REG - Shearwater Group PLC - Results for the year ended 31 March 2024
24/07/2024 07:00
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RNS Number : 5523X Shearwater Group PLC 24 July 2024
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24 July 2024
Shearwater Group plc
("Shearwater", or the "Group")
Results for the year ended 31 March 2024
Resilient performance in a challenging environment, with confidence in a
return to growth during FY25
Shearwater Group plc, the cybersecurity, advisory and managed security
services group, announces its final results for the year ended 31 March 2024.
Financial Highlights
· Group revenue of £22.6m (FY23: £26.7m), impacted by a period of
cautious customer spending.
· Adjusted EBITDA(1) of £0.9m (FY23: £(0.2)m).
· Adjusted loss before tax(2) of £(0.6)m (FY23: loss before tax of
£(1.3)m).
· Strong financial position with net cash as at 31 March 2024 of
£5.0m (FY23: £4.0m), £3m higher than the cash position at the half year.
· Recovering margins delivered in FY24 through an improved profile
of business and cost control following the restructuring early in the year.
Operational Highlights
· Streamlined operations and enhanced synergies following the
successful integration of Xcina into Brookcourt Solutions and GeoLang into
SecurEnvoy.
· Notable contract wins and renewals in Services across the
banking, telecoms and retail sectors, alongside the strategically significant
new focus on central government departments.
· Three consecutive half years of stable Software sales with
progress in the expansion of the Group's offering, positioning the division
for growth and success.
· Despite FY24 performance being impacted by customer caution
surrounding budget allocations, customer engagement levels remained high and
the Group continues to benefit from a customer base of blue-chip organisations
spanning a breadth of sectors.
· Five prestigious awards during the year, serving as a testament
to the value of the Group's offering.
Outlook
· Post period end, clear signs that customer budget allocation is
starting to be released at a modest pace.
· FY25 has started well with increasing momentum, including notable
contracts secured and a strong pipeline of opportunities across both
divisions.
· Expansion into Government departments remains a key strategic
priority and a focus.
· Confidence in returning to growth in FY25, delivering solid,
sustainable revenue and profit growth in the years ahead.
(1) Adjusted EBITDA is defined as profit before tax, before one off
exceptional items, share based payment charges, finance charges, impairment of
intangible assets, depreciation and amortisation.
(2) Adjusted Loss Before Tax defined as net profit before tax, exceptional
items, share based payments and amortisation of acquired goodwill.
Phil Higgins, CEO of Shearwater Group, commented: "I am encouraged by how
resiliently the Group navigated challenging market conditions in the year.
Although FY24 performance was impacted by some customers deferring budget
allocations, we emerged having secured notable contract wins and having
maintained a strong level of customer engagement.
"We are encouraged that FY25 has started well, with a number of significant
contracts already secured and clear signs that customer budget allocation is
starting to be released at a modest pace.
"The team remains focused on converting the significant pipeline of
opportunities across both divisions, with deepened expansion into Government
departments remaining a key strategic priority and a major growth avenue for
the business. We are confident in returning to growth in FY25 and in
delivering solid, sustainable revenue and profit growth in the years ahead."
Investor Presentation
Shearwater Group's CEO, Phil Higgins and Interim CFO, Adam Hurst, will provide
a live investor presentation relating to the results via the Investor Meet
Company platform on Wednesday 24 July 2024 at 10.00am.
Investors can sign up to Investor Meet Company for free and add to meet
Shearwater Group via:
https://www.investormeetcompany.com/shearwater-group-plc/register-investor
(https://www.investormeetcompany.com/shearwater-group-plc/register-investor)
Enquiries:
Shearwater Group plc www.shearwatergroup.com
David Williams, Chairman c/o Alma
Phil Higgins, CEO
Adam Hurst, Interim CFO
Cavendish Securities plc +44 (0) 20 7397 8900
Adrian Hadden / Ben Jeynes / Fergus Sullivan - Corporate Finance
Henry Nicol / Dale Bellis / Michael Johnson - Sales
Alma shearwater@almastrategic.com (mailto:shearwater@almastrategic.com)
Justine James / Joe Pederzolli / Emma Thompson +44 (0) 20 3405 0205
About Shearwater Group plc
Shearwater Group plc is an award-winning group providing cyber security,
managed security and professional advisory solutions to create a safer online
environment for organisations and their end users.
The Group's differentiated full service offering spans identity and access
management and data security, cybersecurity solutions and managed security
services, and security governance, risk and compliance. Its growth strategy is
focused on building a scalable group that caters to the entire spectrum of
cyber security and managed security needs, through a focused buy and build
approach.
The Group is headquartered in the UK, serving customers globally across a
broad spectrum of industries.
Shearwater shares are listed on the London Stock Exchange's AIM under the
ticker "SWG". For more information, please visit www.shearwatergroup.com
(http://www.shearwatergroup.com) .
Chairman's statement
Phil's CEO report sets out the Group's performance for the year ended 31 March
2024, together with details of the work being undertaken by our management
team in laying the groundwork for better results in the new financial year.
Our Board has been encouraged to note the improved pipeline as it shows
greater levels of activity than in previous years which gives us all
confidence in the potential moving forward.
We are a fundamentally sound business, delivering robust and award winning
solutions for our clients, but we are at the mercy of timing in winning large
contracts and, after three years of profit growth and strong revenue
performance, the last two years have been impacted by delays. Despite this
we have maintained a healthy cash balance such that, as can be seen in the
accounts, this represents roughly half our market capitalisation.
In common with many small companies our shares are languishing. This is in
part due to those contract delays in the last two years impacting profits but
also reflects the malaise in the market for micro cap companies where poor
liquidity deters investors and exacerbates share price movements.
Your board is very mindful of this and, together with our Advisory Panel
members, has been supportive of management's drive to win new business and
improve the results. We can see a distinct improvement in the market for our
products and services, which gives us optimism for the current year, but we
also review other avenues to improve shareholder returns.
Our non executive directors and Advisory Panel members have done a great job
in supporting and assisting management and I want to thank them for their
contribution as well as thank our customers and shareholders for their
support. We are all working hard to return your company to much improved
profitability in the current year and beyond.
David Williams
Chairman
23 July 2024
Chief Executive's review
The year ending 31 March 2024 was one of consolidation which demonstrated
Shearwater Group's resilience and potential. While headline revenue
performance remained impacted by some customers continuing to defer budget
allocations for larger contracts to future periods, we remain upbeat due to
the promising pipeline of opportunities across both our Services and Software
divisions and confident in the strong foundation we've built to enable us to
capitalise on these opportunities moving forward.
While Group revenue for the year was £22.6m (FY23: £26.7m), Adjusted
EBITDA(1) returned to profit at £0.9m compared to a £0.2m loss in FY23 and
the Group delivered improved margins from a combination of an improved profile
of business and cost control following the restructuring early in the year.
(1)See notes 2 and 3 within the Group financial statements that present a
reconciliation of Adjusted EBITDA to statutory measures including
profit/(loss) before tax.
The Group continues to be strengthened by a robust balance sheet, with
year-end cash of £5.0m (FY23: £4.0m), in line with market expectations, £1m
ahead of the prior year and £3m higher than the cash position at the half
year. The improved cash position reflects strong cash generation in the second
half, bolstering our financial position and positioning us well for future
growth.
We move into FY25 with key wins already secured and are encouraged by the
increasing levels of customer engagement, which provides more confidence in
our return to growth. Whilst some larger contracts are still under
negotiation, they continue to progress and remain in our pipeline.
Consequently, we are well-positioned to deliver solid and sustainable revenue
and profit growth in the years ahead.
Group operational review
The Group comprises two divisions: Services, which accounts for 89% of our
revenue, and Software, contributing the remaining 11%. Despite encountering a
period of cautious customer spending in FY24, resulting in a slight softening
in the number of new client acquisitions, our commitment to excellence has led
to notable contract wins, in particular in the banking, telecommunications and
retail sectors, alongside our new focus of central government departments.
These achievements underscore the value of our established relationships with
prestigious blue-chip organisations spanning a breadth of sectors.
In FY24 we completed a strategic initiative to integrate our Group businesses,
resulting in streamlined operations and enhanced synergy. The successful
integration of Xcina into Brookcourt Solutions and GeoLang into SecurEnvoy
yielded tangible benefits in the year. These include the realisation of
internal efficiencies, empowering us to channel resources into further product
development initiatives across both divisions. We have emerged as a more
unified business, ensuring we are poised to capitalise on Shearwater's
long-term growth opportunities.
At Shearwater we take immense pride in delivering our top-tier cyber security,
managed security and professional advisory solutions and services. We were
delighted to have received further accolades, which serve as a testament to
the exceptional value we provide. In total, five prestigious awards were
secured across both divisions. Noteworthy mentions include SecurEnvoy's
recognition as the Identity & Access Management Solution of the Year at
the Computing Security Magazine Awards 2023, along with commendation in the
Security Software Solution of the Year category for Data Discovery.
Additionally, Brookcourt received the Customer Service Award at the same event
and earlier in the year Brookcourt won the Logo Acquisition Award 2023 at the
Proofpoint channel event for the most successful acquisition of an Enterprise
bank over a three-year sales cycle. Furthermore, Pentest emerged as a
triumphant winner at Pwn2Own Toronto for successfully compromising the Samsung
Galaxy S23, underscoring our commitment to innovation and excellence in the
field.
Services
Despite continued challenging market conditions in FY24 the Services division
secured £20m in revenue, primarily through contract wins and renewals,
notably in the banking, telecommunications and government sectors.
Noteworthy wins included: a managed cyber security service, utilising
AI-driven endpoint protection, for a leading finance investment house;
tailored technical consulting projects for a new customer, an international
financial technology company; and retention of our services for existing
telecommunication customers. These examples illustrate our ability to navigate
the current climate and capitalise on emerging opportunities.
The first half of FY24 saw pivotal wins, including partnerships with a
prominent European Cyber Managed Security Services Provider (MSSP), an
international retail chemist and cosmetics company, and a crucial security
services contract with a UK government department. While financial
performance was, as expected, weighted to the second half of the year, the
pace of renewals and wins, particularly in Brookcourt Solutions was affected
by customer hesitancy surrounding budget allocations and not secured at the
pace we had anticipated.
Securing the £1.3m Government agency contract in October 2023 was an
important milestone, as our first major Government contract, with a second
three-year agreement worth c.£0.8m secured with another Government department
following a successful one-year trial. This not only diversifies our client
portfolio but also positions us for growth within the central government
sector. Deepening our engagement with Government entities remains a strategic
focus where we see an exciting opportunity for business expansion. Alongside
this, Brookcourt secured a lucrative three-year contract with a leading global
bank, valued at US$3.2m, further solidifying our position as a trusted
provider of comprehensive security and cyber security services and solutions.
Our penetration testing business, Pentest, completed a record number of tests
(3,174 days in total), adding 34 new clients and expanding the list of
territories in which it operates to 22 countries. Revenues in the year were
enhanced by a significant engagement from an existing US-based client and a
number of key account wins with global enterprises. Due to our focus on
delivering world-class service, Pentest maintained a strong pipeline
throughout the year with repeat revenues from a high percentage of returning
clients and a year-on-year increase in their day rate.
2024 2023
£m £m %
Revenue 20.2 23.8 (15.1)
Gross profit 5.4 4.3 25.5
Gross margin % 27% 18% +9%
Overheads 3.9 4.2 16.7
Adjusted EBITDA(1) 1.5 0.1 n/a
Adjusted EBITDA margin % 7% 1% +6%
(1)Note that to provide useful analysis the above table is adjusted to net off
FX movements on forward contracts (FY24: £0.2m credit; FY23: £0.4m cost)
against the FX movement on the underlying balance which are accounted for
within Gross profit. FX movements on forward contracts are included in
Administrative costs in the financial statements. Adjusted EBITDA above is
prior to Group costs as set out in Note 3.
