each performance obligation. The respective costs of each performance obligation are traceable to supplier invoice and applying the fixed margins, standalone selling prices are determined. Internal support is recognised equally over the period of time detailed in the contract.
§ Sales of consultancy services are usually based on a number of consultancy days that make up the contracted consideration. Consultancy days generally comprise of field work and (where required) report writing and delivery which are considered to be of equal value to the client. Revenue is recognised over time based on the number of consultancy days provided within the period compared to the total in the contract.
Principal versus agent considerations
In instances where the Group is involving another party in providing goods or services to a customer the Group considers whether the nature of its promise is a performance obligation to provide the specified goods or services itself or to arrange for those goods or services to be provided by the other party to determine whether it is a principal or an agent. The business will firstly identify the specific goods and/or services to be supplied to the customer.
In determining whether the business is acting as agent or principal the business assesses whether it controls each specified good or service before that good is transferred to the customer. It will consider:
§ Who is responsible for fulfilling the promise to provide the specific product or service
§ If the business is carrying a liability risk for the specific good or service prior to it being supplied to the customer
§ If the business has discretion over pricing
In addition to the points noted above, the business also considers the following unique selling points:
§ Pre-sales process,
In some cases the business invests heavily in working with the customer to understand their requirements, before designing/recommending a solution that integrates various third-party product or service to meet the customers requirements.
§ Levels of ongoing services
In some cases whilst, not always contracted the business will continue to support the customer as needed to ensure that their solution is working. This may include co-ordination of the maintenance and support with third parties, provision of engineers to remove and send back faulty product.
Where the Group is a principal, revenues are recognised on a gross basis in the statement of comprehensive income while when an agent revenues are recognised on a net basis in the statement of comprehensive income.
Segmental reporting
For internal reporting and management purposes, the Group is organised into two reportable segments based on the types of products and services from which each segment derives its revenue - Software and Services. The Group's operating segments are identified on the basis of internal reports that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance.
Current and deferred income tax
The charge for taxation is based on the profit or loss for the year and takes into account deferred tax. Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax based in the computation of taxable profit or loss and is accounted for using the balance sheet method.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group's subsidiaries operate and generate taxable income. Management periodically evaluate positions taken in tax returns with respect to situations where applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax assets are only recognised to the extent that it is probable that future taxable profit will be available in the foreseeable future against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are measured at the rates that are expected to apply when the related asset is realised, or liability settled, based on tax rates and laws enacted or substantively enacted at the reporting date.
Intangible assets
Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets acquired as part of a business combination are recognised outside goodwill if the assets are separable or arise from contractual or other legal rights and their fair value can be measured reliably. Material expenditure on internally developed intangible assets is taken to the consolidated statement of financial position if it satisfies the six‑step criteria required under IAS 38.
Intangible assets with a finite life have no residual value and are amortised over their expected useful lives as follows:
Computer software (including in-house developed software) 2-5 years straight-line basis
Customer relationships 1-15 years straight-line basis
Software 10 years straight-line basis
Tradenames 10 years straight-line basis
The amortisation expense on intangible assets with finite lives is recognised in the statement of comprehensive income within administrative expenses. The amortisation period and the amortisation method for intangible assets with finite useful lives are reviewed at least annually.
The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation. Cost includes the original purchase price of the asset plus any costs of bringing the asset to its working condition for its intended use. Depreciation is provided at the following annual rates, on a straight-line basis, in order to write down each asset to its residual value over its estimated useful life.
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Plant and machinery 20-33% per annum
Office equipment 25% per annum
Right of use assets Shorter of useful life of the asset or lease term
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised, as adjusted items if significant, within the statement of comprehensive income.
Financial instruments
Shearwater's financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial assets
Trade and other receivables are measured at amortised cost less a provision for doubtful debts, determined as set out below in 'impairment of financial assets'. Any write-down of these assets is expensed to the statement of comprehensive income.
Equity investments not qualifying as subsidiaries, associates or jointly controlled entities are measured at fair value through other comprehensive income (FVTOCI), with fair value changes recognised in other comprehensive income (OCI) and dividends recognised in profit or loss.
Impairment of financial assets
The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39. Under the impairment approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Instead, the Group always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses are updated at each reporting date.
The impairment model only applies to the Group's financial assets that are debt instruments measured at amortised costs or FVTOCI as well as the Group's contract assets and issued financial guarantee contracts. The Group has applied the simplified approach to recognise lifetime expected credit losses for its trade receivables and contracts assets as required or permitted by IFRS 9.
Expected credit losses are calculated with reference to average loss rates incurred in the three most recent reporting periods then adjusted taking into account forward-looking information that may either increase or decrease the current rate. The Group's average combined loss rate is 0.9% (2021: 0.3%). This percentage rate is then applied to current receivable balances using a probability risk spread as follows:
§ 80% of debt not yet due (i.e. the Group's average combined loss rate of 0.9% is discounted by 20%, meaning a 0.72% provision would be made to debt not yet due);
§ 85% of debt that is <30 days overdue;
§ 90% of debt that is 30-60 days overdue;
§ 95% of debt that is 60-90 days overdue; and
§ 100% of debt that is >90 days overdue.
Management have performed the calculation to ascertain the expected credit loss, which works out to £41,069 (2021: £27,191). This movement has been recognised in the statement of comprehensive income. To date, the Group has a record of minimal bad debts with less than £0.05 million being written off in the past three years.
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in the statement of comprehensive income.
Financial liabilities
Trade and other payables
Financial liabilities within trade and other payables are initially recognised at fair value, which is usually the invoiced amount. They are subsequently carried at amortised cost using the effective interest method (if the time value of money is significant).
Loans are initially recognised at fair value, which is the amount stated in the loan agreement. Subsequently, loan balances are restated to include any interest that has become payable.
Lease liabilities have been recognised at fair value in line with the requirements of IFRS 16. Details of lease disclosures are included in note 15.
Deferred consideration which relates to the future issue of ordinary shares has been initially recognised at fair value based on the closing share price at the reporting date. Deferred consideration is revalued and recognised at fair value based on the closing share price for all future reporting dates. Movements in fair value between periods are reported in the statement of comprehensive income.
The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognised in the statement of comprehensive income.
Leases
IFRS 16: Leases which supersedes IAS 17: Leases and IFRIC 4: Determining whether an arrangement contains a lease sets out the principles for recognition, measurement, presentation and disclosures of leases and requires lessees to account for most leases under a single on-balance sheet model.
Right of use assets
In determining if a lease exists, management considers if a contract conveys the right to control the use of an identified asset for a period of time in return for a consideration. When assessing whether a contract states a right to control the use of an identified asset, management considers:
§ if a contract involves the use of an identified asset, this could be specified explicitly or implicitly and should be physically distinct;
§ if the Group has obtained the right to gain substantially all of the economic benefit from the use of the asset throughout the period of use; and
§ if the Group has the right to direct the use of the asset.
Identified 'Right of use assets' since 1 April 2019 are valued at the commencement date of the lease (this is usually the date the underlying asset is available for use). For leases that began prior to 1 April 2019 a right of use asset has been created at 1 April 2019 when the Group adopted IFRS 16.
Right of use assets are depreciated on a straight-line basis from the commencement date (this is usually the date the underlying asset is available for use, or 1 April 2019 if the lease commenced before this date) to the earlier of the end of useful life of the right of use asset or the end of the lease term. The right of use asset may be subject to impairment following certain remeasurement of lease liabilities.
