This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014 (as amended), which forms part of domestic UK law pursuant to the European Union (Withdrawal) Act 2018. Upon publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.
5 September 2023
SHEARWATER GROUP PLC
("Shearwater", or the "Group")
Final Results
Improving prospects, well-placed to capture significant market opportunity
Shearwater Group plc (AIM: SWG), the cybersecurity, advisory and managed security services group, announces its final results for the year ended 31 March 2023.
Highlights:
· Group revenue of £26.7m (FY22: £35.9m) primarily impacted by contract delays in Q4
· Adjusted EBITDA1 of £(0.2)m (FY22: £4.4m), reflecting effect of lower revenues
· Adjusted loss before tax2 of £1.3m (FY22: profit before tax of £3.0m)
· Strong financial position with net cash as at 31 March 2023 of £4.0m (FY22: £5.6m)
Operational Highlights:
· Q4 characterised by order delays, materially impacting revenue and profitability
· Decisive action taken during the period to streamline and optimise operations, ensuring the business emerges leaner and more productive
· Although performance reflects the cautious approach to customer decisions, engagement levels remained high with 113 additional net new clients onboarded during the year
· The Group continues to benefit from its strong customer base of blue-chip organisations across a range of sectors
· The Group won five awards during the period including the title of 'Security Company of the Year 2022' from the Computing Security Awards for the second consecutive year
Board update
· Paul McFadden, CFO has informed Board of his decision to step down from the Board, and will remain in place until a successor is appointed
Outlook:
· Strong prospects in light of improving market conditions, with an increasing number of post-period green shoots and opportunities
· Q1 trading is in line with management's expectations, with customer engagement efforts proving successful in bolstering a growing pipeline, showing year-on-year growth, and delayed orders from the previous year now being fulfilled
· Shearwater's solutions continue to be relevant to the increasing security demands in today's environment
· The business continues to maintain a healthy balance sheet which will be further strengthened through forecast cash generation in FY24
1 Adjusted EBITDA is defined as profit before tax, before one off exceptional items, share based payment charges, finance charges, impairment of intangible assets, fair value adjustments to deferred consideration, other income, depreciation and amortisation.
2 Adjusted Profit Before Tax defined as net profit before tax, exceptional items, share based payments, other income, fair value adjustment for deferred consideration and amortisation of acquired goodwill.
Phil Higgins, CEO of Shearwater Group, commented:
"While it is frustrating that FY23 performance was impacted by external factors beyond our control, we have emerged a more agile, specialised business and better-placed to capitalise on the opportunities ahead. With the threat of cybersecurity ever-increasing for organisations, our best-in-class reputation and all-encompassing offering, combined with the operational enhancements initiated during FY23, provide the Board with unwavering confidence in the medium and long-term prospects of the Group.
"We continue to be bolstered by an experienced Board, leadership team and industry thought leaders, and we look forward to delivering solid, sustainable revenues and profit growth in the years ahead".
Investor Presentation
Shearwater Group's CEO, Phil Higgins and CFO, Paul McFadden, will provide a live investor presentation relating to the results, via the Investor Meet Company platform on Friday 8 September 2023 at 12:00.
Investors can sign up to Investor Meet Company for free and add to meet Shearwater Group via https://www.investormeetcompany.com/shearwater-group-plc/register-investor.
Enquiries:
| Shearwater Group plc David Williams, Chairman Phil Higgins, CEO
| www.shearwatergroup.com c/o Alma PR |
| Cenkos Securities plc - NOMAD Adrian Hadden / Ben Jeynes- Corporate Finance Henry Nicol / Dale Bellis / Michael Johnson - Sales
| +44 (0) 20 7397 8900 |
| Alma PR Justine James / 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
Following several years of consistent growth, it is disappointing to have to report poor results for FY23. These were impacted by the delay in a number of contracts in Q4 where, traditionally, large contracts are awarded as a result of the procurement cycle of several of our large customers. It is worth noting that two of the four delayed contracts have now been secured and we anticipate being successful with the remaining contracts in the coming months.
Crucially, our Company remains robust, with hard-working staff, loyal customers and a reputation for delivering excellent service. This is backed up by a strong balance sheet with significant net cash. Our Group companies have been operating in this market for upwards of two decades and thus draw on a wealth of experience in providing ever-evolving solutions for our customers.
Further investment in both technology and people means that we continue to benefit from the ongoing streamlining of our businesses. Phil, in his Chief Executive's review, sets this out in more detail as well as outlining the potential we have going forward. We are fortunate to be in a sector which has plenty of opportunities to grow and our staff have been working hard on a number of initiatives that are starting to show good potential.
I want to thank our staff, our Non-executive Directors and our Advisory Panel for their efforts and sincerely believe that all the hard work and investment is reflected in much improved trading in the current year.
Finally, after five years with our company, Paul McFadden, our CFO, has decided to leave us but he will remain in place until a successor is appointed and settled into the role. We thank Paul for his efforts during his time with us and wish him well with his new career opportunity.
David Williams
Chairman
4 September 2023
Chief Executive's review
The year to 31 March 2023 was challenging across the cyber security industry and Shearwater was not immune to this. Whilst we entered the second half of the year with stronger momentum, macroeconomic challenges impacted customers' investment decisions heavily in the fourth quarter, resulting in customers deferring contract start dates, and in some cases, needing to implement spending freezes.
As announced at the end of March 2023, our financial performance for the year ended 31 March 2023 was impacted by these well-documented market headwinds in addition to a number of exceptional, one-off trading expenses. It is important to note that whilst it is disappointing these impacts have affected the Group's performance in the period under review, we consistently won new business from existing clients, as well as securing new clients.
In respect to FY23, Group revenue for the period was £26.7 million (FY22: £35.9 million). Adjusted EBITDA1 was (£0.2 million) (FY22: £4.4 million) which was also impacted by the weaker Sterling / US dollar in H1 FY23, primarily relating to a £0.8 million unrealised FX charge related to future US dollar liabilities. This was a one-off and the appropriate hedging is now in place to mitigate future FX exposure. Loss before tax of £9.6 million (2022: profit £0.9 million) includes a £6.0 million impairment charge relating to the write down of goodwill. Further details on this can be found in the finance review.
Our balance sheet remains strong with a net cash position as at 31 March 2023 of £4.0 million (2022: £5.5 million). While our FY23 results reflect the more cautious approach to decisions taken by our customers, engagement levels remained reassuringly high during the period and post period end we are starting to see budgets reopen once again and present opportunities for the Group which would have otherwise fallen in FY23.
Group operational review
In the period, we successfully onboarded 113 additional net new clients and have continued to pursue cross-selling opportunities. Over the past three years we have recognised c.£1.3 million in cross-sell, with 39 additional clients having gained advantages across multiple companies within our Group. We now look forward with more confidence, bolstered by a robust balance sheet, improved visibility with a growing pipeline of opportunities. We continue to work with a number of blue-chip organisations, with a breadth of clients across a range of sectors. We are witnessing a growing preference among clients for Software as a Service (SaaS) and managed service offerings, as this helps drive enhanced efficiencies and significant cost savings. The transition to this model will aid in smoothing our revenues and achieving greater revenue visibility for the future.
Notwithstanding the market challenges, Shearwater achieved recognition and success during the year, earning five prestigious awards, including the title of 'Security Company of the Year 2022' from the Computing Security Awards for the second consecutive year. These awards serve as a testament to the value we continue to deliver to our clients and the high regard we hold within the industry.
In response to the challenges faced in FY23, Shearwater took decisive action to streamline and optimise its operations. It was important to review certain aspects of the Group, and the decisions taken during the year ensure that we will emerge a leaner, more unified business. Whilst we remain committed to our primary objective of long-term, profitable growth, in response to the challenges faced we have focused on reconfiguring the Group, maximising internal efficiencies to ensure we are rightsized to deal with opportunities moving forwards.
We aim to further enhance our internal efficiencies by merging GeoLang with SecurEnvoy to form a unified software company, which will be referred to as SecurEnvoy Data Discovery. Furthermore, we are merging the client-facing activities of Xcina IS and Xcina Consulting into Brookcourt Solutions. This integration will result in improved efficiencies, reduced complexity, and a simplified message for the Group.
Services
The majority of the Group's revenues come from its Services division, which contributed 89% of total revenues in the period. Revenue is generated through contract wins and renewals amongst a large and growing customer base of blue-chip organisations.
Despite the backdrop, we were pleased to successfully secure significant contract wins during the period, including securing a £6.3 million contract to deliver a solution to secure a leading global bank's email platform, swiftly followed by an additional £1m to secure their applications database. Additionally, we successfully secured a £1.3 million Penetration Testing contract for a leading global software company, won a £1.0 million project to deliver a data security solution for a prominent global media company, and expanded a previously reported multi-million pound forensic monitoring solution for a leading Telco by an additional £0.7 million. Furthermore, we secured renewals to continue providing secure printing solutions to a world-leading retail group and a cloud-based security solution to help prevent distributed denial of service (DDoS) attacks for a renowned pharmaceutical and chemist. These are just a few examples of the diverse range of deals we won during this period.
We are seeing an emerging preference for one-year contracts compared to the more typical three-year contracts. While our well-established clients continue to strengthen their defences through multi-year contracts, our newer and smaller customers find greater flexibility in annual contracts, enabling them to explore diverse security options.
We have strengthened the Group's Services offering: Xcina Consulting now offers a new third-party risk management service which has already started to attract new clients since its launch, and Pentest now provides 'secure coding workshop training' for developers, to protect their applications, and their organisations, through secure coding. Brookcourt has introduced various AI and Deep Learning managed services to address the needs of the medium-size client marketplace. To meet the increasing demand, we expanded our team of revenue-generating and service-deployment personnel while also utilising contractors to address short-term workload peaks. Moreover, we bolstered our sales team at Brookcourt with additional talent in sales and sales management, fuelling our expectations for future growth.
| | 2023 | 2022 | |
| | £m | £m | % |
| Revenue | 23.8 | 32.5 | (27%) |
| Gross profit | 4.7 | 8.6 | (44%) |
| Gross margin % | 20% | 26% | |
| Overheads | 4.6 | 3.9 | |
| Adjusted EBITDA1 | 0.1 | 4.7 | (94%) |
| Adjusted EBITDA margin % | 1% | 14% | |
The steps taken to integrate our businesses have strengthened the team's position to seize future opportunities. As the year unfolds, we will explore further strategies to continue maximising efficiencies.
Software
The Group has made more tangible operational progress in Software in FY23. Whilst the proportion of revenue generated from our Software division during the period was 11%, notably, the increased spend on R&D over the past two years has now strengthened our position in the market. This is typified by our latest products, including the introduction of a fully functional enterprise-ready software developed by GeoLang, which is being used by a leading UK bank and attracting interest from our existing client base and prospects; and SecurEnvoy's newly released Access management as a Service platform ('Release 3') of our updated SecurEnvoy software, which helps organisations manage and control access to their systems and software. With SecurEnvoy's solution, organisations can enhance their security measures, ensure regulatory compliance, reduce supply chain risk and simplify the management of users accessing corporate systems via a single sign-on.
| | 2023 | 2022 | |
| | £m | £m | % |
| Revenue | 2.9 | 3.3 | (12%) |
| Gross profit | 1.8 | 2.2 | (18%) |
| Gross margin % | 63% | 67% | |
| Overheads | 0.8 | 0.7 | |
| Adjusted EBITDA1 | 1.0 | 1.5 | (33%) |
| Adjusted EBITDA margin % | 34% | 46% | |
We are excited by the impacts the integration of GeoLang and SecurEnvoy will have, creating a more cohesive software company going forward. This union aims to enhance operational performance and achieve cost-effectiveness. Leveraging SecurEnvoy's extensive network of global resellers, we can now offer an expanded software portfolio worldwide, integrating the newly developed GeoLang Sensitive Data Discovery solution under the esteemed SecurEnvoy brand.
