Certain information contained within this Announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 ("MAR") as applied in the United Kingdom. Upon publication of this Announcement, this information is now considered to be in the public domain.
29 January 2024
Smarttech247 Group PLC
("Smarttech247", the "Group" or the "Company")
Final Results
Smarttech247 (AIM: S247), a multi-award-winning provider of AI-enhanced cybersecurity services providing automated managed detection and response for a portfolio of international clients, is pleased to announce its audited final results for the 12 months ended 31 July 2023.
Operational highlights
· Admitted to trading on AIM in December 2022, raising £3.7 million via a placing of new ordinary shares
· A number of new contracts have been won during the period, and since the period end, spearheaded by the Group's Managed Detection and Response (MDR) platform, VisionX
· In April 2023 the Company announced its participation in Managed Security Service Provider Program by its partner, Forcepoint, a global security leader
· Named as Cybersecurity Company of the Year by Chambers of Ireland InBusiness Recognition Awards in May 2023
· In July 2023 Smarttech247 partnered with SentinelOne, a cybersecurity platform company, to deliver cybersecurity solutions
· The Group has expanded, with headcount increased significantly, to be positioned to deliver growth and develop new products
· Continued development of new products, including new VisionX features with further development of ThreatHub and NoPhish
Post-period end
· Listing of VisionX on the Amazon Web Services (AWS) Marketplace in August 2023
· Strategic partnership with Abnormal Security, a leading behavioural AI-based email security platform in August 2023
· In October 2023 Smarttech247 announced a strategic partnership with Splunk, a cybersecurity platform company, to deliver automation-driven and human-led MDR capabilities to global clients
· Won a tender contract from an existing Government of Ireland department client and secured a contract renewal with AutoNation, the largest automotive retailer in the United States, in October 2023
· New three-year contract secured with a global pharmaceutical solutions organisation in November 2023
· Ranked as a Deloitte Fast 50 Technology Company and won the 'Email Security Solution of the Year' at The Computing Security Award 2023 for the Company's NoPhish product
· Announced the launch of Aio, a new AI Assistant and the launch of the Company's Mid-Market MDR solution for its VisionX platform in January 2024
Financial highlights
· Revenue increased by 19.3% to ?12.18 million (31 July 2022: ?10.21 million)
· Gross profit increased by 22.7% to ?6.81 million (31 July 2022: ?5.55 million)
· Adjusted EBITDA increased by 36% to ?2.70 million (31 July 2022: ?1.98 million)
· Adjusted operating profit of ?2.15 million (31 July 2022: ?1.76 million)
· Cash of ?6.06 million at the period end (31 July 2022: ?2.36 million)
Raluca Saceanu, CEO of Smarttech247, commented:
"I am pleased to announce our first, full-year results as an AIM-quoted company, marking a major milestone for Smarttech247. We have entered into several new contracts during the period, and since the period end, with large, international organisations, and hope to continue this momentum with our larger sales capacity to further increase our revenue and profit growth going forward.
"The year under review, and the period to date, has been marked by significant strides in our Research and Development as well as forming strategic partnerships with top companies like Forcepoint, SentinelOne, Abnormal Security, and Splunk. These synergies have empowered us to offer our clients a comprehensive security ecosystem, one that is not only robust, but also dynamically tailored to meet the evolving demands of their unique business landscapes.
"Smarttech247 now has the platform in place to support and accelerate its growth in the cybersecurity sector. We are confident as we enter 2024 and look forward to updating the market on our further progress in due course."
- Ends -
The Annual Report and Accounts for the financial year ended 31 July 2023 will be available to download from the Group's website via: https://www.smarttech247.com/aim-rule-26/
For further information please contact:
| Smarttech247 Group PLC | Tel: +353 21 206 6033 |
| Ronan Murphy, Executive Chairman Raluca Saceanu, Chief Executive Officer Nicholas Lee, Finance Director | |
| SPARK Advisory Partners Limited - Nominated Adviser | Tel: + 44 (0) 20 3368 3550 |
| Mark Brady / Adam Dawes | |
| Shard Capital - Joint Broker | Tel: +44 (0) 20 7186 9900 |
| Damon Heath | |
| Fortified Securities - Joint Broker | Tel: +44 7493 989014 |
| Guy Wheatley, CFA | |
| Yellow Jersey PR Sarah Hollins / Annabelle Wills / Bessie Elliot | Tel: +44 (0) 20 3004 9512
|
About Smarttech247
Smarttech247 is a multi-award winning automated MDR (Managed Detection & Response) company. Its platform is trusted by international organisations and provides threat intelligence with managed detection and response to provide actionable insights, 24/7 threat detection, investigation and response.
The Group's services are geared towards proactive prevention and it achieves this by utilising the latest in cloud, big data analytics and machine learning, along with an experienced incident response team. In recognition of its innovative technology, Smarttech247 was named by Chambers Ireland InBusiness Recognition Awards as Cyber Security Company of the Year 2023.
Smarttech247's offices are located in Ireland, United Kingdom, Romania, Poland and the USA. The Company was admitted to trading on AIM on 15 December 2022.
For further information please visit www.smarttech247.com
Chairman's statement
Introduction
Smarttech247 Group plc (the "Company") is a public limited company whose shares are quoted on the AIM market of the London Stock Exchange. The Company is a multi-award-winning provider of AI-enhanced cybersecurity services providing automated managed detection and response for a portfolio of international clients. It has four directly and indirectly owned subsidiaries, Zefone Limited, Smart Systems Security Limited, Smarttech 247 Cyber Security Sarl incorporated and Smarttech Sp z.o.o. (together "Smarttech247" or the "Group").
We are pleased to report our results for the year to 31 July 2023.
Highlights
The key highlights for the year are as follows:
| Year ended | 31 July 2023 Audited | 31 July 2022 Unaudited | Change |
|
| ?000 | ?000 | % |
| Revenue | 12,180 | 10,206 | +19.3 |
| Gross profit | 6,806 | 5,545 | +22.7 |
| Gross profit margin | 55.9% | 54.3% | |
| | | | |
| Operating costs | 6,981 | 3,850 | |
| | | | |
| Adjusted EBITDA (Note 6)* | 2,698 | 1,984 | +36.0% |
| | | | |
| Operating profit | 303 | 1,756 | |
| | | | |
| Profit before tax | 204 | 1,534 | |
| | | | |
| As at | | | |
| Cash | 6,062 | 2,358 | |
| Net assets | 11,483 | 4,533 | |
* Adjusted EBITDA is a non-IFRS measure and has been reconciled to the underlying IFRS numbers in Note 6
· Listing achieved on the London Stock Exchange, raising £3.7 million
· Revenue and profits continue to grow strongly
· A number of new contracts have been won during the period, spearheaded by the Group's Managed Detection and Response ("MDR") VisionX
· A number of significant partnerships have been entered into with leading players in the industry
· The platform has been expanded and headcount increased in order to be in a position to deliver growth and develop new products
· New sales capacity established to increase the rate of revenue growth
· New products are being developed including a new VisionX product with further development of ThreatHub and NoPhish
Review of the year
2023 has had a transformational year for the Group with a listing being achieved on the London Stock Exchange in December 2022 and funds successfully raised from new investors. At the same time, the business has continued to grow significantly, building out its platform and headcount to service demand.
The Group now has the platform in place to support and accelerate its revenue growth. We have also launched new products and won multiple new contracts with major global companies and institutions. These contracts are important as they provide clear validation of the service that we provide and clear reference points for new customers. We are often competing with global companies to win new business and succeeding, more details on which will be covered in the Chief Executive Officer's ("CEO") Statement.
We firmly believe that our listing will give Smarttech247 greater visibility and credibility in overseas geographies, including the USA and Europe, and will support our growth plans in the short and long term. I am extremely proud of the team that we now have in place and would like to thank them for their hard work and dedication in getting the Group to its current position. I would also like to welcome our new investors.
Outlook and strategy
Cyber-attacks continue to increase with serious implications for the companies concerned. There is no simple solution to defend an organisation against everything that it can be exposed to but our combination of managed detection and response capabilities can help to significantly reduce the impact of an attack and manage the situation. We therefore see clear opportunities for future growth.
We have started FY2024 well with more contracts being won and a number of existing contracts being renewed so we are very much looking forward to continuing this progress in FY2024.
Ronan Murphy
Executive Chairman
26 January 2024
Chief Executive Officer's statement
During the year under review, the Group made notable progress on a number of fronts. It has focused on building out its platform and launching new products and is now extremely well-placed to grow revenue. As we embark on a new era at Smarttech247, we are pleased with the Group's prospects and the strategic advances that we are making.
Products
To support its extensive capabilities for Managed Detection and Response ("MDR"), the Group launched its VisionX technology during the year. This technology, together with our award-winning capabilities and expertise, provides 24/7 proactive threat detection and response, using cloud data analytics, machine learning and an incident response capability.
This AI-enabled platform is used in tandem with human-led monitoring from Smarttech247's expert team, empowering organisations to leverage AI and intelligent automation to enhance their security operations.
During the year, we have also embarked on the development of a new version of the VisionX product. This offers a very different functionality in that it is multi-tenancy and has a completely new User Interface - this is a very important element of the VisionX platform as it is heavily relied upon by product users to enable them to assess the effectiveness of their security operations in real time. This new design offers users an intuitive approach that simplifies complex security operations. With improved functionality, advanced analytics, threat hunting and customisable dashboards, customers will gain unprecedented insights into their organisation's security posture.
Post period end in August 2023, the Group also announced that its VisionX platform is available on the Amazon Web Services ("AWS") Marketplace. AWS's well-established, trusted platform allows us to showcase VisionX to a wider range of customers, demonstrating our commitment to delivering leading security solutions to a global audience.
The Group is continuing to develop its threat and vulnerability software called Threathub. Threathub has attack surface intelligence management features which allow organisations to manage their risk continuously by providing them with automated threat modelling and dynamic risk governance capabilities based on their internal and external attack surface.
We are progressing with the revamping of our Managed Phishing Response Platform, NoPhish, underscoring our steadfast commitment to addressing the dynamic landscape of cybersecurity threats. The latest developments represent a pivotal advancement, facilitating expeditious responses to phishing incidents through a streamlined and intuitive user experience. This enhancement is poised to significantly contribute to the efficacy of our platform by minimising response times and optimising operational agility.
Contracts
Smarttech247 holds a strong position within the cybersecurity market, and we are pleased to be able to deliver revenue and adjusted EBITDA growth. Just prior to joining AIM, the Group won a three-year contract with a total sales value of US$800,000 with a Fortune 150 leading automotive retailer in the USA with annual revenues of over US$20 billion. This was followed by a three-year agreement with a large US tech company headquartered in Massachusetts and a two-year agreement with a prestigious university in Ireland worth circa US$400,000 and US$450,000 respectively over the length of the contracts. All these contracts are centred on the Group's MDR platform, VisionX.