Amidst an ever-changing cybersecurity landscape, we continue to tailor our
offering to cater to the needs of our customers. Throughout the year, we
expanded our AI-based solutions by collaborating with partners who are
integrating advanced machine learning algorithms enhancing threat detection
capabilities and delivering automated response systems. These efforts provide
us with an additional competitive advantage over the general IT marketplace
and ensure that our clients receive cutting-edge protection against evolving
threats.
Software
While Software performance in the year experienced some challenges compared to
the prior period, we have made significant strides in other key areas. The
integration of GeoLang into SecurEnvoy has generated efficiencies that allowed
for increased investment in product development in FY24. As a result, we
successfully introduced a comprehensive product set across the Group's global
distribution network. Our development team is now fully integrated and
operating as a unified resource, leading to increased opportunities for
Geolang, now renamed as SecurEnvoy Data Discovery, through SecurEnvoy's global
network of resellers. These advances position us well for future growth and
success.
Our ongoing R&D focus has significantly expanded our Software product
portfolio, strengthening our market positioning and setting us apart from our
peers. Key achievements during the year include:
· Enhanced Security: The V3.R3 update meets heightened government and
critical network security requirements.
· Deployment Flexibility: We now offer On-Premise (Windows & Linux)
and Private Cloud (Azure & AWS) options, catering to diverse customer
needs.
· Managed Service Integration (MSP): A new MSP edition addresses the
growing demand for managed security services and simplifies billing.
· Enhancing SecurEnvoy with AI: SecurEnvoy will leverage AI to reduce
training needs, enhance security response and proactive threat prevention.
SecurEnvoy's AI strategy aims to streamline user support, strengthen security
posture through advanced threat detection, and empower proactive response to
cyberattacks.
With an expanded product portfolio across the Software vision, we are
well-placed to serve a broader customer base and cater to evolving market
demands across both On-Premise and Private Cloud solutions.
Software's financial performance in FY24 was behind the prior year but has
seen stable revenues for the last three half years and we are confident that
traction and engagement will increase. We have a renewed confidence in the
division, with marketing and activities increased as the year progressed,
which will be key in positioning the division for growth in FY25. The second
half of the year saw an encouraging increase in new customer acquisitions.
Further progress was made in the year with the expansion of channel
partnerships through new agreements. In North America, we refocused our
efforts and signed our first Managed Service Provider (MSP), BlueZone Cyber
Inc., based in Texas. Additionally, we are advancing plans to offer our
solution on the AWS Marketplace in North America by the second half of the
FY25, making SecurEnvoy available to over 180,000 active customers on the
platform. We have also made progress in the Middle East. This region continues
to thrive, benefiting from in-person channel and customer meetings, resulting
in a 20% year-on-year increase in deal registrations. In FY25, we will
maintain a strong focus on this territory, with plans to deliver a Cloud
Hosted Stack in the UAE to address regional data sovereignty and residency
requirements.
2024 2023
£m £m %
Revenue 2.4 2.9 (17.2)
Gross profit 1.7 1.8 (5.6)
Gross margin % 71% 63% +8%
Overheads 0.8 0.8 -
Adjusted EBITDA(1) 0.9 1.0 -
Adjusted EBITDA margin % 38% 34% +4%
(1) Adjusted EBITDA above is prior to Group costs as set out in Note 3.
Growth strategy
Becoming a Cybersecurity Leader
Our vision is clear: to become a leader in next-generation cybersecurity
solutions. We deliver a comprehensive suite of services, from cutting-edge
technology to expert consulting, empowering businesses to navigate the
evolving threat landscape.
Strengthening Organic Growth: Fuelling Our Momentum
While current market conditions have necessitated a focus on strengthening
organic growth, M&A remains a strategic pillar. In the near term, we're
capitalising on the increasing number of opportunities within our chosen
sectors, driving robust organic revenue expansion.
A differentiated offering
Our Services division carries preferred partner status for a client base
comprising blue chip organisations, for all things security, offering
comprehensive managed solutions, penetration testing, and insightful advisory
services. We provide a seamless, end-to-end experience that empowers our
clients.
Our Software division is developing a revolutionary next-generation platform
that converges access management and data discovery. Leveraging our zero-trust
access solution, our platform safeguards users, devices, and data - anywhere,
anytime.
Delivering Sustainable Growth
Our medium-term strategy prioritises achieving consistent, sustainable revenue
and profit growth. With a deep commitment to innovation and an unwavering
focus on customer success, we are confident in delivering value for our
stakeholders in the years to come.
Adding Shareholder Value Through AI Integration
Artificial intelligence (AI) is rapidly transforming industries, and our
company is poised to leverage this powerful technology to create additional
value for our shareholders. We are already providing AI based cyber security
solutions to our customer base and also recognise the opportunity to drive AI
within our business to enhance efficiencies through automating and
streamlining processes and utilise the powerful analytical capabilities to
enhance data-driven decisions to optimise our resource allocation and maximise
return on investment. We believe that we can achieve competitive advantage
through utilising AI-powered solutions to personalise customer experiences,
improve product development and strengthen our overall market position,
driving long-term growth and shareholder value.
We are committed to implementing AI responsibly and ethically keeping within
our established AI code of conduct and we look forward to updating you on our
developments.
Market Opportunity
Businesses globally are facing a growing number of cybersecurity challenges,
requiring the implementation of controls to build and embed resilience, meet
regulatory mandates and reduce overall risk. 50% of businesses report having
experienced some form of cyber security breach or attack in the past 12
months, with a 72% increase in the number of data compromises in 2023 over the
2022 previous high (1).
The rise of cloud-based technology has driven a rise in cyber attacks, with
cloud environment intrusions increasing by 75% from 2022 to 2023 (2). The more
recent exponential increase in the adoption of AI is proving to revolutionise
not only the way in which businesses work, but also lower the barriers of
entry for low-skilled adversaries, making it easier to launch sophisticated
attacks.
(1)Cyber security breaches survey 2024 - GOV.UK (www.gov.uk
(http://www.gov.uk) )
(2)The rise of AI threats and cybersecurity: predictions for 2024 | World
Economic Forum (weforum.org)
(https://www.weforum.org/agenda/2024/02/what-does-2024-have-in-store-for-the-world-of-cybersecurity/)
( )
There is a growing need for the services which Shearwater Group offers,
driving significant opportunities for the business. Shearwater's offering is
well-placed to cater to the need for businesses' proactive approach to
cybersecurity measures, offering access to a differentiated full-service cyber
security in a rapidly expanding market. Further to supportive market trends,
our growth strategy, stronger financial position, prestigious customer base,
industry recognition and talented team, we are poised to capitalise on
opportunities and deliver substantial returns on investment.
Board Update
Adam Hurst, Interim Chief Financial Officer, will shortly be completing his
contract with the Company and a process has commenced to find a permanent
replacement. Adam has agreed to remain with the business until his successor
has been appointed and assist with handover.
Current Trading and Outlook
We are encouraged that FY25 has started well with the increasing momentum
reported in April building in Q1, with notable contracts secured, including a
£1.4m contract renewal and a $4.8m new deal with a British media and
telecommunications company as well as one of the delayed projects from a
leading international bank. There are clear signs that customer budget
allocations, which had been squeezed in recent years due to the challenging
external environment, are starting to be released at a modest pace. We are
benefitting from increased customer engagement, with a stronger pipeline of
opportunities across both divisions.
We remain focused on converting the significant pipeline of opportunities
across the Group, with deepened expansion into Government departments
remaining a key strategic priority and a major growth avenue for the business.
We are confident in returning to growth in FY25 and in delivering solid,
sustainable revenue and profit growth in the years ahead.
Philip Higgins
CEO
23 July 2024
Financial review
Overview
While the Group's financial performance in the year to 31 March 2024 was again
impacted by market factors and delayed contracts in the Group's Services
division, resulting in revenue down 15% to £22.6 million, gross margins
improved from 24% of revenue to 31% and administrative expenses for the Group
were lower by 9%.
The Group continues to retain a healthy balance sheet with a cash position of
£5.0 million at 31 March 2024 (2023: £4.0 million) and no debt. During the
year the Group again generated positive operating cash flows and continued to
invest in the development of new software offerings which it expects to
successfully monetise in future years.
A summary of the Group's financial performance for the year is set out below:
2024 2023
£m £m
Revenue 22.6 26.7
Gross profit 6.9 6.4
Administrative expenses (underlying)(1) (6.0) (6.6)
Adjusted EBITDA 0.9 (0.2)
Adjusted EBITDA margin 4% -%
Net finance charges (0.1) (0.1)
Depreciation (0.2) (0.2)
Amortisation of intangible assets - computer software (1.2) (0.8)
Adjusted loss before tax (0.6) (1.3)
Amortisation of acquired intangible assets (2.1) (2.1)
Impairment of intangible assets - (6.0)
Exceptional items and share-based payments (0.6) (0.2)
Loss before tax (3.3) (9.6)
Taxation credit 1.1 1.5
Loss after tax (2.2) (8.2)
( )
( 1) Administrative expenses (underlying) excludes items that are not
included within Adjusted EBITDA such as finance charges, depreciation,
amortisation, impairment, share-based payment charges and exceptional items(.)
Revenue
Revenue for the year ended 31 March 2024 of £22.6 million was 15% down on the
prior year (2023: £26.7 million).
The table below provides a breakdown of revenues for the current year:
2024 2023
£m £m
Services
Managed services and warranties 9.8 11.2
Security solutions 5.1 6.1
Advisory and engineering 5.3 6.5
Software
Software licences 2.4 2.9
Total revenue 22.6 26.7
The Services division was impacted by the continued effect of market
conditions on its customer base. While some contracts that had been delayed
from the previous financial year were completed, there continued to be delays
in some customers releasing budgets, resulting in lower revenue year on
year. Advisory revenues included particularly strong demand for Pentest's
consulting services in the year.
Software licences revenue fell in the year as falling sales of the legacy 'On
Premise' multi-factor authentication software have not yet been replaced by
sales of the new platform and cloud-based products which were released during
the year and continue to be developed. Renewal rates with existing customers
increased to over 80% demonstrating the value many long-standing clients place
on this product and its future roadmap and resulting in stable revenue in the
Software business for the third half year in a row. Continued investment into
developing this software both as a cloud-based platform as well as a next
generation on prem solution provides opportunities to drive additional
incremental revenues in the future.
Adjusted EBITDA
The Group delivered a return to positive adjusted EBITDA of £0.9 million in
the year (2023: Loss of (£0.2) million). The prior year was impacted by a
£0.8m loss on foreign exchange which did not recur following implementation
of a hedging policy. The increase in adjusted EBITDA, excluding the impact
of foreign exchange in the prior year, was £0.3m and achieved despite the
lower revenue due to higher gross margin percentages in both the Services and
Software divisions, from improved profile of revenues and lower costs
following the restructuring activity earlier in the year.
The table below provides a breakdown of the Group's adjusted EBITDA:
2024 2023
£m £m
Services and Software 2.3 1.1
Central administrative expenses (1.4) (1.3)
Adjusted EBITDA 0.9 (0.2)
Adjusted EBITDA margin % 4% -
Central administrative expenses increased by £0.1 million in the year to
£1.4 million.
Finance charges
Net finance charges of £0.1 million were in line with prior year (2023: £0.1
million). In the second half of the year the Group began to utilise short term
deposits to earn interest on excess cash balances.
Depreciation
Depreciation of £0.2 million (2023: £0.2 million) was similar to the prior
year and mainly comprises depreciation of right of use assets.
Amortisation of intangible assets - computer software
Amortisation of computer software increased by £0.4 million to £1.2 million
(2023: £0.8 million), reflecting the profile of expenditure in recent years.