Details of the Group's right of use assets are contained in note 10 of the consolidated financial statements.
Lease liability
At the commencement date of a lease (or 1 April 2019 for leases which commenced before this date) the Group recognises lease liabilities, measuring them at the present value of lease payments at commencement of the lease (or 1 April 2019 for leases which commenced before this date) discounted at the determined incremental borrowing rate.
The lease liability is measured at the amortised cost using the effective interest method. Should there be a change in expected future lease payments arising from a lease modification or if the Group changes its assessment of whether it will exercise an extension or termination option, the lease liability would be remeasured.
Remeasurement of a lease liability will give rise to a corresponding adjustment being made to the carrying value of the right to use asset.
Lease liabilities are detailed in notes 12, 13 and 15 of the consolidated financial statements.
Practical expedients
IFRS 16 provides for certain optional practical expedients, including those related to the initial adoption of the standard. The Group applies the following practical expedients when applying IFRS 16 to leases previously classified as operating leasing under IAS 17:
§ applied a single discount rate to all leases with similar characteristics;
§ applied the exemption not to recognise right of use assets and liabilities for leases with less than twelve months of the lease term remaining as at the date of initial application; and
§ applied the exemption for low-value assets whereby leases with a value under £5,000 (usually IT equipment) have been classed as short-term leases and not recognised on the statement of financial position even if the initial term of the lease from the lease commencement date may be more than twelve months.
Incremental borrowing rate
IFRS 16 states that all components of a lease liability are required to be discounted to reflect the present value of the payments. Where a lease (or Group of leases) does not state an implicit rate an incremental borrowing rate should be used.
The incremental borrowing rate should represent what the lessee would have to pay to borrow over a similar term and with similar security, the funds necessary to obtain an asset of similar value to the right of use asset in a similar economic environment.
The Group has applied an incremental borrowing rate of 3.5% which it uses to discount all identified leases across the Group.
Share-based payments
In order to calculate the charge for share-based payments as required by IFRS 2, the Group makes estimates principally relating to assumptions used in its option-pricing model as set out in note 18.
The cost of equity-settled transactions with employees, and transactions with suppliers where fair value cannot be estimated reliably, is measured with reference to the fair value of the equity instrument. The fair value of equity‑settled instruments is determined at the date of grant, taking into account market-based vesting conditions. The fair value is determined using an option pricing model.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.
At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions, the number of equity instruments that will likely vest, or in the case of an instrument subject to market condition, be treated as vesting as described above. The movement in cumulative expense since the previous reporting date is recognised in the statement of comprehensive income, with the corresponding entry in equity.
Pensions
The Group operates a defined contribution personal pension scheme. The assets of this scheme are held separately from those of the Company in an independently administered fund. The pension charge represents contributions payable by the Company to the fund.
Uncertainty over income tax treatments
IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The interpretation requires:
§ the Group to determine whether uncertain tax treatments should be considered separately, or together as a Group, based on which approach provides better predictions of the resolution;
§ the Group to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and
§ if it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty. This measurement is required to be based on the assumption that each of the tax authorities will examine amounts they have a right to examine and have full knowledge of all related information when making those examinations.
New standards and interpretations applied
There were no new standards or amendments or interpretations to existing standards that became effective during the year that were material to the Group.
No new standards, amendments or interpretations to existing standards having an impact on the financial statements that have been published and that are mandatory for the Group's accounting periods beginning on or before 1 April 2021, or later periods, have been adopted early.
New standards and interpretations not applied
The following new standards, amendments and interpretations have not been adopted in the current year.
| International Financial | Effective date | To be adopted |
| Reference to the Conceptual Framework (Amendments to IFRS 3) | 1 January 2022 | 1 April 2022 |
| Property, Plant and Equipment - Proceeds before Intended Use (Amendments to IAS 16) | 1 January 2022 | 1 April 2022 |
| Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37) | 1 January 2022 | 1 April 2022 |
| Annual Improvements to IFRS Standards 2018-2020 | 1 January 2022 | 1 April 2022 |
|
|
|
|
The Group has reviewed the impact of these new accounting standards and amendments and believes the impact is not material to the Group's financial statements.
2. Measure of profit
To provide shareholders with a better understanding of the trading performance of the Group, adjusted EBITDA and adjusted profit before tax have been calculated as profit before tax after adding back the following items, which can distort the underlying performance of the Group:
Adjusted profit/(loss) before tax
§ Amortisation of acquired intangibles
§ Share-based payments
§ Impairment of intangible assets
§ Fair value adjustment to deferred consideration
§ Other operating income
Adjusted EBITDA
In addition to the adjusting items highlighted above in the underlying profit before tax:
§ Finance costs
§ Finance income
§ Depreciation (including amortisation of right of use assets)
§ Amortisation of intangible assets - computer software (including in-house software development)
Adjusted EBITDA and adjusted profit before tax reconciles to profit before tax as follows:
|
| 2022 | 2021 |
|
| £'000 | £'000 |
| Profit before tax | 936 | 33 |
| Amortisation of acquired intangibles | 2,099 | 2,099 |
| Share-based payments | 10 | 311 |
| Fair value adjustment to deferred consideration | - | (37) |
| Other income | (70) | - |
| Adjusted profit before tax | 2,975 | 2,406 |
| Finance costs | 110 | 200 |
| Finance income | - | (2) |
| Depreciation | 263 | 340 |
| Amortisation of intangible assets - computer software (including in-house software development) | 1,050 | 761 |
| Adjusted EBITDA | 4,398 | 3,705 |
3. Segmental information
In accordance with IFRS 8, the Group's operating segments are based on the operating results reviewed by the Board, which represents the chief operating decision maker.
The Group is organised into two reportable segments based on the types of products and services from which each segment derives its revenue - Software and Services.
Segment information for the twelve months ended 31 March 2022 is presented below. The Group's assets and liabilities are not presented by segment as the Directors do not review assets and liabilities on a segmental basis.
|
| Revenue Year ended 31 March 2022 £'000 | Profit Year ended 31 March 2022 £'000 | Revenue Year ended 31 March 2021 £'000 | Profit Year ended 31 March 2021 £'000 |
| Services | 32,540 | 4,663 | 27,448 | 3,076 |
| Software | 3,336 | 1,535 | 4,318 | 2,169 |
| Group total | 35,876 | 6,198 | 31,766 | 5,245 |
| Group costs |
| (1,800) |
| (1,540) |
| Adjusted EBITDA |
| 4,398 |
| 3,705 |
| Amortisation of intangibles |
| (3,149) |
| (2,860) |
| Depreciation |
| (263) |
| (340) |
| Share-based payments |
| (10) |
| (311) |
| Fair value adjustment to deferred consideration |
| - |
| 37 |
| Other income |
| 70 |
| - |
| Finance income |
| - |
| 2 |
| Finance cost |
| (110) |
| (200) |
| Profit before tax |
| 936 |
| 33 |
Segmental information by geography
The Group is domiciled in the United Kingdom and currently the majority of its revenues come from external customers that are transacted in the United Kingdom. A number of transactions which are transacted from the United Kingdom represent global framework agreements, meaning our services, whilst transacted in the United Kingdom, are delivered globally. The geographical analysis of revenue detailed below is on the basis of country of origin in which the master agreement is held with the customer (where the sale is transacted).
|
| 2022 £'000 | 2021 £'000 |
| United Kingdom | 29,531 | 23,424 |
| Europe (excluding the UK) | 4,508 | 6,863 |
| North America | 1,470 | 1,163 |
| Rest of the world | 367 | 316 |
|
| 35,876 | 31,766 |
All of the Group's non-current assets are held within the United Kingdom.