In July 2023, the Group announced that it had received an order from an existing client, a global, automotive technology company, worth in total circa US$3 million over three years. This order includes the provision and implementation of the Group's cutting-edge security intelligence technology, VisionX to provide enhanced visibility and threat detection. Once integrated, it provides a unified and proactive security solution by combining real-time threat monitoring, rapid incident response and advanced analytics. This will enable the digital resilience of the client's assets to be strengthened thereby safeguarding them more effectively.
Post period end in August 2023, as part of Smarttech247's partnership with Abnormal Security a multi-year contract worth nearly ?400k, over two years, was won with a global organisation within the aviation industry sector.
In October 2023, the Group won a tender contract from an existing Government of Ireland department client, worth circa ?400,000 over two years. This deal will see Smarttech247 leverage its strategic partnership with IBM to provide its IBM QRadar Security Information and Event Management ("SIEM") solution. The technology is designed to provide security teams with centralised visibility into enterprise-wide security data. This resource empowers Smarttech247 clients with actionable insight into the most critical threats, enabling more effective threat management, near real-time visibility and the production of detailed data access and user activity reports.
Smarttech247's client, and the largest automotive retailer in the United States, AutoNation, has recently extended its existing partnership for a further three years. This will allow Smarttech247 to continue supporting this Fortune 150 global enterprise in its cybersecurity solutions and is a testament to the success of the ongoing partnership. Furthermore, AutoNation's Vice President and CISO, Chip Regan, recently explained in a recent case study why Smarttech247 was the obvious choice when it came to its cybersecurity needs and specifically how partnering with Smarttech247 has allowed AutoNation to achieve a granular level of security and monitoring on a scale that suits such a large, global enterprise.
In November 2023, the Group announced that it had signed a new deal with a global pharmaceutical solutions organisation, based in the USA, worth approximately ?900,000 over three years, deploying its AI-enhanced VisionX platform.
Combining the VisionX MDR platform with the managed services offering creates competitive differentiation for the Group. Major new customers have highlighted factors like this as the reason for selecting Smarttech247.
Smarttech247 currently has multiple contracts with leading global organisations. The majority of these contracts are multi-year thereby providing greater certainty of revenue. Also, with contracts now in place with such prestigious organisations, this represents an excellent source of reference for new business.
Partnerships
In the dynamic field of cybersecurity, our strategic technology alliances play a pivotal role in providing best-of-breed solutions to our clients. These collaborations and integrations with our platform VisionX represent a proactive approach to addressing evolving threats, incorporating cutting-edge technologies such as Secure Access Service Edge ("SASE"), Data Loss Prevention ("DLP"), autonomous security, and AI-driven email protection.
In April 2023, the Group announced its participation in the newly released Managed Security Service Provider Program ("MSSP") by its partner, Forcepoint, a global security leader. The program is centred on Forcepoint ONE SSE cloud-native and Forcepoint enterprise data security solutions. As a partner of Forcepoint, Smarttech247 will be able to quickly incorporate Secure Access Service Edge ("SASE") and DLP managed services into its offerings through the MSSP program. Partners of this service can also benefit from flexible consumption of Forcepoint converged, cloud-delivered security solutions, update customer configurations and offer multi-tenant services, all with a few clicks.
With the Group's hosted and managed services centred on Forcepoint ONE SSE cloud-native and Forcepoint enterprise data security solutions, this will allow today's enterprises to manage risk holistically and simplify security operations. This is a potential game-changer when adversaries are constantly finding new ways to steal confidential data.
In July 2023, the Group announced that it had joined forces with SentinelOne (NYSE: S), the autonomous cybersecurity platform company, to deliver comprehensive cybersecurity solutions to businesses of all sizes.
SentinelOne, a recognised leader in protecting endpoints, cloud, networks and identities in an intelligent, holistic way. Its technology is at the forefront of the industry and combined with Smattech247's expertise in cybersecurity consulting and MDR services, businesses can be provided with a complete security solution that can adapt and scale with their changing needs.
The partnership combines Smarttech247's expertise in cybersecurity consulting, MDR services and threat intelligence with SentinelOne's market-leading autonomous security technology to provide a comprehensive security solution that protects against cyber threats.
Smarttech247 will maximise the benefits and value of SentinelOne's leading technology for its customers with specialist-managed endpoint protection and response services, whilst SentinelOne will provide Smarttech247 with access to its latest threat intelligence and research.
Post period end, in August 2023, the Group announced a strategic partnership agreement with Abnormal Security, a leading behavioural AI-based email security platform. Unlike traditional secure email gateways, Abnormal Security takes a different approach to stopping email attacks. The cloud-native API architecture ingests thousands of signals across multiple platforms to build a baseline of the known-good behaviour of every employee and vendor in an organisation based on communication patterns, sign-in events and thousands of other attributes. It then applies advanced AI models including natural language processing ("NLP") and behavioural analytics to detect abnormalities in email behaviour that indicate a potential threat and prevent attacks from reaching end users.
Abnormal Security will be integrated into Smarttech247's comprehensive MDR service, VisionX, to provide a unified and proactive security solution.
In October 2023, the Group announced a strategic partnership agreement with Splunk Inc. Splunk Inc. (NASDAQ: SPLK), a cybersecurity and observability leader, helps make organisations more digitally resilient. Businesses use Splunk's unified security and observability platform to keep digital systems secure and reliable. This partnership brings together Smarttech247's automation-driven and human-led VisionX MDR capabilities and Splunk's powerful SIEM technology solutions.
The Group also works with a number of other leading industry players whose products can be incorporated within its MDR platform as required. Such partners include Microsoft, IBM and Crowdstrike among many others.
People and platform
During FY2023, the Group has increased its headcount significantly in order to provide the capacity for future revenue growth. This in itself is a significant achievement given the demand for suitably qualified high-quality personnel. This has also been implemented against the background of tight control over costs to maintain existing margins.
During FY2023, one key area of focus was to build out the Group's sales capability and operations. Investment has now been made in this area and progress achieved which will support the Group's revenue growth going forward.
Also, during the period Paul Garvey was appointed to the Group's Advisory Board. Paul Garvey is currently Vice President and Head of Global Accounts at Check Point Software Technologies Ltd, a leading provider of cyber security solutions to over 100,000 global customers, where he oversees the entire Go To Market capability for Check Point's largest customers. Subsequently, and post period end, Sascha Maier was also appointed to the Group's Advisory Board. Sascha is currently the Group Chief Information and Security Officer at SV Group, a leading hospitality and catering group in Europe. In this role, he oversees the Cyber Resilience strategy for the entire group, including all brands, subsidiaries, and the foundation.
Awards and profile
On 9 March 2023, the Group hosted its annual Zero Day Con conference at the Dublin Convention Centre, bringing together leading technology firms, industry experts and government officials to allow business leaders to learn more about the latest cybersecurity trends. This year, over 500 international cybersecurity industry leaders attended, and speakers included senior professionals from the FBI, the Government of Ireland, and top cybersecurity and medical companies.
In May 2023, the Group was named Cyber Security Company of the Year by Chambers Ireland InBusiness Recognition Awards 2023. This is a prestigious award and an important recognition for Smarttech247 to receive in its first year as a publicly quoted organisation.
The Group has once again been nominated as a Deloitte Fast 50 Technology Company for 2023. Deloitte Fast 50 is one of Ireland's foremost technology award programs, each year highlighting the 50 fastest-growing technology companies across Ireland.
The Group also secured the 'Email Security Solution of the Year' title at The Computing Security Awards 2023 for its product 'NoPhish'. This cutting-edge solution operates in real-time, detecting and responding to phishing attempts. By analysing reported emails and identifying malicious elements, such as attachments or URLs, NoPhish enables organisations to stay ahead of cyber threats. Phishing remains a critical concern for companies globally and NoPhish offers clients a defence through its proactive approach and intelligence. The 'Email Security Solution of the Year' award signifies Smarttech247's commitment to innovation and the security of its clients.
Furthermore, Smarttech247 has been recognised as a finalist for the 'Scale Up of the Year' award at the prestigious Tech Industry Alliance Awards and has also received a nomination for the 'Cyber Security Solution Provider of the Year' award at the 2023 EU Cyber Awards. Smarttech247 was also shortlisted for the 'Best Newcomer' Award at the AIM Awards 2023, for seven awards at the Computing Security Awards 2023 (these include New Product/Solution of the Year, One to Watch Security and Data Protection as a Service Provider of the Year) and for Tech Scale up of the Year award at the Tech Industry Alliance Awards in October 2023.
Financial commentary
In terms of financial performance, the revenue of the Group increased by around 20% over the prior year as a result of winning several new contracts during FY2023. Gross profit margins improved slightly leading to a gross profit increase of around 23%.
Operating costs increased significantly, principally as a result of the costs of the Company's Initial Public Offering on AIM ("IPO") and other costs incurred during the year. Underlying operating costs, after adjusting for IPO related and other costs increased during the period reflecting the increase in the scale of operations and the commencement of amortisation of certain of the Group's new products.
Underlying adjusted EBITDA (as reconciled in Note 6), after adjusting for certain costs and amortisation/depreciation, grew by over 36% during the period. The Group's underlying cash generation was strong, providing cash to deploy in the development of new products which is fundamental to a business like Smarttech247.
The Group's financial position also improved significantly over the period as a result of the conversion of the convertible loan note and the funds raised at IPO. Consequently, the Group is very well positioned to fund future growth.
FY2024 has started well with both new contracts being won and a number of existing clients renewing their contracts.