Adjusted loss before tax
The Group's adjusted loss before tax for the year was £0.6 million (2023:
£1.3 million loss). The improvement compared to the prior year was largely
due to the increased EBITDA, which was partly offset by the increase in
amortisation of computer software.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets of £2.1 million (2023: £2.1
million) was in line with the previous year.
Share-based payments
Share-based payment charges were less than £0.1 million in the year (2023:
£0.1 million) mainly reflecting lapsed options and expiry of the SAYE plan.
Exceptional items
Exceptional items of £0.5 million (2023: £0.1 million) included one-off
expenses relating to completion of the restructuring which followed a review
of the Group in early 2023 and the cost of a one-off strategic project in the
second half of the current year.
Reported loss before tax
Reported loss before tax for the year of £3.3 million (2023: £9.6 million
loss) reflected the absence of the £6.0 million impairment charge incurred in
the prior year.
Taxation
A taxation credit in the period of £1.1 million primarily comprises movements
in deferred taxation.
Earnings/(loss) per share
Adjusted basic and diluted earnings per share of 0.3 pence (2023: loss of 0.4
pence) was similar to the prior year. Reported basic and diluted loss per
share of 9.1 pence (2023: loss 34.3 pence) improved due to the absence of the
impairment charge incurred in the prior year.
Statement of financial position
Intangible assets
Intangible assets decreased in the year by £2.2 million to £42.7 million at
31 March 2024 (2023: £44.9 million). This movement incorporates £1.0
million of investment into continued development of the Group's software
assets (2023: £1.3 million), less £3.3 million amortisation, of which £2.1
million relates to acquired intangibles and £1.2 million to internally
developed computer software. The prior year included a £6.0 million
impairment charge relating to the write down of goodwill.
Property, plant and equipment
Property, plant and equipment increased slightly in the
year by £0.1 million to £0.5 million at 31 March 2024
(2023: £0.4 million). Additions of £0.3 million include £0.2 million for
the extension of an existing office lease which has been recognised as a right
of use asset. Other movements in the period include depreciation in the year
of £0.2 million.
Trade and other receivables
Trade and other receivables, including both non-current and current balances,
decreased by £6.5 million in the year from £19.6 million to £13.1 million
at 31 March 2024. The reduction was mainly due to receipts relating to large
long-term customer contracts that were delivered and recognised in the income
statement in previous financial years. By March 2024 none of the remaining
balances were due after more than one year.
Trade and other payables (falling due within one year)
Trade and other payables increased by £0.3 million in the year from £12.3
million to £12.6 million at 31 March 2024. The balance includes a £4.1
million increase in trade payables and £4.5 million reduction in accruals and
other payables as invoices were received in the year relating to long term
supplier contracts where the costs were recognised in previous financial years
in line with the long-term customer contracts noted above.
Creditors: amounts falling due after more than one year
Creditor amounts falling due after more than one year reduced by £5.6 million
from £9.2 million to £3.6 million at 31 March 2024, due mainly to a
reduction in accruals and other payables relating to long-term contracts. At
31 March 2024 none of the remaining balances were due after more than one
year. Deferred tax was £3.0 million (2023: £3.6 million) and mainly
comprised amounts held for acquired intangible assets.
Statement of cash flows
The Group generated cash inflows in the year of £1.0 million (2023: outflow
of £1.6 million), driven largely by the return to positive adjusted EBITDA
and positive working capital generation, particularly in the second half of
the year. Working capital benefited in the year from the profile of long
term deals concluded in previous years. The Group continued to invest in the
Software division, with £1.0 million invested into internally developed
software, the latest of which, SecurEnvoy's Access Management v.4.0 R2, went
live in May 2024. The Group continued to collect cash effectively, with
minimal bad debt.
The table below provides a summary of cash flows in the year:
2024 2023
£m £m
Adjusted EBITDA 0.9 (0.2)
Movements in working capital 1.1 0.5
Cash generated from operations 2.0 0.3
Adjusted cash generated from operations 2.4 0.4
Exceptional items (0.4) (0.1)
Net cash generated from operating activities 2.0 0.3
Capital expenditure (net of disposal proceeds) (1.1) (1.3)
Tax received/(paid) 0.3 (0.3)
Finance costs paid (0.1) (0.1)
Payments of lease liabilities (0.2) (0.2)
Movement in cash 1.0 (1.6)
Opening cash and cash equivalents 4.0 5.6
Closing cash and cash equivalents 5.0 4.0
(The above cash flow is extracted from the statutory presentation and adjusted
to show exceptional items on a like for like basis as this is the basis
reviewed by the Directors. )
Capital expenditure
Capital expenditure of £1.1 million (2023: £1.3 million) in the year
primarily includes capitalisation of external and internal software costs for
developing our software business's product sets. Expenditure of property,
plant and machinery remains minimal.
Financing activities
Expenditure on financing activities of £0.3 million (2023: £0.3 million)
including repayment of lease liabilities, was in line with the prior year.
Key performance indicators
The Board believes that revenue, adjusted EBITDA and adjusted profit before
tax are key metrics to monitor the performance of the Group, as they provide
a good basis to judge underlying performance and are recognised by the Group's
shareholders.
Alternative performance measures
The Group uses alternative performance measures alongside statutory measures
to manage the performance of the business. In the opinion of the Directors,
alternative performance measures can provide additional relevant information
on past and future performance to the reader in assessing the underlying
performance of the business.
The table within note 2 of the consolidated financial statements details
definitions of adjusted EBITDA and adjusted (loss)/profit before tax measures.
Note 8 details the definition of adjusted EPS.
Consolidated statement of comprehensive income
for the year ended 31 March 2024
2024 2023
Note £000 £000
Revenue 3 22,643 26,686
Cost of sales (15,790) (20,236)
Gross profit 6,853 6,450
Administrative expenses (6,548) (12,875)
Depreciation and amortisation (3,531) (3,131)
Total operating costs (10,079) (16,006)
Operating loss (3,226) (9,556)
Adjusted EBITDA 864 (201)
Depreciation and amortisation (3,531) (3,131)
Impairment of intangible assets - (6,014)
Exceptional items 4 (533) (125)
Share-based payments (26) (85)
Operating loss (3,226) (9,556)
Net finance cost 6 (67) (77)
Loss before taxation (3,293) (9,633)
Income tax credit 7 1,123 1,458
Loss for the year and attributable to equity holders of the Company (2,170) (8,175)
Other comprehensive (loss)/income
Exchange differences on translation of foreign operations (3) 7
Total comprehensive loss for the year (2,173) (8,168)
Earnings/(loss) per ordinary share attributable to the owners of the parent
Basic and diluted (Pence per share) 8 (9.1) (34.3)
Adjusted basic and diluted (Pence per share) 8 0.3 (0.4)
Adjusted EBITDA and Adjusted basic and diluted earnings/(loss) per share are
non-GAAP Group-specific measures which are considered to be key performance
indicators of the Group's financial performance. See note 2 for definition of
Adjusted EBITDA and note 8 for definition of Adjusted based and diluted
earnings/(loss) per share.
The results above are derived from continuing operations.
Consolidated statement of financial position
As at 31 March 2024
2024 2023
Note £000 £000
Assets
Non-current assets
Intangible assets 9 42,684 44,939
Property, plant and equipment 10 481 433
Deferred tax asset 14 1,016 742
Trade and other receivables 11 679 7,280
Total non-current assets 44,860 53,394
Current assets
Trade and other receivables 11 12,392 12,346
Cash and cash equivalents 4,974 3,964
Total current assets 17,366 16,310
Total assets 62,226 69,704
Liabilities
Current liabilities
Trade and other payables 12 12,604 12,348
Total current liabilities 12,604 12,348
Non-current liabilities
Creditors: amounts falling due after more than one year 13 3,646 9,233
Total non-current liabilities 3,646 9,233
Total liabilities 16,250 21,581
Net assets 45,976 48,123
Capital and reserves
Share capital 16 22,278 22,278
Share premium 34,581 34,581
Other reserves 23,086 23,442
Translation reserve 27 30
Accumulated losses (33,996) (32,208)
Equity attributable to owners of the Company 45,976 48,123
Total equity and liabilities 62,226 69,704
The financial statements were approved and authorised for issue by the Board
and signed on their behalf on 23 July 2024.
Philip Higgins
Chief Executive Officer
Registered number: 05059457
Consolidated statement of changes in equity
for the year ended 31 March 2024
Share Share Other Translation Accumulated Total
capital premium reserves reserve losses equity
£000 £000 £000 £000 £000 £000
At 1 April 2022 22,278 34,581 24,386 23 (25,062) 56,206
Loss for the year - - - - (8,175) (8,175)
Other comprehensive income for the year - - - 7 - 7
Total comprehensive loss for the year - - - 7 (8,175) (8,168)
Contributions by and distributions to owners
Expiry of share options - - (1,029) - 1,029 -
Share-based payments - - 85 - - 85
At 31 March 2023 22,278 34,581 23,442 30 (32,208) 48,123
Loss for the year - - - - (2,170) (2,170)
Other comprehensive loss for the year - - - (3) - (3)
Expiry of share options - - - - - -
Total comprehensive loss for the year - - - (3) (2,170) (2,173)
Contributions by and
distributions to owners
Expiry of share options - - (382) - 382 -
Share-based payments - - 26 - - 26
At 31 March 2024 22,278 34,581 23,086 27 (33,996) 45,976
Consolidated cash flow statement
for the year ended 31 March 2024
Note 2024 2023
£000 £000
Cash flows from operating activities
Loss for the year (2,170) (8,175)
Adjustments for:
Amortisation of intangible assets 4 3,287 2,891
Depreciation of right of use assets 4 197 184
Depreciation of property, plant and equipment 4 47 56
Share-based payment charge 4 26 85
Impairment of intangible assets 4 - 6,014
Exceptional items - 125
Net finance cost 67 77
Income tax (1,123) (1,458)
Cash flow from operating activities before changes in working capital 331 (201)
Decrease in trade and other receivables 6,509 813
Decrease in trade and other payables (4,796) (248)
Cash generated from operations 2,044 364
Net foreign exchange movements 3 10
Net finance cost paid (47) (83)
Tax received / (paid) 301 (285)
Net cash generated from operating activities before exceptional items 2,301 6
Net cash flows on exceptional items - (80)
Net cash generated from / (used in) operating activities 2,301 (74)
Investing activities
Purchase of property, plant and machinery 10 (42) (57)
Purchase of intangibles 9 (1,032) (1,280)
Net cash used in investing activities (1,074) (1,337)
Financing activities
Repayment of lease liabilities 15 (216) (200)
Net cash used in financing activities (216) (200)
Net increase / (decrease) in cash and cash equivalents 1,011 (1,611)
Foreign exchange movement on cash and cash equivalents (1) -
Cash and cash equivalents at the beginning of the period 3,964 5,575
Cash and cash equivalents at the end of the period 4,974 3,964
Notes to the consolidated financial statements
for the year ended 31 March 2024
1. Basis of Preparation and Accounting Policies
These Consolidated Financial Statements have been prepared in accordance
with UK adopted International Accounting Standards and are in conformity
with the requirements of the Companies Act 2006. They do not include all of
the information required for full annual statements and should be read in
conjunction with the 2024 Annual Report.
The comparative figures for the financial year 31 March 2023 have been
extracted from the Group's statutory accounts for that financial year. The
statutory accounts for the year ended 31 March 2023 have been filed with the
registrar of Companies. The auditor reported on those accounts: their report
was (i) unqualified, (ii) did not include references to any matters to which
the auditor drew attention by way of emphasis without qualifying the reports
and (iii) did not contain statements under section 498(2) or (3) of the
Companies Act 2006.