Two customers within the Group each make up more than 10% of the Group's revenue. These two customers contribute £16.2 million and £5.2 million respectively to the Group's Services division. In the prior year, two customers made up more than 10% of the Group's revenue, contributing £13.3 million and £4.3 million respectively to the Group's Services division.
4. Expenses and auditor's remuneration
Operating profit is stated after charging:
|
| 2022 £'000 | 2021 £'000 |
| Depreciation of fixed assets | 263 | 340 |
| Amortisation of intangibles | 3,149 | 2,860 |
| External auditor's remuneration: |
|
|
| - Audit fee for annual audit of the Group and Company financial statements | 45 | 46 |
| - Audit fee for annual audit of the subsidiary financial statements | 165 | 149 |
| Share-based payments | 10 | 311 |
| Other operating income | (70) | (37) |
5. Staff costs
Total staff costs within the Group comprise of all Directors' and employee costs for the financial year.
|
| 2022 £'000 | 2021 £'000 |
| Wages and salaries | 6,428 | 6,114 |
| Social security costs | 743 | 715 |
| Pension costs | 202 | 247 |
| Share-based payments | 10 | 311 |
|
| 7,383 | 7,387 |
The weighted average monthly number of employees, including Directors employed by the Group and Company during the year was:
|
| 2022 | 2021 |
| Administration | 19 | 20 |
| Production | 43 | 45 |
| Sales and marketing | 26 | 27 |
|
| 88 | 92 |
6. Interest costs
|
| 2022 £'000 | 2021 £'000 |
| Interest payable on revolving credit facility | 66 | 36 |
| Interest payable on loan balances | 19 | 143 |
| Other interest payments | 13 | 3 |
| Interest payable on lease liabilities | 12 | 18 |
|
| 110 | 200 |
7. Taxation
|
| 2022 | 2021 |
|
| £'000 | £'000 |
| Current tax: |
|
|
| UK corporation tax at current rates on UK profit for the year | 442 | 185 |
| Adjustments for previous periods | - | 16 |
|
| 442 | 201 |
| Foreign tax | 13 | 3 |
| Total current tax charge | 455 | 204 |
| Deferred tax movement in the period | 773 | (316) |
| Income tax charge/(credit) | 1,228 | (112) |
|
Reconciliation of taxation: |
|
|
| Profit before tax | 936 | 33 |
| Profit multiplied by the average rate of corporation tax in the year of 19% (2021: 19%) | 178 | 6 |
| Tax effects of: |
|
|
| Expenses not deductible for tax purposes | 411 | 453 |
| Adjustments for previous periods | - | 16 |
| Foreign tax rate differences | (1) | 3 |
| Fair value adjustment to deferred consideration | - | (7) |
| Enhanced R&D relief | (94) | (36) |
| Other items | 786 | (140) |
| Brought forward losses | (52) | (407) |
| Income tax charge/(credit) | 1,228 | (112) |
In the March 2021 Budget it was announced that legislation will be introduced in Finance Bill 2021 to increase the main rate of UK corporation tax from 19% to 25%, effective 1 April 2023. As substantive enactment was prior to the balance sheet date, the deferred tax balances at 31 March 2022 are now measured at 25%.
8. Earnings per share
Adjusted earnings per share has been calculated using adjusted earnings calculated as profit after taxation but before:
§ Amortisation of acquired intangibles after tax
§ Share-based payments
§ Impairment of intangible assets
§ Exceptional items after tax
§Fair value adjustment to deferred consideration
§ Other operating income
Basic profit per share is calculated by dividing the profit attributable to the ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
For diluted earnings per share, the weighted average number of shares in issue is adjusted to assume conversion of all the potential dilutive ordinary shares. The potential dilutive shares are dilutive for the twelve months ended 31 March 2022 and 2021. Adjusted earnings per share is potentially dilutive in the year to 31 March 2022 and 2021. Please see notes 17 and 18 of the consolidated financial statements for more details.
The calculation of the basic and diluted profit per ordinary share from total operations attributable to shareholders is based on the following data:
|
| 2022 | 2021 |
|
| £'000 | £'000 |
| Net profit from total operations |
|
|
| (Loss)/profit for the purposes of basic and diluted earnings per share being net profit attributable to shareholders | (292) | 145 |
| Add/(remove): |
|
|
| Amortisation of acquired intangibles | 1,878 | 1,877 |
| Share-based payments | 10 | 311 |
| Adjustment to deferred tax liability relating to acquired intangibles1 | 1,014 | - |
| Fair value adjustment to deferred consideration | - | (37) |
| Other income | (70) | - |
| Adjusted earnings for the purposes of adjusted earnings per share | 2,540 | 2,296 |
| |
|
|
|
| Number | Number |
| Number of shares |
|
|
| Weighted average number of ordinary shares for the purpose of basic and |
|
|
| 23,809,807 | 23,612,892 | |
| Weighted average number of ordinary shares for the purpose of basic and |
|
|
| 24,723,962 | 23,780,441 | |
|
|
|
|
|
| £ | £ |
| Basic and diluted (loss) / earnings per share | (0.01) | 0.01 |
| Adjusted basic earnings per share | 0.11 | 0.10 |
| Adjusted diluted earnings per share | 0.10 | 0.10 |
1 Adjustment to deferred tax liability relating to acquired intangibles represents the impact of the rate change to 25%which was announced in the March 2021 Budget which has increased the deferred tax liability for acquired intangibles.
9. Intangible assets
|
| Goodwill £'000 | Customer relationships £'000 | Software £'000 | Tradenames £'000 | Gold exploration £'000 | Total £'000 |
| Cost |
|
|
|
|
|
|
| At 1 April 2020 | 36,660 | 10,838 | 6,834 | 6,826 | 1,005 | 62,163 |
| Additions | - | - | 709 | - | - | 709 |
| At 31 March 2021 | 36,660 | 10,838 | 7,543 | 6,826 | 1,005 | 62,872 |
| Additions | - | - | 1,097 | - | - | 1,097 |
| At 31 March 2022 | 36,660 | 10,838 | 8,640 | 6,826 | 1,005 | 63,969 |
|
|
|
|
|
|
|
|
| Accumulated amortisation |
|
|
|
|
|
|
| At 1 April 2020 | - | 1,747 | 1,642 | 1,002 | 1,005 | 5,396 |
| Amortisation for the year | - | 942 | 1,243 | 675 | - | 2,860 |
| At 31 March 2021 | - | 2,689 | 2,885 | 1,677 | 1,005 | 8,256 |
| Amortisation for the year | - | 934 | 1,532 | 683 | - | 3,149 |
| At 31 March 2022 | - | 3,623 | 4,417 | 2,360 | 1,005 | 11,405 |
| Net book amount |
|
|
|
|
|
|
| At 31 March 2022 | 36,660 | 7,215 | 4,223 | 4,466 | - | 52,564 |
| At 31 March 2021 | 36,660 | 8,149 | 4,658 | 5,149 | - | 54,616 |
| At 31 March 2020 | 36,660 | 9,091 | 5,192 | 5,824 | - | 56,767 |
Software intangible assets comprise acquired software assets plus software assets developed both in-house and externally.