Raluca Saceanu
CEO
26 January 2024
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 July 2023
| |
Note | 2023 | 2022 Unaudited |
| Continuing operations | |
| |
| Revenue | 4 | 12,180 | 10,206 |
| Cost of sales | 5 | (5,374) | (4,661) |
| Gross profit | | 6,806 | 5,545 |
| Administrative expenses | 6 | (6,981) | (3,850) |
| Other operating income | 7 | 478 | 61 |
| Operating profit | | 303 | 1,756 |
| Investment income | 10 | - | 2 |
| Other gains and losses | 11 | 1 | (8) |
| Finance costs | 12 | (100) | (216) |
| Profit before taxation | | 204 | 1,534 |
| Income tax | 13 | (371) | (156) |
| Profit for the year from continuing operations | | (167) | 1,378 |
| Total profit for the year attributable to equity holders of the parent | | | |
| Other comprehensive income | | - | (1) |
| Total comprehensive profit for the year attributable to equity holders of the parent | | (167) | 1,377 |
| | |
| |
| Basic earnings per share - ? cents | 14 | (0.1662) | 1.5749 |
STATEMENT OF FINANCIAL POSITION
As at 31 July 2023
|
GROUP
| Note | 2023 | 2022 Unaudited |
| Non-current assets | | | |
| Intangible assets | 15 | 3,934 | 1,739 |
| Property, plant and equipment | 16 | 153 | 97 |
| Right-of-use asset | 21 | 331 | 64 |
| Financial assets | 17 | 1,162 | 1,161 |
| Total non-current assets | | 5,580 | 3,061 |
| Current assets | | | |
| Trade and other receivables | 19 | 6,423 | 6,153 |
| Cash and cash equivalents | 20 | 6,062 | 2,358 |
| Total current assets | | 12,485 | 8,511 |
| TOTAL ASSETS | | 18,065 | 11,572 |
| Equity attributable to owners of the parent | | | |
| Called up share capital | 22 | 1,436 | - |
| Share premium | 22 | 6,365 | - |
| Share based payment reserve | 23 | 554 | - |
| Other reserves | 24 | (1,215) | 23 |
| Foreign exchange reserve | | 34 | 34 |
| Retained earnings | | 4,309 | 4,476 |
| Total equity | | 11,483 | 4,533 |
| Non-current liabilities | | | |
| Borrowings | 26 | - | 2,342 |
| Lease liability | 21 | 260 | 4 |
| Total non-current liabilities | | 260 | 2,346 |
| Current liabilities | | | |
| Trade and other payables | 27 | 6,231 | 4,629 |
| Lease liability | 21 | 91 | 64 |
| Total current liabilities | | 6,322 | 4,693 |
| Total liabilities | | 6,582 | 7,039 |
| TOTAL EQUITY AND LIABILITIES | | 18,065 | 11,572 |
These Financial Statements were approved by the Board of Directors on 26 January 2024 and were signed on its behalf by:
Raluca Saceanu
Director
Company number: 14385467
| COMPANY | Note | 2023 |
|
| Non-current assets | | | |
| Investments | 18 | 1,116 | |
| Total non-current assets | | 1,116 | |
| Current assets | | | |
| Intercompany receivable | | 3,166 | |
| Trade and other receivables | 19 | 184 | |
| Cash and cash equivalents | 20 | 2,949 | |
| Total current assets | | 6,299 | |
| TOTAL ASSETS | | 7,415 |
|
| Equity attributable to owners of the parent | | | |
| Called up share capital | 22 | 1,436 | |
| Share premium | 22 | 6,365 | |
| Share based payment reserve | 23 | 554 | |
| Foreign exchange reserve | | 22 | |
| Retained earnings | | (1,016) | |
| Total equity | | 7,361 | |
| Current liabilities | | | |
| Trade and other payables | 27 | 54 | |
| Total current liabilities | | 54 | |
| Total liabilities | | 54 | |
| TOTAL EQUITY AND LIABILITIES | | 7,415 |
|
Under section 408 of the Companies Act 2006, the Company is exempt from the requirement to present its own income statement or statement of comprehensive income. The Company's loss for the year was ?1,016K.
These Financial Statements were approved by the board of Directors on 26 January 2024 and were signed on its behalf by:
Raluca Saceanu
Director
STATEMENT OF CASHFLOW
For the year ended 31 July 2023
| GROUP | Notes | 2023 | 2022 Unaudited |
| Cash flow from operating activities | | | |
| (Loss) / profit for the financial year | | (167) | 1,378 |
| Adjustments for: | | | |
| Interest payable | | 64 | 1 |
| Finance costs | | 36 | 215 |
| Impact of foreign exchange | | (9) | (270) |
| Taxation | | 371 | 156 |
| Share based payments | | 554 | - |
| IPO costs in shares | | 608 | - |
| Depreciation and amortisation | | 549 | 228 |
| Taxation paid | | (148) | - |
| Fair value loss / (gain) on investments | | (1) | 8 |
| Changes in working capital: | | | |
| Decrease / (increase) in trade and other receivables | | (241) | (1,622) |
| (Decrease) / increase in trade and other payables | | 1,532 | 611 |
| Net cash inflow from operating activities | | 3,148 | 705 |
| Cash flow from investing activities | | | |
| Cash acquired on acquisition | | 7 | 13 |
| Purchase of intangible fixed assets | | (2,625) | (1,434) |
| Purchase of tangible fixed assets | | (112) | (38) |
| Sale / (purchase) of financial assets | | - | (2) |
| Net cash inflow / (outflow) from investing activities | | (2,730) | (1,461) |
| Cash flows from financing activities | | | |
| Net proceeds from the issue of shares | | 3,373 | - |
| Repayment of lease liabilities | 21 | (76) | (101) |
| Other finance costs | | (7) | - |
| Net cash inflow from financing activities | | 3,290 | (101) |
| Net increase / (decrease) in cash and cash equivalents | | 3,708 | (857) |
| Cash and cash equivalents at beginning of period | | 2,358 | 3,215 |
| Foreign exchange impact on cash | | (4) | - |
| Cash and cash equivalents at the end of the period | 20 | 6,062 | 2,358 |
Significant non-cash transactions
The only significant non-cash transactions that are included in the cash flow were the issue of shares and share options as detailed in Notes 22 and 23.
| COMPANY | Notes | 2023 |
|
| Cash flow from operating activities | | | |
| (Loss) / profit for the financial year | | (1,016) | |
| Adjustments for: | | | |
| Share based payments | | 450 | |
| IPO costs in shares | | 608 | |
| Changes in working capital: | | | |
| (Increase) / decrease in trade and other receivables | | (521) | |
| Increase / (decrease) in trade and other payables | | 55 | |
| Net cash outflow from operating activities | | (424) | |
| Cash flows from financing activities | | | |
| Net proceeds from the issue of shares | | 3,373 | |
| Net cash inflow from financing activities | | 3,373 | |
| Net increase / (decrease) in cash and cash equivalents | | 2,949 | |
| Cash and cash equivalents at beginning of period | | - | |
| Foreign exchange impact on cash | | - | |
| Cash and cash equivalents at the end of the period | 20 | 2,949 | |
Significant non-cash transactions
The only significant non-cash transactions that are included in the cash flow were the issue of shares and share options as detailed in Notes 22 and 23.
STATEMENT OF CHANGE IN EQUITY
As at 31 July 2023
| GROUP | Share Capital | Share Premium | SBP Reserve | Merger Reserve | Foreign Exchange Reserve | Retained Earnings |
| Total Equity |
| | ?'000 | ?'000 | ?'000 | ?'000 | ?'000 | ?'000 |
| ?'000 |
|
| | | | | | | | |
| At 1 August 2021 | - | - | - | - | 35 | 3,098 | | 3,133 |
| Profit for the year | - | - | - | - | - | 1,378 | | 1,378 |
| Other comprehensive income | - | - | - | - | (1) | - | | (1) |
| Total comprehensive income for the year | - | - | - | - | (1) | 1,378 | | 1,377 |
| Acquisition of Smarttech Poland | - | - | - | 23 | - | - | | 23 |
| Total transaction with owners | - | - | - | 23 | - | - | | 23 |
| Balance at 31 July 2022 (unaudited) | - | - | - | 23 | 34 | 4,476 | | 4,533 |
| Loss for the year | - | - | - | - | - | (167) | | (167) |
| Other comprehensive income | - | - | - | - | - | - | | - |
| Total comprehensive income for the year | - | - | - | - | - | (167) |
| (167) |
| Capital reorganisation | 1,012 | - | - | (1,012) | - | - | | - |
| Issue of shares to settle acquired CLN | 159 | 2,577 | - | - | - | - | | 2,736 |
| Issue of shares | 265 | 4,108 | - | - | - | - | | 4,373 |
| Acquisition of Smart Securities | - | - | - | (226) | - | - | | (226) |
| Share based payments | - | - | 554 | - | - | - | | 554 |
| Share issue costs | - | (320) | - | - | - | - | | (320) |
| Total transaction with owners | 1,436 | 6,365 | 554 | (1,238) | - | - | | 7,117 |
| Balance at 31 July 2023 | 1,436 | 6,365 | 554 | (1,215) | 34 | 4,309 | | 11,483 |
| COMPANY | Share Capital | Share Premium | SBP Reserve | Foreign Exchange Reserve | Retained Earnings |
| Total Equity |
| | ?'000 | ?'000 | ?'000 | ?'000 | ?'000 |
| ?'000 |
|
| | | | | | | |
| Loss for the year | - | - | - | - | (1,016) | | (1,016) |
| Other comprehensive income | - | - | - | 22 | - | | 22 |
| Total comprehensive income for the year | - | - | - | 22 | (1,016) | | (994) |
| Issue of shares as part of capital reorganisation | 1,012 | - | - | - | - | | 1,012 |
| Issue of shares to settle acquired CLN | 159 | 2,577 | - | - | - | | 2,736 |
| Issue of shares | 265 | 4,108 | - | - | - | | 4,373 |
| Share based payments | - | - | 554 | - | - | | 554 |
| Share issue costs | - | (320) | - | - | - | | (320) |
| Total transaction with owners | 1,436 | 6,365 | 554 | - | - | | 8,355 |
| Balance at 31 July 2023 | 1,436 | 6,365 | 554 | 22 | (1,016) | | 7,361 |
NOTES TO THE FINANCIAL INFORMATION
For the year ended 31 July 2023
1 GENERAL INFORMATION
Smartech247 Group plc ("Smartech247") is a public limited company incorporated and registered in England and Wales with its registered office at 165 Fleet Street, London, EC4A 2DY. The Company's registered number is 14385467. The Company has four direct and indirectly 100% owned subsidiaries, Zefone Limited incorporated and registered in Ireland, Smart Systems Security Limited, incorporated and registered in England and Wales, Smarttech 247 Cyber Security Sarl incorporated and registered in Romania and Smartech Sp z.o.o. incorporated and registered in Poland (together "the Group").
The Group's principal activities consist of providing Managed Detection and Response capabilities to global organisations, and associated services including penetration testing, governance risk and compliance and cyber consultancy.
The consolidated Financial Statements were approved for issue by the Board of Directors on 26 January 2024.
2 ACCOUNTING POLICIES
IAS 8 requires that management shall use its judgement in developing and applying accounting policies that result in information which is relevant to the economic decision-making needs of users, that are reliable, free from bias, prudent, complete and represent faithfully the financial position, financial performance and cash flows of the entity.
2.1 Basis of preparation
The financial statements for the period ended 31 July 2023 have been prepared in accordance with UK-adopted International Accounting Standards ('IFRS') and in accordance with the requirements of the Companies Act 2006 with the principal accounting policies applied in the preparation of the Financial Statements as set out below. These policies have been consistently applied to the period presented, unless otherwise stated.
On 18 November 2022, Smarttech247 Group plc which had never traded, acquired 100% of Zefone Limited. The Group has used merger accounting to account for this acquisition as there was no change in the shareholders or holdings, and therefore it is accounted for as a common control transaction with no change in the book values of assets and liabilities and no fair value accounting applied. No goodwill arises as a result. Consequently, FY2023 incorporates the full year results for Zefone Limited and its subsidiaries as well as the trading of the parent Company from incorporation on 29 September 2022 to 31 July 2023, prepared under IFRS. See Note 2.6 for further information.
The comparative financial information for the year ended 31 July 2022 has been derived from the unaudited IFRS financial information included in the Group's regulatory news service announcement of 4 April 2023. This comprises the results of Zefone Limited which is the Group's principal trading subsidiary and its other subsidiaries. Zefone Limited's Irish GAAP financial statements were audited during this period whilst any necessary IFRS adjustments made and the consolidation with its subsidiaries were subject to a formal review by Group's auditors.