The statutory accounts for the year ended 31 March 2024 were approved by the
Board of Directors on 23 July 2024 and will be delivered to the Registrar of
Companies following the Company's Annual General Meeting on 24 September 2024.
The financial information contained in this announcement does not constitute
statutory accounts for the year ended 31 March 2024 or 2023 as defined by
Section 434 of the Companies Act 2006.
Going concern
Having made enquiries, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for at least
twelve months from the date of signing these financial statements.
Accordingly, they continue to adopt the going concern basis in preparing these
consolidated financial statements.
The Directors continue to regularly review the Group's going concern position,
considering the impact of potential future trading downturns should there be
another global event or further economic challenges. Over the past two years
some of the Group's customers have experienced challenging trading conditions
which has resulted in delays to projects, which impacted the business's
performance.
At 31 March 2024 the Group has been able to report a robust financial position
and is well capitalised with a net cash position of £5.0 million (2022: £4.0
million).
The Directors have reviewed detailed budget cash flow forecasts for the period
to 30 September 2025 and have challenged the assumptions used to create these
budgets. The budget figures are carefully monitored against actual outcomes
each month and variances are highlighted and discussed at Board level on a
quarterly basis as a minimum.
The Board is pleased to report that trading in the current year has started
solidly and for the first quarter ended 30 June 2024 is broadly in line with
management's expectations.
The Directors have reviewed and challenged a reverse stress test scenario on
the Group up to September 2025. The purpose of the reverse stress test for the
Group is to test the impact on the Group's cash if the assumptions in the
budget are altered.
The reverse stress test assumes significant adjustments to the Group's budget
which include the scaling back of revenues across all business lines, for the
year ended 31 March 2025 and onwards, by around 50%. Services revenues have
been reduced to exclude significant opportunities in discussion with existing
customers, delay some material renewals and exclude 50% of identified new
business deals. Software revenues have been reduced with renewal rates
lowered and all new business lines removed with the exception of the Access
Management product new business revenues which have been reduced by 75%.
Costs have been scaled back in line with the reduction in revenues. The
resulting outcome of the stress-test forecasts that the Group would have
sufficient cash resources to service its liabilities during the periods
reviewed.
In the event that the performance of the Group is not in line with the
projections, action will be taken by management to address any potential cash
shortfall for the foreseeable future. The actions that could be taken by the
Directors include both a review and restructuring of employment‑related
costs. Additionally, the Directors would seek to negotiate access to other
sources of finance from the Company's relationship banks.
Overall, the sensitised cash flow forecast demonstrates that the Group will be
able to pay its debts as they fall due for the period to at least 30 September
2025 and therefore the Directors are satisfied there are no material
uncertainties to disclose regarding going concern. The Directors are therefore
satisfied that the financial statements should be prepared on the going
concern basis.
Material accounting judgements, estimates and assumptions
The preparation of financial statements requires management to make
judgements, estimates and assumptions that affect the amounts reported for
income and expenses during the year and that affect the amounts reported for
assets and liabilities at the reporting date.
Revenue recognition of material contracts
Management make judgements, estimates and assumptions in determining the
revenue recognition of material contracts sold by the Group's Services
division. The Group works with large enterprise clients, providing services
and solutions to support the clients' needs. In many cases a third-party's
products or services will be provided as part of a solution. Management
consider the implications around timing of recognition, with factors such as
determining the point control passes to the client and the subsequent
fulfilment of the Group's performance obligations. In addition to this,
management consider if it is acting as agent or principal. Further details of
how the Group determines revenue recognition and if it is acting as agent or
principal can be found within the relevant notes within this section.
Impairment of goodwill, intangible assets and investment in subsidiaries
Management make judgements, estimates and assumptions in supporting the fair
value of goodwill, intangible assets and investments in subsidiaries. The
Group carries out annual impairment reviews to support the fair value of these
assets. In doing so, management estimate future growth rates, weighted average
cost of capital and terminal values. Further information can be found in note
9.
Basis of consolidation
The Group's consolidated financial statements incorporate the results and net
assets of Shearwater Group plc and all its subsidiary undertakings made up to
31 March each year. Subsidiaries are all entities over which the Group has
control (see note 2 of the Company financial statements). The Group controls
an entity when the Group is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group. They are
deconsolidated from the date that control ceases. Where necessary, adjustments
are made to the financial statements of subsidiaries to bring the accounting
policies used into line with those used by the Group. All inter-group
transactions, balances, income and expenses are eliminated on consolidation.
Business combinations and goodwill
Business combinations are accounted for using the acquisition accounting
method. This involves recognising identifiable assets (including previously
unrecognised intangible assets) and liabilities of the acquired business
at fair value. Any excess of the cost of the business combination over the
Group's interest in the net fair value of the identifiable assets and
liabilities is recognised in the consolidated statement of financial position
as goodwill and is not amortised. To the extent that the net fair value of the
acquired entity's identifiable assets and liabilities is greater than the cost
of the investment, a gain is recognised immediately in the consolidated
statement of comprehensive income.
After initial recognition, goodwill is stated at cost less any accumulated
impairment losses, with the carrying value being reviewed for impairment at
least annually and whenever events or changes in circumstances indicate that
the carrying value may be impaired. Goodwill assets considered significant in
comparison to the Group's total carrying amount of such assets have been
allocated to cash-generating units or groups of cash-generating units. Where
the recoverable amount of the cash-generating unit is less than its carrying
amount including goodwill, an impairment loss is recognised in the
consolidated statement of comprehensive income.
Acquisition costs are recognised in the consolidated statement of
comprehensive income as incurred.
Revenue
The Group recognises revenue in accordance with IFRS 15: Revenue from
Contracts with Customers. Revenue with customers is evaluated based on the
five-step model under IFRS 15: Revenue from Contracts with Customers:
(1) identify the contract with the customer; (2) identify the performance
obligations in the contract; (3) determine the transaction price; (4)
allocate the transaction price to separate performance obligations; and (5)
recognise revenues when (or as) each performance obligation is satisfied.
Revenue recognised in the statement of comprehensive income but not yet
invoiced is held on the statement of financial position within accrued income.
Revenue invoiced but not yet recognised in the statement of comprehensive
income is held on the statement of financial position within deferred revenue.
The Group's revenues are comprised of a number of different products and
services across our two divisions, details of which are provided below:
Services
· Sale of third-party hardware, software, warranties and internal
support:
a) where the contract entails only one performance obligation to provide
software or hardware, revenue is recognised in full at a point in time
upon delivery of the product to the end client. This delivery will either be
in the form of the physical delivery of a product or the emailing of access
codes to the client for them to access third‑party software or warranties;
and
b) where a contract to supply external hardware, software and/or
warranties also includes an element of ongoing internal support, multiple
performance obligations are identified and an allocation of the
total contract value is allocated to each performance obligation based on the
standalone costs of each performance obligation. The respective costs of each
performance obligation are traceable to supplier invoice and applying the
fixed margins, standalone selling prices are determined. Internal support is
recognised equally over the period of time detailed in the contract.
· Sales of consultancy services are usually based on a number of
consultancy days that make up the contracted consideration. Consultancy days
generally comprise field work and (where required) report writing and delivery
which are considered to be of equal value to the client. Revenue is
recognised over time based on the number of consultancy days provided within
the period compared to the total in the contract.
Software
· Software licences whereby the customer buys software that it sets up
and maintains on its premises is recognised fully at the point the licence
key/access has been granted to the client. The Group sells the majority of its
services through channels and distributors who are responsible for providing
first and second line support to the client.
· Software licences for the new 'Authentication as a Service' product
whereby the customer accesses the product via a cloud environment maintained
by the Company is recognised in two parts, whereby part of the subscription is
recognised at the point that the licence key is provided to the customer,
with the remaining part recognised evenly over the length of the contract.
This deferred proportion represents the obligation to maintain and support
the platform that the software runs on.
Principal versus agent considerations
In instances where the Group is involving another party in providing goods or
services to a customer the Group considers whether the nature of its promise
is a performance obligation to provide the specified goods or services itself
or to arrange for those goods or services to be provided by the other party to
determine whether it is a principal or an agent. The business will firstly
identify the specific goods and/or services to be supplied to the customer.
In determining whether the business is acting as agent or principal the
business assesses whether it controls each specified good or service before
that good is transferred to the customer. It will consider:
· Who is responsible for fulfilling the promise to provide
the specific product or service.
· If the business is carrying a liability risk for the specific good
or service prior to it being supplied to the customer.
· If the business has discretion over pricing.
In addition to the points noted above, the business also considers the
following unique selling points:
· Pre-sales process:
In some cases, the business invests heavily in working with the customer to
understand their requirements, before designing/recommending a solution that
integrates various third-party products or services to meet the customers'
requirements.
· Levels of ongoing services:
In some cases, whilst not always contracted, the business will continue to
support the customer as needed to ensure that their solution is working.
This may include co-ordination of the maintenance and support with third
parties and provision of engineers to remove and send back faulty product.
Where the Group is a principal, revenues are recognised on a gross basis in
the statement of comprehensive income while when an agent revenues are
recognised on a net basis in the statement of comprehensive income.
Segmental reporting
For internal reporting and management purposes, the Group is organised into
two reportable segments based on the types of products and services from which
each segment derives its revenue - Services and Software. The Group's
operating segments are identified on the basis of internal reports that are
regularly reviewed by the chief operating decision maker in order to allocate
resources to the segment and to assess its performance.
Current and deferred income tax
The charge for taxation is based on the profit or loss for the year and takes
into account deferred tax. Deferred tax is the tax expected to be payable or
recoverable on temporary differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding tax based in
the computation of taxable profit or loss and is accounted for using the
balance sheet method.
The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the balance sheet date in the countries
where the Group's subsidiaries operate and generate taxable income. Management
periodically evaluate positions taken in tax returns with respect to
situations where applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of amounts expected to
be paid to the tax authorities.
Deferred tax assets are only recognised to the extent that it is probable that
future taxable profit will be available in the foreseeable future against
which the temporary differences can be utilised.
Deferred income tax assets and liabilities are measured at the rates that are
expected to apply when the related asset is realised, or liability settled,
based on tax rates and laws enacted or substantively enacted at the reporting
date.
Intangible assets
Intangible assets are carried at cost less accumulated amortisation and
accumulated impairment losses. Intangible assets acquired as part of a
business combination are recognised outside goodwill if the assets are
separable or arise from contractual or other legal rights and their fair value
can be measured reliably. Material expenditure on internally developed
intangible assets is taken to the consolidated statement of financial position
if it satisfies the six‑step criteria required under IAS 38.
Intangible assets with a finite life have no residual value and are amortised
over their expected useful lives as follows:
Computer software (including in-house developed software) 2-5 years straight-line basis
Customer relationships 1-15 years straight-line basis
Software 10 years straight-line basis
Trade names 10 years straight-line basis
The amortisation expense on intangible assets with finite lives is recognised
in the statement of comprehensive income within administrative expenses. The
amortisation period and the amortisation method for intangible assets with
finite useful lives are reviewed at least annually.
The carrying value of intangible assets is reviewed for impairment whenever
events or changes in circumstances indicate the carrying value may not be
recoverable.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated
depreciation. Cost includes the original purchase price of the asset plus any
costs of bringing the asset to its working condition for its intended use.
Depreciation is provided at the annual rates set out below, on a straight-line
basis, in order to write down each asset to its residual value over its
estimated useful life. The assets' residual values and useful lives are
reviewed, and adjusted if appropriate, at the end of each reporting period.
Office equipment 25% - 33% per annum
Right of use assets Shorter of useful life of the asset or lease term
Gains and losses on disposals are determined by comparing the proceeds with
the carrying amount and are recognised, as adjusted items if significant,
within the statement of comprehensive income.