Growth strategy
Our vision remains steadfast in becoming the preferred provider of choice, delivering next generation cyber technology, professional advisory and advanced cyber security services and solutions. Whilst the market conditions led to a focus on strengthening organic growth, M&A remains part of our future strategy, however, the focus in the shorter term needs to be on building organic revenue as we see a significant opportunity in the medium term in the sectors we serve.
Within our Services division, we aim to be the preferred partner of choice delivering managed security solutions, penetration testing and advisory consulting services; providing an end-to-end offering. Within our Software division, we aim to build a 'must have' next-generation converged access management and data discovery platform utilising our zero trust access solution protecting users, devices and data, wherever the location.
Our strategic focus over the medium term is a return to delivering solid, sustainable revenues and profit growth in the years ahead, which we are confident of achieving.
Market opportunity
Shearwater Group's solutions cater to the increasing security demands in today's environment and align with evolving regulations for corporate clients. We operate in high-growth markets and, as projected by Gartner, the global market revenue for information security and risk spending is estimated to exceed $267 billion by 2026.
The well-publicised corporate cyber-attacks have drawn significant attention to the alarming trend of AI being weaponised, and it is of utmost importance to proactively mitigate risk and fortify their cyber security measures. Organisations are under growing pressure to ensure adherence to stringent regulatory frameworks and protect sensitive data from breaches and we have a clear strategy in place to exploit the considerable market opportunity ahead across both our Services and Software divisions.
Shearwater Group offers access to a differentiated full-service cyber security offering in a rapidly expanding market. Further to supportive market trends, our robust growth strategy, strong financial position, prestigious customer base, industry recognition, and talented team, we are poised to capitalise on opportunities and deliver substantial returns on investment.
Current trading and outlook
We are starting to see more green shoots and opportunities following a challenging year, with the wider macroeconomic backdrop starting to improve, the Board is encouraged about the forward-looking prospects for the business. Cyber security remains integral to organisations, and we believe we are well placed to capture the strong market opportunity ahead. While Shearwater is not alone in dealing with industry-wide challenges, the underlying growth drivers across the cyber security sector undoubtedly remain and we are well configured as a business following the decisive action taken in FY23. Although we are disappointed not to be updating shareholders with the FY23 financial performance we had been hoping for, we now have a more solid foundation on which to return to a growth trajectory. As we enter FY24, we do so with cautious optimism despite potential wider economic headwinds and their impact on our clients' budgets.
Q1 trading results are meeting our management's expectations, and our customer engagement efforts are proving successful in bolstering our growing pipeline, showing year-on-year growth. We have experienced a positive development as some delayed orders from the previous year have been fulfilled, and we've acquired new clients, with the remaining delayed orders expected to be fulfilled later this year. Our cross-selling initiatives have seen a promising start, with numerous new engagements underway.
Furthermore, we are delighted to observe that our professional advisory and penetration testing consultancy utilisation rates have improved significantly, with robust projects extending into Q3 and beyond. This progress is particularly encouraging as it enhances visibility and confidence in this segment of our business.
In the market, our position remains strong, which has been further reinforced after the successful launch of our latest software developments. These advancements have led to an increase in renewals, and our newly introduced managed cyber-service offerings have already gained interest from customers, especially among untapped SME clients, with several proof of concepts (POC) already initiated. Moreover, our new Secure Code Training programme has attracted new students, with additional project opportunities on the horizon.
An exciting highlight has been witnessing numerous substantial international cyber solution wins originating from our existing corporate client base. Our relationships with leading global corporate clients continue to present promising opportunities.
On the financial front, we are pleased to report that our balance sheet remains robust, and we are experiencing good cash flow.
Looking ahead, the evolving landscape of AI and machine learning technologies presents us with even greater opportunities. We are well positioned to provide technology refresh and consulting services to our larger, well-established clients, helping them stay ahead of their adversaries.
Overall, the current outlook is positive, and we are confident in our ability to leverage emerging trends and sustain our growth trajectory in the cyber security market.
Philip Higgins
Chief Executive Officer
4 September 2023
Financial review
Overview
The Group's financial performance in the year to 31 March 2023 was significantly impacted by strong market headwinds and delays in entering into a number of material contracts in the period in the Group's Services division. As a result, revenue was down 26% to £26.7 million. The Group's Software division continued to retain a large proportion of its long-standing customer base, however slower than expected new business sales also impacted revenue in the year. The lower revenues resulted in reduced EBITDA year on year at £(0.2) million which also includes the impact of additional costs relating to an unrealised foreign exchange charge for revaluing US dollar liabilities in the period as well as one-off fees relating to establishment of overseas operations.
A non-cash impairment of £6.0 million has been recorded in the current year reflecting a write down of goodwill held for the Group's SecurEnvoy and Xcina assets.
However, the Group retains a healthy balance sheet with no debt and a net cash position of £4.0 million (2022: £5.6 million) at 31 March 2023. During the year the Group generated positive operating cash flows and increased its investment in the development of new software offerings within its Software division which it expects to successfully monetise in future years.
Following a review of the Group in early 2023, a re-organisation commenced which is expected to deliver a £1.0 million reduction in the Group's fixed cost base.
Details of the Group's summarised financial performance for the year are detailed below:
| | 2023 | 2022 |
| | £m | £m |
| Revenue | 26.7 | 35.9 |
| Gross profit | 6.4 | 10.8 |
| Administrative expenses (underlying)1 | (6.6) | (6.4) |
| Adjusted EBITDA | (0.2) | 4.4 |
| Adjusted EBITDA margin | -% | 12% |
| Finance charge | (0.1) | (0.1) |
| Depreciation | (0.2) | (0.3) |
| Amortisation of intangible assets - computer software | (0.8) | (1.0) |
| Adjusted (loss)/profit before tax | (1.3) | 3.0 |
| Amortisation of acquired intangible assets | (2.1) | (2.1) |
| Impairment of intangible assets | (6.0) | - |
| Share-based payments | (0.1) | (0.1) |
| Exceptional items | (0.1) | (0.1) |
| Other operating income | - | 0.1 |
| (Loss)/profit before tax | (9.6) | 0.9 |
| Taxation credit/(charge) | 1.5 | (1.2) |
| (Loss) after tax | (8.2) | (0.3) |
1 Administrative expenses (underlying) excludes items that are not included within Adjusted EBITDA such as finance charges, depreciation, amortisation, impairment, share-based payment charges, exceptional items and other operating income.
Revenue
Revenue for the year ended 31 March 2023 of £26.7 million was 26% down on the prior year (2022: £35.9 million).
The table below provides a breakdown of revenues for the current year:
| | 2023 | 2022 |
| | £m | £m |
| Services |
| |
| Managed services and warranties | 11.2 | 16.4 |
| Security solutions | 6.1 | 10.6 |
| Advisory and engineering | 6.5 | 5.6 |
| Software |
| |
| Software licences | 2.9 | 3.3 |
| Total revenue | 26.7 | 35.9 |
Within Services, whilst the number of customers receiving managed services & warranties remained broadly the same, revenues in the period were impacted by the timing of a number of projects, with a few larger clients that were expected to complete in the period but were delayed. It is expected that the majority of these delayed projects will fall into FY24.
Advisory revenues grew by 18% on a year-on-year basis with increased demand for Brookcourt's engineering and Pentest's consulting services fuelling this growth. Additional investment in revenue-generating consultants was made in the period to service demand for these services in FY24.
Software licences revenue was impacted by lower than expected new business sales of the legacy 'On Premise' multi-factor authentication software. Renewal rates with existing customers have remained at c.80%, demonstrating the reliance and value many long-standing clients place on this product. Investment into developing the next generation software as a cloud-based platform provides an opportunity to drive additional incremental revenues in the future.
Adjusted EBITDA
The Group delivered adjusted EBITDA of £(0.2) million in the year (2022: £4.4 million), which was primarily impacted by the revenue shortfalls in the period, despite lower central costs. Delayed sales and reduced new business sales from our Software division impacted gross margins by 6% to 24% for the year (2022: 30%).
The table below provides a breakdown of the Group's adjusted EBITDA:
| | 2023 | 2022 | |
| | £m | £m | |
| Services and Software | 1.1 | 6.2 | |
| Central administrative expenses | (1.3) | (1.8) | |
| Adjusted EBITDA | (0.2) | 4.4 | |
| Adjusted EBITDA margin % | - | 12% | |
We expect to re-establish higher gross profitability in the coming year by:
§ Increasing utilisation of advisory resource, we have good forward visibility of confirmed sales for H1 which will enhance utilisation.
§ Driving new business sales from newly released software products.
§ Completing delayed contracts from the FY23 year.
Central administrative expenses decreased by £0.5 million in the year to £1.3 million reflecting a reduction in corporate and professional costs.
Finance charges
Net finance charges of £0.1 million are in line with prior year (2022: £0.1 million). The Group settled its remaining loan liabilities in the previous year.
Depreciation
Depreciation of £0.2 million (2022: £0.3 million) is slightly reduced from the prior year and incorporates £0.2 million of depreciation of right of use assets which is reduced from the prior year.
Amortisation of intangible assets - computer software
Amortisation of computer software has reduced by £0.2 million to £0.8 million (2022: £1.0 million) and includes increased amortisation of GeoLang data discoveries product development expenditure in addition to increased amortisation in SecurEnvoy. This is offset by savings for projects that were fully amortised in the prior year.
Adjusted (loss)/profit before tax
The Group delivered adjusted loss before tax for the year of £1.3 million (2022: £3.0 million profit), the reduction in profitability is impacted by the reduced EBITDA in the current year (detailed above) less a small year-on-year reduction in internally developed software amortisation.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets of £2.1 million (2022: £2.1 million) is in line with the previous year.
Impairment of intangible assets
A non-cash impairment charge of £6.0 million has been made in the current year against goodwill values held for the Group's SecurEnvoy, Xcina Consulting and Xcina IS assets. Further details can be found in note 9 of the consolidated Group financial statements.
Share-based payments
Share-based payment charges of £0.1 million (2022: £0.1 million) incorporate a full year's charge for the Group's Company Share Options Plan (CSOP), in addition to charges for the Group's Save As You Earn scheme (SAYE), Employee Share Options Plan (ESOP) and a reduced year-on-year charge for the Group's share incentive scheme which lapsed in the current year.
Exceptional items
Exceptional items of £0.1 million include one-off expenses relating to a review of the operations and the subsequent re-organisation costs incurred in the year.
Other operating income
Other operating income includes early repayment discounts recognised on the repayment of loan liabilities of £0.1 million which were settled in the previous year.
Reported (loss)/profit before tax
Reported loss before tax for the year of £9.6 million (2022: £0.9 million profit) reflects the reduced trading detailed within adjusted profit before tax, in addition to one-off impairment charges and exceptional items detailed above.
Taxation
A taxation credit in the period of £1.5 million includes a £0.7 million credit for the current year, £0.4 million adjustments in respect of previous years' tax provision plus £0.3 million movements in deferred taxation.
Earnings/(loss) per share
Adjusted basic loss per share of £0.00 (2022: adjusted earnings per share £0.11 basic and £0.10 diluted) represents a year-on-year reduction reflecting the weaker trading results in the year. The average number of shares remained broadly the same year-on-year. Reported basic loss per share of £0.34 (diluted £0.33) compares against a basic and diluted loss per share of £0.01 in the prior year.
Statement of financial position
Intangible assets
Intangible assets decreased in the year by £7.7 million to £44.9 million at 31 March 2023 (2022: £52.6 million). This movement incorporates £1.3 million of investment into continued development of the Group's software assets (2022: £1.1 million), less £2.9 million amortisation, of which £2.1 million relates to amortisation of acquired intangibles and £0.8 million amortisation of developed computer software. In addition to this there is a £6.0 million impairment charge relating to the write down of goodwill for the Group's SecurEnvoy and Xcina businesses.
Property, plant and equipment
Property, plant and equipment increased in the year by £0.1 million to £0.4 million at 31 March 2023 (2022: £0.3 million). Additions of £0.4 million include £0.3 million for the extension of an existing office lease which has been recognised as a right of use asset. Other movements in the period include depreciation in the year of £0.3 million.