The preparation of financial statements in conformity with UK IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts in the financial statements. The areas involving a higher degree of judgement or complexity, or areas where assumptions or estimates are significant to the Financial Statements, are disclosed in Note 2.23.
The principal accounting policies are set out below and have, unless otherwise stated, been applied consistently in the Financial Statements.
The consolidated financial statements are presented in Euros (?) unless otherwise stated, which is Zefone's functional currency and the Group and Company's presentational currency, and presented to the nearest ?'000.
2.2 New standards, amendments and interpretations
The Group and Company have adopted all of the new and amended standards and interpretations issued by the International Accounting Standards Board that are relevant to its operations and effective for accounting periods commencing on or after 1 July 2021.
No Standards or Interpretations that came into effect for the first time for the financial year beginning 1 July 2021 have had an impact on the Group or Company.
2.3 New standards and interpretations not yet adopted
Standards and amendments to standards that have been issued that are applicable to the Group but are not effective for 2023 and have not been early adopted are:
| Standard | Impact on initial application | Effective date |
| Annual Improvements | 2018-2020 Cycle | 1 January 2023 |
| IFRS 17 | Insurance Contracts | 1 January 2023 |
| IAS 1 | Classification of liabilities as Current or Non-current | 1 January 2023 |
| IAS 8 | Accounting estimates | 1 January 2023 |
| IAS 12 | Deferred tax arising from a single transaction | 1 January 2023 |
| IFRS 16 | Amendments to IFRS 16 | 1 January 2024 |
| IAS 1 | Amendments to IAS 1 | 1 January 2024 |
The effect of these new and amended Standards and Interpretations which are in issue but not yet mandatorily effective is not expected to be material.
The directors are evaluating the impact that these standards may have on the financial statements of Group.
2.4 Going concern
Management has prepared the Financial Statements on a going concern basis. The Directors are satisfied that adequate resources are held by the Group, taking into consideration the successful AIM listing, and associated fundraise, during the year, and consequently they have no reason to believe that any material uncertainty exists that would cast a doubt about the ability of the Group and Company to continue as a going concern.
In making this judgement management considered the Group's budgets and cash flow forecasts for a period of at least twelve months from the date of approval of the financial information and the level of existing cash resources which demonstrates that the Group will be in a position to meet its liabilities as they fall due.
The Group and Company have therefore adopted the going concern basis in preparing the Financial Statements.
2.5 Basis of consolidation
Subsidiaries are all entities (including structured entities) over which the Group has control. 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.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated.
The Group has used merger accounting as described in more detail below in note 2.6 for the combination of Smarttech247 Group plc and its direct and indirectly held subsidiaries.
2.6 Merger accounting
The Company was incorporated on 29 September 2022 with one £0.01 ordinary share and on 18 November 2022, became the parent company of the Group when it issued 87,499,999 £0.01 ordinary shares in exchange for 100% of the ordinary shares in Zefone Limited as part of a share for share exchange.
This transaction is not considered to be a business combination within the scope of IFRS3 as the transaction was between entities under common control. This is a key judgement, and as a transaction where there was no change in the shareholders or holdings, is accordingly accounted for using merger accounting with no change in the book values of assets and liabilities and no fair value accounting applied.
As permitted, the Group has applied 'predecessor' accounting and although the consolidated financial statements have been issued in the name of Smarttech247 Group plc, the legal parent, it represents a continuation of the financial information of the legal subsidiary. As such, the comparative information presented for the year ended 31 July 2022 is that of the Company's subsidiary which has been derived from the unaudited IFRS financial information included in the Group's regulatory news service announcement of 4 April 2023.
Further information on the transaction is included in Note 24.
Merger accounting was applied in relation to the acquisition of Smart Systems Security Limited andSmarttech247 so. z o.o. These transactions have not been presented as a continuation of trade and the subsidiary's net assets and trading results have been included in the consolidation at their book value from the date of acquisition.
2.7 Foreign currency translation
(i) Functional and presentation currency
Items included in the financial information for each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial information is presented in ? Euro, which is the Group's presentation and functional currency. The individual financial statements of each of the Company's wholly owned subsidiaries are prepared in the currency of the primary economic environment in which it operates (its functional currency). IAS 21 The Effects of Changes in Foreign Exchange Rates requires that assets and liabilities be translated using the exchange rate at period end, and income, expenses and cash flow items are translated using the rate that approximates the exchange rates at the dates of the transactions (i.e. the average rate for the period). The foreign exchange differences on translation is recognised in other comprehensive income (loss).
(ii) Transactions and balances
Transactions denominated in a foreign currency are translated into the functional currency at the exchange rate at the date of the transaction. Assets and liabilities in foreign currencies are translated to the functional currency at rates of exchange ruling at statement of financial position date. Gains or losses arising from settlement of transactions and from translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income for the period.
(iii) Group companies
The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
- assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of the statement of financial position;
- income and expenses for each statement of comprehensive income are translated at the average exchange rate; and
- all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders' equity. When a foreign operation is partially disposed or sold, exchange differences that were recorded in equity are recognised in the statement of comprehensive income as part of the gain or loss on sale.
2.8 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Board of Directors.
2.9 Impairment of non-financial assets
Non-financial assets and intangible assets not subject to amortisation are tested annually for impairment at each reporting date and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment review is based on discounted future cash flows. If the expected discounted future cash flow from the use of the assets and their eventual disposal is less than the carrying amount of the assets, an impairment loss is recognised in profit or loss and not subsequently reversed.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash flows (cash generating units or 'CGUs').
2.10 Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, and demand deposits with banks and other financial institutions and bank overdrafts.
2.11 Fair value measurement
Fair value measurement IFRS 13 establishes a single source of guidance for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The resulting calculations under IFRS 13 affected the principles that the Company uses to assess the fair value, but the assessment of fair value under IFRS 13 has not materially changed the fair values recognised or disclosed. Further information is set out at Note 2.12 (c).
IFRS 13 mainly impacts the disclosures of the Company. It requires specific disclosures about fair value measurements and disclosures of fair values, some of which replace existing disclosure requirements in other standards.
2.12 Financial instruments
IFRS 9 requires an entity to address the classification, measurement and recognition of financial assets and liabilities.
a) Classification
The Group classifies its financial assets in the following measurement categories:
- those to be measured at amortised cost;
- At fair value through profit or loss.
The classification depends on the Group's business model for managing the financial assets and the contractual terms of the cash flows.
The Group classifies financial assets as at amortised cost only if both of the following criteria are met:
- the asset is held within a business model whose objective is to collect contractual cash flows; and
- the contractual terms give rise to cash flows that are solely payment of principal and interest.
b) Recognition
Purchases and sales of financial assets are recognised on trade date (that is, the date on which the Group commits to purchase or sell the asset). Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
c) Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at FVPL are expensed in profit or loss.
Debt instruments
Amortised cost: Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as a separate line item in the statement of comprehensive income.
Financial investments
Listed investments are valued at closing bid price on 31 July of each year. Unlisted investments that are not publicly traded and whose fair value cannot be measured reliably, are measured at fair value through profit and loss. For details of the key assumptions used and the impact of changes to these assumptions, see note 17.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
- In the principal market for the asset or liability; or
- In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
- Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
- Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
- Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the Financial Statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above.
d) Impairment
The Group assesses, on a forward looking basis, the expected credit losses associated with any debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
In response to increased risk of credit losses due to Covid, the Group has included the following procedures:
- Performing credit checks on existing, new or prospective customers
- Maintaining regular dialogue with senior staff of existing customers to discuss payments of invoices
For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. The Group's most significant clients are public or regulated industry entities which generally have high credit ratings or are of a high credit quality due to the nature of the client.
Expected credit losses are assessed on an individual customer basis, based on the historical payment profiles of the customers, the current and historic relationship with the customer, and the industry in which the customer operates. There have been no impairments of trade receivables in the periods.
2.13 Leases
Leases are recognised as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use by the Group.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
- Fixed payments (including in-substance fixed payments), less any lease incentives receivable;
- Variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date;
- Amounts expected to be payable by the Group under residual value guarantees;
- The exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
- Payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. In all instances the leases were discounted using the incremental borrowing rate.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period. Right-of-use assets are measured at cost which comprises the following:
- The amount of the initial measurement of the lease liability;
- Any lease payments made at or before the commencement date less any lease incentives received;
- Any initial direct costs; and
- Restoration costs.
Right-of-use assets are depreciated over the shorter of the asset's useful life and the lease term on a straight line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life.
Payments associated with short-term leases (term less than 12 months) and all leases of low-value assets (generally less than ?5k) are recognised on a straight-line basis as an expense in profit or loss.
2.14 Equity
Share capital is determined using the nominal value of shares that have been issued.
Share premium account includes any premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from the Share premium account, net of any related income tax benefits.
Retained losses includes all current and prior period results as disclosed in the statement of comprehensive income.
2.15 Share based payments
The Group has made awards of warrants and options on its unissued share capital to certain parties in return for services provided to the Group. Under IFRS 2, these share based payments are either valued at the value of the services provided or where this data is not available a fair value should be calculated using the Black Scholes Option Pricing model and/or the Monte Carlo valuation model which is how they have been valued in this case The valuation of these warrants and options involve making a number of critical estimates relating to price volatility, future dividend yields, expected life of the options and interest rates. These assumptions have been integrated into the Black Scholes Option Pricing model and the Monte Carlo valuation model to derive a value for these share-based payments. These assumptions are described in more detail in Note 23.
2.16 Revenue
Under IFRS 15, Revenue from Contracts with Customers, five key points to recognise revenue have been assessed:
Step 1: Identify the contract(s) with a customer;
Step 2: Identify the performance obligations in the contract;
Step 3: Determine the transaction price;
Step 4: Allocate the transaction price to the performance obligations in the contract; and
Step 5: Recognise revenue when (or as) a Group entity satisfies a performance obligation.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Group, and specific criteria have been met for each of the Group's activities, as described below.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts, VAT and other sales related taxes.
The Group bases its estimates on all available information including historical results and experience taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Where the Group makes sales relating to a future financial period, these are deferred and recognised under 'accrued expenses and deferred income' in the Statement of Financial Position.
The Group derives revenue from the provision of managed detection and response and other cyber security services, whereby revenue from a contract to provide services is recognised in the period in which the services are provided in accordance with the stage of completion of the contract when all of the following conditions are satisfied:
- the amount of revenue can be measured reliably;
- it is probable that the Company will receive the consideration due under the contract;
- the stage of completion of the contract at the end of the reporting period can be measured reliably; and
- the costs incurred and the costs to complete the contract can be measured reliably.
In arrangements where fees are invoiced ahead of revenue being recognised, deferred income is recorded.
2.17 Government grants
Capital grants received and receivable are treated as deferred income and amortised to the Income Statement annually over the useful economic life of the asset to which it relates. Revenue grants are credited to the Income Statement when received.