Financial instruments
Shearwater's financial assets and financial liabilities are recognised in the
Group's balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
Financial assets
Trade and other receivables are measured at amortised cost less a provision
for doubtful debts, determined as set out below in 'impairment of financial
assets'. Any write‑down of these assets is expensed to the statement of
comprehensive income.
The Group uses derivatives where there is a material surplus or deficit of
non-sterling receipts and payments. Forward contracts are measured at each
balance sheet based on the prevailing closing exchange rates with exchange
gains/(losses) recognised in the statement of comprehensive income.
Impairment of financial assets
The impairment model under IFRS 9 reflects expected credit losses, as opposed
to only incurred credit losses under IAS 39. Under the impairment approach in
IFRS 9, it is not necessary for a credit event to have occurred before
credit losses are recognised. Instead, the Group always accounts for expected
credit losses and changes in those expected credit losses. The amount of
expected credit losses are updated at each reporting date.
The impairment model only applies to the Group's financial assets that are
debt instruments measured at amortised cost or FVTOCI as well as the Group's
contract assets and issued financial guarantee contracts. The Group
has applied the simplified approach to recognise lifetime expected credit
losses for its trade receivables and contracts assets as required or permitted
by IFRS 9.
Expected credit losses are calculated with reference to average loss rates
incurred in the three most recent reporting periods then adjusted taking into
account forward-looking information that may either increase or decrease the
current rate. The Group's average combined loss rate is 0.27% (2023: 0.24%).
This percentage rate is then applied to current receivable balances using a
probability risk spread as follows:
· 80% of debt not yet due (i.e. the Group's average combined loss rate
of 0.27% is discounted by 20%, meaning a 0.22% provision would be made to debt
not yet due);
· 85% of debt that is <30 days overdue;
· 90% of debt that is 30-60 days overdue;
· 95% of debt that is 60-90 days overdue; and
· 100% of debt that is >90 days overdue.
Management have performed the calculation to ascertain the expected credit
loss provision, which works out to £18,935 (2023: £29,864). The movement
has been recognised in the statement of comprehensive income. To date, the
Group has a record of minimal bad debts, with less than £25,000 being written
off in the past three years.
The Group derecognises a financial asset only when the contractual rights to
the cash flows from the asset expire, or when it transfers the financial asset
and substantially all the risks and rewards of ownership of the asset to
another entity. On derecognition of a financial asset measured at amortised
cost, the difference between the asset's carrying amount and the sum of the
consideration received and receivable is recognised in the statement
of comprehensive income.
Financial liabilities
Trade and other payables
Financial liabilities within trade and other payables are initially
recognised at fair value, which is usually the invoiced amount. They are
subsequently carried at amortised cost using the effective interest method
(if the time value of money is significant).
Loans are initially recognised at fair value, which is the amount stated in
the loan agreement. Subsequently, loan balances are restated to include any
interest that has become payable.
Lease liabilities have been recognised at fair value in line with the
requirements of IFRS 16. Details of lease disclosures are included in note 15.
The Group derecognises financial liabilities when, and only when, the Group's
obligations are discharged, cancelled or they expire. The difference between
the carrying amount of the financial liability derecognised and the
consideration paid and payable, including any non-cash assets transferred or
liabilities assumed, is recognised in the statement of comprehensive income.
Forward contracts
Foreign exchange risk arises when individual group operations enter into
transactions denominated in a currency other than their functional currency.
Where the risk to the Group is considered to be significant, the Group has a
policy to enter into forward foreign exchange contracts. Further details can
be found in note 18.
Leases
Leases are accounted for under IFRS 16 which sets out the principles for
recognition, measurement, presentation and disclosures of leases and requires
lessees to account for most leases under a single on‑balance sheet model.
Right of use assets
In determining if a lease exists, management considers if a contract conveys
the right to control the use of an identified asset for a period of time in
return for a consideration. When assessing whether a contract states a right
to control the use of an identified asset, management considers:
· if a contract involves the use of an identified asset, this could be
specified explicitly or implicitly and should be physically distinct;
· if the Group has obtained the right to gain substantially all of the
economic benefit from the use of the asset throughout the period of use; and
· if the Group has the right to direct the use of the asset.
Identified 'right of use assets' since 1 April 2019 are valued at the
commencement date of the lease (this is usually the date the underlying asset
is available for use). For leases that began prior to 1 April 2019, a right of
use asset was created at 1 April 2019 when the Group adopted IFRS 16.
Right of use assets are depreciated on a straight-line basis from the
commencement date (this is usually the date the underlying asset is available
for use, or 1 April 2019 if the lease commenced before this date) to the
earlier of the end of useful life of the right of use asset or the end of the
lease term. The right of use asset may be subject to impairment following
certain remeasurement of lease liabilities. Details of the Group's right of
use assets are contained in note 10 of the consolidated financial statements.
Lease liability
At the commencement date of a lease (or 1 April 2019 for leases which
commenced before this date) the Group recognises lease liabilities, measuring
them at the present value of lease payments at commencement of the lease (or 1
April 2019 for leases which commenced before this date) discounted at the
determined incremental borrowing rate.
The lease liability is measured at the amortised cost using the effective
interest method. Should there be a change in expected future lease payments
arising from a lease modification or if the Group changes its assessment of
whether it will exercise an extension or termination option, the lease
liability would be remeasured.
Remeasurement of a lease liability will give rise to a corresponding
adjustment being made to the carrying value of the right of use asset.
Lease liabilities are detailed in notes 12, 13 and 15 of the consolidated
financial statements.
Practical expedients
IFRS 16 provides for certain optional practical expedients, including those
related to the initial adoption of the standard. The Group applies the
following practical expedients when applying IFRS 16 to leases previously
classified as operating leasing under IAS 17:
• applied a single discount rate to all leases with similar characteristics;
• applied the exemption not to recognise right of use assets and liabilities
for leases with less than twelve
months of the lease term remaining as at the date of initial application; and
• applied the exemption for low-value assets whereby leases with a value
under £5,000 (usually IT equipment) have been classed as short-term leases
and not recognised on the statement of financial position even if the initial
term of the lease from the lease commencement date may be more than twelve
months.
Incremental borrowing rate
IFRS 16 states that all components of a lease liability are required to be
discounted to reflect the present value of the payments. Where a lease (or
group of leases) does not state an implicit rate, an incremental borrowing
rate should be used.
The incremental borrowing rate should represent what the lessee would have to
pay to borrow over a similar term and with similar security, the funds
necessary to obtain an asset of similar value to the right of use asset in a
similar economic environment.
The Group has applied an incremental borrowing rate which it uses to discount
all identified leases across the Group. The Group has one type of right of use
assets, all of which are located in the United Kingdom.
Share-based payments
In order to calculate the charge for share-based payments as required by IFRS
2, the Group makes estimates principally relating to assumptions used in
its option-pricing model as set out in note 17.
The cost of equity-settled transactions with employees, and transactions with
suppliers where fair value cannot be estimated reliably, is measured with
reference to the fair value of the equity instrument. The fair value of
equity‑settled instruments is determined at the date of grant, taking into
account market-based vesting conditions. The fair value is determined using an
option pricing model.
No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition, which are treated
as vesting irrespective of whether or not the market condition is satisfied,
provided that all other performance conditions are satisfied.
At each reporting date before vesting, the cumulative expense is calculated,
representing the extent to which the vesting period has expired and
management's best estimate of the achievement or otherwise of non-market
conditions, the number of equity instruments that will likely vest, or in the
case of an instrument subject to market condition, be treated as vesting as
described above. The movement in cumulative expense since the previous
reporting date is recognised in the statement of comprehensive income, with
the corresponding entry in equity.
Pensions
The Group operates a defined contribution personal pension scheme. The assets
of this scheme are held separately from those of the Company in an
independently administered fund. The pension charge represents contributions
payable by the Company to the fund.
Uncertainty over income tax treatments
The Group applies the guidance in IFRIC 23 on the accounting for current and
deferred tax liabilities and assets in circumstances in which there is
uncertainty over income tax treatments. The interpretation requires:
· the Group to determine whether uncertain tax treatments should be
considered separately, or together as a Group, based on which approach
provides better predictions of the resolution;
· the Group to determine if it is probable that the tax authorities
will accept the uncertain tax treatment; and
· if it is not probable that the uncertain tax treatment will be
accepted, measure the tax uncertainty based on the most likely amount or
expected value, depending on whichever method better predicts the resolution
of the uncertainty. This measurement is required to be based on the assumption
that each of the tax authorities will examine amounts they have a right to
examine and have full knowledge of all related information when making those
examinations.
New standards
and interpretations applied
There were no new standards or amendments or interpretations to existing
standards that became effective during the year that were material to the
Group. These include an amendment to IAS 12- Deferred Tax related to Assets
and Liabilities arising from a Single Transaction).
No new standards, amendments or interpretations to existing standards having
an impact on the financial statements that have been published and that are
mandatory for the Group's accounting periods beginning on or before 1 April
2023, or later periods, have been adopted early.
New standards and interpretations not applied
The following new standards, amendments and interpretations have not been
adopted in the current year:
International Financial Reporting Standard (IFRS/IAS) Effective date Adopted by the Group
Liability in a Sale and Leaseback (Amendments to IFRS 16 Leases) 1 January 2024 1 April 2024
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1 1 January 2024 1 April 2024
Presentation of Financial Statements)
Non-current Liabilities with Covenants (Amendments to IAS 1 Presentation of 1 January 2024 1 April 2024
Financial Statements)
Supplier Finance Arrangements (Amendments to IAS 7 Statement of Cash Flows and 1 January 2024 1 April 2024
IFRS 7 Financial Instruments: Disclosures)
Lack of Exchangeability (Amendments to IAS 21 The Effects of Changes in 1 January 2025 1 April 2025
Foreign Exchange Rates)
2. Measure of profit/loss
To provide shareholders with a better understanding of the trading performance
of the Group, additional alternative performance measures ('APMs') are
included; Adjusted EBITDA and Adjusted loss before tax have been calculated as
profit/loss before tax after adding back the following items, which can
distort the underlying performance of the Group:
Adjusted loss before tax
· Amortisation of acquired intangibles.
· Share-based payments.
· Impairment of intangible assets.
· Exceptional items
Adjusted EBITDA
In addition to the adjusting items highlighted above in the adjusted loss
before tax:
· Finance costs.
· Finance income.
· Depreciation (including amortisation of right of use assets).
· Amortisation of intangible assets - computer software (including
in-house software development).
Adjusted EBITDA and adjusted loss before tax reconciles to loss before tax as
follows:
2024 2023
£000 £000
Loss before tax (3,293) (9,633)
Amortisation of acquired intangibles 2,099 2,099
Impairment of intangible assets - 6,014
Exceptional items 533 125
Share-based payments 26 85
Adjusted loss before tax (635) (1,310)
Net finance costs 67 77
Depreciation 244 240
Amortisation of intangible assets - computer software (including in-house 1,188 792
software development)
Adjusted EBITDA 864 (201)
3. Segmental information
In accordance with IFRS 8, the Group's operating segments are based on the
operating results reviewed by the Board, which represents the chief operating
decision maker.
The Group is organised into two reportable segments based on the types of
products and services from which each segment derives its revenue - Services
and Software.
Segment information for the twelve months ended 31 March 2024 is presented
below. The Group's assets and liabilities are not presented by segment as the
Directors do not review assets and liabilities on a segmental basis.
Revenue Profit/(Loss) Revenue Profit/(Loss)
Year ended
Year ended
Year ended
Year ended
31 March 2024
31 March 2024
31 March 2023
31 March 2023
£000
£000
£000
£000
Services(1) 20,270 1,467 23,830 149
Software(1) 2,373 869 2,856 977
Group Revenue / Group trading EBITDA(1) 22,643 2,336 26,686 1,126
Group costs(1) (1,472) (1,327)
Adjusted EBITDA 864 (201)
Amortisation of intangibles (3,287) (2,891)
Impairment of intangible assets - (6,014)
Depreciation (244) (240)
Exceptional items (533) (125)
Share-based payments (26) (85)
Net finance costs (67) (77)
Loss before tax (3,293) (9,633)
(1 Figures disclosed in the profit column for Services and Software
profitability is adjusted EBITDA.)