The Group tests goodwill annually for impairment. The recoverable amount of goodwill is determined as the higher of the value-in-use calculation or fair value less cost of disposal for each cash‑generating unit (CGU). The value-in-use calculations use pre-tax cash flow projections based on financial budgets and forecasts approved by the Board covering a three-year period. These pre-tax cash flows beyond the three-year period are extrapolated using estimated long-term growth rates. The Group has five separate cash-generating units. For all five cash‑generating units a weighted average cost of capital of 13.24% and a terminal value, based on a long-term growth rate of 2% calculated on year five cash flow has been used when testing goodwill.
The following key assumptions around revenue growth are summarised in the table below.
| | |||||
| | Cash generating units | ||||
|
| SecurEnvoy | GeoLang | Brookcourt Solutions | Xcina Consulting | Pentest |
| Year 1 | 14% | 305% | 9% | 36% | 25% |
| Year 2 | 25% | 25% | 6% | 20% | 20% |
| Year 3 | 20% | 25% | 6% | 20% | 15% |
| Year 4 | 20% | 20% | 6% | 8% | 14% |
| Year 5 | 20% | 20% | 6% | 7% | 13% |
| 4 year CAGR1 | 21% | 23% | 6% | 14% | 15% |
1 4 year CAGR represents the average growth rate per year between FY23 to FY27.
Sensitivity analysis has been performed on each of the Groups' cash generating units ('CGU') which incorporates changes in assumed revenue growth rates and profit margin growth in addition to terminal value revenue growth rate and weighted cost of capital (WACC). Outcomes of the following sensitivities are detailed below:
§ Reducing the terminal value by 2% from 2% to 0% demonstrates valuation headroom above the carrying value of goodwill and identified intangible assets across all CGUs.
§ Increasing the weighted average cost of capital by 4% from 13.24% to 17.24% demonstrates valuation headroom above the carrying value of goodwill and identified intangible assets across all CGUs. An increase in the weighted average cost of capital of 5% to 18.24% would flag insufficient headroom in two of the Groups' five CGUs (SecurEnvoy and Pentest) resulting in an impairment of £1.1 million.
§ A number of sensitivities around revenue growth have been assumed which include:
- Assuming no revenue growth from FY24 onwards for Brookcourt Solutions Limited.
- Assuming reduced utilisation rates for our professional advisory businesses of between 3% and 8%.
- Reducing revenue growth assumptions by 10%, assuming a terminal value more in line with the current rate of inflation for SecurEnvoy Limited.
A 5% reduction in the assumed annual revenue growth rates for each CGU from FY24 would flag insufficient headroom in one of the Group's five CGUs (Pentest) resulting in an impairment of £0.1 million.
Each of the scenarios tested demonstrates valuation headroom above the carrying value. The Directors do not currently feel that there is a reasonably possible change in assumptions that would drive an impairment in the remaining three CGUs.
Gold exploration assets date back to before 2017 when the Group was known as Aurum Mining plc whose principal activity was mining and exploration.
| 10. Property, plant and equipment | Right of use assets £'000 | Office equipment £'000 | Total £'000 |
| Cost |
|
|
|
| At 1 April 2020 | 740 | 351 | 1,091 |
| Additions | 60 | 45 | 105 |
| Disposals | (259) | (31) | (290) |
| At 31 March 2021 | 541 | 365 | 906 |
| Additions | 125 | 49 | 174 |
| Disposals | (90) | - | (90) |
| At 31 March 2022 | 576 | 414 | 990 |
|
|
|
|
|
| Accumulated depreciation |
|
|
|
| At 1 April 2020 | 222 | 177 | 399 |
| Charge for the period | 263 | 77 | 340 |
| Disposals | (227) | (11) | (238) |
| At 31 March 2021 | 258 | 243 | 501 |
| Charge for the period | 207 | 57 | 263 |
| Disposals | (90) | - | (90) |
| At 31 March 2022 | 375 | 300 | 674 |
|
|
|
|
|
| Net book amount |
|
|
|
| At 31 March 2022 | 201 | 114 | 315 |
| At 31 March 2021 | 283 | 122 | 405 |
| At 31 March 2020 | 518 | 174 | 692 |
Depreciation of property, plant and equipment is charged to depreciation and amortisation expenses within the statement of comprehensive income
11. Trade and other receivables
|
| 2022 £'000 | 2021 £'000 |
| Trade receivables | 4,538 | 8,965 |
| Accrued income | 14,847 | 341 |
| Prepayments and other receivables | 770 | 305 |
|
| 20,155 | 9,611 |
| The movement for the provision in expected credit losses is stated below: | ||
|
| 2022 £'000 | 2021 £'000 |
| At 1 April | 27 | 26 |
| Movement in expected credit loss provision | 14 | 1 |
| At 31 March | 41 | 27 |
12. Trade and other payables
|
| 2022 £'000 | 2021 £'000 |
| Trade payables | 4,573 | 7,724 |
| Accruals and other payables | 8,289 | 1,345 |
| Other taxation and social security | 599 | 2,484 |
| Deferred income | 456 | 441 |
| Corporation tax | 444 | 30 |
| Lease liabilities | 158 | 193 |
| Loans | - | 20 |
|
| 14,519 | 12,237 |
Prior year other taxation and social security included £1.3m deferred VAT which was paid during the current year.
13. Creditors: amounts falling due after more than one year
|
| 2022 £'000 | 2021 £'000 |
| Accruals and other payables | 3,958 | - |
| Deferred tax | 3,878 | 3,105 |
| Lease liabilities | 48 | 96 |
| Loans | - | 755 |
|
| 7,884 | 3,956 |
Prior year Loan balances include £0.5 million loan to Secarma for the acquisition of Pentest Limited, repayable on 9 April 2022 which was repaid early on 15 October 2021. The remaining £0.2 million represents a working capital loan which was provided to support the initial working capital requirements of Pentest Limited, repayable on 9 April 2022 which was repaid early on 12 April 2021.
14. Deferred tax
|
| 2022 £'000 | 2021 £'000 |
| Non-current liabilities |
|
|
| Liability at 1 April | 3,105 | 3,422 |
| Deferred tax charge/(credit) in the statement of comprehensive income | 773 | (316) |
| Total deferred tax | 3,878 | 3,105 |
Deferred tax balance at 31 March 2022 includes a £3.4 million (2021: £2.8 million) deferred tax liability for acquired intangible assets including software and trademarks.
|
| 2022 £'000 | 2021 £'000 |
| Non-current assets |
|
|
| At 1 April | - | 186 |
| Utilisation of deferred tax asset | - | (186) |
| Total deferred tax asset | - | - |
The Group has tax losses of £2.4m within its parent company Shearwater Group plc that are available for offset against future taxable profits of the entity. A deferred tax asset has not currently been recognised in respect of these losses as they may not be used to offset profits elsewhere in the Group and they have arisen in Company whose future taxable profits are uncertain.