2.18 Taxation
The taxation expense for the year comprises current and deferred tax and is recognised in the statement of comprehensive income except to the extent that it relates to items recognised in other comprehensive income, or directly in equity, in which case the tax expense is also recognised in other comprehensive income or directly in equity.
Current tax represents the amount expected to be paid or recovered in respect of taxable profits for the financial year and is calculated using the tax rates and laws that have been enacted or substantially enacted at the Statement of Financial Position date.
Deferred tax arises from timing differences that are differences between the taxable profits and total comprehensive income as stated in the financial statements. The timing differences arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the financial statements.
Deferred tax is proved in full on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statement. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised of the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Current or deferred taxation assets and liabilities are not discounted.
2.19 Property, plant and equipment
Property, plant and equipment are recorded at historical cost or deemed cost, less accumulated depreciation and impairment losses.
Depreciation is provided on all tangible fixed assets at rates calculated to write off the cost of fixed assets, less their estimated residual value, over their estimated useful lives as follows:
Plant and machinery - 12.5% straight line
Fixtures and fittings - 12.5% straight line
The Group's policy is to review the remaining useful economic lives and residual values of property, plant and equipment on an on-going basis and to adjust the depreciation charge to reflect the remaining estimated useful economic useful life and residual value.
Fully depreciated property, plant and equipment are retained in the cost of property, plant & equipment and related accumulated depreciation until they are removed from service. In the case of disposals, assets and related depreciation are removed from the financial statements and the net amounts, less proceeds from disposal, is charges or credited to the income statement.
2.20 Intangible assets
Intangible asset impairment reviews are undertaken annually, or more frequently if events or changes in circumstances indicate a potential impairment. The method and useful lives of finite life intangible assets, or assets not yet available for use, are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period.
Research and development expenditure
Development expenditure is written off in the same period unless the directors are satisfied as to the technical, commercial and financial viability of individual projects. In this situation, the expenditure is capitalised and amortised over the period from which the Group is expected to benefit.
Amortisation is provided on all intangible assets so as to write off the cost of an asset over its estimated useful life as follows:
Development costs - 20-33.3% straight line
Software license
Software licenses are valued at cost less accumulated amortisation
Website and software licenses - 33.3% straight line or over the term of the licence
2.21 Convertible loan notes, borrowings and borrowing costs
Convertible loan notes are assessed for whether they are a compound financial instrument. In the current year, the convertible loan notes were classified as financial liabilities and recognised initially at fair value, net of transaction costs. After initial recognition, loans are subsequently carried at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are capitalised as a prepayment for liquidity services and amortised over the period of the loan to which it relates.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability or at least 12 months after the end of the reporting period.
Further details on the convertible loan notes and borrowings are set out in Note 26.
2.22 Employee benefits
Short-term benefits
Short-term benefits, including holiday pay and other similar non-monetary benefits are recognised as an expense in the period in which the employee's entitlement to the benefit accrues.
Defined contribution pension plan
The Group makes contribution to a defined contribution plan. A defined contribution plan is a pension plan under which the company pays fixed contributions into a separate fund. Under defined contribution plans, the Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee services in the current and prior periods.
For defined contribution plans, the Group pays contributions to privately administered pension plans on a contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in the future payments is available.
2.23 Non-current investments
Investments made in subsidiaries by the Company are carried at the cost of investment less any provision for impairment within the Company's balance sheet. The carrying values are reviewed at each period end to determine whether there is any indication that these investments have suffered an impairment loss.
2.24 Critical accounting judgements and key sources of estimation uncertainty
The preparation of these Financial Statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.
Judgements and estimates are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Basis of acquisition accounting
The Group has applied the merger accounting method to account for the acquisitions within the Group. With this method, assets and liabilities of the acquired entity are recognised at their book value and any difference between the consideration paid and net assets is recognised in the merger reserve. Merger accounting has been applied as the entities are considered to be commonly controlled which is a key judgement in the preparation of the Financial Statements.
Establishing useful economic lives for depreciation purposes of property, plant and equipment
Long-lived assets, consisting primarily of property, plant and equipment, comprise a significant portion of the total assets. The annual depreciation charge depends primarily on the estimated useful economic lives of each type of asset and estimates of residual values. The directors regularly review these asset useful economic lives and change them as necessary to reflect current thinking on remaining lives in light of prospective economic utilisation and physical condition of the assets concerned. Changes in asset useful lives can have a significant impact on depreciation and amortisation charges for the period. Detail of the useful economic lives is included in the accounting policies.
Providing for doubtful debts
The Group makes an estimate of the recoverable value of trade and other receivables. The Group uses estimates based on historical experience in determining the level of debts, which the Company believes, will not be collected. These estimates include such factors as the current credit rating of the debtor, the ageing profile of receivables and historical experience. Any significant reduction in the level of customers that default on payments or other significant improvements that resulted in a reduction in the level of bad debt provision would have a positive impact on the operating results. The level of provision required is reviewed on an ongoing basis.
Amortisation of Intangible Assets
The annual amortisation of intangible assets depends primarily on the estimated useful lives of assets and estimates of residual value. The directors regular review these assets useful lives and change them as necessary to reflect current thinking on remaining lives in light of prospective economic utilisation. Changes in asset useful lives can have a significant impact on amortisation charges for the period. Detail of the useful life is included in the accounting policy.
Carrying Value of Intangible Assets
In determining whether impairment of the Group's intangible assets is required, the factors taken into consideration in reaching such a decision include the economic viability and expected future financial performance of the asset and where it is a component of a larger cash-generating unit, the viability and expected future performance of that unit. The Directors are satisfied that the carrying value of the Group's intangible assets are at least equal to their recoverable amounts.
Valuation of unlisted investments
The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The company uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. For details of the key assumptions used and the impact of changes to these assumptions, see Note 17.
Share based payments
The Group has made awards of warrants and options on its unissued share capital to certain parties in return for services provided to the Group. Under IFRS 2, these share based payments are either valued at the value of the services provided or where this data is not available a fair value should be estimated using a model such as the Black Scholes Option Pricing model and/or the Monte Carlo valuation model which is how they have been valued in this case The valuation of these warrants and options involve making a number of critical estimates relating to price volatility, future dividend yields, expected life of the options and interest rates. These assumptions have been integrated into the Black Scholes Option Pricing model and the Monte Carlo valuation model to derive a value for these share-based payments. These assumptions are described in more detail in Note 23.
3. SEGMENT REPORTING
The following information is given about the Group's reportable segments:
The Chief Operating Decision Maker is the Executive Board of Directors. The Board reviews the Group's internal reporting in order to assess performance of the Group. Management has determined the operating segment based on the reports reviewed by the Board.
The Board considers that during the years ended 31 July 2022 and 31 July 2023 the Group operated in the single business segment of Managed Detection and Response capabilities to global organisations.
4. REVENUE
| |
| 2023 | 2022 |
| Revenue | | 12,180 | 10,206 |
| | | | |
The vast majority of the Group's revenue is recognised in the Republic of Ireland and is derived from the principal activity of providing Managed Detection and Response capabilities to global organisation, and associated services including penetration testing, governance risk and compliance and cyber consultancy.
The Group recognises revenue both at the point of sale and over time. The following table sets out the amount of revenue that is recognised at a point in time and the revenue that is recognised over time.
| |
| 2023 | 2022 |
| Revenue recognised at a point in time | | 5,720 | 5,908 |
| Revenue recognised over time | | 6,460 | 4,298 |
| | | 12,180 | 10,206 |
In 2023, the Group had two customers that represented 37% of total revenue. In 2022, the Group had one customer that represented 31% of total revenue.
5. COST OF SALES
| |
| 2023 | 2022 |
| Cost sales - purchases | | 5,374 | 4,622 |
| Cost sales - direct costs | | - | 39 |
| | | 5,374 | 4,661 |
6. ADMINISTRATIVE EXPENSES
| |
| 2023 | 2022 |
| Wages and salaries (including directors) | | 3,186 | 3,154 |
| Consultancy and professional fees | | 395 | 286 |
| Overhead expenses | | 924 | 322 |
| Amortisation of intangible fixed assets | | 430 | 113 |
| Depreciation of right-of-use assets | | 63 | 80 |
| Depreciation of tangible fixed assets | | 56 | 35 |
| IPO related costs | | 977 | - |
| CLN settlement costs | | 315 | - |
| Share based payments | | 554 | - |
| (Profit)/loss on foreign currencies | | (9) | (272) |
| Other expenses | | 90 | 132 |
| | | 6,981 | 3,850 |
Included above within Administrative Expenses are certain costs that principally relate to IPO costs, the issue of share options/warrants and the CLN settlement costs, as follows:
| |
| 2023 | 2022 |
| IPO related costs | | 977 | - |
| Share based payments | | 554 | - |
| CLN settlement costs | | 315 | - |
| Total | | 1,846 | - |
| Operating profit | | 303 | 1,756 |
| Adjusted operating profit | | 2,149 | 1,756 |
| Add back depreciation and amortisation | | 549 | 228 |
| Adjusted EBITDA | | 2,698 | 1,984 |
The following auditors' fees are included in Administrative Expenses:
| |
| 2023 | 2022 |
| Audit of Group and Company | | 50 | - |
| For audit work in relation to subsidiary companies | | 25 | - |
| For audit related services | | 33 | - |
| For non-audit services | | 85 | - |
| Total | | 193 | - |
7. OTHER OPERATING INCOME
| |
| 2023 | 2022 |
| Government grant income | | 478 | 61 |
| | | 478 | 61 |
During the year, the Group received:
(i) Market Discovery Fund grant of ?34,900 from Enterprise Ireland (2022: ?nil).
(ii) GradStart grant of ?28,327 from Enterprise Ireland (2022: ?nil).
(iii) Research and Development grant of ?414,572 from Enterprise Ireland (2022: ?14,500).
(iv) R&D tax rebate of ?nil (2022: ?46,187).
8. EMPLOYEES
Staff costs (inclusive of director's salaries) comprise:
|
|
| 2023 | 2022 |
| Wages and salaries | | 2,838 | 2,952 |
| Pension costs | | 75 | 13 |
| Share based payments | | 443 | - |
| Other costs and taxes | | 272 | 189 |
| | | 3,628 | 3,154 |
The average monthly number of employees, including the Directors, during the year was 135 (2022: 67)
9. DIRECTORS' REMUNERATION
| |
| 2023 | 2022 |
| Directors' remuneration | | 313 | 132 |
| Pension costs | | 18 | 10 |
| Share based payments | | 296 | - |
| Other costs and taxes | | 11 | - |
| | | 638 | 142 |
During the year retirement benefits accruing to Directors were ?nil (2022: ?nil) in respect of defined contribution pension schemes.
The highest paid Director received remuneration of ?157K (2022: ?132K).
During the year, R Saceanu received an additional ?32K from Zefone Limited, although she was not a director of that company.