Segmental information by geography
The Group is domiciled in the United Kingdom and currently the majority of its
revenues come from external customers that are transacted in the United
Kingdom. A number of transactions which are transacted from the United Kingdom
represent global framework agreements, meaning our services, whilst transacted
in the United Kingdom, are delivered globally. The geographical analysis of
revenue detailed below is on the basis of country of origin in which the
master agreement is held with the customer (where the sale is transacted).
2024 2023
£000 £000
United Kingdom 17,867 18,585
Europe (excluding the UK) 3,428 6,043
North America 1,050 1,620
Rest of the world 298 438
22,643 26,686
All of the Group's non-current assets are held within the United Kingdom.
In the year to 31 March 2024 one customer within the Group made up more than
10% of the Group's revenue. This customer contributed £4.3 million to the
Group's Services division. In the prior year, one customer made up more than
10% of the Group's revenue, contributing £8.0 million to the Group's Services
division.
4. Expenses and auditor's remuneration
Operating loss is stated after charging/(crediting):
2024 2023
£000 £000
Depreciation of fixed assets 244 240
Amortisation of intangibles 3,287 2,891
External auditor's remuneration:
- Audit fee for annual audit of the Group and Company financial statements 132 103
- Audit fee for annual audit of the subsidiary financial statements 231 179
Share-based payments 26 85
Impairment of intangible assets - 6,014
Exceptional items 533 125
Unrealised (profit)/loss on forward contracts (194) 407
Exceptional items include one off expenses relating to completion of the
restructuring which commenced at the end of the previous financial year and
the cost of a one-off strategic project in the second half of the year to 31
March 2024.
5. Staff costs
Total staff costs within the Group comprise of all Directors' and employee
costs for the financial year.
2024 2023
£000 £000
Wages and salaries 6,769 6,864
Social security costs 802 835
Pension costs 200 207
Share-based payments 26 85
7,797 7,991
The weighted average monthly number of employees, including Directors,
employed by the Group and Company during the year was:
2024 2023
No. No.
Administration 21 20
Production 45 53
Sales and marketing 28 26
94 99
6. Interest costs
2024 2023
£000 £000
Interest payable on revolving credit facility 61 56
Interest payable on lease liabilities 20 15
Other interest payments 1 6
82 77
Interest receivable (15) -
67 77
7. Taxation
2024 2023
£000
£000
Current tax:
UK corporation tax at current rates on UK loss for the year - -
Under/(over) provision in respect of prior year 109 (442)
109 (442)
Foreign tax (20) 2
Total current tax charge / (credit) 89 (440)
Deferred tax movement in the period (1,212) (1,018)
Income tax credit (1,123) (1,458)
Reconciliation of taxation:
Loss before tax (3,293) (9,633)
Loss multiplied by the average rate of corporation tax in the year of 25% (823) (1,830)
(2023: 19%)
Tax effects of:
Expenses not deductible for tax purposes 333 1,532
Adjustments for previous periods 109 (442)
Foreign tax rate differences (12) (1)
Increase to deferred tax asset owing to changing tax rate from 1 April 2023 - (136)
R&D relief (423) (130)
Other items (307) (277)
Brought forward losses - (174)
Income tax credit (1,123) (1,458)
8. Earnings per share
Basic loss per share is calculated by dividing the loss attributable to the
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period.
Diluted loss per share is the same as Basic loss per share as the potential
dilutive shares are anti-dilutive for the twelve months ended 31 March 2024
and for the twelve months ended 31 March 2023. Please see notes 16 and 17 of
the consolidated financial statements for more details.
Adjusted earnings per share has been calculated using adjusted earnings
calculated as loss after taxation but before:
· Amortisation of acquired intangibles after tax.
· Impairment of intangible assets.
· Exceptional items after tax.
· Share-based payments.
The calculation of the basic and diluted profit/loss per ordinary share from
total operations attributable to shareholders is based on the following data:
2024 2023
£000
£000
Net loss from total operations
Loss for the purposes of basic and diluted earnings/(loss) per share being net (2,170) (8,175)
profit attributable to shareholders
Add/(remove):
Amortisation of acquired intangibles (net of tax) 1,808 1,878
Impairment of intangible assets - 6,014
Exceptional items (net of tax) 400 101
Share-based payments 26 85
Adjusted profit/(loss) for the purposes of adjusted earnings per share 64 (97)
Number Number
Number of shares
Weighted average number of ordinary shares for the purpose of basic and 23,826,379 23,818,674
adjusted loss per share
Pence Pence
Basic and diluted loss per share (9.1) (34.3)
Adjusted basic and Adjusted diluted profit/(loss) per share 0.3 (0.4)
9. Intangible assets
Goodwill Customer Software Tradenames Gold Total
£000 relationships £000 £000 exploration £000
£000 £000
Cost
At 1 April 2022 36,660 10,838 8,640 6,826 1,005 63,969
Additions - - 1,280 - - 1,280
At 31 March 2023 36,660 10,838 9,920 6,826 1,005 65,249
Additions - - 1,032 - - 1,032
At 31 March 2024 36,660 10,838 10,952 6,826 1,005 66,281
Accumulated amortisation
At 1 April 2022 - 3,623 4,417 2,360 1,005 11,405
Amortisation for the year - 934 1,274 683 - 2,891
Impairment 6,014 - - - - 6,014
At 31 March 2023 6,014 4,557 5,691 3,043 1,005 20,310
Amortisation for the year - 934 1,670 683 - 3,287
At 31 March 2024 6,014 5,491 7,361 3,726 1,005 23,597
Net book amount
At 31 March 2024 30,646 5,347 3,591 3,100 - 42,684
At 31 March 2023 30,646 6,281 4,229 3,783 - 44,939
At 31 March 2022 36,660 7,215 4,223 4,466 - 52,564
Software intangible assets comprise acquired software assets plus software
assets developed both in-house and externally. The amortisation charge for the
year includes £2.1 million amortisation on acquired intangible assets and
£1.2 million amortisation of internally developed software assets.
The Group tests goodwill annually for impairment. The recoverable amount of
goodwill is determined as the higher of the value-in-use calculation or fair
value less cost of disposal for each cash‑generating unit (CGU). The
value-in-use calculations use pre-tax cash flow projections based on financial
budgets and forecasts approved by the Board covering a five-year period. These
pre-tax cash flows beyond the five -year period are extrapolated using
estimated long-term growth rates. Following a restructuring of the Group
during FY24, including the commercial integration of Xcina Consulting into
Brookcourt Solutions and Geolang into SecurEnvoy, the Group now has three
separate CGUs (FY23: five CGUs). For all three CGUs a weighted average cost of
capital of 13.0% (FY23: 12.6%) and a terminal value, based on a long-term
growth rate of 2% (FY23: 2%) calculated on year five cash flow has been used
when testing goodwill.
The following key assumptions around revenue growth are summarised in the
table below.
Software Brookcourt Pentest
Solutions
Year 1 28% 47% 0%
Year 2 20% 15% 10%
Year 3 20% 10% 8%
Year 4 15% 8% 6%
Year 5 15% 6% 6%
4 year CAGR(1) 17.5% 9.7% 7.5%
4 year CAGR represents the average growth rate per year between FY25 and FY29.
No impairment charge has been recorded in the year (In the prior year an
impairment charge of £6.0 million was recorded, writing down the goodwill
balance held for the Group's SecurEnvoy and Xcina businesses).
Sensitivity analysis has been performed on each of the Group's CGUs which
incorporates changes in assumed revenue growth rates and profit margin growth
in addition to terminal value revenue growth rate and weighted cost of capital
(WACC). Outcomes of the following sensitivities, before tax, are detailed
below:
· Reducing the terminal value by 1% from 2% to 1% would flag
insufficient headroom in one of the Group's CGUs (Software) resulting in an
impairment of £0.3m
· Increasing the weighted average cost of capital by 1.0% from 13.0% to
14.0% would flag insufficient headroom in one of the Group's CGUs (Software)
resulting in an impairment of £0.7 million.
· A 10% reduction in the assumed annual revenue growth rates for each
CGU from FY25 (maintaining forecast gross profit margin % and adjusting
administrative expenses in line with the % revenue reduction) would, subject
to no other changes, flag insufficient headroom in each of the Group's CGUs
resulting in a potential impairment of £14.0 million.
· A 15% reduction in the assumed annual revenue growth rates for each
CGU from FY25 (maintaining forecast gross profit margin % and adjusting
administrative expenses in line with the % revenue reduction) would, subject
to no other changes, flag insufficient headroom in each of the Group's CGUs
resulting in a total potential impairment of £21.7 million.
Gold exploration assets date back to before 2017 when the Group was known as
Aurum Mining plc whose principal activity was mining and exploration.
10. Property, plant and equipment
Right of use Office Total
assets equipment £000
£000 £000
Cost
At 1 April 2022 576 414 990
Additions 301 57 358
Disposals - (43) (43)
At 31 March 2023 877 428 1,305
Additions 250 42 292
Disposals (436) - (436)
At 31 March 2024 691 470 1,161
Accumulated depreciation
At 1 April 2022 375 300 675
Charge for the year 185 55 240
Disposals - (43) (43)
At 31 March 2023 560 312 872
Charge for the year 197 47 244
Disposals (436) - (436)
At 31 March 2024 321 359 680
Net book amount
At 31 March 2024 370 111 481
At 31 March 2023 317 116 433
At 31 March 2022 201 114 315
Depreciation of property, plant and equipment is charged to depreciation and
amortisation expenses within the statement of comprehensive income.
11. Trade and other receivables
Non-current 2024 2023
£000 £000
Trade receivables - 5,226
Accrued income 679 2,054
679 7,280
Current 2024 2023
£000 £000
Trade receivables 8,948 7,475
Accrued income 2,889 4,081
Prepayments and other receivables 310 499
Corporation tax asset 245 291
12,392 12,346
The movement for the provision in expected credit losses is stated below:
2024 2023
£'000 £'000
At 1 April 30 41
Movement in expected credit loss provision (10) (11)
At 31 March 20 30
12. Trade and other payables
2024 2023
£000 £000
Trade payables 7,320 3,265
Accruals and other payables 3,529 8,031
Other taxation and social security 1,275 518
Forward contract 213 275
Deferred income 137 147
Corporation tax 3 7
Lease liabilities 127 105
12,604 12,348
13. Creditors: amounts falling due after more than one year
2024 2023
£000 £000
Accruals and other payables 385 5,284
Deferred tax 3,010 3,602
Lease liabilities 251 216
Forward contract - 131
3,646 9,233
14. Deferred tax
2024 2023
£000 £000
Non-current liabilities
Liability at 1 April 3,602 3,878
Deferred tax credit in the statement of comprehensive income (592) (276)
Total deferred tax 3,010 3,602
Deferred tax balance at 31 March 2024 includes a £2.5 million (2023: £3.0
million) deferred tax liability for acquired intangible assets including
software and trademarks. The remainder represents timing differences arising
on the difference between the net book value and tax written down value of
internally generated software and office equipment.
2024 2023
£000 £000
Non-current assets
At 1 April 742 -
Credit to statement of comprehensive income 274 742
Total deferred tax asset 1,016 742
The Group has tax losses of £4.1 million (2023: £3.0 million) across its
Parent Company Shearwater Group plc and four subsidiaries that are available
for offset against future taxable profits of the entity. A deferred tax asset
has been recognised in respect of tax losses brought forward and in the
current year which will be used to offset future taxable profits.