Trade and other receivables
Trade and other receivables have decreased by £0.5 million in the year from £20.2 million to £19.6 million at 31 March 2023. Significant movements include an £8.7 million decrease in accrued income following the invoicing of a large contract billed in early April 2022, some of which has contributed to an increase in trade receivables, which increased £8.2 million year-on-year.
Trade and other payables
Trade and other payables have decreased by £2.2 million in the year from £14.5 million to £12.3 million at 31 March 2023. Material movements include a £1.3 million decrease in trade payables, £0.4 million reduction in corporation tax liabilities and £0.3 million reduction in deferred income.
Creditors: amounts falling due after more than one year
Creditor amounts falling due after more than one year have increased in the year by £1.3 million from £7.9 million to £9.2 million at 31 March 2023. A £1.5 million increase in accruals and other payables relates to a number of long-term contracts with long-standing clients and a £0.2 million increase in lease liabilities relates to an existing office lease that was extended during the year for a further five years. A £0.3 million reduction to deferred tax balances includes a reduction of £0.4 million relating to deferred tax held for acquired intangible assets less deferred tax balances created on new software projects.
Statement of cash flows
Continued investment has been made in the Group's Software division, with over £1.0 million invested into internally developed software, the latest of which, SecurEnvoy's Access Management v.3 went live in May 2023. Despite challenging trading, as detailed later in this report, the Group generated £0.4 million of adjusted operational cash flow in the period with H2 delivering strong operating cash inflows. The Group continued to collect cash effectively, with minimal bad debt.
The table below provides a summary of cash flows in the year:
| | 2023 | 2022 |
| | £m | £m |
| Adjusted EBITDA | (0.2) | 4.4 |
| Movements in working capital | 0.5 | (4.7) |
| Cash generated/(used) from operations | 0.3 | (0.3) |
| Adjusted cash generated/(used) from operations | 0.4 | (0.3) |
| Exceptional items | (0.1) | - |
| Cash generated/(used) from operations | 0.3 | (0.3) |
| Capital expenditure (net of disposal proceeds) | (1.3) | (1.1) |
| Tax paid | (0.3) | (0.1) |
| Finance costs paid | (0.1) | (0.1) |
| Payments of lease liabilities | (0.2) | (0.2) |
| Loan repayments | - | (0.7) |
| FX and other | - | 0.1 |
| Movement in cash | (1.6) | (2.4) |
| Opening cash and cash equivalents | 5.6 | 8.0 |
| Closing cash and cash equivalents | 4.0 | 5.6 |
| Loans | - | - |
| Net cash | 4.0 | 5.6 |
In addition to the statutory presentation of cash flow, the Directors also review a summarised presentation of cash flow which highlights the key components of the Group's cash flow.
Capital expenditure
Capital expenditure of £1.3 million (2022: £1.1 million) in the year includes primarily external and internal capitalisation of software costs for developing our software businesses' product sets. Expenditure of property, plant and machinery remains minimal.
Financing activities
Financing activities of £0.2 million (2022: £1.0 million) for repayment of lease liabilities is in line with the previous year. In the prior year the Group repaid £0.7 million of remaining loan balances.
Key performance indicators
The Board believes that revenue and adjusted EBITDA are key metrics to monitor the performance of the Group, as they provide a good basis to judge underlying performance and are recognised by the Group's shareholders. Adjusted profit before tax is another measure we are using to track the underlying performance of the Group. These metrics are presented within the financial KPIs section of the Annual Report..
Alternative performance measures
The Group uses alternative performance measures alongside statutory measures to manage the performance of the business. In the opinion of the Directors, alternative performance measures can provide additional relevant information on past and future performance to the reader in assessing the underlying performance of the business.
The table within note 2 details definitions of adjusted EBITDA and adjusted (loss)/profit before tax measures. Note 8 details definition of adjusted EPS.
Paul McFadden
Chief Financial Officer
4 September 2023
Consolidated statement of comprehensive income
for the year ended 31 March 2023
| | | 2023 | 2022 | ||
| | Note | £'000 | £'000 | ||
| Revenue | 3 | 26,686 | 35,876 | ||
| Cost of sales | | (20,236) | (25,053) | ||
| Gross profit | | 6,450 | 10,823 | ||
| Administrative expenses | | (12,875) | (6,435) | ||
| Depreciation and amortisation | | (3,131) | (3,412) | ||
| Other operating income | | - | 70 | ||
| Total operating costs | | (16,006) | (9,777) | ||
| Operating (loss)/profit | | (9,556) | 1,046 | ||
| Adjusted EBITDA | | (201) | 4,398 | ||
| Depreciation and amortisation | | (3,131) | (3,412) | ||
| Impairment of intangible assets | | (6,014) | - | ||
| Exceptional items | 4 | (125) | - | ||
| Share-based payments | | (85) | (10) | ||
| Other operating income | | - | 70 | ||
| Operating (loss)/profit | | (9,556) | 1,046 | ||
|
| |
| | ||
| Finance cost | 6 | (77) | (110) | ||
| (Loss)/profit before taxation | | (9,633) | 936 | ||
| Income tax credit/(charge) | 7 | 1,458 | (1,228) | ||
| Loss for the year and attributable to equity holders of the Company | | (8,175) | (292) | ||
|
| |
| | ||
| Other comprehensive income | |
| | ||
| Items that may be reclassified to profit and loss: | |
| | ||
| Write off of FVTOCI reserve | | - | 14 | ||
| Exchange differences on translation of foreign operations | | 7 | (1) | ||
| Total comprehensive (loss)/income for the year | | (8,168) | (279) | ||
| Earnings per ordinary share attributable to the owners of the parent | |
| | ||
| Basic (£ per share) | 8 | (0.34) | (0.01) | ||
| Diluted (£ per share) | 8 | (0.33) | (0.01) | ||
| Adjusted basic (£ per share) | 8 | (0.00) | 0.11 | ||
| Adjusted diluted (£ per share) | 8 | (0.00) | 0.10 | ||
Adjusted EBITDA is a non-GAAP Group-specific measure which is considered to be a key performance indicator of the Group's financial performance. Please see note 2 for a definition of Adjusted EBITDA.
The results above are derived from continuing operations.
Consolidated statement of financial position
As at 31 March 2023
| | | 2023 | 2022 |
| | |
| (restated) |
| | Note | £'000 | £'000 |
| Assets | |
| |
| Non-current assets | |
| |
| Intangible assets | 9 | 44,939 | 52,564 |
| Property, plant and equipment | 10 | 433 | 315 |
| Deferred tax asset | 14 | 742 | - |
| Trade and other receivables | 11 | 7,280 | 9,777 |
| Total non-current assets | | 53,394 | 62,656 |
| Current assets | |
| |
| Trade and other receivables | 11 | 12,346 | 10,378 |
| Cash and cash equivalents | | 3,964 | 5,575 |
| Total current assets | | 16,310 | 15,953 |
| Total assets | | 69,704 | 78,609 |
| Liabilities | |
| |
| Current liabilities | |
| |
| Trade and other payables | 12 | 12,348 | 14,519 |
| Total current liabilities | | 12,348 | 14,519 |
| Non-current liabilities | |
| |
| Creditors: amounts falling due after more than one year | 13 | 9,233 | 7,884 |
| Total non-current liabilities | | 9,233 | 7,884 |
| Total liabilities | | 21,581 | 22,403 |
| Net assets | | 48,123 | 56,206 |
| Capital and reserves | |
| |
| Share capital | 16 | 22,278 | 22,278 |
| Share premium | | 34,581 | 34,581 |
| FVTOCI reserve | | - | - |
| Other reserves | | 23,442 | 24,386 |
| Translation reserve | | 30 | 23 |
| Accumulated losses | | (32,208) | (25,062) |
| Equity attributable to owners of the Company | | 48,123 | 56,206 |
| Total equity and liabilities | | 69,704 | 78,609 |
The financial statements were approved and authorised for issue by the Board and signed on their behalf on 4 September 2023.
Philip Higgins
Chief Executive Officer
Registered number: 05059457
Consolidated statement of changes in equity
for the year ended 31 March 2023
| Group | Share capital £'000 | Share premium £'000 | FVTOCI reserve £'000 | Other reserve £'000 | Translation reserve £'000 | Accumulated losses £'000 | Total equity £'000 |
| At 1 April 2021 | 22,277 | 34,581 | 14 | 24,376 | 24 | (24,784) | 56,488 |
| Loss for the year | - | - | - | - | - | (292) | (292) |
| Other comprehensive loss for the year | - | - | (14) | - | (1) | 14 | (1) |
| Total comprehensive loss for the year | - | - | (14) | - | (1) | (278) | (293) |
| Contributions by and distributions to owners | | | | | | | |
| | | | | | | | |
| Issue of share capital | 1 | - | - | - | - | - | 1 |
| Share-based payments | - | - | - | 10 | - | - | 10 |
| At 31 March 2022 | 22,278 | 34,581 | - | 24,386 | 23 | (25,062) | 56,206 |
| Loss for the year | - | - | - | - | - | (8,175) | (8,175) |
| Other comprehensive income for the year | - | - | - | - | 7 | - | 7 |
| Expiry of share options | - | - | - | (1,029) | - | 1,029 | - |
| Total comprehensive loss for the year | - | - | - | (1,029) | 7 | (7,146) | (8,168) |
| Contributions by and distributions to owners | | | | | | | |
| Issue of share capital | - | - | - | - | - | - | - |
| Share-based payments | - | - | - | 85 | - | - | 85 |
| At 31 March 2023 | 22,278 | 34,581 | - | 23,442 | 30 | (32,208) | 48,123 |
Consolidated cash flow statement
for the year ended 31 March 2023
| | Note | 2023 £'000 | 2022 £'000 |
| Cash flows from operating activities | |
| |
| Loss for the year | | (8,175) | (292) |
| Adjustments for: | |
| |
| Amortisation of intangible assets | 4 | 2,891 | 3,149 |
| Depreciation of right of use assets | 4 | 184 | 207 |
| Depreciation of property, plant and equipment | 4 | 56 | 56 |
| Share-based payment charge | 4 | 85 | 10 |
| Other income | 4 | - | (70) |
| Impairment of intangible assets | 4 | 6,014 | - |
| Exceptional items | 4 | 125 | - |
| Finance cost | | 77 | 110 |
| Income tax | | (1,458) | 1,228 |
| Cash flow from operating activities before changes in working capital | | (201) | 4,398 |
| Decrease/(increase) in trade and other receivables | | 813 | (10,040) |
| (Decrease)/increase in trade and other payables | | (248) | 5,384 |
| Cash generated by/(used in) operations | | 364 | (258) |
| Net foreign exchange movements | | 10 | 5 |
| Finance cost paid | | (83) | (50) |
| Tax paid | | (285) | (62) |
| Net cash generated/(used) from operating activities before exceptional items | | 6 | (365) |
| Net cash flows on exceptional items | | (80) | - |
| Net cash used in operating activities | | (74) | (365) |
| Investing activities | |
| |
| Purchase of property, plant and machinery | 10 | (57) | (49) |
| Purchase of intangibles | 9 | (1,280) | (1,097) |
| Net cash used in investing activities | | (1,337) | (1,146) |
| Financing activities | |
| |
| Interest paid | | - | (91) |
| Repayment of loan liabilities - principal amount | | - | (652) |
| Repayment of lease liabilities | 21 | (200) | (220) |
| Net cash used in financing activities | | (200) | (963) |
| Net decrease in cash and cash equivalents | | (1,611) | (2,474) |
| Foreign exchange movement on cash and cash equivalents | | - | - |
| Cash and cash equivalents at the beginning of the period | | 5,575 | 8,049 |
| Cash and cash equivalents at the end of the period | | 3,964 | 5,575 |
Notes to the consolidated financial statements
for the year ended 31 March 2023
These Consolidated Financial Statements have been prepared in accordance with UK adopted International Accounting Standards and are in conformity with the requirements of the Companies Act 2006. They do not include all of the information required for full annual statements and should be read in conjunction with the 2023 Annual Report.