15. Lease liabilities
Lease liabilities at 31 March 2022, which includes the addition of a new office lease, are detailed below:
|
| Property |
| Lease liabilities | £'000 |
| At 1 April 2020 | 523 |
| Additions | 60 |
| Disposals | (31) |
| Interest expense | 18 |
| Payments to lease creditors | (281) |
| At 31 March 2021 | 289 |
| Additions | 125 |
| Disposals | - |
| Interest expense | 12 |
| Payments to lease creditors | (220) |
| At 31 March 2022 | 206 |
The maturity analysis of lease liabilities is detailed below:
| Lease liabilities - (contractual undiscounted cash flows) | 2022 £'000 | 2021 £'000 |
| Less than one year | 177 | 213 |
| One to five years | 51 | 112 |
| More than five years | - | - |
| Total undiscounted lease liabilities at 31 March | 228 | 325 |
| There are no leases with a term of more than five years.
|
|
|
| Lease liabilities included in the statement of financial position at 31 March | 2022 £'000 | 2021 £'000 |
| Current | 158 | 193 |
| Non-current | 48 | 96 |
| Amounts recognised in the statement of comprehensive income |
2022 £'000 | 2021 £'000 |
| Interest on lease liabilities | 12 | 18 |
| Expenses related to short‑term leases | - | 20 |
| Expenses related to low-value assets | - | - |
| Depreciation of right of use assets (note 10) | 207 | 263 |
| Amounts recognised in the statement of cash flows |
2022 £'000 | 2021 £'000 |
| Payment of principal | 220 | 281 |
| Payment of interest | 12 | 18 |
| Total cash outflows | 232 | 299 |
16. Deferred consideration
|
| 2022 £'000 | 2021 £'000 |
| Liability at 1 April | - | 275 |
| Holdback consideration shares issued | - | (238) |
| Fair value adjustment to deferred consideration | - | (37) |
|
| - | - |
In the prior year the Group settled the final deferred consideration owed to the previous owners of GeoLang Holdings Limited, which resulted in an additional 129,601 ordinary shares being issued to the vendors of GeoLang Holdings Limited.
17. Share capital
The table below details movements within the year:
|
|
| Ordinary shares | |
| In thousands of shares |
| 2022 | 2021 |
| In issue at 1 April |
| 23,810 | 22,109 |
| Share placing |
| - | 1,563 |
| Share issue for deferred consideration |
| - | 130 |
| Options exercised during the year |
| 8 | 8 |
| Number of shares |
| 23,818 | 23,810 |
|
|
|
|
|
|
| 2022 £'000 | 2021 £'000 | |
| Allotted, called up and fully paid |
|
|
|
| Ordinary shares of £0.10 each (2021: £0.10 each) |
| 2,382 | 2,381 |
| Deferred shares of £0.90 each (2021: £0.90 each) |
| 19,896 | 19,896 |
| Total |
| 22,278 | 22,277 |
In September 2019 a reorganisation of the Company's capital which resulted in the consolidation of shares where every 100 shares were consolidated into one ordinary share of £1. In addition to this, immediately following consolidation, each consolidated share was sub-divided into one ordinary share of £0.10 ('Ordinary share') and one deferred share of £0.90 ('Deferred share').
Deferred shares for all practical purposes are valueless and it is the Board's intention to repurchase, cancel or seek to surrender these deferred shares using lawful means as the Board may at such time in the future decide.
The following issues of shares were undertaken in the twelve-month period ended 31 March 2022:
On 22 March 2022, 8,320 options were exercised by a professional adviser to the Group.
Other reserves included:
Share premium
This comprises of the amount subscribed for share capital in excess of the nominal value less any transaction costs incurred in raising equity.
FVTOCI reserves
This comprises of gains/losses arising on financial assets classified as available for sale. A fair value loss was recognised in the year relating to Plymouth Minerals. This reserve has been written off in the current year.
Other reserves
These comprise of amounts expensed in relation to the share options, share incentive scheme (see note 18) and merger relief from shares issued as consideration to acquisitions and equity placings (net of costs).
Movements in the year ended 31 March 2021 include the following transactions which have been recognised in the other reserve:
£3.1 million relating to the equity placing of 1,562,500 new ordinary shares (net of costs).
£0.2 million relating to deferred consideration of 129,602 shares, issued to the previous owners of GeoLang Holdings Limited.
18. Share-based payments
|
| 2022 £'000 | 2021 £'000 |
| Subsidiary incentive scheme | 72 | 210 |
| Save as you earn (SAYE) | 13 | 3 |
| Share options - (CSOP) | 13 | - |
| Share options - (ESOP) | (88) | 98 |
|
| 10 | 311 |
Share options - (CSOP)
The following options over ordinary shares remained outstanding at 31 March 2022:
|
| Options at 1 April 2021 | Options issued during the year | Options lapsed during the year | Options exercised during the year | Options at 31 March 2022 | Exercise price | Date of grant | First date of exercise | Final date of exercise |
| Directors: | |||||||||
| P McFadden | - | 25,000 | - | - | 25,000 | £0.95 | 10/02/2022 | 10/02/2025 | 10/02/2027 |
| Employees: |
|
|
|
|
|
|
|
|
|
| Employees | - | 89,998 | - | - | 89,998 | £0.95 | 10/02/2022 | 10/02/2023 | 10/02/2027 |
| Employees | - | 11,112 | - | - | 11,112 | £0.95 | 10/02/2022 | 30/09/2023 | 10/02/2027 |
| Employees | - | 542,000 | - | - | 542,000 | £0.95 | 10/02/2022 | 10/02/2025 | 10/02/2027 |
| Total | - | 668,110 | - | - | 668,110 |
|
|
|
|
The following illustrates the number and weighted average exercise price (WAEP) of, and movements in, share options during the year.
|
| 2022 | |
| Number | WAEP £ | |
| Outstanding at the beginning of the year | - | - |
| Issued | 668,110 | 0.95 |
| Lapsed during the year | - | - |
| Exercised during the year ended 31 March | - | - |
| Outstanding at 31 March | 668,110 | 0.95 |
| Exercisable at 31 March | - | - |
The share-based payment charge for options granted to employees and Directors has been calculated using the Black-Scholes model and using the following parameters:
|
| 2022 |
| Share price at grant date | £0.95 |
| Exercise price | £0.95 |
| Expected option life (year) | 5 years |
| Expected volatility (%) | 43.4% |
| Expected dividends | 0% |
| Risk-free interest rate (%) | 1.54% |
| Option fair value | £0.38 |
The calculation includes an estimated leaver provision of 29%.
The weighted average remaining contractual life of options outstanding at the end of the year was four years and ten months.