The value of the Group's contributions paid to a defined contribution pension scheme in respect of the highest paid Director amounted to ?14K (2022: ?10K).
10. INCOME FROM INVESTMENTS
| |
| 2023 | 2022 |
| Investment income - dividends received | | - | 2 |
| | | - | 2 |
11. OTHER GAINS AND LOSSES
| |
| 2023 | 2022 |
| Unrealised (loss) / gain on investments in shares | | 1 | (8) |
| | | 1 | (8) |
12. FINANCE COSTS
| |
| 2023 | 2022 |
| Interest | | 64 | 205 |
| Lease liability finance charges (Note 21) | | 29 | 11 |
| Other finance costs | | 7 | - |
| | | 100 | 216 |
13. TAXATION
| |
| 2023 | 2022 |
| The charge for year is made up as follows: | | | |
| Corporation tax | | | |
| Corporation taxation on the results for the year | | 371 | 156 |
|
| | 371 | 156 |
| Deferred tax | | | |
| Deferred tax | | - | - |
|
| | - | - |
| Taxation charge on profits on ordinary activities | | 371 | 156 |
In the previous period to 31 Jul 2022, prior to 1 April 2022, the main rate of UK corporation tax was 19%. The headline rate of UK corporation tax for the year ended 31 July 2023 is 25%, however, within the onset of the UK's marginal Relief Rules from 1 April 2023. This rate applies broadly where a company has augmented profits in excess of £250K.
Factors affecting tax change for the year
|
| | 2023 | 2022 |
| Profit on ordinary activities before tax | | 204 | 1,534 |
| Tax calculated at domestic tax rates applicable to profits in the respective countries
| | 37 | 191 |
| | | | |
| Effects of: | | | |
| Expenses not deductible for tax purposes | | 365 | - |
| Group relief surrendered/(claimed) | | (3) | - |
| Foreign tax - other | | 3 | - |
| Remeasurement of deferred tax for changes in tax rate | | (2) | |
| Adjustments in respect of prior year | | 30 | 1 |
| Difference in overseas tax rates | | (109) | - |
| Other movements | | 50 | (38) |
| Income tax on medical insurances | | - | 4 |
| Taxation charge on profits on ordinary activities | | 371 | 156 |
The weighted average applicable tax rate was 18% (2021: 12%). The increase is caused by the change in group structure and introduction of the loss making parent company and subsidiaries.
14. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share is calculated by dividing the profit or loss for the year by the weighted average number of ordinary shares in issue during the year.
| | 2023 | 2022 |
| (Loss) / profit for the year from continuing operations - ? | (167,000) | 1,378,000 |
| Weighted number of ordinary shares in issue | 100,500,026 | 87,500,000 |
| Basic earnings per share from continuing operations - ? cents | (0.1662) | 1.5749 |
The weighted average number of ordinary shares in issue for the prior year has been used as the total number of shares swapped for the purchase of Zefone Limited as if those shares were in issue during the prior year. No diluted earnings per share is calculated in 2022 as it is assumed that there were no dilutive instruments.
15. INTANGIBLE ASSETS
| Group | Website & software licenses | Development costs |
| Total ?'000 |
| Cost | | | | |
| At 1 August 2021 | 947 | 377 | | 1,324 |
| Additions | 280 | 1,156 | | 1,436 |
| At 31 July 2022 | 1,227 | 1,533 | | 2,760 |
| Additions | - | 2,625 | | 2,625 |
| At 31 July 2023 | 1,227 | 4,158 | | 5,385 |
| Amortisation | | | | |
| At 31 July 2021 | 805 | 103 | | 908 |
| Charge for the year | 107 | 6 | | 113 |
| At 31 July 2022 | 912 | 109 | | 1,021 |
| Charge for the year | 241 | 189 | | 430 |
| At 31 July 2023 | 1,153 | 298 | | 1,451 |
| Net book value | | | | |
| 31 July 2022 | 315 | 1,333 | | 1,739 |
| 31 July 2023 | 74 | 3,860 |
| 3,934 |
The Directors have considered the carrying value of these balances in order to determine whether any impairment of the Group's intangible assets is required. This has included considering the economic viability and expected future financial performance of the products relating to these assets by modelling the expected net future cash flows expected to be generated. The Directors are satisfied that the carrying value of the Group's intangible assets are at least equal to their recoverable amounts.
16. PROPERTY, PLANT AND EQUIPMENT
| Group | Plant & machinery ?'000 | Fixtures & fittings ?'000 |
| Total ?'000 |
| Cost | | | | |
| At 1 August 2021 | 27 | 164 | | 191 |
| Additions | 8 | 30 | | 38 |
| Disposals | - | - | | - |
| At 31 July 2022 | 35 | 194 | | 229 |
| Additions | 20 | 92 | | 112 |
| At 31 July 2023 | 55 | 286 | | 341 |
| Depreciation | | | | |
| At 1 August 2021 | 13 | 84 | | 97 |
| Charge for the year | 13 | 22 | | 35 |
| At 31 July 2022 | 26 | 106 | | 132 |
| Charge for the year | 11 | 45 | | 56 |
| At 31 July 2023 | 37 | 151 | | 188 |
|
| | | | |
| Net book value | | | | |
| At 31 July 2022 | 9 | 88 | | 97 |
| At 31 July 2023 | 18 | 135 |
| 153 |
17. FINANCIAL FIXED ASSETS
| Group |
| Level 3- Unlisted investments ?'000 | Level 1- Listed investments ?'000 |
| Total ?'000 |
| Investment | | | | | |
| Cost of valuation | | | | | |
| At 1 August 2021 | | 1,039 | 130 | | 1,169 |
| Additions | | - | - | | - |
| Revaluations | | - | (8) | | (8) |
| At 31 July 2022 | | 1,039 | 122 | | 1,161 |
| Additions | | - | - | | - |
| Revaluations | | - | 1 | | 1 |
| At 31 July 2023 | | - | 123 | | 123 |
|
| | | | | |
| Carrying amount | | | | | |
| At 31 July 2022 | | 1,039 | 122 | | 1,161 |
| At 31 July 2023 |
| 1,039 | 123 |
| 1,162 |
IFRS 13 valuation hierarchy:
Level 1 represents those assets, which are measured using unadjusted quoted prices for identical assets.
Level 2 applies inputs other than quoted prices that are observable for the assets either directly (as prices) or indirectly (derived from prices).
Level 3 applies inputs, which are not based on observable market data.
Unlisted investments comprise the investment in Visibility Blockchain Limited of 35,940 B Preference Shares. These shares do not give rights to receive notice of any general meeting of Visibility Blockchain Limited, or to attend or vote on any resolution at a general meeting. Unlisted investments are valued using level 3 inputs under the IFRS 13 Fair Value Hierarchy. These include the value at which the most recent funding round involving third party investors took place where over ?10 million in new equity was raised, together with management's view of the likely proceeds from the sale of this company based on indications received to date and growth in revenue. As a result of the above analysis, the revaluation during the year is ?nil (2022: ?nil).
Listed investments relate to a portfolio investment comprising of various equities, bonds and alternative financial instruments. These are valued using the share price at each reporting date, which is a level 1 input under the IFRS 13 Fair Value Hierarchy.
18. INVESTMENTS
| Company |
| 2023 |
| Acquisition of Zefone Limited | | 1,012 |
| Further investments in subsidiaries | | 104 |
| | | 1,116 |
Company subsidiary undertakings
The Group includes interests in the following subsidiary undertakings, which are included in the consolidated financial statements. Zefone Limited is owned directly by the Company whilst the other companies are owned indirectly through Zefone Limited.
| Name | Business Activity | Country of Incorporation | Registered Address | Percentage Holding |
| Zefone Limited | Provision of cybersecurity products and services | Ireland | Unit 17A, Building 4700 Cork Airport Business Park, Cork | 100% |
| Smart Systems Security Limited | Provision of cybersecurity products and services | England and Wales | 85 Great Portland Street, London W1W 7LT | 100% |
| Smartech 247 sp. z.o.o. | Provision of cybersecurity products and services | Poland | Krakovie Przy ul., Podole 60, 30-394 Krakov | 100% |
| Smartech247 Cyber Security SRL | Provision of cybersecurity products and services | Romania | Bd Iancu de Hunedoara 54 B, Etaj 2, Bucuresti - Sectorul 1 | 99% |
19. TRADE AND OTHER RECEIVABLES
| Group |
| 2023 | 2022 |
| Trade receivables | | 5,194 | 5,237 |
| Accrued revenue | | 53 | 54 |
| Tax and other receivables | | 278 | 517 |
| Director's current account | | 57 | 53 |
| Prepayments | | 841 | 292 |
| | | 6,423 | 6,153 |
| Company |
| 2023 |
|
| Other receivables | | 167 | |
| Prepayments | | 17 | |
| | | 184 | |
Other receivables principally comprise amounts due from the EBT and other tax recoverable.
In terms of trade receivables, the majority of the amounts receivable are in Euros and USD, and are current in terms of age profile with the majority of the balance having now been received post year end.
| |
| 2023 | 2022 |
| Due in less than 30 days | | 2,103 | 3,266 |
| Due between 30 and 60 | | 2,333 | 970 |
| Due between 60 and 90 days | | 341 | 527 |
| Over 90 days | | 417 | 474 |
| | | 5,194 | 5,237 |
Further details with regard to the Directors current account are set out in Note 32.
| |
| 2023 | 2022 |
| Currency of receivables | | | |
| Euro | | 1,726 | 1.869 |
| USD | | 3,340 | 2,787 |
| GBP | | 128 | 581 |
| | | 5,194 | 5,237 |
20. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and short term deposits held with banks with a A-1+ rating. The carrying value of these approximates to their fair value. Cash and cash equivalents included in the cash flow statement comprise the following statement of financial position amounts.
| Group |
| 2023 | 2022 |
| Cash and cash equivalents | | 6,062 | 2,358 |
| | | 6,062 | 2,358 |
| Company |
| 2023 |
|
| Cash and cash equivalents | | 2,949 | |
| | | 2,949 | |
The table below shows the currency profiles of cash and cash equivalents:
| Group |
| 2023 | 2022 |
| | | | |
| Euro | | 289 | 778 |
| USD | | 2,714 | 1,440 |
| GBP | | 3,002 | 113 |
| Polish Zloty | | 49 | 13 |
| Romanian Leu | | 8 | 14 |
| | | 6,062 | 2,358 |
| Company |
| 2023 |
| | | |
| GBP | | 2,949 |
| | | 2,949 |
21. LEASES
The Group had the following right of use assets and lease liabilities:
| Group |
| 2023 | 2022 |
| Right-of-use assets | | | |
| Properties | | 331 | 64 |
| | | 331 | 64 |
| Lease liabilities | | | |
| Current | | 91 | 64 |
| Non-current | | 260 | 4 |
| | | 351 | 68 |
| |
| 2023 | 2022 |
| Maturity on the lease liabilities are as follows: | | | |
| Current | | 91 | 64 |
| Due between 1-2 years | | 68 | 4 |
| Due between 2-5 years | | 105 | - |
| Due beyond 5 years | | 87 | - |
| | | 351 | 68 |
Right of use assets
A reconciliation of the carrying amount of the right-of-use asset is as follows:
| |
| 2023 | 2022 |
| Properties | | | |
| Opening balance | | 64 | 43 |
| Additions on acquisition of subsidiary | | - | 5 |
| Additions | | 330 | 96 |
| Depreciation | | (63) | (80) |
| | | 331 | 64 |
Lease liabilities
A reconciliation of the carrying amount of the lease liabilities is as follows:
| |
| 2023 | 2022 |
| Opening balance | | 68 | 58 |
| Additions on acquisition of subsidiary | | - | 4 |
| Additions | | 330 | 96 |
| Payment made | | (76) | (101) |
| Finance charge (Note 12) | | 29 | 11 |
| | | 351 | 68 |
The Group leases captured under IFRS 16 relate predominant to the office premises in both Ireland and Romania, with an office lease in Poland coming to an end in 2023, which was extended on a short-term basis.