The comparative figures for the financial year 31 March 2022 have been extracted from the Group's statutory accounts for that financial year. The statutory accounts for the year ended 31 March 2022 have been filed with the registrar of Companies. The auditor reported on those accounts: their report was (i) unqualified, (ii) did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying the reports and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006.
The statutory accounts for the year ended 31 March 2023 were approved by the Board of Directors on 4 September 2023 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting on 29 September 2023.
The financial information contained in this announcement does not constitute statutory accounts for the year ended 31 March 2023 or 2022 as defined by Section 434 of the Companies Act 2006.
Going concern
Having made enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of signing these financial statements. Accordingly, they continue to adopt the going concern basis in preparing these consolidated financial statements.
The Directors continue to regularly review the Group's going concern position, considering the impact of potential future trading downturns should there be another global event or further economic challenges. Over the past year the Group has experienced challenging trading conditions which has resulted in delays to projects, which impacted the business's performance in the current year.
At 31 March 2023, the Group has been able to report a robust financial position and is well capitalised with a net cash position of £4.0 million (2022: £5.6 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 30 September 2024 and have challenged the assumptions used to create these budgets. The budget figures are carefully monitored against actual outcomes each month and variances are highlighted and discussed at Board level on a quarterly basis as a minimum.
The Board is pleased to report that current trading is tracking ahead of the prior year, with trading for the first quarter ended 30 June 2023 in line with managements expectations. Furthermore, a reorganisation of some of the Group's companies has resulted in c.£1.0 million of annualised cost savings made to date.
The Directors have reviewed and challenged a reverse stress test scenario on the Group up to September 2024. The purpose of the reverse stress test for the Group is to test the impact on the Group's cash if the assumptions in the budget are altered.
The reverse stress test assumes significant adjustments to the Group's budget which include the scaling back of services revenues to include just contracted and firm revenues, upcoming support renewals and existing managed services revenues plus a materially reduced assumption from September 2023 onwards for professional advisory budgeted revenues which have been adjusted by between 30%-50%. Software revenues have been reduced with all new business lines removed with the exception of the Access Management product new business revenues which have been reduced by 60%.
Costs have been scaled back prudently in line with the reduction in revenues. The resulting outcome of the stress-test forecasts that the Group would have sufficient cash resources to service its liabilities during the periods reviewed. This assumes that the revolving credit facility would not be utilised.
In the event that the performance of the Group is not in line with the projections, action will be taken by management to address any potential cash shortfall for the foreseeable future. The actions that could be taken by the Directors include both a review and restructuring of employment‑related costs. Additionally, the Directors could also negotiate access to other sources of finance from our lenders.
Overall, the sensitised cash flow forecast demonstrates that the Group will be able to pay its debts as they fall due for the period to at least 30 September 2024 and therefore the Directors are satisfied there are no material uncertainties to disclose regarding going concern. The Directors are therefore satisfied that the financial statements should be prepared on the going concern basis.
Critical accounting judgements, estimates and assumptions
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for income and expenses during the year and that affect the amounts reported for assets and liabilities at the reporting date.
Revenue recognition of material contract
Management make judgements, estimates and assumptions in determining the revenue recognition of material contracts sold by the Group's Services division. The Group works with large enterprise clients, providing services and solutions to support the clients' needs. In many cases a third-parties products or services will be provided as part of a solution. Management will consider the implications around timing of recognition, with factors such as determining the point control passes to the client and the subsequent fulfilment of the Group's performance obligations. In addition to this, management will consider if it is acting as agent or principal. Further details of how the Group determines revenue recognition and if it is acting as agent or principal can be found within the relevant notes within this section.
Business combinations
Management make judgements, estimates and assumptions in assessing the fair value of the net assets acquired on a business combination, in identifying and measuring intangible assets arising on a business combination, and in determining the fair value of the consideration. If the consideration includes an element of contingent consideration, the final amount of which is dependent on the future performance of the business, management assess the fair value of that contingent consideration based on their reasonable expectations of future performance. In determining the fair value of intangible assets acquired, key assumptions used include expected future cash flows, growth rates, and the weighted average cost of capital.
Impairment of goodwill, intangible assets and investment in subsidiaries
Management make judgements, estimates and assumptions in supporting the fair value of goodwill, intangible assets and investments in subsidiaries. The Group carries out annual impairment reviews to support the fair value of these assets. In doing so, management will estimate future growth rates, weighted average cost of capital and terminal values. Further information can be found on note 9.
Leases
Management make judgements, estimates and assumptions regarding the life of leases. Management continues to review all existing leases, which all relate to office space, and will look to reduce the number of offices across the Group if they are not sufficiently utilised. For this reason, management have assumed that the life of leases does not extend past the current contracted expiry date. A judgement has been taken with regard to the incremental borrowing rate based upon the rate at which the Group can borrow money.
Basis of consolidation
The Group's consolidated financial statements incorporate the results and net assets of Shearwater Group plc and all its subsidiary undertakings made up to 31 March each year. Subsidiaries are all entities over which the Group has control (see note 2 of the Company financial statements). The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All inter-group transactions, balances, income and expenses are eliminated on consolidation.
Business combinations and goodwill
Business combinations are accounted for using the acquisition accounting method. This involves recognising identifiable assets (including previously unrecognised intangible assets) and liabilities of the acquired business at fair value. Any excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets and liabilities is recognised in the consolidated statement of financial position as goodwill and is not amortised. To the extent that the net fair value of the acquired entity's identifiable assets and liabilities is greater than the cost of the investment, a gain is recognised immediately in the consolidated statement of comprehensive income.
After initial recognition, goodwill is stated at cost less any accumulated impairment losses, with the carrying value being reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may be impaired. Goodwill assets considered significant in comparison to the Group's total carrying amount of such assets have been allocated to cash-generating units or groups of cash-generating units. Where the recoverable amount of the cash-generating unit is less than its carrying amount including goodwill, an impairment loss is recognised in the consolidated statement of comprehensive income.
Acquisition costs are recognised in the consolidated statement of comprehensive income as incurred.
Revenue
The Group recognises revenue in accordance with IFRS 15: Revenue from Contracts with Customers. Revenue with customers is evaluated based on the five-step model under IFRS 15: Revenue from Contracts with Customers: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognise revenues when (or as) each performance obligation is satisfied.
Revenue recognised in the statement of comprehensive income but not yet invoiced is held on the statement of financial position within accrued income. Revenue invoiced but not yet recognised in the statement of comprehensive income is held on the statement of financial position within deferred revenue.
The Group's revenues are comprised of a number of different products and services across our two divisions, details of which are provided below:
Software
· Software licences whereby the customer buys software that it sets up and maintains on its premises is recognised fully at the point the licence key/access has been granted to the client. The Group sells the majority of its services through channels and distributors who are responsible for providing first and second line support to the client.
· Software licences for the new 'Authentication as a Services' product whereby the customer accesses the product via a cloud environment maintained by the Company is recognised in two parts, whereby part of the subscription is recognised at the point that the licence key is provided to the customer, with the remaining part recognised evenly over the length of the contract. This deferred proportion represents the obligation to maintain and support the platform that the software runs on.
Services
· Sale of third-party hardware, software, warranties and internal support:
a) where the contract entails only one performance obligation to provide software or hardware, revenue is recognised in full at a point in time upon delivery of the product to the end client. This delivery will either be in the form of the physical delivery of a product or the emailing of access codes to the client for them to access third‑party software or warranties; and
b) where a contract to supply external hardware, software and/or warranties also includes an element of ongoing internal support, multiple performance obligations are identified, and an allocation of the total contract value is allocated to each performance obligation based on the standalone costs of each performance obligation. The respective costs of each performance obligation are traceable to supplier invoice and applying the fixed margins, standalone selling prices are determined. Internal support is recognised equally over the period of time detailed in the contract.
· Sales of consultancy services are usually based on a number of consultancy days that make up the contracted consideration. Consultancy days generally comprise of field work and (where required) report writing and delivery which are considered to be of equal value to the client. Revenue is recognised over time based on the number of consultancy days provided within the period compared to the total in the contract.
Principal versus agent considerations
In instances where the Group is involving another party in providing goods or services to a customer the Group considers whether the nature of its promise is a performance obligation to provide the specified goods or services itself or to arrange for those goods or services to be provided by the other party to determine whether it is a principal or an agent. The business will firstly identify the specific goods and/or services to be supplied to the customer.
In determining whether the business is acting as agent or principal the business assesses whether it controls each specified good or service before that good is transferred to the customer. It will consider:
· Who is responsible for fulfilling the promise to provide the specific product or service.
· If the business is carrying a liability risk for the specific good or service prior to it being supplied to the customer.
· If the business has discretion over pricing.
In addition to the points noted above, the business also considers the following unique selling points:
· Pre-sales process;
In some cases, the business invests heavily in working with the customer to understand their requirements, before designing/recommending a solution that integrates various third-party products or services to meet the customers' requirements.
· Levels of ongoing services;
In some cases, whilst not always contracted, the business will continue to support the customer as needed to ensure that their solution is working. This may include co-ordination of the maintenance and support with third parties and provision of engineers to remove and send back faulty product.
Where the Group is a principal, revenues are recognised on a gross basis in the statement of comprehensive income while when an agent revenues are recognised on a net basis in the statement of comprehensive income.
Segmental reporting
For internal reporting and management purposes, the Group is organised into two reportable segments based on the types of products and services from which each segment derives its revenue - Software and Services. The Group's operating segments are identified on the basis of internal reports that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance.
Current and deferred income tax
The charge for taxation is based on the profit or loss for the year and takes into account deferred tax. Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax based in the computation of taxable profit or loss and is accounted for using the balance sheet method.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group's subsidiaries operate and generate taxable income. Management periodically evaluate positions taken in tax returns with respect to situations where applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax assets are only recognised to the extent that it is probable that future taxable profit will be available in the foreseeable future against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are measured at the rates that are expected to apply when the related asset is realised, or liability settled, based on tax rates and laws enacted or substantively enacted at the reporting date.
Intangible assets
Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets acquired as part of a business combination are recognised outside goodwill if the assets are separable or arise from contractual or other legal rights and their fair value can be measured reliably. Material expenditure on internally developed intangible assets is taken to the consolidated statement of financial position if it satisfies the six‑step criteria required under IAS 38.
Intangible assets with a finite life have no residual value and are amortised over their expected useful lives as follows:
Computer software (including in-house developed software) 2-5 years straight-line basis
Customer relationships 1-15 years straight-line basis
Software 10 years straight-line basis
Trade names 10 years straight-line basis
The amortisation expense on intangible assets with finite lives is recognised in the statement of comprehensive income within administrative expenses. The amortisation period and the amortisation method for intangible assets with finite useful lives are reviewed at least annually.
The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation. Cost includes the original purchase price of the asset plus any costs of bringing the asset to its working condition for its intended use. Depreciation is provided at the following annual rates, on a straight-line basis, in order to write down each asset to its residual value over its estimated useful life.
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Office equipment 25% - 33% per annum
Right of use assets Shorter of useful life of the asset or lease term
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised, as adjusted items if significant, within the statement of comprehensive income.
Financial instruments
Shearwater's financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial assets
Trade and other receivables are measured at amortised cost less a provision for doubtful debts, determined as set out below in 'impairment of financial assets'. Any write‑down of these assets is expensed to the statement of comprehensive income.
Equity investments not qualifying as subsidiaries, associates or jointly controlled entities are measured at fair value through other comprehensive income (FVTOCI), with fair value changes recognised in other comprehensive income (OCI) and dividends recognised in profit or loss.
The Group has introduced a policy to use derivatives where there is a material surplus or deficit of non-sterling receipts and payments. Forward contracts are measured at each balance sheet based on the prevailing closing exchange rates with exchange gains/(losses) recognised in the statement of comprehensive income.