Share options - (ESOP)
The following options over ordinary shares remained outstanding at 31 March 2022:
|
| Options at 1 April 2021 | Options issued during the year | Options lapsed during the year | Options exercised during the year | Options at 31 March 2022 | Exercise price | Date of grant | First date of exercise | Final date of exercise |
| Directors: | |||||||||
| P McFadden | 7,875 | - | - | - | 7,875 | £4.0 | 07/05/2018 | 07/05/2019 | 30/09/2023 |
| Employees: |
|
|
|
|
|
|
|
|
|
| Employees | 41,581 | - | 2,081 | - | 39,500 | £4.0 | 09/05/2017 | 09/05/2018 | 08/05/2022 |
| Employees | 26,076 | - | 16,686 | - | 9,390 | £4.0 | 13/11/2017 | 13/11/2018 | 12/11/2022 |
| Employees | 364 | - | 364 | - | - | £4.0 | 08/01/2018 | 08/01/2019 | 07/01/2023 |
| Employees | 1,780 | - | 757 | - | 1,023 | £4.0 | 01/03/2018 | 01/03/2019 | 28/02/2023 |
| Employees | 21,559 | - | 15,934 | - | 5,625 | £4.0 | 04/04/2018 | 04/04/2019 | 03/04/2023 |
| Employees | 67,222 | - | 67,222 | - | - | £3.6 | 17/10/2018 | 31/03/2019 | 30/09/2021 |
| Employees | 33,409 | - | 33,409 | - | - | £3.6 | 17/10/2018 | 31/03/2019 | 30/04/2024 |
| Employees | 1,493 | - | 582 | - | 911 | £1.6 | 01/03/2019 | 01/03/2020 | 01/07/2024 |
| Employees | 12,500 | - | 12,500 | - | - | £2.0 | 24/04/2019 | 24/04/2020 | 30/09/2021 |
| Employees | 6,000 | - | 3,000 | - | 3,000 | £4.0 | 01/06/2019 | 01/06/2020 | 30/09/2023 |
| Employees | 12,500 | - | 2,500 | - | 10,000 | £2.0 | 01/10/2019 | 01/10/2020 | 30/09/2023 |
| Employees | - | 27,936 | - | - | 27,936 | £0.95 | 10/02/2022 | 10/02/2025 | 10/02/2027 |
| Non-employees: | |||||||||
| Other | 20,000 | - | 20,000 | - | - | £1.0 | 03/10/2016 | 03/10/2016 | 03/10/2021 |
| Other | 16,640 | - | - | 8,320 | 8,320 | £0.1 | 27/02/2020 | 27/02/2021 | 31/03/2023 |
| Total | 268,999 | 27,936 | 175,035 | 8,320 | 113,580 |
|
|
|
|
The following options over ordinary shares remained outstanding at 31 March 2021:
|
| Options at 1 April 2020 | Options issued during the year | Options lapsed during the year | Options exercised during the year | Options at 31 March 2021 | Exercise price | Date of grant | First date of exercise | Final date of exercise |
| Directors: | |||||||||
| P McFadden | 7,875 | - | - | - | 7,875 | £4.0 | 07/05/2018 | 07/05/2019 | 30/09/2023 |
| Employees: |
|
|
|
|
|
|
|
|
|
| Employees | 52,933 | - | 11,352 | - | 41,581 | £4.0 | 09/05/2017 | 09/05/2018 | 08/05/2022 |
| Employees | 33,306 | - | 7,230 | - | 26,076 | £4.0 | 13/11/2017 | 13/11/2018 | 12/11/2022 |
| Employees | 1,063 | - | 699 | - | 364 | £4.0 | 08/01/2018 | 08/01/2019 | 07/01/2023 |
| Employees | 4,880 | - | 3,100 | - | 1,780 | £4.0 | 01/03/2018 | 01/03/2019 | 28/02/2023 |
| Employees | 26,000 | - | 4,441 | - | 21,559 | £4.0 | 04/04/2018 | 04/04/2019 | 03/04/2023 |
| Employees | 70,000 | - | 2,778 | - | 67,222 | £3.6 | 17/10/2018 | 31/03/2019 | 30/09/2021 |
| Employees | 34,722 | - | 1,313 | - | 33,409 | £3.6 | 17/10/2018 | 31/03/2019 | 30/04/2024 |
| Employees | 2,654 | - | 1,161 | - | 1,493 | £1.6 | 01/03/2019 | 01/03/2020 | 01/07/2024 |
| Employees | 25,000 | - | 25,000 | - | - | £2.0 | 09/04/2019 | 09/04/2020 | 30/09/2021 |
| Employees | 12,500 | - | - | - | 12,500 | £2.0 | 24/04/2019 | 24/04/2020 | 30/09/2021 |
| Employees | 9,000 | - | 3,000 | - | 6,000 | £4.0 | 01/06/2019 | 01/06/2020 | 30/09/2023 |
| Employees | 12,500 | - | - | - | 12,500 | £2.0 | 01/10/2019 | 01/10/2020 | 30/09/2023 |
| Non-employees: | |||||||||
| Other | 20,000 | - | - | - | 20,000 | £1.0 | 03/10/2016 | 03/10/2016 | 03/10/2021 |
| Other | - | 24,960 | - | 8,320 | 16,640 | £0.1 | 27/02/2020 | 27/02/2021 | 31/03/2023 |
| Total | 312,433 | 24,960 | 60,074 | 8,320 | 268,999 |
|
| | |
The following illustrates the number and weighted average exercise price (WAEP) of, and movements in, share options during the year.
|
| 2022 | 2021 | ||
| Number | WAEP £ | Number | WAEP £ | |
| Outstanding at the beginning of the year | 268,999 | 3.3 | 312,433 | 3.3 |
| Issued | 27,936 | 0.95 | 24,960 | 0.1 |
| Lapsed during the year | 175,036 | 3.2 | 60,074 | 3.1 |
| Exercised during the year ended 31 March | 8,320 | 0.1 | 8,320 | 0.1 |
| Outstanding at 31 March | 113,580 | 2.8 | 268,999 | 3.2 |
| Exercisable at 31 March | 50,276 | 3.9 | 167,549 | 3.3 |
The weighted average share price of options exercised during the year was £1.18 (2021: £1.42).
The share-based payment charge for options granted to employees and Directors has been calculated using the Black-Scholes model and using the following parameters:
|
| 2022 | 2021 |
| Share price at grant date | £0.95 to £4.30 | £1.29 to £4.30 |
| Exercise price | £0.10 to £4.00 | £0.10 to £4.00 |
| Expected option life (year) | 1 year to 6 years | 1 year to 6 years |
| Expected volatility (%) | 10.6% to 80.0% | 40.0% |
| Expected dividends | 0% | 0% |
| Risk-free interest rate (%) | 0.60% to 1.54% | 0.70% to 1.53% |
| Option fair value | £0.04 to £2.87 | £0.00 to £2.90 |
The calculation includes an estimated leaver provision of 29% (2021: 3%).
The weighted average remaining contractual life of options outstanding at the end of the year was one year and ten months (2020/21: two years and eight months).