15. Lease liabilities
Lease liabilities at 31 March 2024, which include the extension of some
existing office leases, are detailed below:
Lease liabilities Property
£000
At 1 April 2022 206
Additions 301
Interest expense 15
Payments to lease creditors (200)
At 31 March 2023 321
Additions 253
Interest expense 20
Payments to lease creditors (216)
At 31 March 2024 378
The maturity analysis of lease liabilities is detailed below:
Lease liabilities - (contractual undiscounted cash flows) 2024 2023
£000 £000
Less than one year 140 118
One to five years 265 233
Total undiscounted lease liabilities at 31 March 405 351
There are no leases with a term of more than five years.
Lease liabilities included in the statement of financial position at 31 March 2024 2023
£000 £000
Current 127 105
Non-current 251 216
Amounts recognised in the statement of comprehensive income 2024 2023
£000 £000
Interest on lease liabilities 20 15
Expenses related to short‑term leases 6 -
Depreciation of right of use assets (note 10) 197 185
Amounts recognised in the statement of cash flows 2024
£000 2023
£000
Payment of principal 216 200
Payment of interest 20 15
Total cash outflows 236 215
16. Share capital
The table below details movements within the year:
Ordinary shares
In thousands of shares 2024 2023
In issue at 1 April 23,826 23,818
Options exercised during the year - 8
Number of shares 23,826 23,826
Allotted, called up and fully paid 2024 2023
£000 £000
Ordinary shares of £0.10 each (2023: £0.10 each) 2,382 2,382
Deferred shares of £0.90 each (2023: £0.90 each) 19,896 19,896
Total 22,278 22,278
Deferred shares for all practical purposes are valueless and it is the Board's
intention to repurchase, cancel or seek to surrender these deferred shares
using lawful means as the Board may at such time in the future decide.
No shares were issued or options granted in the twelve-month period ended 31
March 2024. In the prior year 8,320 options were exercised by a professional
adviser to the Group.
Other reserves included:
Share premium
This comprises of the amount subscribed for share capital in excess of the
nominal value less any transaction costs incurred in raising equity.
Other reserves
These comprise of amounts expensed in relation to the share options, share
incentive scheme (see note 17) and merger relief from shares issued as
consideration to acquisitions and equity placings (net of costs).
Movements in the year ended 31 March 2024 include the following transactions
which have been recognised in the other reserve:
A reallocation to retained earnings from capital and share-based payments
reserves of £382,000 relating to the share incentive scheme and other of
lapsed share options was made in the year.
Accumulated loss reserve
Accumulated loss reserves for the Group are made up of cumulative profits and
losses net of dividends and other adjustments.
17. Share-based payments
2024 2023
£000 £000
Subsidiary incentive scheme - 36
Share options - (CSOP) 22 38
Share options - (ESOP) 4 (1)
Save As You Earn (SAYE) - 12
26 85
Share options - (CSOP)
The following options over ordinary shares remained outstanding at 31 March
2024:
Options at Options Options Options Options at Exercise Date of First date Final date
1 April issued lapsed exercised 31 March price grant of exercise of exercise
2023 during during during 2024
the year the year the year
Directors 1:
P McFadden 25,000 - 25,000 - - £0.95 10/02/2022 10/02/2025 10/02/2027
Employees:
Employees 87,220 - 6,944 - 80,276 £0.95 10/02/2022 10/02/2023 10/02/2027
Employees 11,112 - 4,863 - 6,249 £0.95 10/02/2022 30/09/2023 10/02/2027
Employees 432,064 - 191,000 - 241,064 £0.95 10/02/2022 10/02/2025 10/02/2027
Total 555,396 - 227,807 - 327,589
1. P McFadden resigned on 20 November 2023
The following options over ordinary shares remained outstanding at 31 March
2023:
Options at Options Options Options Options at Exercise Date of First date Final date
1 April issued lapsed exercised 31 March price grant of exercise of exercise
2022 during during during 2023
the year the year the year
Directors:
P McFadden 25,000 - - - 25,000 £0.95 10/02/2022 10/02/2025 10/02/2027
Employees:
Employees 89,998 - 2,778 - 87,220 £0.95 10/02/2022 10/02/2023 10/02/2027
Employees 11,112 - - - 11,112 £0.95 10/02/2022 30/09/2023 10/02/2027
Employees 514,064 - 82,000 - 432,064 £0.95 10/02/2022 10/02/2025 10/02/2027
Total 640,174 - 84,778 - 555,396
The following illustrates the number and weighted average exercise price
(WAEP) of, and movements in, share options during the year.
2024 2023
Number WAEP Number WAEP
£ £
Outstanding at the beginning of the year 555,396 0.95 640,174 0.95
Issued - - - -
Lapsed during the year 227,807 0.95 84,778 0.95
Exercised during the year ended 31 March - - - -
Outstanding at 31 March 327,589 0.95 555,396 0.95
Exercisable at 31 March 86,525 0.95 87,220 0.95
The share-based payment charge for options granted to employees and Directors
has been calculated using the Black‑Scholes model and using the following
parameters:
Share price at grant date £0.95
Exercise price £0.95
Expected option life (year) 5 years
Expected volatility (%) 43.4%
Expected dividends 0%
Risk-free interest rate (%) 1.54%
Option fair value £0.38
The calculation includes an estimated leaver provision of 55% (2023: 55%).
The weighted average remaining contractual life of options outstanding at the
end of the year was two years and ten months (Prior year: three years and
eleven months).
Share options - (ESOP)
The following options over ordinary shares remained outstanding at 31 March
2024:
Options at Options Options Options Options at Exercise Date of First date Final date
1 April issued lapsed exercised 31 March price grant of exercise of exercise
2023 during during during 2024
the year the year the year
Directors 1:
P McFadden 7,875 - 7,875 - - £4.00 07/05/2018 07/05/2019 30/09/2023
Employees:
Employees 5,250 - 5,250 - - £4.00 13/11/2017 13/11/2018 30/09/2023
Employees 454 - 454 - - £4.00 01/03/2018 01/03/2019 28/02/2023
Employees 5,313 - 5,313 - - £4.00 04/04/2018 04/04/2019 03/04/2023
Employees 524 - 291 - 233 £1.60 01/03/2019 01/03/2020 01/07/2024
Employees 3,000 - 3,000 - - £4.00 01/06/2019 01/06/2020 30/09/2023
Employees 7,500 - 2,500 - 5,000 £2.00 01/10/2019 01/10/2020 30/09/2023
Employees 27,936 - - - 27,936 £0.95 10/02/2022 10/02/2025 10/02/2027
Total 57,852 - 24,683 - 33,169
1. P McFadden resigned on 20 November 2023
The following options over ordinary shares remained outstanding at 31 March
2023:
Options at Options Options Options Options at Exercise Date of First date Final date
1 April issued lapsed exercised 31 March price grant of exercise of exercise
2022 during during during 2023
the year the year the year
Directors:
P McFadden 7,875 - - - 7,875 £4.00 07/05/2018 07/05/2019 30/09/2023
Employees:
Employees 39,500 - 39,500 - - £4.00 09/05/2017 09/05/2018 08/05/2022
Employees 9,390 - 4,140 - 5,250 £4.00 13/11/2017 13/11/2018 30/09/2023
Employees 1,023 - 569 - 454 £4.00 01/03/2018 01/03/2019 28/02/2023
Employees 5,625 - 312 - 5,313 £4.00 04/04/2018 04/04/2019 03/04/2023
Employees 911 - 387 - 524 £1.60 01/03/2019 01/03/2020 01/07/2024
Employees 3,000 - - - 3,000 £4.00 01/06/2019 01/06/2020 30/09/2023
Employees 10,000 - 2,500 - 7,500 £2.00 01/10/2019 01/10/2020 30/09/2023
Employees 27,936 - - - 27,936 £0.95 10/02/2022 10/02/2025 10/02/2027
Non-employees:
Other 8,320 - - 8,320 - £0.10 27/02/2020 27/02/2021 31/03/2023
Total 113,580 - 47,408 8,320 57,852
The following illustrates the number and weighted average exercise price
(WAEP) of, and movements in, share options during the year.
2024 2023
Number WAEP Number WAEP
£ £
Outstanding at the beginning of the year 57,852 3.7 113,580 2.8
Issued - - - -
Lapsed during the year 24,683 3.8 47,408 3.9
Exercised during the year ended 31 March - - 8,320 0.1
Outstanding at 31 March 33,169 1.1 57,852 2.2
Exercisable at 31 March 2,500 2.0 21,229 3.7
No options were exercised in the year. The weighted average share price of
options exercised in the prior year was £0.89.
The share-based payment charge for options granted to employees and Directors
has been calculated using the Black‑Scholes model and using the following
parameters:
Share price at grant date £0.95 to £4.30
Exercise price £0.10 to £4.00
Expected option life (year) 1 year to 6 years
Expected volatility (%) 10.6% to 80.0%
Expected dividends 0%
Risk-free interest rate (%) 0.60% to 1.54%
Option fair value £0.04 to £2.87
The calculation includes an estimated leaver provision of 31% (2023: 31%).
The weighted average remaining contractual life of options outstanding at the
end of the year was 11 months (2023: two years and two months).
Share options - (SAYE)
The following options over ordinary shares remained outstanding at 31 March
2024:
Options at Options Options Options Options at Exercise Date of First date Final date
1 April issued lapsed exercised 31 March price grant of exercise of exercise
2023 during during during 2024
the year the year the year
Employees:
Employees 117,614 - (84,350) - 33,264 £1.515 25/01/2021 01/03/2024 30/09/2024
Total 117,614 - (84,350) - 33,264
The following options over ordinary shares remained outstanding at 31 March
2023:
Options at Options Options Options Options at Exercise Date of First date Final date
1 April issued lapsed exercised 31 March price grant of exercise of exercise
2022 during during during 2023
the year the year the year
Employees:
Employees 132,465 - 14,581 - 117,614 £1.515 25/01/2021 01/03/2024 30/09/2024
Total 132,465 - 14,581 - 117,614
The following illustrates the number and weighted average exercise price
(WAEP) of, and movements in, share options during the year.
2024 2023
Number WAEP Number WAEP
£ £
Outstanding at the beginning of the year 117,614 1.515 132,465 1.515
Issued - - - -
Lapsed during the year 84,350 1.515 14,851 1.515
Exercised during the year ended 31 March - - - -
Outstanding at 31 March 33,264 1.515 117,614 1.515
Exercisable at 31 March 33,264 1.515 - -
The share-based payment charge for options granted to employees and Directors
has been calculated using the Black‑Scholes model and using the following
parameters:
Share price at grant date 1.420
Exercise price 1.515
Expected option life (year) 3 years 7 months
Expected volatility (%) 40.0%
Expected dividends 0%
Risk-free interest rate (%) 0.13%
Option fair value £0.394
The calculation includes an estimated leaver provision of 33% (2023: 33%).
At the 31 March 2024 there were no options held by Directors.
The market price of shares as at 31 March 2024 was £0.49 (31 March 2023:
£0.50). The range during the financial year was £0.35 to £0.625. At the
date of signing the financial statements the share price was £0.41.
The weighted average remaining contractual life of options outstanding at the
end of the year was 6 months (2023: one year and six months).
Subsidiary incentive scheme
On 29 September 2016, the Group established a share incentive scheme for
certain Directors and consultants to the Group, via the Group's subsidiary,
Shearwater Subco Limited (the 'subsidiary'), in order to align the interests
of the scheme participants directly with those of shareholders.