Impairment of financial assets
The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39. Under the impairment approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Instead, the Group always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses are updated at each reporting date.
The impairment model only applies to the Group's financial assets that are debt instruments measured at amortised costs or FVTOCI as well as the Group's contract assets and issued financial guarantee contracts. The Group has applied the simplified approach to recognise lifetime expected credit losses for its trade receivables and contracts assets as required or permitted by IFRS 9.
Expected credit losses are calculated with reference to average loss rates incurred in the three most recent reporting periods then adjusted taking into account forward-looking information that may either increase or decrease the current rate. The Group's average combined loss rate is 0.24% (2022: 0.9%). This percentage rate is then applied to current receivable balances using a probability risk spread as follows:
· 80% of debt not yet due (i.e. the Group's average combined loss rate of 0.24% is discounted by 20%, meaning a 0.19% provision would be made to debt not yet due);
· 85% of debt that is <30 days overdue;
· 90% of debt that is 30-60 days overdue;
· 95% of debt that is 60-90 days overdue; and
· 100% of debt that is >90 days overdue.
Management have performed the calculation to ascertain the expected credit loss, which works out to £29,864 (2022: £41,069). This movement has been recognised in the statement of comprehensive income. To date, the Group has a record of minimal bad debts, with less than £0.04 million being written off in the past three years.
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in the statement of comprehensive income.
Financial liabilities
Trade and other payables
Financial liabilities within trade and other payables are initially recognised at fair value, which is usually the invoiced amount. They are subsequently carried at amortised cost using the effective interest method (if the time value of money is significant).
Loans are initially recognised at fair value, which is the amount stated in the loan agreement. Subsequently, loan balances are restated to include any interest that has become payable.
Lease liabilities have been recognised at fair value in line with the requirements of IFRS 16. Details of lease disclosures are included in note 15.
Deferred consideration which relates to the future issue of ordinary shares has been initially recognised at fair value based on the closing share price at the reporting date. Deferred consideration is revalued and recognised at fair value based on the closing share price for all future reporting dates. Movements in fair value between periods are reported in the statement of comprehensive income.
The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognised in the statement of comprehensive income.
Forward contracts
Foreign exchange risk arises when individual group operations enter into transactions denominated in a currency other than their functional currency. During the year the Group introduced the use of forward contracts within its foreign exchange policy. Where the risk to the Group is considered to be significant, the Group will enter into a forward foreign exchange contract. Further details can be found in note 18.
Leases
IFRS 16: Leases which supersedes IAS 17: Leases and IFRIC 4: Determining whether an arrangement contains a lease sets out the principles for recognition, measurement, presentation and disclosures of leases and requires lessees to account for most leases under a single on‑balance sheet model.
Right of use assets
In determining if a lease exists, management considers if a contract conveys the right to control the use of an identified asset for a period of time in return for a consideration. When assessing whether a contract states a right to control the use of an identified asset, management considers:
· if a contract involves the use of an identified asset, this could be specified explicitly or implicitly and should be physically distinct;
· if the Group has obtained the right to gain substantially all of the economic benefit from the use of the asset throughout the period of use; and
· if the Group has the right to direct the use of the asset.
Identified 'right of use assets' since 1 April 2019 are valued at the commencement date of the lease (this is usually the date the underlying asset is available for use). For leases that began prior to 1 April 2019, a right of use asset has been created at 1 April 2019 when the Group adopted IFRS 16.
Right of use assets are depreciated on a straight-line basis from the commencement date (this is usually the date the underlying asset is available for use, or 1 April 2019 if the lease commenced before this date) to the earlier of the end of useful life of the right of use asset or the end of the lease term. The right of use asset may be subject to impairment following certain remeasurement of lease liabilities.
Details of the Group's right of use assets are contained in note 10 of the consolidated financial statements.
Lease liability
At the commencement date of a lease (or 1 April 2019 for leases which commenced before this date) the Group recognises lease liabilities, measuring them at the present value of lease payments at commencement of the lease (or 1 April 2019 for leases which commenced before this date) discounted at the determined incremental borrowing rate.
The lease liability is measured at the amortised cost using the effective interest method. Should there be a change in expected future lease payments arising from a lease modification or if the Group changes its assessment of whether it will exercise an extension or termination option, the lease liability would be remeasured.
Remeasurement of a lease liability will give rise to a corresponding adjustment being made to the carrying value of the right of use asset.
Lease liabilities are detailed in notes 12, 13 and 15 of the consolidated financial statements.
Practical expedients
IFRS 16 provides for certain optional practical expedients, including those related to the initial adoption of the standard. The Group applies the following practical expedients when applying IFRS 16 to leases previously classified as operating leasing under IAS 17:
· applied a single discount rate to all leases with similar characteristics;
· applied the exemption not to recognise right of use assets and liabilities for leases with less than twelve months of the lease term remaining as at the date of initial application; and
· applied the exemption for low-value assets whereby leases with a value under £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 which it uses to discount all identified leases across the Group. The Group has one type of right of use assets, all of which are located in the United Kingdom.
Share-based payments
In order to calculate the charge for share-based payments as required by IFRS 2, the Group makes estimates principally relating to assumptions used in its option-pricing model as set out in note 17.
The cost of equity-settled transactions with employees, and transactions with suppliers where fair value cannot be estimated reliably, is measured with reference to the fair value of the equity instrument. The fair value of equity‑settled instruments is determined at the date of grant, taking into account market-based vesting conditions. The fair value is determined using an option pricing model.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.
At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions, the number of equity instruments that will likely vest, or in the case of an instrument subject to market condition, be treated as vesting as described above. The movement in cumulative expense since the previous reporting date is recognised in the statement of comprehensive income, with the corresponding entry in equity.
Pensions
The Group operates a defined contribution personal pension scheme. The assets of this scheme are held separately from those of the Company in an independently administered fund. The pension charge represents contributions payable by the Company to the fund.
Uncertainty over income tax treatments
IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The interpretation requires:
· the Group to determine whether uncertain tax treatments should be considered separately, or together as a Group, based on which approach provides better predictions of the resolution;
· the Group to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and
· if it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty. This measurement is required to be based on the assumption that each of the tax authorities will examine amounts they have a right to examine and have full knowledge of all related information when making those examinations.
New standards and interpretations applied
There were no new standards or amendments or interpretations to existing standards that became effective during the year that were material to the Group.
No new standards, amendments or interpretations to existing standards having an impact on the financial statements that have been published and that are mandatory for the Group's accounting periods beginning on or before 1 April 2022, or later periods, have been adopted early.
New standards and interpretations not applied
The following new standards, amendments and interpretations have not been adopted in the current year.
| International Financial Reporting Standard (IFRS/IAS) | Effective date | To be adopted by the Group |
| IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 (Amendment - Disclosure of Accounting Policies) | 1 January 2023 | 1 April 2023 |
| IAS 8 Accounting policies, Changes in Accounting Estimates and Errors (Amendment - Definition of Accounting Estimates) | 1 January 2023 | 1 April 2023 |
| IAS 12 Incomes Taxes (Amendment - Deferred Tax related to Assets and Liabilities arising from a Single Transaction) | 1 January 2023 | 1 April 2023 |
2. Measure of profit
To provide shareholders with a better understanding of the trading performance of the Group, additional alternative performance measures ('APMs') are included; Adjusted EBITDA and Adjusted (loss)/profit before tax have been calculated as (loss)/profit before tax after adding back the following items, which can distort the underlying performance of the Group:
Adjusted (loss)/profit before tax
· Amortisation of acquired intangibles.
· Share-based payments.
· Impairment of intangible assets.
· Fair value adjustment to deferred consideration.
· Other operating income.
· Exceptional items
Adjusted EBITDA
In addition to the adjusting items highlighted above in the adjusted (loss)/profit before tax:
· Finance costs.
· Finance income.
· Depreciation (including amortisation of right of use assets).
· Amortisation of intangible assets - computer software (including in-house software development).
Adjusted EBITDA and adjusted (loss)/profit before tax reconciles to (loss)/profit before tax as follows:
|
| 2023 £'000 | 2022 £'000 |
| (Loss)/profit before tax | (9,633) | 936 |
| Amortisation of acquired intangibles | 2,099 | 2,099 |
| Impairment of intangible assets | 6,014 | - |
| Exceptional items | 125 | - |
| Share-based payments | 85 | 10 |
| Other income | - | (70) |
| Adjusted (loss)/profit before tax | (1,310) | 2,975 |
| Finance costs | 77 | 110 |
| Depreciation | 240 | 263 |
| Amortisation of intangible assets - computer software (including in-house software development) | 792 | 1,050 |
| Adjusted EBITDA | (201) | 4,398 |
3. Segmental information
In accordance with IFRS 8, the Group's operating segments are based on the operating results reviewed by the Board, which represents the chief operating decision maker.
The Group is organised into two reportable segments based on the types of products and services from which each segment derives its revenue - Software and Services.
Segment information for the twelve months ended 31 March 2023 is presented below. The Group's assets and liabilities are not presented by segment as the Directors do not review assets and liabilities on a segmental basis.
|
| Revenue | Profit | Revenue | Profit |
| Services1 | 23,830 | 149 | 32,540 | 4,663 |
| Software1 | 2,856 | 977 | 3,336 | 1,535 |
| Group trading EBITDA1 | 26,686 | 1,126 | 35,876 | 6,198 |
| Group costs1 |
| (1,327) |
| (1,800) |
| Adjusted EBITDA |
| (201) |
| 4,398 |
| Amortisation of intangibles |
| (2,891) |
| (3,149) |
| Impairment of intangible assets |
| (6,014) |
| - |
| Depreciation |
| (240) |
| (263) |
| Exceptional items |
| (125) |
| - |
| Share-based payments |
| (85) |
| (10) |
| Other income |
| - |
| 70 |
| Finance cost |
| (77) |
| (110) |
| (Loss)/profit before tax |
| (9,633) |
| 936 |
1 Figures disclosed in the profit column for Services and Software profitability is adjusted EBITDA.
Segmental information by geography
The Group is domiciled in the United Kingdom and currently the majority of its revenues come from external customers that are transacted in the United Kingdom. A number of transactions which are transacted from the United Kingdom represent global framework agreements, meaning our services, whilst transacted in the United Kingdom, are delivered globally. The geographical analysis of revenue detailed below is on the basis of country of origin in which the master agreement is held with the customer (where the sale is transacted).
|
| 2023 £'000 | 2022 £'000 |
| United Kingdom | 18,585 | 29,531 |
| Europe (excluding the UK)1 | 6,043 | 4,508 |
| North America | 1,620 | 1,470 |
| Rest of the world | 438 | 367 |
|
| 26,686 | 35,876 |
1. Includes sales of £3,935,680 (2022: £2,444,899) and £682,853 (2022: £775,835) to Netherlands and Germany respectively.
All of the Group's non-current assets are held within the United Kingdom.
One customer within the Group makes up more than 10% of the Group's revenue. This customer contributed £8.0 million to the Group's Services division. In the prior year, two customers made up more than 10% of the Group's revenue, contributing £16.2 million and £5.2 million respectively to the Group's Services division.
4. Expenses and auditor's remuneration
Operating (loss)/profit is stated after charging:
|
| 2023 £'000 | 2022 £'000 |
| Depreciation of fixed assets | 240 | 263 |
| Amortisation of intangibles | 2,891 | 3,149 |
| External auditor's remuneration: |
|
|
| - Audit fee for annual audit of the Group and Company financial statements | 103 | 45 |
| - Audit fee for annual audit of the subsidiary financial statements | 179 | 165 |
| Share-based payments | 85 | 10 |
| Impairment of intangible assets | 6,014 | - |
| Exceptional items | 125 | - |
| Unrealised loss on forward contract | 407 | - |
| Other operating income | - | (70) |
Exceptional items include costs incurred for strategic review of the business and subsequent reorganisation which commenced at the end of the financial year.