Share options - (SAYE)
The following options over ordinary shares remained outstanding at 31 March 2022:
|
| Options at 1 April 2021 | Options issued during the year | Options lapsed during the year | Options exercised during the year | Options at 31 March 2022 | Exercise price | Date of grant | First date of exercise | Final date of exercise |
| Employees: |
|
|
|
|
|
|
|
|
|
| Employees | 150,285 | - | 17,820 | - | 132,465 | £1.515 | 25/01/2021 | 01/03/2024 | 30/09/2024 |
| Total | 150,285 | - | 17,820 | - | 132,465 |
|
|
|
|
The following options over ordinary shares remained outstanding at 31 March 2021:
|
| Options at 1 April 2020 | Options issued during the year | Options lapsed during the year | Options exercised during the year | Options at 31 March 2021 | Exercise price | Date of grant | First date of exercise | Final date of exercise |
| Employees: |
|
|
|
|
|
|
|
|
|
| Employees | - | 150,285 | - | - | 150,285 | £1.515 | 25/01/2021 | 01/03/2024 | 30/09/2024 |
| Total | - | 150,285 | - | - | 150,285 |
|
| | |
The following illustrates the number and weighted average exercise price (WAEP) of, and movements in, share options during the year.
|
| 2022 | 2021 | ||
| Number | WAEP £ | Number | WAEP £ | |
| Outstanding at the beginning of the year | 150,285 | 1.515 | - | - |
| Issued | - | - | 150,285 | 1.515 |
| Lapsed during the year | 17,820 | 1.515 | - | - |
| Exercised during the year ended 31 March | - | - | - | - |
| Outstanding at 31 March | 132,465 | 1.515 | 150,285 | 1.515 |
| Exercisable at 31 March | - | - | - | - |
The share-based payment charge for options granted to employees and Directors has been calculated using the Black-Scholes model and using the following parameters:
|
|
| 2021 |
| Share price at grant date |
| £1.420 |
| Exercise price |
| £1.515 |
| Expected option life (year) |
| 3 years 8 months |
| Expected volatility (%) |
| 40.0% |
| Expected dividends |
| 0% |
| Risk-free interest rate (%) |
| 0.13% |
| Option fair value |
| £0.394 |
The calculation includes an estimated leaver provision of 29%.
The market price of shares as at 31 March 2022 was £1.05 (31 March 2021: £1.35). The range during the financial year was £0.74 to £2.15. At the date of signing the financial statements the share price was 139.0p
The weighted average remaining contractual life of options outstanding at the end of the year was two years and six months (2020/21: three years and six months).
Subsidiary incentive scheme
On 29 September 2016, the Group established a share incentive scheme for certain Directors and consultants to the Group, via the Group's subsidiary, Shearwater Subco Limited (the 'subsidiary'), in order to align the interests of the scheme participants directly with those of shareholders.
Pursuant to the subsidiary incentive scheme, the subsidiary issued 160,000 'B' ordinary shares of £0.000001 in the capital of the subsidiary ('incentive shares') on 18 January 2017 at a price of £0.032 per share. Subject to the growth and vesting conditions both being satisfied, participants may elect to sell their respective B shares to the Group and the Group shall acquire those B shares in consideration for cash or by the issue of new ordinary shares at the Group's discretion. The Group's intention is to settle these through the issue of new ordinary shares in the Group.
The value of the incentive shares is discussed below. Neither of the growth or vesting conditions were satisfied during the year. The subsidiary incentive scheme is now closed and the Directors do not anticipate making any further grants under the scheme.
Growth conditions
The growth condition is that the compound annual growth of the Group's equity value must be at least 12.5% per annum. The growth condition takes into account the new shares issued, dividends and capital returned to shareholders.
Vesting conditions
The incentive shares are subject to a vesting period which ends on 29 September 2022. The participants can exercise their right to require the Group to purchase its incentive shares at any time up to 29 September 2022.
Value
Subject to the provisions detailed above, the incentive shares can be sold to the Group for an aggregate value equivalent to 16% of the increase in market capitalisation of all ordinary shares of the Group issued up to the date of sale, allowing for any dividends and other capital movements.
Directors' incentive shares
| The incentive shares issued to Directors are shown in the table below: | Participation in increase in shareholder value | Issue price | Nominal value Shares of incentive shares | Number of Incentive shares 1 April 2021 | Number of Incentive Group plc 31 March 2022 | Number of Shearwater Shares issued | Share-based payment charge |
| D Williams | 6.5% | £0.032 | £0.000001 | 65,000 | 65,000 | - | 29,145 |
| P Higgins | 7.5% | £0.032 | £0.000001 | 75,000 | 75,000 | - | 33,629 |
Valuation of incentive shares
The share-based payment charge for the incentive shares has been calculated using a binomial valuation model at the grant date. The fair value amounted to £937,623 based on an initial expiry date of 29 September 2019. An option to amend the expiry date was exercised on 17 April 2020 to extend this expiry date to 29 September 2022 which has increased the fair value by £18,349. Following this extension £955,972 will be recognised over the life of the scheme which expires on 29 September 2022. In the current year £71,742 (2021: £209,889) has been recognised as an expense in the statement of comprehensive income in respect of incentive shares. All 160,000 incentive scheme shares were subscribed for by participants at unrestricted market value.
19. Financial instruments
The Group uses financial instruments, other than derivatives, comprising cash at bank and various items such as trade and other receivables and trade and other payables that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group's operations.
The Group's financial assets and liabilities at 31 March 2022, as defined under IFRS 9, are as follows. The fair values of financial assets and liabilities recorded at amortised cost are considered to approximate their book value.
|
| Amortised cost (loans and receivables) | Fair value through other comprehensive income (available for sales) | ||
| 2022 £'000 | 2021 £'000 | 2022 £'000 | 2021 £'000 | |
| Financial assets |
|
|
|
|
| Cash and cash equivalents | 5,575 | 8,049 | - | - |
| Trade and other receivables | 19,426 | 9,333 | - | - |
| Total financial assets | 25,001 | 17,382 | - | - |
|
| Amortised cost | Fair value through other comprehensive income (available for sales) | ||
| 2022 £'000 | 2021 £'000 | 2022 £'000 | 2021 £'000 | |
| Financial liabilities |
|
|
|
|
| Trade and other payables | 16,821 | 9,069 | - | - |
| Loans and borrowings | - | 775 | - | - |
| Lease liabilities | 205 | 289 | - | - |
| Total financial liabilities | 17,026 | 10,133 | - | - |
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's Finance function.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility.
The Group is exposed to financial risks in respect of:
§ capital risk;
§ foreign currency;
§ interest rates;
§ credit risk; and
§ liquidity risk.
A description of each risk, together with the policy for managing risk, is given below.
Capital risk
The Group manages its capital to ensure that the Group and its subsidiaries will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of equity and debt balances.
The capital structure of the Group consists of cash and cash equivalents, borrowings, equity, comprising issued capital, reserves and accumulated losses as disclosed in the consolidated statement of changes in equity.
The Board of Directors reviews the capital structure on a regular basis. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital, against the purpose for which it is intended.
The Group has a three-year £4.0 million revolving credit facility which is in place to fund further growth and short‑term working capital requirements. This facility was not utilised during the current year.
Market risk
Market risk arises from the Group's use of interest‑bearing, tradable and foreign currency financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates (currency risk), interest rates (interest rate risk), or other market factors (other price risk).
Foreign currency risk
The Group is exposed to foreign currency risk on sales and purchases which are denominated in a currency other than sterling. Exposures to exchange rates are predominantly denominated in US dollars and euros. The Group seeks to reduce foreign exchange exposures arising from transactions in various currencies through a policy of matching, as far as possible, receipts and payments across the Group in each individual currency. The Group does not currently use derivatives to hedge translation exposures arising on the consolidation of its overseas operations.
As of 31 March the Group's net exposure to foreign exchange risk was as follows:
|
| USD | EUR |
| ||
| 2022 £'000 | 2021 £'000 | 2022 £'000 | 2021 £'000 | ||
| Net foreign currency financial assets/(liabilities) |
| ||||
| Trade receivables | 202 | 392 | 735 | 2315 |
|
| Trade payables | (3,389) | (4,423) | (18) | (669) |
|
| Other payables | (9,364) | - | - | - |
|
| Cash and cash equivalents | 1,431 | 370 | 651 | 158 |
|
| Total net exposure | (11,121) | (3,661) | 1,369 | 1,805 |
|
The effect of a 10% strengthening of the US dollar against sterling at the reporting date on the US dollar denominated trade receivables, payables and cash and cash equivalents carried at that date would, all other variables held constant, have resulted in a decrease of the pre-tax profit in the year and a decrease in net assets of £1.2 million. A 10% weakening in the exchange rate would, on the same basis, have increased the pre-tax profit in the year and increased net assets by £1.0 million.