The Group also incurred the following expenses during the year of ?nil (2022: ?nil) which related to leases that were either short term in nature (12 months of less) or of low value in nature, thus being excluded from treatment under IFRS 16: Leases.
22. SHARE CAPITAL
| |
| Number of £0.01 shares | Share Capital | Share premium |
| |
|
| ?'000 | ?'000 |
| One £0.01 share issued on incorporation | | 1 | - | - |
| Shares issued on exchange for Zefone Limited shares 1 | | 87,499,999 | 1,012 | - |
| Shares issued on conversion of convertible loan note at £0.1732 2 | | 13,646,441 | 158 | 2,577 |
| Shares subscribed for by EBT 3 | | 10,546,713 | 122 | - |
| Placing shares issued at £0.2966 | | 12,385,828 | 144 | 4,108 |
| Share issue costs | | - | - | (320) |
| | | 124,078,982 | 1,436 | 6,365 |
1 The issue of shares with a nominal value of ?1,012,000 (£875,000) in exchange for the 2 £1 shares in Zefone Limited with a nominal value of £2 results on elimination of the difference in a credit to a merger reserve (within other reserves) of ?1,012,000 (£875,000) in accordance with the merger accounting principles as set out in note 2.
2 The issue price for the issue of shares to convert the convertible loan notes was based on the conversion terms which specified a particular valuation at which the conversion should take place. The liability to be settled amounted to ?2,683,562 and the number of shares issued amounted to 13,646,441 which therefore gave an effective issue price of £0.1732.
3 During the period, the Company established an Employee Benefit Trust ("EBT") and issued 10,546,713 shares to the EBT at nominal value. The subscription of these shares was funded through a loan provided by the Group to the EBT.
During the period certain costs associated with the IPO amounting to ?868K were also settled by the issue of new shares, of which ?260k was included in share issue costs.
The number of shares authorised to be issued at the time of Admission was 66.8 million, although this authority has now lapsed, and a new authority will be put in place at the Company's next AGM.
23. SHARE BASED PAYMENT RESERVE
|
|
| 2023 | 2022 |
| Advisor warrants issued 1 | | 107 | - |
| Employee options issued 2, 3 | | 447 | - |
| | | 554 | - |
1 On 15 December 2023, 863,115 warrants were issued to advisors and have been fair valued in accordance with IFRS 2. The warrants have an exercise price of £0.2966 and a time to expiry of 4 years from grant.
2 On 30 November 2022, 4,541,290 employee options were granted under the Group's LTIP. These options have different vesting conditions based on performance milestones that can be viewed below.
3 On 28 April 2023 and 23 May 2023 2,425,291 and 177,195 employee options were granted under the Group's LTIP. These options have different vesting conditions based on performance milestones as outlined below.
Share based payments valuation
The following tables summarise the valuation techniques and inputs used to calculate the values of share based payments in the period:
Warrants
| Grant date
| Number
| Share price £ | Exercise price £ | Volatility % | RF Rate % | Technique
|
| 15 Dec 2022 | 863,115 | 0.2966 | 0.2966 | 41.0 | 3.00 | Black Scholes |
Options
On 30 November 2022, 28 April 2023 and 23 May 2023 4,541,290, 1,446,735 and 147,589 employee options were granted under the Group's LTIP respectively. The option vesting details are listed below:
| Vesting Event | Trigger for Vesting | Number of options vested on date of vesting |
| 1 | - First anniversary date of the date of Admission | 50% |
| 2 | - Second anniversary date of date of Admission; and - The date if any on which the placing price has increased by 200% | 25% |
| 3 | - Third anniversary date of date of Admission; and - The date if any on which the placing price has increased by 200% | 25% |
On 28 April 2023 and 23 May 2023 978,556 and 29,606 employee options were granted under the Group's LTIP respectively. The option vesting details are listed below:
| Vesting Event | Trigger for Vesting | Number of options vested on date of vesting |
| 1 | - First anniversary date of the date of Admission | 50% |
| 2 | - Second anniversary date of date of Admission; and - The date if any on which the placing price has increased by 200% | 50% |
All of the options issued subject to vesting condition 1 were valued using the Black Scholes methodology, whilst the options issued subject to vesting conditions 2 and 3 were value using the Monte Carlo technique. Additionally, a non-marketable discount rate of 7.94% has been applied across all of the employee warrants when calculating their value.
Vesting Condition 1
| Grant date
| Number
| Share price £ | Exercise price £ | Volatility % | RF Rate % | Technique
|
| 30 Nov 2022 | 2,270,645 | 0.2966 | 0.2966 | 48.5 | 3.24 | Black Scholes |
| 28 Apr 2023 | 1,212,645 | 0.3600 | 0.2966 | 48.6 | 3.72 | Black Scholes |
| 23 May 2023 | 88,597 | 0.3600 | 0.2966 | 48.6 | 4.38 | Black Scholes |
Vesting Condition 2
| Grant date
| Number
| Share price £ | Exercise price £ | Volatility % | RF Rate % | Technique
|
| 30 Nov 2022 | 1,135,323 | 0.2966 | 0.2966 | 48.5 | 3.24 | Monte Carlo |
| 28 Apr 2023 | 850,962 | 0.3600 | 0.2966 | 48.6 | 3.72 | Monte Carlo |
| 23 May 2023 | 51,700 | 0.3600 | 0.2966 | 48.6 | 4.38 | Monte Carlo |
Vesting Condition 3
| Grant date
| Number
| Share price £ | Exercise price £ | Volatility % | RF Rate % | Technique
|
| 30 Nov 2022 | 1,135,323 | 0.2966 | 0.2966 | 48.5 | 3.24 | Monte Carlo |
| 28 Apr 2023 | 361,684 | 0.3600 | 0.2966 | 48.6 | 3.80 | Monte Carlo |
| 23 May 2023 | 36,897 | 0.3600 | 0.2966 | 48.6 | 4.38 | Monte Carlo |
The number and average exercise price of share options and warrants as follows:
| |
| 2023 | |
| | | Weighted average exercise price | Number of options/ warrants |
| Granted during the year (options) | | £0.2966 | 863,115 |
| Granted during the year (warrants) | | £0.2966 | 7,143,776 |
| Outstanding at the end of the year | | £0.2966 | 8,006,891 |
| Exercisable at the end of the year | | £0.2966 | 863,115 |
Share options and warrants outstanding at 31 July 2023 had a weighted average exercise price of £0.2966 and a weighted average contractual life of 3.48 years. To date no share options and warrants have been exercised.
There are no market based vesting conditions attaching to any of the warrants.
24. MERGER RESERVE
|
|
| 2023 | 2022 |
| Merger reserve | | (1,215) | 23 |
| | | (1,215) | 23 |
As referred to in Note 2, on 18 November 2022, the Company became the parent company of the Group when it issued 87,499,999 £0.01 ordinary shares in exchange for 100% of the ordinary shares in Zefone Limited. Zefone Limited has been shown as the continuing entity and its comparative financial information shown for 2022. Intercompany transactions and balances between Group companies are therefore eliminated in full. The equity presented is that of the Company with the difference on elimination of Zefone Limited's capital of ?1,012,000 (£875,000) being shown as a merger reserve.
In the current year, Zefone acquired Smart Systems Security Limited for ?1,190 (£1,000) with the total identifiable net liabilities acquired being ?225,000, resulting in ?226,000 being recorded to the merger reserve.
In the prior year, Zefone acquired Smarttech247 sp. z o.o. for ?2,112 (10,000 Polish Zloty) with the total identifiable net assets acquire being ?26,000, resulting in the ?23,000 being recorded to the merger reserve.
25. OTHER RESERVES
Foreign exchange reserve
Foreign exchange differences arising on translating into the reporting currency.
Share based payment reserve
Cumulative charge recognised under IFRS 2 in respect of share based payment awards.
Retained earnings
Retained earnings represents cumulative profits and losses net of dividends and other adjustments.
26. BORROWINGS
| Group |
| 2023 | 2022 |
| Non-current | | | |
| Convertible secured loan notes | | - | 2,342 |
| | | - | 2,342 |
Refer to note 30 for movements in borrowings.
Analysis of maturity of loans is given below:
| |
| 2023 | 2022 |
| Amounts falling due 1-2 years | | | |
| Other loans | | - | 2,342 |
| | | - | 2,342 |
Convertible Secured Loan Notes
The convertible secured loan notes were issued by Zefone Limited in May 2021 to provide the company with additional funding for the development of its business. They carried an interest rate at 5% per annum with a requirement to redeem the outstanding loan notes on 7 May 2024 unless converted or repaid prior to that date.
The holders of the convertible secured loan notes had the right to convert the loan notes into ordinary shares in the event of a sale or listing. The holder could also elect to convert the loan notes into ordinary shares prior to any such event based on a conversion rate.
The convertible secured loan notes were secured by a debenture incorporating fixed and floating charges over the Group's assets both present and future.
During the year, at the time of the acquisition of Zefone Limited by the Company and subsequent IPO, the convertible loan notes and associated interest was assigned to the Company as it was intended that the loan notes would be settled through the issue of new shares in the Company. On the listing of the Group, the convertible loan notes and accrued interest were converted by the issue of 13,646,441 new shares in the Company. Further details are set out in in note 22.
?
27. TRADE AND OTHER PAYABLES
| Group |
| 2023 | 2022 |
| Trade creditors | | 3,183 | 1,880 |
| Corporation tax | | 220 | 50 |
| Other taxation and social security | | 753 | 633 |
| Accruals | | 56 | 658 |
| Deferred income | | 1,869 | 1,333 |
| Other payables | | 150 | 75 |
| | | 6,231 | 4,629 |
| Company |
| 2023 |
|
| Trade creditors | | 7 | |
| Other taxation and social security | | 5 | |
| Accruals | | 10 | |
| Intercompany payable | | 32 | |
| | | 54 | |
The table below sets out the maturity profile of the trade payables at 31 July 2023:
| |
| 2023 | 2022 |
| Due in less than 30 days | | 2,201 | 185 |
| Due in between 30 and 60 days | | 772 | 1,608 |
| Due in more than 60 days | | 210 | 87 |
| | | 3,183 | 1,880 |
The table below sets out the maturity profile of the deferred income balance at 31 July 2023:
| |
| 2023 | 2022 |
| Due within 1 year | | 1,449 | 1,015 |
| Due after 1 year | | 420 | 318 |
| | | 1,869 | 1,333 |
28. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Capital Risk Management
The Company manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders. The overall strategy of the Company and the Group is to minimise costs and liquidity risk.