5. Staff costs
Total staff costs within the Group comprise of all Directors' and employee costs for the financial year.
|
| 2023 £'000 | 2022 £'000 |
| Wages and salaries | 6,864 | 6,428 |
| Social security costs | 835 | 743 |
| Pension costs | 207 | 202 |
| Share-based payments | 85 | 10 |
|
| 7,991 | 7,383 |
The weighted average monthly number of employees, including Directors, employed by the Group and Company during the year was:
|
| 2023 | 2022 |
| Administration | 20 | 19 |
| Production | 53 | 43 |
| Sales and marketing | 26 | 26 |
|
| 99 | 88 |
Details of Directors' remuneration can be found within the annual report on remuneration.
6. Interest costs
|
| 2023 £'000 | 2022 £'000 |
| Interest payable on revolving credit facility | 56 | 66 |
| Interest payable on lease liabilities | 15 | 12 |
| Other interest payments | 6 | 13 |
| Interest payable on loan balances | - | 19 |
|
| 77 | 110 |
7. Taxation
|
| 2023 | 2022 |
| Current tax: |
|
|
| UK corporation tax at current rates on UK (loss)/profit for the year | - | 442 |
| Over provision in respect of prior year | (442) | - |
|
| (442) | 442 |
| Foreign tax | 2 | 13 |
| Total current tax charge | (440) | 455 |
| Deferred tax movement in the period | (1,018) | 773 |
| Income tax (credit)/charge | (1,458) | 1,228 |
| Reconciliation of taxation: |
|
|
| (Loss)/profit before tax | (9,633) | 936 |
| Profit multiplied by the average rate of corporation tax in the year of 19% (2022: 19%) | (1,830) | 178 |
| Tax effects of: |
|
|
| Expenses not deductible for tax purposes | 1,532 | 411 |
| Adjustments for previous periods | (442) | - |
| Foreign tax rate differences | (1) | (1) |
| Increase to deferred tax asset owing to changing tax rate from 1 April 2023 | (136) | - |
| Enhanced R&D relief | (130) | (94) |
| Other items | (277) | 786 |
| Brought forward losses | (174) | (52) |
| Income tax (credit)/charge | (1,458) | 1,228 |
Other items include movements in deferred tax which includes an adjustment made in the prior year to revalue deferred tax liabilities from 19% to 25%.
In the March 2021 Budget it was announced that legislation will be introduced in the Finance Bill 2021 to increase the main rate of UK corporation tax from 19% to 25%, effective 1 April 2023. As substantive enactment was prior to the post balance sheet date, the deferred tax balances at 31 March 2023 and 31 March 2022 are measured at 25%.
8. Earnings per share
Adjusted earnings per share has been calculated using adjusted earnings calculated as profit after taxation but before:
· Amortisation of acquired intangibles after tax.
· Share-based payments.
· Impairment of intangible assets.
· Exceptional items after tax.
· Fair value adjustment to deferred consideration.
· Other operating income.
Basic profit per share is calculated by dividing the profit attributable to the ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
For diluted earnings per share, the weighted average number of shares in issue is adjusted to assume conversion of all the potential dilutive ordinary shares. The potential dilutive shares are anti-dilutive for the twelve months ended 31 March 2023 and for the twelve months ended 31 March 2022. Adjusted earnings per share is potentially dilutive in the year to 31 March 2022. Please see notes 16 and 17 of the consolidated financial statements for more details.
The calculation of the basic and diluted profit/loss per ordinary share from total operations attributable to shareholders is based on the following data:
|
| 2023 | 2022 |
| Net profit from total operations |
|
|
| Loss for the purposes of basic and diluted earnings per share being net profit attributable to shareholders | (8,175) | (292) |
| Add/(remove): |
|
|
| Amortisation of acquired intangibles | 1,878 | 1,878 |
| Impairment of intangible assets | 6,014 | - |
| Exceptional items | 101 | - |
| Share-based payments | 85 | 10 |
| Adjustment to deferred tax liability relating to acquired intangibles1 | - | 1,014 |
| Other income | - | (70) |
| Adjusted (loss)/earnings for the purposes of adjusted earnings per share | (97) | 2,540 |
|
| Number | Number |
| Number of shares |
|
|
| Weighted average number of ordinary shares for the purpose of basic and adjusted earnings per share | 23,818,674 | 23,809,807 |
| Weighted average number of ordinary shares for the purpose of diluted and adjusted diluted earnings per share | 24,549,536 | 24,723,962 |
|
| £ | £ |
| Basic earnings per share | (0.34) | (0.01) |
| Diluted earnings per share | (0.33) | (0.01) |
| Adjusted basic earnings per share | (0.00) | 0.11 |
| Adjusted diluted earnings per share | (0.00) | 0.10 |
1. Adjustment to deferred tax liability relating to acquired intangibles represents the impact of the rate change to 25% which was announced in the March 2021 Budget which has increased the deferred tax liability for acquired intangibles.
9. Intangible assets
|
| Goodwill £'000 | Customer relationships £'000 | Software £'000 | Tradenames £'000 | Gold exploration £'000 | Total £'000 |
| Cost |
|
|
|
|
|
|
| At 1 April 2021 | 36,660 | 10,838 | 7,543 | 6,826 | 1,005 | 62,872 |
| Additions | - | - | 1,097 | - | - | 1,097 |
| At 31 March 2022 | 36,660 | 10,838 | 8,640 | 6,826 | 1,005 | 63,969 |
| Additions | - | - | 1,280 | - | - | 1,280 |
| At 31 March 2023 | 36,660 | 10,838 | 9,920 | 6,826 | 1,005 | 65,249 |
| Accumulated amortisation |
|
|
|
|
|
|
| At 1 April 2021 | - | 2,689 | 2,885 | 1,677 | 1,005 | 8,256 |
| Amortisation for the year | - | 934 | 1,532 | 683 | - | 3,149 |
| At 31 March 2022 | - | 3,623 | 4,417 | 2,360 | 1,005 | 11,405 |
| Amortisation for the year | - | 934 | 1,274 | 683 | - | 2,891 |
| Impairment | 6,014 | - | - | - | - | 6,014 |
| At 31 March 2023 | 6,014 | 4,557 | 5,691 | 3,043 | 1,005 | 20,310 |
| Net book amount |
|
|
|
|
|
|
| At 31 March 2023 | 30,646 | 6,281 | 4,229 | 3,783 | - | 44,939 |
| At 31 March 2022 | 36,660 | 7,215 | 4,223 | 4,466 | - | 52,564 |
| At 31 March 2021 | 36,660 | 8,149 | 4,658 | 5,149 | - | 54,616 |
Software intangible assets comprise acquired software assets plus software assets developed both in-house and externally. The amortisation charge for the year includes £2.1 million amortisation on acquired intangible assets and £0.8 million amortisation of internally developed software assets.
The Group tests goodwill annually for impairment. The recoverable amount of goodwill is determined as the higher of the value-in-use calculation or fair value less cost of disposal for each cash‑generating unit (CGU). The value-in-use calculations use pre-tax cash flow projections based on financial budgets and forecasts approved by the Board covering a three-year period. These pre-tax cash flows beyond the three-year period are extrapolated using estimated long-term growth rates. The Group has five separate cash-generating units. For all five cash‑generating units a weighted average cost of capital of 12.6% and a terminal value, based on a long-term growth rate of 2% calculated on year five cash flow has been used when testing goodwill.
The following key assumptions around revenue growth are summarised in the table below.
|
| Cash-generating units | ||||
|
| SecurEnvoy | GeoLang | Brookcourt Solutions | Xcina Consulting | Pentest |
| Year 1 | (10)% | 1,869% | 47% | 22% | 34% |
| Year 2 | 16% | (24)% | 7% | (6)% | 6% |
| Year 3 | 12% | 41% | 13% | 5% | 6% |
| Year 4 | 23% | 10% | 6% | 5% | 6% |
| Year 5 | 23% | 10% | 6% | 5% | 6% |
| 4 year CAGR1 | 18% | 7% | 8% | 2% | 6% |
4 year CAGR represents the average growth rate per year between FY24 and FY28.
An impairment charge of £6.0 million has been recorded in the current year, writing down the goodwill balance held for the Group's SecurEnvoy, Xcina Consulting and Xcina IS businesses.
Sensitivity analysis has been performed on each of the Group's cash-generating units ('CGUs') which incorporates changes in assumed revenue growth rates and profit margin growth in addition to terminal value revenue growth rate and weighted cost of capital (WACC). Outcomes of the following sensitivities are detailed below:
· Reducing the terminal value by 1% from 2% to 1% would flag insufficient headroom in one of the Group's five CGUs (SecurEnvoy) resulting in a further impairment of £0.8 million.
· Increasing the weighted average cost of capital by 1% from 12.6% to 13.6% would flag insufficient headroom in one of the Group's five CGUs (SecurEnvoy) resulting in a further impairment of £1.1 million.
· A 10% reduction in the assumed annual revenue growth rates for each CGU from FY25 (maintaining forecast gross profit margin % and adjusting administrative expenses in line with the % revenue reduction) would, subject to no other changes, flag insufficient headroom in two of the Group's five CGUs (SecurEnvoy and Pentest) resulting in a further potential impairment of £6.8 million.
· A 15% reduction in the assumed annual revenue growth rates for each CGU from FY25 (maintaining forecast gross profit margin % and adjusting administrative expenses in line with the % revenue reduction) would, subject to no other changes, flag insufficient headroom in four of the Group's five CGUs (SecurEnvoy, GeoLang, Brookcourt and Pentest) resulting in a further potential impairment of £10.9 million.
Gold exploration assets date back to before 2017 when the Group was known as Aurum Mining plc whose principal activity was mining and exploration.
10. Property, plant and equipment
|
| Right of use assets £'000 | Office equipment £'000 | Total £'000 |
| Cost |
|
|
|
| At 1 April 2021 | 541 | 365 | 906 |
| Additions | 125 | 49 | 174 |
| Disposals | (90) | - | (90) |
| At 31 March 2022 | 576 | 414 | 990 |
| Additions | 301 | 57 | 358 |
| Disposals | - | (43) | (43) |
| At 31 March 2023 | 877 | 428 | 1,305 |
| Accumulated depreciation |
|
|
|
| At 1 April 2021 | 258 | 243 | 501 |
| Charge for the period | 207 | 57 | 264 |
| Disposals | (90) | - | (90) |
| At 31 March 2022 | 375 | 300 | 675 |
| Charge for the period | 185 | 55 | 240 |
| Disposals | - | (43) | (43) |
| At 31 March 2023 | 560 | 312 | 872 |
| Net book amount |
|
|
|
| At 31 March 2023 | 317 | 116 | 433 |
| At 31 March 2022 | 201 | 114 | 315 |
| At 31 March 2021 | 283 | 122 | 405 |
Depreciation of property, plant and equipment is charged to depreciation and amortisation expenses within the statement of comprehensive income.
11. Trade and other receivables
| Non-current | 2023
£'000 | 2022 (restated) £'000 |
| Trade receivables | 5,226 | - |
| Accrued income | 2,054 | 9,777 |
|
| 7,280 | 9,777 |
| Current | 2023
£'000 | 2022 (restated) £'000 |
| Trade receivables | 7,475 | 4,538 |
| Accrued income | 4,081 | 5,070 |
| Prepayments and other receivables | 499 | 770 |
| Corporation tax asset | 291 | - |
|
| 12,346 | 10,378 |
The movement for the provision in expected credit losses is stated below:
|
| 2023 £'000 | 2022 £'000 |
| At 1 April | 41 | 27 |
| Movement in expected credit loss provision | (11) | 14 |
| At 31 March | 30 | 41 |
12. Trade and other payables
|
| 2023 £'000 | 2022 £'000 |
| Trade payables | 3,265 | 4,573 |
| Accruals and other payables | 8,031 | 8,289 |
| Other taxation and social security | 518 | 599 |
| Forward contract | 275 | - |
| Deferred income | 147 | 456 |
| Corporation tax | 7 | 444 |
| Lease liabilities | 105 | 158 |
|
| 12,348 | 14,519 |
13. Creditors: amounts falling due after more than one year
|
| 2023 £'000 | 2022 £'000 |
| Accruals and other payables | 5,284 | 3,958 |
| Deferred tax | 3,602 | 3,878 |
| Lease liabilities | 216 | 48 |
| Forward contract | 131 | - |
|
| 9,233 | 7,884 |
14. Deferred tax
|
| 2023 £'000 | 2022 £'000 |
| Non-current liabilities |
|
|
| Liability at 1 April | 3,878 | 3,105 |
| Deferred tax charge/(credit) in the statement of comprehensive income | (276) | 773 |
| Total deferred tax | 3,602 | 3,878 |
Deferred tax balance at 31 March 2023 includes a £3.0 million (2022: £3.4 million) deferred tax liability for acquired intangible assets including software and trademarks.
|
| 2023 £'000 | 2022 £'000 |
| Non-current assets |
|
|
| At 1 April | - | - |
| Credit to statement of comprehensive income | 742 | - |
| Total deferred tax asset | 742 | - |
The Group has tax losses of £3.0 million (2022: £0.7 million) across its Parent Company Shearwater Group plc and four subsidiaries that are available for offset against future taxable profits of the entity. A deferred tax asset has been recognised in respect of tax losses brought forward and in the current year which will be used to offset future taxable profits.