The effect of a 10% strengthening of the euro against sterling at the reporting date on the euro denominated trade receivables, payables and cash and cash equivalents carried at that date would, all other variables held constant, have resulted in an increase of the pre-tax profit in the year and an increase in net assets of £0.2 million. A 10% weakening in the exchange rate would, on the same basis, have decreased the pre-tax profit in the year and decreased net assets by £0.1 million.
Interest rate risk
The Group has minimal cash flow interest rate risk as it has no external borrowings at variable interest rates.
Liquidity risk
The Group manages liquidity risk by maintaining adequate cash reserves and credit facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities wherever possible. In addition to this, the Group has a £4.0 million revolving credit facility (RCF) which provides further contingency against short-term working capital movements. At 31 March 2022 this facility had not been utilised. There has been no change to the Group's exposure to liquidity risks or the manner in which these risks are managed and measured during the year. Further details are provided in the strategic report.
The liquidity risk of each Group entity is managed centrally by the Group's Finance function. Each entity has a predefined facility based on the budget which is set and approved by the Board in advance, which provides detail of each entity's cash requirements. Any additional expenditure over budget requires sign off by the Board. A quarterly reforecast which includes a cash flow forecast is reviewed by management and approved by the Board.
The Group has a three-year £4.0 million revolving credit facility (RCF) with its bank and £0.2 million of credit on corporate credit cards which are settled in full on a monthly basis.
The maturity profile of the financial liabilities is summarised below. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.
|
| Up to 3 months £'000 | Between 3 and 12 months £'000 | Between 1 and 2 years £'000 | Between 2 and 5 years £'000 | Over 5 years £'000 |
| As at 31 March 2022 | |||||
| Trade and other payables | 8,609 | 4,253 | 3,959 | - | - |
| Loans and borrowings | - | - | - | - | - |
| Lease liabilities | 51 | 107 | 48 | - | - |
| Total | 8,660 | 4,360 | 4,007 | - | - |
|
| Up to 3 months £'000 | Between 3 and 12 months £'000 | Between 1 and 2 years £'000 | Between 2 and 5 years £'000 | Over 5 years £'000 |
| As at 31 March 2021 | |||||
| Trade and other payables | 8,822 | 247 | - | - | - |
| Loans and borrowings | 20 | - | 755 | - | - |
| Lease liabilities | 53 | 140 | 96 | - | - |
| Total | 8,895 | 387 | 851 | - | - |
Credit risk
The Group's principal financial assets are trade receivables and bank balances. The Group is consequently exposed to the risk that its customers cannot meet their obligations as they fall due. The Group's policy is that the lines of business assess the creditworthiness and financial strength of customers at inception and on an ongoing basis. The Group also reviews the credit rating of its banks and financial institutions.
Ongoing review of the financial condition of trade and other receivables is performed. Further details are in note 11. The carrying amount of financial assets recorded in the financial statements represents the Group's maximum exposure to credit risk. Whilst the Group's exposure to credit risk has increased as the Group has grown, to date this has not materially increased the Group's actual bad debt, which is partially due to the type of clients it contracts with as well as effective due-diligence when issuing credit to its clients.
20. Related party transactions
The Directors of the Group and their immediate relatives have an interest of 18% (2021: 17%) of the voting shares of the Group.
On 15 October 2021, £473,892 was paid to Secarma Limited, the previous owners of Pentest Limited representing the final payment of a loan that was taken out as part of the acquisition consideration.
During the prior year, £1,838,065 representing deferred completion cash (including interest) and £215,216 representing the working capital true up relating to the acquisition of Brookcourt Solutions Limited was paid to P Higgins who serves as a Director of Shearwater Group plc, Shearwater Subco Limited and Brookcourt Solutions Limited.
During the prior year, £1,783,334 representing deferred completion cash (including interest) and £215,216 representing the working capital true up relating to the acquisition of Brookcourt Solutions Limited was paid to D Stacey who serves as a Director of Brookcourt Solutions Limited.
During the prior year £239,442 was paid to Secarma Limited, the previous owners of Pentest Limited representing the first instalment of a loan that was taken out as part of the acquisition consideration.
No dividends were made to the Company in either years by subsidiary undertakings.
There were no other related party transactions for the Group during the period.
21. Bank Loans
At 31 March 2022 the Group had not utilised the £4.0 million credit facility it has in place with Barclays Bank plc. The facility was extended on 24 March 2021 for a further 3 years to 23 March 2024. A charge has been registered on Shearwater Group plc and a number of its subsidiaries as security for the facility.
22. Notes to support cash flow
Cash and cash equivalents comprise:
|
| 2022 £'000 | 2021 £'000 |
| Cash available on demand | 5,575 | 8,049 |
| Net cash (decrease)/increase in cash and cash equivalents | (2,474) | 4,706 |
| Cash and cash equivalents at the beginning of the year | 8,049 | 3,343 |
| Cash and cash equivalents at the end of the year | 5,575 | 8,049 |
Cash and cash equivalents are held in the following currencies:
|
| 2022 £'000 | 2021 £'000 |
| Sterling | 3,495 | 7,444 |
| US dollar | 1,431 | 435 |
| Euro | 650 | 170 |
|
| 5,575 | 8,049 |
Reconciliation of liabilities from financing activities:
|
|
|
| Non-cash changes |
| |||
|
| 2021 £'000 | Cash outflows £'000 | Interest savings on early repayment of loans £'000 | Loan interest £'000 | Right of use asset additions £'000 | Right of use asset disposal £'000 | 2022 £'000 |
| Other loans | 775 | (724) | - | 19 | - | (70) | - |
| Revolving credit facility interest payable | - | (46) | - | 66 | - | - | 20 |
| Other interest - paid | - | (23) | 10 | 13 | - | - | - |
| Other interest - not paid | 1 | (1) | - | - | - | - | - |
| Payment of principal on lease liabilities | 289 | (220) | - | 12 | 125 | - | 206 |
| Total | 1,065 | (1,014) | 10 | 110 | 125 | (70) | 226 |
|
|
|
|
| Non-cash changes |
| ||
|
| 2020 £'000 | Cash outflows £'000 | Cash inflows £'000 | Loan interest £'000 | Right of use asset additions £'000 | Right of use asset disposal £'000 | 2021 £'000 |
| Other loans | 4,783 | (4,151) | - | 143 | - | - | 775 |
| Revolving credit facility interest payable | - | (35) | - | 35 | - | - | - |
| Other interest - paid | - | (3) | - | 3 | - | - | - |
| Other interest - not paid | - | - | - | 1 | - | - | 1 |
| Payment of principal on lease liabilities | 524 | (281) | - | 18 | 60 | (32) | 289 |
| Total | 5,307 | (4,470) | - | 200 | 60 | (32) | 1,065 |
23. Events after the reporting period
There are no material events after the reporting period to report.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.