Pursuant to the subsidiary incentive scheme, the subsidiary issued 160,000 'B'
ordinary shares of £0.000001 in the capital of the subsidiary ('incentive
shares') on 18 January 2017 at a price of £0.032 per share. Subject to the
growth and vesting conditions both being satisfied, participants may elect to
sell their respective B shares to the parent company and the parent company
shall acquire those B shares in consideration for cash or by the issue of new
ordinary shares at the Group's discretion. The Group's intention was to settle
these through the issue of new ordinary shares in the Group.
The subsidiary incentive scheme vesting period expired on 29 September 2022.
Whilst the vesting condition of being employed were satisfied, the growth
conditions were not met and subsequently no exercises were made. In the year
ended 31 March 2024 the Company exercised a call option to reclaim the B
shares from the current holders.
Directors' incentive shares
The incentive shares issued to Directors are shown in the table below:
Issue Nominal Number of Number of Number of Share-based
Participation price value incentive incentive Shearwater payment
in increase of incentive shares shares Group plc charge
in shareholder shares 1 April 31 March shares
value 2023 2024 issued
D Williams 6.5% £0.032 £0.000001 65,000 - - -
P Higgins 7.5% £0.032 £0.000001 75,000 - - -
Valuation of incentive shares
The share-based payment charge for the incentive shares in the prior year was
calculated using a binomial valuation model at the grant date. The fair value
amounted to £937,623 based on an initial expiry date of 29 September 2019. An
option to amend the expiry date was exercised on 17 April 2020 to extend this
expiry date to 29 September 2022, which increased the fair value by £18,349.
Following this extension, £955,972 was to be recognised over the life of the
scheme which expired on 29 September 2022. In the current year £nil
(2023:£35,773) has been recognised as an expense in the statement
of comprehensive income in respect of incentive shares. All 160,000 incentive
scheme shares were subscribed for by participants at unrestricted market
value.
18. Financial instruments
The Group uses financial instruments, other than derivatives, comprising cash
at bank and various items such as trade and other receivables and trade and
other payables that arise directly from its operations. The main purpose of
these financial instruments is to raise finance for the Group's operations.
The Group's financial assets and liabilities at 31 March 2024, as defined
under IFRS 9, are as follows. The fair values of financial assets and
liabilities recorded at amortised cost are considered to approximate their
book value.
Amortised cost
(loans and receivables)
2024 2023
£'000 £'000
Financial assets
Cash and cash equivalents 4,974 3,964
Trade and other receivables 12,516 18,836
Total financial assets 17,490 22,800
Trade and other receivables
Trade receivables 8,948 12,701
Accrued income 3,568 6,135
12,516 18,836
Amortised cost Fair value through profit or loss (FVPL)
(payables)
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Financial liabilities
Trade and other payables 11,234 16,580 - -
Lease liabilities 378 320 - -
Forward contracts - - 213 407
Total financial liabilities 11,612 16,900 213 407
Trade and other payables
Trade payables 7,320 3,265
Accruals 3,914 13,302
Other creditors - 13
11,234 16,580
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group's risk
management objectives and policies and, whilst retaining ultimate
responsibility for them, it has delegated the authority for designing and
operating processes that ensure the effective implementation of the objectives
and policies to the Group's Finance function. The overall objective of the
Board is to set policies that seek to reduce risk as far as possible without
unduly affecting the Group's competitiveness and flexibility.
The Group is exposed to financial risks in respect of:
· capital risk;
· foreign currency;
· interest rates;
· credit risk; and
· liquidity risk.
A description of each risk, together with the policy for managing risk, is
given below.
Capital risk
The Group manages its capital to ensure that the Group and its subsidiaries
will be able to continue as going concerns while maximising the return to
stakeholders through the optimisation of equity and debt balances.
The capital structure of the Group consists of cash and cash equivalents,
borrowings and equity. Equity comprises issued capital, reserves and
accumulated losses as disclosed in the Consolidated Statement of Changes in
Equity.
The Board of Directors reviews the capital structure on a regular basis. As
part of this review, the Board considers the cost of capital and the risks
associated with each class of capital, against the purpose for which it is
intended.
The Group's three-year £4.0 million revolving credit facility, to fund
further growth and short‑term working capital requirements, was not utilised
during the current year and expired on 23 March 2024. The Group is currently
considering whether to renew the facility and is in ongoing discussions with
Barclays Bank plc.
Market risk
Market risk arises from the Group's use of interest‑bearing, tradable and
foreign currency financial instruments. It is the risk that the fair value or
future cash flows of a financial instrument will fluctuate because of changes
in foreign exchange rates (currency risk), interest rates (interest rate
risk), or other market factors (other price risk).
Foreign currency risk
The Group is exposed to foreign currency risk on sales and purchases which are
denominated in a currency other than sterling. Exposures to exchange rates are
predominantly denominated in US dollars and euros. The Group seeks to reduce
foreign exchange exposures arising from transactions in various currencies
through a policy of matching, as far as possible, receipts and payments across
the Group in each individual currency. The Group has introduced a policy to
use derivatives where there is a material surplus or deficit of non-sterling
receipts and payments.
The following forward contracts were entered into in order to mitigate the
risk of further weakening of sterling against US dollar.
Currency Amount (000) Maturity date Foreign exchange rate
US dollar 4,100 10 November 2023 1.138
US dollar 2,000 10 May 2024 1.140
US dollar 2,000 02 October 2024 1.216
The above derivatives are remeasured at fair value at each reporting date.
This gives rise to a gain or loss, the entire amount of which is recognised in
the statement of comprehensive income within administrative expenses.
As of 31 March the Group's net exposure to foreign exchange risk was as
follows:
USD EUR
Net foreign currency financial assets/(liabilities) 2024 2023 2024 2023
£000 £000 £000 £000
Trade receivables 369 228 160 148
Other receivables 85 1,390 0 4
Trade payables (7,747) (2,537) (27) (43)
Other payables (67) (9,605) 0 (192)
Cash and cash equivalents 2,572 1,929 176 551
Total net exposure before excluding forward contracts (4,788) (8,595) 309 468
Forward contracts 4,000 6,100 0 -
Total net exposure (788) (2,495) 309 468
The effect of a 10% strengthening of the US dollar against sterling at the
reporting date on the US dollar-denominated trade and other receivables, trade
and other payables, forward contracts and cash and cash equivalents carried at
that date would, all other variables held constant, have resulted in an
increase of the pre-tax loss in the year and a decrease in net assets of £0.2
million. A 10% weakening in the exchange rate would, on the same basis, have
decreased the pre-tax loss in the year and increased net assets by
£0.2 million.
The effect of a 10% strengthening of the euro against sterling at the
reporting date on the euro-denominated trade receivables, payables and cash
and cash equivalents carried at that date would, all other variables held
constant, have resulted in a decrease of the pre-tax loss in the year and an
increase in net assets of £0.05 million. A 10% weakening in the exchange rate
would, on the same basis, have increased the pre-tax loss in the year and
decreased net assets by £0.04 million.
Interest rate risk
The Group has minimal cash flow interest rate risk as it has no external
borrowings at variable interest rates.
Liquidity risk
The Group manages liquidity risk by maintaining adequate cash reserves and
credit facilities, by continuously monitoring forecast and actual cash flows,
and by matching the maturity profiles of financial assets and liabilities
wherever possible. In addition to this, the Group had a £4.0 million
revolving credit facility (RCF) to provide further contingency against
short-term working capital movements. The facility expired on 23 March 2024
and up to that point had not been utilised. The Group is currently considering
whether to renew the facility and is in ongoing discussions with Barclays Bank
plc. There has been no change to the Group's exposure to liquidity risks or
the manner in which these risks are managed and measured during the year.
Further details are provided in the strategic report.
The liquidity risk of each Group entity is managed centrally by the Group's
Finance function. Each entity has a predefined facility based on the budget
which is set and approved by the Board in advance, which provides detail of
each entity's cash requirements. Any material additional expenditure over
budget requires sign off by the Board. A quarterly reforecast which includes a
cash flow forecast is reviewed by management and approved by the Board.
The Group has just over £0.1 million of credit available on corporate credit
cards which are settled in full on a monthly basis.
The maturity profile of the financial assets and liabilities is summarised
below. The table has been drawn up based on the undiscounted cash flows of
financial liabilities based on the earliest date on which the Group can be
required to pay.
Up to Between Between Between Over 5 years
3 months 3 and 12 months 1 and 2 years 2 and 5 years £'000
£'000 £'000 £'000 £'000
Financial assets
As at 31 March 2024
Trade and other receivables 4,367 8,086 635 43 0
As at 31 March 2023
Trade and other receivables 6,515 5,041 7,280 - -
Financial liabilities
As at 31 March 2024
Trade and other payables 8,541 3,728 3,462 - -
Forward contracts 161 52
Lease liabilities 32 95 131 120 -
Total 8,734 3,875 3,593 120 -
Financial liabilities Up to Between Between Between Over 5 years
3 months 3 and 12 months 1 and 2 years 2 and 5 years £'000
£'000 £'000 £'000 £'000
As at 31 March 2023
Trade and other payables 4,953 6,342 5,284 - -
Forward contracts - 275 131 - -
Lease liabilities 30 75 59 157 -
Total 4,983 6,692 5,474 157 -
Credit risk
The Group's principal financial assets are trade receivables and bank
balances. The Group is consequently exposed to the risk that its customers
cannot meet their obligations as they fall due. The Group's policy is that the
lines of business assess the creditworthiness and financial strength of
customers at inception and on an ongoing basis. The Group also reviews the
credit rating of its banks and financial institutions.
Ongoing review of the financial condition of trade and other receivables is
performed. Further details are in note 11. The carrying amount of financial
assets recorded in the financial statements represents the Group's maximum
exposure to credit risk. Whilst the Group's exposure to credit risk fluctuates
depending on its revenue performance, to date this has not materially impacted
the Group's actual bad debt, which is partially due to the type of clients it
contracts with as well as effective due diligence when issuing credit to its
clients.
19. Related party transactions
The Directors of the Group and their immediate relatives have an interest of
19% (2023: 19%) of the voting shares of the Group. The shareholdings of
Directors and changes during the year are shown in the Directors' report.
No dividends were made to the Company in either years by subsidiary
undertakings.
There were no other related party transactions for the Group during the
period.
20. Bank loans
The Group's £4.0 million credit facility with Barclays Bank plc expired on 23
March 2024 and no facility was in place on 31 March 2024. The Group is
currently considering whether to renew the facility and is in ongoing
discussions with Barclays. A charge remains registered on Shearwater Group
plc and a number of its subsidiaries as security for the facility.
21. Notes to support cash flow
Cash and cash equivalents, which are available on demand, comprise:
2024 2023
£'000 £'000
Net increase/(decrease) in cash and cash equivalents 1,010 (1,611)
Cash and cash equivalents at the beginning of the year 3,964 5,575
Cash and cash equivalents at the end of the year 4,974 3,964
Cash and cash equivalents are held in the following currencies:
2024 2023
£'000 £'000
Sterling 2,774 1,914
US dollar 2,049 1,566
Euro 151 484
4,974 3,964
Reconciliation of liabilities from financing activities:
Non-cash changes
2023 Cash Loan Right of use 2024
£'000 outflows interest asset £'000
£'000 £'000 additions
£'000
Revolving credit facility interest payable - (47) 47 - -
Payment of principal on lease liabilities 321 (216) 20 253 378
Total 321 (263) 67 253 378
Non-cash changes
2022 Cash Interest Loan Right of use Early 2023
£'000 outflows savings interest asset repayment £'000
£'000 on early £'000 additions discount
repayment £'000 on loan
of loans liabilities
£'000 £'000
Revolving credit facility interest payable 20 (76) - 56 - - -
Other interest - paid - (7) - 6 - - -
Payment of principal on lease liabilities 206 (200) - 15 301 - 321
Total 226 (283) - 77 301 - 321
22. Events after the reporting period
There are no material events after the reporting period to disclose.
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