15. Lease liabilities
Lease liabilities at 31 March 2023, which include the extension of some existing office leases, are detailed below:
| Lease liabilities | Property £'000 |
| At 1 April 2021 | 289 |
| Additions | 125 |
| Interest expense | 12 |
| Payments to lease creditors | (220) |
| At 31 March 2022 | 206 |
| Additions | 301 |
| Interest expense | 15 |
| Payments to lease creditors | (200) |
| At 31 March 2023 | 321 |
The maturity analysis of lease liabilities is detailed below:
| Lease liabilities - (contractual undiscounted cash flows) | 2023 £'000 | 2022 £'000 |
| Less than one year | 118 | 177 |
| One to five years | 233 | 51 |
| Total undiscounted lease liabilities at 31 March | 351 | 228 |
There are no leases with a term of more than five years.
| Lease liabilities included in the statement of financial position at 31 March | 2023 £'000 | 2022 £'000 |
| Current | 105 | 158 |
| Non-current | 216 | 48 |
| Amounts recognised in the statement of comprehensive income | 2023 £'000 | 2022 £'000 |
| Interest on lease liabilities | 15 | 12 |
| Expenses related to short‑term leases | - | - |
| Expenses related to low-value assets | - | - |
| Depreciation of right of use assets (note 10) | 185 | 207 |
| Amounts recognised in the statement of cash flows | 2023 £'000 | 2022 £'000 |
| Payment of principal | 200 | 220 |
| Payment of interest | 15 | 12 |
| Total cash outflows | 215 | 232 |
16. Share capital
The table below details movements within the year:
|
| Ordinary shares | |
| In thousands of shares | 2023 | 2022 |
| In issue at 1 April | 23,818 | 23,810 |
| Options exercised during the year | 8 | 8 |
| Number of shares | 23,826 | 23,818 |
|
| 2023 £'000 | 2022 £'000 |
| Allotted, called up and fully paid |
|
|
| Ordinary shares of £0.10 each (2022: £0.10 each) | 2,382 | 2,382 |
| Deferred shares of £0.90 each (2022: £0.90 each) | 19,896 | 19,896 |
| Total | 22,278 | 22,278 |
In September 2019, a reorganisation of the Company's capital which resulted in the consolidation of shares where every 100 shares were consolidated into one ordinary share of £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 2023:
On 28 February 2023, 8,320 options were exercised by a professional adviser to the Group.
Other reserves included:
Share premium
This comprises of the amount subscribed for share capital in excess of the nominal value less any transaction costs incurred in raising equity.
Other reserves
These comprise of amounts expensed in relation to the share options, share incentive scheme (see note 17) and merger relief from shares issued as consideration to acquisitions and equity placings (net of costs).
Movements in the year ended 31 March 2023 include the following transactions which have been recognised in the other reserve:
A reallocation to retained earnings from capital and share-based payments reserves of £1,029,953 relating to the share incentive scheme and other of lapsed share options was made in the year.
Accumulated loss reserve
Accumulated loss reserves for the Group are made up of cumulative profits and losses net of dividends and other adjustments.
17. Share-based payments
|
| 2023 £'000 | 2022 £'000 |
| Subsidiary incentive scheme | 36 | 72 |
| Save As You Earn (SAYE) | 12 | 13 |
| Share options - (CSOP) | 38 | 13 |
| Share options - (ESOP) | (1) | (88) |
|
| 85 | 10 |
Share options - (CSOP)
The following options over ordinary shares remained outstanding at 31 March 2023:
|
| Options at 1 April 2022 | Options issued during the year | Options lapsed during the year | Options exercised during the year | Options at 31 March 2023 | 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 | - | 2,778 | - | 87,220 | £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 | 514,064 | - | 82,000 | - | 432,064 | £0.95 | 10/02/2022 | 10/02/2025 | 10/02/2027 |
| Total | 640,174 | - | 84,778 | - | 555,396 |
|
|
|
|
The following options over ordinary shares remained outstanding at 31 March 2022:
|
| Options 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 |
| Employees1 | - | 514,064 | - | - | 514,064 | £0.95 | 10/02/2022 | 10/02/2025 | 10/02/2027 |
| Total | - | 640,174 | - | - | 640,174 |
|
|
|
|
1 An adjustment to the number of share options issued in the prior year has been made. The number originally reported was 542,000 and included 27,936 share options issued and presented under the company's ESOP.
The following illustrates the number and weighted average exercise price (WAEP) of, and movements in, share options during the year.
|
| 2023 | 2022 | ||
|
| Number | WAEP £ | Number | WAEP £ |
| Outstanding at the beginning of the year | 640,174 | 0.95 | - | - |
| Issued | - | - | 640,174 | 0.95 |
| Lapsed during the year | 84,778 | 0.95 | - | - |
| Exercised during the year ended 31 March | - | - | - | - |
| Outstanding at 31 March | 555,396 | 0.95 | 640,174 | 0.95 |
| Exercisable at 31 March | 87,220 | 0.95 | - | - |
The share-based payment charge for options granted to employees and Directors has been calculated using the Black‑Scholes model and using the following parameters:
|
|
|
| Share price at grant date | £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 55% (2022: 29%).
The weighted average remaining contractual life of options outstanding at the end of the year was three years and eleven months.
Share options - (ESOP)
The following options over ordinary shares remained outstanding at 31 March 2023:
|
| Options at 1 April 2022 | Options issued during the year | Options lapsed during the year | Options exercised during the year | Options at 31 March 2023 | 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 | 39,500 | - | 39,500 | - | - | £4.0 | 09/05/2017 | 09/05/2018 | 08/05/2022 |
| Employees | 9,390 | - | 4,140 | - | 5,250 | £4.0 | 13/11/2017 | 13/11/2018 | 30/09/2023 |
| Employees | 1,023 | - | 569 | - | 454 | £4.0 | 01/03/2018 | 01/03/2019 | 28/02/2023 |
| Employees | 5,625 | - | 312 | - | 5,313 | £4.0 | 04/04/2018 | 04/04/2019 | 03/04/2023 |
| Employees | 911 | - | 387 | - | 524 | £1.6 | 01/03/2019 | 01/03/2020 | 01/07/2024 |
| Employees | 3,000 | - | - | - | 3,000 | £4.0 | 01/06/2019 | 01/06/2020 | 30/09/2023 |
| Employees | 10,000 | - | 2,500 | - | 7,500 | £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 | 8,320 | - | - | 8,320 | - | £0.1 | 27/02/2020 | 27/02/2021 | 31/03/2023 |
| Total | 113,580 | - | 47,408 | 8,320 | 57,852 |
|
|
|
|
The following options over ordinary shares remained outstanding at 31 March 2022:
|
| Options 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 | 30/09/2023 |
| 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 illustrates the number and weighted average exercise price (WAEP) of, and movements in, share options during the year.
|
| 2023 | 2022 | ||
|
| Number | WAEP £ | Number | WAEP £ |
| Outstanding at the beginning of the year | 113,580 | 2.8 | 268,999 | 3.3 |
| Issued | - | - | 27,936 | 0.95 |
| Lapsed during the year | 47,408 | 3.9 | 175,036 | 3.2 |
| Exercised during the year ended 31 March | 8,320 | 0.1 | 8,320 | 0.1 |
| Outstanding at 31 March | 57,852 | 2.2 | 113,580 | 2.8 |
| Exercisable at 31 March | 21,229 | 3.7 | 50,276 | 3.9 |
The weighted average share price of options exercised during the year was £0.89 (2022: £1.18).
The share-based payment charge for options granted to employees and Directors has been calculated using the Black‑Scholes model and using the following parameters:
|
|
|
|
| Share price at grant date |
| £0.95 to £4.30 |
| Exercise price |
| £0.10 to £4.00 |
| Expected option life (year) |
| 1 year to 6 years |
| Expected volatility (%) |
| 10.6% to 80.0% |
| Expected dividends |
| 0% |
| Risk-free interest rate (%) |
| 0.60% to 1.54% |
| Option fair value |
| £0.04 to £2.87 |
The calculation includes an estimated leaver provision of 31% (2022: 29%).
The weighted average remaining contractual life of options outstanding at the end of the year was two years and two months (2022: one year and ten months).
Share options - (SAYE)
The following options over ordinary shares remained outstanding at 31 March 2023:
|
| Options at 1 April 2022 | Options issued during the year | Options lapsed during the year | Options exercised during the year | Options at 31 March 2023 | Exercise price | Date of grant | First date of exercise | Final date of exercise |
| Employees: | |||||||||
| Employees | 132,465 | - | 14,851 | - | 117,614 | £1.515 | 25/01/2021 | 01/03/2024 | 30/09/2024 |
| Total | 132,465 | - | 14,851 | - | 117,614 |
|
|
|
|
The following options over ordinary shares remained outstanding at 31 March 2022:
|
| Options 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 illustrates the number and weighted average exercise price (WAEP) of, and movements in, share options during the year.
|
| 2023 | 2022 | ||
|
| Number | WAEP £ | Number | WAEP £ |
| Outstanding at the beginning of the year | 132,465 | 1.515 | 150,285 | 1.515 |
| Issued | - | - | - | - |
| Lapsed during the year | 14,851 | 1.515 | 17,820 | 1.515 |
| Exercised during the year ended 31 March | - | - | - | - |
| Outstanding at 31 March | 117,614 | 1.515 | 132,465 | 1.515 |
| Exercisable at 31 March | - | - | - | - |
The share-based payment charge for options granted to employees and Directors has been calculated using the Black‑Scholes model and using the following parameters:
|
|
|
|
| Share price at grant date |
| 1.420 |
| Exercise price |
| 1.515 |
| Expected option life (year) |
| 3 years 7 months |
| Expected volatility (%) |
| 40.0% |
| Expected dividends |
| 0% |
| Risk-free interest rate (%) |
| 0.13% |
| Option fair value |
| £0.394 |
The calculation includes an estimated leaver provision of 33% (2022: 29%).
Options held by Directors are disclosed in the Annual Report.
The market price of shares as at 31 March 2023 was £0.50 (31 March 2022: £1.05). The range during the financial year was £0.50 to £1.39. At the date of signing the financial statements the share price was £0.485.
The weighted average remaining contractual life of options outstanding at the end of the year was one year and six months (2022: two years and six months).
Subsidiary incentive scheme
On 29 September 2016, the Group established a share incentive scheme for certain Directors and consultants to the Group, via the Group's subsidiary, Shearwater Subco Limited (the 'subsidiary'), in order to align the interests of the scheme participants directly with those of shareholders.
Pursuant to the subsidiary incentive scheme, the subsidiary issued 160,000 'B' ordinary shares of £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 Parent Company and the Parent Company shall acquire those B shares in consideration for cash or by the issue of new ordinary shares at the Group's discretion. The Group's intention is to settle these through the issue of new ordinary shares in the Group.