The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued share capital, foreign exchange reserves and retained earnings as disclosed in the Consolidated Statement of Changes of Equity.
The Group is exposed to a number of risks through its normal operations, the most significant of which are interest, credit, foreign exchange, and liquidity risks. The management of these risks is vested to the Board of Directors.
Credit Risk
Credit risk arises on financial instruments such as trade receivables, short-term bank deposits.
Policies and procedures exist to ensure that customers have an appropriate credit history. The Group's most significant clients are public or regulated industry entities which generally have high credit ratings or are of a high credit quality due to the nature of the client.
Counterparty exposure positions are monitored regularly so that credit exposures to any one counterparty are within acceptable limits.
At the balance sheet date there were no significant concentrations of credit risk.
Trade and other receivables and contract assets included in the balance sheet are stated net of expected credit loss (ECL) provisions which have been estimated on a customer-by-customer basis, based on the relationship with the customer and its historical payment profile. There are no provisions held against trade receivables at the balance sheet date.
The Group's maximum exposure to credit by class of individual financial instrument is shown in the table below:
|
| 2023 Carrying Value | 2023 Maximum Exposure | 2022 Carrying Value | 2022 Maximum Exposure |
|
| ?'000 | ?'000 | ?'000 | ?'000 |
| Cash and cash equivalents | 6,062 | 6,062 | 2,358 | 2,358 |
| Trade receivables | 5,194 | 5,194 | 5,237 | 5,237 |
| | 11,256 | 11,256 | 7,595 | 7,595 |
|
|
|
|
|
|
Currency Risk
The Group operates in a global market with income and costs possibly arising in a number of currencies and is exposed to foreign currency risk primarily in respect of entities within the Group entering into commercial transactions arising from sales or purchases in currencies other than the Companies' functional currency. Currency exposures are reviewed regularly.
The Group has a limited level of exposure to foreign exchange risk through their foreign currency denominated cash balances and a portion of the Group's costs being incurred in Euro, Polish Zloty and Romanian Leu. Accordingly, movements in the Euro exchange rate against these currencies could have a detrimental effect on the Group's results and financial condition. Such changes are not considered likely to have a material effect on the Group's financial position at 31 July 2023.
Currency risk is managed by maintaining some cash deposits in currencies other than Sterling. The table below shows the currency profiles of cash and cash equivalents:
| |
| 2023 | 2022 |
| Cash and cash equivalents | | | |
| Euro | | 289 | 778 |
| USD | | 2,714 | 1,440 |
| GBP | | 3,002 | 113 |
| Polish Zloty | | 49 | 13 |
| Romanian Leu | | 8 | 14 |
| | | 6,062 | 2,358 |
Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
The Group seeks to manage liquidity risk by regularly reviewing cash flow budgets and forecasts to ensure that sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Group deems there is sufficient liquidity for the foreseeable future.
The Group had cash and cash equivalents at year end as below:
| |
| 2023 | 2022 |
| Cash and cash equivalents | | 6,062 | 2,358 |
| | | 6,062 | 2,358 |
Interest Rate Risk
The Group is exposed to interest rate risk whereby the risk can be a reduction of interest received on cash surpluses held and an increase in interest on borrowings the Group may have. The maximum exposure to interest rate risk at the reporting date by class of financial asset was:
| |
| 2023 | 2022 |
| Bank balances | | 6,062 | 2,358 |
| | | 6,062 | 2,358 |
29. FINANCIAL ASSETS AND FINANCIAL LIABILITIES
| Group 2023 | |
| Financial assets at amortised cost | Financial liabilities at amortised cost | Total |
| Financial assets / liabilities | |
| ?'000 | ?'000 | ?'000 |
| Trade and other receivables 1 | | | 5,582 | - | 5,582 |
| Cash and cash equivalents | | | 6,062 | - | 6,062 |
| Trade and other payables 2 | | | - | (6,175) | (6,175) |
| Lease liabilities (current and non-current) | | | - | (351) | (351) |
| | | | 11,644 | (6,526) | 5,118 |
1 Trade and other receivables excludes prepayments
2 Trade and other payables excludes accruals
| Group 2022 | |
| Financial assets at amortised cost | Financial liabilities at amortised cost | Total |
| Financial assets / liabilities | |
| ?'000 | ?'000 | ?'000 |
| Trade and other receivables 1 | | | 5,861 | - | 5,861 |
| Cash and cash equivalents | | | 2,358 | - | 2,358 |
| Trade and other payables 2 | | | - | (3,971) | (3,971) |
| Lease liabilities (current and non-current) | | | - | (68) | (68) |
| Borrowings | | | - | (2,342) | (2,342) |
| | | | 8,219 | (6,381) | (1,838) |
1 Trade and other receivables excludes prepayments.
2 Trade and other payables excludes accruals.
| Company 2023 | |
| Financial assets at amortised cost | Financial liabilities at amortised cost | Total |
| Financial assets / liabilities | |
| ?'000 | ?'000 | ?'000 |
| Trade and other receivables 1 | | | 167 | - | 167 |
| Cash and cash equivalents | | | 2,949 | - | 2,949 |
| Trade and other payables 2 | | | - | (8) | (8) |
| | | | 3,116 | (8) | 3,108 |
1 Trade and other receivables excludes prepayments.
2 Trade and other payables excludes accruals.
30. RECONCILIATION OF MOVEMENT IN NET DEBT
| 2023 | At 1 August 2022 | Non-cash changes | Cashflow | At 31 July 2023 |
| | ?'000 | ?'000 | ?'000 | ?'000 |
| Cash at bank | 2,358 | (4) | 3,708 | 6,062 |
| Borrowings - non-current | (2,342) | 2,342 | - | - |
| Lease liabilities - current & non-current | (68) | (359) | 76 | (351) |
| Net Debt | (52) | 1,979 | 3,784 | 5,711 |
| 2022 | At 1 August 2021 | Non-cash changes | Cashflow | At 31 July 2022 |
| | ?'000 | ?'000 | ?'000 | ?'000 |
| Cash at bank | 3,215 | - | (857) | 2,358 |
| Borrowings - non-current | (2,263) | (79) | - | (2,342) |
| Lease liabilities - current & non-current | (58) | (111) | 101 | (68) |
| Net Debt | 894 | (190) | (756) | (52) |
*Non-cash movements in cash related to the foreign exchange impact on non ? denominated cash balances, whilst on the lease liabilities relates to the finance charges incurred on the lease liabilities plus additional leases executed during the year.
The non-cash movements on borrowings principally relate to the conversion of the CLN which took place during the year.
31. MERGER ACQUISITIONS
Smart Systems Security Limited
On 18 November 2022, Zefone acquired Smart Systems Security Limited for ?1,190 (£1,000). The book value of the assets acquired and liabilities assumed of Smarttech Systems Security Limited at the date of acquisition based upon the balance sheet at 18 November 2022 are as follows:
|
|
|
| ?'000 |
| Cash | | | 1 |
| Total consideration | | | 1 |
| Recognised amounts of assets and liabilities acquired: | | | |
| Trade and other receivables | | | 5 |
| Cash | | | 8 |
| Trade and other liabilities | | | (241) |
| Total identifiable net assets | | | (226) |
| Net difference taken to merger reserve | | | (225) |
Zefone Limited
On 18 November 2022, through the Share Exchange Agreement, Smarttech247 Group plc acquired 100% of the shares of Zefone Limited.
On 18 November 2022, the convertible loan notes described in Note 26 were novated up to Smarttech247 Group plc under the Deed of Novation, conditional on the share for share exchange noted above and admission to the AIM market.
For more detail, please refer to note 24 and note 2.6 for information on the presentation of the Financial Statements.
32. RELATED PARTY TRANSACTIONS
The Group's investments in subsidiaries have been disclosed in Note 18 and details of directors' emoluments are set out in the directors remuneration report beginning on page [x].
Ronan Murphy, who is a director of the Group, is also a director of and has a significant indirect interest in Visibility Blockchain Limited of 21.4%. Consequently, Visibility Blockchain Limited is regarded as a related party by virtue of Ronan Murphy's ability to exert significant influence over Visibility Blockchain Limited.
The following amounts are receivable at the financial year end:
| |
| 2023 | 2022 |
| Visibility Blockchain Limited | | 89 | 26 |
| | | 89 | 246 |
The following amounts are due to related parties:
| |
| 2023 | 2022 |
| Visibility Blockchain Limited | | 441 | 296 |
| | | 441 | 296 |
Net balance with related parties:
| |
| 2023 | 2022 |
| Visibility Blockchain Limited` | | (352) | (269) |
| | | (352) | (50) |
Certain revenue is recognised between Zefone Limited and Visibility Blockchain Limited under a reseller agreement. During the year the total amount of services charged under a reseller agreement by Visibility Blockchain Limited to Zefone Limited amounted to ?446,789 (2022: ?503,174).
Certain operating expenses are allocated 40%/60% based on an intercompany overhead agreement. During the year the total amount of expenses allocated to Visibility Blockchain Limited by Zefone Limited amounted to ?365,475 (2022: ?150,570).In the opinion of the Directors, these amounts arise in the ordinary course of business and the terms of the amounts due are in accordance with the terms ordinarily offered by the Group.
On 18 November 2022, Amplified Technologies Limited, which is 100% owned by Ronan Murphy, a director of the Company, sold its 100% shareholding in Zefone Limited to the Company in return for new shares in the Company, effectively exchanging 100% ownership of Zefone Limited for 100% ownership of the Company as a precursor to the IPO of the Company.
Nicholas Lee, who is a director of the Group, is also a director of RiverFort Global Opportunities plc which has a 6.16% shareholding in the Group.
Ronan Murphy has a loan outstanding with the Group amounting to ?57,000. This loan is unsecured, interest free and is repayable on demand.
33. PENSION COMMITMENTS
The Group operates a defined contribution scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The pension cost charge represents contributions payable by the Group to the fund and amounted to ?75,307 (2022: ?12,553). ?10,480 (2022: ? nil) was payable to the fund at the statement of financial position date and is included with creditors.
34. CAPITAL COMMITMENTS
There were no capital commitments as at 31 July 2023 or 31 July 2022.
35. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 July 2023 or 31 July 2022.
36. EVENTS SUBSEQUENT TO PERIOD END
There have been no further events subsequent to period end.
37. CONTROL
In the opinion of the Directors as at the year end and the date of the financial statements, Ronan Murphy is the ultimate controlling party.
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