The value of the incentive shares is discussed below. The subsidiary incentive scheme vesting period expired on 29 September 2022. Whilst the vesting condition of being employed were satisfied, the growth conditions were not met and subsequently no exercises were made. The Company will look to exercise a call option to reclaim those B shares from the current holders.
Directors' incentive shares
The incentive shares issued to Directors are shown in the table below:
|
|
Participation in increase in shareholder value | Issue price | Nominal value of incentive shares | Number of incentive shares 1 April 2022 | Number of incentive shares 31 March 2023 | Number of Shearwater Group plc shares issued | Share-based payment charge |
| D Williams | 6.5% | £0.032 | £0.000001 | 65,000 | 65,000 | - | £14,533 |
| P Higgins | 7.5% | £0.032 | £0.000001 | 75,000 | 75,000 | - | £16,768 |
Valuation of incentive shares
The share-based payment charge for the incentive shares has been calculated using a binomial valuation model at the grant date. The fair value amounted to £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 expired on 29 September 2022. In the current year £35,773 (2022: £71,742) has been recognised as an expense in the statement of comprehensive income in respect of incentive shares. All 160,000 incentive scheme shares were subscribed for by participants at unrestricted market value.
18. Financial instruments
The Group uses financial instruments, other than derivatives, comprising cash at bank and various items such as trade and other receivables and trade and other payables that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group's operations.
The Group's financial assets and liabilities at 31 March 2023, as defined under IFRS 9, are as follows. The fair values of financial assets and liabilities recorded at amortised cost are considered to approximate their book value.
|
| Amortised cost (loans and receivables) | Fair value through other comprehensive income (available for sales) | ||
|
| 2023 £'000 | 2022 £'000 | 2023 £'000 | 2022 £'000 |
| Financial assets |
|
|
|
|
| Cash and cash equivalents | 3,964 | 5,575 | - | - |
| Trade and other receivables | 18,836 | 19,426 | - | - |
| Total financial assets | 22,800 | 25,001 | - | - |
|
|
|
| ||
|
| 2023 £'000 | 2022 £'000 |
|
|
| Trade and other receivables |
|
|
|
|
| Trade receivables | 12,701 | 4,579 |
|
|
| Accrued income | 6,135 | 14,847 |
|
|
|
| 18,836 | 19,426 |
|
|
|
| Amortised cost (payables) | Fair value through profit or loss (FVPL) | ||
|
| 2023 £'000 | 2022 £'000 | 2023 £'000 | 2022 £'000 |
| Financial liabilities |
|
|
|
|
| Trade and other payables | 16,580 | 16,821 | - | - |
| Lease liabilities | 320 | 205 | - | - |
| Forward contracts | - | - | 407 | - |
| Total financial assets | 16,900 | 17,026 | 407 | - |
|
|
|
| ||
|
| 2023 £'000 | 2022 £'000 |
|
|
| Trade and other payables |
|
|
|
|
| Trade payables | 3,265 | 4,573 |
|
|
| Accruals | 13,302 | 12,120 |
|
|
| Other creditors | 13 | 128 |
|
|
|
| 16,580 | 16,821 |
|
|
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's Finance function.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility.
The Group is exposed to financial risks in respect of:
· capital risk;
· foreign currency;
· interest rates;
· credit risk; and
· liquidity risk.
A description of each risk, together with the policy for managing risk, is given below.
Capital risk
The Group manages its capital to ensure that the Group and its subsidiaries will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of equity and debt balances.
The capital structure of the Group consists of cash and cash equivalents, borrowings, equity, comprising issued capital, reserves and accumulated losses as disclosed in the consolidated statement of changes in equity in the Annual Report.
The Board of Directors reviews the capital structure on a regular basis. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital, against the purpose for which it is intended.
The Group has a three-year £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. The current facility is in place until 23 March 2024.
Market risk
Market risk arises from the Group's use of interest‑bearing, tradable and foreign currency financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates (currency risk), interest rates (interest rate risk), or other market factors (other price risk).
Foreign currency risk
The Group is exposed to foreign currency risk on sales and purchases which are denominated in a currency other than sterling. Exposures to exchange rates are predominantly denominated in US dollars and euros. The Group seeks to reduce foreign exchange exposures arising from transactions in various currencies through a policy of matching, as far as possible, receipts and payments across the Group in each individual currency. The Group has introduced a policy to use derivatives where there is a material surplus or deficit of non-sterling receipts and payments.
The following forward contracts were entered into in order to mitigate the risk of further weakening of sterling against US dollar.
| Currency | Amount (000) | Maturity date | Foreign exchange rate |
| US dollar | 4,100 | 10 November 2023 | 1.138 |
| US dollar | 2,000 | 10 May 2024 | 1.140 |
The above derivatives are remeasured at fair value at each reporting date. This gives rise to a gain or loss, the entire amount of which is recognised in the statement of comprehensive income within administrative expenses.
As of 31 March the Group's net exposure to foreign exchange risk was as follows:
|
| USD | EUR | ||
| Net foreign currency financial assets/(liabilities) | 2023 £'000 | 2022 £'000 | 2023 £'000 | 2022 £'000 |
| Trade receivables | 228 | 202 | 148 | 735 |
| Other receivables | 1,390 | - | 4 | - |
| Trade payables | (2,537) | (3,389) | (43) | (18) |
| Other payables | (9,605) | (9,364) | (192) | - |
| Cash and cash equivalents | 1,929 | 1,431 | 551 | 651 |
| Total net exposure before excluding forward contracts | (8,595) | (11,120) | 468 | 1,368 |
| Forward contracts | 6,100 | - | - | - |
| Total net exposure | (2,495) | (11,120) | 468 | 1,368 |
The effect of a 10% strengthening of the US dollar against sterling at the reporting date on the US dollar-denominated trade and other receivables, trade and other payables, forward contracts and cash and cash equivalents carried at that date would, all other variables held constant, have resulted in a decrease of the pre-tax profit in the year and a decrease in net assets of £0.2 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 £0.2 million.
The effect of a 10% strengthening of the euro against sterling at the reporting date on the euro-denominated trade receivables, payables and cash and cash equivalents carried at that date would, all other variables held constant, have resulted in an increase of the pre-tax profit in the year and an increase in net assets of £0.05 million. A 10% weakening in the exchange rate would, on the same basis, have decreased the pre-tax profit in the year and decreased net assets by £0.04 million.
Interest rate risk
The Group has minimal cash flow interest rate risk as it has no external borrowings at variable interest rates.
Liquidity risk
The Group manages liquidity risk by maintaining adequate cash reserves and credit facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities wherever possible. In addition to this, the Group has a £4.0 million revolving credit facility (RCF) which provides further contingency against short-term working capital movements. At 31 March 2023 this facility had not been utilised. The current revolving credit facility (RCF) is in place until 23 March 2024. There has been no change to the Group's exposure to liquidity risks or the manner in which these risks are managed and measured during the year. Further details are provided in the strategic report.
The liquidity risk of each Group entity is managed centrally by the Group's Finance function. Each entity has a predefined facility based on the budget which is set and approved by the Board in advance, which provides detail of each entity's cash requirements. Any additional expenditure over budget requires sign off by the Board. A quarterly reforecast which includes a cash flow forecast is reviewed by management and approved by the Board.
The Group has a three-year £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 assets and liabilities is summarised below. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.
| Financial assets |
| 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 2023 |
|
|
|
|
|
|
| Trade and other receivables |
| 6,515 | 5,041 | 7,280 | - | - |
| Total |
| 6,515 | 5,041 | 7,280 | - | - |
| Financial assets |
| 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 receivables |
| 7,064 | 2,584 | 5,143 | 4,634 | - |
| Total |
| 7,064 | 2,584 | 5,143 | 4,634 | - |
| Financial liabilities | 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 2023 |
|
|
|
|
|
| Trade and other payables | 4,953 | 6,342 | 5,284 | - | - |
| Forward contracts | - | 275 | 131 | - | - |
| Lease liabilities | 30 | 75 | 59 | 157 | - |
| Total | 4,983 | 6,692 | 5,474 | 157 | - |
| Financial liabilities | 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 | - | - |
| Lease liabilities | 51 | 107 | 48 | - | - |
| Total | 8,660 | 4,360 | 4,007 | - | - |
|
|
|
|
|
|
|
Credit risk
The Group's principal financial assets are trade receivables and bank balances. The Group is consequently exposed to the risk that its customers cannot meet their obligations as they fall due. The Group's policy is that the lines of business assess the creditworthiness and financial strength of customers at inception and on an ongoing basis. The Group also reviews the credit rating of its banks and financial institutions.
Ongoing review of the financial condition of trade and other receivables is performed. Further details are in note 11. The carrying amount of financial assets recorded in the financial statements represents the Group's maximum exposure to credit risk. Whilst the Group's exposure to credit risk has increased as the Group has grown, to date this has not materially increased the Group's actual bad debt, which is partially due to the type of clients it contracts with as well as effective due diligence when issuing credit to its clients.
19. Related party transactions
The Directors of the Group and their immediate relatives have an interest of 19% (2022: 18%) of the voting shares of the Group. The shareholdings of Directors and changes during the year are shown in the Directors' report.
No dividends were made to the Company in either years by subsidiary undertakings.
There were no other related party transactions for the Group during the period.
20. Bank loans
At 31 March 2023 the Group had not utilised the £4.0 million credit facility it has in place with Barclays Bank plc. The facility was extended on 24 March 2021 for a further three years to 23 March 2024. A charge has been registered on Shearwater Group plc and a number of its subsidiaries as security for the facility.
21. Notes to support cash flow
Cash and cash equivalents comprise:
|
| 2023 £'000 | 2022 £'000 |
| Cash available on demand | 3,964 | 5,575 |
| Net cash (decrease)/increase in cash and cash equivalents | (1,611) | (2,474) |
| Cash and cash equivalents at the beginning of the year | 5,575 | 8,049 |
| Cash and cash equivalents at the end of the year | 3,964 | 5,575 |
Cash and cash equivalents are held in the following currencies:
|
| 2023 £'000 | 2022 £'000 |
| Sterling | 1,914 | 3,494 |
| US dollar | 1,566 | 1,431 |
| Euro | 484 | 650 |
|
| 3,964 | 5,575 |
Reconciliation of liabilities from financing activities:
|
|
|
| Non-cash changes |
| |||
|
| 2022 £'000 | Cash outflows £'000 |
| Loan interest £'000 | Right of use asset additions £'000 |
| 2023 £'000 |
| Other loans | - | - |
| - | - |
| - |
| Revolving credit facility interest payable | 20 | (76) |
| 56 | - |
| - |
| Other interest | - | (7) |
| 6 | - |
| - |
| Payment of principal on lease liabilities | 206 | (200) |
| 15 | 301 |
| 321 |
| Total | 226 | (283) |
| 77 | 301 |
| 321 |
|
|
|
|
| Non-cash changes |
| ||
|
| 2021 £'000 | Cash outflows £'000 | Interest savings on early repayment of loans £'000 | Loan interest £'000 | Right of use asset additions £'000 | Early repayment discount on loan liabilities £'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 |
22. Prior year restatement
In the prior year, the trade and other receivables included amounts that were not due for payment until after twelve months so should have been classified as non-current assets.
The prior year consolidated statement of financial position has been restated to correctly reclassify previously reported trade and other receivables of £9,777,398 from current assets to non-current as at 31 March 2022.
The restatement has no impact on the opening consolidated statement of financial position at 1 April 2021 or the consolidated statement of comprehensive income for the year ended 31 March 2022.
23. Events after the reporting period
After the year end, Brookcourt Solutions Limited, one of the Group's subsidiaries, entered into two forward contracts totalling $1.3 million at an average rate of $1.2412/£ to offset foreign exchange supplier exposure on a recently completed contract. The two contracts dated 5 April 2023 and 6 April 2023 have a maturity date for both contracts of 14 July 2023. Both contracts were settled on 3 July 2023.
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